As Filed with the Securities and Exchange Commission on December 17, 2002February 13, 2003
Registration No. 333-101199333-102713
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No.AMENDMENT NO. 1to
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
USA INTERACTIVE
(Exact Name of Registrant as Specified in its Charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) | 4833 (Primary Standard Industrial Classification Code Number) | 59-2712887 (I.R.S. Employer Identification Number) |
152 West 57th Street
New York, New York 10019
(212) 314-7300
(Address, including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Offices)
Julius GenachowskiUSANi LLC
(Exact Name of Registrant as Specified in its Charter)
| Delaware (State or Other Jurisdiction of Incorporation or Organization) | 6790 (Primary Standard Industrial Classification Code Number) | 59-3490970 (I.R.S. Employer Identification Number) |
152 West 57th Street
New York, New York 10019
(212) 314-7300
(Address, including Zip Code, and Telephone Number, including
Area Code, of Registrant's Principal Executive Vice President,Offices)
David Ellen
Deputy General Counsel and Assistant Secretary
USA Interactive
152 West 57th Street
New York, New York 10019
(212) 314-7300
(Name, Address, including Zip Code, and Telephone Number,
including Area Code, of Agent For Service)
CopiesCopy to:
New York, New York 10019 (212) |
Approximate Date of Commencement of Proposed Sale to the Public: As soon as practicable after this registration statement becomes effective and upon completion of the merger described in the enclosed information statement/prospectus.effective.
If the securities registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box.o
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
The information$750,000,000
Exchange offer of our 7% Senior Notes due 2013
for all of our outstanding 7% Senior Notes due 2013
We are offering to exchange 7% senior notes due 2013 that we have registered under the Securities Act of 1933, as amended, for all our previously issued and outstanding 7% senior notes due 2013. We refer to the notes offered in this information statement/registered offering as the "exchange notes" and the outstanding 7% senior notes due 2013 as the "old 7% notes." We refer to the old 7% notes and the exchange notes together as the "notes."
The Exchange Offer
The Exchange Notes
You should carefully review the risk factors beginning on page 9 of this prospectus before making an investment decision.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES COMMISSION, HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is February 13, 2003.
You should rely only on the information contained in this prospectus. We have not completeauthorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may be changed. We mayhave changed since that date. Neither the delivery of this prospectus nor any sale made hereunder shall under any circumstances imply that the information herein is correct as of any date subsequent to the date on the cover of this prospectus.
| Page | ||
|---|---|---|
| Cautionary Statement Concerning Forward-Looking Information | ii | |
| Where You Can Find More Information | iii | |
| Summary | 1 | |
| Risk Factors | 9 | |
| Use of Proceeds | 12 | |
| Ratio of Earnings to Fixed Charges | 12 | |
| Capitalization | 13 | |
| Selected Historical Financial Information | 14 | |
| Unaudited Pro Forma Combined Condensed Financial Statements | 21 | |
| The Company | 28 | |
| Description of Notes | 32 | |
| The Exchange Offer | 44 | |
| Certain U.S. Federal Income Tax Considerations | 54 | |
| Plan of Distribution | 55 | |
| Legal Matters | 56 | |
| Experts | 56 | |
| Index to Consolidated Financial Statements | F-1 |
In this prospectus, "USA," "Company," "we," "us" and "our" refer to USA Interactive and its subsidiaries and "USA Interactive" refers only to "USA Interactive," in each case, unless the context requires otherwise. However, for purposes of "Description of Notes," whenever we refer to "USA" or to "us," or use the terms "we" or "our," we are referring only to USA Interactive and not sell these securities untilto any of our subsidiaries and, whenever we refer to the registration statement filed"notes," we are referring also to any additional notes issued under the indenture.
In this prospectus, "Securities Act" refers to the Securities Act of 1933, as amended, and "Exchange Act" refers to the Securities Exchange Act of 1934, as amended.
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NOTE ON COPYRIGHTS AND TRADEMARKS
Expedia and Expedia.com, among others, are copyrights and trademarks of Expedia, Inc. Ticketmaster, ticketmaster.com, Ticketfast, Citysearch.com and Match.com, among others, are copyrights and trademarks of Ticketmaster. Hotels.com, among others, is a copyright and trademark of Hotels.com. Styleclick and Styleclick.com, among others, are copyrights and trademarks of Styleclick, Inc. Entertainment® Book, among others, is a copyright and trademark of Entertainment Publications, Inc. uDate.com, www.udate.com and www.kiss.com, among others, are copyrights and trademarks of uDate.com, Inc.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
This prospectus and filings with the Securities and Exchange Commission, or the Commission, that are incorporated by reference into this prospectus contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. For those statements, USA claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements relating to our anticipated financial performance, business prospects, new developments, new merchandising strategies and similar matters, and/or statements preceded by, followed by or that include the words "believes," "could," "should," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks" or similar expressions. These forward-looking statements are necessarily estimates reflecting the best judgment of our senior management and involve a number of risks and uncertainties, including those described in the section "Risk Factors," that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that could have a material adverse effect on our offering of the exchange notes and/or on our businesses, financial condition or results of operations. In addition, investors should consider the other information contained in or incorporated by reference into our filings with the Commission, including our Annual Reports on Form 10-K, as amended, for the fiscal year ended 2001, especially in the Management's Discussion and Analysis section, our most recent Quarterly Reports on Form 10-Q, as amended, and our Current Reports on Form 8-K. Other unknown or unpredictable factors also could have material adverse effects on our future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this prospectus may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is effective. Thisstated, as of the date of this prospectus.
You should understand that the following important factors, in addition to those discussed in the documents incorporated in this prospectus by reference, could affect our future results and could cause those results to differ materially from those expressed in the forward-looking statements:
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We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus may not occur.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the Commission under the Securities Exchange Act of 1934, as amended, or the Exchange Act. You may read and copy this information at the Commission's public reference room at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. Our filings with the Commission are also available to you free of charge at the Commission's website at www.sec.gov.
We have "incorporated by reference" information into this prospectus, which means that we have disclosed important information to you by referring you to other documents that have been filed with the Commission. The information incorporated by reference is deemed to be part of this prospectus, except for any information superseded by information contained directly in this prospectus, and later information filed with the Commission will update and supersede this information. We incorporate by reference the documents listed below and any future filings made by USA Interactive with the Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination of this offering of the notes:
USA Interactive Filings
Expedia, Inc. Filings
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Information contained on our websites is not anpart of this prospectus. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. The information contained in this prospectus is accurate only as of the date of this prospectus and, with respect to material incorporated herein by reference, the dates of such referenced material.
As used in this prospectus, the term "prospectus" means this prospectus, including the documents incorporated by reference, as the same may be amended, supplemented or otherwise modified from time to time. Statements contained in this prospectus as to the contents of any contract or other document referred to in this prospectus do not purport to be complete and, where reference is made to the particular provisions of such contract or other document, such provisions are qualified in all respects by reference to all of the provisions of such contract or other document. We will provide without charge to each person to whom a copy of this prospectus has been delivered, on the written or oral request of such person, a copy of any or all of the documents which have been or may be incorporated in this prospectus by reference (other than exhibits to such documents unless such exhibits are specifically incorporated by reference in any such documents) and a copy of any or all other contracts or documents which are referred to in this prospectus.
You may request free copies of any or all of these filings by writing or telephoning us at the following address: USA Interactive, 152 West 57th Street, New York, New York 10019, Telephone: (212) 314-7300, Attention: Corporate Secretary.
TO INSURE TIMELY DELIVERY, YOU SHOULD REQUEST THE DOCUMENTS AND INFORMATION NO LATER THAN MARCH 11, 2003.
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This summary highlights only selected information from this prospectus and may not contain all the information that may be important to you. To understand the terms of the exchange notes and the guarantee being offered by this prospectus, you should read the entire prospectus and the documents identified under the caption "Where You Can Find More Information."
As used in this prospectus, references to "pro forma" statement of operations refer to our results of operations, for the relevant period, after giving effect to (1) USA's acquisition of a controlling interest in Expedia, Inc., which occurred on February 4, 2002, which we refer to as the Expedia transaction, (2) the exchange of USANi shares for USA shares by Liberty Media Corporation and the cancellation of USANi shares held by Vivendi Universal, S.A., related to USA's contribution of its Entertainment Group to Vivendi Universal Entertainment LLLP, or VUE, which occurred on May 7, 2002, which we refer to as the VUE transaction, (3) Liberty's exchange of all of its Home Shopping Network, Inc. shares for USA shares, which occurred on June 27, 2002, which we refer to as the Home Shopping Network, Inc. exchange, and (4) USA's acquisition of all outstanding shares in Ticketmaster common stock not already owned by USA, which occurred on January 17, 2003, which we refer to as the Ticketmaster merger, as if such transactions had occurred as of the beginning of the periods presented. In addition, our pro forma results of operations for the year ended December 31, 2001, give effect to the combination of Ticketmaster Online-Citysearch, Inc. and Ticketmaster Group, Inc., which occurred on January 31, 2001, which we refer to as the Ticketmaster combination, as if the Ticketmaster combination had occurred as of January 1, 2001. All amounts exclude the results of USA Entertainment Group, which was contributed to VUE on May 7, 2002. See also "The Company—Corporate History."
USA Interactive (Nasdaq: USAI) engages worldwide in the business of interactivity via the Internet, the television and the telephone. USA's multiple brands are organized across three areas: Electronic Retailing, Information & Services and Travel Services. Electronic Retailing is comprised of HSN, America's Store, HSN.com, and Home Shopping Europe and Euvía in Germany. Information & Services includes Ticketmaster, Match.com, uDate (transaction pending), Citysearch, Evite, Entertainment Publications (transaction pending) and Precision Response Corporation. Travel Services consists of Expedia (Nasdaq: EXPE), Hotels.com (Nasdaq: ROOM), Interval International, TV Travel Group and USA's forthcoming U.S. cable travel network.
USANi LLC is a wholly-owned subsidiary of USA that holds HSN and ECS/Styleclick. USANi is a co-issuer with USA Interactive of $500 million principal amount of 63/4% Senior Notes due 2005 and the guarantor of our old 7% notes and the exchange notes offered in this exchange offer.
Our businesses generally act as interactive intermediaries between suppliers and consumers, selling multiple brands across various distribution channels. USA's businesses enable billions of dollars worth of transactions via television, the Internet and telephone.
USA is currently focused on interactive commerce, providing transactional services via television and the Internet. USA's goals include improving organic growth, driving online migration, expanding our margins and exploring strategic acquisition opportunities.
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growing selection of goods and services. We are also expanding our direct channels of distribution with various suppliers and cable operators and our network of affiliates.
We believe our following strengths should help us to achieve our goals:
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The following diagram is not permitted.a simplified illustration of USA's organizational structure. Subsidiaries are wholly-owned unless otherwise noted. Percentages represent equity ownership/voting power. Percentages of equity ownership for USA Interactive are based on shares outstanding as of September 30, 2002. Percentages of equity ownership for USA Interactive's subsidiaries are based on fully diluted shares using the treasury method as of September 30, 2002.
In connection with the Ticketmaster merger that was completed on January 17, 2003, USA Interactive issued an aggregate of approximately 45.5 million shares of USA common stock to former Ticketmaster stockholders. In general, such issuance of USA common stock has increased the public's equity ownership/voting power of USA Interactive and, subject to Liberty's exercise of its preemptive right to purchase a number of shares of USA common stock to maintain its percentage equity interest in USA Interactive, decreased the equity ownership/voting power of the other stockholders of USA Interactive. See "—Recent Developments—Ticketmaster transaction."
Subject
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As you may be aware, Ticketmaster transaction. On January 17, 2003, USA completed its acquisition of all of the board of directorsoutstanding shares of Ticketmaster based uponcommon stock that USA did not already own. The acquisition was accomplished by the unanimous recommendationmerger of a special committeewholly-owned subsidiary of its independent directors, has approved a merger agreement that would result inUSA with Ticketmaster, becomingwith Ticketmaster surviving as a wholly owned subsidiary of USA Interactive.USA.
In the merger, each outstanding share of Ticketmaster Class A common stock and Ticketmaster Class B common stock (other than shares held by USA, Ticketmaster or any ofand their respective subsidiaries, and shares of Ticketmaster Class A common stock held by Ticketmaster stockholders who validly perfect appraisal rights under Delaware law) would besubsidiaries) was converted into the right to receive 0.935 of a share of USA common stock. USA expects to issueissued an aggregate of approximately 45.145.5 million shares of USA common stock atin the closingmerger. As a result of the merger. In connection with the merger, the special committee received an opinionshares of Credit Suisse First Boston Corporation that, as of the date of its opinion, the exchange ratio is fair from a financial point of view to the holders of Ticketmaster Class A common stock and Ticketmaster Class B common stock, (other than USA and its affiliates).
Both USA and Ticketmaster believewhich prior to the merger will enhance stockholder value by providing Ticketmaster stockholders, through a tax-free transaction, with a significant premium for their Ticketmaster shares as well as the opportunity to participate in the growth and future value of USA.
Because USA, which currently owns approximately 66.3% of the outstanding shares of Ticketmaster Class A common stock and Class B common stock and 93.0% of the combined voting power of Ticketmaster's outstanding shares, signed a written stockholder's consent adopting and approving the merger agreement and the proposed merger, no action is required on your part.We are not asking you for a proxy and you are requested not to send us a proxy.
Please see "Risk Factors" beginning on page 14 for a discussion of matters relating to an investment in USA common stock.
USA common stock is listedtraded on the Nasdaq National Market under the symbol "USAI" and Ticketmaster Class B common stock is listed on the Nasdaq National Market under the symbol "TMCS."TMCS," Based on the closing price of USA common stock on the Nasdaq National Market on December [ • ], 2002, the date immediately prior to the date of this information statement/prospectus, 0.935 of a share of USA common stock had a value of $[ • ]. You should be aware that, because the number of shares of USA common stock you will receive per Ticketmaster share in the merger is fixed, the value of the consideration you will receive in the merger will fluctuate as the market price of USA common stock changes.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the USA common stock to be issued in the merger or determined if the information contained in this document is accurate or adequate. Any representation to the contrary is a criminal offense.
The date of this information statement/prospectus is December [ • ], 2002 and it is being distributed to Ticketmaster stockholders on or about December [ • ], 2002.
Note: For a hyperlinked version of this table of contents, please scroll to the end of this document.
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This document, which is sometimes referred to as the information statement/prospectus, constitutes an information statement of Ticketmaster, and a prospectus of USA for the shares of USA common stock that USA will issue to Ticketmaster stockholders in the merger. This document also constitutes notice of the contemplated merger to the holders of outstanding and unexercised warrants to acquire shares of Ticketmaster common stock pursuant to the terms of the underlying warrant documents. As permitted under the rules of the U.S. Securities and Exchange Commission, or the SEC, this information statement/prospectus incorporates important business and financial information about USA, Ticketmaster and their affiliates that is contained in documents filed with the SEC and that is not included in or delivered with this information statement/prospectus. You may obtain copies of these documents, without charge,were delisted from the website maintained by the SEC atwww.sec.gov, as well as other sources. See "Where You Can Find More Information" beginning on page 93. You may also obtain copies of these documents, without charge, from USA and from Ticketmaster by writing or calling:
You also may obtain documents incorporated by reference into this information statement/prospectus, without charge, by requesting them in writing or by telephone from MacKenzie Partners, Inc., the information agent for the merger, at the following address and telephone number:
105 Madison AvenueNew York, New York 10016(212) 929-5500 (collect)(800) 322-2885 (toll-free)trading.
In order to obtain delivery of these documents prior to completion of the merger, you should request such documents no later than January [ • ], 2003.
Except as otherwise specifically noted, references to "us," "we" or "our" refer to both USA and Ticketmaster. Except as otherwise specifically noted, references to "shares of Ticketmaster common stock" or "Ticketmaster shares" refer to shares of Ticketmaster Class A common stock and/or shares of Ticketmaster Class B common stock, and references to "outstanding shares of Ticketmaster common stock" or "outstanding Ticketmaster shares" do not include shares held by wholly owned subsidiaries of Ticketmaster.
In "Questions and Answers About the Merger" below and in the "Summary" beginning on page 1, we highlight selected information from this information statement/prospectus but we have not included all of the information that may be important to you. To better understand the merger agreement and the merger, and for a complete description of their legal terms, you should carefully read this entire information statement/prospectus, including the appendices, as well as the documents that we have incorporated by reference into this document. See "Where You Can Find More Information" beginning on page 93.
NOTE ON COPYRIGHTS AND TRADEMARKS
Expedia and Expedia.com, among others, are copyrights and trademarks of Expedia, Inc. Hotels.com, among others, is a copyright and trademark of Hotels.com. Styleclick and Styleclick.com, among others, are copyrights and trademarks of Styleclick, Inc. Entertainment[nc_cad,176] Book, among others, is a copyright and trademark of Entertainment Publications Inc.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
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The following summary highlights selected information from this information statement/prospectus and may not contain all of the information that is important to you. To better understand the merger, you should carefully read this entire document and the other documents to which this document refers you. See "Where You Can Find More Information" beginning on page 93.
USA Interactivetransaction.152 West 57th StreetNew York, New York 10019(212) 314-7300
USA Interactive (Nasdaq: USAI), via the Internet, the television and the telephone, engages worldwide in the business of interactivity across electronic retailing, travel services, ticketing services, personals services, local information services and teleservices. USA is comprised of HSN; Expedia, Inc. (Nasdaq: EXPE); Hotels.com (Nasdaq: ROOM); Interval International; TV Travel Group; Ticketmaster; Precision Response Corporation; Electronic Commerce Solutions; Styleclick, Inc. (OTCBB: IBUYA); and will include Entertainment Publications, Inc. upon the close of the USA/Entertainment transaction.
On November 21, 2002, USA announced that it had entered into a definitive agreement to purchase Entertainment Publications, Inc., originator of the Entertainment® Book, for approximately $370 million in a combination of cash and upUSA common stock (up to 50% of USA common stock,the consideration), subject to a maximum discount to USA of $10 million in the event that USA elects to pay all cash. Based in Michigan, Entertainment Publications sells annual memberships for Entertainment® Books which contain discount offers on dining, hotels, shopping and leisure activities. Entertainment Publications serves many major markets and does business with tens of thousands of local merchants and national retailers. The transaction is expected to be completed no later than the first quarter of 2003, subject to customary regulatorystandard closing conditions and approvals.
TicketmasterVUE tax matter.3701 Wilshire BoulevardLos Angeles, California 90010(213) 639-6100
Ticketmaster (Nasdaq: TMCS) In connection with the formation of VUE, we and various of our affiliates entered into an amended and restated limited liability limited partnership agreement, or the Partnership Agreement, dated as of May 7, 2002, with various affiliates of Vivendi Universal, S.A., the world's leading ticketing and access company, sold 86.7 million tickets in 2001 valued at more than $3.6 billion, through approximately 3,300 retail Ticket Center outlets; 20 worldwide telephone call centers; and ticketmaster.com. Ticketmaster serves more than 7,000 clients worldwide and acts as the exclusive ticketing service for hundreds of leading arenas, stadiums, performing arts venues, and theaters and is the official ticketing provider and supporter of the Athens 2004 Olympic Games. Ticketmaster also operates Match.com, a leading subscription-based online dating site, Citysearch, a leading online local network enabling people to get the most out of their city, and ReserveAmerica, the number one access point for outdoor recreation. Headquartered in Los Angeles, California, Ticketmaster is majority owned by USA.
T Merger Corp.c/o USA Interactive152 West 57th StreetNew York, New York 10019(212) 314-7300
T Merger Corp., a Delaware corporation, is a wholly owned subsidiary of USA created solely for the purpose of effecting the merger. In the merger, T Merger Corp. will be merged with and into Ticketmaster, with Ticketmaster surviving the mergerwell as a wholly owned subsidiary of USA.
BackgroundMr. Diller. Pursuant to the Merger; FormationPartnership Agreement, VUE "shall, as soon as practicable after the close of the Special Committee
After USA announced on June 3, 2002 its intentioneach taxable year, make cash distributions" to pursue the acquisition of the remaining shares of Ticketmaster common stock that it did not already own, the Ticketmaster board of directors formed a special committee of independent directors to consider USA's announcement and a possible transaction with USA. The special committee was also authorized to negotiate a different transaction with USA
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and to make recommendations to the Ticketmaster board of directors regarding a possible transaction with USA,each partner, including a merger. The special committee independently selected and retained legal and financial advisors to assist the special committee in connection with a possible transaction with USA. In October 2002, after extensive negotiation with USA, the special committee unanimously determined that the merger was fair to, and in the best interests of, the holders of Ticketmaster Class A common stock and Ticketmaster Class B common stock (other than USA and its affiliates) and unanimously recommended that Ticketmaster's boardaffiliates, with respect to taxable income of directors approve the merger agreement and the merger described in this information statement/prospectus.
We discuss the special committee in greater detail under "The Merger—BackgroundVUE allocated to the Merger" beginning on page 18.
Interests of Certain Persons in the Merger
You should be aware that a number of directors and officers of Ticketmaster, some of whom are directors and/or executive officers of USA, have interests in the merger that are different from, or in addition to, your interests as a Ticketmaster stockholder. We describe these interests beginning on page 53 of this document.
The board of directors of Ticketmaster, based on a recommendation of its special committee, believes thattaxable year. Also pursuant to the merger is fair to, and in the best interestsPartnership Agreement, taxable income of the holders of Ticketmaster Class A common stock and Class B common stock (other thanpartnership is to be allocated to USA and its affiliates)affiliates in a specified order, including amounts corresponding to the cash and pay-in-kind distributions on USA's preferred interests in VUE (which represent a 5% annual return on those interests) (the "Preferred Return"). For a descriptionThe actual amount of cash distributions with respect to taxable income on the Preferred Return would depend on several factors, including the amount of VUE's earnings and federal, state and local income tax rates. Assuming sufficient VUE earnings in each of the factors on whichnext 20 years and a discount rate of 7%, such cash distributions could have a present value to USA of up to approximately $620 million.
Vivendi has advised USA that it does not believe that VUE is obligated under the special committee and the boardPartnership Agreement to make these payments in respect of directors of Ticketmaster based their determinations, see "The Special Committee's and Ticketmaster's Reasons for the Merger" beginning on page 25. For a description of the factors on which the executive committee of USA's board of directors based its decisiontaxable income allocated to approve the merger, see "USA's Reasons for the Merger" beginning on page 24.
Opinion of the Financial Advisor to the Special Committee (Page 27)
In deciding to approve the merger, Ticketmaster's board of directors considered, among other things, advice from the financial advisor to the special committee of the Ticketmaster board, Credit Suisse First Boston. The special committee received an opinion from Credit Suisse First Boston that, as of the date of its opinion, the exchange ratio of 0.935 was fair, from a financial point of view, to the holders of Ticketmaster common stock (other than USA and its affiliates).affiliates with respect to the Preferred Return.
USA has advised Vivendi that the contract language is entirely clear on this point and, in fact, was the subject of negotiation between the parties. Moreover, the document language and all revisions were at all times drafted and controlled by Vivendi. USA has asked VUE and Vivendi to acknowledge the obligations expressly set forth in the agreement. Vivendi has stated that VUE does not owe USA a tax distribution on USA's preferred interest in VUE and, to date, the disagreement remains unresolved.
uDate.com transaction. On December 19, 2002, USA announced that it entered into an agreement to acquire uDate.com, Inc., a global online personals group based in Derby, England, which provides dating and matchmaking services through www.udate.com and www.kiss.com, for approximately $150 million in USA common stock, subject to various adjustments. The full texttransaction is expected to close in the first half of Credit Suisse First Boston's written opinion2003, subject to standard closing conditions and regulatory approvals.
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Recent Financial Results and 2003 Budget. On February 6, 2003, USA announced its financial results for the three months ended and the year ended December 31, 2002, and released its final budget for 2003, which results and budget have been filed with the Commission in a Current Report on Form 8-K which is attached asincorporated by reference in and made part of this prospectus. See "Appendix BWhere You Can Find More Information. to this document. We encourage you to read it carefully in its entirety."
TreatmentSummary of Ticketmaster Stock Options and Restricted Stock Awards (Page 59)Terms of the Exchange Notes
If we successfully completeThe form and terms of the merger, USAexchange notes and the old 7% notes are substantially identical in all material respects, except that the transfer restrictions and registration rights applicable to the old 7% notes do not apply to the exchange notes. The exchange notes will assume Ticketmaster's employee stock options. As a result, options to acquire shares of Ticketmaster common stockevidence the same debt as the old 7% notes and will be converted into optionsgoverned by the same indenture. The old 7% notes and exchange notes are together referred to acquire sharesas the "notes," and USANi's guarantee of USA common stock, based onthe old 7% notes and its guarantee of the exchange ratio, with substantially similar termsnotes are together referred to as "USANi's guarantee," in all other respects. Existing stock optionsthis prospectus.
| Issuer | USA Interactive. | |
| Guarantee | The notes are unconditionally guaranteed by USANi LLC, a wholly-owned subsidiary of USA. USANi's guarantee will terminate whenever the 63/4% Notes due 2005 issued by USA Interactive and USANi cease to be outstanding or USANi's obligations under such notes and the related indenture are discharged or defeased pursuant to the terms thereof. Accordingly, USANi's guarantee is currently scheduled to terminate on November 15, 2005, but may be terminated earlier. | |
| Notes Offered | 7% Senior Notes due 2013. | |
| Maturity | January 15, 2013. | |
| Interest Payment Dates | January 15 and July 15 of each year, beginning July 15, 2003. | |
| Optional Redemption | We may redeem some or all of the notes at any time, at our option, at a redemption price equal to the greater of (a) 100% of the aggregate principal amount of the notes being redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest in respect of the notes to be redeemed that would be due after the redemption date had the redemption not occurred, obtained by discounting such remaining scheduled payments to the redemption date at the treasury rate plus 50 basis points, on a semi-annual basis, in each case, plus any accrued and unpaid interest to the date of redemption. See "Description of Notes—Optional Redemption." | |
| Ranking | The notes are our senior unsecured obligations and rank equally with all of our existing and future senior unsecured obligations. So long as the guarantee is in effect, USANi's guarantee is a senior unsecured obligation of USANi and ranks equally with its existing and future senior unsecured obligations. | |
| The notes are effectively subordinated to all of our existing and future secured indebtedness to the extent of the assets securing such indebtedness and are structurally subordinated to all liabilities of our subsidiaries (other than USANi so long as USANi's guarantee is in effect), including trade payables. So long as the guarantee is in effect, USANi's guarantee is effectively subordinated to all of USANi's existing and future secured indebtedness to the extent of the assets securing such indebtedness and is structurally subordinated to all liabilities of USANi's subsidiaries, including trade payables. As of September 30, 2002, after giving pro forma effect to the issuance of the old 7% notes: |
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| • we and our subsidiaries had approximately $24.2 million of secured indebtedness, including approximately $4.0 million of capital lease obligations; | ||
| • our subsidiaries (other than USANi) had approximately $1,874.5 million of unsecured liabilities, of which approximately $309.8 million was owed to USA Interactive or to USANi; and | ||
| • USA Interactive and USANi had approximately $5,237.4 million of unsecured unsubordinated liabilities, consisting in part of $750.0 million aggregate principal amount of notes, approximately $498.7 million of 63/4% Senior Notes due 2005, approximately $258.2 million of current and long-term liabilities and approximately $2,175.6 million of deferred taxes related to the VUE transaction. | ||
| Certain Covenants | The indenture governing the notes contains covenants limiting our ability to: | |
| • create liens; and | ||
| • consolidate, merge or transfer all or substantially all of our assets. | ||
| These covenants are subject to important exceptions and qualifications described under "Description of Notes—Covenants." |
| Background | On December 16, 2002, we issued $750,000,000 aggregate principal amount of our old 7% notes to Lehman Brothers Inc. and J.P. Morgan Securities Inc., as initial purchasers, in a private offering. In connection with the private offering, USA Interactive, USANi and the initial purchasers entered into the exchange and registration rights agreement in which we agreed to deliver to you this prospectus and agreed to: | |
| • file a registration statement with the Commission no later than 120 days after December 16, 2002; | ||
| • cause the registration statement to become effective no later than 210 days after December 16, 2002; and | ||
| • complete the exchange offer no later than 240 days after December 16, 2002. | ||
| The Exchange Offer | We are offering the exchange notes in exchange for an equal principal amount of outstanding old 7% notes. As of the date of this prospectus, there are $750,000,000 aggregate principal amount of the old 7% notes outstanding. You may tender the old 7% notes only in integral multiples of $1,000 principal amount. | |
| Resale of Exchange Notes | We believe that you may resell the exchange notes issued in the exchange offer without compliance with the registration and prospectus delivery provisions of the Securities Act if: | |
| • you are acquiring the exchange notes in the ordinary course of your business; |
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| • you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in the distribution of the exchange notes; and | ||
| • you are not an "affiliate" of ours, as such term is defined under Rule 405 of the Securities Act. | ||
| If you fail to satisfy any of these conditions, you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a resale of the exchange notes. | ||
| Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer in exchange for the old 7% notes that it acquired as a result of market-making or other trading activities must deliver a prospectus in connection with any resale of the exchange notes and provide us with a signed acknowledgement of this obligation. See "Plan of Distribution." | ||
| Consequences of Failure to Exchange Old Notes | If you do not exchange the old 7% notes held by you during the exchange offer, you will no longer be entitled to registration rights. You will not be able to offer or sell old 7% notes, unless they are registered, sold pursuant to an exemption from registration or sold in a transaction not subject to the Securities Act or state securities laws. Other than in connection with the exchange offer, we are not obligated to, nor do we currently anticipate that we will, register the old 7% notes under the Securities Act. | |
| Expiration Date | 5:00 p.m., New York City time, on March 18, 2003, unless we extend the exchange offer. We do not currently intend to extend the exchange offer. | |
| Conditions to the Exchange Offer | The exchange offer is subject to limited, customary conditions, which we may waive. See"The Exchange Offer—Conditions." | |
| Procedures for Tendering Old Notes | If you wish to accept the exchange offer, you must timely deliver to the exchange agent: | |
| • either a properly completed and duly executed letter or transmittal or, for the old 7% notes tendered electronically, an agent's message from DTC stating that the tendering participant agrees to be bound by the letter of transmittal and the terms of the exchange offer; | ||
| • the old 7% notes held by you, either by tendering them in physical form or by timely confirmation of book-entry transfer through DTC; and | ||
| • all other documents required by the letter of transmittal. | ||
| Guaranteed Delivery Procedures | If you wish to tender the old 7% notes but you cannot get your required documents to the exchange agent by the expiration date, you may still tender such notes according to the guaranteed delivery procedures described under"The Exchange Offer—Guaranteed Delivery Procedures." |
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| Acceptance of Old 7% Notes and Delivery of Exchange Notes | All the old 7% notes properly tendered to the exchange agent and not withdrawn by 5:00 p.m., New York City time, on the expiration date will be accepted for exchange. We will deliver the exchange notes promptly after the expiration date. | |
| Withdrawal Rights | You may withdraw your tender of the old 7% notes held by you at any time prior to the expiration date by sending a written or facsimile transmission notice of withdrawal to the exchange agent at the address listed under"The Exchange Offer—Exchange Agent" by the expiration date. | |
| Exchange Agent | JPMorgan Chase Bank is serving as exchange agent for the exchange offer. | |
| Fees and Expenses | We will bear all expenses related to consummating the exchange offer and complying with the exchange and registration rights agreement. | |
| Tax Considerations | The exchange of any of the old 7% notes for exchange notes should not be a taxable exchange for federal income tax purposes. You should consult your own tax adviser about the tax consequences of this exchange. | |
| Use of Proceeds | We will not receive any cash proceeds from the issuance of the exchange notes. |
See "Risk Factors" beginning on page 9 for a discussion of factors you should consider before deciding whether to acquire shares of USA common stock will not be affected byexchange the merger.
If we successfully complete the merger, USA also will assume Ticketmaster's obligations with respect to Ticketmaster's restricted stock awards. As a result, Ticketmaster restricted stock awards will be converted into USA restricted stock awards, based onold 7% notes for the exchange ratio, with substantially similar terms and restrictions.notes in the exchange offer.
Treatment of Ticketmaster Warrants (Page 60)Corporate Information
If we successfully complete the merger, outstandingUSA Interactive is a Delaware corporation. USANi LLC is a Delaware limited liability company. USA's and unexercised warrants to acquire shares of Ticketmaster Class B common stock will become exercisable solely for shares of USA common stock based on the exchange ratio, with substantially similar terms.USANi's principal executive offices are located at 152 West 57th Street, New York, New York, 10019, and our telephone number at that address is (212) 314-7300.
Ownership of USA Following the Merger
We anticipate that USA will issue approximately 45.1 million shares of USA
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common stock at the closing of the merger, or 9.1% of the shares of USA common stock that will be outstanding at the conclusion of the merger and 9.0% on a fully-diluted treasury method basis, in each case based on the number of outstanding shares of Ticketmaster and USA on September 30, 2002. Those shares represent approximately 4.1% of the combined voting power of USA immediately following completion of the merger, and 4.0% of the combined voting power on a fully-diluted treasury method basis. Barry Diller, USA's chairman and chief executive officer, currently beneficially owns or has the right to vote 100% of the outstanding shares of USA Class B common stock, which is sufficient to control the outcome of any matter submitted to a vote of USA stockholders with respect to which holders of USA capital stock vote together as a single class.
The Merger Agreement (Page 58)
The merger agreement is the legal document that governs the merger and the other transactions contemplated by the merger agreement. We have attached the merger agreement asAppendix Ato this document. We urge you to read it carefully in its entirety.
Appraisal Rights in Connection with the Merger
Under Delaware law, you have the right to seek appraisal of the value of your shares of Ticketmaster Class A common stock (but not your shares of Ticketmaster Class B common stock), provided that you properly perfect your appraisal rights. For a detailed discussion of these appraisal rights, see "The Merger—Appraisal Rights" beginning on page 40.
Regulatory Approvals (Page 42)
We are not aware of any material regulatory approvals required in connection with the merger. We intend to make all required filings under the Securities Act of 1933 and the Securities Exchange Act of 1934 relating to the merger.
Accounting Treatment (Page 43)
The merger will be accounted for under the purchase method of accounting in accordance with United States generally accepted accounting principles.
Comparison of Stockholder Rights
If we successfully complete the merger, you will become a stockholder of USA. The rights of USA stockholders are governed by Delaware law and by USA's charter and by-laws. While Ticketmaster is also governed by Delaware law, your rights under USA's charter and by-laws differ in some respects from your rights under Ticketmaster's charter and by-laws. For a summary of these material differences, see the discussion beginning on page 78 of this information statement/prospectus.
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Selected Historical Financial InformationRISK FACTORS
You should carefully consider the following factors together with the risks described in the documents that are included or incorporated by reference in this prospectus before deciding whether to exchange the old 7% notes held by you for our exchange notes in the exchange offer.
We depend on our key personnel. We are dependent upon the continued contributions of our senior corporate management, particularly Mr. Diller, the chairman and chief executive officer of USA, and Ticketmastercertain key employees for our future success. Mr. Diller does not have an employment agreement with us, although he has been granted options to purchase a substantial number of shares of USA common stock.
If Mr. Diller no longer serves in his positions at USA, our business could be substantially adversely affected. We cannot assure you that we will be able to retain the services of Mr. Diller or any other members of our senior management or key employees.
USA is controlled by Mr. Diller and in his absence will be controlled by Liberty Media Corporation. Subject to the terms of the Amended and Restated Stockholders Agreement, dated as of December 16, 2001, among Universal Studios, Inc., Liberty Media Corporation, Mr. Diller and Vivendi Universal, S.A., Mr. Diller effectively controls the outcome of all matters submitted to a vote or for the consent of our stockholders (other than with respect to the election by the holders of USA common stock of 25% of the members of our board of directors (rounded up to the nearest whole number) and matters as to which a separate class vote of the holders of USA common stock or USA preferred stock is required under Delaware law).
In addition, under the Amended and Restated Goverance Agreement, dated as of December 16, 2001, among USA, Vivendi, Universal Studios, Liberty and Mr. Diller, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the event that USA's ratio of total debt to EBITDA, as defined in the Governance Agreement, equals or exceeds four to one over a continuous 12-month period. We cannot assure you that Mr. Diller and Liberty will consent to such matters at a time when USA is highly leveraged, in which case we would not be able to engage in such transaction or take such actions.
Upon Mr. Diller's permanent departure from USA, Liberty generally would be able to control USA through its ownership of shares of USA Class B common stock.
Our success depends on maintaining the integrity of our systems and infrastructure. A fundamental requirement for online commerce and communications is the secure transmission of confidential information, such as credit card numbers or other personal information, over public networks. Our current security measures may not be adequate and, if any compromise of our security were to occur, it could have a detrimental effect on our reputation and adversely affect our ability to attract customers. As our operations continue to grow in both size and scope, we will need to improve and upgrade our systems and infrastructure. This may require us to commit substantial financial, operational and technical resources before the volume of business increases, with no assurance that the volume of business will increase.
We rely on our own affiliates' and third-party computer systems and service providers to facilitate and process a portion of our transactions. Any interruptions, outages or delays in these services, or a deterioration in their performance, could impair our ability to process transactions for our customers and the quality of service we can offer to them. It is unlikely that we could make up for the level of orders lost in these circumstances by increased phone orders.
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Declines or disruptions in the industries in which we operate, such as those caused by terrorism or general economic downturns, could harm our businesses. Our businesses in general are sensitive to trends or events that are outside of our control. For example, adverse trends or events, such as general economic downturns, decreases in consumer spending and work stoppages, may reduce the popularity and frequency of the events to which we sell tickets and reduce travel. The occurrence of any of these adverse trends or events could significantly impact our businesses, results of operations or financial condition.
Travel is highly sensitive to traveler safety concerns, and thus declines after acts of terrorism impact the perceived safety of travelers. In the aftermath of the terrorist attacks of September 11, 2001, the travel industry experienced a protracted decrease in demand for air travel due to fears regarding additional acts of terrorism and increased costs and reduced operations by airlines due, in part, to new security directives adopted by the Federal Aviation Administration. We cannot predict the future scope and effects of these changes and they could significantly impact our long-term results of operations or financial condition.
We may experience operational and financial risks in connection with our acquisitions. In addition, some of the businesses we acquire may incur significant losses from operations or experience impairment of carrying value. Our future growth may be a function, in part, of acquisitions. To the extent that we grow through acquisitions, we will face the operational and financial risks commonly encountered with that type of a strategy. We would also face operational risks, such as failing to assimilate the operations and personnel of the acquired businesses, disrupting our ongoing business, dissipating our limited management resources and impairing relationships with employees and customers of the acquired business as a result of changes in ownership and management. Some of our acquisitions may not be successful and their performances may result in the impairment of their carrying value.
Changing legislation and regulations, and legal uncertainties, may impair our further growth and harm our businesses. A number of proposed laws and regulations regarding the Internet, including with respect to consumer privacy, have been proposed or considered that could impact USA's businesses. USA cannot predict whether any of these types of laws or regulations will be enacted or amended and what effect, if any, it would have on its businesses, financial condition or results of operations. In addition, the application of various sales and use tax provisions under state and local law to USA's historical and new products and services sold via the Internet, television and telephone is subject to interpretation by the applicable taxing authorities. USA believes it is compliant with these tax provisions, but there can be no assurances that taxing authorities will not take a contrary position and that such positions will not result in a material adverse effect to USA's business, financial condition and results of operations.
Risks Relating to the Exchange Offer, Notes and USANi's Guarantee
Failure to participate in the exchange offer will limit opportunities to sell your notes in the future. We issued the old 7% notes in a private offering exempt from the registration requirements of the Securities Act. Accordingly, you may not offer, sell or otherwise transfer the old 7% notes held by you except in compliance with the registration requirements of the Securities Act and applicable state securities laws or pursuant to exemptions from, or in transactions not subject to, such registration requirements. If you do not exchange the old 7% notes held by you during the exchange offer, you will no longer be entitled to registration rights. You will not be able to offer or sell old 7% notes, unless they are registered, sold pursuant to an exemption from registration or sold in a transaction not subject to the Securities Act or state securities laws.
After completion of this exchange offer, if you did not tender your old 7% notes in this exchange offer, you will no longer be entitled to any exchange or registration rights under the exchange and registration rights agreement, except under limited circumstances. Other than in connection with the
10
exchange offer, we are not obligated to, nor do we currently anticipate that we will, register the old 7% notes under the Securities Act.
There is no public market for the notes. The notes comprise a new issue of securities for which there is no established trading market. We do not intend to apply for listing of the notes on any securities exchange or to arrange for them to be quoted on any quotation system. Accordingly, an active trading market for the notes may not develop. If a trading market does not develop or is not maintained, you may experience difficulty in reselling your notes or may not be able to sell them at all.
In addition, to the extent old 7% notes are tendered and accepted in the exchange offer, the liquidity of the trading market, if any, for the old 7% notes could be adversely affected.
The notes and USANi's guarantee are junior to secured indebtedness and structurally subordinate to our subsidiaries' liabilities, which would limit collectibility of the notes in the event of bankruptcy. The notes and USANi's guarantee are not secured by our or USANi's assets. Accordingly, the notes will effectively rank junior to all of our secured obligations and, so long as the guarantee is in effect, USANi's guarantee will effectively rank junior to all of USANi's secured obligations, in each case, to the extent of the assets securing those obligations. If we become insolvent or are liquidated, or if payment under any secured obligation is accelerated, claims of any secured lenders for the assets securing the obligation will be prior to any claim of the holders of the notes for these assets. After the claims of the secured lenders are satisfied, there may not be assets remaining to satisfy our obligations under the notes. As of September 30, 2002, USA and its subsidiaries had approximately $24.2 million of secured indebtedness, including approximately $4.0 million of capital lease obligations. Additionally, claims of the creditors of our subsidiaries (other than USANi, so long as USANi's guarantee is in effect) and USANi's subsidiaries generally will have priority with respect to the assets and earnings of such subsidiaries over the claims of USA Interactive's and USANi's respective creditors, including holders of the notes. As of September 30, 2002, our subsidiaries (other than USANi) had approximately $1,874.5 million of unsecured liabilities of which $309.8 million was owed to USA Interactive or to USANi.
USANi's guarantee may be unenforceable due to fraudulent conveyance statutes, and accordingly, you could have no claim against USANi, as guarantor of the notes. Although laws differ among various jurisdictions, a court could, under fraudulent conveyances laws, further subordinate or avoid USANi's guarantee if it found that the guarantee was incurred with actual intent to hinder, delay or defraud creditors, or USANi did not receive fair consideration or reasonably equivalent value for the guarantee and that the guarantor was any of the following:
If a court were to void the guarantee as the result of a fraudulent conveyance, or hold it unenforceable for any other reason, holders of the notes would cease to have a claim against USANi based on USANi's guarantee and would solely be creditors of USA Interactive.
We will not receive any cash proceeds from the exchange offer. In consideration for issuing the exchange notes as contemplated in this prospectus, we will receive in exchange the old 7% notes in like principal amount, the terms of which are providingsubstantially identical to the following selected financial informationexchange notes in all material respects, except that the transfer restrictions and registration rights applicable to assist youthe old 7% notes do not apply to the exchange notes. The old 7% notes surrendered in analyzingexchange for the financial aspectsexchange notes will be retired and canceled. The issuance of the merger.exchange notes will not result in any increase in our indebtedness.
We received net proceeds of approximately $744.0 million from the offering of the old 7% notes. We intend to use such net proceeds for general corporate purposes, which may include acquisitions, working capital, capital expenditures and debt repurchases. We may from time to time purchase additional amounts of our 63/4% Senior Notes due 2005 in the open market or in privately negotiated transactions, subject to market conditions, pricing and other factors.
RATIO OF EARNINGS TO FIXED CHARGES
The selectedfollowing table presents ratio of earnings to fixed charges of USA for each of nine months ended September 30, 2001 and Ticketmaster financial data set forth below, including the accompanying notes, are qualified in their entirety by,2002, and for five years ended December 31, 2001. The ratios of earnings to fixed charges should be read in conjunction with the historical consolidated financial statements and relatedaccompanying notes contained in the annual, quarterly and other reports filed by USA and Ticketmaster with the SEC, which we havefinancial data included or incorporated by reference intoin this information statement/prospectus. See "Where You Can Find More Information" beginning on page 93.
For purposes of calculating the ratio of earnings to fixed charges, earnings were calculated by adding (1) earnings (loss) before minority interest and income taxes, (2) interest expense, including the portion of rents representative of an interest factor, and (3) the amount of undistributed losses of our less than majority-owned companies. Fixed charges consist of interest expense, including the portion of rents representative of an interest factor.
| | Years Ended December 31, | Nine Months Ended September 30, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1997 | 1998 | 1999 | 2000 | 2001 | 2001 | 2002 | ||||||||
| Ratio of earnings to fixed charges (1) | 3.79 | x | 1.76 | x | — | — | — | — | 2.38 | x | |||||
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USA Selected Historical Consolidated Financial DataCAPITALIZATION
The following table presents the consolidated capitalization for USA as of September 30, 2002, as adjusted to reflect the issuance of our old 7% notes and the receipt of the estimated proceeds therefrom, after deducting the initial purchasers' discount and our estimated offering expenses.
The information in this table should be read with the financial statements and accompanying notes and other financial data included elsewhere or incorporated by reference in this prospectus.
| | As of September 30, 2002 | ||||||
|---|---|---|---|---|---|---|---|
| | Actual | As Adjusted | |||||
| | (Dollars in millions) | ||||||
| | (Unaudited) | ||||||
| Cash and marketable securities(1) | $ | 3,159.9 | $ | 3,903.9 | |||
| Long-term obligations, excluding current maturities | |||||||
| 63/4% Senior Notes due 2005(2) | $ | 498.7 | $ | 498.7 | |||
| 7% Senior Notes due 2013 | — | 750.0 | |||||
| Other long-term obligations | 9.5 | 9.5 | |||||
| Total long-term obligations, less current portion(3) | 508.2 | 1,258.2 | |||||
| Minority interest | 1,010.0 | 1,010.0 | |||||
| Common stock relating to USA's preferred interests in VUE exchangeable for preferred interest(4) | 1,428.5 | 1,428.5 | |||||
| Preferred stock(5) | 0.1 | 0.1 | |||||
| Stockholders' equity | 7,776.1 | 7,776.1 | |||||
| Total capitalization | $ | 10,722.9 | $ | 11,472.9 | |||
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SELECTED HISTORICAL FINANCIAL INFORMATION
The following table presents selected historical consolidated financial data and other data for USA for each of the years in the five-year period ended December 31, 2001, and for the nine-month periods ended September 30, 20022001 and 2001. This2002. The consolidated financial data was derived from USA's audited and unaudited consolidated financial statements and reflects the operations and financial position of USA at the dates and for the periods indicated. The financial statements for each of the five years in the period ended December 31, 2001 for USA have been audited by Ernst & Young LLP, independent auditors. The financial statements for the nine-month periods ended September 30, 20022001 and 20012002 are unaudited and are not necessarily indicative of results for any other interim period or for any calendar year.
The selected financial data set forth below, including the accompanying notes, are qualified in their entirety by, and should be read in conjunction with, the historical consolidated financial statements and related notes contained in the annual, quarterly and other reports filed by USA with the Commission, which have been included in and incorporated by reference into this prospectus. See "Where You Can Find More Information."
Since December 31, 2001, the date of USA's most recent audited financial statements, USA has completed, among others, the following transactions:
The financial position and results of operations of USA Broadcasting and USA Entertainment Group have been presented as discontinued operations in all periods presented.
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| | Year Ended December 31, | Nine Months Ended September 30, | Year Ended December 31, | Nine Months Ended September 30, | ||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| USA Interactive | 1997(1) | 1998(2)(3) | 1999(4) | 2000(5) | 2001(6) | 2001(6) | 2002(7) | |||||||||||||||||||||||||||||||||||||
| | 1997(1) | 1998(2)(3) | 1999(4) | 2000(5) | 2001(6) | 2001(6) | 2002(7) | |||||||||||||||||||||||||||||||||||||
| | (In thousands, except per share data) | | | (Dollars in thousands, except per share data) | ||||||||||||||||||||||||||||||||||||||||
| Statements of Operations Data: | ||||||||||||||||||||||||||||||||||||||||||||
| Net revenues | $ | 1,310,037 | $ | 1,639,828 | $ | 2,001,108 | $ | 2,964,612 | $ | 3,468,860 | $ | 2,520,354 | $ | 3,282,236 | $ | 1,310,037 | $ | 1,639,828 | $ | 2,001,108 | $ | 2,964,612 | $ | 3,468,860 | $ | 2,520,354 | $ | 3,282,236 | ||||||||||||||||
| Operating profit (loss) | 102,729 | 59,391 | (48,842 | ) | (349,746 | ) | (216,423 | ) | (181,146 | ) | 27,978 | 102,729 | 59,391 | (48,842 | ) | (349,746 | ) | (216,423 | ) | (181,146 | ) | 27,978 | ||||||||||||||||||||||
| Earnings (loss) from continuing operations | 34,397 | 26,848 | (69,212 | ) | (172,398 | ) | (186,799 | ) | (140,358 | ) | (140,739 | ) | 34,397 | 26,848 | (69,212 | ) | (172,398 | ) | (186,799 | ) | (140,358 | ) | (140,739 | ) | ||||||||||||||||||||
| Earnings (loss) before cumulative effect of accounting change | 13,061 | 76,874 | (27,631 | ) | (147,983 | ) | 392,795 | 449,744 | 2,266,375 | 13,061 | 76,874 | (27,631 | ) | (147,983 | ) | 392,795 | 449,744 | 2,266,375 | ||||||||||||||||||||||||||
| Net earnings (loss) available to common shareholders | 13,061 | 76,874 | (27,631 | ) | (147,983 | ) | 383,608 | 440,557 | 1,796,491 | |||||||||||||||||||||||||||||||||||
| Basic earnings (loss) per common share from continuing operations available to common shareholders(8)(10) | 0.16 | 0.09 | (0.21 | ) | (0.48 | ) | (0.50 | ) | (0.38 | ) | (0.36 | ) | ||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per common share from continuing operations available to common shareholders(8)(10) | 0.15 | 0.04 | (0.21 | ) | (0.48 | ) | (0.50 | ) | (0.38 | ) | (0.36 | ) | ||||||||||||||||||||||||||||||||
| Basic earnings (loss) per common share before cumulative effect of accounting change available to common shareholders(8)(10) | 0.06 | 0.27 | (0.08 | ) | (0.41 | ) | 1.05 | 1.21 | 5.39 | |||||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per common share before cumulative effect of accounting change available to common shareholders(8)(10) | 0.06 | 0.21 | (0.08 | ) | (0.41 | ) | 1.05 | 1.21 | 5.39 | |||||||||||||||||||||||||||||||||||
| Basic earnings (loss) per common share available to common shareholders(8)(10) | 0.06 | 0.27 | (0.08 | ) | (0.41 | ) | 1.03 | 1.18 | 4.29 | |||||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per common share available to common shareholders(8)(10) | 0.06 | 0.21 | (0.08 | ) | (0.41 | ) | 1.03 | 1.18 | 4.29 | |||||||||||||||||||||||||||||||||||
| Net earnings (loss) | 13,061 | 76,874 | (27,631 | ) | (147,983 | ) | 383,608 | 440,557 | 1,796,491 | |||||||||||||||||||||||||||||||||||
| Basic earnings (loss) per common share from continuing operations available to common shareholders(8)(9) | 0.16 | 0.09 | (0.21 | ) | (0.48 | ) | (0.50 | ) | (0.38 | ) | (0.36 | ) | ||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per common share from continuing operations available to common shareholders(8)(9) | 0.15 | 0.04 | (0.21 | ) | (0.48 | ) | (0.50 | ) | (0.38 | ) | (0.36 | ) | ||||||||||||||||||||||||||||||||
| Basic earnings (loss) per common share before cumulative effect of accounting change available to common shareholders(8)(9) | 0.06 | 0.27 | (0.08 | ) | (0.41 | ) | 1.05 | 1.21 | 5.39 | |||||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per common share before cumulative effect of accounting change available to common shareholders(8)(9) | 0.06 | 0.21 | (0.08 | ) | (0.41 | ) | 1.05 | 1.21 | 5.39 | |||||||||||||||||||||||||||||||||||
| Basic earnings (loss) per common share available to common shareholders(8)(9) | 0.06 | 0.27 | (0.08 | ) | (0.41 | ) | 1.03 | 1.18 | 4.29 | |||||||||||||||||||||||||||||||||||
| Diluted earnings (loss) per common share available to common shareholders(8)(9) | 0.06 | 0.21 | (0.08 | ) | (0.41 | ) | 1.03 | 1.18 | 4.29 | |||||||||||||||||||||||||||||||||||
| Balance Sheet Data (end of period): | ||||||||||||||||||||||||||||||||||||||||||||
| Working capital | $ | 60,941 | $ | 443,408 | $ | 381,046 | $ | 355,157 | $ | 1,380,936 | $ | 1,247,221 | $ | 2,186,811 | $ | 60,941 | $ | 443,408 | $ | 381,046 | $ | 355,157 | $ | 1,380,936 | $ | 1,247,221 | $ | 2,186,811 | ||||||||||||||||
| Total assets | 2,464,750 | 4,161,873 | 5,151,160 | 5,646,290 | 6,539,850 | 11,687,907 | 14,702,148 | 2,464,750 | 4,161,873 | 5,151,160 | 5,646,290 | 6,539,850 | 11,687,907 | 14,702,148 | ||||||||||||||||||||||||||||||
| Long-term obligations, net of current maturities | 389,679 | 775,683 | 573,056 | 551,766 | 544,372 | 545,584 | 508,237 | 389,679 | 775,683 | 573,056 | 551,766 | 544,372 | 545,584 | 508,237 | ||||||||||||||||||||||||||||||
| Minority interest | 271,772 | 336,788 | 742,365 | 908,831 | 706,688 | 4,943,105 | 1,009,953 | 271,772 | 336,788 | 742,365 | 908,831 | 706,688 | 4,943,105 | 1,009,953 | ||||||||||||||||||||||||||||||
| Common stock exchangeable for preferred interest | — | — | — | — | — | — | 1,428,530 | — | — | — | — | — | — | 1,428,530 | ||||||||||||||||||||||||||||||
| Preferred stock(9) | — | — | — | — | — | — | 131 | |||||||||||||||||||||||||||||||||||||
| Preferred stock(10) | — | — | — | — | — | — | 131 | |||||||||||||||||||||||||||||||||||||
| Stockholders' equity | 1,447,354 | 2,571,405 | 2,769,729 | 3,439,871 | 3,945,501 | 3,993,871 | 7,776,217 | 1,447,354 | 2,571,405 | 2,769,729 | 3,439,871 | 3,945,501 | 3,993,871 | 7,776,217 | ||||||||||||||||||||||||||||||
| Other Data: | ||||||||||||||||||||||||||||||||||||||||||||
| Net cash provided by (used in): | ||||||||||||||||||||||||||||||||||||||||||||
| Operating activities | $ | 34,581 | $ | (91,660 | ) | $ | 77,760 | $ | 87,321 | $ | 298,335 | $ | 199,629 | $ | 454,214 | $ | 34,581 | $ | (91,660 | ) | $ | 77,760 | $ | 87,321 | $ | 298,335 | $ | 199,629 | $ | 454,214 | ||||||||||||||
| Investing activities | (81,450 | ) | (1,179,346 | ) | (468,318 | ) | (408,016 | ) | 35,052 | 168,317 | (750,176 | ) | (81,450 | ) | (1,179,346 | ) | (468,318 | ) | (408,016 | ) | 35,052 | 168,317 | (750,176 | ) | ||||||||||||||||||||
| Financing activities | 108,050 | 1,297,654 | 100,204 | 58,163 | 56,256 | 64,325 | (20,200 | ) | 108,050 | 1,297,654 | 100,204 | 58,163 | 56,256 | 64,325 | (20,200 | ) | ||||||||||||||||||||||||||||
| Discontinued operations | 12,249 | 304,173 | 267,651 | 86,266 | 348,174 | 226,691 | 5,351 | 12,249 | 304,173 | 267,651 | 86,266 | 348,174 | 226,691 | 5,351 | ||||||||||||||||||||||||||||||
| Effect of exchange rate changes | — | (1,501 | ) | (123 | ) | (2,687 | ) | (3,663 | ) | (3,426 | ) | 7,847 | — | (1,501 | ) | (123 | ) | (2,687 | ) | (3,663 | ) | (3,426 | ) | 7,847 | ||||||||||||||||||||
| Unaudited Other Operating Data:(11) | ||||||||||||||||||||||||||||||||||||||||||||
| HSN-Units shipped (in millions) | 26.6 | 28.9 | 32.1 | 35.2 | 38.5 | 27.1 | 28.0 | |||||||||||||||||||||||||||||||||||||
| HSN Return rate | 22.2 | % | 21.0 | % | 20.3 | % | 19.6 | % | 19.0 | % | NA | NA | ||||||||||||||||||||||||||||||||
| HSN homes (in millions) (end of period) | 70.1 | 69.3 | 73.7 | 77.1 | 83.0 | 82.8 | 77.8 | |||||||||||||||||||||||||||||||||||||
| Ticketing—Number of tickets sold (in millions) | 68.6 | 75.0 | 83.0 | 86.8 | 66.5 | 71.0 | ||||||||||||||||||||||||||||||||||||||
| Ticketing—Gross value of tickets sold (in millions) | $2,340 | $2,781 | $3,256 | $3,611 | $2,741 | $3,182 | ||||||||||||||||||||||||||||||||||||||
| Hotels.com—Hotel room nights sold (in thousands) | 2,433 | 4,243 | 3,056 | 5,611 | ||||||||||||||||||||||||||||||||||||||||
15
5
referred to as USA Films, since their acquisitionthat were acquired by USA on May 28, 1999. USA Films was contributed to VUE on May 7, 2002. See "The Company—Corporate History—VUE Transaction." Net earnings for the year ended December 31, 1999 includes a pre-tax gain of $89.7 million related to the sale of securities.
| | Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 2000 | 2001 | 2001 | 2002 | ||||||||||||
| | (Dollars in thousands, except per share data) | ||||||||||||||||
| Earnings (loss) from continuing operations available to common shareholders | |||||||||||||||||
| Reported loss from continuing operations | $ | (69,212 | ) | $ | (172,398 | ) | $ | (186,799 | ) | $ | (140,358 | ) | $ | (149,234 | ) | ||
| Add: goodwill amortization | 71,859 | 166,705 | 134,077 | 100,374 | — | ||||||||||||
| Earnings (loss) from continuing operations—as adjusted | $ | 2,647 | $ | (5,693 | ) | $ | (52,722 | ) | $ | (39,984 | ) | $ | (149,234 | ) | |||
| Basic earnings (loss) per share from continuing operations—as adjusted: | |||||||||||||||||
| Reported basic loss per share | $ | (0.21 | ) | $ | (0.48 | ) | $ | (0.50 | ) | $ | (0.38 | ) | $ | (0.36 | ) | ||
| Add: goodwill amortization | 0.22 | 0.46 | 0.36 | 0.27 | — | ||||||||||||
| Adjusted basic earnings (loss) per share | $ | 0.01 | $ | (0.02 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.36 | ) | |||
| Diluted earnings (loss) per share from continuing operations—as adjusted: | |||||||||||||||||
| Reported diluted loss per share | $ | (0.21 | ) | $ | (0.48 | ) | $ | (0.50 | ) | $ | (0.38 | ) | $ | (0.36 | ) | ||
| Add: goodwill amortization | 0.22 | 0.46 | 0.36 | 0.27 | — | ||||||||||||
| Adjusted diluted net earnings (loss) per share | $ | 0.01 | $ | (0.02 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.36 | ) | |||
| Net income (loss) available to common shareholders | |||||||||||||||||
| Net income (loss) available to common shareholders | $ | (27,631 | ) | $ | (147,983 | ) | $ | 383,608 | $ | 440,557 | $ | 1,796,491 | |||||
| Add: goodwill amortization | 104,704 | 206,151 | 176,413 | 132,445 | — | ||||||||||||
| Net earnings available to common shareholders—as adjusted | $ | 77,073 | $ | 58,168 | $ | 560,021 | $ | 573,002 | $ | 1,796,491 | |||||||
| Basic earnings (loss) per share—as adjusted: | |||||||||||||||||
| Reported basic net earnings (loss) per share | $ | (0.08 | ) | $ | (0.41 | ) | $ | 1.03 | $ | 1.18 | $ | 4.29 | |||||
| Add: goodwill amortization | 0.32 | 0.57 | 0.47 | 0.36 | — | ||||||||||||
| Adjusted basic net earnings per share | $ | 0.24 | $ | 0.16 | $ | 1.50 | $ | 1.54 | $ | 4.29 | |||||||
| Diluted earnings per share—as adjusted: | |||||||||||||||||
| Reported diluted net earnings (loss) per share | $ | (0.08 | ) | $ | (0.41 | ) | $ | 1.03 | $ | 1.18 | $ | 4.29 | |||||
| Add: goodwill amortization | 0.29 | 0.57 | 0.47 | 0.36 | — | ||||||||||||
| Adjusted diluted net earnings per share | $ | 0.21 | $ | 0.16 | $ | 1.50 | $ | 1.54 | $ | 4.29 | |||||||
16
17
Industry Segment Financial Data
| | Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 2000 | 2001 | 2001 | 2002(1) | ||||||||||||
| | (Dollars in thousands) | ||||||||||||||||
| Revenues: | |||||||||||||||||
| HSN-U.S.(2) | $ | 1,332,911 | $ | 1,533,271 | $ | 1,658,904 | $ | 1,163,630 | $ | 1,141,270 | |||||||
| Ticketing | 442,742 | 518,565 | 579,679 | 447,903 | 490,925 | ||||||||||||
| Match.com | 9,000 | 29,122 | 49,249 | 31,687 | 88,182 | ||||||||||||
| Hotels.com | 124,113 | 327,977 | 536,497 | 394,829 | 672,814 | ||||||||||||
| Expedia | — | — | — | — | 389,865 | ||||||||||||
| Interval | — | — | — | — | 2,319 | ||||||||||||
| PRC | — | 212,471 | 298,678 | 228,926 | 217,212 | ||||||||||||
| Corporate and other | 6,894 | — | — | — | — | ||||||||||||
| Citysearch and related | 27,329 | 50,889 | 46,108 | 35,851 | 22,479 | ||||||||||||
| International TV shopping & other(3) | 8,917 | 245,714 | 272,569 | 200,620 | 234,557 | ||||||||||||
| USA Electronic Commerce Solutions LLC/Styleclick | 49,202 | 46,603 | 34,229 | 21,781 | 30,386 | ||||||||||||
| Intersegment Elimination | — | — | (7,053 | ) | (4,873 | ) | (7,773 | ) | |||||||||
| Total | $ | 2,001,108 | $ | 2,964,612 | $ | 3,468,860 | $ | 2,520,354 | $ | 3,282,236 | |||||||
Operating Profit (Loss): | |||||||||||||||||
| HSN-U.S.(2)(4) | $ | 137,670 | $ | 130,442 | $ | 103,866 | $ | 67,462 | $ | 63,233 | |||||||
| Ticketing(5) | 32,503 | 25,453 | 25,351 | 26,009 | 83,804 | ||||||||||||
| Match.com | (7,451 | ) | (12,484 | ) | (3,004 | ) | (8,173 | ) | 13,396 | ||||||||
| Hotels.com(6) | 5,654 | 9,166 | 15,811 | 10,573 | 79,580 | ||||||||||||
| Expedia(7) | — | — | — | — | 55,776 | ||||||||||||
| Interval | — | — | — | — | 255 | ||||||||||||
| PRC(8) | — | (7,282 | ) | (37,943 | ) | (25,650 | ) | (26,793 | ) | ||||||||
| Corporate and other(9) | (41,479 | ) | (52,593 | ) | (38,187 | ) | (33,733 | ) | (28,257 | ) | |||||||
| Citysearch and related | (119,521 | ) | (207,004 | ) | (171,351 | ) | (127,007 | ) | (74,648 | ) | |||||||
| International TV shopping & other(3)(10) | (4,517 | ) | 4,641 | (34,907 | ) | (23,142 | ) | (31,437 | ) | ||||||||
| USA Electronic Commerce Solutions LLC/Styleclick(11) | (51,701 | ) | (240,085 | ) | (62,593 | ) | (54,019 | ) | (35,306 | ) | |||||||
| Restructuring charges(12) | — | (13,466 | ) | (13,466 | ) | (71,625 | ) | ||||||||||
| Total | $ | (48,842 | ) | $ | (349,746 | ) | $ | (216,423 | ) | $ | (181,146 | ) | $ | 27,978 | |||
Reconciliation of operating profit (loss) to Adjusted EBITDA: | |||||||||||||||||
| Operating profit (loss) | $ | (48,842 | ) | $ | (349,746 | ) | $ | (216,423 | ) | $ | (181,146 | ) | $ | 27,978 | |||
| Depreciation and amortization | 205,843 | 565,742 | 425,891 | 320,043 | 241,917 | ||||||||||||
| Goodwill impairment | — | — | — | — | 22,247 | ||||||||||||
| Amortization of cable distribution fees | 26,680 | 36,322 | 43,975 | 29,384 | 38,679 | ||||||||||||
| Amortization of non-cash distribution fees, marketing and compensation expense | 6,423 | 24,405 | 34,184 | 25,297 | 37,684 | ||||||||||||
| Disengagement expenses | — | — | 4,052 | — | 22,326 | ||||||||||||
| Restructuring charges not impacting EBITDA(12) | — | — | 6,248 | 6,248 | 36,908 | ||||||||||||
| Adjusted EBITDA(13) | $ | 190,104 | $ | 276,723 | $ | 297,927 | $ | 199,826 | $ | 427,739 | |||||||
18
| | Twelve Months Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 2000 | 2001 | |||||||
| | (Dollars in thousands) | |||||||||
| Capital expenditures: | ||||||||||
| HSN-U.S. | $ | 33,412 | $ | 34,122 | $ | 42,615 | ||||
| Ticketing | 23,789 | 23,282 | 24,465 | |||||||
| Match.com | — | 2,485 | 3,268 | |||||||
| Hotels.com | 1,092 | 2,859 | 16,022 | |||||||
| PRC | — | 43,505 | 25,775 | |||||||
| Corporate and other | 4,673 | 21,756 | 5,051 | |||||||
| Citysearch and related | 11,328 | 9,262 | 5,017 | |||||||
| International TV shopping & other | 13,746 | 18,105 | 6,031 | |||||||
| USA Electronic Commerce Solutions LLC/Styleclick | 13,657 | 5,047 | 2,292 | |||||||
| Total | $ | 101,697 | $ | 160,423 | $ | 130,536 | ||||
| | Year Ended December 31, | Nine Months Ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 2000 | 2001 | 2001 | 2002 | ||||||||||||
| | (Dollars in thousands, except per share data) | ||||||||||||||||
| Earnings (loss) from continuing operations available to common shareholders | |||||||||||||||||
Reported loss from continuing operations | $ | (69,212 | ) | $ | (172,398 | ) | $ | (186,799 | ) | $ | (140,358 | ) | $ | (149,234 | ) | ||
| Add: goodwill amortization | 71,859 | 166,705 | 134,077 | 100,374 | — | ||||||||||||
| Earnings (loss) from continuing operations—as adjusted | $ | 2,647 | $ | (5,693 | ) | $ | (52,722 | ) | $ | (39,984 | ) | $ | (149,234 | ) | |||
| Basic earnings (loss) per share from continuing operations—as adjusted: | |||||||||||||||||
| Reported basic loss per share | $ | (0.21 | ) | $ | (0.48 | ) | $ | (0.50 | ) | $ | (0.38 | ) | $ | (0.36 | ) | ||
| Add: goodwill amortization | 0.22 | 0.46 | 0.36 | 0.27 | — | ||||||||||||
| Adjusted basic earnings (loss) per share | $ | 0.01 | $ | (0.02 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.36 | ) | |||
| Diluted earnings (loss) per share from continuing operations—as adjusted: | |||||||||||||||||
| Reported diluted loss per share | $ | (0.21 | ) | $ | (0.48 | ) | $ | (0.50 | ) | $ | (0.38 | ) | $ | (0.36 | ) | ||
| Add: goodwill amortization | 0.22 | 0.46 | 0.36 | 0.27 | — | ||||||||||||
| Adjusted diluted net earnings (loss) per share | $ | 0.01 | $ | (0.02 | ) | $ | (0.14 | ) | $ | (0.11 | ) | $ | (0.36 | ) | |||
6
| Net income (loss) available to common shareholders | |||||||||||||||||
Net income (loss) available to common shareholders | $ | (27,631 | ) | $ | (147,983 | ) | $ | 383,608 | $ | 440,557 | $ | 1,796,491 | |||||
| Add: goodwill amortization | 104,704 | 206,151 | 176,413 | 132,445 | — | ||||||||||||
| Net earnings available to common shareholders—as adjusted | $ | 77,073 | $ | 58,168 | $ | 560,021 | $ | 573,002 | $ | 1,796,491 | |||||||
| Basic earnings (loss) per share—as adjusted: | |||||||||||||||||
| Reported basic net earnings (loss) per share | $ | (0.08 | ) | $ | (0.41 | ) | $ | 1.03 | $ | 1.18 | $ | 4.29 | |||||
| Add: goodwill amortization | 0.32 | 0.57 | 0.47 | 0.36 | — | ||||||||||||
| Adjusted basic net earnings per share | $ | 0.24 | $ | 0.16 | $ | 1.50 | $ | 1.54 | $ | 4.29 | |||||||
Diluted earnings per share—as adjusted: | |||||||||||||||||
| Reported diluted net earnings (loss) per share | $ | (0.08 | ) | $ | (0.41 | ) | $ | 1.03 | $ | 1.18 | $ | 4.29 | |||||
| Add: goodwill amortization | 0.29 | 0.57 | 0.47 | 0.36 | — | ||||||||||||
| Adjusted diluted net earnings per share | $ | 0.21 | $ | 0.16 | $ | 1.50 | $ | 1.54 | $ | 4.29 | |||||||
7
Ticketmaster Selected Historical Consolidated Financial Data
The selected financial data below asyear ended December 31, 2001 exclude restructuring charges of $2.9 million, of which $2.4 million impacts Adjusted EBITDA, and include nonrecurring expenses primarily related to employee benefits of $4.9 million. Results for the nine months ended September 30, 2002 and 2001 were prepared using Ticketmaster's unaudited financial statements. The selected financial data below asexclude restructuring charges of December 31, 2001, 2000, 1999 and 1998, and the years ended December 31, 2001, 2000 and 1999, the eleven months ended December 31, 1998 and the year ended January 31, 1998 are derived from the audited financial statements$9.3 million, of Ticketmaster. In addition, periods prior to the combination of Ticketmaster Online-Citysearch, Inc. and Ticketmaster Group, Inc. on January 31, 2001 have been restated to give effect to that transaction, which we refer to in this document as the Ticketmaster combination. The selected financial data presented below as of January 31, 1998 is derived from audited financial statements of Ticketmaster Group, Inc. The selected financial data is presented as if the Ticketmaster combination had occurred at the beginning of the earliest period presented in a manner similar to a pooling-of-interests transaction.
| | | | | | | Nine months ended September 30, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | Year ended December 31, | ||||||||||||||||||||
| | Year ended January 31, 1998 | Eleven months ended December 31, 1998(2) | |||||||||||||||||||||
| Ticketmaster | 1999(1) | 2000(1) | 2001(1) | 2001 | 2002 | ||||||||||||||||||
| | (In thousands, except for per share data) | ||||||||||||||||||||||
| Statement of Operations Data: | |||||||||||||||||||||||
| Total revenues | $ | 340,980 | $ | 353,671 | $ | 498,530 | $ | 606,720 | $ | 675,184 | $ | 515,590 | $ | 601,586 | |||||||||
| Income (loss) from operations(3) | 28,108 | (3,842 | ) | (91,445 | ) | (198,363 | ) | (149,091 | ) | (109,252 | ) | 19,962 | |||||||||||
| Income (loss) before cumulative effect of accounting change | 8,147 | (25,550 | ) | (115,284 | ) | (230,023 | ) | (164,474 | ) | (118,521 | ) | 14,334 | |||||||||||
| Net income (loss)(7) | 8,147 | (25,550 | ) | (115,284 | ) | (230,023 | ) | (164,474 | ) | (118,521 | ) | (100,458 | ) | ||||||||||
| Basic income (loss) per common share before cumulative effect of accounting change(4) | 0.09 | (0.26 | ) | (0.90 | ) | (1.65 | ) | (1.16 | ) | (0.84 | ) | 0.10 | |||||||||||
| Diluted income (loss) per common share before cumulative effect of accounting change(4) | 0.09 | (0.26 | ) | (0.90 | ) | (1.65 | ) | (1.16 | ) | (0.84 | ) | 0.10 | |||||||||||
| Basic income (loss) per common share(4)(7) | 0.09 | (0.26 | ) | (0.90 | ) | (1.65 | ) | (1.16 | ) | (0.84 | ) | (0.70 | ) | ||||||||||
| Diluted income (loss) per common share(4)(7) | 0.09 | (0.26 | ) | (0.90 | ) | (1.65 | ) | (1.16 | ) | (0.84 | ) | (0.69 | ) | ||||||||||
| Balance Sheet Data (end of period): | |||||||||||||||||||||||
| Working capital | 9,432 | 94,339 | 39,486 | 19,559 | 18,437 | 17,398 | 113,063 | ||||||||||||||||
| Total assets(5) | 330,878 | 1,264,163 | 1,671,583 | 1,546,334 | 1,394,355 | 1,442,972 | 1,441,167 | ||||||||||||||||
| Long-term obligations, net of current maturities(6) | 158,561 | 169,880 | 123,687 | 194,503 | 752 | 1,089 | 162 | ||||||||||||||||
| Minority interest | 493 | 1,545 | 6,540 | 4,631 | 755 | 827 | 1,404 | ||||||||||||||||
| Stockholders' equity | 48,908 | 922,869 | 1,314,427 | 1,142,354 | 1,167,766 | 1,206,955 | 1,127,017 | ||||||||||||||||
| Other Data: | |||||||||||||||||||||||
| Net cash provided by (used in): | |||||||||||||||||||||||
| Operating activities | 34,198 | 31,127 | 25,165 | 3,999 | 99,362 | 62,888 | 159,782 | ||||||||||||||||
| Investing activities | (52,678 | ) | (45,229 | ) | (80,208 | ) | (89,822 | ) | (70,445 | ) | (53,773 | ) | (26,481 | ) | |||||||||
| Financing activities | 35,920 | 134,367 | 1,203 | 67,345 | (5,283 | ) | (10,989 | ) | 19,592 | ||||||||||||||
| Effect of exchange rate changes | (1,997 | ) | 549 | (123 | ) | (3,887 | ) | (1,552 | ) | (1,025 | ) | 2,559 | |||||||||||
8
non-recurring charges were primarily a result of advisory fees, regulatory filing fees and legal and accounting costs related to the Ticketmaster combination and Ticketmaster's terminated merger with certain assets owned by USA and Lycos, Inc., as well as certain expenses related to the operation of Sidewalk city guides before the integration of these properties into the Citysearch network in 1999.
| | Year ended December 31, | Nine months ended September 30, | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 1999 | 2000 | 2001 | 2001 | 2002 | ||||||||||||
| | (In thousands, except per share data) | ||||||||||||||||
| Reported net loss | $ | (115,284 | ) | $ | (230,023 | ) | $ | (164,474 | ) | $ | (118,521 | ) | $ | (100,458 | ) | ||
| Add back: goodwill amortization | 76,849 | 112,332 | 92,821 | 69,717 | — | ||||||||||||
| Adjusted net loss | $ | (38,435 | ) | $ | (117,691 | ) | $ | (71,653 | ) | $ | (48,804 | ) | $ | (100,458 | ) | ||
| Income (loss) per share: | |||||||||||||||||
| Reported basic and diluted net loss per share | $ | (0.90 | ) | $ | (1.65 | ) | $ | (1.16 | ) | $ | (0.84 | ) | $ | (0.70 | ) | ||
| Add back: goodwill amortization | 0.60 | 0.81 | 0.65 | 0.49 | — | ||||||||||||
| Adjusted basic net loss per share | $ | (0.30 | ) | $ | (0.84 | ) | $ | (0.51 | ) | $ | (0.35 | ) | $ | (0.70 | ) | ||
| Adjusted diluted net loss per share | $ | (0.30 | ) | $ | (0.84 | ) | $ | (0.51 | ) | $ | (0.35 | ) | $ | (0.69 | ) | ||
9
Selected Unaudited Pro Forma Combined Condensed Financial Information of USA
The following selected unaudited pro forma combined condensed financial information for the year ended December 31, 2001 (for income statement purposes) and as of and for the nine-month period ended September 30, 2002 is presented to show the results of operations and financial position of USA as if the following transactions had occurred as of the beginning of each period presented or as of the balance sheet date, as applicable: (a) the Ticketmaster combination completed on January 31, 2001, (b) the Expedia transaction completed on February 4, 2002, (c) the VUE transaction completed on May 7, 2002, (d) the transaction in which Liberty exchanged its shares of Home Shopping Network, Inc., or Holdco, for 31.6 million shares of USA common stock and 1.6 million shares of USA Class B common stock on June 27, 2002, which we refer to in this document as the Holdco exchange, and (e) the merger.
This selected unaudited pro forma combined condensed financial information should be read in conjunction with the selected historical and pro forma financial information included in this information statement/prospectus and the financial statements of USA and accompanying notes that are incorporated by reference into this information statement/prospectus. You should not rely on the unaudited pro forma financial information as an indication of the results of operations or financial position that would have been achieved if the transactions described above had taken place on January 1, 2001 or of the results of operations or financial position of USA after the completion of the transactions.
| | Pro Forma | |||||||
|---|---|---|---|---|---|---|---|---|
| | Year Ended December 31, 2001 | Nine Months Ended September 30, 2002 | ||||||
| | (In thousands, except per share data) | |||||||
Statement of Operations Data: | ||||||||
| Net revenues | $ | 3,765,796 | $ | 3,317,723 | ||||
| Operating income (loss) | (257,503 | ) | 19,728 | |||||
| Loss from continuing operations | (261,865 | ) | (142,247 | ) | ||||
| Loss per share from continuing operations: | ||||||||
| Basic and diluted | $ | (0.55 | ) | $ | (0.29 | ) | ||
| Balance Sheet Data (end of period): | ||||||||
| Working capital | $ | 2,186,811 | ||||||
| Total assets | 15,204,220 | |||||||
| Long-term obligations, including current portion | 544,468 | |||||||
| Minority interest | 574,570 | |||||||
| Common stock exchangeable for preferred interest | 1,428,530 | |||||||
| Stockholders' equity | $ | 8,713,672 | ||||||
10
Certain Historical and Pro Forma Per Share Data
Unaudited Comparative Per Share Data
In the following table we present historical per share data for USA and Ticketmaster as of andResults for the nine months ended September 30, 2002 and asexclude restructuring charges of and for the year ended December 31, 2001, and combined pro forma per share data for USA and equivalent pro forma per share data for Ticketmaster as$46.2 million of andwhich $13.6 million impacts Adjusted EBITDA.
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months ended September 30, 2002 exclude restructuring charges of $16.2 million, of which $15.3 million impacts Adjusted EBITDA, and include expenses related to contract terminations of $3.6 million.
The unaudited comparative per share data does not purport2001 relate to be,Styleclick and you should not rely on it as, indicativePRC. Restructuring charges for 2002 relate to PRC, ECS and HSN-International, including HSE-Italy, of (1) the results of operations or financial position which would have been achieved if the merger had been completed at the beginning of the period or as of the date indicated, or (2) the results of operations or financial position which may be achieved$31.4 million in the future. The unaudited pro forma per share data doesthird quarter of 2002. Amounts not reflect any payment that may be required to be made in connection with the exerciseimpacting EBITDA of appraisal rights by holders of Ticketmaster Class A common stock in connection with the merger.
It is important that when you read this information, you read along with it the separate financial statements and accompanying notes of USA that are incorporated by reference into this document. It is also important that you read the pro forma combined condensed financial information and accompanying notes that we have included in this information statement/prospectus beginning on page 68 under "Unaudited Pro Forma Combined Condensed Financial Statements of USA."
| | USA Historical Per Share Data | Combined USA Pro Forma Per Share Data | Ticketmaster Historical Per Share Data | Ticketmaster Equivalent Pro Forma Per Share Data(1) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Book value per share: | ||||||||||||||
| September 30, 2002 | $ | 17.32 | $ | 17.64 | $ | 7.83 | $ | 16.49 | ||||||
| December 31, 2001 | 10.44 | 8.24 | ||||||||||||
| Earnings (loss) per share from continuing operations, before dividend to preferred shareholders: | ||||||||||||||
| Basic and diluted for the nine months ended September 30, 2002 | (0.34 | ) | (0.29 | ) | 0.10 | (0.27 | ) | |||||||
| Basic and diluted for the twelve months ended December 31, 2001 | (0.50 | ) | (0.55 | ) | (1.16 | ) | (0.51 | ) | ||||||
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Comparative Market Value
In the following table we present:
| | USA Historical | Ticketmaster Class B Historical | Ticketmaster Class B Equivalent(1) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In thousands, except per share data) | ||||||||||
| As of October 9, 2002: | |||||||||||
| Price per share as of close of trading | $ | 16.22 | $ | 12.60 | $ | 15.17 | |||||
| Aggregate market value of common stock | $ | 6,234,070 | (2) | $ | 1,276,189 | (3) | $ | 1,536,492 | (3) | ||
USA common stock and Ticketmaster Class B common stock trade on the Nasdaq National Market under the symbols "USAI" and "TMCS," respectively. Shares of Ticketmaster Class A common stock are not publicly traded. However, based on the 0.935 exchange ratio, the Ticketmaster Class A common stock equivalent price per share, calculated in the same manner as the Ticketmaster Class B common stock equivalent price per share, also was $15.17 as of the close of trading on October 9, 2002. On December [ • ], 2002, the last trading date prior to the printing of this information statement/prospectus, the closing prices per share of USA common stock and Ticketmaster Class B common stock on the Nasdaq National Market were $[ • ] and $[ • ], respectively, and the Ticketmaster Class B common stock equivalent price per share was $[ • ].
The market prices of shares of USA common stock and Ticketmaster Class B common stock are subject to fluctuation. The actual value of the shares of USA common stock you receive in the offer will likely differ from the values illustrated. You are urged to obtain current market quotations. See "—Comparative Per Share Price Information and Dividend Policy" below.
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Comparative Per Share Price Information and Dividend Policy
The following table sets forth the high and low sale prices for a share of USA common stock and for a share of Ticketmaster Class B common stock, rounded to the nearest cent, for the periods indicated. The prices below are as quoted on the Nasdaq National Market, based on published financial sources.
| | USA Common Stock | Ticketmaster Class B Common Stock | ||||||
|---|---|---|---|---|---|---|---|---|
| | High | Low | High | Low | ||||
| 2002 | ||||||||
| Fourth Quarter (through December 16, 2002) | 29.80 | 15.31 | 27.66 | 12.41 | ||||
| Third Quarter | 24.11 | 16.25 | 19.11 | 11.04 | ||||
| Second Quarter | 33.53 | 19.55 | 29.96 | 15.52 | ||||
| First Quarter | 33.22 | 25.41 | 30.00 | 15.38 | ||||
| 2001 | ||||||||
| Fourth Quarter | 27.84 | 17.45 | 17.73 | 10.40 | ||||
| Third Quarter | 28.44 | 16.45 | 17.20 | 9.06 | ||||
| Second Quarter | 28.20 | 20.16 | 17.62 | 7.00 | ||||
| First Quarter | 24.94 | 17.69 | 13.25 | 7.50 | ||||
| 2000 | ||||||||
| Fourth Quarter | 22.38 | 16.56 | 17.38 | 6.75 | ||||
| Third Quarter | 25.94 | 20.00 | 24.69 | 14.25 | ||||
| Second Quarter | 24.00 | 16.88 | 25.69 | 13.88 | ||||
| First Quarter | 28.47 | 19.13 | 44.88 | 24.25 | ||||
On October 9, 2002, the last trading day before we announced the merger, USA common stock closed at $16.22 per share and Ticketmaster Class B common stock closed at $12.60 per share. On December [ • ], 2002, the last trading day before the printing of this information statement/prospectus, USA common stock closed at $[ • ] per share and Ticketmaster Class B common stock closed at $[ • ] per share.
Neither USA nor Ticketmaster has ever paid any cash dividends on shares of USA common stock or Ticketmaster common stock, respectively. USA and Ticketmaster currently anticipate that they will retain all of their future earnings available for distribution to the holders of USA common stock and Ticketmaster common stock for use in the expansion and operation of their respective businesses, and do not anticipate paying any cash dividends on shares of USA common stock and Ticketmaster common stock in the foreseeable future.
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As a result of the merger, Ticketmaster's businesses will be subject to the following new or increased risks related to USA's other businesses and/or the structure of the merger. In addition to the risks described below, the combined company will continue to be subject to the risks described in the documents that Ticketmaster and USA have filed with the SEC that are incorporated by reference into this information statement/prospectus. If any of the risks described below or in the documents incorporated by reference into this information statement/prospectus actually occur, the business, financial condition, results of operations or cash flows of the combined company could be materially adversely affected. The risks below should be considered along with the other information included or incorporated by reference into this information statement/prospectus.
The number of shares of USA common stock that you will receive in the merger will be based upon a fixed exchange ratio. The value of the shares of USA common stock at the time you receive them could be less than the value of those shares today.
In the merger, each Ticketmaster share will be exchanged for a fixed number of shares of USA common stock based on a fixed exchange ratio. USA and Ticketmaster will not adjust the exchange ratio as a result of any change in the market price of USA common stock between the date of this information statement/prospectus and the date you receive shares of USA common stock in exchange for shares of Ticketmaster common stock. The market price of USA common stock will likely be different, and may be lower, on the date you receive shares of USA common stock than the market price of shares of USA common stock today as a result of changes in the business, operations or prospects of USA, market reactions to the proposed merger, general market and economic conditions and other factors. You are urged to obtain current market quotations for USA common stock and Ticketmaster Class B common stock. See "Summary—Comparative Per Share Price Information and Dividend Policy."
The trading price of USA common stock may be affected by factors different or in addition to the factors affecting the trading price of Ticketmaster Class B common stock.
If the merger is completed, all holders of outstanding Ticketmaster shares (other than USA and Ticketmaster's wholly owned subsidiaries) will become holders of USA common stock. Although USA currently owns approximately 66.3% of the outstanding shares of Ticketmaster common stock, USA also owns and operates other businesses. Accordingly, USA's results of operations and business, as well as the trading price of USA common stock, may be affected by factors different or in addition to those affecting Ticketmaster's results of operations and business and the price of Ticketmaster common stock.
Failure to complete the merger could negatively impact the price of Ticketmaster common stock and Ticketmaster's future business and operations.
If the merger is not completed for any reason, the price of Ticketmaster Class B common stock may decline to the extent that the current market price of Ticketmaster Class B common stock reflects a market assumption that the merger will be completed. In addition, if the merger is not completed, there can be no assurance that Ticketmaster will continue to operate its business in the manner in which it presently operates.
Pending stockholder litigations could prevent or delay the closing of the merger or otherwise negatively impact the business and operations of USA and Ticketmaster.
Following USA's announcement on June 3, 2002 that it intended to commence exchange offers to acquire up to 100% of the outstanding shares of Ticketmaster, Expedia, Inc., and Hotels.com that it did not already own, a number of complaints against USA, its publicly held subsidiaries (including Ticketmaster) and the boards of directors of its publicly held subsidiaries (including Ticketmaster) were filed by individual stockholders of USA's publicly held subsidiaries in the Court of Chancery, County of New Castle, State of Delaware with respect to Ticketmaster and Hotels.com, in the U.S. District Court
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for the Central District of California with respect to Ticketmaster, and the Superior Court of the State of Washington for the County of King with respect to Expedia, Inc. The complaints generally allege the exchange offers would be a breach of fiduciary duty and that the indicated exchange ratios were unfair to the minority stockholders of USA's publicly held subsidiaries. Each of the putative class action complaints seeks, among other things, injunctive relief against consummation of the exchange offer, damages in an unspecified amount and rescission in the event the exchange offer occurs. The California complaint was dismissed without prejudice on August 6, 2002, and the complaints challenging the exchange offer with respect to Expedia, Inc. were dismissed without prejudice on November 22, 2002. While USA believes that the allegations in the cases are without merit, and Ticketmaster believes that the allegations in the cases naming Ticketmaster and its directors as defendants are without merit, no assurances can be given as to the outcome of any of these litigations. Furthermore, one of the conditions to the closing of the transactions contemplated by the merger agreement between USA and Ticketmaster is that no injunction issued by any court preventing the consummation of the transactions be in effect. No assurances can be given that these litigations will not result in such an injunction being issued, which could prevent or delay the closing of the transactions contemplated by the merger agreement.
USA depends on its key personnel.
USA is dependent upon the continued contributions of its senior corporate management, particularly Mr. Diller, the chairman and chief executive officer of USA, and certain key employees for its future success. Mr. Diller does not have an employment agreement with USA, although he has been granted options to purchase a substantial number of shares of USA common stock.
If Mr. Diller no longer serves in his positions at USA, USA's business, as well as the market price of USA common stock, could be substantially adversely affected. USA cannot assure you that it will be able to retain the services of Mr. Diller or any other members of its senior management or key employees.
USA is controlled by Mr. Diller and in his absence will be controlled by Liberty Media Corporation.
Subject to the terms of an amended and restated stockholders agreement, dated as of December 16, 2001, among Universal Studios, Inc., Liberty Media Corporation, Mr. Diller and Vivendi Universal, S.A., which we refer to in this document as the Stockholders Agreement, Mr. Diller effectively controls the outcome of all matters submitted to a vote or for the consent of USA's stockholders (other than with respect to the election by the holders of USA common stock of 25% of the members of USA's board of directors (rounded up to the nearest whole number) and matters as to which a separate class vote of the holders of USA common stock or USA preferred stock is required under Delaware law).
In addition, under an amended and restated governance agreement, dated as of December 16, 2001, among USA, Vivendi, Universal Studios, Liberty and Mr. Diller, which we refer to in this document as the Governance Agreement, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the event that USA's ratio of total debt to EBITDA, as defined in the Governance Agreement, equals or exceeds 4:1 over a continuous 12-month period. USA cannot assure you that Mr. Diller and Liberty will consent to any such matter at a time when USA is highly leveraged, in which case USA would not be able to engage in such transaction or take such actions.
Upon Mr. Diller's permanent departure from USA, Liberty generally would be able to control USA through its ownership of shares of USA Class B common stock.
USA's success depends on maintaining the integrity of its systems and infrastructure.
A fundamental requirement for online commerce and communications is the secure transmission of confidential information, such as credit card numbers or other personal information, over public networks. USA's current security measures may not be adequate and, if any compromise of USA's
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security were to occur, it could have a detrimental effect on USA's reputation and adversely affect its ability to attract customers. As USA's operations continue to grow in both size and scope, USA will need to improve and upgrade its systems and infrastructure. This may require USA to commit substantial financial, operational and technical resources before the volume of business increases, with no assurance that the volume of business will increase.
USA relies on its own affiliates' and third-party computer systems and service providers to facilitate and process a portion of its transactions. Any interruptions, outages or delays in these services, or a deterioration in their performance, could impair USA's ability to process transactions for its customers and the quality of service USA can offer to them. It is unlikely that USA could make up for the level of orders lost in these circumstances by increased phone orders.
Declines or disruptions in the industries in which USA operates, such as those caused by terrorism or general economic downturns, could harm USA's businesses.
USA's businesses in general are sensitive to trends or events that are outside of USA's control. For example, adverse trends or events, such as general economic downturns, decreases in consumer spending and work stoppages, may reduce the popularity and frequency of the events to which USA sells tickets and reduce travel. The occurrence of any of these adverse trends or events could significantly impact USA's businesses, results of operations or financial condition.
Travel is highly sensitive to traveler safety concerns, and thus declines after acts of terrorism impact the perceived safety of travelers. In the aftermath of the terrorist attacks of September 11, 2001, the travel industry experienced a protracted decrease in demand for air travel due to fears regarding additional acts of terrorism and increased costs and reduced operations by airlines due, in part, to new security directives adopted by the Federal Aviation Administration. USA cannot predict the future scope and effects of these changes, which they could significantly impact USA's long-term results of operations or financial condition.
USA may experience operational and financial risks in connection with its acquisitions. In addition, some of the businesses USA acquires may incur significant losses from operations or experience impairment of carrying value.
USA's future growth may be a function, in part, of acquisitions. To the extent that USA grows through acquisitions, it will face the operational and financial risks commonly encountered with that type of a strategy. USA would also face operational risks, such as failing to assimilate the operations and personnel of the acquired businesses, disrupting its ongoing business, dissipating its limited management resources and impairing its relationships with employees and customers of acquired businesses as a result of changes in ownership and management. Some of USA's acquisitions may not be successful and their performances may result in the impairment of their carrying value.
Changing laws and regulations, and legal uncertainties, may impair USA's growth and harm its businesses.
A number of proposed laws and regulations regarding the Internet, including with respect to consumer privacy, have been proposed or considered that could impact USA's businesses. USA cannot predict whether any of these types of laws or regulations will be enacted or amended and what effect, if any, such laws or regulations would have on its businesses, financial condition or results of operations. In addition, the application of various sales and use tax provisions under state and local law to USA's historical and new products and services sold via the Internet, television and telephone is subject to interpretation by the applicable taxing authorities. USA believes it is compliant with these tax provisions, but there can be no assurances that taxing authorities will not take a contrary position or that such positions will not have a material adverse effect on USA's businesses, financial condition and results of operations.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This information statement/prospectus and the SEC filings that are incorporated by reference into this information statement/prospectus contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. For those statements, both USA and Ticketmaster claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements relating to USA's and Ticketmaster's anticipated financial performance, business prospects, new developments, new merchandising strategies and similar matters, and/or statements preceded by, followed by or that include the words "believes," "could," "should," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks," or similar expressions. These forward-looking statements are necessarily estimates reflecting the best judgment of each company's senior management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that could have a material adverse effect on the merger and/or on each company's businesses, financial condition or results of operations. In addition, investors should consider the other information contained in or incorporated by reference into USA's and Ticketmaster's filings with the SEC, including their Annual Reports on Form 10-K for the fiscal year ended 2001, especially in the Management's Discussion and Analysis section, their most recent Quarterly Reports on Form 10-Q and their Current Reports on Form 8-K. Other unknown or unpredictable factors also could have material adverse effects on USA's and Ticketmaster's future results, performance or achievements. In light of these risks, uncertainties, assumptions and factors, the forward-looking events discussed in this information statement/prospectus may not occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date stated, or if no date is stated, as of the date of this information statement/prospectus.
You should understand that the following important factors, in addition to those discussed in the documents incorporated into this information statement/prospectus by reference, could affect USA's and Ticketmaster's future results and could cause those results to differ materially from those expressed in the forward-looking statements:
Neither USA nor Ticketmaster is under any obligation, and neither USA nor Ticketmaster intends, to make publicly available any update or other revisions to any of the forward-looking statements contained in this information statement/prospectus to reflect circumstances existing after the date of this information statement/prospectus or to reflect the occurrence of future events even if experience or future events make it clear that any expected results expressed or implied by those forward-looking statements will not be realized.
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The following discussion of the merger and the principal terms of the merger agreement is subject to, and qualified in its entirety by reference to, the merger agreement, a copy of which is attached to this information statement/prospectus asAppendix A and is incorporated by reference into this information statement/prospectus.
On July 17, 1997, USA acquired a controlling interest in Ticketmaster Group, Inc., or Ticketmaster Group, from Paul G. Allen in exchange for shares of USA common stock. On June 24, 1998, USA acquired Ticketmaster Group's remaining common equity in a tax-free stock-for-stock merger.
On September 28, 1998, Citysearch, Inc. merged with Ticketmaster Online (now known as Ticketmaster.com), then a wholly owned subsidiary of Ticketmaster Corporation (which itself was a subsidiary of Ticketmaster Group and an indirect subsidiary of USA), to form Ticketmaster Online-Citysearch, Inc., or Ticketmaster Online-Citysearch. Following the merger, Ticketmaster Online-Citysearch was a majority owned subsidiary of Ticketmaster Corporation. Shares of Ticketmaster Online-Citysearch's Class B common stock, which are now shares of Ticketmaster Class B common stock, were sold to the public in an initial public offering that was completed on December 8, 1998.
On November 21, 2000, USA announced that it had entered into an agreement with Ticketmaster Online-Citysearch to combine Ticketmaster Corporation, then wholly owned by USA, with Ticketmaster Online-Citysearch. The transaction closed January 31, 2001, and the combined company was renamed "Ticketmaster." Under the terms of the transaction, USA contributed Ticketmaster Corporation and certain related Ticketmaster Group assets to Ticketmaster Online-Citysearch and received 52 million shares of Ticketmaster common stock. As of the date of this information statement/prospectus, USA beneficially owns approximately 66.3% of the outstanding shares of Ticketmaster common stock, and controls approximately 93.0% of the combined voting power of Ticketmaster's outstanding shares.
From time to time since the closing of the combination of Ticketmaster Corporation and Ticketmaster Online-Citysearch in January 2001, USA's senior management and board of directors have evaluated in general terms the advisability of increasing USA's ownership interest in Ticketmaster as well as its other public subsidiaries. No formal actions, plans or proposals resulted from these evaluations or discussions.
Starting in early 2002, USA's management began to examine strategic alternatives with respect to USA's ownership interest in Ticketmaster, including the acquisition by USA of additional shares of Ticketmaster common stock, a business combination involving Ticketmaster or the continuation of USA's ownership in Ticketmaster at current levels. During the spring of 2002, USA's then proposed acquisition of Interval International, which USA completed on September 24, 2002, contributed to USA's realization of certain detriments to the current public subsidiary structure with Ticketmaster, as well as with its other public subsidiaries, and certain benefits of having its subsidiaries become wholly owned. Interval is a leading membership-services company, providing timeshare exchange and other value-added programs to its timeshare-owner consumer members and resort developers. While USA's management recognized the potential synergies and value creation that could be obtained by Interval and Ticketmaster (as well as Expedia, Inc. and Hotels.com) being owned entirely by USA, USA realized that the public subsidiary structure served as an impediment to realizing those benefits.
Due to the potential benefits of a combination, including the alignment of management's interests, the ability of a combined company to offer improved and integrated products and synergies created by the combination of one or more of USA's public subsidiaries with USA, USA's management determined to explore in more depth the possibility of pursuing a transaction in which USA would acquire up to 100% of the shares of Ticketmaster common stock that it did not already own. In addition, USA's
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senior management began to explore the possibility of simultaneously increasing its equity interest in Expedia, Inc. and Hotels.com, other majority owned public subsidiaries of USA, to up to 100%.
In May 2002, members of USA's senior management met with representatives of USA's financial advisor, Allen & Company LLC, or Allen & Co., and USA's special outside counsel, Wachtell, Lipton, Rosen & Katz, or Wachtell Lipton, to consider the possible acquisition of the shares of its public subsidiaries that USA did not own and the means by which those acquisitions might be effected. Over the next couple of weeks, senior management continued to consult with Allen & Co. and special outside counsel regarding a possible acquisition of Ticketmaster, including the merits of such an acquisition.
At a special telephonic meeting of USA's board of directors held on May 30, 2002, USA's management discussed with USA's board of directors its consideration of one or more possible transactions in which USA would acquire all or a portion of the equity interests in one or more of its publicly-held subsidiaries that it did not already own. At that meeting, the board authorized management to proceed with one or more of the contemplated transactions if management so chose to proceed, including through offers made directly to the stockholders of its public subsidiaries and on the terms generally discussed with the directors.
On June 1, 2002 and June 2, 2002, Mr. Diller held telephonic conversations with Ticketmaster's outside directors and management directors to inform them that USA would announce its intention to commence the offers to increase USA's equity interest in Ticketmaster, Expedia, Inc. and Hotels.com to up to 100%. Similar conversations were held with the outside directors and management directors of Expedia, Inc. and Hotels.com. Mr. Diller then delivered the following letter on USA letterhead to each of the Ticketmaster directors who were not members of USA's board or management.
* * * *
[USA INTERACTIVE LETTERHEAD]
BARRY DILLERChairman andChief Executive Officer
June 2, 2002
Board of DirectorsTicketmaster3701 Wilshire Blvd.Los Angeles, CA 90010
To the Board of Directors:
Today we are beginning a process that while complex we believe is in the best interest of all Ticketmaster shareholders. I am writing you now in the formal manner necessary in these matters, rather than in the conversational or colloquial way I would far prefer, to let you know that USA Interactive ("USA") intends to commence a transaction whereby USA would increase its equity ownership, up to 100%, in Ticketmaster (the "Company") through an exchange offer to be made to the Company's public stockholders.
USA values its relationship with the Company's independent Board members and management. We want to be clear that we in no way regard this proposal as "hostile." We will be pleased to discuss this at any time—both with company management, as well as a special committee of the Company's disinterested directors (the "Special Committee"), which we expect will be formed to consider this matter. We are prepared to discuss process, structure or whatever else that management or the Special
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Committee and its advisors deem appropriate, including alternative transaction structures such as a merger, whether before or during the exchange offer.
What we do feel about this proposed transaction is that it is very much in the interests of the Company's public stockholders and the Company's business. USA is a leading interactive commerce company, with multiple, profitable interactive businesses and, we believe, the potential for dramatic growth. By exchanging their shares in the Company for shares in USA, the Company's public stockholders would participate in the opportunity and upside of USA while retaining a continued ownership interest in the Company's businesses through an ownership interest in USA.
USA's current structure, with multiple public subsidiaries, is an unusual one. Although we could continue to operate with the current structure, we think a reconfiguration of the USA family along the lines we propose is in everyone's interest. The transaction we propose, if concluded alone or together with the other transactions mentioned below, would enhance our collective ability to pursue a coordinated strategy for all of USA's businesses, with the interests of all of those businesses aligned.
TO THE PROPOSAL:
In the exchange offer, stockholders will be offered the opportunity to exchange their shares in the Company on the basis of 0.8068 USA shares for each Company share tendered for exchange. Based on May 31, 2002, closing prices, our proposal values each outstanding share of the Company's common stock at $22.99 per share, which reflects a 7.5% premium to the Company's closing price on that day.
In the event that USA owns at least 90% of the outstanding shares of each class of the Company's common stock as a result of the exchange offer, USA would thereafter effect a merger of the Company with or into USA or an affiliate of USA on the same terms as the exchange offer. However, the exchange offer would not be conditioned on USA receiving 90% of the shares of any class of stock.
We intend to commence the exchange offer in the near future. You should know that we intend to pursue similar transactions with Expedia, Inc. and Hotels.com, and issue appropriate public announcements. None of these transactions would be conditioned on any other.
We know this will all be time consuming for you to sort through in your role as Directors amid all the other responsibilities in your lives. We haven't taken this step lightly, and so we don't presume upon your time without believing this is the best future course for all of us. We also recognize that for all sorts of reasons this may never result in more than conversation . . . it's not meant to be a hard process and our attitude about this is that eventually in the great scheme of time these companies will come together. While we very much believe the timing is now, we're also ultimately neutral in any precise demarking of same. We do, though, look forward to working through all of this together with you.
Sincerely,
/s/ Barry Diller
* * * *
The directors of Expedia, Inc. and Hotels.com who were not members of USA's board or management received analogous letters from USA. On Monday, June 3, 2002, USA issued a press release publicly announcing its intention to commence the exchange offers.
On June 4, 2002, Ticketmaster's board of directors formally appointed the special committee, comprised of all of Ticketmaster's directors who were neither officers or directors of USA nor officers of Ticketmaster to review and evaluate a possible transaction with USA. The special committee consists of directors Alan Spoon, Robert Davis, Bryan Lourd and Michael Schrage, with Alan Spoon serving as chairman of the special committee.
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On June 5, 2002, USA issued a press release publicly announcing that, "[a]lthough we had anticipated commencing exchange offers relatively quickly, market reaction—including the effect we believe arbitrageurs have had on the exchange ratio—has precluded a quick process. Therefore, we will not commence any exchange offers in the near future." USA also announced that, although circumstances may change, it did not have any intention at that time to increase any of the exchange ratios applicable to the exchange offers. Finally, USA reaffirmed its intention to unify USA with its majority owned public subsidiaries, and announced that it would work with the special committees formed by the boards of directors of its publicly held subsidiaries (including the special committee), management and their advisors to discuss USA's proposal and possible alternative transaction structures to accomplish its goals.
On June 12, 2002, the special committee engaged Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., or Mintz Levin, to serve as its legal counsel and as of June 12, 2002, the special committee formally engaged Credit Suisse First Boston, to serve as its independent financial advisor. On August 2, 2002, Ticketmaster issued a press release publicly announcing that its board of directors had formed the special committee on June 4, 2002 and that the special committee had engaged Credit Suisse First Boston and Mintz Levin as its independent financial and legal counsel, respectively. The press release further stated that the special committee was continuing to review USA's announced intention but that no offer had been made by USA as of August 2, 2002. In connection with its consideration of a possible transaction between USA and Ticketmaster, the special committee met formally 17 times.
On August 16, 2002, the board of directors of Ticketmaster acted by written consent to appoint Daniel Marriott and Julius Genachowski, both executive officers of USA, as directors on Ticketmaster's board to replace Messrs. Richard Barton and Jon Miller, who had resigned from their positions on the board immediately prior to the new appointments.
From June to the beginning of September, senior management of USA and members of the special committee spoke on occasion, during which conversations USA management reaffirmed USA's desire to explore the possibility of a transaction between USA and Ticketmaster and communicated USA's willingness to negotiate such a transaction with the special committee. During these discussions, members of the special committee conveyed to senior management of USA that the value of a possible transaction as described in USA's June 3rd announcement was not compelling. The special committee also met several times during this period with its advisors to discuss, among other things, the status of a possible transaction, including the special committee's fiduciary duties in considering a possible transaction. During this period, Credit Suisse First Boston also commenced its due diligence review of Ticketmaster and USA.
On September 11, 2002, at a regularly scheduled meeting of the board of directors of USA, senior management of USA updated the board on the status of a possible transaction with Ticketmaster. After discussion, USA's board delegated to the executive committee of the USA board authority to pursue a transaction to acquire up to 100% of the Ticketmaster common stock in the event that management and the executive committee determined such a transaction to be in the best interest of USA and its stockholders.
From September 11, 2002 through the end of September, representatives of Allen & Co. and Credit Suisse First Boston had numerous telephonic conversations to discuss a possible transaction between USA and Ticketmaster. Discussions included various valuation parameters for Ticketmaster and USA, and exchange ratio discussions ranged from Allen & Co.'s suggestion of a fixed exchange ratio for each share of Ticketmaster common stock of 0.8368 of a share of USA common stock and a contingent value right for up to an additional 0.0638 of a share of USA common stock (which contingent value right would be exercisable in February 2004), to Credit Suisse First Boston's suggestion, following consultation with and at the direction of the special committee, of an exchange ratio of 1.0 share of USA common stock for each Ticketmaster share. During this period, while the gap in price narrowed, with USA's financial advisors indicating USA's willingness to complete a transaction
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at an exchange ratio of 0.875, subsequently followed by USA's willingness to complete a transaction at an exchange ratio of 0.9125, and the special committee's financial advisor indicating the special committee's willingness to complete a transaction at an exchange ratio of 0.95, the financial advisors were unable to come to an agreement. During the course of these discussions, the special committee met frequently to consider the possible exchange ratios as well as the alternative transaction structures discussed by the financial advisors. Based on such meetings, the special committee's financial advisors informed USA's financial advisors that the special committee was most interested in pursuing a stock-for-stock transaction rather than any other contemplated structure.
Also during this time period, the special committee, USA's management and/or their respective legal and financial advisors met or held telephonic conversations to discuss various due diligence issues. Among other things, the participants discussed USA management's view of USA's and Ticketmaster's relative business strengths, USA's reasons for pursuing a combination of the two companies at this time, which are described in more detail below under "—USA's Reasons for the Merger," and the parties' views of the relative values of USA's and Ticketmaster's currencies.
On September 29, 2002, Mr. Diller and Mr. Spoon, the chairman of the special committee, had a telephone conversation in which Mr. Diller informed Mr. Spoon that USA would not commence an exchange offer directly to Ticketmaster's stockholders but would work with the special committee to complete a negotiated transaction. Mr. Diller also informed Mr. Spoon of USA's willingness to publicly announce its intention to terminate the process to acquire up to 100% of the equity interests in Expedia, Inc. and Hotels.com should USA and Ticketmaster reach an agreement. Messrs. Spoon and Diller further discussed the possibility of reaching an agreement on an exchange ratio.
On September 30, 2002, the special committee held a telephonic meeting with its financial and legal advisors, at which meeting the special committee reviewed and discussed the recent conversations. At that meeting, the special committee also authorized Mr. Spoon to negotiate with Mr. Diller to agree on an exchange ratio between 0.935 and 0.95 of a share of USA common stock for each Ticketmaster share.
On October 1, 2002, Messrs. Spoon and Diller had several telephonic conversations in which they discussed the proposed transaction, including exchange ratios ranging between 0.94 and 0.93, ultimately culminating in a tentative understanding regarding price of 0.935 of a share of USA common stock for each Ticketmaster share, subject to the special committee's completion of due diligence, USA's announcement that it was terminating the process to acquire up to 100% of Expedia, Inc. and Hotels.com, and negotiation of mutually acceptable transaction documentation.
On October 2, 2002, Wachtell Lipton sent a draft merger agreement to Mintz Levin. Also, on October 2nd, the special committee had a telephonic meeting with its legal and financial advisors to discuss the conversation between Messrs. Spoon and Diller. At that meeting, they discussed the possible timing of a transaction, including the need to complete their due diligence review of USA. To that end, the special committee determined to engage, and subsequently engaged, Ernst & Young LLP, or Ernst & Young, to assist in completing a review of USA from a tax and accounting perspective.
Thereafter, USA and the special committee, and their respective outside legal counsel, began negotiating the merger agreement, and negotiations continued through October 9, 2002.
On October 8, 2002, the special committee had a telephonic meeting with its legal and financial advisors. The special committee's advisors summarized the status of the due diligence review of Ticketmaster and USA. Credit Suisse First Boston also presented its valuation analyses relating to Ticketmaster, USA and the combined entity. Representatives of Mintz Levin explained the terms of the draft merger agreement which had been circulated to the special committee members. The special committee then discussed the proposal and the terms of the draft merger agreement in greater detail with its advisors.
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On October 9, 2002, the special committee had a telephonic meeting with its various advisors. The special committee's advisors reported to the special committee the results of the completed due diligence with respect to Ticketmaster and USA. Representatives of Mintz Levin informed the special committee of the results of the negotiations with Wachtell Lipton regarding the merger agreement. In addition, Credit Suisse First Boston delivered its oral opinion that the ratio for exchanging Ticketmaster common stock for USA common stock pursuant to the merger agreement is fair, from a financial point of view, to the holders of Ticketmaster common stock (other than USA and its affiliates), which oral opinion was subsequently confirmed in writing. Upon completing its deliberations, and subject to finalizing the merger agreement, the special committee unanimously determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, the holders of Ticketmaster Class A common stock and Ticketmaster Class B common stock (other than USA and its affiliates) and unanimously recommended that Ticketmaster's board of directors adopt and approve the merger agreement and the transactions contemplated thereby and declare advisable and recommend that the stockholders of Ticketmaster adopt and approve the merger agreement and the transactions contemplated thereby.
Immediately following the special committee meeting, a telephonic meeting of Ticketmaster's board of directors was held, at which all of the members of Ticketmaster's board of directors were present. The special committee delivered its recommendation to the Ticketmaster board of directors that the board of directors approve the merger agreement and the transactions contemplated thereby and declare advisable and recommend that the stockholders of Ticketmaster adopt and approve the merger agreement and the transactions contemplated thereby. The Ticketmaster board of directors, by the unanimous vote of all of the Ticketmaster directors other than those who are officers or directors of USA, as well as by the unanimous vote of the full board, determined that the merger agreement and the transactions contemplated thereby are fair to, and in the best interests of, the holders of Ticketmaster's Class A and Class B common stock other than USA and its affiliates, approved the merger agreement and the transactions contemplated thereby and declared advisable and recommended that the stockholders of Ticketmaster adopt and approve the merger agreement and the transactions contemplated thereby. In the evening of October 9, 2002, following the meetings of the special committee and the Ticketmaster board of directors, the USA executive committee held a meeting to consider the merger. The executive committee was informed of the actions of the special committee and the Ticketmaster board of directors earlier that evening. Following discussion by the members of the executive committee, and subject to the finalization of the necessary documentation, the executive committee determined that the proposed merger was fair to and in the best interests of USA and its stockholders, and approved and adopted the merger agreement and the transactions contemplated by the merger agreement, including the merger, in each case, by the unanimous vote of all members of the executive committee.
Later that evening on October 9, 2002, the parties executed the merger agreement and USA delivered to Ticketmaster its duly executed written consent approving and adopting the merger agreement and the transactions contemplated by the merger agreement, including the merger, as the majority stockholder of Ticketmaster.
Also on October 9, 2002, Mr. Diller held telephonic conversations with members of the special committees formed by each of Expedia, Inc.'s board of directors and Hotels.com's board of directors to inform them that USA was announcing a transaction with Ticketmaster and ending the processes to acquire up to 100% of the equity interests in Expedia, Inc. and Hotels.com that were commenced on June 3, 2002.
In the morning of October 10, 2002, USA and Ticketmaster issued a joint press release publicly announcing the merger agreement.
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In making its decision to approve the merger agreement, including the merger, the executive committee considered the following positive factors relating to the merger:
In making its decision to approve the merger agreement, including the merger, the executive committee also considered the following negative factors relating to the merger:
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In making its decision to approve the merger agreement, including the merger, the executive committee also considered the following neutral factors relating to the merger:
The executive committee believed that the negative factors were substantially outweighed by the benefits anticipated from the merger.
The foregoing discussion of the information and factors considered by the executive committee is not intended to be exhaustive, but includes the material factors considered. In view of the variety of factors considered in connection with its evaluation of the merger, the executive committee did not find it practicable to, and did not, quantify or otherwise attempt to assign relative weights to the specific factors each director considered in reaching his or her determination.
The Special Committee's and Ticketmaster's Reasons for the Merger
The Special Committee's Reasons for the Merger
In reaching its determination, the special committee considered:
and the special committee's conclusion that the economic terms reflected by the 0.935 exchange ratio and contained in the merger agreement represent the best economic terms that could be obtained from USA;
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contemplated thereby, the exchange ratio of 0.935 of a share of USA common stock for each share of Ticketmaster common stock implied a premium of approximately 19.2%;
The special committee also considered a number of negative factors in its deliberations concerning the merger, including:
The special committee believed that these negative factors were substantially outweighed by the benefits anticipated from the merger.
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In evaluating the merger, the members of the special committee considered their knowledge of the business, financial condition and prospects of Ticketmaster, and the advice of its advisors. In light of the number and variety of factors that the special committee considered in connection with their evaluation of the merger, the special committee did not find it practicable to assign relative weights to the foregoing factors. Rather, the special committee made its determination based upon the total mix of information available to it.
Ticketmaster's Reasons for the Merger
In determining the fairness of the terms of the merger and approving the merger agreement and the transactions contemplated thereby, the Ticketmaster board of directors considered the factors described above under "—The Special Committee's and Ticketmaster's Reasons for the Merger." In approving the merger agreement and the transactions contemplated thereby, the Ticketmaster board of directors concurred with and adopted the analysis of the special committee with respect to the financial evaluation of Ticketmaster and of the exchange ratio.
In evaluating the merger, the members of the Ticketmaster board of directors considered their knowledge of the business, financial condition and prospects of Ticketmaster, and the advice of its advisors. In light of the number and variety of factors that Ticketmaster's board of directors considered in connection with their evaluation of the merger, Ticketmaster's board of directors did not find it practicable to assign relative weights to the foregoing factors. Rather, Ticketmaster's board of directors made its determination based upon the total mix of information available to it.
Opinion of the Financial Advisor to the Special Committee
The special committee of the board of directors of Ticketmaster retained Credit Suisse First Boston to act as its financial advisor in connection with the merger. In connection with Credit Suisse First Boston's engagement, the special committee requested that Credit Suisse First Boston evaluate the fairness of the exchange ratio to holders of Ticketmaster common stock, other than USA and its affiliates. On October 9, 2002, the special committee met to review the proposed merger and the terms of the merger agreement. During this meeting, Credit Suisse First Boston reviewed with the special committee certain financial analyses, as described below, and rendered its oral opinion to the special committee, which was subsequently confirmed in writing, that, as of October 9, 2002 and based upon and subject to the various considerations set forth in the Credit Suisse First Boston opinion, the exchange ratio was fair, from a financial point of view, to holders of the Ticketmaster common stock, other than USA and its affiliates.
The full text of the Credit Suisse First Boston opinion, which sets forth, among other things, assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken by Credit Suisse First Boston in rendering its opinion, is attached asAppendix B to this information statement/prospectus and is incorporated by reference into this document in its entirety. Holders of Ticketmaster common stock are urged to read the Credit Suisse First Boston opinion carefully in its entirety. The Credit Suisse First Boston opinion addresses only the fairness of the exchange ratio to holders of Ticketmaster common stock, from a financial point of view, as of the date of the Credit Suisse First Boston opinion, and does not constitute a recommendation to any stockholder as to how such stockholder should act with respect to any matter relating to the merger. The summary of the Credit Suisse First Boston opinion in this information statement/prospectus is qualified in its entirety by reference to the full text of the Credit Suisse First Boston opinion.
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In connection with its opinion, Credit Suisse First Boston, among other things,
In connection with its review, Credit Suisse First Boston did not assume any responsibility for independent verification of any of the foregoing information and relied on such information being complete and accurate in all material respects. With respect to the financial forecasts of Ticketmaster that Credit Suisse First Boston reviewed, Credit Suisse First Boston was advised by Ticketmaster, and Credit Suisse First Boston assumed, that such forecasts had been reasonably prepared on bases reflecting the best currently available estimates and judgments of the management of Ticketmaster as to the future financial performance of Ticketmaster. With respect to the publicly available financial forecasts of USA that Credit Suisse First Boston reviewed, the management of USA reviewed and discussed with Credit Suisse First Boston such forecasts, and advised Credit Suisse First Boston, and Credit Suisse First Boston assumed, with the special committee's consent, that such forecasts represent reasonable estimates and judgments as to the future financial performance of USA. Unless otherwise specified, references to Ticketmaster forecasts mean forecasts based on the Ticketmaster management projections that are summarized in this information statement/prospectus under "Financial Forecasts—Internal Ticketmaster Projections," and references to USA forecasts mean forecasts based on the publicly available Wall Street analyst reports reviewed and discussed with the management of USA. In addition, Credit Suisse First Boston relied upon, without independent verification, the assessments of certain members of the managements of Ticketmaster and USA as to:
Credit Suisse First Boston also assumed, with the special committee's consent, that in the course of obtaining any necessary regulatory and third party approvals and consents for the merger, no modification, delay, limitation, restriction or condition will be imposed that will have a material adverse effect on Ticketmaster or USA or the contemplated benefits of the merger and that the merger will be consummated in accordance with the terms of the merger agreement, without waiver, modification or amendment of any material terms, conditions or agreements contained in the merger agreement. Credit
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Suisse First Boston also assumed, with the special committee's consent, that the merger will be treated as a tax-free reorganization for federal income tax purposes. In addition, the special committee advised Credit Suisse First Boston that USA and its affiliates beneficially own, in the aggregate, in excess of 90% of the voting power of the Ticketmaster Class A common stock and, consequently, Credit Suisse First Boston considered, for purposes of its analysis, the shares of Ticketmaster Class A common stock and Ticketmaster Class B common stock identical in all respects. Credit Suisse First Boston was not requested to make, and did not make, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of Ticketmaster or USA, nor was Credit Suisse First Boston furnished with any such evaluations or appraisals.
The Credit Suisse First Boston opinion is necessarily based upon information made available to it as of the date of its opinion, and upon financial, economic, market and other conditions as they existed and could be evaluated on the date of the Credit Suisse First Boston opinion. Credit Suisse First Boston did not express any opinion as to what the value of USA common stock actually will be when issued to holders of Ticketmaster common stock pursuant to the merger or the prices at which shares of USA common stock will trade at any time. The Credit Suisse First Boston opinion does not address the relative merits of the merger as compared to other business strategies that might be available to Ticketmaster, nor does it address the underlying business decision of Ticketmaster to proceed with the merger. Credit Suisse First Boston was not requested to, and did not, solicit third party indications of interest in acquiring all or any part of Ticketmaster.
In preparing its opinion, Credit Suisse First Boston performed a variety of financial and comparative analyses. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Credit Suisse First Boston believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading view of the processes underlying the Credit Suisse First Boston opinion.
No company or transaction used in the analyses performed by Credit Suisse First Boston as a comparison is identical to Ticketmaster, USA or the contemplated merger. In addition, Credit Suisse First Boston may have given various analyses more or less weight than other analyses, and may have deemed various assumptions more or less probable than other assumptions, so that the range of valuation resulting from any particular analysis described below should not be taken to be Credit Suisse First Boston's view of the actual value of Ticketmaster or USA. The analyses performed by Credit Suisse First Boston are not necessarily indicative of actual values or actual future results, which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value of businesses or assets do not purport to be appraisals or to necessarily reflect the prices at which businesses or assets may actually be sold. The analyses performed were prepared solely as part of Credit Suisse First Boston's analysis of the fairness of the exchange ratio to holders of Ticketmaster common stock, other than USA and its affiliates, from a financial point of view, and were provided to the special committee in connection with the delivery of the Credit Suisse First Boston opinion.
The following is a summary of material financial analyses performed by Credit Suisse First Boston in connection with the preparation of its opinion, and reviewed with the special committee at a meeting of the special committee held on October 9, 2002. Certain of the following summaries of financial analyses that were performed by Credit Suisse First Boston include information presented in tabular format. In order to understand fully the material financial analyses that were performed by Credit Suisse First Boston, the tables should be read together with the text of each summary. The tables alone do not constitute a complete description of the material financial analyses. In addition, Credit Suisse First Boston considered a range of values, where applicable, from $0 to $2.1 billion for the Vivendi Universal Entertainment LLLP, or VUE, securities held by USA. For purposes of the information presented in tabular format, Credit Suisse First Boston assumed a value of $1 billion for the VUE securities held by USA.
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Summary of Relative Valuation Analyses. Credit Suisse First Boston derived implied exchange ratio reference ranges based on a consolidated comparable company trading analysis, consolidated discounted cash flow analysis, contribution analysis, sum-of-the-parts comparable companies analysis, sum-of-the-parts discounted cash flow analysis and precedent exchange ratio premiums paid analysis for Ticketmaster and USA, as more fully described below. Credit Suisse First Boston then compared the exchange ratio in the merger of 0.935 with the exchange ratio reference ranges set forth in the table below:
Credit Suisse First Boston noted that the exchange ratios derived from its relative valuation analyses for USA and Ticketmaster indicated an implied exchange ratio reference range of 0.7694 to 0.9372, as compared to the exchange ratio in the merger of 0.935.
Analysis of Ticketmaster
Transaction Multiples. Credit Suisse First Boston calculated several values implied by the exchange ratio, including the implied price per share of Ticketmaster common stock, the implied premium to the closing share price of Ticketmaster Class B common stock on October 7, 2002, the implied minority pro forma fully-diluted ownership of Ticketmaster stockholders in the combined company, the implied Ticketmaster fully-diluted equity market value, the implied Ticketmaster fully-diluted minority equity market value and the implied Ticketmaster fully-diluted aggregate market value. For purposes of this section of the information statement/prospectus, aggregate market value generally means equity value plus net debt (i.e., total debt, including preferred stock and, where applicable, the minority interests not owned by the majority stockholder, less cash and cash equivalents), often also referred to as enterprise value. The following table summarizes the results of this analysis:
| Implied Price Per Share of Ticketmaster Common Stock | Implied Premium to Market Price Per Share of Ticketmaster Common Stock | Implied Minority Pro Forma Fully- Diluted Ticketmaster Ownership in USA | Implied Ticketmaster Fully-Diluted Equity Market Value (in millions) | Implied Ticketmaster Fully-Diluted Minority Equity Value (in millions) | Implied Ticketmaster Fully-Diluted Aggregate Market Value (in millions) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| $ | 15.60 | 17.3 | % | 9.0 | % | $ | 2,268 | $ | 774 | $ | 2,121 | |||
Credit Suisse First Boston also calculated certain additional values implied by the exchange ratio, including the implied fully-diluted aggregate value of Ticketmaster as a multiple of Ticketmaster's estimated EBITDA for calendar year 2003, and the implied price per share of Ticketmaster common stock as a multiple of Ticketmaster's estimated earnings per share for calendar year 2003. For purposes of this section of the information statement/prospectus, EBITDA generally means earnings before interest, taxes, depreciation and amortization. For purposes of Credit Suisse First Boston's analyses of Ticketmaster, EBITDA was based on Ticketmaster management estimates. For purposes of Credit Suisse First Boston's analyses of USA and of companies comparable to Ticketmaster and USA, EBITDA was based on Wall Street analyst reports. Fully taxed Wall Street forecasts (as referenced in the table below) means Ticketmaster's estimated earnings per share based on Wall Street analyst
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reports and reflect the highest future tax rate applied by such analysts in such reports. Fully taxed base case (as referenced in the table below) means Ticketmaster's estimated earnings per share reflecting Ticketmaster management estimates. These implied values were based on the closing share price of Ticketmaster Class B common stock on October 7, 2002 and the price per share of Ticketmaster common stock implied by the exchange ratio and the value of USA common stock on October 7, 2002. The following table summarizes the results of this analysis:
Historical Exchange Ratio Analysis. Credit Suisse First Boston calculated the average ratio of the closing per share price of Ticketmaster Class B common stock to closing per share price of USA common stock during various periods ended May 31, 2002 and October 7, 2002, and the premium/(discount) of the market exchange ratio and the merger exchange ratio to such average exchange ratios. The average unaffected market exchange ratios set forth in the table below are based on the observed market exchange ratios during the specified periods ended May 31, 2002, the last trading day prior to USA's announcement on June 3, 2002 of its intention to commence an exchange offer to acquire up to 100% of the outstanding shares of Ticketmaster common stock that USA and its affiliates did not already own. The average current market exchange ratios set forth in the table below are based on the observed market exchange ratios during the specified periods ended October 7, 2002. The following tables summarize the results of these analyses:
Exchange Ratio Over Various Time Periods (Unaffected)
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Exchange Ratio Over Various Time Periods (Current)
Consolidated Comparable Company Trading Analysis. Credit Suisse First Boston compared certain financial information of Ticketmaster with that of certain other leading online and ticketing companies, including:
Such information included, among other things, the mean and median of several financial metrics for these companies, including prices per share as a multiple of estimated earnings per share for calendar year 2003, and the fully-diluted aggregate values as a multiple of estimated revenue and estimated EBITDA for calendar year 2003. The multiples were calculated using Ticketmaster management estimates for calendar year 2003 and closing stock prices as of October 7, 2002. The following table summarizes the results of this analysis:
No company utilized as a comparison in the comparable company trading analysis is identical to Ticketmaster or USA. Mathematical analysis, such as determining the average or the median, must be considered along with the other analyses prepared by Credit Suisse First Boston and, is not, in itself, a meaningful method of using comparable company trading data. Credit Suisse First Boston believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading view of the processes underlying the Credit Suisse First Boston opinion.
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Consolidated Discounted Cash Flow Analysis. Credit Suisse First Boston performed a consolidated discounted cash flow analysis to calculate the estimated present value of the unlevered, after-tax free cash flows of Ticketmaster. Credit Suisse First Boston calculated certain implied equity values per share of Ticketmaster common stock based on financial forecasts for Ticketmaster provided to Credit Suisse First Boston by Ticketmaster management. The discounted cash flow analysis was based on various operating assumptions provided by Ticketmaster management, including assumptions relating to, among other items, Ticketmaster's forecasted revenues, operating costs, and taxes. Credit Suisse First Boston's analysis used discount rates ranging from 14.0% to 18.0% and trailing EBITDA exit multiples of 8.5x to 10.5x. The following table summarizes the results of this analysis:
| | Trailing EBITDA Exit Multiple | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Discount Rate | |||||||||
| 8.5x | 9.5x | 10.5x | |||||||
| 14.0% Implied Price per Share of Ticketmaster common stock | $ | 18.11 | $ | 19.65 | $ | 21.20 | |||
| 16.0% Implied Price per Share of Ticketmaster common stock | $ | 16.90 | $ | 18.32 | $ | 19.74 | |||
| 18.0% Implied Price per Share of Ticketmaster common stock | $ | 15.80 | $ | 17.11 | $ | 18.42 | |||
Contribution Analysis. Credit Suisse First Boston analyzed the relative contributions of Ticketmaster and USA to the estimated pro forma total revenues, EBITDA and net income of the combined company for calendar years 2002 and 2003. Credit Suisse First Boston then calculated certain financial metrics implied by Ticketmaster's contribution to such pro forma values, including the implied pro forma fully-diluted ownership of Ticketmaster stockholders (other than USA and its affiliates) and the implied exchange ratio. The following table sets forth the values for such financial metrics:
Sum-of-the-Parts Analysis. Credit Suisse First Boston separately analyzed each of Ticketmaster's ticketing, online personals and city guide business segments. For purposes of this analysis, Credit Suisse First Boston reviewed the estimated implied aggregate value of these business segments based on a public market trading value analysis and a discounted cash flow analysis. Based on an analysis of this data, Credit Suisse First Boston estimated an implied value per share range of Ticketmaster common stock of $13.55 to $17.70 and $15.79 to $21.80 based on a public market trading analysis and a discounted cash flow analysis, respectively.
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(In millions, except per share data)
| | Trading | Discounted Cash Flow | ||
|---|---|---|---|---|
| Ticketing | $1,200 to $1,600 | $1,300 to $1,800 | ||
| Online Personals | $600 to $800 | $800 to $1,100 | ||
| Cityguide | $15 to $35 | $50 to $150 | ||
| Implied Aggregate Value | $1,815 to $2,435 | $2,150 to $3,050 | ||
| Less: Net Debt/(Cash) | ($147) | ($147) | ||
| Implied Ticketmaster Equity Value | $1,962 to $2,582 | $2,297 to $3,197 | ||
| Implied Value per Share of Ticketmaster Common Stock | $13.55 to $17.70 | $15.79 to $21.80 | ||
| % Premium/(Discount) to Current Market Price of Ticketmaster Class B Common Stock as of October 7, 2002 | 2.0% to 33.1% | 18.8% to 64.0% |
Precedent Exchange Ratio Premiums Paid Analysis. Credit Suisse First Boston reviewed the exchange ratio premiums paid in 34 precedent stock-for-stock minority interest purchase transactions since 1990, and 21 precedent stock-for-stock minority interest purchase transactions since 1996. For each group of transactions, Credit Suisse First Boston calculated the mean premium implied by the average exchange ratio in such transactions relative to the average ratio of the closing stock prices for the target companies and the acquiror companies in the transactions over various periods prior to public announcement of such transactions. Credit Suisse First Boston then applied such mean premiums to the ratio of the current and unaffected closing prices of Ticketmaster Class B common stock to the current and unaffected closing prices of USA common stock over the corresponding periods, to calculate the merger exchange ratios implied by these transactions. The following tables summarize the results of this analysis:
Precedent Premiums Paid 1990 - 2002 (34 Deals)
Credit Suisse First Boston noted that the merger exchange ratios implied by the precedent premiums paid in 34 precedent stock-for-stock minority interest purchase transactions since 1990, as applied to the ratio of the unaffected market price of Ticketmaster Class B common stock to the unaffected market price of USA common stock, indicated a range of implied exchange ratios from 0.8841 to 0.9681, as compared to the exchange ratio in the merger of 0.935. Credit Suisse First Boston noted that the merger exchange ratios implied by the precedent premiums paid in 34 precedent stock-for-stock minority interest purchase transactions since 1990, as applied to the ratio of the current market price of Ticketmaster Class B common stock to the current market price of USA common stock, indicated a range of implied exchange ratios from 0.8887 to 0.9415, as compared to the exchange ratio in the merger of 0.935.
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Precedent Premiums Paid 1996 - 2002 (21 Deals)
Credit Suisse First Boston noted that the merger exchange ratios implied by the precedent premiums paid in 21 precedent stock-for-stock minority interest purchase transactions since 1996, as applied to the ratio of the unaffected market price of Ticketmaster Class B common stock to the unaffected market price of USA common stock, indicated a range of implied exchange ratios from 0.8724 to 0.9372, as compared to the exchange ratio in the merger of 0.935. Credit Suisse First Boston noted that the merger exchange ratios implied by the precedent premiums paid in 21 precedent stock-for-stock minority interest purchase transactions since 1996, as applied to the ratio of the current market price of Ticketmaster Class B common stock to the current market price of USA common stock, indicated a range of implied exchange ratios from 0.8604 to 0.9267, as compared to the exchange ratio in the merger of 0.935.
No transaction utilized as a comparison in the precedent exchange ratio premiums analysis is identical to the merger. Mathematical analysis, such as determining the average or the median, must be considered along with the other analyses prepared by Credit Suisse First Boston and, is not, in itself, a meaningful method of using comparable company trading data. Credit Suisse First Boston believes that its analyses must be considered as a whole and that selecting portions of its analyses and of the factors considered by it, without considering all analyses and factors, could create a misleading view of the processes underlying the Credit Suisse First Boston opinion.
Accretion/(Dilution) Analysis. Credit Suisse First Boston analyzed certain pro forma effects expected to result from the merger, including, among other things, the expected effect of the merger on USA's estimated earnings per share for calendar year 2003. The estimated earnings for calendar year 2003 were based on publicly available forecasts prepared by Wall Street securities research analysts. The following table sets forth the resulting accretion/(dilution) to USA's estimated earnings per share (without giving effect to the merger) for calendar year 2003 relative to the combined company's estimated pro forma earnings per share for calendar year 2003 assuming cost savings and other synergies anticipated to result from the merger:
| | Implied | Calendar Year 2003 Estimated Earnings per Share Accretion/ (Dilution)(3) | Multiple to Maintain USA Share Price(1) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Exchange Ratio | Price per Share(2) | Premium to Current Price(2) | |||||||||
| Price/Earnings | EBITDA | ||||||||||
| 0.9350 | $ | 15.60 | 17.3 | % | 0.3 | % | 26.4x | 9.90x | |||
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The actual results achieved by the combined company after the merger may vary from such estimated results and the variations may be material.
Analysis of USA
Sum-of-the-Parts Analysis. Credit Suisse First Boston separately analyzed each of Ticketmaster, Hotels.com, Expedia, Inc. and USA's wholly owned operations, including HSN and PRC. For purposes of this analysis, Credit Suisse First Boston reviewed the estimated implied value of these business segments based on a trading value analysis and a discounted cash flow analysis. Based on an analysis of this data, Credit Suisse First Boston estimated an implied value per share of USA common stock of $15.90 to $22.09 and $19.68 to $26.44 based on a trading value analysis and a discounted cash flow analysis, respectively.
(In millions, except per share data)
| | Trading | Discounted Cash Flow | ||
|---|---|---|---|---|
| Ticketmaster(1) | $1,600 to $2,400 | $2,150 to $3,050 | ||
| Hotels.com | $1,900 to $2,700 | $2,100 to $2,800 | ||
| Expedia, Inc. | $2,100 to $3,000 | $2,700 to $3,600 | ||
| HSN and PRC | $1,300 to $2,000 | $1,900 to $2,900 | ||
| Implied Aggregate Value | $6,900 to $10,100 | $8,850 to $12,350 | ||
| Less: Net Debt/(Cash) | ($559) | ($559) | ||
| Implied Equity Value | $7,459 to $10,659 | $9,409 to $12,909 | ||
| Implied Value per Share of USA Common Stock | $15.90 to $22.09 | $19.68 to 26.44 | ||
| % Premium/(Discount) to Current Market Price of Ticketmaster Class B common stock as of October 7, 2002 | (4.7%) to 32.5% | 18.0% to 58.5% |
Discounted Cash Flow Analysis. Using a discounted cash flow analysis, Credit Suisse First Boston calculated certain implied fully-diluted equity values per share of USA common stock based on financial forecasts for USA based on Wall Street analyst reports. The discounted cash flow analysis was based on various operating assumptions based on Wall Street analyst reports, including assumptions relating to, among other items, revenue, operating costs, taxes, working capital, capital expenditures and depreciation. Credit Suisse First Boston's analysis used discount rates ranging from 13.0% to 17.0% and trailing EBITDA exit multiples of 7.0x to 9.0x. The following table summarizes the results of this analysis:
| | | Trailing EBITDA Exit Multiple | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Discount Rate | | ||||||||||
| | 7.0x | 8.0x | 9.0x | ||||||||
| 13.0 | % | Implied Price per Share of USA Common Stock | $ | 21.82 | $ | 23.81 | $ | 25.80 | |||
| 15.0 | % | Implied Price per Share of USA Common Stock | $ | 20.44 | $ | 22.28 | $ | 24.11 | |||
| 17.0 | % | Implied Price per Share of USA Common Stock | $ | 19.20 | $ | 20.89 | $ | 22.58 | |||
Credit Suisse First Boston's opinion and presentation to the special committee was one of many factors taken into consideration by the special committee in making its determination to recommend the merger. Consequently, the analyses described above should not be viewed as determinative of the opinion of the special committee, the Ticketmaster board of directors or the management of Ticketmaster with respect to the value of Ticketmaster or whether the special committee would have been willing to agree to a different exchange ratio.
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In addition to the fairness opinion analyses described in this section, at the special committee's request, on October 9, 2002, Credit Suisse First Boston separately provided to the special committee a summary of certain information updating the transaction multiple analysis and historical exchange ratio analysis, each of which are described above, to reflect a current market exchange ratio based on the closing share prices of Ticketmaster Class B common stock and USA common stock on October 9, 2002. Based on this data,
The special committee retained Credit Suisse First Boston to act as its financial advisor in connection with the merger. Credit Suisse First Boston was selected by the special committee based on Credit Suisse First Boston's qualifications, expertise and reputation. Credit Suisse First Boston is an internationally recognized investment banking and advisory firm. Credit Suisse First Boston, as part of its investment banking business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the past, Credit Suisse First Boston and its affiliates have provided certain investment banking and financial services unrelated to the merger to Ticketmaster and USA and their respective affiliates for which it received compensation, and may in the future provide certain investment banking and financial services to USA and its affiliates. In the ordinary course of its business, Credit Suisse First Boston and its affiliates may actively trade the debt and equity securities of Ticketmaster and USA for Credit Suisse First Boston's and its affiliates' own accounts and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
Pursuant to an engagement letter dated as of June 12, 2002, the special committee engaged Credit Suisse First Boston to provide financial advisory services to the special committee in connection with the merger, including, among other things, rendering its opinion. Pursuant to the terms of the engagement letter, Ticketmaster has agreed to pay Credit Suisse First Boston a customary fee in connection therewith, a significant portion of which is contingent upon the consummation of the merger. Credit Suisse First Boston will also receive a fee for rendering its opinion. In addition,
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Ticketmaster has agreed to reimburse Credit Suisse First Boston for its out-of-pocket expenses, including attorney's fees, incurred in connection with its engagement and to indemnify Credit Suisse First Boston and certain related persons against certain liabilities and expenses arising out of or in conjunction with its rendering of services under its engagement, including liabilities arising under the federal securities laws.
Material United States Federal Income Tax Consequences
The following description summarizes the material United States federal income tax consequences of the merger for Ticketmaster stockholders. It is based upon the Internal Revenue Code of 1986, as amended (which we refer to as the Code), regulations under the Code, and court and administrative rulings and decisions in effect on the date of this information statement/prospectus, all of which are subject to change, possibly retroactively. Any change could affect the continuing validity of the tax consequences described in this information statement/prospectus. We have not requested and will not request an advance ruling from the U.S. Internal Revenue Service, or the IRS, as to the tax consequences of the merger. This description is not binding on the IRS, and there can be no assurance that the IRS will not disagree with or challenge any of the conclusions described below.
The description applies only to Ticketmaster stockholders who are U.S. persons. For purposes of this description, the term "U.S. person" means:
Our description is not a comprehensive description of all the tax consequences that may be relevant to you. It applies only to Ticketmaster stockholders who hold their shares of Ticketmaster common stock as a capital asset. Further, it assumes that the merger is completed as described in this information statement/prospectus and that all conditions to closing the merger set forth in this information statement/prospectus are satisfied without waiver. No attempt has been made to address all United States federal income tax consequences that may be relevant to a particular Ticketmaster stockholder in light of the stockholder's individual circumstances or to Ticketmaster stockholders who are subject to special treatment under the United States federal income tax laws, such as:
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This description does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction, and it does not address any federal tax consequences other than federal income tax consequences. It does not address the tax consequences of any transaction other than the merger. Accordingly, you are strongly urged to consult with your own tax advisor to determine the particular federal, state, local or foreign income or other tax consequences of the merger to you.
The merger has been structured to qualify as a reorganization for U.S. federal income tax purposes. Assuming that the merger so qualifies, you will generally not recognize gain or loss upon the receipt of shares of USA common stock in exchange for your shares of Ticketmaster common stock, other than any gain or loss recognized on the receipt of cash instead of fractional shares or as a result of validly exercised appraisal rights by holders of Ticketmaster Class A common stock in connection with the merger. In addition, the aggregate basis of the shares of USA common stock that you receive in the merger (including fractional shares deemed received and redeemed as described below) will equal the aggregate basis of your shares of Ticketmaster common stock exchanged in the merger, and the holding period of the shares of USA common stock that you receive in the merger (including fractional shares deemed received and redeemed as described below) will include the holding period of your shares of Ticketmaster common stock exchanged in the merger. USA and Ticketmaster will not be required to complete the merger unless USA receives an opinion from Wachtell Lipton, and Ticketmaster receives an opinion from Mintz Levin, in each case to the effect that, among other things, the merger will qualify as a reorganization for U.S. federal income tax purposes.
Cash received by a holder of Ticketmaster common stock instead of a fractional share interest in USA common stock will be treated as though the fractional share interest were received in the merger and then immediately redeemed for cash, and a Ticketmaster stockholder should generally recognize capital gain or loss measured by the difference between the amount of cash received and the tax basis of the fractional share interest (determined as described above). This gain or loss should be a long-term capital gain or loss if the holding period for the fractional share interest (determined as described above) is greater than one year at the effective time of the merger. Long-term capital gain of a non-corporate stockholder is generally subject to a maximum tax rate of 20%.
A holder of shares of Ticketmaster Class A common stock who receives cash for all of his or her shares of Ticketmaster Class A common stock pursuant to the exercise of appraisal rights in connection with the merger generally will recognize gain or loss equal to the difference between the tax basis of the shares of Ticketmaster Class A common stock surrendered and the amount of cash received, except that any cash received that is or is deemed to be interest for federal income tax purposes will be taxed as ordinary income. Gain or loss that is not treated as ordinary income will be capital gain or loss and any such capital gain or loss will be long term if, as of such time, you have held your shares of Ticketmaster common stock for more than one year. A Ticketmaster stockholder receiving cash pursuant to the exercise of appraisal rights may be required to recognize gain or loss in the year the merger closes, irrespective of whether the stockholder actually receives payment for its shares of Ticketmaster Class A common stock in that year.
Payments in connection with the merger may be subject to "backup withholding" at a 30% rate. Backup withholding generally applies if a holder (a) fails to furnish his or her TIN, (b) furnishes an incorrect TIN, (c) fails properly to include a reportable interest or dividend payment on its United States federal income tax return or (d) under certain circumstances, fails to provide a certified statement, signed under penalties of perjury, that the TIN provided is its correct number and that the stockholder is not subject to backup withholding. Backup withholding is not an additional tax but merely an advance payment, which may be refunded to the extent it results in an overpayment of tax.
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Certain persons generally are entitled to exemption from backup withholding, including corporations, financial institutions and certain foreign stockholders if such foreign stockholders submit a statement, signed under penalties of perjury, attesting to their exempt status. Certain penalties apply for failure to furnish correct information and for failure to include reportable payments in income. Each stockholder should consult such stockholder's own tax advisor as to its qualification for exemption from backup withholding and the procedure for obtaining such exemption.
All stockholders who are U.S. persons exchanging shares of Ticketmaster common stock pursuant to the merger should complete and sign the main signature form and the Substitute Form W-9 included as part of the letter of transmittal, when provided following the completion of the merger, to provide the information and certification necessary to avoid backup withholding (unless an applicable exemption exists and is proved in a manner satisfactory to USA and the exchange agent). Non-corporate foreign stockholders should complete and sign IRS Form W-BEN (such forms will be available from the exchange agent following the completion of the merger), in order to avoid backup withholding.
Tax matters are very complicated, and the tax consequences of the merger to each Ticketmaster stockholder will depend on the facts of that stockholder's particular situation. The United States federal income tax discussion set forth above does not address all United States federal income tax consequences that may be relevant to a particular Ticketmaster stockholder in light of the stockholder's individual circumstances and may not be applicable to stockholders in special situations. You are urged to consult your own tax advisors regarding the specific tax consequences of the merger, including tax return reporting requirements, the applicability of federal, state, local and foreign tax laws and the effect of any proposed changes in the tax laws.
Under Delaware law, holders of shares of Ticketmaster Class B common stock, which are publicly traded, do not have appraisal rights in connection with the merger. However, holders of shares of Ticketmaster Class A common stock at the effective time of the merger who (a) do not wish to accept the consideration provided for in the merger and (b) comply with the procedures provided for in Section 262 of the General Corporation Law of the State of Delaware, or the DGCL, will be entitled to have their shares of Ticketmaster Class A common stock appraised by the Delaware Court of Chancery and to receive a payment in cash of the "fair value" of those shares as determined by the court. The following discussion summarizes provisions of Section 262 of the DGCL regarding appraisal rights that are applicable in connection with the merger. This discussion is qualified in its entirety by reference to Section 262 of the DGCL. A copy of Section 262 is attached to this document asAppendix C, and we urge you to read it carefully in its entirety. If you fail to take any action required by Delaware law, your rights to an appraisal in connection with the merger will be waived or terminated.
Notification of Merger's Effective Time
Within ten days after the effective time of the merger, Ticketmaster will send notice of the effective time and the availability of appraisal rights to each holder of shares of Ticketmaster Class A common stock.
Electing Appraisal Rights
To exercise appraisal rights, the record holder of shares of Ticketmaster Class A common stock must, within 20 days after the date Ticketmaster mails the notice referred to in the prior paragraph, deliver a written demand for appraisal to Ticketmaster. This demand must reasonably inform
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Ticketmaster of the identity of the holder of record and that the stockholder demands appraisal of his, her or its shares of Ticketmaster Class A common stock.
A demand for appraisal must be delivered to: Corporate Secretary, Ticketmaster, 3701 Wilshire Boulevard, Los Angeles, California 90010.
Only Record Holders May Demand Appraisal Rights
Only a record holder of Ticketmaster Class A common stock is entitled to demand appraisal rights. The demand must be executed by or for the record holder, fully and correctly, as the holder's name appears on the holder's stock certificates.
Court Petition Must Be Filed
Within 120 days after the effective time of the merger, Ticketmaster or any holder of shares of Ticketmaster Class A common stock who has satisfied the foregoing conditions may file a petition in the Delaware Court of Chancery demanding a determination of the fair value of shares of Ticketmaster Class A common stock. Neither USA nor Ticketmaster will have any obligation to file such a petition. Holders of Ticketmaster Class A common stock seeking to exercise appraisal rights should initiate all necessary action to perfect their rights within the time periods prescribed by Delaware law.
Within 120 days after the effective time of the merger, any holder of Ticketmaster Class A common stock who has complied with the requirements under Section 262 of the DGCL for exercise of appraisal rights may make a written request to receive from Ticketmaster a statement of the total number of shares of Ticketmaster Class A common stock with respect to which demands for appraisal have been received and the total number of holders of these shares. Ticketmaster will be required to mail these statements within ten days after it receives a written request.
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Appraisal Proceeding by Delaware Court
If a petition for an appraisal is timely filed, after a hearing on the petition, the Delaware Court of Chancery will determine which of the stockholders are entitled to appraisal rights. The court will appraise the shares of Ticketmaster Class A common stock owned by the stockholders and determine their fair value. In determining fair value, the court may consider a number of factors including market values of Ticketmaster Class A common stock, if any, asset values and other generally accepted valuation considerations, but will exclude any element of value arising from the accomplishment or expectation of the merger. The court will also determine the amount of interest, if any, to be paid upon the value of Ticketmaster Class A common stock to the stockholders entitled to appraisal.
The value determined by the court for shares of Ticketmaster Class A common stock could be more than, less than, or the same as the merger consideration, but the form of the consideration payable as a result of the appraisal proceeding would be cash. The court may determine the costs of the appraisal proceeding and allocate them to the parties as the court determines to be equitable under the circumstances. The court may also order that all or a portion of any stockholder's expenses incurred in connection with an appraisal proceeding, including reasonable attorneys' fees and expenses and reasonable fees and expenses of experts utilized in the appraisal proceeding, be charged, on a pro rata basis, against the value of all shares of Ticketmaster Class A common stock entitled to appraisal.
Effect of Appraisal Demand on Voting and Right to Dividends; Tax Consequences
Any stockholder who has duly demanded an appraisal in compliance with Delaware law will not, after the effective time of the merger, be entitled to vote the shares subject to the demand for any purpose. The shares subject to the demand will not be entitled to dividends or other distributions, other than those payable or deemed to be payable to stockholders of record as of a date prior to the effective time. We describe above under "Material United States Federal Income Tax Consequences," the tax consequences to a Ticketmaster stockholder who receives cash for his or her shares of Ticketmaster Class A common stock pursuant to the exercise of appraisal rights.
Loss, Waiver or Withdrawal of Appraisal Rights
Holders of Ticketmaster Class A common stock will lose the right to appraisal if no petition for appraisal is filed within 120 days after the effective time of the merger. A stockholder will also lose the right to an appraisal by delivering to Ticketmaster a written withdrawal of the stockholder demand for an appraisal. Any attempt to withdraw a demand for an appraisal that is made more than 60 days after the effective time of the merger requires Ticketmaster's written approval. If appraisal rights are not perfected or a demand for appraisal rights is timely withdrawn, a stockholder will be entitled to receive the consideration otherwise payable pursuant to the merger, without interest. The number of shares of USA common stock, and cash instead of a fraction of a share of USA common stock, delivered to such stockholder will be based on the same exchange ratio utilized in the merger, regardless of the market price of shares of USA common stock at the time of delivery.
Dismissal of Appraisal Proceeding
If an appraisal proceeding is timely instituted, this proceeding may not be dismissed as to any stockholder who has perfected a right of appraisal without the approval of the court.
Regulatory Approvals Required for the Merger
Except as we have described in this information statement/prospectus, we are not aware of any material regulatory filings or approvals required prior to completing the merger. We intend to make all required filings under the Securities Act and the Exchange Act in connection with the merger.
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Following USA's announcement on June 3, 2002 that it intended to commence exchange offers to acquire up to 100% of the outstanding shares of Ticketmaster, Expedia, Inc., and Hotels.com that it did not already own, a number of complaints against USA, its publicly held subsidiaries (including Ticketmaster) and the boards of directors of its publicly held subsidiaries (including Ticketmaster) were filed by individual stockholders of USA's publicly held subsidiaries in the Court of Chancery, County of New Castle, State of Delaware with respect to Ticketmaster and Hotels.com, in the U.S. District Court for the Central District of California with respect to Ticketmaster, and the Superior Court of the State of Washington for the County of King with respect to Expedia, Inc. The complaints generally allege the exchange offers would be a breach of fiduciary duty and that the indicated exchange ratios were unfair to the minority stockholders of USA's publicly held subsidiaries. Each of the putative class action complaints seeks, among other things, injunctive relief against consummation of the exchange offer, damages in an unspecified amount and rescission in the event the exchange offer occurs. The California complaint was dismissed without prejudice on August 6, 2002, and the complaints challenging the exchange offer with respect to Expedia, Inc. were dismissed without prejudice on November 22, 2002. USA believes that the allegations in the cases are without merit, and Ticketmaster believes that the allegations in the cases naming Ticketmaster and its directors as defendants are without merit.
Effects on the Market for Ticketmaster Common Stock
Following the merger, we intend to cause the delisting of shares of Ticketmaster Class B common stock from the Nasdaq National Market, following which shares of Ticketmaster Class B common stock will not be publicly traded.
Exchange Act Registration
Shares of Ticketmaster Class B common stock are currently registered under the Exchange Act. Following the merger, we will file a Form 15 with the SEC requesting the suspension and termination of registration of shares of Ticketmaster Class B common stock under the Exchange Act.
Accounting Treatment for the Merger
The merger will be accounted for by USA under the purchase method of accounting in accordance with accounting principles generally accepted in the United States. Accordingly, the cost to acquire shares of Ticketmaster common stock and outstanding stock options in excess of approximately 66.3% of the carrying value of Ticketmaster's assets and liabilities will be allocated on a pro rata basis to Ticketmaster's assets and liabilities based on their fair values, with any excess being allocated to goodwill and any identified intangible assets. The determination of asset lives and required purchase accounting adjustments reflected in this document, including the allocation of the purchase price to the assets and liabilities of Ticketmaster based on their respective fair values, is preliminary. See the notes accompanying the Unaudited Pro Forma Combined Condensed Financial Statements of USA contained in this information statement/prospectus.
Shares of USA common stock issued in the merger will not be subject to any restrictions on transfer arising under the Securities Act, except for shares of USA common stock issued to any Ticketmaster stockholder that is, or is expected to be, an "affiliate" of USA or Ticketmaster for purposes of Rule 145 under the Securities Act. Persons that may be deemed to be "affiliates" of USA or Ticketmaster for such purposes generally include individuals or entities that control, are controlled by, or are under common control with, USA or Ticketmaster, respectively, and will include the
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directors of USA and Ticketmaster, respectively. The merger agreement requires Ticketmaster to use its reasonable efforts to cause each of its affiliates to execute a written agreement with USA to the effect that such affiliate will not transfer any shares of USA common stock received as a result of the merger, except pursuant to an effective registration statement under the Securities Act or in a transaction not required to be registered under the Securities Act.
This information statement/prospectus does not cover resales of shares of USA common stock received by any person in connection with the merger, and no person is authorized to make any use of this information statement/prospectus in connection with any resale of shares of USA common stock.
Publicly Disseminated Information
Each of USA's and Ticketmaster's management periodically prepares and publicly announces internal budgets regarding their anticipated operating results. On October 24, 2002, USA filed with the SEC its preliminary forecast for the year ending December 31, 2002, its preliminary budget for the year ending December 31, 2003, and certain limited preliminary growth rates for the year ending December 31, 2004, each of which assumed the completion of the merger. The preliminary forecast, budget information and growth rates filed on October 24, 2002 superseded entirely any similar information previously filed by USA and Ticketmaster. This information filed on October 24, 2002 is incorporated by reference into this information statement/prospectus. See "Where You Can Find More Information." Prior to printing of this information statement/prospectus, neither USA nor Ticketmaster has provided an update to the foregoing information since its public dissemination. The preliminary forecasts, budget and growth information were made on and as of the dates noted, and the reference to these preliminary forecasts, budget and growth information in this information statement/prospectus should not be viewed as an update or a confirmation of that information as of the date of this information statement/prospectus. Except to the extent required under applicable securities laws, neither USA nor Ticketmaster intends to make publicly available any update or other revisions to any of the preliminary forecasts, budget or growth information to reflect circumstances existing after the date of public announcement of such information.
Internal Ticketmaster Projections
As the controlling stockholder of Ticketmaster, USA receives periodically interim projections for Ticketmaster in the ordinary course. The rough preliminary projections set forth below are included in this information statement/prospectus only because this information was obtained by USA prior to the announcement of the merger in connection with USA's existing stockholdings in Ticketmaster, and were not prepared with a view to public disclosure or compliance with the published guidelines of the SEC or the guidelines established by the American Institute of Certified Public Accountants regarding projections or forecasts. The rough preliminary projections were prepared during Ticketmaster's regular, ongoing internal budget review process and do not represent Ticketmaster's final forecast or budget information for the periods presented. Information relating to the periods covered by USA's October 24th press release supersedes, in its entirety, the information contained below. In addition, Ticketmaster's internal financial projections are, in general, prepared solely for internal use and capital budgeting and other management decisions and are subjective in many respects and thus susceptible to interpretations and periodic revisions based on actual experience and business developments. The preliminary projections do not purport to present Ticketmaster's operations or financial condition in accordance with accounting principles generally accepted in the United States, and Ticketmaster's independent auditors have not examined or compiled the preliminary projections and accordingly assume no responsibility for them. In addition, the projections reflect numerous assumptions made by Ticketmaster's management with respect to industry performance, general business, economic, market and financial conditions and other matters, all of which are difficult to predict, many of which are
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beyond Ticketmaster's control, and none of which are subject to approval by USA. Accordingly, there can be no assurance that the assumptions made in preparing the preliminary projections will prove accurate. It is expected that there will be differences between actual and projected results, and actual results may be materially greater or less than those contained in the preliminary projections. The inclusion of the preliminary projections in this document should not be regarded as an indication that any of USA or Ticketmaster or their respective affiliates or representatives considered or consider them to be a reliable prediction of future events, and the preliminary projections should not be relied upon as such.
None of USA, Ticketmaster or any of their affiliates or representatives has made or makes any representation to any person regarding the ultimate performance of Ticketmaster or USA compared to the information contained in the preliminary projections, and to our knowledge, none of them intends to update or otherwise revise the preliminary projections to reflect circumstances existing after the date when made or to reflect the occurrence of future events even in the event that any or all of the assumptions underlying the preliminary projections are shown to be in error.
In August 2002, at the request of the special committee, Ticketmaster provided to the special committee's financial advisors a preliminary forecast for the remainder of 2002, a preliminary budget for 2003 and preliminary consolidated summary financial projections through 2006, none of which reflect the proposed merger. This projection information was confirmed orally by Ticketmaster to Credit Suisse First Boston as containing no material changes as of October 4, 2002. Ticketmaster also provided a copy of the preliminary projections provided to the special committee's financial advisors to USA. The preliminary projections are summarized in the table below.
Ticketmaster Consolidated Preliminary Summary
| | 2002 | 2003 | 2004 | 2005 | 2006 | '02 to '06 CAGR(1) | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In millions, except per share data) | ||||||||||||||||||
| Ticketing | |||||||||||||||||||
| Revenue | $ | 617.1 | $ | 669.3 | $ | 740.0 | $ | 796.9 | $ | 856.6 | 9 | % | |||||||
| EBITDA | 132.5 | 150.0 | 185.5 | 214.9 | 241.5 | 16 | % | ||||||||||||
| Personals | |||||||||||||||||||
| Revenue | 125.2 | 185.1 | 243.5 | 308.5 | 376.5 | 32 | % | ||||||||||||
| EBITDA | 35.4 | 50.4 | 72.6 | 95.8 | 120.7 | 36 | % | ||||||||||||
| City guide | |||||||||||||||||||
| Revenue | 34.0 | 42.9 | 57.0 | 76.5 | 103.5 | 32 | % | ||||||||||||
| EBITDA | (23.0 | ) | (6.2 | ) | 4.1 | 10.8 | 28.2 | ||||||||||||
| Corporate and other | |||||||||||||||||||
| Revenue | — | — | — | — | — | — | |||||||||||||
| EBITDA | (12.0 | ) | (12.3 | ) | (12.7 | ) | (13.1 | ) | (13.5 | ) | (3 | )% | |||||||
| Ticketmaster | |||||||||||||||||||
| Revenue | $ | 776.3 | $ | 897.3 | $ | 1,040.4 | $ | 1,181.9 | $ | 1,336.6 | 15 | % | |||||||
| EBITDA(2) | 132.9 | 181.9 | 249.6 | 308.4 | 377.0 | 30 | % | ||||||||||||
| Operating Income(3) | 18.1 | 69.1 | 150.0 | 239.5 | 302.7 | 102 | % | ||||||||||||
| Net Income(4) | 8.4 | 24.9 | 80.5 | 145.7 | 181.8 | 116 | % | ||||||||||||
| Free Cash Flow(5) | 111.3 | 135.2 | 140.5 | 150.0 | 184.8 | 14 | % | ||||||||||||
| Cash Income(6) | 80.0 | 88.3 | 123.9 | 152.8 | 186.8 | 24 | % | ||||||||||||
| Cash EPS(7) | $ | 0.56 | $ | 0.61 | $ | 0.85 | $ | 1.05 | $ | 1.28 | 23 | % | |||||||
| Free Cash Balance (end)(8) | 183.5 | 318.7 | 459.2 | 609.3 | 794.1 | 44 | % | ||||||||||||
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In connection with Ticketmaster's regular, ongoing internal budget review process, Ticketmaster provides updated preliminary projections to USA from time to time. Prior to signing the merger agreement, USA was provided with an updated preliminary forecast for the remainder of 2002, an updated preliminary "first look" budget for 2003, and updated preliminary consolidated summary financial projections through 2004. The updated preliminary information provided to USA by Ticketmaster, none of which reflect the proposed merger, is summarized in the table below.
Ticketmaster Updated Preliminary Information
| | 2002 | 2003 | 2004 | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In millions, except per share data) | ||||||||||
| Ticketing | |||||||||||
| Revenue | $ | 626.8 | $ | 675.9 | $ | 740.0 | |||||
| EBITDA | 132.5 | 150.0 | 185.5 | ||||||||
| Personals | |||||||||||
| Revenue | 125.8 | 185.5 | 243.5 | ||||||||
| EBITDA | 35.9 | 50.0 | 72.6 | ||||||||
| City guide | |||||||||||
| Revenue | 30.8 | 41.9 | 57.0 | ||||||||
| EBITDA | (23.9 | ) | (7.5 | ) | 4.1 | ||||||
| Corporate and other | |||||||||||
| Revenue | — | — | — | ||||||||
| EBITDA | (12.3 | ) | (13.0 | ) | (13.5 | ) | |||||
| Ticketmaster | |||||||||||
| Revenue | $ | 783.3 | $ | 903.3 | $ | 1,040.5 | |||||
| EBITDA(1) | 132.1 | 179.5 | 248.7 | ||||||||
| Operating Income(1) | 17.3 | 65.1 | 146.3 | ||||||||
| Net Income(1) | 6.9 | 21.4 | 75.9 | ||||||||
| Free Cash Flow(1) | 105.3 | 122.5 | 139.7 | ||||||||
| Cash Income(1) | 78.3 | 84.9 | n/a | ||||||||
| Cash EPS(1) | $ | 0.55 | $ | 0.59 | n/a | ||||||
| Free Cash Balance (end)(1) | 177.5 | 300.0 | 439.7 | ||||||||
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RELATIONSHIPS WITH TICKETMASTER
Relationships with Ticketmaster, its Directors, Officers and Controlled Affiliates
You should be aware of various existing agreements and ongoing and prior arrangements and transactions between USA and its affiliates, on the one hand, and Ticketmaster and its affiliates, on the other hand, as described below. This description is qualified in its entirety by reference to the specific provisions of the documents described below that have been filed with the SEC, which provisions we incorporate by reference into this information statement/prospectus. Copies of those documents have been filed with the SEC. You should also review "Interests of Certain Persons in the Merger" for a description of the interests that directors and executive officers of Ticketmaster (some of whom are executive officers and/or directors of USA) may have in the merger that may be different from, or in addition to, your interests.
USA's Relationships with Ticketmaster
From time to time, Ticketmaster considers entering into transactions with companies and businesses in each of its three principal areas of operations—ticketing, local information and personals—as well as in related areas. These transactions range in possibility from ordinary course commercial arrangements to significant business combinations, including by acquisition, merger, consolidation, joint venture or otherwise. During the prior two years, for instance, Ticketmaster has explored dozens of potential alternative business combination transactions that have not resulted in definitive arrangements, ranging in value from a few million dollars to several hundred million dollars. Ticketmaster will frequently consult with USA regarding these contemplated transactions by Ticketmaster, whether or not such transactions would require the approval of Ticketmaster's board of directors. Similarly, USA consults with Ticketmaster from time to time regarding potential opportunities that are presented to USA that USA believes Ticketmaster may have interest in pursuing. A number of the transactions that have been contemplated by Ticketmaster during the prior two years have also involved participation by or support from USA in the form of promotional support, use of USA common stock as consideration, loans to Ticketmaster in the case of an acquisition and/or combinations of the foregoing.
While most of the transactions explored by Ticketmaster and its subsidiaries have not resulted in definitive arrangements, both within and outside the ordinary course of business, Ticketmaster and its affiliates, other than USA and its controlled affiliates, on the one hand, and USA and its affiliates, other than Ticketmaster and its controlled affiliates, on the other hand, have engaged in various transactions during the prior two years, as described below. USA and Ticketmaster expect that these transactions are on terms that are at least as favorable to Ticketmaster as those that could have been obtained from a third party, where applicable.
The Ticketmaster Combination
In November 2000, Ticketmaster Online-Citysearch, Inc., the predecessor to Ticketmaster, entered into a contribution agreement with USA that provided for the acquisition by Ticketmaster of the businesses of Ticketmaster Group and its subsidiaries from USA in exchange for 52 million new shares of Ticketmaster common stock. We refer to this transaction in this document as the Ticketmaster combination. Upon the closing of the Ticketmaster combination, Ticketmaster changed its name from Ticketmaster Online-Citysearch, Inc. to Ticketmaster. The Ticketmaster combination was effected in the two steps described below, both of which occurred at the closing on January 31, 2001:
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and are still held by Ticketmaster Corporation. In exchange for the contributions by Ticketmaster Corporation, Ticketmaster issued to Ticketmaster Corporation a number of shares of Ticketmaster common stock equal to the fair market value of the equity interests and assets contributed by Ticketmaster Corporation to Ticketmaster.
As a result of the Ticketmaster combination, Ticketmaster Group and the former subsidiaries of Ticketmaster Corporation whose equity interests were contributed to Ticketmaster became direct subsidiaries of Ticketmaster, and Ticketmaster Corporation became an indirect subsidiary of Ticketmaster. As a result of the Ticketmaster combination, USA owned an additional 52 million shares of Ticketmaster common stock. The other shares issued to USA in connection with the Ticketmaster combination only replaced shares that were indirectly owned by USA prior to the Ticketmaster combination and that a subsidiary of Ticketmaster now owns as a result of the Ticketmaster combination. Accordingly, these other shares did not increase USA's percentage ownership of Ticketmaster's capital stock.
License Agreement with Ticketmaster Corporation
In 2001, Ticketmaster paid approximately $6.9 million in license fees to Ticketmaster Corporation pursuant to a license agreement under which Ticketmaster sold tickets available through Ticketmaster Corporation on Ticketmaster's ticketmaster.com website. In 2000, Ticketmaster paid approximately $31.2 million in license fees to Ticketmaster Corporation pursuant to the license agreement. The license agreement was terminated upon the consummation of the Ticketmaster combination.
Promotional Arrangements between USA and Ticketmaster
USA has arrangements in place with Ticketmaster, under which USA has provided advertising to Ticketmaster on USA's formerly owned television properties, Sci-Fi Channel and USA Network. On May 7, 2002, USA contributed those assets, together with all of its other entertainment assets, to VUE as part of the VUE transaction. Pursuant to such arrangements, during 2001, Ticketmaster received a total of $21.3 million from USA in the form of advertising, for which no consideration was paid. Of the $21.3 million, $9.7 million was provided to satisfy an obligation of Ticketmaster to a third party business partner and $11.6 million was provided to Ticketmaster and recorded as sales and marketing expense. The advertising provided by USA was reflected as a reduction of the $16.0 million receivable of promotional services due from the sale of TMC Realty by Ticketmaster to USA and as an equity contribution of $5.3 million. During the years ended December 31, 2000 and 1999, Ticketmaster received additional equity investments of $7.3$6.2 million and $0.2$36.9 million respectively, from USA in the form of advertising, for which no consideration was paid. During the nine months ended September 30, 2002, Ticketmaster received a total of an additional $6.4 million in equity investments in the form of advertising from USA, of which $4.7 million was provided to satisfy Ticketmaster's obligation to a third party business partner and $1.7 million was provided to Ticketmaster. As of September 30, 2002, USA was committed to provide an additional $7.0 million to satisfy the remaining third party obligation for no additional consideration and notwithstanding the contribution of those television properties to VUE.
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Ticketmaster's Line of Credit from USA
In connection with the Ticketmaster combination, Ticketmaster entered into a revolving credit facility with USA that provided Ticketmaster with $25 million in available credit at USA's borrowing rate through May 1, 2001, subject to certain terms and conditions. All amounts borrowed under the revolving credit facility were payable upon demand. During 2001, Ticketmaster borrowed and repaid USA $24 million under the terms of the revolving credit facility. Ticketmaster also had outstanding an additional $0.1 million of letters of credit with third parties which are guaranteed by USA.
TMC Realty
In the contribution agreement pursuant to which the Ticketmaster combination was effected, Ticketmaster granted USA an option to acquire all of Ticketmaster's interest in TMC Realty LLC (formerly TMC Realty Co.), an entity whose primary asset is an office building located in Hollywood, California, which is used as the Los Angeles office of USA and its affiliates. USA exercised the option in 2001 and Ticketmaster completed the transfer of its interest in TMC Realty to USA in February 2001. As consideration for Ticketmaster's interest in TMC Realty, USA assumed all liabilities of TMC Realty outstanding prior2002, respectively, relate to the closingwrite-off of the Ticketmaster combinationfixed assets, leasehold improvements and agreed to provide to Ticketmaster promotional services equalUSA's investment in value to $28.8 million minus the value of all TMC Realty liabilities assumed by USA.
Hotels.com
Ticketmaster had an arrangement with Hotels.com, pursuant to which Ticketmaster sold hotel rooms to its Citysearch.com customers and provided certain advertising and distribution services to Hotels.com. Under the arrangement, Ticketmaster marketed Hotel.com's hotel products via the Internet in return for (a) links from Hotels.com's websites and newsletters to the Citysearch.com web site; and (b) a 5% commission on the gross revenues generated from rooms booked through the Citysearch.com website. This arrangement was terminated on May 30, 2002, although certain commission payments are expected to be received following such date. The commission paid by Hotels.com to Ticketmaster pursuant to this arrangement was $0.4 million and $0.1 million for the years ended December 31, 2001 and 2000, respectively, and $0.4 million in 2002 through September 30, 2002.
Ticketmaster also has entered into an arrangement with Hotels.com, pursuant to which Ticketmaster provides outsourced call center services to Hotels.com. For the years ended December 31, 2001 and December 31, 2000, Ticketmaster received fees of $1.4 million and $0.3 million, respectively, from Hotels.com under this arrangement.
Expedia, Inc.
On June 4, 2002, Expedia, Inc. and Ticketmaster announced a strategic alliance. The agreement includes the creation of Citysearch's new "Getaways Channel," a content area that enables site visitors to plan and book trips using Expedia.com's booking engine, the addition of Citysearch local content to Expedia.com, and the availability of selected Ticketmaster events when travelers shop for flights or hotels on Expedia.com. Through the alliance, Citysearch will also become a preferred provider of local content on Expedia, Inc., distributing information on attractions, restaurants, music and nightlife, sports and recreation, and shopping. For the nine months ended September 30, 2002, Ticketmaster received $0.2 million from Expedia, Inc. for these services.
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Electronic Commerce Service
In June 2000, Ticketmaster's Electronic Commerce Service operations with net assets of $0.2 million were transferred to USA. The transfer was accounted for as an exchange of assets between entities under common control. No gain or loss was recognized upon the transfer.
Other Arrangements between USA and Ticketmaster
Ticketmaster Corporation, a wholly owned subsidiary of Ticketmaster, either alone or with subsidiaries of USA, is party to a number of arrangements with USA and its other subsidiaries. These arrangements include the following:
Each of USA's subsidiaries, including Ticketmaster, participates in USA's healthmarketing expense and welfare benefit plans, with a portion of the costs allocated to such subsidiaries.
USA's Relationships with Executive Officers and Directors of Ticketmaster
USA's Representation on the Ticketmaster Board
Five of the eleven directors of Ticketmaster at the time Ticketmaster's board approved the merger agreement—Barry Diller, Victor Kaufman, Dara Khosrowshahi, Julius Genachowski and Daniel Marriott—are executive officers of USA, and two of them—Messrs. Diller and Kaufman—are also directors of USA. In addition, Richard Barton, president and chief executive officer of Expedia, Inc., previously served as a director of Ticketmaster until August 16, 2002 and David Ellen, an officer of USA, joined the Ticketmaster board on November 4, 2002 to replace Mr. Genachowski. Please see USA's definitive proxy statement, dated April 30, 2002, which is incorporated by reference into this information statement/prospectus, for information regarding USA's arrangements with those executive officers and directors of USA.
Amendment of Daniel Marriott Employment Agreement
In connection with Mr. Marriott's separation from Ticketmaster and his becoming an executive officer of USA, Ticketmaster and Mr. Marriott amended his employment agreement to provide that stock options and restricted stock granted by Ticketmaster to Mr. Marriott will continue to vest while he is employed by USA and, in the case of his stock options, continue to be exercisable until 90 days after his separation from USA. Mr. Marriott's obligations to not compete with Ticketmaster's businesses and to maintain the confidentiality of Ticketmaster's information were extended to one year after his separation from USA. In connection with this amendment, Ticketmaster recognized a one-time non-cash compensation expense of $541,325 in the first quarter of 2002 which was incremental to the compensation expense it would have recognized had Mr. Marriott left Ticketmaster and not joined USA.
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Equity Based Compensation Provided by USA
In the ordinary course of business, employees of USA's affiliates, including Ticketmaster, may participate in one or more of USA's equity based or other benefit plans, including Ticketmaster equity based plans assumed by USA in connection with USA's 1998 acquisition of Ticketmaster Group, Inc. In addition, in the ordinary course of business and from time to time, officers and directors of Ticketmaster and USA's other subsidiaries have been granted restricted stock awards with respect to shares of USA common stock and options to acquire shares of USA common stock.
See also "Certain Relationships and Related Party Transactions" (or similar captions) contained in the 2002 definitive proxy statements of USA, Ticketmaster, Expedia, Inc. and Hotels.com and the "Related Party Transactions" and "Business Acquisitions" (or similar captions) notes to the audited financial statements of such companies included in their respective Annual Reports for the year ended December 31, 2001 (or in the case of Expedia, the six-month period ended December 31, 2001), all of which are incorporated into this document by reference.
Relationships with Other Affiliates of Ticketmaster
USA owns controlling interests in Ticketmaster, Hotels.com, Expedia, Inc. and Styleclick, Inc. As a result, each of Hotels.com, Expedia, Inc. and Styleclick, Inc., as well as other majority or wholly owned subsidiaries of USA, all of which are affiliates of USA, may also be deemed affiliates of Ticketmaster. The following information summarizes the material arrangements between USA and its affiliates or material arrangements between affiliates of USA. Except as otherwise described, none of Ticketmaster nor any of its subsidiaries is a party to any of the following arrangements.
Generally
In the ordinary course of business, USA engages in a number of commercial and administrative transactions with its affiliates, and several of USA's affiliates engage in transactions with each other. Except as otherwise described in this information statement/prospectus, we do not believe that any of those commercial or administrative transactions are material to USA. Examples of such transactions include, among other things:
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Hotels.com
During 2001, USA contributed $0.5 million of television advertising on its cable channels to Hotels.com for which Hotels.com paid no consideration. Additionally, during the first quarter of 2002, USA contributed $0.9 million of television advertising on its cable channels for which Hotels.com paid no consideration.
In March 2002, Hotels.com entered into an arrangement with PRC, a subsidiary of USA, for outsourced call center services. Fees paid by Hotels.com to PRC during the nine months ended September 30, 2002 were $1.2 million.
Expedia, Inc.
On February 4, 2002, USA completed its acquisition of a controlling interest in Expedia, Inc. through a merger transaction. Immediately following the merger, USA owned all of the outstanding shares of Expedia, Inc.'s high-vote stock, representing approximately 64.2% of its outstanding shares, and 94.9% of the voting interest in Expedia, Inc. On February 20, 2002, USA acquired an additional 936,815 shares of Expedia, Inc.'s low-vote stock, increasing its ownership to approximately 65% of Expedia, Inc.'s outstanding shares, with USA's voting percentages remaining unchanged.
In connection with the Expedia transaction, USA granted to Expedia, Inc. the right to advertising, marketing and promotion time, valued at $15 million for each of the five years after consummation of the merger, on the various media outlets related to USA. In addition, Expedia, Inc. received a two-year option to purchase a one-third interest in a new television channel to be developed by USA. The exercise price of the option will equal one-third of USA's cost, plus interest, up to the date of exercise.
Hotels.com and Expedia, Inc., both of which companies are controlled by USA, have previously announced that they would explore areas where the two companies might work together in ways that would benefit each of their respective customers and stockholders. Although there continue to be many areas of the companies' respective businesses where Hotels.com and Expedia, Inc. have decided that they can best achieve their goals through separate strategies and practices, there have been instances where, fully consistent with each company's existing contractual agreements, Hotels.com and Expedia, Inc. have worked cooperatively with each other, and each of Hotels.com and Expedia, Inc. anticipates that they will continue to explore such possibilities in the future.
Styleclick
On July 27, 2000, USA and Styleclick.com Inc., an enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network, a subsidiary of USA, and Styleclick.com. The entities were merged with a new company, Styleclick, Inc., which owns and operates the combined properties of Styleclick.com and ISN. Styleclick, Inc. is traded on the OTC under the symbol "IBUYA." In accordance with the terms of the merger agreement, USA invested $40 million in cash and agreed to contribute $10 million in dedicated media, and received warrants to purchase additional shares of the new company. At closing, Styleclick.com repaid $10 million of borrowings outstanding under a bridge loan provided by USA. The aggregate purchase price, including transaction costs, was $211.9 million. As of September 30, 2002, Styleclick owed approximately $12.35 million to USA under an outstanding $15 million line of credit.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
You should be aware that, as described below, some of the executive officers and directors of Ticketmaster, including those who are also executive officers and/or directors of USA, may have interests in the merger that may be different from, or in addition to, the interests of the other stockholders of Ticketmaster generally. The Ticketmaster board of directors and its special committee, and the executive committee of the USA board of directors, were aware of these interests and considered them, among other matters, in approving the merger, the merger agreement and the transactions contemplated by the merger agreement. At the close of business on September 15, 2002, executive officers and directors of Ticketmaster beneficially owned approximately 1.49% of the outstanding shares of Ticketmaster common stock (excluding the shares of Ticketmaster common stock held by USA that Mr. Diller may be deemed to beneficially own), collectively representing less than one percent of the total voting power of shares of Ticketmaster common stock outstanding on that date. At the close of business on September 15, 2002, executive officers and directors of USA beneficially owned less than 1% of the outstanding shares of Ticketmaster common stock (excluding the Ticketmaster shares held by USA that Mr. Diller may be deemed beneficially to own), collectively representing less than one percent of the total voting power of Ticketmaster shares outstanding on that date. As USA has delivered a written consent approving the merger, the vote of the directors and executive officers of Ticketmaster and USA in their capacities as stockholders of Ticketmaster is not required to approve the merger.
Treatment of Employee and Director Stock Options and Restricted Stock
Pursuant to the merger agreement and the terms of Ticketmaster's various stock plans, at the effective time of the merger, each Ticketmaster stock option outstanding and unexercised at the effective time of the merger will cease to represent an option to purchase Ticketmaster common stock and will be converted into an option to acquire a number of shares of USA common stock equal to the number of shares of Ticketmaster common stock subject to the option immediately prior to the effective time of the merger multiplied by 0.935, the exchange ratio in the merger, rounded to the nearest whole number of shares of USA common stock. The per share exercise price for the converted option will be the per share exercise price for the corresponding Ticketmaster stock option immediately prior to the effective time divided by the exchange ratio. The converted stock options will otherwise continue to be governed by the same terms and conditions as immediately prior to the completion of the merger.
Assuming that the executive officers and directors of Ticketmaster exercise no Ticketmaster options from the date of this information statement/prospectus through the effective time of the merger and no Ticketmaster option grants are made following the date of this information statement/prospectus, the number of Ticketmaster options that would convert into options to purchase shares of USA common stock at the effective time of the merger for each of the Ticketmaster directors who hold options and who are not employees of USA or Ticketmaster and each of the named executive officers of Ticketmaster who remain employed with Ticketmaster would be: 55,000 for Mr. Alan Spoon, 45,000 for Mr. Robert Davis, 55,000 for Mr. Bryan Lourd, 45,000 for Mr. Michael Schrage, 357,250 for Mr. Terry Barnes, 1,047,025 for Mr. John Pleasants (including options to acquire 75,000 restricted shares of Ticketmaster common stock), 590,000 for Mr. Thomas McInerney (including options to acquire 5,000 restricted shares of Ticketmaster common stock), and 187,126 for Mr. Brad Serwin. The number of options that would convert into options to purchase shares of USA common stock at the effective time of the merger held by the executive officers and directors of Ticketmaster (other than the directors and executive officers referred to above) would be approximately 1,230,523 (including options to acquire 25,000 restricted shares of Ticketmaster common stock) in the aggregate.
Assuming that the executive officers and directors of Ticketmaster exercise no Ticketmaster options from the date of this information statement/prospectus through the effective time of the merger
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and no Ticketmaster options to purchase restricted shares of Ticketmaster common stock are granted following the date of this information statement/prospectus, the number of Ticketmaster options to purchase restricted shares of Ticketmaster common stock that would convert into options to purchase restricted shares of USA common stock at the effective time of the merger for each of Messrs. John Pleasants, Daniel Marriott and Thomas McInerney would be 75,000, 20,000 and 5,000, respectively. None of the other Ticketmaster directors or named executive officers hold any Ticketmaster options to purchase restricted shares of Ticketmaster common stock that would convert into options to purchase restricted shares of USA common stock at the effective time of the merger.
Assuming that Mr. Marriott exercises no Ticketmaster options from the date of this information statement/prospectus through the effective time of the merger and no Ticketmaster option grants are made following the date of this information statement/prospectus, Mr. Marriott may be deemed to beneficially own 800,523 Ticketmaster options (including options to acquire 20,000 restricted shares of Ticketmaster common stock) that would convert into options to purchase shares of USA common stock at the effective time of the merger. No other executive officer or director of USA holds any Ticketmaster options that would convert into options to purchase shares of USA common stock at the effective time of the merger.
Options to acquire shares of USA common stock will not be affected by the merger, and will remain outstanding following completion of the merger. As of September 15, 2002, Messrs. Terry Barnes, John Pleasants, Thomas McInerney and Brad Serwin held options to acquire 245,000, 315,000, 85,000 and 25,000 shares of USA common stock, respectively, of which options to acquire 80,000, 107,500, 7,500, and no shares of USA common stock, respectively, were exercisable within 60 days of September 15, 2002. In addition, as of September 15, 2002, Messrs. Terry Barnes and Brad Serwin held 33,000 and 1,000 restricted shares of USA common stock subject to vesting.
Other than as described above, or under "Beneficial Ownership of Shares of USA and Ticketmaster," no Ticketmaster director or executive officer beneficially owned any USA shares or Ticketmaster shares as of September 15, 2002. Other than as set forth above, or under "Beneficial Ownership of Shares of USA and Ticketmaster," no USA director or executive officer beneficially owned any USA shares or Ticketmaster shares as of September 15, 2002.
Composition of Ticketmaster's and USA's Boards of Directors
Five of the eleven directors of Ticketmaster at the time Ticketmaster's board approved the merger agreement—Barry Diller, Victor Kaufman, Dara Khosrowshahi, Julius Genachowski and Daniel Marriott—are executive officers of USA, and two of them—Messrs. Diller and Kaufman—are also directors of USA. On November 4, 2002, David Ellen, an officer of USA, joined the Ticketmaster board to replace Mr. Genachowski. Two other directors of Ticketmaster—Terry Barnes and John Pleasants—are current executive officers of Ticketmaster. Upon completion of the merger, the directors of T Merger Corp. will become the directors of Ticketmaster. USA also may approach certain of the non-USA directors of Ticketmaster to serve on the boards of directors of USA and/or its other subsidiaries.
On September 11, 2002, at a regularly scheduled meeting of the compensation committee of the USA board of directors, the compensation committee approved certain arrangements with Sean Moriarity, Executive Vice President—Products & Technology of Ticketmaster, Paul LaFontaine, Executive Vice President—Emerging Markets of Ticketmaster, Thomas McInerney, Executive Vice President and Chief Financial Officer of Ticketmaster, and Jeff Goldstein, Vice President—Corporate Strategy and Development of Ticketmaster.
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Following such approval, and approval by the compensation committee of Ticketmaster's board of directors, Ticketmaster entered into formal agreements with each of Messrs. Moriarity, LaFontaine, McInerney and Goldstein. Mr. McInerney's agreement was superseded by a subsequent agreement with USA, which is described below. Under the terms of the agreements, in the event that the executive's responsibilities are materially diminished from those in effect on May 31, 2002 (or in the case of Mr. Goldstein only, the executive is reassigned to a single business unit or is relocated at least 100 miles from his current place of employment, or, in the case of Mr. McInerney only, Ticketmaster ceases to be a publicly traded entity, which will occur upon consummation of the merger), the executive will discuss with Ticketmaster whether the executive will continue to be employed by Ticketmaster and, if so, in what capacity, but neither party will be obligated to continue the employment relationship. If no continuing role is agreed upon (within 60 days after the material diminution in the case of Mr. LaFontaine only), the executive's employment would terminate on the earlier of June 1, 2003 or three months following the material diminution (or other triggering event) or such shorter period as Ticketmaster or USA shall determine, except in the case of Mr. McInerney whose employment would terminate on June 1, 2003. In the event of a termination of employment pursuant to the preceding sentence, the executive will be entitled to:
On December 16, 2002, USA entered into a three-year employment agreement with John Pleasants, which will become effective as of the closing of the merger. Under the agreement, Mr. Pleasants will serve as President, Information and Services, and will initially be responsible for Ticketmaster, Match.com, Citysearch, PRC and, upon the close of the transaction, Entertainment Publications, Inc.
During the employment term, Mr. Pleasants will receive an annual base salary of $600,000 and will be eligible to receive discretionary annual bonuses. On the later of the effective date of the agreement or the date on which the grant is approved by the compensation committee, Mr. Pleasants will receive a grant of 75,000 shares of restricted stock of USA. Such shares will vest on the third anniversary of the date of grant, subject to Mr. Pleasants' continued employment with USA and the attainment of certain specified performance criteria. In addition, USA will reimburse Mr. Pleasants for certain relocation expenses.
Upon a termination of Mr. Pleasants' employment by USA other than for "cause," death or disability, USA will continue to pay Mr. Pleasants his salary for the remainder of the term, as well as pay any earned, but unpaid, base salary and any deferred compensation balance. Generally, upon a termination of Mr. Pleasants' employment by USA other than for "cause," all of Mr. Pleasants' restricted stock will vest. Upon Mr. Pleasants' resignation by reason of certain changes in his reporting responsibilities, Mr. Pleasants will be entitled to vest in a pro rata portion of the restricted stock grant through the date of termination plus an additional 20% of such pro rata portion (but in no event will the aggregate grant of restricted shares exceed 75,000) and the remainder of the restricted stock grant will be forfeited.
On December 16, 2002, USA entered into an employment agreement with Tom McInerney, which supersedes the agreement between Mr. McInerney and Ticketmaster described above. The agreement
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will become effective as of the closing the merger and will continue until terminated by the parties. Under the agreement, Mr. McInerney will serve as President, Electronic Retailing, and will initially be responsible for HSN and the related TV, Web and catalog business.
During the employment term, Mr. McInerney will receive an annual base salary of $450,000 and will be eligible to receive discretionary annual bonuses. On the later of the effective date of the agreement or the date on which the grant is approved by the compensation committee, Mr. McInerney will receive a grant of 50,000 shares of restricted stock of USA. Such shares will vest on the third anniversary of the date of grant, subject to Mr. McInerney's continued employment with USA and the attainment of certain specified performance criteria. In addition, USA will reimburse Mr. McInerney for certain travel expenses, including certain relocation and commuting and living expenses.
Upon Mr. McInerney's resignation for any reason after June 30, 2003, (1) USA will pay any earned, but unpaid, base salary and will pay Mr. McInerney his deferred compensation balance, (2) any restricted stock or stock options granted to Mr. McInerney on or before May 31, 2002 by USA or Ticketmaster and/or Ticketmaster Online-Citysearch, Inc. will continue to vest and generally be exercisable until the date that is 18 months after the date of termination, (3) Mr. McInerney will receive a bonus for fiscal 2002 (to the extent not already paid) and (4) Mr. McInerney will be eligible to receive a discretionary pro-rata annual bonus for the year in which such resignation occurs. Upon a termination of Mr. McInerney's employment by USA other than for "cause," death or disability or in the event of Mr. McInerney's resignation for "good reason," the restricted stock granted under the agreement will vest in fullnon-recurring items, including disengagement expenses and Mr. McInerney will be entitled to all of the rights specified in the preceding sentence, except that instead of being eligible for a pro rata bonus as described in clause (4) above, he will be entitled to receive such a pro-rata bonus.
Compensation of Members of the Special Committee
Each of Messrs. Davis, Lourd, Schrage and Spoon has been compensated for servingrestructuring charges not impacting EBITDA. Adjusted EBITDA is presented here as a member of the special committee. This compensation was authorized by the Ticketmaster board of directors in order to compensate the members of the special committee for the significant additional time commitment that was required of them in connection with fulfilling their dutiesmanagement tool and responsibilities as members of the special committee and was paid without regard to whether the special committee recommended a transaction with USA or whether a transaction with USA is completed. Each of Messrs. Davis, Lourd and Schrage received or will receive $10,000 per month of active service on the special committee up to a maximum of $100,000 per director, and Mr. Spoon, as Chairman of the special committee, received or will receive $15,000 per month of active service on the special committee up to a maximum of $150,000.
On November 4, 2002, the Ticketmaster board of directors passed a resolution providing that, effective upon the separation of the non-employee directors from the Ticketmaster board as a result of the consummation of the merger, all outstanding, but unvested, options to purchase Ticketmaster common stock held by each such director as of immediately prior to the effective time of the merger will become fully vested and immediately exercisable by the respective directors, and the post-termination exercise period for such options will be extended from the three-month period following separation set forth in the plans under which the options were issued, to the second anniversary of the completion of the merger, or if earlier, the expiration of the term of the option. All other provisions of such options will remain in effect as set forth in the plans under which the options were issued, subject to the treatment of such options in the merger as described under "The Merger Agreement—Treatment of Securities in the Merger—Ticketmaster Stock Options and Restricted Stock Awards."
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Under the merger agreement, USA has agreed to cause Ticketmaster, from and after the merger, to fulfill all written employment, severance, termination, consulting and retirement agreements to which Ticketmaster or any of its subsidiaries is a party, pursuant to the terms of those agreements and applicable law.
The merger agreement includes provisions relating to indemnification and insurance for directors, officers and employees of Ticketmaster. See "The Merger Agreement—Covenants—Indemnification; Insurance."
Ticketmaster has entered into separate indemnification agreements with those of its directors who are not employees or officers of Ticketmaster and/or directors or officers of USA. These agreements require Ticketmaster, among other things, to indemnify these directors against certain liabilities that arise by reason of their status or service as directors in connection with any proceeding whether actual or threatened, to which any such person may be made a party by reason of the fact that such person is or was a director of Ticketmaster, provided such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the best interests of Ticketmaster and, with respect to any criminal proceeding, has no reasonable cause to believe such person's conduct was unlawful, and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. The indemnification agreements also set forth certain procedures that will apply in the event of a claim for indemnification.
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This section of the information statement/prospectus describes certain aspects of the merger agreement and the proposed merger. The following descriptionvaluation methodology. It does not purport to represent cash provided by operating activities and should not be complete and is qualifiedconsidered in its entirety by reference to the merger agreement, which is attachedisolation or asAppendix A to this information statement/prospectus and is incorporated herein by reference. We urge Ticketmaster stockholders to read the merger agreement carefully in its entirety.
General Terms a substitute for measures of the Merger Agreement
On October 9, 2002, USA, Ticketmaster and T Merger Corp. entered into an Agreement and Plan of Merger,financial performance or the merger agreement. The merger provided for by the merger agreement will become effective upon the filing of a properly executed certificate of merger with the Secretary of State of the State of Delawareliquidity prepared in accordance with the DGCL. We refer to the effective time of the merger in this document as the effective time.
At the effective time, T Merger Corp. will be merged with and into Ticketmaster, with Ticketmaster surviving as a wholly owned subsidiary of USA. We sometimes refer to Ticketmaster following the completion of the merger as the surviving corporation. At the effective time, the separate existence of T Merger Corp. will cease. At the effective time, the certificate of incorporation of the surviving corporation will be amended and restated in its entirety in accordance with a form agreed to between USA and Ticketmaster, and the by-laws of T Merger Corp. will become the by-laws of Ticketmaster. Also at the effective time, the directors of T Merger Corp. will become the initial directors of the surviving corporation and the officers of Ticketmaster will continue as the officers of the surviving corporation.
Treatment of Securities in the Merger
Ticketmaster Shares
At the effective time, each share of Ticketmaster common stock issued and outstanding immediately prior to the effective time (other than shares held by Ticketmaster, USA or any wholly owned subsidiary of USA, and shares of Ticketmaster Class A common stock held by Ticketmaster stockholders who properly demand dissenters' rights in accordance with Section 262 of the DGCL), will, subject to anti-dilution adjustment of the exchange ratio, be automatically converted into the right to receive 0.935 of a fully paid and nonassessable share of USA common stock. At the effective time, shares of Ticketmaster Class A common stock and Ticketmaster Class B common stock will no longer be outstanding, and will automatically be canceled and retired and will cease to exist, and each certificate previously representing any such shares will thereafter represent only the right to receive the shares of USA common stock to be issued as consideration upon the surrender of those certificates, without interest, except that shares of Ticketmaster Class A common stock and Ticketmaster Class B common stock held by Ticketmaster, USA and any wholly owned subsidiary of USA will be canceled and retired, and will cease to exist, without any payment. No fractional shares of USA common stock will be issued; instead, a cash payment will be made to the holders of shares of Ticketmaster common stock who would otherwise be entitled to receive a fractional share of USA common stock. See "—Cash Instead of Fractional Shares."
If, between the date of the merger agreement and the effective time, the outstanding shares of USA common stock are changed into a different number of shares or a different class by reason of any reclassification, recapitalization, reorganization, split-up, stock dividend (including any dividend or distribution of securities convertible into, or exercisable or exchangeable for, USA common stock), stock combination, exchange of shares, readjustment or otherwise, as the casegenerally accepted accounting principles. Adjusted EBITDA may be, then the exchange ratio will be correspondingly adjusted.
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At the effective time, each outstanding share of common stock, par value $0.01 per share, of T Merger Corp., or T Merger Corp. common stock, will be automatically converted into a number of validly issued, fully paid and nonassessable shares of Class B common stock, par value $0.01 per share, of the surviving corporation, or Surviving Corporation Class B common stock. Because USA is the sole holder of all shares of T Merger Corp. common stock, USA will be the sole holder of all outstanding shares of Surviving Corporation Class B common stock. Shares of Surviving Corporation Class B common stock will generally entitle their holder to 15 votes for each such share on all matters submitted for the vote or consent of surviving corporation stockholders, and will vote together with shares of Surviving Corporation common stock (as described below).
On the date that the merger agreement was executed, Ticketmaster Corporation, an indirect wholly owned subsidiary of Ticketmaster, held 50,260,401 shares of Ticketmaster Class B common stock and 42,480,143 shares of Ticketmaster Class A common stock. Prior to the effective time, Ticketmaster will file a certificate of designations with the Secretary of State of the State of Delaware to designate the powers, preferences, rights and qualifications, limitations and restrictions of the preferred stock, par value $0.01 per share, of Ticketmaster, or Ticketmaster preferred stock. Following the filing of the certificate of designations, each share of Ticketmaster preferred stock will have voting, dividend and liquidation rights equivalent to 92,740,544 shares of Ticketmaster common stock, except that shares of Ticketmaster preferred stock will have a liquidation preference equal to $0.01 per share. Immediately prior to the effective time, Ticketmaster will cause all of the Ticketmaster shares held by Ticketmaster Corporation to be exchanged for one share of Ticketmaster preferred stock, which will be the only share of Ticketmaster preferred stock outstanding at such time. At the effective time, this share of Ticketmaster preferred stock will be automatically converted into 92,740,544 validly issued, fully paid and nonassessable shares of common stock, par value $0.01 per share, of the surviving corporation, or Surviving Corporation common stock. Surviving Corporation common stock will be entitled to one vote per share on all matters submitted for the vote or consent of surviving corporation stockholders, and will vote together with shares of Surviving Corporation Class B common stock.
Ticketmaster Stock Options and Restricted Stock Awards
At the effective time, each outstanding unexpired and unexercised option to purchase shares of Ticketmaster common stock will be automatically converted at the effective time into an option to purchase shares of USA common stock, in a number determined by multiplying the number of Ticketmaster shares that could have been purchased under the Ticketmaster option immediately prior to the effective time by 0.935, the exchange ratio, rounded to the nearest whole number of shares of USA common stock. The exercise price per share of these options will equal the per-share exercise price of the corresponding Ticketmaster option divided by the exchange ratio. The converted USA options will be subject to the same terms and conditions as the corresponding Ticketmaster options.
At the effective time, USA will assume Ticketmaster's obligations with respect to each award of Ticketmaster common stock that is subject to restrictions on vesting or transfer or subject to a repurchase right that is outstanding immediately prior to the effective time. The restricted stock awards so assumed will continue to have, and be subject to, the same terms and conditions as provided in the applicable Ticketmaster stock plan and agreements under which the restricted stock award was granted as in effect immediately prior to the effective time. In accordance with the applicable plans and agreements, the assumed restricted stock awards will be converted into a number of shares of USA common stock equal to the number of Ticketmaster shares subject to the restricted stock award immediately prior to the effective time multiplied by the exchange ratio, rounded to the nearest whole number of shares of USA common stock.
�� USA has agreed to file a registration statement on Form S-8 or another appropriate registration statement covering the shares of USA common stock underlying the assumed options and assumed
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restricted stock awards at or prior to the effective time and to keep that registration statement current and effective for so long as the assumed options and restricted stock awards remain outstanding.
Ticketmaster Warrants
To the extent expressly required by the terms of any warrant to acquire shares of Ticketmaster common stock, at the effective time, USA will assume Ticketmaster's obligations with respect to each such Ticketmaster warrant outstanding and unexercised immediately prior to the effective time. The Ticketmaster warrants so assumed will continue to have, and be subject to, the same terms and conditions as set forth in the applicable warrant agreements as in effect immediately prior to the effective time, except that (in accordance with, and without duplication of, the provisions set forth in the applicable warrant agreement) (a) each such Ticketmaster warrant will be exercisable solely for a number of shares of USA common stock equal to the product of the number of shares of Ticketmaster common stock subject to such Ticketmaster warrant immediately prior to the effective time multiplied by the exchange ratio of 0.935, rounded to the nearest whole number of shares of USA common stock, and (b) the exercise price with respect to each such Ticketmaster warrant will be appropriately adjusted.
Exchange Agent
USA has appointed The Bank of New York to be the exchange agent under the merger agreement. The exchange agent will accept your certificates for shares of Ticketmaster Class A common stock and/or Ticketmaster Class B common stock, each a Ticketmaster certificate, and exchange them for certificates representing shares of USA common stock and cash instead of fractional shares of USA common stock.
Exchange Procedures
Prior to the effective time, USA will deposit with the exchange agent, for the benefit of the holders of shares of Ticketmaster common stock, certificates representing the shares of USA common stock issuable in the merger.
As soon as practicable after the effective time (but in any event within ten business days after the effective time), the exchange agent will mail to each holder of record of a Ticketmaster certificate, a letter of transmittal and instructions for exchanging their Ticketmaster certificates for the merger consideration. After receipt of the transmittal forms, each holder of a Ticketmaster certificate will be able to surrender his or her Ticketmaster certificate to the exchange agent, and the holder of a Ticketmaster certificate will receive in exchange certificates representing that number of whole shares of USA common stock to which the holder of the Ticketmaster certificate is entitled, together with any cash which may be payable instead of fractional shares of USA common stock and any dividends or other distributions with respect to USA common stock having a record date and paid after the effective time. In the event of a transfer of ownership of shares of Ticketmaster common stock which is not registered on the transfer records of Ticketmaster, a certificate representing the proper number of shares of USA common stock, any cash instead of fractional shares of USA common stock and applicable dividends and distributions may be issued and paid to a transferee if the Ticketmaster certificate representing the applicable Ticketmaster shares is presented to the exchange agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. The consideration to be issued in the merger will be delivered by the exchange agent as promptly as practicable following surrender of a Ticketmaster certificate and any other required documents. No interest will be payable on the merger consideration, regardless of any delay in making payments.
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Dividends and Other Distributions
Holders of shares of Ticketmaster common stock will not be entitledcomparable to receive any dividends or distributions payablecalculations of similarly titled measures presented by USA in respect of USA common stock until they exchange their Ticketmaster certificates for shares of USA common stock. After they deliver their Ticketmaster certificates to the exchange agent, those stockholders will receive, subject to applicable law, the amount of dividends or other distributions on USA common stock having a record date after the effective time previously paid and, at the appropriate payment date, the amount of dividends or other distributions on USA common stock with a record date after the effective time and a payment date after the surrender of such Ticketmaster certificates, without interest.
Cash Instead of Fractional Shares
No fractional shares of USA common stock will be issued upon the surrender of Ticketmaster certificates. No dividend or distribution will relate to any fractional share of USA common stock that would otherwise be issuable in the merger, and those fractional shares of USA common stock will not entitle the owner thereof to any voting rights of a USA stockholder.
Holders of shares of Ticketmaster common stock otherwise entitled to fractional shares of USA common stock, if any, will receive a cash payment instead of the fractional shares of USA common stock they would otherwise be entitled to upon surrender of all of their Ticketmaster certificates. Following completion of the merger, the exchange agent will determine the excess of the number of whole shares of USA common stock delivered to the exchange agent by USA for distribution to Ticketmaster stockholders over the aggregate number of whole shares of USA common stock to be distributed to Ticketmaster stockholders. The exchange agent will then, on behalf of the former Ticketmaster stockholders, sell the excess shares of USA common stock at the then-prevailing prices on the over the counter market, in the manner provided for in the merger agreement, and make the proceeds available for distribution to the former holders of shares of Ticketmaster common stock otherwise entitled to fractional shares of USA common stock upon surrender of their Ticketmaster certificates.
Dissenting Shares
Shares of Ticketmaster Class A common stock which are outstanding immediately prior to the effective time and are held by stockholders who have demanded appraisal rights with respect to their shares of Ticketmaster Class A common stock in accordance with Section 262 of the DGCL will not be converted into the right to receive shares of USA common stock in the merger. Holders of those shares will be entitled to receive payment of the appraised value of their shares in accordance with the provisions of Delaware law, except that any shares of Ticketmaster Class A common stock held by a Ticketmaster stockholder seeking appraisal rights who thereafter withdraws his or her demand for appraisal of their shares or lose the right to appraisal as provided under Delaware law will be deemed to have been converted into the merger consideration at the effective time, without interest. All payments to holders of shares of Ticketmaster Class A common stock validly exercising appraisal rights will be paid by Ticketmaster out of Ticketmaster's own funds, and no funds will be supplied directly or indirectly by USA for that purpose.
Miscellaneous
Any amount held by the exchange agent on behalf of the former holders of shares of Ticketmaster common stock that remains undistributed to the former Ticketmaster stockholders for 12 months after the effective time will be delivered to USA, upon demand. Following such delivery, former Ticketmaster stockholders that have not validly exchanged Ticketmaster certificates for the merger consideration will be required to look only to USA for payment of the merger consideration.
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None of the exchange agent, USA, T Merger Corp. or Ticketmaster will be liable to any holder of shares of Ticketmaster common stock or shares of USA common stock, as the case may be, for any amount delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
If a Ticketmaster certificate has been lost, stolen or destroyed, the exchange agent will issue the USA common stock, cash instead of fractional shares of USA common stock and unpaid dividends and distributions on shares of USA common stock payable under the merger agreement upon receipt of an affidavit with respect to that loss, theft or destruction and a reasonable indemnity.
Representations and Warranties
In the merger agreement, Ticketmaster, USA and T Merger Corp. make representations and warranties to each other about their respective companies related to, among other things:
Ticketmaster also made additional representations and warranties to USA and T Merger Corp. related to, among other things:
USA and T Merger Corp. also made additional representations and warranties to Ticketmaster related to, among other things:
The representations and warranties given by Ticketmaster, USA and T Merger Corp. do not survive completion of the merger.
The merger agreement contains customary covenants as well as specific covenants relating to the conduct of the respective parties' businesses pending completion of the merger.
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Conduct of Business Prior to the Merger
Ticketmaster has agreed (as to itself and its subsidiaries) that, prior to the completion of the merger or termination of the merger agreement, except as contemplated by the merger agreement or with respect to matters approved by Ticketmaster's board of directors (unless the Ticketmaster directors who are also executive officers of USA either voted against or abstained from voting with respect to such conduct), Ticketmaster and its subsidiaries will conduct their respective businesses in the ordinary and usual course consistent with past practice, including, without limitation, consulting with, advising and obtaining the approval of USA, in each case consistent with past practice. In addition, among other things and subject to certain exceptions, Ticketmaster has agreed (as to itself and its subsidiaries) that, without USA's prior consent, it will not take any of the following actions prior to the completion of the merger or the termination of the merger agreement:
USA has agreed (as to itself and its subsidiaries) that, prior to the completion of the merger or the termination of the merger agreement, except as contemplated by the merger agreement or the agreements described in USA's definitive proxy statement, dated March 25, 2002 (which is incorporated by reference into this document), without the prior written consent of Ticketmaster, USA will not take
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any action that would reasonably be expected to result in any of the conditions to completion of the merger contained in the merger agreement not being satisfied.
Written Consent
Pursuant to the merger agreement, USA delivered to Ticketmaster on October 9, 2002 a written consent approving and adopting the merger agreement and the transactions contemplated by the merger agreement, including the merger, as a stockholder of Ticketmaster. USA has also agreed that, if the merger agreement is amended and such amendment is approved by the boards of directors of both USA and Ticketmaster or if a subsequent consent is deemed necessary to consummate the merger and the other transactions contemplated by the merger agreement, then USA will either (a) execute and deliver another written consent approving and adopting the merger agreement or (b) at a meeting of Ticketmaster's stockholders at which any proposal to adopt the merger agreement is proposed, cause all Ticketmaster shares owned by it to appear at such meeting so that all such Ticketmaster shares are counted for purposes of obtaining a quorum and to vote such Ticketmaster shares to adopt the merger agreement. In addition, USA has agreed to vote against, and not to execute a written consent in favor of, any proposal that is contrary to the adoption of the merger agreement and the transactions contemplated by the merger agreement.
Nasdaq Quotation
USA has agreed to use its reasonable best efforts to cause the shares of USA common stock issuable in the merger (including the shares of USA common stock reserved for issuance with respect to Ticketmaster stock options) to be eligible for quotation on the Nasdaq National Market (or other national market or exchange on which USA common stock is then traded or quoted) prior to the effective time.
Indemnification; Insurance
USA has agreed to cause the surviving corporation to maintain in effect, for the benefit of individuals who at or prior to the effective time were directors or officers of Ticketmaster, the provisions regarding indemnification and exculpation of officers and directors (including with respect to advancement of expenses) contained in Ticketmaster's certificate of incorporation and bylaws as of October 9, 2002, and has agreed not to amend, modify or otherwise repeal those provisions for a period of six years from the effective time in any manner that would adversely affect the rights of those individuals under the relevant provisions (unless a modification is required by applicable law and then only to the minimum extent required or except to make changes permitted by applicable law that would enlarge the exculpation or rights of indemnification thereunder). If claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) in respect of such claims shall continue, without diminution, until disposition of all such claims.
Under the merger agreement, the surviving corporation is required to, and USA has agreed to cause the surviving corporation to, to the maximum extent permitted under applicable law, provide to Ticketmaster's directors and officers as of October 9, 2002, the maximum indemnification protection (including with respect to advancement of expenses, including advancing expenses as incurred) permitted under the DGCL for a period of six years after the effective time. If claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) in respect of such claims shall continue, without diminution, until disposition of all such claims.
Under the merger agreement, the surviving corporation is also required to, and USA has agreed to cause the surviving corporation to, assume, honor and fulfill the obligations of Ticketmaster under any indemnification agreements, including those contained in employment agreements with Ticketmaster's directors, officers and other employees (if any) existing at the effective time. In addition, USA has agreed to provide, or to cause the surviving corporation to provide, for a period of not less than six years after the effective time, Ticketmaster's current and former directors and officers who were
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covered by Ticketmaster's insurance and indemnification policy on October 9, 2002 with an insurance and indemnification policy (including, without limitation, by arranging for run-off coverage, if necessary) that provides coverage for events occurring at or prior to the effective time that is no less favorable than Ticketmaster's policy in existence on October 9, 2002, or, if substantially equivalent insurance coverage is unavailable, the most advantageous directors and officer's insurance policy obtainable for an annual premium equal to 200% of the annual premium being paid by Ticketmaster for such insurance as of October 9, 2002, calculated on the basis of a fair allocation of the portion of the premium if USA arranges for coverage on a group basis.
In the event that the surviving corporation or any of its successors or assigns consolidates with or merges into another person and is not the continuing or surviving entity, or transfers or conveys all or substantially all of its properties and assets to another person, proper provision will be made so that the successors and assigns of the surviving corporation, or, at USA's option, USA, will assume the obligations regarding indemnification and insurance described above.
Employee Matters
From and after the effective time, USA has agreed to cause the surviving corporation to fulfill all written employment, severance, termination, consulting and retirement agreements, as in effect on October 9, 2002, to which Ticketmaster or any of its subsidiaries is a party, pursuant to the terms of those agreements and applicable law.
Additional Covenants
Ticketmaster, USA and T Merger Corp. have agreed to other customary covenants in the merger agreement, including, among other things, with respect to:
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The respective obligations of USA, T Merger Corp. and Ticketmaster to effect the merger are subject to the satisfaction or waiver of a number of customary conditions before completion of the merger, including:
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Subject to specified exceptions, "material adverse effect" generally means any change, event or effect that is materially adverse to the business, financial condition or results of operations of USA and its subsidiaries or Ticketmaster and its subsidiaries, as the case may be.
Termination of the Merger Agreement
The merger agreement may be terminated at any time prior to the effective time, whether or not Ticketmaster stockholders have approved the merger, by:
Amendment
The merger agreement may be amended with the approval of the boards of directors of USA and Ticketmaster prior to the effective time by an instrument in writing signed by USA, T Merger Corp. and Ticketmaster, provided that no amendment will be approved by Ticketmaster's board of directors unless the amendment is recommended by the special committee and, if required by law, approved by the disinterested directors on Ticketmaster's board. In addition, after approval of the merger agreement by Ticketmaster's stockholders, no amendment may be made which requires further approval of Ticketmaster's stockholders without such further approval.
Waiver
At any time prior to the effective time, USA and Ticketmaster may, in writing, (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in the merger agreement or in any document delivered pursuant to the merger agreement and (c) waive compliance with any of the agreements or conditions contained in the merger agreement. Any extension or waiver on behalf of Ticketmaster will be taken only upon the recommendation of the special committee (and, if required by law, by the disinterested directors on Ticketmaster's board).
All fees and expenses incurred in connection with the merger agreement and the transactions contemplated by the merger agreement will be paid by the party incurring those fees and expenses, whether or not the merger is completed.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS OF USA
In theThe following tables below, we provide you withpresent unaudited pro forma combined condensed financial information for USA giving effect to the following transactions:
The results of the USA Entertainment Group are presented as discontinued operations in the historical financial statements of USA and therefore have been excluded from the unaudited pro forma combined condensed financial statements of USA. We also provide you with unaudited
Unaudited pro forma combined condensed financial information for Expedia, Inc. for the year ended December 31, 2001.2001 is also presented.
The unaudited pro forma combined condensed financial statements of USA reflect some assumptions regarding the transactions and are based on the historical financial statements of USA. The unaudited pro forma combined condensed financial statements of USA, including the notes accompanying them, are qualified in their entirety by reference to, and should be read in conjunction with, USA's audited financial statements, including the notes accompanying them, which are included in and incorporated by reference into this information statement/prospectus.
The unaudited pro forma combined condensed balance sheet as of September 30, 2002 gives effect to the Ticketmaster merger as if it occurred on September 30, 2002. All other transactions described above have been reflected in the historical balance sheet as of September 30, 2002.
The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2001 reflects USA's audited statements of operations for the year ended December 31, 2001 and Expedia, Inc.'sExpedia's results for the twelve months ended December 31, 2001, adjusted for the pro forma effects of the Ticketmaster combination, the Expedia transaction, the VUE transaction, the HoldcoHome Shopping Network, Inc. exchange and the Ticketmaster merger, as if those transactions had occurred as of January 1, 2001.the beginning of the periods presented.
The unaudited pro forma combined condensed statement of operations for the nine months ended September 30, 2002 reflects USA's unaudited statements of operations for the nine months ended September 30, 2002, adjusted for the pro forma effects of the Expedia transaction, the VUE transaction, the HoldcoHome Shopping Network, Inc. exchange and the Ticketmaster merger as if those transactions had occurred on January 1, 2002. The Ticketmaster combination has been reflected in the historical statement of operations for the nine months ended September 30, 2002.
USA is in the process of evaluating the fair value of the additional interest to be acquired in Ticketmaster's assets and liabilities as a result of the Ticketmaster merger as well as the additional interest acquired in HSN's assets as a result of the VUE transaction and the HoldcoHome Shopping Network, Inc. exchange, including the allocation of intangibles other than goodwill. Accordingly,USA has received preliminary estimates of the value of intangible assets and has provided pro forma adjustments to amortization of intangibles based on these estimates. However, the purchase accounting information is preliminary and has been made solely for the purpose of developing the unaudited pro forma combined condensed financial information contained in the following pages.
The unaudited pro forma combined condensed statement of operations is neither necessarily indicative of the results of operations that would have been reported had these transactions occurred on January 1, 2001 nor necessarily indicative of USA's future financial results of operations.
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USA INTERACTIVE
Unaudited Pro Forma Combined Condensed Balance Sheet
September 30, 2002
(InDollars in thousands)
| | | USA Historical | Ticketmaster Merger(1) | Pro Forma Combined | | USA Historical | Ticketmaster Merger(1) | Pro Forma Combined | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ASSETS | ASSETS | ||||||||||||||||||
| Current Assets: | Current Assets: | Current Assets: | ||||||||||||||||||
| Cash and cash equivalents | Cash and cash equivalents | $ | 675,413 | $ | — | $ | 675,413 | Cash and cash equivalents | $ | 675,413 | $ | — | $ | 675,413 | ||||||
| Restricted cash | Restricted cash | 13,931 | — | 13,931 | Restricted cash | 13,931 | — | 13,931 | ||||||||||||
| Marketable securities | Marketable securities | 2,470,615 | — | 2,470,615 | Marketable securities | 2,470,615 | — | 2,470,615 | ||||||||||||
| Accounts and notes receivable, net | Accounts and notes receivable, net | 316,615 | — | 316,615 | Accounts and notes receivable, net | 316,615 | — | 316,615 | ||||||||||||
| Inventories, net | Inventories, net | 216,909 | — | 216,909 | Inventories, net | 216,909 | — | 216,909 | ||||||||||||
| Other | Other | 180,891 | — | 180,891 | Other | 180,891 | — | 180,891 | ||||||||||||
| Total current assets | Total current assets | 3,874,374 | — | 3,874,374 | Total current assets | 3,874,374 | — | 3,874,374 | ||||||||||||
Property, plant and equipment, net | Property, plant and equipment, net | 434,264 | — | 434,264 | Property, plant and equipment, net | 434,264 | — | 434,264 | ||||||||||||
| Intangible assets including goodwill, net | Intangible assets including goodwill, net | 7,009,378 | 502,072 | 7,511,450 | Intangible assets including goodwill, net | 7,009,378 | 482,884 | 7,492,262 | ||||||||||||
| Cable distributions fees, net | Cable distributions fees, net | 173,800 | — | 173,800 | Cable distributions fees, net | 173,800 | — | 173,800 | ||||||||||||
| Long-term investments | Long-term investments | 1,605,605 | — | 1,605,605 | Long-term investments | 1,605,605 | — | 1,605,605 | ||||||||||||
| Preferred interest exchangeable for common stock | Preferred interest exchangeable for common stock | 1,428,530 | — | 1,428,530 | Preferred interest exchangeable for common stock | 1,428,530 | — | 1,428,530 | ||||||||||||
| Deferred charges and other | Deferred charges and other | 176,197 | — | 176,197 | Deferred charges and other | 176,197 | — | 176,197 | ||||||||||||
| Total assets | $ | 14,702,148 | $ | 502,072 | $ | 15,204,220 | Total assets | $ | 14,702,148 | $ | 482,884 | $ | 15,185,032 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||
| Current Liabilities: | Current Liabilities: | Current Liabilities: | ||||||||||||||||||
| Current maturities of long-term debt | Current maturities of long-term debt | $ | 36,231 | $ | — | $ | 36,231 | Current maturities of long-term debt | $ | 36,231 | $ | — | $ | 36,231 | ||||||
| Accounts payable, accrued and other current liabilities | Accounts payable, accrued and other current liabilities | 383,307 | — | 383,307 | Accounts payable, accrued and other current liabilities | 383,307 | — | 383,307 | ||||||||||||
| Accounts payable, client accounts | Accounts payable, client accounts | 182,860 | — | 182,860 | Accounts payable, client accounts | 182,860 | — | 182,860 | ||||||||||||
| Cable distribution fees payable | Cable distribution fees payable | 65,852 | — | 65,852 | Cable distribution fees payable | 65,852 | — | 65,852 | ||||||||||||
| Deferred revenue | Deferred revenue | 307,832 | — | 307,832 | Deferred revenue | 307,832 | — | 307,832 | ||||||||||||
| Other accrued liabilities | Other accrued liabilities | 711,481 | — | 711,481 | Other accrued liabilities | 711,481 | — | 711,481 | ||||||||||||
| Total current liabilities | Total current liabilities | 1,687,563 | — | 1,687,563 | Total current liabilities | 1,687,563 | — | 1,687,563 | ||||||||||||
Long-term obligations, net of current maturities | Long-term obligations, net of current maturities | 508,237 | — | 508,237 | Long-term obligations, net of current maturities | 508,237 | — | 508,237 | ||||||||||||
| Other long-term liabilities | Other long-term liabilities | 84,405 | — | 84,405 | Other long-term liabilities | 84,405 | — | 84,405 | ||||||||||||
| Deferred income taxes | Deferred income taxes | 2,207,243 | — | 2,207,243 | Deferred income taxes | 2,207,243 | — | 2,207,243 | ||||||||||||
| Minority interest | Minority interest | 1,009,953 | (435,383 | )(12) | 574,570 | Minority interest | 1,009,953 | (435,383 | )(13) | 574,570 | ||||||||||
| Common stock exchangeable for preferred interest | Common stock exchangeable for preferred interest | 1,428,530 | — | 1,428,530 | Common stock exchangeable for preferred interest | 1,428,530 | — | 1,428,530 | ||||||||||||
| Stockholders' equity | Stockholders' equity | 7,776,217 | 937,455 | 8,713,672 | Stockholders' equity | 7,776,217 | 918,267 | 8,694,484 | ||||||||||||
| Total liabilities and stockholders' equity | $ | 14,702,148 | $ | 502,072 | $ | 15,204,220 | Total liabilities and stockholders' equity | $ | 14,702,148 | $ | 482,884 | $ | 15,185,032 | |||||||
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements of USA.
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USA INTERACTIVE
Unaudited Pro Forma Combined Condensed Statement of Operations
Nine Months Ended September 30, 2002
(InDollars in thousands, except per share data)
| | | USA Historical | Expedia Historical(2) | Expedia Pro Forma Adjustments | VUE Pro Forma Adjustments | Holdco Exchange | Ticketmaster Merger | Pro Forma Combined | | USA Historical | Expedia Historical(2) | Expedia Pro Forma Adjustments | VUE Pro Forma Adjustments | Home Shopping Network, Inc. Exchange | Ticketmaster Merger | Pro Forma Combined | ||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NET REVENUES: | NET REVENUES: | NET REVENUES: | ||||||||||||||||||||||||||||||||||||||||||||
| HSN-US | HSN-US | $ | 1,141,270 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,141,270 | HSN-US | $ | 1,141,270 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,141,270 | ||||||||||||||||
| Ticketing | Ticketing | 490,925 | — | — | — | — | — | 490,925 | Ticketing | 490,925 | — | — | — | — | — | 490,925 | ||||||||||||||||||||||||||||||
| Match.com | Match.com | 88,182 | — | — | — | — | — | 88,182 | Match.com | 88,182 | — | — | — | — | — | 88,182 | ||||||||||||||||||||||||||||||
| Hotels.com | Hotels.com | 672,814 | — | — | — | — | — | 672,814 | Hotels.com | 672,814 | — | — | — | — | — | 672,814 | ||||||||||||||||||||||||||||||
| Expedia | Expedia | 389,865 | 35,487 | — | — | — | — | 425,352 | Expedia | 389,865 | 35,487 | — | — | — | — | 425,352 | ||||||||||||||||||||||||||||||
| Interval | Interval | 2,319 | — | — | — | — | — | 2,319 | Interval | 2,319 | — | — | — | — | — | 2,319 | ||||||||||||||||||||||||||||||
| PRC | PRC | 217,212 | — | — | — | — | — | 217,212 | PRC | 217,212 | — | — | — | — | — | 217,212 | ||||||||||||||||||||||||||||||
| Citysearch and related | Citysearch and related | 22,479 | — | — | — | — | — | 22,479 | Citysearch and related | 22,479 | — | — | — | — | — | 22,479 | ||||||||||||||||||||||||||||||
| International TV Shopping & other | International TV Shopping & other | 234,557 | — | — | — | — | — | 234,557 | International TV Shopping & other | 234,557 | — | — | — | — | — | 234,557 | ||||||||||||||||||||||||||||||
| USA Electronic Commerce Solutions LLC/Styleclick | USA Electronic Commerce Solutions LLC/Styleclick | 30,386 | — | — | — | — | — | 30,386 | USA Electronic Commerce Solutions LLC/Styleclick | 30,386 | — | — | — | — | — | 30,386 | ||||||||||||||||||||||||||||||
| Intersegment elimination | Intersegment elimination | (7,773 | ) | — | — | — | — | — | (7,773 | ) | Intersegment elimination | (7,773 | ) | — | — | — | — | — | (7,773 | ) | ||||||||||||||||||||||||||
| Total net revenues | 3,282,236 | 35,487 | — | — | — | — | 3,317,723 | Total net revenues | 3,282,236 | 35,487 | — | — | — | — | 3,317,723 | |||||||||||||||||||||||||||||||
| Operating costs and expenses | Operating costs and expenses | Operating costs and expenses | ||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | Cost of sales | 2,014,532 | 10,586 | — | — | — | — | 2,025,118 | Cost of sales | 2,014,532 | 10,586 | — | — | — | — | 2,025,118 | ||||||||||||||||||||||||||||||
| Other costs | Other costs | 899,199 | 15,723 | — | — | — | — | 914,922 | Other costs | 899,199 | 15,723 | — | — | — | — | 914,922 | ||||||||||||||||||||||||||||||
| Amortization of cable distribution fees | Amortization of cable distribution fees | 38,679 | — | — | — | — | — | 38,679 | Amortization of cable distribution fees | 38,679 | — | — | — | — | — | 38,679 | ||||||||||||||||||||||||||||||
| Amortization of non-cash compensation | Amortization of non-cash compensation | 10,199 | 930 | — | — | — | 4,774 | (11) | 15,903 | Amortization of non-cash compensation | 10,199 | 930 | — | — | — | 10,586 | (11) | 21,715 | ||||||||||||||||||||||||||||
| Non-cash distribution and marketing expense | Non-cash distribution and marketing expense | 27,485 | — | — | 4,059 | (5) | — | — | 31,544 | Non-cash distribution and marketing expense | 27,485 | — | — | 4,059 | (5) | — | — | 31,544 | ||||||||||||||||||||||||||||
| Depreciation and amortization | Depreciation and amortization | 241,917 | 5,238 | 2,427 | (3) | — | — | — | 249,582 | Depreciation and amortization | 241,917 | 5,238 | (6,632 | )(3) | 10,023 | (12) | — | 22,245 | (1) | 272,791 | ||||||||||||||||||||||||||
| Goodwill impairment | Goodwill impairment | 22,247 | — | — | — | — | — | 22,247 | Goodwill impairment | 22,247 | — | — | — | — | — | 22,247 | ||||||||||||||||||||||||||||||
| Total operating costs and expenses | Total operating costs and expenses | 3,254,258 | 32,477 | 2,427 | 4,059 | — | 4,774 | 3,297,995 | Total operating costs and expenses | 3,254,258 | 32,477 | (6,632 | ) | 14,082 | — | 32,831 | 3,327,016 | |||||||||||||||||||||||||||||
| Operating income (loss) | 27,978 | 3,010 | (2,427 | ) | (4,059 | ) | — | (4,774 | ) | 19,728 | Operating income (loss) | 27,978 | 3,010 | 6,632 | (14,082 | ) | — | (32,831 | ) | (9,293 | ) | |||||||||||||||||||||||||
| Interest and other, net | Interest and other, net | (92,346 | ) | 324 | — | 34,335 | (6) | — | — | (57,687 | ) | Interest and other, net | (92,346 | ) | 324 | — | 34,335 | (6) | — | — | (57,687 | ) | ||||||||||||||||||||||||
| Earnings (loss) before income taxes and minority interest | Earnings (loss) before income taxes and minority interest | (64,368 | ) | 3,334 | (2,427 | ) | 30,276 | — | (4,774 | ) | (37,959 | ) | Earnings (loss) before income taxes and minority interest | (64,368 | ) | 3,334 | 6,632 | 20,253 | — | (32,831 | ) | (66,980 | ) | |||||||||||||||||||||||
| Income tax expense | Income tax expense | (58,407 | ) | (1,424 | ) | — | (11,383 | )(7) | — | 1,873 | (11) | (69,341 | ) | Income tax expense | (58,407 | ) | (1,424 | ) | (2,601 | ) | (7,452 | )(7) | — | 4,152 | (11) | (65,732 | ) | |||||||||||||||||||
| Minority interest | Minority interest | (17,964 | ) | — | (692 | )(4) | (12,855 | )(8) | (8,249 | )(9) | 4,813 | (12) | (34,947 | ) | Minority interest | (17,964 | ) | — | (692 | )(4) | (12,855 | )(8) | (8,249 | )(9) | 4,813 | (13) | (34,947 | ) | ||||||||||||||||||
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | EARNINGS (LOSS) FROM CONTINUING OPERATIONS | $ | (140,739 | ) | $ | 1,910 | $ | (3,119 | ) | $ | 6,038 | $ | (8,249 | ) | $ | 1,912 | $ | (142,247 | ) | EARNINGS (LOSS) FROM CONTINUING OPERATIONS | $ | (140,739 | ) | $ | 1,910 | $ | 3,339 | $ | (54 | ) | $ | (8,249 | ) | $ | (23,866 | ) | $ | (167,659 | ) | |||||||
| Loss per common share from continuing operations | Loss per common share from continuing operations | Loss per common share from continuing operations | ||||||||||||||||||||||||||||||||||||||||||||
| Basic and diluted | $ | (0.34 | ) | $ | (0.29 | ) | Basic and diluted | $ | (0.34 | ) | $ | (0.34 | ) | |||||||||||||||||||||||||||||||||
| Weighted average shares outstanding | Weighted average shares outstanding | 418,559 | 491,250 | Weighted average shares outstanding | 418,559 | 491,620 | ||||||||||||||||||||||||||||||||||||||||
| Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 418,559 | 491,250 | Weighted average diluted shares outstanding | 418,559 | 491,620 | ||||||||||||||||||||||||||||||||||||||||
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements of USA.
7023
USA INTERACTIVE
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 2001
(InDollars in thousands, except per share data)
| | | USA Historical | Ticketmaster Combination | Expedia Historical(2) | Expedia Pro Forma Adjustments | VUE Pro Forma Adjustments | Holdco Exchange | Ticketmaster Merger(1) | Pro Forma Combined | | USA Historical | Ticketmaster Combination | Expedia Historical(2) | Expedia Pro Forma Adjustments | VUE Pro Forma Adjustments | Home Shopping Network, Inc. Exchange | Ticketmaster Merger(1) | Pro Forma Combined | ||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| NET REVENUES: | NET REVENUES: | NET REVENUES: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| HSN—U.S. | HSN—U.S. | $ | 1,658,904 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,658,904 | HSN—U.S. | $ | 1,658,904 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1,658,904 | ||||||||||||||||||
| Ticketing | Ticketing | 579,679 | — | — | — | — | — | — | 579,679 | Ticketing | 579,679 | — | — | — | — | — | — | 579,679 | ||||||||||||||||||||||||||||||||||
| Match.com | Match.com | 49,249 | — | — | — | — | — | — | 49,249 | Match.com | 49,249 | — | — | — | — | — | — | 49,249 | ||||||||||||||||||||||||||||||||||
| Hotels.com | Hotels.com | 536,497 | — | — | — | — | — | — | 536,497 | Hotels.com | 536,497 | — | — | — | — | — | — | 536,497 | ||||||||||||||||||||||||||||||||||
| Expedia | Expedia | — | — | 296,936 | — | — | — | — | 296,936 | Expedia | — | — | 296,936 | — | — | — | — | 296,936 | ||||||||||||||||||||||||||||||||||
| PRC | PRC | 298,678 | — | — | — | — | — | — | 298,678 | PRC | 298,678 | — | — | — | — | — | — | 298,678 | ||||||||||||||||||||||||||||||||||
| CitySearch and related | CitySearch and related | 46,108 | — | — | — | — | — | — | 46,108 | CitySearch and related | 46,108 | — | — | — | — | — | — | 46,108 | ||||||||||||||||||||||||||||||||||
| International TV Shopping and other | International TV Shopping and other | 272,569 | — | — | — | — | — | — | 272,569 | International TV Shopping and other | 272,569 | — | — | — | — | — | — | 272,569 | ||||||||||||||||||||||||||||||||||
| USA Electronic Commerce Solutions LLC/Styleclick | USA Electronic Commerce Solutions LLC/Styleclick | 34,229 | — | — | — | — | — | — | 34,229 | USA Electronic Commerce Solutions LLC/Styleclick | 34,229 | — | — | — | — | — | — | 34,229 | ||||||||||||||||||||||||||||||||||
| Intersegment elimination | Intersegment elimination | (7,053 | ) | — | — | — | — | — | — | (7,053 | ) | Intersegment elimination | (7,053 | ) | — | — | — | — | — | — | (7,053 | ) | ||||||||||||||||||||||||||||||
| Total net revenues | 3,468,860 | — | 296,936 | — | — | — | — | 3,765,796 | Total net revenues | 3,468,860 | — | 296,936 | — | — | — | — | 3,765,796 | |||||||||||||||||||||||||||||||||||
Operating costs and expenses | Operating costs and expenses | Operating costs and expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of sales | Cost of sales | 2,331,438 | — | 93,142 | — | — | — | — | 2,424,580 | Cost of sales | 2,331,297 | — | 93,142 | — | — | — | — | 2,424,439 | ||||||||||||||||||||||||||||||||||
| Other costs | Other costs | 843,547 | — | 142,930 | — | — | — | — | 986,477 | Other costs | 843,688 | — | 142,930 | — | — | — | — | 986,618 | ||||||||||||||||||||||||||||||||||
| Amortization of cable distribution fees | Amortization of cable distribution fees | 43,975 | — | — | — | — | — | — | 43,975 | Amortization of cable distribution fees | 43,975 | — | — | — | — | — | — | 43,975 | ||||||||||||||||||||||||||||||||||
| Amortization of non-cash compensation | Amortization of non-cash compensation | 7,800 | — | 16,404 | — | — | — | 6,362 | (11) | 30,566 | Amortization of non-cash compensation | 7,800 | — | 16,404 | — | — | — | 14,115 | (11) | 38,319 | ||||||||||||||||||||||||||||||||
| Non-cash distribution and marketing expense | Non-cash distribution and marketing expense | 26,384 | — | — | — | 8,307 | (5) | — | — | 34,691 | Non-cash distribution and marketing expense | 26,384 | — | — | — | 8,307 | (5) | — | — | 34,691 | ||||||||||||||||||||||||||||||||
| Depreciation and amortization | Depreciation and amortization | 432,139 | — | 61,820 | 9,051 | (3) | — | — | — | 503,010 | Depreciation and amortization | 432,139 | — | 61,820 | 6,712 | (3) | 49,364 | (12) | — | 29,660 | (1) | 579,695 | ||||||||||||||||||||||||||||||
| Total operating costs and expenses | Total operating costs and expenses | 3,685,283 | — | 314,296 | 9,051 | 8,307 | — | 6,362 | 4,023,299 | Total operating costs and expenses | 3,685,283 | — | 314,296 | 6,712 | 57,671 | — | 43,775 | 4,107,737 | ||||||||||||||||||||||||||||||||||
| Operating income (loss) | (216,423 | ) | — | (17,360 | ) | (9,051 | ) | (8,307 | ) | — | (6,362 | ) | (257,503 | ) | Operating income (loss) | (216,423 | ) | — | (17,360 | ) | (6,712 | ) | (57,671 | ) | — | (43,775 | ) | (341,941 | ) | |||||||||||||||||||||||
| Interest and other, net | Interest and other, net | (71,034 | ) | — | (4,136 | ) | — | 99,323 | (6) | — | — | 24,153 | Interest and other, net | (71,034 | ) | — | (4,136 | ) | — | 99,323 | (6) | — | — | 24,153 | ||||||||||||||||||||||||||||
| Earnings (loss) before income taxes and minority interest | Earnings (loss) before income taxes and minority interest | (287,457 | ) | — | (21,496 | ) | (9,051 | ) | 91,016 | — | (6,362 | ) | (233,350 | ) | Earnings (loss) before income taxes and minority interest | (287,457 | ) | — | (21,496 | ) | (6,712 | ) | 41,652 | — | (43,775 | ) | (317,788 | ) | ||||||||||||||||||||||||
| Income tax (expense) benefit | Income tax (expense) benefit | (2,450 | ) | 1,005 | (10) | — | — | (43,475 | )(7) | — | 2,495 | (11) | (42,425 | ) | Income tax (expense) benefit | (2,450 | ) | 1,005 | (10) | — | 2,633 | (24,112 | )(7) | — | 5,537 | (11) | (17,387 | ) | ||||||||||||||||||||||||
| Minority interest | Minority interest | 103,108 | (3,568 | )(10) | — | 7,696 | (4) | (35,619 | )(8) | (5,423 | )(9) | (52,284 | )(12) | 13,910 | Minority interest | 103,108 | (3,568 | )(10) | — | 7,696 | (4) | (35,619 | )(8) | (5,423 | )(9) | (52,284 | )(13) | 13,910 | ||||||||||||||||||||||||
| EARNINGS (LOSS) FROM CONTINUING OPERATIONS | EARNINGS (LOSS) FROM CONTINUING OPERATIONS | $ | (186,799 | ) | $ | (2,563 | ) | $ | (21,496 | ) | $ | (1,355 | ) | $ | 11,922 | $ | (5,423 | ) | $ | (56,151 | ) | $ | (261,865 | ) | EARNINGS (LOSS) FROM CONTINUING OPERATIONS | $ | (186,799 | ) | $ | (2,563 | ) | $ | (21,496 | ) | $ | 3,617 | $ | (18,079 | ) | $ | (5,423 | ) | $ | (90,522 | ) | $ | (321,265 | ) | ||||
| Loss per common share from continuing operations | Loss per common share from continuing operations | Loss per common share from continuing operations | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic and diluted | $ | (0.50 | ) | $ | (0.55 | ) | Basic and diluted | $ | (0.50 | ) | $ | (0.67 | ) | |||||||||||||||||||||||||||||||||||||||
| Weighted average shares outstanding | Weighted average shares outstanding | 374,101 | 480,083 | Weighted average shares outstanding | 374,101 | 480,452 | ||||||||||||||||||||||||||||||||||||||||||||||
| Weighted average diluted shares outstanding | Weighted average diluted shares outstanding | 374,101 | 480,083 | Weighted average diluted shares outstanding | 374,101 | 480,452 | ||||||||||||||||||||||||||||||||||||||||||||||
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements of USA.
7124
EXPEDIA, INC.
Unaudited Pro Forma Combined Condensed Statement of Operations
Year Ended December 31, 2001
(InDollars in thousands, except per share data)
| | Historical(2) | Pro Forma | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Three Months Ended March 31, 2001 | Three Months Ended June 30, 2001 | Six Months Ended December 31, 2001 | Twelve Months Ended December 31, 2001 | ||||||||||
| Net revenues | $ | 57,222 | $ | 78,474 | $ | 161,240 | $ | 296,936 | ||||||
| Operating costs and expenses: | ||||||||||||||
| Cost of sales | 18,085 | 22,890 | 52,167 | 93,142 | ||||||||||
| Other costs | 34,598 | 37,838 | 70,494 | 142,930 | ||||||||||
| Amortization of non-cash compensation | 6,477 | 3,939 | 5,988 | 16,404 | ||||||||||
| Depreciation and amortization | 17,246 | 18,372 | 26,202 | 61,820 | ||||||||||
| Total operating costs and expenses | 76,406 | 83,039 | 154,851 | 314,296 | ||||||||||
| Operating income (loss) | (19,184 | ) | (4,565 | ) | 6,389 | (17,360 | ) | |||||||
| Interest and other, net | 1,567 | 214 | (5,917 | ) | (4,136 | ) | ||||||||
| Earnings (loss) before income taxes | (17,617 | ) | (4,351 | ) | 472 | (21,496 | ) | |||||||
| Income tax expense | — | — | — | — | ||||||||||
| Earnings (loss) from continuing operations | $ | (17,617 | ) | $ | (4,351 | ) | $ | 472 | $ | (21,496 | ) | |||
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements of USA.
7225
Notes to Unaudited Pro Forma Combined Condensed Financial Statements of USA
| | (In thousands) | (In thousands) | ||||||
|---|---|---|---|---|---|---|---|---|
| USA common stock | $ | 808,130 | $ | 814,756 | ||||
| Fair value of options to acquire USA common stock | 106,103 | 94,555 | ||||||
| Fair value of warrants to acquire USA common stock | 34,483 | 34,653 | ||||||
| Less: Intrinsic value of unvested options to acquire USA common stock recorded as deferred compensation | (11,261 | ) | (25,697 | ) | ||||
| 937,455 | 918,267 | |||||||
Less: Minority interest acquired | (435,383 | ) | (435,383 | ) | ||||
| Unallocated excess of merger consideration over minority interest acquired and deferred compensation preliminarily allocated to goodwill | $ | 502,072 | ||||||
| Unallocated excess of merger consideration over minority interest acquired and deferred compensation preliminarily allocated to goodwill and intangible assets | $ | 482,884 | ||||||
The unallocated excess of acquisition costs over minority interest acquired and deferred compensation has been preliminarily allocated as follows: $236.1 million to intangibles and $246.8 million to goodwill. The intangible assets that have been preliminarily identified relate to tradenames and trademarks, venue and promotion contracts, distribution agreements and technology. Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets," provides that goodwill resulting from business combinations completed subsequent to June 30, 2001 will not be amortized but instead will be required to be tested for impairment at least annually. In order to complete its assessment, USA will obtain ana final independent valuation related to the identification of intangibles other than goodwill. Potential additional intangible assets that may be identified include trade names and trademarks, technology, customer contracts, distribution arrangements and commercial arrangements. Accordingly, the purchase accounting information is preliminary. ToBased on the extent that additionalpreliminary intangibles are identified, USA will recordhas provided approximately $22.2 million and $29.7 million of amortization for the amounts based uponnine months ended September 30, 2002 and the percentage of Ticketmaster acquiredyear ended December 31, 2001, respectively, in the transaction.pro formas. As the unaudited pro forma combined condensed statements of operations includes noreflect amortization of intangibles associated with the Ticketmaster merger, the final allocation of the acquisition cost could result in additional amortization expense and decreased operating income, net income and earnings per share in subsequent periods.
7326
For the nine months ended September 30, 2002, the historical results of operations for USA include Expedia's results for the period from February 4, 2002 to September 30, 2002.
7427
USA Interactive (Nasdaq: USAI) engages worldwide in the business of interactivity via the Internet, the television and the telephone. USA's multiple brands are organized across three areas: Electronic Retailing, Information & Services and Travel Services. Electronic Retailing is comprised of HSN, America's Store, HSN.com, and Home Shopping Europe and Euvía in Germany. Information & Services includes Ticketmaster, Match.com, uDate (transaction pending), Citysearch, Evite, Entertainment Publications (transaction pending) and Precision Response Corporation. Travel Services consists of Expedia (Nasdaq: EXPE), Hotels.com (Nasdaq: ROOM), Interval International, TV Travel Group and USA's forthcoming U.S. cable travel network.
Businesses
USA includes the following business units:
28
provided by approximately 450 airlines, approximately 43,000 lodging properties, major car rental companies and cruise lines, and multiple destination service merchants such as restaurants, attractions and local transportation and tour providers. Expedia acquired Classic Custom Vacations in March 2002 and entered the U.S. corporate travel market through the acquisition of Metropolitan Travel in July 2002. USA acquired a controlling interest in Expedia in February 2002. As of September 30, 2002, USA owned approximately 56.5% of the equity, and approximately 94.9% of the voting power, of Expedia.
Subject to the terms of the Amended and Restated Stockholders Agreement dated as of December 16, 2001, among Universal Studios, Inc., Liberty Media Corporation, Barry Diller and Vivendi Universal, S.A., Mr. Diller is effectively able to control the outcome of nearly all matters submitted to a vote or for the consent of our stockholders (other than with respect to the election by the holders of USA common stock of 25% of the members of our board of directors and certain matters as to which a separate class vote of the holders of USA common stock or USA preferred stock is required under Delaware law). In addition, pursuant to the Amended and Restated Governance Agreement, dated as of December 16, 2001, among USA, Vivendi, Universal Studios, Liberty and
29
Mr. Diller, each of Mr. Diller and Liberty generally has the right to consent to limited matters in the event that USA's ratio of total debt to EBITDA, as defined in the Governance Agreement, equals or exceeds four to one over a continuous 12-month period.
As of September 30, 2002, Mr. Diller (through companies owned by Liberty and Mr. Diller, his own holdings and pursuant to the Amended and Restated Stockholders Agreement) controlled approximately 69.1% of the outstanding total voting power of USA. The remaining 30.9% voting power is held by public stockholders. See also "Summary—Organizational Structure."
USA was incorporated in July 1986 in Delaware under the name Silver King Broadcasting Company, Inc., as a subsidiary of Home Shopping Network, Inc., which is not an operating company and whose assets consist solely of its membership interests in USANi. On December 28, 1992, Home Shopping Network, Inc. distributed the capital stock of USA to its stockholders.
In December 1996, USA completed mergers with Savoy Pictures Entertainment, Inc. and Home Shopping Network, Inc., with Savoy and Home Shopping Network, Inc. becoming subsidiaries of USA. At the same time as the mergers, USA changed its name from Silver King Broadcasting Company, Inc. to HSN, Inc. In February 1998, in connection with its acquisition of USA Networks, a New York partnership that consisted of USA Network and SCI-FI Channel cable television networks, and the domestic television business of Universal Studios, Inc., USA changed its name to USA Networks, Inc.
In May 2002, USA was renamed USA Interactive following the completion of the VUE transaction.
Expedia Transaction
On February 4, 2002, USA completed its acquisition of a controlling interest in Expedia through a merger of a wholly-owned USA subsidiary with and into Expedia. Immediately following the merger, USA owned all of the outstanding shares of Expedia Class B common stock, representing approximately 64.2% of Expedia's then outstanding shares, and 94.9% of the voting interest in Expedia. On February 20, 2002, USA acquired 936,815 shares of Expedia common stock, increasing USA's ownership to 64.6% of Expedia's then outstanding shares, with USA's voting percentage remaining at 94.9%. In the merger, USA issued to former holders of Expedia common stock who elected to receive USA securities an aggregate of approximately 20.6 million shares of USA common stock, approximately 13.1 million shares Series A Redeemable Preferred Stock, or USA preferred stock, of $50 face value ($656 million face aggregate value) and warrants to acquire approximately 14.6 million shares of USA common stock. Shares of Expedia common stock trade on the Nasdaq Stock Market under the symbol "EXPE," shares of USA preferred stock trade on OTC under the symbol "USAIP" and the USA warrants issued in the Expedia transaction trade on the Nasdaq Stock Market under the symbol "USAIW."
VUE Transaction
On May 7, 2002, USA consummated the VUE transaction, in which USA's Entertainment Group, consisting of USA Cable, Studios USA and USA Films, was contributed to VUE. VUE is controlled by Vivendi and its subsidiaries, with the common interests owned 93.06% by Vivendi and its subsidiaries, 5.44% by USA and its subsidiaries and 1.5% by Mr. Diller and his assignees. See also "Summary—Recent Developments—VUE tax matter."
In connection with the transaction, shares of USANi held by Liberty were exchanged for approximately 7.1 million USA shares, with the remaining approximately 320.9 million USANi shares held by Vivendi (including USANi shares obtained from Liberty) cancelled.
30
Other Transactions
In June 2002, USA and Liberty completed the exchange of all of Liberty's shares of Home Shopping Network, Inc. into USA shares, with USA issuing approximately 31.6 million shares of USA common stock and approximately 1.6 million shares of USA Class B common stock to Liberty.
On September 25, 2002, USA announced that it completed its acquisition of Interval International, a leading membership services company that provides timeshare exchange and other value-added services to its timeshare-owing members and to resort developers, for approximately $533 million in cash, subject to a working capital adjustment.
On January 17, 2003, USA completed its acquisition of all of the outstanding shares of Ticketmaster common stock that USA did not already own. The acquisition was accomplished by the merger of a wholly-owned subsidiary of USA with Ticketmaster, with Ticketmaster surviving as a wholly owned subsidiary of USA.
In the merger, each outstanding share of Ticketmaster Class A common stock and Ticketmaster Class B common stock (other than shares held by USA, Ticketmaster and their subsidiaries) was converted into the right to receive 0.935 of a share of USA common stock. USA issued an aggregate of approximately 45.5 million shares of USA common stock in the merger. As a result of the merger, shares of Ticketmaster Class B common stock, which prior to the merger traded on the Nasdaq National Market under the symbol "TMCS," were delisted from trading.
On November 21, 2002, USA announced that it had entered into a definitive agreement to purchase Entertainment Publications, Inc., originator of the Entertainment® Book, for approximately $370 million in a combination of cash and USA common stock (up to 50% of the consideration), subject to a maximum discount to USA of $10 million in the event that USA elects to pay all cash. Based in Michigan, Entertainment Publications sells annual memberships for Entertainment® Books which contain discount offers on dining, hotels, shopping and leisure activities. Entertainment Publications serves many major markets and does business with tens of thousands of local merchants and national retailers. The transaction is expected to be completed no later than the first quarter of 2003, subject to standard closing conditions and approvals.
On December 19, 2002, USA announced that it entered into an agreement to acquire uDate.com, Inc., a global online personals group based in Derby, England, which provides dating and matchmaking services through www.udate.com and www.kiss.com, for approximately $150 million in USA common stock, subject to various adjustments. The transaction is expected to close in the first half of 2003, subject to standard closing conditions and regulatory approvals.
31
General
We issued our old 7% notes, and will issue the exchange notes, under an indenture dated as of December 16, 2002, among USA, COMMON STOCKUSANi, as guarantor, and JPMorgan Chase Bank, as trustee. Pursuant to the indenture, we may also from time to time, without notice to or consent of the holders, issue additional notes of the same tenor, coupon and other terms as the notes, so that such additional notes, the old 7% notes and the exchange notes offered in this exchange offer form a single series. Unless the context otherwise requires, references to the "notes" in this "Description of Notes" are to any additional notes issued as described in the preceding sentence, the old 7% notes and the exchanges notes to be issued in this exchange offer.
The following discussion of the provisions of the indenture, which includes the guarantee, and the terms of the notes is a summary only and does not purport to be a complete discussion of the terms of the notes. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939. Accordingly, the following discussion is qualified in its entirety by reference to the provisions of the indenture and the notes, including the definitions of various terms used below with their initial letters capitalized. We urge you to read the indenture because it, and not this description, defines your rights as the holders of the notes. You may request copies of the indenture at the address set forth under "Where You Can Find More Information."
Principal, Maturity and Interest
We are offering to exchange all of our old 7% notes for up to $750.0 million aggregate principal amount of our exchange notes. The exchange notes and the old 7% notes will be substantially identical in all material respects, except that transfer restrictions and registration rights relating to the old 7% notes will not apply to the exchange notes.
The notes will mature on January 15, 2013 and upon surrender will be repaid at 100.0% of the principal amount thereof. Principal and interest on the notes are payable in immediately available funds in U.S. dollars, or in such other coin or currency of the United States of America as at the time of payment is legal tender for the payment of public and private debts. The notes will bear interest at the rate of 7% per annum. Interest on the notes will accrue from December 16, 2002, or from the most recent interest payment date to which interest has been paid or provided for. Interest on the notes will be payable semi-annually on each January 15 and July 15 of each year, beginning on July 15, 2003, to holders of record at the close of business on the January 1 or July 1, as the case may be, next preceding such interest payment date. Interest will be calculated on the basis of a 360-day year of twelve 30-day months.
If the date of payment of the principal of or interest on the notes or the date fixed for redemption of the notes does not fall on a business day, then payment of principal or interest need not be made on such date at such place but may be made on the next succeeding business day. The payment shall have the same force and effect as if made on the applicable payment date or the date fixed for redemption, and no interest shall accrue for the period after such date. A "business day" shall mean a day which is not, in New York City, a Saturday, Sunday, a legal holiday or a day on which banking institutions are authorized or obligated by law to close.
Principal of, premium, if any, and interest on the notes will be payable, and the notes may be exchanged or transferred, at JPMorgan Chase Bank, 4 New York Plaza, 15th Floor, New York, New York 10004, except that at the option of USA, payment of interest may be made by mailing a check to holders at their registered addresses or by wire transfer to an account located in the United States maintained by the payee.
The notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or
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exchange of notes, but we may require a payment in sum sufficient to cover any transfer tax or other similar governmental charge payable upon a transfer or exchange of the notes.
Optional Redemption
The notes will be redeemable, at our option, in whole or in part, at any time and from time to time, at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed or (b) the sum of the present values of the remaining scheduled payments of principal and interest in respect of the notes to be redeemed that would be due after the redemption date had the redemption not occurred, obtained by discounting such remaining scheduled payments to the redemption date at the Treasury Rate plus 50 basis points, on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months), in each case, plus any accrued and unpaid interest on the notes to the date of redemption. If the redemption date is not an interest payment date for the notes, the amount of the next succeeding scheduled interest payment on the notes will be reduced by the amount of interest accrued on the notes to the redemption date.
Notice of any redemption will be mailed at least 30 days but not more than 60 days before the redemption date to each holder of notes to be redeemed. If less than all the notes are to be redeemed, the notes to be redeemed shall be selected by the trustee by such method as the trustee shall deem fair and appropriate in accordance with methods generally used at the time of selection by fiduciaries in similar circumstances. Unless we default in payment of the redemption price, on and after the redemption date, interest will cease to accrue on the notes or portions thereof called for redemption.
Except as set forth above, the notes will not be redeemable by us prior to maturity and will not be entitled to the benefit of any sinking fund.
Guarantee
USANi will unconditionally guarantee to each holder of the notes and the trustee, on an unsecured and unsubordinated basis, the full and prompt payment of principal, premium, if any, and interest on the notes, and all other obligations under the indenture. USANi's guarantee will terminate whenever (a) it consolidates with, or sells, leases or conveys all or substantially all of its assets to, or merges with or into, USA pursuant to the terms of "—Merger, Consolidation or Sale of Assets," or (b) the 63/4% Senior Notes due 2005 issued by USA Interactive and USANi cease to be outstanding or USANi's obligations under such notes and the related indenture are discharged or defeased pursuant to the terms thereof. USA and USANi are co-obligors under the 63/4% Senior Notes due November 15, 2005. The 63/4% notes are redeemable, at the option of USA and USANi, at any time, pursuant to the terms of the related indenture. In addition, USA and USANi may purchase all of the 63/4% notes or defease or otherwise discharge their obligations under the 63/4% notes and the related indenture at any time. Accordingly, USANi's guarantee is currently scheduled to terminate on November 15, 2005, but may be terminated earlier.
The indenture will provide that the obligations of USANi will be limited to the maximum amount that, after giving effect to all other contingent and fixed liabilities of USANi, would cause the obligations of USANi under its guarantee not to constitute a fraudulent conveyance or fraudulent transfer under any federal or state law.
Ranking
The notes will be unsecured and unsubordinated obligations of USA and will rank equally in right of payment with all of our existing and future unsecured and unsubordinated obligations. So long as it is in effect, USANi's guarantee will be an unsecured and unsubordinated obligation of USANi and will rank equally with all other existing and future unsecured and unsubordinated obligations of USANi. The notes will be effectively junior to all of our existing and future secured indebtedness and, so long
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as it is in effect, USANi's guarantee will be effectively junior to all secured indebtedness of USANi, in each case, to the extent of the assets securing such indebtedness.
As of September 30, 2002, we and our Subsidiaries had approximately $24.2 million of secured indebtedness, including approximately $4.0 million of capital lease obligations. As of September 30, 2002, after giving pro forma effect to the offering of the old 7% notes, we and USANi would have had approximately $5,237.4 million of unsecured unsubordinated liabilities, consisting in part of $750.0 million aggregate principal amount of old 7% notes, approximately $498.7 million of 63/4% Senior Notes due 2005, approximately $258.2 million of current and long-term liabilities and approximately $2,175.6 million of deferred taxes related to the VUE transaction.
Our and USANi's operations are conducted through our and USANi's Subsidiaries, and we and USANi derive our operating income and cash flow from our investments in our Subsidiaries. Therefore, our and USANi's ability to make payments when due to the holders of the notes is in part dependent upon the receipt of sufficient funds from our and USANi's Subsidiaries. Claims of creditors of such Subsidiaries generally will have priority with respect to the assets and earnings of such Subsidiaries (other than USANi, so long as USANi's guarantee is in effect) over the claims of our creditors, including holders of the notes. Accordingly, the notes and USANi's guarantee will be effectively subordinated to creditors, including trade creditors and preferred stockholders, if any, of our Subsidiaries (other than USANi as long as USANi's guarantee is in effect).
As of September 30, 2002, our Subsidiaries (other than USANi) had approximately $1,874.5 million of unsecured liabilities including trade payables, of which $309.8 million was owed to USA or to USANi.
Covenants
Except as set forth below, neither we nor USANi will be restricted by the indenture from:
In addition, we are not required to maintain any financial ratios or specified levels of net worth or liquidity or to repurchase or redeem or otherwise modify the terms of any of the notes upon a change in control or other events involving us or USANi which may adversely affect the creditworthiness of the notes.
The indenture will contain covenants, including, among others, the following:
Limitation on Liens. USA will not directly or indirectly incur, and will not permit any of our Subsidiaries to directly or indirectly incur, any indebtedness secured by a mortgage, security interest, pledge, lien, charge or other encumbrance upon (a) any properties or assets, including capital stock, of USA or any of our Subsidiaries or (b) any shares of stock or indebtedness of any of our Subsidiaries (whether such property, assets, shares or indebtedness are now existing or owned or hereafter created or acquired), in each case, unless prior to or at the same time, the notes or, in respect of mortgages on USANi's property or assets, USANi's guarantee (together with, at our option, any other indebtedness of or guarantee by USA or any of our Subsidiaries ranking equally with the notes or USANi's guarantee) are equally and ratably secured with or, at our option, prior to, such secured indebtedness. Mortgages, security interests, pledges, liens, charges and other encumbrances are collectively referred to in this prospectus as "mortgages."
The foregoing restriction does not apply to:
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Notwithstanding the restrictions outlined in the preceding paragraph, we and our Subsidiaries will be permitted to incur indebtedness secured by a mortgage which would otherwise be subject to the foregoing restrictions without equally and ratably securing the notes or, in respect of mortgages on USANi's property or assets, USANi's guarantee;providedthat after giving effect to such indebtedness, the aggregate amount of all indebtedness secured by mortgages (not including mortgages permitted under clauses (1) through (8) above) does not at the time exceed 15% of the Consolidated Net Assets of USA.
Merger, Consolidation or Sale of Assets. We and USANi may, without the consent of the holders of any outstanding notes (including any additional notes), consolidate with or sell, lease or convey all or substantially all of our or its assets to, or merge with or into, any other person;provided that:
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The successor person will succeed to, and be substituted for, and may exercise all of our rights and powers under, the indenture but we, in the case of a lease of all or substantially all of our assets, will not be released from the obligation to pay the principal of and interest on the notes.
Notwithstanding any provision to the contrary, this covenant will cease to apply to USANi immediately upon any discharge, defeasance, waiver (to the same extent of such waiver) or termination of USANi's obligations under the covenant governing merger, consolidation and sale of assets in the indenture related to our and USANi's 63/4% Senior Notes due 2005, or upon termination of USANi's guarantee for whatever reason. See also "—Guarantee."
Defaults
Each of the following is an event of default under the indenture:
The foregoing will constitute an event of default whatever the reason for any such event of default and whether it is voluntary or involuntary or is effected by operation of any law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body.
If an event of default occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the outstanding notes (including any additional notes) by notice to us may declare the principal of, and accrued and unpaid interest on, all the notes to be due and payable. Upon this declaration, principal and interest will be immediately due and payable. If an event of default relating to certain events of bankruptcy, insolvency or reorganization of USA occurs and is continuing, the principal of, and accrued interest on, all the notes (including any additional notes) will become immediately due and payable without any declaration or other act on the part of the trustee or any holders. Under some circumstances, the holders of a majority in aggregate principal amount of the
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outstanding notes (including any additional notes) may rescind any acceleration with respect to the notes and its consequences.
If an event of default occurs and is continuing, the trustee, in conformity with its duties under the indenture, will exercise all rights or powers under the indenture at the request or direction of any of the holders;providedthat the holders provide the trustee with a reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder of notes may pursue any remedy with respect to the indenture or the notes unless:
Generally, the holders of a majority in principal amount of the outstanding notes (including any additional notes) are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or of exercising any trust or power conferred on the trustee. The trustee, however, may refuse to follow any direction that conflicts with law or the indenture or that the trustee determines is unduly prejudicial to the rights of any other holder or that would involve the trustee in personal liability.
If a default occurs and is continuing and is known to the trustee, the trustee must mail to each holder notice of the default within 90 days after it is known to the trustee. Except in the case of a default in the payment of principal of, premium, if any, or interest on any note, the trustee may withhold notice if the trustee determines in good faith that withholding notice is not opposed to the interests of the holders. In addition, we are required to deliver to the trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers of the certificate know of any default that occurred during the previous year. We also are required to notify the trustee within 30 days of any event which would constitute various defaults, their status and what action we are taking or propose to take in respect of these defaults.
Amendments and Waivers
Subject to certain exceptions, we may amend the indenture with the consent of the holders of a majority in principal amount of the notes (including any additional notes) then outstanding. Except as provided below, any past default or compliance with any provisions of the indenture or the notes may be waived with the consent of the holders of a majority in principal amount of the notes then outstanding (including any additional notes). These consents may be obtained by various means, including, without limitation through a tender offer or exchange offer for the notes. Without the consent of each holder of an outstanding note (including any additional note), we may not amend the indenture to:
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We may amend the indenture without the consent of any holder:
The consent of the holders is not necessary under the indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the indenture becomes effective, we are required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all holders or any other defect in such notice will not impair or affect the validity of the amendment.
Transfer and Exchange
A holder may transfer or exchange notes under the indenture. Upon any transfer or exchange, the registrar and the trustee may require a holder to furnish appropriate endorsements and transfer documents and we may require a holder to pay any taxes required by law or permitted by the indenture, including any transfer tax or other similar governmental charge payable due to the transfer or exchange. We are not required to transfer or exchange any note selected for redemption or to transfer or exchange any note for a period of 15 days prior to a selection of notes to be redeemed. The notes will be issued in registered form and the registered holder of a note will be treated as the owner of the note for all purposes.
Defeasance
We may terminate all of our obligations under the notes and the indenture at any time through legal defeasance ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the notes, to replace mutilated, destroyed, lost or stolen notes and to maintain a registrar and paying agent in respect of the notes.
In addition, at any time, we may also terminate our obligations under the covenants described under "—Covenants" (other than the covenant described under "—Merger, Consolidation and Sale of Assets") and clauses (4) and (5) under "—Defaults" ("covenant defeasance").
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We may exercise our legal defeasance option notwithstanding our prior exercise of our covenant defeasance option. If we exercise our legal defeasance option, payment of the notes may not be accelerated because of an event of default with respect thereto. If we exercise our covenant defeasance option, payment of the notes may not be accelerated because of any event of default described in clause (4) or (5) under "—Defaults."
To exercise either defeasance option:
Concerning the Trustee
JPMorgan Chase Bank is the trustee under the indenture and is also registrar and paying agent of the notes and the exchange agent in the exchange offer. JPMorgan Chase Bank is also the trustee under the indenture governing our and USANi's 63/4% Senior Notes due 2005.
The indenture contains limitations on the rights of the trustee, should it become a creditor of us, to obtain payment of claims in some cases, or to realize on property received in respect of any of these claims as security or otherwise. The trustee is permitted to engage in other transactions. However, if the trustee acquires any conflicting interest it must either eliminate its conflict within 90 days, apply to the Commission for permission to continue or resign.
Governing Law
The indenture and the notes will be governed by, and construed in accordance with, the laws of the State of New York.
Definitions
"Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the notes to be redeemed that would be utilized, at the time of selection and with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the notes. "Independent Investment Banker" means one of the Reference Treasury Dealers appointed by us.
"Comparable Treasury Price" means, with respect to any redemption date, (1) the average of the bid and asked prices for the Comparable Treasury Issue, expressed in each case as a percentage of its principal amount, on the third business day preceding such redemption date, as contained in the daily statistical release, or any successor release, published by the Federal Reserve Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S. Government Securities" or (2) if the release, or any successor release, is not published or does not contain these prices on that business day: (a) the average of the Reference Treasury Dealer Quotations for this redemption date, after excluding the highest and lowest of the Reference Treasury Dealer Quotations or (b) if the trustee obtains fewer than four Reference Treasury Dealer Quotations, the average of all of these quotations.
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"Consolidated Net Assets" means as of any particular time the aggregate amount of assets of our and our consolidated Subsidiaries at the end of the most recently completed fiscal quarter after deducting, to the extent included, all current liabilities other than (a) notes and loans payable, (b) current maturities of long-term debt and (c) current maturities of obligations under capital leases, all as listed on the consolidated balance sheet of the entity and its consolidated Subsidiaries as of the end of the relevant fiscal quarter and computed in accordance with GAAP.
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a person, whether through the ability to exercise voting power, by contract or otherwise. A person shall be deemed to Control another person if such person (1) is an officer or director of the other person or (2) directly or indirectly owns or controls 10% or more of the other person's capital stock. "Controlling" and "Controlled" have meanings correlative thereto.
"GAAP" means generally accepted accounting principles in the United States of America in effect from time to time.
"guarantee" means any obligation, contingent or otherwise, of any person directly or indirectly guaranteeing any indebtedness of any other person and any obligation, direct or indirect, contingent or otherwise, of such person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such indebtedness of such other person (whether arising by virtue of partnership arrangements, or by agreement to keep well, to purchase assets, goods, securities or services, to take or pay or to maintain financial statement conditions or otherwise) or (b) entered into for purposes of assuring in any other manner the obligee of such indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part);provided,however, that the term "guarantee" will not include endorsements for collection or deposit in the ordinary course of business. The term "guarantee" used as a verb has a corresponding meaning.
"holder" means the person in whose name a note is registered on the registrar's books.
"incur" means, issue, assume, guarantee, incur or otherwise become liable for.
"indebtedness" means, with respect to any person, obligations (other than Nonrecourse Obligations, the notes offered hereby and USANi's guarantee thereof) of such person for borrowed money or evidenced by bonds, debentures, notes or similar instruments.
"Nonrecourse Obligation" means indebtedness or other obligations substantially related to (1) the acquisition of assets not previously owned by us, USANi or any of our or its Subsidiaries or (2) the financing of a project involving the development or expansion of properties of ours, USANi or any of our or its Subsidiaries, as to which the obligee with respect to such indebtedness or obligation has no recourse to us, USANi or any of our Subsidiaries or any of our, USANi's or our Subsidiaries' assets other than the assets which were acquired with the proceeds of such transaction or the project financed with the proceeds of such transaction (and the proceeds thereof).
"person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or political subdivision thereof.
"Reference Treasury Dealer" means each of Lehman Brothers Inc. and its successors and three other nationally recognized investment banking firms that are primary U.S. Government securities dealers specified from time to time by us so long as the entity is a primary U.S. Government securities dealer.
"Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by us, of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in
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writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such redemption date.
"Subsidiary" means, with respect to any person (the "parent") at any date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of that date, as well as any other corporation, limited liability company, partnership, association or other entity (1) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of that date, owned, controlled or held, or (2) that is, as of that date, otherwise Controlled (within the meaning of the first sentence of the definition of "Control"), by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent.
"Treasury Rate" means, for any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity, computed as the second business day immediately preceding that redemption date, of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for that redemption date.
Book-Entry, Delivery and Form of Exchange Notes
We will initially issue the exchange notes in the form of one or more registered global notes without interest coupons. Upon issuance, the global notes will be deposited with the trustee, as custodian for the Depositary Trust Company, or DTC, and registered in the name of DTC or its nominee, in each case for credit to the accounts of DTC's direct and indirect participants as described below.
The global notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee in certain limited circumstances. Beneficial interests in the global notes may be exchanged for exchange notes in certificated form in certain limited circumstances. See "—Certificated Notes." Transfers of beneficial interests in the global notes will be subject to the applicable rules and procedures of DTC and its direct and indirect participants, including those of Euroclear and Clearstream, which may change from time to time.
Certain Book Entry Procedures for the Global Notes. The descriptions of the operations and procedures of DTC, Euroclear and Clearstream set forth below are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to change by them from time to time. We do note take any responsibility for these operations or procedures, and you are urged to contact the relevant system or its participants directly to discuss these matters.
DTC has advised us that it is (a) a limited-purpose trust company organized under the laws of the State of New York, (b) a "banking organization" within the meaning of the New York Banking Law, (c) a member of the Federal Reserve System, (d) a "clearing corporation" within the meaning of the New York Uniform Commercial Code, as amended, and (e) a "clearing agency" registered under Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitates the clearance and settlement of securities transactions between participants through electronic book-entry changes to the accounts of its participants, thereby eliminating the need for physical transfer and delivery of certificates. DTC's participants include securities brokers and dealers, banks and trust companies, clearing corporations and other organizations. Indirect access to DTC's system is also available to indirect participants such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a participant, either directly or indirectly. Investors who are
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not participants may beneficially own securities held by or on behalf of DTC only through participants or indirect participants.
We expect that pursuant to the procedures established by DTC, upon the issuance and deposit of each global note, (a) DTC will credit the accounts of each institution that is a participant in DTC whose name appears on a security position listing as an owner of old 7% notes and who elects to exchange its old 7% notes for exchange notes with an interest in the global note and (b) ownership of the exchange notes will be shown on, and the transfer of that ownership will be effected only through, records maintained by DTC or its nominee with respect to interests of participants and the records of participants with respect to interests of persons other than participants. Investors may hold their interests in the global notes directly through DTC if they are participants in the system, or indirectly through organizations which are participants in the system. The laws of some jurisdictions may require that purchasers of securities take physical delivery of the securities in definitive form. These limits and laws may impair the ability to transfer or pledge beneficial interests in the global notes.
So long as DTC or its nominee is the registered owner of a global note, DTC or such nominee, as the case may be, will be considered the sole owner or holder of the exchange notes represented by the global note for all purposes under the indenture. Except as provided below, owners of beneficial interests in a global note will not be entitled to have exchange notes represented by such global note registered in their names, will not receive or be entitled to receive physical delivery of certificated notes, and will not be considered the owners or holders thereof under the indenture for any purpose, including with respect to the giving of any direction, instruction or approval to the trustee thereunder. Accordingly, each holder owning a beneficial interest in a global note must rely on the procedures of DTC and, if such holder is not a participant or an indirect participant, on the procedures of the participant through which such holder owns its interest, to exercise any rights of a holder of exchange notes under the indenture or such global note. We understand that under existing industry practice, in the event that we request any action of holders of exchange notes, or a holder that is an owner of a beneficial interest in a global note desires to take any action that DTC, as the holder of such global note, is entitled to take, DTC would authorize the participants to take such action and the participants would authorize holders owning through such participants to take such action or would otherwise act upon the instruction of such holders. Neither we nor the trustee will have any responsibility or liability for any aspect of the records relating to or payments made on account of exchange notes by DTC, or for maintaining, supervising or reviewing any records of DTC relating to such notes.
Any payment of principal of and interest on exchange notes represented by the global notes registered in the name of and held by DTC or its nominee will be made to DTC or its nominee, as the registered owner and holder of the global notes. Under the terms of the indenture, we and the trustee may treat the persons in whose name the exchange notes, including the global notes, are registered as the owners thereof for purposes of payment and otherwise.
We expect that DTC or its nominee, upon receipt of any payment of principal of or interest on the global notes, will credit participants' accounts with payments in amounts proportionate to their respective beneficial interests in the principal amount of the global notes as shown on the records of DTC or its nominee. We also expect that payments by participants to owners of beneficial interests in the global notes held through those participants will be governed by standing instructions and customary practices and will be the responsibility of those participants. We will not have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the global notes for any exchange notes or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests or for any other aspect of the relationship between DTC and its participants or the relationship between its participants and the owners of beneficial interests in the global notes owning through its participants.
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Transfers between participants in DTC will be effected in accordance with DTC's procedures and will be settled in same-day funds. Transfers between participants in Euroclear or Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures.
Cross-market transfers between the participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary;provided,however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant global notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a global note from a participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. Cash received in Euroclear or Clearstream as a result of sales of interest in a global note by or through a Euroclear or Clearstream participant to a participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date.
Certificated Exchange Notes
Subject to certain conditions, the exchange notes represented by the global notes are exchangeable for certificated notes in definitive form of like tenor in denominations of $1,000 and integral multiples thereof if:
In any such event, certificated notes will be issued to each person that DTC identifies as the beneficial owner of the exchange notes represented by the global notes. Upon any such issuance, the trustee is required to register those certificated exchange notes in the name of the beneficial owner or owners, or their nominee of, and cause the certificated exchange notes to be delivered to that person.
Neither we nor the trustee shall be liable for any delay by DTC or any participant or indirect participant in identifying the beneficial owners of the related exchange notes, and we and the trustee may conclusively rely on, and shall be protected in relying on, instructions from DTC for all purposes, including with respect to the registration and delivery, and the respective principal amounts, of the exchange notes to be issued.
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Set forth belowThe following is a descriptionsummary of certain provisions of the sharesexchange and registration rights agreement, dated as of December 16, 2002, by and among USA common stockInteractive, USANi, as guarantor, and Lehman Brothers Inc. and J.P. Morgan Securities Inc., as initial purchasers, and does not purport to be complete. The following discussion is qualified in its entirety by reference to the exchange and registration rights agreement, which has been filed as an exhibit to the registration statement.
Purpose of the Exchange Offer
Upon the issuance of the old 7% notes under a purchase agreement, dated as of December 11, 2002, by and among USA Interactive, USANi, as guarantor, and Lehman Brothers Inc. and J.P. Morgan Securities Inc., as initial purchasers, the initial purchasers and their respective assignees became entitled to the benefits of the exchange and registration rights agreement.
The exchange offer being made by this prospectus is intended to satisfy your registration rights under the exchange and registration rights agreement. If we fail to fulfill such registration obligations, you, as a holder of outstanding old 7% notes, are entitled to receive additional interest until we have fulfilled such obligations, at the rate of 0.25% per annum. All amounts of accrued additional interest will be payable in cash on the same interest payment dates as the notes.
Under the exchange and registration rights agreement, we agreed that Ticketmaster stockholderswe will, receiveat our cost:
For each old 7% note validly surrendered to us pursuant to the exchange offer, we will issue to the holder of such note an exchange note having a principal amount equal to that of the surrendered note. Interest on each exchange note will accrue from the last interest payment date on which interest was paid on the note surrendered in exchange thereof or, if no interest has been paid on such note, from the date interest begins to accrue on such note.
Under existing Securities and Exchange Commission interpretations, the exchange notes will be freely transferable by holders after the exchange offer without further registration under the Securities Act if the holder of the exchange notes represents to us in the exchange offer that it is acquiring the exchange notes in the ordinary course of its business, that it has no arrangement or understanding with any person to participate in the distribution of the exchange notes and that it is not an "affiliate" of ours, as defined in Rule 405 of the Securities Act;provided, however, that broker-dealers receiving exchange notes in the exchange offer will have a prospectus delivery requirement with respect to resales of such exchange notes. The Commission has taken the position that broker-dealers receiving exchange notes in the exchange offer may fulfill their prospectus delivery requirements with respect to exchange notes (other than a resale of an unsold allotment from the original sale of the old 7% notes) with the prospectus contained in the exchange offer registration statement.
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Under the exchange and registration rights agreement, we will be required for 90 days after the consummation of the exchange offer to allow broker-dealers receiving exchange notes in the exchange offer and other persons, if any, with similar prospectus delivery requirements to use this prospectus in connection with the merger. The following statements are brief summariesresale of and arethe exchange notes.
In addition, each broker-dealer that receives exchange notes for its own account in exchange for old 7% notes, where the old 7% notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange securities. See "Plan of Distribution."
Holders of old 7% notes who do not exchange their old 7% notes for exchange notes in the exchange offer will continue to be subject to the provisions of USA's restated certificatethe indenture regarding transfer and exchange of incorporation, as amended, USA's amended and restated by-laws,the old 7% notes and the relevant provisionsrestrictions on transfer of the DGCL.old 7% notes as described in the legend on the old 7% notes. In general, the old 7% notes may not be offered or sold, unless registered under the Securities Act, except under an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. See also "—Consequences of Failures to Properly Tender Old 7% Notes in the Exchange Offer."
We are entitled to close the exchange offer 20 business days after the commencement of the offer provided that we have accepted all notes previously validly tendered in accordance with the terms of the exchange offer.
Terms of the Exchange Offer
Upon the terms and subject to the conditions contained in this prospectus and in the letter of transmittal, we will accept any and all old 7% notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on the expiration date. The term "expiration date" means 5:00 p.m., New York City time, on March 18, 2003, unless we, in our sole discretion, extend the exchange offer, in which case the term "expiration date" shall mean the latest date and time to which the exchange offer is extended. Our obligation to accept old 7% notes for exchange in the exchange in the exchange offer is subject to the conditions described below under "—Conditions to the Exchange Offer."
This prospectus, together with the letter of transmittal, is first being sent on or about February 13, 2003, to all holders of old 7% notes known to us. As of the date of this information statement/prospectus, USA's authorized capital stock consistsan aggregate of 1,600,000,000 shares$750.0 million principal amount of USA common stock, 400,000,000 sharesold 7% notes is outstanding. We will issue $l,000 principal amount of USA Class B common stock, par value $0.01 per share,exchange notes in exchange for each $l,000 principal amount of outstanding old 7% notes accepted in the exchange offer. Holders may tender some or all of their old 7% notes under the exchange offer. However, old 7% notes may be tendered only in integral multiples of $1,000.
The exchange notes will evidence the same debt as the old 7% notes and 100,000,000 shareswill be entitled to the benefits of preferred stock, par value $0.01 per share,the indenture under which the old 7% notes were, and the exchange notes will be, issued. The form and terms of the exchange notes will be substantially identical to the form and terms of the old 7% notes, except that:
We reserve the right to extend, amend or terminate the exchange offer, and not to accept for exchange any old 7% notes not previously accepted for exchange, upon the occurrence of any of the conditions of the exchange offer set forth below under "—Conditions to the Exchange Offer." We will give oral or written notice of any extension, amendment, non-acceptance or termination to the holders of the old 7% notes as promptly as practicable. If we materially change the terms of the exchange offer, we will disclose such amendment in a manner reasonably calculated to inform the holders of the
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old 7% notes of such amendment, resolicit tenders of the old 7% notes, file a post-effective amendment of this prospectus and provide notice to the holders of the old 7% notes. If the change is made less than five business days before the expiration of the exchange offer, we will extend the offer so that the holders of the old 7% notes have at least five business days to tender or withdraw. We will notify you of any extension by means of a press release or other public announcement no later than 9:00 a.m., New York City time, on the business day following the previously scheduled expiration date.
You do not have any appraisal or dissenters rights under law or the indenture in the exchange offer. We intend to conduct the exchange offer in accordance with the applicable requirements of the Exchange Act.
If you tender old 7% notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes relating to the exchange of old 7% notes under the exchange offer. We will pay all charges and expenses, other than certain applicable taxes, as part of the exchange offer. See "—Fees and Expenses."
Procedures for Tendering
Only a holder of old 7% notes may tender the old 7% notes in the exchange offer. To tender in the exchange offer, a holder must, on or prior to 5:00 p.m., New York City time, on the expiration date:
For old 7% notes to be tendered effectively, the exchange agent must receive certificates for the old 7% notes prior to 5:00 p.m., New York City time, on the expiration date. Any financial institution which is a participant in DTC may make book-entry delivery of the old 7% notes by causing DTC to transfer the old 7% notes into the exchange agent's account and to deliver an agent's message on or prior to the expiration date in accordance with DTC's procedure for such transfer. Although delivery of old 7% notes may be effected through book-entry transfer into the exchange agent's account at DTC, the letter of transmittal, with any required signature guarantees and any other required documents, must in any case be transmitted to and received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date at one of its addresses listed below under "—Exchange Agent," or the guaranteed delivery procedure described below under "—Guaranteed Delivery Procedures" must be complied with. Delivery of documents to DTC in accordance with its procedures does not constitute delivery to the exchange agent. All references in this prospectus to deposit or delivery of old 7% notes shall be deemed to include DTC's book-entry delivery method.
The method of delivery of old 7% notes and the letter of transmittal and all other required documents to the exchange agent, including delivery through DTC, is at the election and risk of the holder. Instead of delivery by mail, it is recommended that holders use an overnight or hand delivery service. If old 7% notes are sent by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to assure delivery to the exchange agent before the expiration date. No letter of transmittal or old 7% notes should be sent to us.
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The tender by a holder will constitute an agreement between such holder and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal.
Holders may request their respective brokers, dealers, commercial banks, trust companies or nominees to effect the above transactions for such holders.
Any beneficial owner whose old 7% notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's own behalf, such owner must, prior to completing and executing the letter of transmittal and delivering such owner's old 7% notes, either make appropriate arrangements to register ownership of the old 7% notes in such owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.
Signatures on a letter of transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an eligible institution unless the old 7% notes tendered pursuant thereto are tendered:
If the signatures on a letter of transmittal or a notice of withdrawal needs to be guaranteed, such guarantee must be by an eligible institution. An "eligible institution" is a financial institution, including most banks, savings and loan associations and brokerage houses, that is a participant in the Securities Transfer Agents Medallion Program, the New York Stock Exchange Medallion Signature Program or the Stock Exchanges Medallion Program.
If the letter of transmittal is signed by a person other than a registered holder of old 7% notes, the letter of transmittal must be accompanied by a written instrument of transfer or exchange in satisfactory form duly executed by the registered holder with the signature guaranteed by an eligible institution. The old 7% notes must be endorsed or accompanied by appropriate powers of attorney. In either case, the old 7% notes must be signed exactly as the name of any registered holder appears on the old 7% notes.
If the letter of transmittal or any old 7% notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and unless waived by us, proper evidence satisfactory to us of their authority to so act must be submitted with the letter of transmittal.
We will determine in our sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered old 7% notes and all other documents. This determination will be final and binding.
We reserve the absolute right to reject any and all old 7% notes not properly tendered or any old 7% notes our acceptance of which 13,125,000 shareswould, in our opinion or in the opinion of preferred stockour counsel, be unlawful. We also reserve the right to waive any defects, irregularities or conditions of tender as to particular old 7% notes. Our interpretation of the terms and conditions of the exchange offer (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old 7% notes must be cured within such time as we shall determine. Although we intend to notify holders of defects or irregularities with respect to tenders of old 7% notes, neither we nor the exchange agent nor any other person shall incur any liability for failure to give such notification. Tenders of old 7% notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any old 7% notes received by the
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exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned by the exchange agent to the tendering holders (or, in the case of old 7% notes delivered by book-entry transfer within DTC, will be credited to the account maintained within DTC by the DTC participant which delivered such old 7% notes), unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date.
In addition, we reserve the right in our sole discretion to (a) purchase or make offers for any old 7% notes that remain outstanding subsequent to the expiration date, (b) as set forth below under "—Conditions" terminate the exchange offer and (c) to the extent permitted by applicable law, purchase old 7% notes in the open market, in privately negotiated transactions, through subsequent exchange offers or otherwise. The terms of any such purchases or offers could differ from the terms of the exchange offer.
By tendering, each holder will represent to us, among others, that:
If any holder or other person is an "affiliate" of ours, as defined under Rule 405 of the Securities Act, or is engaged in, or intends to engage in, or has an arrangement or understanding with any person to participate in, a distribution of the exchange notes, that holder or other person cannot rely on the applicable interpretations of the staff of the SEC and must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.
In addition, each broker-dealer that receives exchange notes for its own account in exchange for old 7% notes, where the old 7% notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange securities. See "Plan of Distribution."
Book-Entry Transfer
The exchange agent will establish a new account or utilize an existing account with respect to the old 7% notes at DTC promptly, but no later than two business days, after the date of this prospectus. Any financial institution that is a participant in DTC and whose name appears on a security position listing as the owner of old 7% notes may make a book-entry tender of old 7% notes by causing DTC to transfer such old 7% notes into the exchange agent's account in accordance with DTC's procedures for such transfer. DTC participants that are accepting the exchange offer should transmit their acceptance to DTC, which will edit and verify such acceptance, execute a book-entry transfer of the tendered old 7% notes into the exchange agent's account at DTC. DTC will then send to the exchange agent confirmation of this book-entry transfer. The confirmation of this book-entry transfer will include an agent's message confirming that DTC has received an express acknowledgment from the participant that such participant has received and agrees to be bound by the letter of transmittal and that we may enforce the letter of transmittal against such participant. Although tender of old 7% notes may be effected through book-entry transfer at DTC, the letter of transmittal (or a facsimile thereof), properly completed and validly executed, with any required signature guarantees, or an agent's message in lieu of the letter of transmittal, and any other required documents, must, in any case, be received by the exchange agent at its address listed below under the caption "—Exchange Agent" on or prior to the expiration date, or the guaranteed delivery procedures described below must be complied with.
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Guaranteed Delivery Procedures
If a registered holder of old 7% notes wishes to tender such notes, and (a) the certificates representing such old 7% notes are not lost but are not immediately available, (b) time will not permit the letter of transmittal, certificates representing the holder's old 7% notes or other required documents to reach the exchange agent before the expiration date or (c) the procedure for book-entry transfer described above cannot be completed prior to the expiration date, a tender may nonetheless be made if:
Acceptance of Old 7% Notes for Exchange; Delivery of Exchange Notes
Upon satisfaction or waiver of all of the conditions to the exchange offer, we will accept, promptly after the expiration date, all old 7% notes properly tendered. We will issue the exchange notes promptly after acceptance of the old 7% notes. See "—Conditions to the Exchange Offer." For purposes of the exchange offer, we will be deemed to have accepted properly tendered old 7% notes for exchange when, as and if we have given oral or written notice to the exchange agent, with prompt written confirmation of any oral notice.
For each old 7% note accepted for exchange, the holder of the old 7% notes will receive an exchange note having a principal amount equal to that of the surrendered old 7% note. The exchange notes will bear interest from the most recent date to which interest has been designatedpaid on the old 7% notes. Accordingly, registered holders of exchange notes on the relevant record date for the first interest payment date following the completion of the exchange offer will receive interest accruing from the most recent date to which interest has been paid. Old 7% notes accepted for exchange will cease to accrue interest from and after the date of completion of the exchange offer. Holders of old 7% notes whose old 7% notes are accepted for exchange will not receive any payment for accrued interest on the old 7% notes otherwise payable on any interest payment date the record date for which occurs on or after completion of the exchange offer and will be deemed to have waived their rights to receive the accrued interest on the old 7% notes.
In all cases, issuance of exchange notes for old 7% notes will be made only after timely receipt by the exchange agent of certificates for the old 7% notes, or a timely book-entry confirmation of the
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transfer of old 7% notes into the exchange agent's account at DTC; a properly completed and duly executed letter of transmittal; and all other required documents.
Unaccepted or non-exchanged old 7% notes will be returned without expense to the tendering holder of the old 7% notes. In the case of old 7% notes tendered by book-entry transfer in accordance with the book-entry procedures described below, the non-exchanged old 7% notes will be credited to an account maintained at DTC, as Series A Cumulative Convertible Preferred Stock,promptly as practicable after the expiration or termination of the exchange offer.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of old 7% notes may be withdrawn at any time prior to 5:00 pm., New York City time, on the expiration date.
To withdraw a tender of old 7% notes in the exchange offer, a written or facsimile transmission notice of withdrawal must be received by the exchange agent at its address at the address listed below under "—Exchange Agent" prior to 5:00 p.m., New York City time, on the expiration date. Any notice of withdrawal must:
If the old 7% notes have been delivered under the book-entry procedure set forth above under "—Book-Entry Transfer" any notice of withdrawal must specify the name and number of the participant's account at DTC to be credited with the withdrawn old 7% notes. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by us in our sole discretion, which determination shall be final and binding on all parties. Any old 7% notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer, and no exchange notes will be issued with respect thereto unless the old 7% notes so withdrawn are validly retendered. Properly withdrawn old 7% notes may be retendered by following one of the procedures described above under "—Procedures for Tendering" at any time prior to the expiration date.
Conditions
Notwithstanding any other term of the exchange offer, we referare not required to accept for exchange any old 7% notes, and may terminate the exchange offer as provided in this documentprospectus before the acceptance of any old 7% notes, if:
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These conditions are for our sole benefit and may be asserted by us regardless of September 15, 2002, there were 384,138,676 sharesthe circumstance giving rise to any such condition or may be waived by us in whole or in part at any time and from time to time in our reasonable discretion. Our failure at any time to exercise any of USA common stock outstanding (including 318,334 sharesthe foregoing rights shall not be deemed a waiver of unvested restricted stock), 64,629,996 sharesthe right, and each right shall be deemed an ongoing right which may be asserted at any time and from time to time.
If we determine in our reasonable judgment that any of USA Class B common stock outstandingthe conditions are not satisfied, we may:
Consequences of Failures to Properly Tender Old 7% Notes in the Exchange Offer
Participation in the exchange offer is voluntary. In the event the exchange offer is completed, we will not be required to register any remaining old 7% notes. Remaining old 7% notes will continue to be subject to the following restrictions on transfer:
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Other than in connection with the exchange offer, we are not obligated to, nor do we currently anticipate that we will, register the old 7% notes under the Securities Act. To the extent that old 7% notes are tendered and accepted in connection with the exchange offer, any trading market for remaining old 7% notes may be adversely affected.
Exchange Agent
JPMorgan Chase Bank, the trustee under the indenture, has been appointed as exchange agent for the exchange offer. Questions and requests for assistance and inquiries for additional copies of this prospectus or of the letter of transmittal should be directed to the exchange agent addressed as follows:
By Registered or Certified Mail, or Overnight Delivery
After 4:30 p.m. on the Expiration Date:
JPMorgan Chase Bank
ITS Bond Events
2001 Bryan Street, 9th Floor
Dallas, TX 75201
Attention: Frank Ivins
For Information Call: (800) 275-2048
By Regular Mail (REGISTERED OR CERTIFIED MAIL RECOMMENDED)
JPMorgan Chase Bank
ITS Bond Events
P.O. Box 2320
Dallas, TX 75221
By Facsimile Transmission Number
(for Eligible Institutions only):
(214) 468-6494
Attention: Frank Ivins
To Confirm Facsimile: (214) 468-6464
Delivery of the letter of transmittal to an address other than as set forth above or transmission of instructions via facsimile other than as set forth above does not constitute a valid delivery of such letter of transmittal.
Fees And Expenses
We have not retained any dealer-manager as part of the exchange offer and will not make any payments to brokers, dealers or others soliciting acceptance of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for services and will reimburse it for its reasonable out-of-pocket expenses under the exchange offer. We will also pay the cash expenses to be incurred under the exchange offer. Such expenses include fees and expenses of the exchange agent, accounting and legal fees and printing costs, among others. We estimate these expenses in the aggregate to be approximately $200,000.
Transfer Taxes
We will pay all transfer taxes, if any, applicable to the exchange of old 7% notes under the exchange offer. If, however, exchange notes or old 7% notes for principal amounts not tendered or
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accepted for exchange are to be registered, or are to be issued in the name of, or delivered to, any person other than the registered holder, or if tendered old 7% notes are registered in the name of any person other than the person signing the letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of old 7% notes in the exchange offer, then the amount of any transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of the taxes or exemption from such payment is not submitted with the letter of transmittal, the amount of the transfer taxes will be billed directly to the tendering holder.
Accounting Treatment
We will not recognize any gain or loss for accounting purposes upon the consummation of the merger,exchange offer. We will amortize the expense of the exchange offer over the term of the exchange notes under generally accepted accounting principles.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the principal United States federal income tax consequences to holders of old 7% notes who exchange their old 7% notes for exchange notes in the exchange offer. This discussion is based on currently existing provisions of the numberInternal Revenue Code of shares1986, as amended, existing, temporary and proposed Treasury regulations promulgated under the Internal Revenue Code, and administrative and judicial interpretations of the Internal Revenue Code, all as in effect or proposed on the date of this prospectus and all of which are subject to change, possibly with retroactive effect, or different interpretations. This discussion is limited to holders of old 7% notes who hold such notes as capital assets, within the meaning of section 1221 of the Internal Revenue Code. Moreover, this discussion is for general information only and does not address all of the tax consequences that may be relevant to holders of old 7% notes and exchange notes in light of their personal circumstances or to some types of holders of old 7% notes and exchange notes including financial institutions, insurance companies, tax-exempt entities, dealers in securities or persons who have hedged the risk of owning a note. In addition, this discussion does not address any tax consequences arising under the laws of any state, locality or foreign jurisdiction, or any estate or gift tax considerations.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH HOLDER OF OLD 7% NOTES IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR WITH RESPECT TO ITS PARTICULAR TAX SITUATION AND AS TO ANY FEDERAL, FOREIGN, STATE, LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY POSSIBLE CHANGES IN TAX LAW) AFFECTING THE EXCHANGE OF THE OLD 7% NOTES.
Exchange Offer
The exchange of old 7% notes for exchange notes under the exchange offer should not be treated as an exchange or other taxable event for United States federal income tax purposes. Accordingly, there should be no United States federal income tax consequences to holders who exchange old 7% notes for exchange notes under the exchange offer and any holder should have the same adjusted tax basis and holding period in the exchange notes as it had in the old 7% notes immediately before the exchange.
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Each broker-dealer that receives exchange notes for its own account under the exchange offer must acknowledge that it will deliver a prospectus as part of any resale of the exchange notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer as part of resales of exchange notes received in exchange for old 7% notes where the old 7% notes were acquired as a result of market-making activities or other trading activities. We have agreed that for a period of 90 days after the expiration date, we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.
Neither USA Interactive or USANi will receive any proceeds from any sale of exchange notes by broker-dealers or any other holder of exchange notes. Exchange notes received by broker-dealers for their own account under the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to the prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any of these broker-dealers and the purchasers of any such exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of the exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on their resale of exchange notes and any commissions or concessions received by them may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver a prospectus and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the expiration date, we will promptly send additional copies of this prospectus and any amendment or supplement to this prospectus to any broker-dealer that requests these documents in the letter of transmittal. We have agreed to pay all expenses incident to the exchange offer (including the expenses of one counsel for the holders of the old 7% notes) other than commissions or concessions of any brokers or dealers and will indemnify the holders of the notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act.
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Certain legal matters in connection with the exchange notes offered hereby will be passed upon for us by Covington & Burling, New York, New York.
The consolidated financial statements and the related financial statement schedule of USA common stockInteractive at December 31, 2001 and Ticketmaster common stock outstanding2000, and for each of the three years in the period ended December 31, 2001, incorporated by reference in, and the consolidated financial statements of USA Interactive at December 31, 2001 and 2000 and for each of the three years in the period ended December 31, 2001 included in, this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon incorporated by reference and appearing elsewhere herein, and are incorporated and included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements and the related financial statement schedule incorporated in this prospectus by reference from Expedia, Inc.'s Transition Report on Form 10-K for the six-month period ended December 31, 2001, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report, which is incorporated herein by reference, and have so been incorporated in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Page | ||
|---|---|---|
| AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF USA INTERACTIVE AND SUBSIDIARIES | ||
| Report of Independent Auditors | F-2 | |
| Consolidated Statements of Operations for the Years Ended December 31, 2001, 2000 and 1999 | F-3 | |
| Consolidated Balance Sheets as of December 31, 2001 and 2000 | F-4 | |
| Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2001, 2000 and 1999 | F-6 | |
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 | F-7 | |
| Notes to Consolidated Financial Statements | F-8 | |
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF USA INTERACTIVE AND SUBSIDIARIES | ||
| Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001 | F-46 | |
| Consolidated Balance Sheets as of September 30, 2002 and December 31, 2001 | F-47 | |
| Consolidated Statements of Stockholders' Equity for the Nine Months Ended September 30, 2002 and 2001 | F-49 | |
| Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001 | F-50 | |
| Notes to Consolidated Financial Statements | F-51 |
F-1
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
USA Interactive
We have audited the accompanying consolidated balance sheets of USA Interactive (formerly USA Networks, Inc.) and subsidiaries as of September 15, 2002, there would be outstanding approximately 429,240,079 sharesDecember 31, 2001 and 2000, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 consolidated financial position of USA common stock.Interactive and subsidiaries at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.
As discussed in Note 2 to the consolidated financial statements, on January 1, 2001, the Company adopted AICPA Statement of Position 00-2, "Accounting by Producers or Distributors of Films."
/s/ERNST & YOUNG LLP
New York, New York
January 29, 2002, except for
Notes 21 and 23 as to which the
dates are July 23, 2002 and
December 2, 2002, respectively
F-2
USA Common Stock and USA Class B Common StockINTERACTIVE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
| | Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | ||||||||
| | (In Thousands, Except Per Share Data) | ||||||||||
| Product sales | $ | 1,938,979 | $ | 1,799,932 | $ | 1,370,790 | |||||
| Service revenue | 1,529,881 | 1,164,680 | 630,318 | ||||||||
| Net revenue | 3,468,860 | 2,964,612 | 2,001,108 | ||||||||
| Operating costs and expenses: | |||||||||||
| Cost of sales—product sales | 1,287,630 | 1,178,369 | 900,896 | ||||||||
| Cost of sales—service revenue | 1,043,808 | 821,636 | 417,242 | ||||||||
| Selling and marketing | 441,544 | 350,178 | 265,181 | ||||||||
| General and administrative | 320,844 | 268,233 | 184,429 | ||||||||
| Other operating costs | 81,159 | 69,473 | 43,256 | ||||||||
| Amortization of cable distribution fees | 43,975 | 36,322 | 26,680 | ||||||||
| Amortization of non-cash distribution and marketing expense | 26,384 | 11,665 | — | ||||||||
| Amortization of non-cash compensation expense | 7,800 | 12,740 | 6,423 | ||||||||
| Depreciation and amortization | 432,139 | 565,742 | 205,843 | ||||||||
| Total operating costs and expenses | 3,685,283 | 3,314,358 | 2,049,950 | ||||||||
| Operating loss | (216,423 | ) | (349,746 | ) | (48,842 | ) | |||||
| Other income (expense): | |||||||||||
| Interest income | 26,994 | 38,753 | 26,897 | ||||||||
| Interest expense | (46,179 | ) | (46,119 | ) | (56,592 | ) | |||||
| Gain on sale of subsidiary stock | — | 108,343 | — | ||||||||
| Loss in unconsolidated subsidiaries and other | (51,849 | ) | (59,326 | ) | (4,269 | ) | |||||
| (71,034 | ) | 41,651 | (33,964 | ) | |||||||
| Loss from continuing operations before income taxes and minority interest | (287,457 | ) | (308,095 | ) | (82,806 | ) | |||||
| Income tax expense | (2,450 | ) | (43,850 | ) | (28,558 | ) | |||||
| Minority interest | 103,108 | 179,547 | 42,152 | ||||||||
| Loss from Continuing Operations | (186,799 | ) | (172,398 | ) | (69,212 | ) | |||||
| Discontinued operations, net of tax | 61,747 | 24,415 | 41,581 | ||||||||
| Gain on disposal of Broadcasting stations, net of tax | 517,847 | — | — | ||||||||
| Earnings (loss) before cumulative effect of accounting change, net of tax | 392,795 | (147,983 | ) | (27,631 | ) | ||||||
| Cumulative effect of accounting change from discontinued operations, net of tax | (9,187 | ) | — | — | |||||||
| Net Earnings (Loss) | $ | 383,608 | $ | (147,983 | ) | $ | (27,631 | ) | |||
| Loss per share from continuing operations: | |||||||||||
| Basic loss per common share | $ | (.50 | ) | $ | (.48 | ) | $ | (.21 | ) | ||
| Diluted loss per common share | $ | (.50 | ) | $ | (.48 | ) | $ | (.21 | ) | ||
| Earnings (Loss) per share, before cumulative effect of accounting change: | |||||||||||
| Basic earnings (loss) per common share | $ | 1.05 | $ | (.41 | ) | $ | (.08 | ) | |||
| Diluted earnings (loss) per common share | $ | 1.05 | $ | (.41 | ) | $ | (.08 | ) | |||
| Net Earnings (Loss) per Share: | |||||||||||
| Basic earnings (loss) per common share | $ | 1.03 | $ | (.41 | ) | $ | (.08 | ) | |||
| Diluted earnings (loss) per common share | $ | 1.03 | $ | (.41 | ) | $ | (.08 | ) | |||
With respectThe accompanying Notes to matters that may be submitted to a vote or for the consentConsolidated Financial Statements are an integral part of USA's stockholders generally, including the election of directors, each holder of shares of USA common stock, USA Class B common stock and USA preferred stock will vote together as a single class. In connection with any such vote, each holder of USA common stock is entitled to one vote for each share of USA common stock held, each holder of USA Class B common stock is entitled to ten votes for each share of USA Class B common stock held and each holder of USA preferred stock is entitled to two votes for each share of USA preferred stock held. Notwithstanding the foregoing, the holders of shares of USA common stock, acting as a single class, are entitled to elect 25% of the total number of USA's directors, and, in the event that 25% of the total number of directors shall result in a fraction of a director, then the holders of shares of USA common stock, acting as a single class, are entitled to elect the next higher whole number of USA's directors. In addition, the DGCL requires that certain matters be approved by the holders of shares of USA common stock, holders of USA Class B common stock or holders of USA preferred stock voting as a separate class.these statements.
Shares of USA Class B common stock are convertible into shares of USA common stock at the option of the holder thereof, at any time, on a share-for-share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of USA by means of a stock dividend on, or a stock split or combination of, outstanding shares of USA common stock or USA Class B common stock, or in the event of any merger, consolidation or other reorganization of USA with another corporation. Upon the conversion of shares of USA Class B common stock into shares of USA common stock, those shares of USA Class B common stock will be retired and will not be subject to reissue. Shares of USA common stock are not convertible into shares of USA Class B common stock.
Except as described in this section, shares of USA common stock and USA Class B common stock are identical. The holders of shares of USA common stock and the holders of shares of USA Class B common stock are entitled to receive, share for share, such dividends as may be declared by USA's board of directors out of funds legally available therefor. In the event of a liquidation, dissolution, distribution of assets or winding-up of USA, the holders of shares of USA common stock and the holders of shares of USA Class B common stock are entitled to receive, share for share, all the assets of USA available for distribution to its stockholders, after the rights of the holders of the USA preferred stock have been satisfied.
Pursuant to the Governance Agreement among USA, Vivendi, Universal Studios, Inc., Liberty and Mr. Diller, Liberty has a preemptive right to maintain its percentage equity interest in USA, including
75F-3
in respect of the shares of USA common stock issuable in connection with the merger. This preemptive right generally provides that Liberty may elect to purchase a number of shares of USA common stock so that its percentage equity interest in USA immediately after a transaction would be the same as immediately before the transaction. The purchase price for shares of USA common stock pursuant to a preemptive right election is generally based upon the fair market value (as defined in the Governance Agreement) of the USA common stock purchased. USA's restated certificate of incorporation, as amended, provides that there can be no stock dividends or stock splits or combinations of stock declared or made on shares of USA common stock or USA Class B common stock unless the USA common stock and USA Class B common stock then outstanding are treated equally and identically. The shares of USA common stock that Ticketmaster stockholders will receive in the merger under this information statement/prospectus will be legally issued, fully paid and non-assessable.
USA Preferred StockINTERACTIVE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||||
| | (In Thousands, Except Share Data) | |||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | 978,377 | $ | 244,223 | ||||
| Restricted cash equivalents | 9,107 | 2,021 | ||||||
| Marketable securities | 171,464 | 127,102 | ||||||
| Accounts and notes receivable, net of allowance of $16,252 and $11,734, respectively | 276,716 | 265,998 | ||||||
| Receivable from sale of USAB | 589,625 | — | ||||||
| Inventories, net | 197,354 | 227,920 | ||||||
| Deferred tax assets | 39,946 | 32,842 | ||||||
| Other current assets, net | 84,727 | 47,911 | ||||||
| Net current assets of discontinued operations | 38,343 | 86,517 | ||||||
| Total current assets | 2,385,659 | 1,034,534 | ||||||
PROPERTY, PLANT AND EQUIPMENT | ||||||||
| Computer and broadcast equipment | 349,145 | 303,123 | ||||||
| Buildings and leasehold improvements | 125,491 | 118,054 | ||||||
| Furniture and other equipment | 91,292 | 73,617 | ||||||
| Land | 15,665 | 15,658 | ||||||
| Projects in progress | 45,754 | 44,406 | ||||||
| 627,347 | 554,858 | |||||||
| Less accumulated depreciation and amortization | (228,360 | ) | (145,908 | ) | ||||
| 398,987 | 408,950 | |||||||
| OTHER ASSETS | ||||||||
| Goodwill | 3,075,831 | 3,089,182 | ||||||
| Intangible assets, net | 218,651 | 280,666 | ||||||
| Cable distribution fees, net | 158,880 | 159,117 | ||||||
| Long-term investments | 64,731 | 48,949 | ||||||
| Notes and accounts receivable, net of current portion ($99,819 and $22,575, respectively, from related parties) | 108,095 | 27,305 | ||||||
| Advance to Universal | 39,265 | 95,220 | ||||||
| Deferred charges and other, net | 89,751 | 68,711 | ||||||
| Net long-term assets of discontinued operations | — | 433,656 | ||||||
| $ | 6,539,850 | $ | 5,646,290 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-4
LIABILITIES AND STOCKHOLDERS' EQUITY
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||||
| | (In Thousands, Except Share Data) | |||||||
| CURRENT LIABILITIES | ||||||||
| Current maturities of long-term obligations | $ | 33,519 | $ | 24,748 | ||||
| Accounts payable, trade | 309,609 | 251,357 | ||||||
| Accounts payable, client accounts | 102,011 | 97,687 | ||||||
| Cable distribution fees payable | 32,795 | 33,598 | ||||||
| Deferred revenue | 75,256 | 63,999 | ||||||
| Income tax payable | 188,806 | — | ||||||
| Other accrued liabilities | 262,727 | 207,988 | ||||||
| Total current liabilities | 1,004,723 | 679,377 | ||||||
| LONG-TERM OBLIGATIONS (net of current maturities) | 544,372 | 551,766 | ||||||
| OTHER LONG-TERM LIABILITIES | 26,350 | 23,662 | ||||||
| DEFERRED INCOME TAXES | 210,184 | 42,783 | ||||||
| MINORITY INTEREST | 706,688 | 908,831 | ||||||
| NET LONG-TERM LIABILITIES OF DISCONTINUED OPERATIONS | 102,032 | — | ||||||
STOCKHOLDERS' EQUITY | ||||||||
| Preferred stock—$.01 par value; authorized 15,000,000 shares; no shares issued and outstanding | — | — | ||||||
| Common stock—$.01 par value; authorized 1,600,000,000 shares; issued and outstanding, 314,704,017 and 305,436,198 shares, respectively | 3,147 | 3,055 | ||||||
| Class B convertible common stock—$.01 par value; authorized, 400,000,000 shares; issued and outstanding, 63,033,452 shares | 630 | 630 | ||||||
| Additional paid-in capital | 3,918,401 | 3,793,764 | ||||||
| Retained earnings/Accumulated deficit | 181,267 | (202,341 | ) | |||||
| Accumulated other comprehensive loss | (11,605 | ) | (10,825 | ) | ||||
| Treasury stock | (141,341 | ) | (139,414 | ) | ||||
| Note receivable from key executive for common stock issuance | (4,998 | ) | (4,998 | ) | ||||
| Total stockholders' equity | 3,945,501 | 3,439,871 | ||||||
| $ | 6,539,850 | $ | 5,646,290 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-5
USA INTERACTIVE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
| | Total | Common Stock | Class B Convertible Common Stock | Addit. Paid-in Capital | Retained Earnings /(Accum. Deficit) | Accum. Other Comp. Income | Treasury Stock | Unearned Compensation | Note Receivable From Key Executive for Common Stock Issuance | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||||||||||||||
| Balance at December 31, 1998 | $ | 2,571,405 | $ | 2,545 | $ | 630 | $ | 2,592,456 | $ | (26,727 | ) | $ | 8,852 | $ | — | $ | (1,353 | ) | $ | (4,998 | ) | |||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net earnings for the year ended December 31, 1999 | (27,631 | ) | — | — | — | (27,631 | ) | — | — | — | — | |||||||||||||||||
| Decrease in unrealized gains in available for sale securities | (3,956 | ) | — | — | — | — | (3,956 | ) | — | — | — | |||||||||||||||||
| Foreign currency translation | (123 | ) | — | — | — | — | (123 | ) | — | — | — | |||||||||||||||||
| Comprehensive loss | (31,710 | ) | ||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | 47,967 | 111 | — | 47,856 | — | — | — | — | — | |||||||||||||||||||
| Income tax benefit related to stock options exercised | 42,362 | — | — | 42,362 | — | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection with October Films/PFE Transaction | 23,558 | 12 | — | 23,546 | — | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection with other acquisitions | 4,498 | 3 | — | 4,495 | — | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection Liberty preemptive rights | 120,306 | 73 | — | 120,233 | — | — | — | — | — | |||||||||||||||||||
| Purchase of Treasury Stock in connection with stock repurchase program | (8,933 | ) | (4 | ) | — | — | — | — | (8,929 | ) | — | — | ||||||||||||||||
| Cancellation of employee equity program | (355 | ) | — | — | (442 | ) | — | — | (635 | ) | 722 | — | ||||||||||||||||
| Amortization of unearned compensation related to stock options and equity participation plans | 631 | — | — | — | — | — | — | 631 | — | |||||||||||||||||||
| Balance at December 31, 1999 | 2,769,729 | 2,740 | 630 | 2,830,506 | (54,358 | ) | 4,773 | (9,564 | ) | — | (4,998 | ) | ||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net loss for the year ended December 31, 2000 | (147,983 | ) | — | — | — | (147,983 | ) | — | — | — | — | |||||||||||||||||
| Decrease in unrealized gains in available for sale securities | (11,958 | ) | — | — | — | — | (11,958 | ) | — | — | — | |||||||||||||||||
| Foreign currency translation | (3,640 | ) | — | — | — | — | (3,640 | ) | — | — | — | |||||||||||||||||
| Comprehensive loss | (163,581 | ) | ||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | 37,341 | 46 | — | 37,295 | — | — | — | — | — | |||||||||||||||||||
| Income tax benefit related to stock options exercised | 26,968 | — | — | 26,968 | — | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection with PRC acquisition | 887,371 | 322 | — | 887,049 | — | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection with other transactions | 11,950 | 4 | — | 11,946 | — | — | — | — | — | |||||||||||||||||||
| Purchase of Treasury Stock | (129,907 | ) | (57 | ) | — | — | — | — | (129,850 | ) | — | — | ||||||||||||||||
| Balance at December 31, 2000 | 3,439,871 | 3,055 | 630 | 3,793,764 | (202,341 | ) | (10,825 | ) | (139,414 | ) | — | (4,998 | ) | |||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net Income for the year ended December 31, 2001 | 383,608 | — | — | — | 383,608 | — | — | — | — | |||||||||||||||||||
| Decrease in unrealized losses in available for sale securities | 5,600 | — | — | — | — | 5,600 | — | — | — | |||||||||||||||||||
| Foreign currency translation | (6,380 | ) | — | — | — | — | (6,380 | ) | — | — | — | |||||||||||||||||
| Comprehensive Income | 382,828 | |||||||||||||||||||||||||||
| Issuance of common stock upon exercise of stock options | 80,931 | 90 | — | 80,841 | — | — | — | — | — | |||||||||||||||||||
| Income tax benefit related to stock options exercised | 38,439 | — | — | 38,439 | — | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection with other transactions | 5,360 | 3 | — | 5,357 | — | — | — | — | — | |||||||||||||||||||
| Purchase of Treasury Stock | (1,928 | ) | (1 | ) | — | — | — | — | (1,927 | ) | — | — | ||||||||||||||||
| Balance at December 31, 2001 | $ | 3,945,501 | $ | 3,147 | $ | 630 | $ | 3,918,401 | $ | 181,267 | $ | (11,605 | ) | $ | (141,341 | ) | $ | — | $ | (4,998 | ) | |||||||
Accumulated other comprehensive income is comprised of unrealized (losses) gains on available for sale securities of $39, $(5,561) and $6,397 at December 31, 2001, 2000 and 1999, respectively and foreign currency translation adjustments of $(11,644), $(5,264) and $(1,624) at December 31, 2001, 2000 and 1999, respectively.
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-6
USA INTERACTIVE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | Years Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||||
| | (In Thousands) | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Loss from continuing operations: | $ | (186,799 | ) | $ | (172,398 | ) | $ | (69,212 | ) | |||
| Adjustments to reconcile loss from continuing operations to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization | 432,139 | 565,742 | 205,843 | |||||||||
| Amortization of cable distribution fees | 43,975 | 36,322 | 26,680 | |||||||||
| Amortization of deferred financing costs | 1,491 | 3,778 | 5,035 | |||||||||
| Non-cash distribution and marketing | 26,384 | 11,665 | — | |||||||||
| Deferred income taxes | 12,253 | 21,357 | 10,890 | |||||||||
| Equity in (earnings) losses of unconsolidated affiliates and other | 48,977 | 58,333 | (1,806 | ) | ||||||||
| Gain on sale of subsidiary stock | — | (108,343 | ) | — | ||||||||
| Non-cash interest income | (3,729 | ) | (8,735 | ) | (671 | ) | ||||||
| Non-cash stock compensation | 7,800 | 12,740 | 6,423 | |||||||||
| Minority interest | (103,108 | ) | (179,547 | ) | (42,152 | ) | ||||||
| Changes in current assets and liabilities: | ||||||||||||
| Accounts receivable | 18,844 | (64,925 | ) | (26,328 | ) | |||||||
| Inventories | 31,128 | (44,892 | ) | (36,838 | ) | |||||||
| Accounts payable | 38,914 | 27,468 | 35,504 | |||||||||
| Accrued liabilities and deferred revenue | (25,119 | ) | (837 | ) | 14,606 | |||||||
| Increase in cable distribution fees | (47,393 | ) | (64,876 | ) | (42,887 | ) | ||||||
| Other, net | 2,578 | (5,531 | ) | (7,327 | ) | |||||||
| Net Cash Provided By Operating Activities | 298,335 | 87,321 | 77,760 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisitions, net of cash acquired | (198,641 | ) | (125,985 | ) | (144,451 | ) | ||||||
| Capital expenditures | (130,536 | ) | (160,423 | ) | (101,697 | ) | ||||||
| Advance to Universal | — | — | (200,000 | ) | ||||||||
| Recoupment of advance to Universal | 59,821 | 77,330 | 42,951 | |||||||||
| Increase in long-term investments and notes receivable | (122,413 | ) | (33,890 | ) | (69,646 | ) | ||||||
| Purchase of marketable securities | (51,977 | ) | (134,895 | ) | — | |||||||
| Proceeds from sale of broadcast stations | 510,374 | — | — | |||||||||
| Payment of merger and financing costs | — | (18,758 | ) | (4,765 | ) | |||||||
| Other, net | (31,576 | ) | (11,395 | ) | 9,290 | |||||||
| Net Cash Provided By (Used in) Investing Activities | 35,052 | (408,016 | ) | (468,318 | ) | |||||||
| Cash flows from financing activities: | ||||||||||||
| Borrowings | 23,086 | 64,840 | — | |||||||||
| Principal payments on long-term obligations | (22,331 | ) | (99,684 | ) | (256,217 | ) | ||||||
| Purchase of treasury stock | (1,928 | ) | (129,907 | ) | (8,933 | ) | ||||||
| Payment of mandatory tax distribution to LLC partners | (17,369 | ) | (68,065 | ) | (28,830 | ) | ||||||
| Proceeds from sale of subsidiary stock | 12,234 | 93,189 | 4,268 | |||||||||
| Proceeds from issuance of common stock and LLC shares | 80,932 | 210,642 | 422,544 | |||||||||
| Other, net | (18,368 | ) | (12,852 | ) | (32,628 | ) | ||||||
| Net Cash Provided By Financing Activities | 56,256 | 58,163 | 100,204 | |||||||||
| Net Cash Provided By Discontinued Operations | 348,174 | 86,266 | 267,651 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (3,663 | ) | (2,687 | ) | (123 | ) | ||||||
| Net Increase (Decrease) In Cash and Cash Equivalents | 734,154 | (178,953 | ) | (22,826 | ) | |||||||
| Cash and cash equivalents at beginning of period | 244,223 | 423,176 | 446,002 | |||||||||
| Cash and Cash Equivalents at End of Period | $ | 978,377 | $ | 244,223 | $ | 423,176 | ||||||
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-7
USA INTERACTIVE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—ORGANIZATION
USA's boardUSA Interactive ("USA" or the "Company") (Nasdaq: USAI) is organized into two groups, the USA Interactive Group and the USA Entertainment Group. The USA Interactive Group consists of directors hasHome Shopping Network (including HSN International and HSN.com); Ticketmaster (Nasdaq: TMCS), which operates Ticketmaster, Ticketmaster.com, Citysearch and Match.com; Hotels.com (formerly Hotel Reservations Network (Nasdaq: ROOM); Electronic Commerce Solutions; Styleclick (OTC: IBUY); Precision Response Corporation; and Expedia, Inc. (as of February 4, 2002) (Nasdaq: EXPE). The USA Entertainment Group consists of USA Cable, including USA Network and Sci Fi Channel and Emerging Networks TRIO, Newsworld International and Crime; Studios USA, which produces and distributes television programming; and USA Films, which produces and distributes films.
USA Entertainment was contributed to a joint venture with Vivendi Universal, S.A. ("Vivendi") on May 7, 2002 (the "VUE transaction") and the authority to designate, by resolution, the powers, preferences, rightsresults of operations and qualifications, limitations and restrictionsstatement of position of USA Entertainment is now presented as a discontinued operation. See Note 21 for further discussion of the preferred stock without any further vote or action by the stockholders. Any shares of preferred stock so issued would have priority over shares ofVUE transaction.
On February 4, 2002, USA common stock and shares of USA Class B common stock with respect to dividend or liquidation rights or both.
In connection with thecompleted its acquisition of a controlling interest in Expedia, Inc., ("Expedia") through a merger of one of its subsidiaries with and into Expedia. See below for further discussion.
On January 31, 2001, Ticketmaster Online-Citysearch, Inc. and Ticketmaster Corporation, both of which are subsidiaries of USA, completed a transaction which combined the two companies. The combined company has been renamed "Ticketmaster." Under the terms of the transaction, USA contributed Ticketmaster Corporation to Ticketmaster Online-Citysearch and received 52 million Ticketmaster Online-Citysearch Class B Shares. The Ticketmaster Class B common stock is quoted on the Nasdaq Stock Market.
In August 2001, the Company completed its previously announced sale of all of the capital stock of certain USA Broadcasting ("USAB") subsidiaries that own 13 full-power television stations and minority interests in four additional full-power stations to Univision Communications Inc. ("Univision"). Total cash proceeds were $1.1 billion, of which $510.4 million was collected in fiscal year 2001 and $589.6 million in January 2002. The gain on the sale of the stations was $517.8 million, net of tax of $377.4 million. The majority of the stations sold are located in the largest markets in the country and aired HSN on a 24-hour basis. The operations of USAB have been presented in the accompanying financial statements as discontinued operations.
Prior to the VUE transaction, a number of USA's businesses were held by two non-wholly owned subsidiaries, Home Shopping Network, Inc. ("Holdco") and USANi LLC. USA maintained control and management of Holdco and USANi LLC, and manages the businesses held by USANi LLC, in substantially the same manner as they would be if USA held them directly through wholly owned subsidiaries. The other principal owners of these subsidiaries were Liberty Media Corporation ("Liberty") and Vivendi, through Universal Studios, Inc. ("Universal") and other subsidiaries. In connection with the VUE transaction, all shares of USANi LLC held by Liberty and Vivendi were exchanged or cancelled USA had the contractual right to require the exchange of the Holdco shares held by Liberty for shares of USA, which exchange occurred on June 27, 2002. Following such exchange and after giving effect to the VUE transaction, Holdco and USANi LLC are wholly owned, thereby simplifying USA's corporate and capital structure.
F-8
Expedia Transaction
On February 4, 2002, USA completed its acquisition of a controlling interest in Expedia through a merger of one of its subsidiaries with and into Expedia. Immediately following the merger, USA owned all of the outstanding shares of Expedia Class B common stock, representing approximately 64.2% of Expedia's then outstanding shares, and 94.9% of the voting interest in Expedia. On February 20, 2002, USA acquired 936,815 shares of Expedia common stock, increasing USA's ownership to 64.6% of Expedia's the then outstanding shares, with USA's voting percentage remaining at 94.9%. In the merger, USA issued to former holders of Expedia common stock who elected to receive USA securities an aggregate of approximately 13,125,00020.6 million shares of USA common stock, 13.1 million shares of $50 face value 1.99% cumulative convertible preferred stock parof USA and 14.6 million USA warrants. Expedia will continue to be traded on Nasdaq under the symbol "EXPE," the USA cumulative preferred stock trades on OTC under the symbol "USAIP" and the USA warrants trade on Nasdaq under the symbol "USAIW."
Pursuant to the terms of the USA/Expedia transaction documents, Microsoft Corporation, which beneficially owned 33,722,710 shares of Expedia common stock, elected to exchange all of its Expedia common stock for USA securities in the merger. Expedia shareholders who did not receive USA securities in the transaction retained their Expedia shares and received for each Expedia share held 0.1920 of a new Expedia warrant.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of the Company and all wholly-owned and voting-controlled subsidiaries. The Company consolidates USANi LLC based upon a Governance Agreement and related agreements allowing the Company to control 100% of the voting interest. USANi LLC was formed in connection with the acquisition of USA Networks as well as the domestic television production and distribution businesses of Universal Studios (the "Universal Transaction"). The documents related to this transaction are constructed with the intent that the businesses held by USANi LLC would be operated in substantially the same manner as they would be if the Company held them directly through wholly owned subsidiaries. The Company consolidates HSN-Germany based upon a Pooling Agreement allowing for the Company to elect a majority of the Board of Directors and to control the operations of HSN-Germany. Significant intercompany transactions and accounts have been eliminated.
Investments in which the Company owns a 20%, but not in excess of 50%, interest and where it can exercise significant influence over the operations of the investee, are accounted for using the equity method. In addition, partnership interests are recorded using the equity method. All other investments are accounted for using the cost method. The Company periodically evaluates the recoverability of investments recorded under the cost method and recognizes losses if a decline in value $0.01is determined to be other than temporary.
Electronic Retailing
Revenues from Home Shopping primarily consist of merchandise sales and are reduced by incentive discounts and sales returns to arrive at net sales. Revenues for domestic sales are recorded for credit card sales upon transaction authorization, which occurs only if the goods are in stock, and for
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check sales upon receipt of customer payment, which does not vary significantly from the time goods are shipped. Revenues for international sales are recorded upon shipment. Home Shopping's sales policy allows merchandise to be returned at the customer's discretion within 30 days of the date of delivery. Allowances for returned merchandise and other adjustments are provided based upon past experience.
Ticketing
Revenue from Ticketmaster and Ticketmaster.com primarily consists of revenue from ticketing operations which is recognized as tickets are sold, as the Company acts as agent in these transactions.
Hotel Reservations
Charges for hotel accommodations are billed to customers in advance. The related payments are included in deferred revenue and recognized as income at the conclusion of the customer's stay at the hotel, as the Company acts as merchant in these transactions.
The Company offers rooms that are contracted for in advance or are prepaid. Unsold contracted rooms may be returned by the Company based on a cancellation period, which generally expires before the date the customer may cancel the hotel reservation. Customers are subject to a penalty for all cancellations or changes to the reservation. The Company bears the risk of loss for all prepaid rooms and rooms cancelled by a customer subsequent to the period in which the Company can return the unsold rooms. To date, the Company has not incurred significant losses under the room contracts with hotels.
Other
Revenues from all other sources are recognized either upon delivery or when the service is provided.
Merchandise Inventories, Net
Merchandise inventories are valued at the lower of cost or market, cost being determined using the first-in, first-out method. Cost includes freight, certain warehouse costs and other allocable overhead. Market is determined on the basis of net realizable value, giving consideration to obsolescence and other factors. Merchandise inventories are presented net of an inventory carrying adjustment of $42.5 million and $38.8 million at December 31, 2001 and 2000, respectively.
Cash and Cash Equivalents
Cash and cash equivalents include cash and short-term investments. Short-term investments consist primarily of U.S. Treasury Securities, U.S. Government agencies and certificates of deposit with original maturities of less than 91 days.
Property, Plant and Equipment
Property, plant and equipment, including significant improvements, are recorded at cost. Repairs and maintenance and any gains or losses on dispositions are included in operations.
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Depreciation and amortization is provided for on a straight-line basis to allocate the cost of depreciable assets to operations over their estimated service lives.
| Asset Category | Depreciation/Amortization Period | |
|---|---|---|
| Computer and broadcast equipment | 3 to 13 Years | |
| Buildings | 30 to 40 Years | |
| Leasehold improvements | 4 to 20 Years | |
| Furniture and other equipment | 3 to 10 Years |
Depreciation and amortization expense on property, plant and equipment was $137.6 million, $105.4 million and $51.7 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Long-Lived Assets Including Intangibles
The Company's accounting policy regarding the assessment of the recoverability of the carrying value of long-lived assets, including goodwill and other intangibles and property, plant and equipment, is to review the carrying value of the assets if the facts and circumstances suggest that they may be impaired. If this review indicates that the carrying value will not be recoverable, as determined based on the projected undiscounted future cash flows, the carrying value is reduced to its estimated fair value. See below under "New Accounting Pronouncements" for further information related to goodwill and other intangible assets. The Company amortizes goodwill and other intangible assets over their estimated useful lives, which range from 3 to 40 years for goodwill and 1 to 5 years for intangibles.
Cable Distribution Fees
Cable distribution fees relate to upfront fees paid in connection with multi-year cable contracts for carriage of Home Shopping's programming. These fees are amortized to expense on a straight line basis over the terms of the respective contracts.
Advertising
Advertising costs are primarily expensed in the period incurred. Advertising expense for the years ended December 31, 2001, 2000 and 1999 was $86.8 million, $63.8 million and $33.8 million, respectively.
Income Taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.
Earnings (Loss) Per Share
Basic earnings per share "Series("Basic EPS") excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share ("Diluted EPS") reflects the potential dilution that could occur if stock options and other
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commitments to issue common stock were exercised resulting in the issuance of common stock that then shares in the earnings of the Company.
Stock-Based Compensation
The Company accounts for stock-based compensation issued to employees in accordance with APB 25, "Accounting for Stock Issued to Employees." In cases where exercise prices are less than fair value as of the grant date, compensation is recognized over the vesting period. For stock-based compensation issued to non-employees, the Company accounts for the grants in accordance with FASB Statement No. 123, "Accounting for Stock Based Compensation."
Minority Interest
Minority interest primarily represents Universal's and Liberty's ownership interest in USANi LLC, Liberty's ownership interest in Holdco, the public's ownership in TMCS until January 31, 2001, the public's ownership in Ticketmaster from January 31, 2001, the public's ownership interest in Hotels.com since February 25, 2000, the public's ownership interest in Styleclick since July 27, 2000 and the partners ownership interest in HSN-Germany since its consolidation as of January 1, 2000.
Foreign Currency Translation
The financial position and operating results of all foreign operations are consolidated using the local currency as the functional currency. Local currency assets and liabilities are translated at the rates of exchange on the balance sheet date, and local currency revenues and expenses are translated at average rates of exchange during the period. Resulting translation gains or losses, which have not been material, are included as a component of accumulated other comprehensive income (loss) in accumulated deficit.
Issuances of Subsidiary Stock
The Company accounts for issuances of stock by a subsidiary via income statement recognition, recording income or losses as non-operating income/ (expense). During the year ended December 31, 2000, the Company recorded a gain of $108.3 million related to the issuance of subsidiary stock. See Note 3 for further discussion.
Accounting Estimates
Management of the Company is required to make certain estimates and assumptions during the preparation of consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions impact the reported amount of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements include the inventory carrying adjustment, program rights and film cost amortization (Discontinued operations), sales return and other revenue allowances, allowance for doubtful accounts, recoverability of intangibles and other long-lived assets, estimates of film revenue ultimates (Discontinued Operations) and various other operating allowances and accruals.
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New Accounting Pronouncements
Goodwill and Other Intangible Assets
Effective January 1, 2002, all calendar year companies will be required to adopt Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets." The new rules eliminate amortization of goodwill and other intangible assets with indefinite lives and establish new measurement criterion for these assets. The rules are expected to reduce USA's annual amortization by approximately $215 million. See Note 24 for further discussion.
Reclassifications
Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the 2001 presentation.
Discontinued Operations
Revenues—Cable and Studios
Television production revenues are recognized as completed episodes are delivered. Generally, television programs are first licensed for network exhibition and foreign syndication, and subsequently for domestic syndication, cable television and home video. Certain television programs are produced and/or distributed directly for initial exhibition by local television stations, advertiser-supported cable television, pay television and/or home video. Television production advertising revenues (i.e., sales of advertising time received by Studios USA in lieu of cash fees for the licensing of program broadcast rights to a broadcast station ("barter syndication")) are recognized upon both the commencement of the license period of the program and the sale of advertising time pursuant to non-cancelable agreements, provided that the program is available for its first broadcast. Foreign minimum guaranteed amounts are recognized as revenues on the commencement date of the license agreement, provided the program is available for exhibition.
USA Cable advertising revenue is recognized in the period in which the advertising commercials are aired on the cable networks. Certain contracts with advertisers contain minimum commitments with respect to advertising viewership. In the event that such minimum commitments are not met, the contracts require additional subsequent airings of the advertisement. As a result, provisions are recorded against advertising revenues for audience under deliveries ("makegoods") until such subsequent airings are conducted. Affiliate fees are recognized in the period during which the programming is provided.
Film Costs
Film costs consist of direct production costs and production overhead, less accumulated amortization. Prior to the adoption of SOP 00-2 on January 1, 2001 (see below for further information), development roster (and related costs), abandoned story and development costs were charged to production overhead. Film costs are stated at the lower of unamortized cost or estimated net realizable value on a production-by-production basis.
Generally, the estimated ultimate costs of completed film costs are amortized, and participation expenses are accrued, for each production in the proportion that current period revenue recognized bears to the estimated future revenue to be received from all sources. Amortization and accruals are
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made under the individual film forecast method. Estimated ultimate revenues and costs are reviewed quarterly and revisions to amortization rates or write-downs to net realizable value are made as required.
Film costs, net of amortization, are classified as non-current assets.
Program Rights
License agreements for program material are accounted for as a purchase of program rights. The asset related to the program rights acquired and the liability for the obligation incurred are recorded at their net present value when the license period begins and the program is available for its initial broadcast. The asset is amortized primarily based on the estimated number of airings. Amortization is computed generally on the straight-line basis as programs air; however, when management estimates that the first airing of a program has more value than subsequent airings, an accelerated method of amortization is used. Other costs related to programming, which include program assembly, commercial integration and other costs, are expensed as incurred. Management periodically reviews the carrying value of program rights and records write-offs, as warranted, based on changes in programming usage.
Advertising Barter Transactions
Barter transactions represent the exchange of commercial air-time for programming, merchandise or services. The transactions are recorded at the estimated fair market value of the asset or services received or given in accordance with Emerging Issues Task Force Issue No. 99-17, "Accounting for Advertising Barter Transactions." Barter revenue for the year ended December 31, 2001 was $42.2 million. Barter revenues for the year ended December 31, 2000 and 1999 are not material to USA's statement of operations.
New Accounting Pronouncements—Film Accounting
The Company adopted SOP 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2") during the twelve months ended December 31, 2001. SOP 00-2 established new film accounting standards, including changes in revenue recognition and accounting for advertising, development and overhead costs. Specifically, SOP 00-2 requires advertising costs for theatrical and television product to be expensed as incurred. This compares to the Company's previous policy of first capitalizing these costs and then expensing them over the related revenue streams. In addition, SOP 00-2 requires development costs for abandoned projects and certain indirect overhead costs to be charged directly to expense, instead of those costs being capitalized to film costs, which was required under the previous accounting rules. SOP 00-2 also requires all film costs to be classified in the balance sheet as non-current assets. Provisions of SOP 00-2 in other areas, such as revenue recognition, generally are consistent with the Company's existing accounting policies.
SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a one-time, non-cash expense of $9.2 million. The expense is reflected as a cumulative effect of an accounting change in the accompanying consolidated statement of operations.
NOTE 3—BUSINESS ACQUISITIONS
The Company has made numerous acquisitions during the reporting periods. Below is a discussion of each significant acquisition.
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Styleclick Transaction
On July 27, 2000, USA and Styleclick.com Inc., an enabler of e-commerce for manufacturers and retailers, completed the merger of Internet Shopping Network, a subsidiary of USA, and Styleclick.com (the "Styleclick Transaction"). The entities were merged with a new company, Styleclick, Inc., which owns and operates the combined properties of Styleclick.com and ISN. Styleclick, Inc. is traded on the OTC under the symbol "IBUY". In accordance with the terms of the agreement, USA invested $40 million in cash and agreed to contribute $10 million in dedicated media, and received warrants to purchase additional shares of the new company. At closing, Styleclick.com repaid $10 million of borrowings outstanding under a bridge loan provided by USA.
The aggregate purchase price, including transaction costs, of $211.9 million was determined as follows:
| | (In Thousands) | ||
|---|---|---|---|
| Value of portion of Styleclick.com acquired in the merger | $ | 121,781 | |
| Additional cash and promotional investment by USAi | 50,000 | ||
| Fair value of outstanding "in the money options" and warrants of Styleclick.com | 37,989 | ||
| Transaction costs | 2,144 | ||
| Total acquisition costs | $ | 211,914 | |
The fair value of Styleclick.com was based on the fair value of $15.78 per share times 7.7 million shares outstanding. Fair value of the shares was determined by taking an average of the opening and closing price of Styleclick.com common stock for the period just before and just after the terms of the transaction were agreed to by the Company and Styleclick.com and announced to the public. In conjunction with the transaction, the Company recorded a pre-tax gain of $104.6 million in accordance with Staff Accounting Bulletin No. 51, "Accounting for Sales of Stock by a Subsidiary", based upon the 25% of ISN's net book value exchanged for 75% of Styleclick.com's fair value, determined based upon the fair value of Styleclick.com common stock received in the merger. The Styleclick transaction has been accounted for under the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of purchase. The unallocated excess of acquisition costs over net assets acquired of $170.2 million has been allocated to goodwill, which originally was being amortized over 3 years.
In March 2001, Styleclick announced a new company organization designed to advance its offering of scaleable commerce services. The announcement included Styleclick's acquisition of the MVP.com technology platform. Also in March 2001, the Styleclick Board elected two executives of ECS to top management positions at Styleclick, and certain senior executives of Styleclick left the Company. As of December 31, 2000, as a result of the historical and anticipated operating losses of Styleclick, and the continuing evaluation of the operations and technology, Styleclick determined the goodwill recorded in conjunction with the Styleclick Merger was impaired and recorded a write-down of $145.6 million as goodwill amortization in fiscal 2000. In 2001, Styleclick began to focus on e-commerce services and technology while eliminating its online retail business. During this transition, Styleclick continued to incur significant net losses from operations that raise substantial doubt about Styleclick's ability to continue as a going concern. Styleclick is considering its options with respect to the situation. As of December 31, 2001, Styleclick has net liabilities of $2.1 million.
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PRC Transaction
On April 5, 2000, USAi acquired PRC in a tax-free merger by issuing approximately 24.3 million shares of USAi common stock for all of the outstanding stock of PRC for a total value of approximately $711.7 million (the "PRC Transaction"). In connection with the acquisition, the Company repaid approximately $32.3 million of outstanding borrowings under PRC's existing revolving credit facility. The PRC Transaction has been accounted for under the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of purchase. The unallocated excess of acquisition costs over net assets acquired of $658.0 million has been allocated to goodwill, which is being amortized over 20 years.
As noted above, although it has not completed its assessment, the Company anticipates a write-off of $250 million to $300 million primarily related to the PRC goodwill. Although PRC is expected to generate positive cash flows in the future, due to cash flow discounting techniques to estimate fair value required by the new rules, the future cash flows may not support current carrying values.
October Films/PFE Transaction (Discontinued Operations)
On May 28, 1999, the Company acquired October Films, Inc. ("October Films"), in which Universal owned a majority interest, and the domestic film distribution and development business of Universal previously operated by Polygram Filmed Entertainment, Inc. ("PFE") (the "October Films/PFE Transaction"). In connection with the acquisition of October Films, Inc., as of May 28, 1999, the Company issued 600,000 shares of Common Stock to Universal and paid cash consideration of approximately $12.0 million to October Films shareholders (other than Universal) for total consideration of $23.6 million. To fund the cash consideration portion of the transaction, Universal purchased from USA 600,000 additional shares of Common Stock at $20.00 per share. In addition, the Company assumed $83.2 million of outstanding debt under October Films' credit agreement which was repaid from cash on hand on August 20, 1999.
Also on May 28, 1999, USAi acquired from Universal the domestic film distribution and development business previously operated by PFE and PFE's domestic video and specialty video businesses. In connection with the transaction, USAi agreed to assume certain liabilities related to the PFE businesses acquired. In addition, USA advanced $200.0 million to Universal pursuant to an eight year, full recourse, interest-bearing note in connection with a distribution agreement pursuant to which USAi will distribute, in the U.S. and Canada, certain Polygram theatrical films which were not acquired in the transaction. The advance is repaid as revenues are received under the distribution agreement and, in any event, will be repaid in full at maturity. Through December 31, 2001, approximately $180.1 million had been offset against the advance and $19.4 million of interest had accrued.
The October Films/PFE Transaction has been accounted for under the purchase method of accounting. The purchase price has been allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of purchase. The unallocated excess of acquisition costs over net assets acquired of $184.5 million has been allocated to goodwill, which is being amortized over 20 years.
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Hotels.com Transaction
On May 10, 1999, the Company completed its acquisition of substantially all of the assets and the assumption of substantially all of the liabilities of two entities which operate Hotels.com, a leading consolidator of hotel rooms for resale in the consumer market in the United States (the "Hotels.com Transaction"). The assets acquired and liabilities assumed comprise Hotels.com. ("Hotels"). The total purchase price was $405.8 million, resulting in goodwill of approximately $406.3 million which is being amortized over a ten year life.
On March 1, 2000, Hotels completed an initial public offering for approximately 6.2 million shares of its class A common stock, resulting in net cash proceeds of approximately $90.0 million. At the completion of the offering, USA owned approximately 70.6% of the outstanding shares of Hotels. USA recorded a gain related to the initial public offering of approximately $3.7 million in the year ended December 31, 2000 in accordance with Staff Accounting Bulletin No. 51, "Accounting for Sales of Stock by a Subsidiary."
Business Acquisition Pro Forma Results
The following unaudited pro forma condensed consolidated financial information for the years ended December 31, 2001 and 2000, is presented to show the results of the Company, as if the Styleclick Transaction and the PRC Transaction, as well as the merger of Ticketmaster and Ticketmaster Online Citysearch had occurred at the beginning of the periods presented. The pro forma results include certain adjustments, including increased amortization related to goodwill and other intangibles and an increase in interest expense, and are not necessarily indicative of what the results would have been had the transactions actually occurred on the aforementioned dates. Note that the amounts exclude USAB and USA Entertainment, which are presented as discontinued operations (see Note 21).
| | Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | |||||
| | (In Thousands, Except Per Share Data) | ||||||
| Net revenues | $ | 3,468,860 | $ | 3,036,150 | |||
| Loss from continuing operations | (188,335 | ) | (214,980 | ) | |||
| Basic and diluted loss per common share, continuing operations | $ | (.50 | ) | $ | (.59 | ) | |
The following unaudited pro forma condensed consolidated financial information for the year ended December 31, 1999, is presented to show the results of the Company as if the Styleclick Transaction, the PRC Transaction and the Hotels Transaction had occurred at the beginning of the period presented. The pro forma results include certain adjustments, including increased amortization related to goodwill and other intangibles and changes in film costs amortization, and are not necessarily indicative of what the results would have been had the transactions actually occurred on the
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aforementioned dates. Note that the amounts exclude USAB and USA Entertainment, which are presented as discontinued operations (see Note 21).
| | Year Ended December 31, 1999 | |||
|---|---|---|---|---|
| | (In Thousands, Except Per Share Data) | |||
| Net revenues | $ | 2,260,903 | ||
| Loss from continuing operations | (99,570 | ) | ||
| Basic and diluted loss per common share, continuing operations | $ | (.28 | ) | |
NOTE 4—INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method and include the following:
| | December 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||
| | (In Thousands) | |||||
| Intangible Assets, net: | ||||||
| Goodwill | $ | 3,075,831 | $ | 3,089,182 | ||
| Other | 218,651 | 280,666 | ||||
| $ | 3,294,482 | $ | 3,369,848 | |||
NOTE 5—LONG-TERM OBLIGATIONS
| | December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | |||||
| | (In Thousands) | ||||||
| Unsecured Senior Credit Facility ("New Facility"); with a $40,000,000 sub-limit for letters of credit, entered into February 12, 1998, which matures on December 31, 2002. At the Company's option, the interest rate on borrowings is tied to the London Interbank Offered Rate ("LIBOR") or the Alternate Base Rate ("ABR"), plus an applicable margin. Interest rate at December 31, 2001 was 2.9% | $ | — | $ | — | |||
| $500,000,000 63/4% Senior Notes (the "Senior Notes") due November 15, 2005; interest payable May 15 and November 15 commencing May 15, 1999. Interest rate at December 31, 2001 was 6.75% | 498,515 | 498,213 | |||||
| Unsecured $37,782,000 7% Convertible Subordinated Debentures ("Savoy Debentures") due July 1, 2003 convertible into USAi Common Stock at a conversion price of $33.22 per share | 36,118 | 35,163 | |||||
| Other long-term obligations maturing through 2007 | 43,258 | 43,138 | |||||
| Total long-term obligations | 577,891 | 576,514 | |||||
| Less current maturities | (33,519 | ) | (24,748 | ) | |||
| Long-term obligations, net of current maturities | $ | 544,372 | $ | 551,766 | |||
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On February 12, 1998, USA and USANi LLC, as borrower, entered into a $1.6 billion credit facility. The credit facility was used to finance the acquisition on February 12, 1998 of USA Networks and the domestic television production and distribution businesses of Universal Studios from Universal and to refinance USA's then-existing $275.0 million revolving credit facility. The credit facility consists of (1) a $600.0 million revolving credit facility with a $40.0 million sub-limit for letters of credit, (2) a $750.0 million Tranche A Term Loan and, (3) a $250.0 million Tranche B Term Loan. The Tranche A Term Loan and the Tranche B Term Loan have been permanently repaid as described below.
The existing credit facility is guaranteed by certain of USA's subsidiaries. The interest rate on borrowings under the existing credit facility is tied to an alternate base rate or the London InterBank Rate, in each case, plus an applicable margin, and $595.4 million was available for borrowing as of December 31, 2001 after taking into account outstanding letters of credit. The credit facility includes covenants requiring, among other things, maintenance of specific operating and financial ratios and places restrictions on payment of certain dividends, incurrence of indebtedness and investments. The Company pays a commitment fee of .1875% on the unused portion of the credit facility. Subsequent to the closing of the VUE transaction, the existing credit facility has expired. See Note 21 for further discussion of the VUE transaction.
The Savoy Debentures are redeemable at the option of the Company at varying percentages of the principal amount each year, ranging from 105.25% to 100.75%, plus applicable interest. In connection with the Savoy Merger, USA became a joint and several obligor with respect to the Savoy Debentures.
Aggregate contractual maturities of long-term obligations are as follows:
| Years Ending December 31, | (In Thousands) | ||
|---|---|---|---|
| 2002 | $ | 33,519 | |
| 2003 | 37,350 | ||
| 2004 | 1,073 | ||
| 2005 | 493,590 | ||
| 2006 | 921 | ||
| Thereafter | 11,438 | ||
| $ | 577,891 | ||
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NOTE 6—INCOME TAXES
A reconciliation of total income tax expense to the amounts computed by applying the statutory federal income tax rate to earnings from continuing operations before income taxes and minority interest is shown as follows:
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
| | (In Thousands) | |||||||||
| Income tax benefit at the federal statutory rate of 35% | $ | (100,610 | ) | $ | (107,833 | ) | $ | (28,982 | ) | |
| Amortization of goodwill and other intangibles | 23,087 | 52,554 | 11,685 | |||||||
| Foreign losses not consolidated into group | 2,741 | 527 | 24,533 | |||||||
| State income taxes, net of effect of federal tax benefit | (175 | ) | 3,771 | 3,283 | ||||||
| Impact of minority interest | 8,144 | 49,430 | 15,983 | |||||||
| Domestic losses not consolidated into group | 59,780 | 33,429 | — | |||||||
| Other, net | 9,483 | 11,972 | 2,056 | |||||||
| Income tax expense | $ | 2,450 | $ | 43,850 | $ | 28,558 | ||||
The components of income tax expense are as follows:
| | Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | ||||||||
| | (In Thousands) | ||||||||||
| Current income tax (benefit) expense: | |||||||||||
| Federal | $ | (10,106 | ) | $ | 10,684 | $ | 9,935 | ||||
| State | (2,007 | ) | 2,256 | 5,476 | |||||||
| Foreign | 2,310 | 9,553 | 2,257 | ||||||||
| Current income tax (benefit) expense | (9,803 | ) | 22,493 | 17,668 | |||||||
| Deferred income tax expense: | |||||||||||
| Federal | 8,750 | 17,811 | 10,983 | ||||||||
| State | 2,519 | 3,546 | (426 | ) | |||||||
| Foreign | 984 | — | 333 | ||||||||
| Deferred income tax expense | 12,253 | 21,357 | 10,890 | ||||||||
| Total income tax expense | $ | 2,450 | $ | 43,850 | $ | 28,558 | |||||
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The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and liabilities at December 31, 2001 and 2000 are presented below. The valuation allowance represents items for which it is more likely than not that the tax benefit will not be realized.
| | December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||||
| | (In Thousands) | |||||||
| Current deferred tax assets (liabilities): | ||||||||
| Inventory costing | $ | 6,875 | $ | 9,363 | ||||
| Provision for accrued expenses | 13,827 | 11,268 | ||||||
| Investments in affiliates | — | 3,932 | ||||||
| Deferred revenue | (3,743 | ) | (3,437 | ) | ||||
| Other | 22,987 | 11,716 | ||||||
| Net current deferred tax assets | 39,946 | 32,842 | ||||||
| Non-current deferred tax assets (liabilities): | ||||||||
| Broadcast and cable fee contracts | 1,693 | 1,693 | ||||||
| Depreciation for tax in excess of financial statements | (6,248 | ) | (11,946 | ) | ||||
| Amortization of tax deductible goodwill | 16,485 | 14,221 | ||||||
| Investment in subsidiaries | 27,165 | 15,866 | ||||||
| Gain on sale of subsidiary stock | (46,415 | ) | (46,415 | ) | ||||
| Gain on sale of Broadcasting | (168,586 | ) | — | |||||
| Net federal operating loss carryforward | 97,785 | 10,522 | ||||||
| Deferred revenue | (157 | ) | — | |||||
| Warrant Amortization | (10,835 | ) | — | |||||
| Other | (22,806 | ) | (12,607 | ) | ||||
| Total non-current deferred tax liabilities | (111,919 | ) | (28,666 | ) | ||||
| Less valuation allowance | (98,265 | ) | (14,117 | ) | ||||
| Net non-current deferred tax liabilities | (210,184 | ) | (42,783 | ) | ||||
| Total deferred tax liabilities | $ | (170,238 | ) | $ | (9,941 | ) | ||
The Company recognized income tax deductions related to the issuance of common stock pursuant to the exercise of stock options for which no compensation expense was recorded for accounting purposes. The related income tax benefits of $38.4 million, $27.0 million, and $42.4 million for the years ended December 31, 2001, 2000 and 1999, respectively, were recorded as increases to additional paid-in capital.
At December 31, 2001 and 2000, the Company has net operating loss carryforwards ("NOL") for federal income tax purposes of $275.7 and $139.5 million, respectively, which are available to offset future federal taxable income, if any, through 2020. Such NOL's were acquired through acquisitions or are losses of consolidated subsidiaries in separate tax groups, which are subject to certain tax loss limitations. Accordingly, the Company has established a valuation allowance for these losses that are substantially limited. Amounts recognized, if any, of these tax benefits in future periods will be applied as a reduction of goodwill associated with the acquisition. The Company has Federal income tax returns under examination by the Internal Revenue Service. The Company has received proposed adjustments related to certain examinations. Management believes that the resolution of the proposed adjustments will not have a material adverse effect on the Company's consolidated financial statements.
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NOTE 7—COMMITMENTS AND CONTINGENCIES
The Company leases satellite transponders, computers, warehouse and office space, equipment and services used in connection with its operations under various operating leases and contracts, many of which contain escalation clauses.
Future minimum payments under non-cancelable agreements are as follows:
| Years Ending December 31, | (In Thousands) | ||
|---|---|---|---|
| 2002 | $ | 50,912 | |
| 2003 | 26,943 | ||
| 2004 | 23,577 | ||
| 2005 | 16,086 | ||
| 2006 | 12,825 | ||
| Thereafter | 95,515 | ||
| $ | 225,858 | ||
Expenses charged to operations under these agreements were $77.9 million, $65.0 million and $47.0 million for the years ended December 31, 2001, 2000 and 1999, respectively.
Hotels has non-cancelable commitments for hotel rooms totaling $23.1 million, which relate to the period January 1, 2002 to December 31, 2002. Hotels also has, as of December 31, 2001, $6.7 million of outstanding letters of credit that expire between March 2002 and March 2003. The outstanding letters of credit are collateralized by $7.6 million of restricted cash equivalents at December 31, 2001.
The Company is required to provide funding, from time to time, for the operations of its investments in joint ventures accounted for under the equity method. To date, HSN has funded $125.3 million to Hot Networks, a company operating electronic retailing operations in Europe in which the Company holds an equity stake. See Note 19 for further discussion.
NOTE 8—INVENTORIES
| | December 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||
| | (In Thousands) | |||||
| Sales merchandise, net | $ | 195,991 | $ | 226,294 | ||
| Other | 1,363 | 1,626 | ||||
| Total | $ | 197,354 | $ | 227,920 | ||
NOTE 9—STOCKHOLDERS' EQUITY
On January 20, 2000, the Board of Directors declared a two-for-one stock split of USA's common stock and Class B common stock, payable in the form of a dividend to stockholders of record as of the close of business on February 10, 2000. The 100% stock dividend was paid on February 24, 2000. All share data give effect to such stock split, applied retroactively as if the split occurred on January 1, 1999.
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Description of Common Stock and Class B Convertible Common Stock
Holders of USA Common Stock have the right to elect 25% of the entire Board of Directors, rounded upward to the nearest whole number of directors. As to the election of the remaining directors, the holders of USA Class B Common Stock are entitled to 10 votes for each USA Class B Common Stock share, and the holders of the USA Common Stock are entitled to one vote per share. There are no cumulative voting rights.
The holders of both classes of the Company's common stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available for the payment of dividends. The Company's existing credit facility places restrictions on payment of certain dividends. In the event of the liquidation, dissolution or winding up of the Company, the holders of both classes of common stock are entitled to share ratably in all assets of the Company remaining after provision for payment of liabilities. USA Class B Common Stock is convertible at the option of the holder into USA Common Stock on a share-for-share basis. Upon conversion, the USA Class B Common Stock will be retired and not subject to reissue.
Note Receivable from Key Executive for Common Stock Issuance
In connection with Mr. Diller's employment in August 1995, the Company agreed to sell Mr. Diller 1,767,952 shares of USA Common Stock ("Diller Shares") at $5.6565 per share for cash and a non-recourse promissory note in the amount of $5.0 million, secured by approximately 1,060,000 shares of USA Common Stock. The promissory note is due on the earlier of (i) the termination of Mr. Diller's employment, or (ii) September 5, 2007.
Stockholders' Agreement
Mr. Diller, Chairman of the Board and Chief Executive Officer of the Company, through BDTV, INC., BDTV II, INC., BDTV III, INC., BDTV IV, INC., his own holdings and pursuant to the Stockholders Agreement with Universal, Liberty, the Company and Vivendi (the "Stockholders Agreement"), has the right to vote approximately 14.4% (45,291,540 shares) of USA's outstanding common stock, and 100% (63,033,452 shares) of USA's outstanding Class B Common Stock. Each share of Class B Common Stock is entitled to ten votes per share with respect to matters on which Common and Class B stockholders vote as a single class. As a result, Mr. Diller controls 71.5% of the outstanding total voting power of the Company. Mr. Diller, subject to the Stockholders Agreement, is effectively able to control the outcome of nearly all matters submitted to a vote of the Company's stockholders. Liberty HSN holds substantially all of the economic interest in, and Mr. Diller holds all of the voting power in, the shares of USAi stock held by the BDTV entities listed above.
Reserved Common Shares
In connection with option plans, convertible debt securities, pending acquisitions and other matters 533,792,416 shares of Common Stock were reserved. After the closing of the Expedia and the VUE transactions, 339,940,844 shares of Common Stock will be reserved, which includes 7,079,726 shares of USANi LLC which will be exchanged for USA common shares by Liberty in relation to the VUE transaction, 59,457,479 shares issuable in relation to preferred stock and warrants issued in the Expedia transaction, 60,467,735 shares issuable in relation to warrants to be issued to Vivendi in the pending Vivendi transaction. 320,856,512 of USANi LLC shares that are currently exchangeable into Common Stock reserved will be retired in the Vivendi Transaction.
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Stock-Based Warrants
In January 2000, Hotels entered into an exclusive affiliate distribution and marketing agreement and issued a performance warrant upon the completion of the public offering, which, if fully vested, would have permitted the affiliate to acquire 2,447,955 shares of class A common stock at the initial public offering price of $16.00. On March 3, 2001, Hotels restructured the affiliate distribution and marketing agreement whereby the term of the agreement was extended through July 2005 in exchange for waiver of all performance vesting requirements and all exercise restrictions on 60% of the performance warrants (1,468,773 shares) originally issued to such affiliate. The remaining 40% of the performance warrant (979,182 shares) will become vested based upon achieving certain performance targets during the term of the agreement. As a result of the restructured agreement, Hotels deferred additional warrant cost of $26.3 million related to the 1,468,773 shares. Hotels amortized $5.0 million of such costs during the twelve months ended December 31, 2001. The remainder will be amortized over the amended term of the agreement. During the years 2001 and 2000, 15.6% and 9.1%, respectively, of the Hotels's sales originitated from customers of the affiliate. Hotels expects the proportion of sales generated through the affiliate to stabilize or decline during the remaining term of the agreement.
The fair value of the warrants (979,182 shares) with performance features will be measured quarterly, and will be charged to expense as non-cash distribution and marketing expense as they are earned. For the twelve months ended December 31, 2001, Hotels recorded an expense of approximately $6.4 million related to the performance warrants earned.
Additionally, in November 2000 and March 2001, Hotels entered into additional affiliate distribution and marketing agreements and agreed to issue warrants based upon the affiliates achieving certain performance targets. If the targets are met in full, Hotels will be required to issue warrants to acquire an aggregate of 2.8 million shares of class A common stock at an average price calculated at the end of each performance measurement period. No warrants were required to be issued under these agreements during the years ending December 31, 2001 and 2000.
In February 2000, Hotels entered into other exclusive affiliate distribution and marketing agreements and issued 1,428,365 warrants to purchase class A common stock at the initial public offering price of $16.00. Additionally, in November 2000, Hotels entered into another affiliate distribution and marketing agreement and issued 95,358 warrants to purchase class A common stock at an exercise price of $31.46. These 1,523,723 warrants are non-forfeitable, fully vested and exercisable and are not subject to any performance targets. Hotels has deferred the cost of $17.7 million for these warrants, and is amortizing the cost over the term of the affiliate agreements, which range from two to five years. During the twelve months ended December 31, 2001 and 2000, Hotels amortized $5.0 million and $4.3 million of the warrant costs, respectively.
Expedia Transaction (Subsequent Event—Unaudited)
As noted in Footnote 1, on February 4, 2002 the Company completed its acquisition of a controlling interest in Expedia. In the merger, USA issued to former holders of Expedia common stock who elected to receive USA securities an aggregate of 20.6 million shares of USA common stock, 13.1 million shares of $50 face value 1.99% cumulative convertible preferred stock of USA and warrants to acquire 14.6 million shares of USA common stock at an exercise price of $35.10. The holders of the USA Series A Cumulative Convertible Preferred Stock" are entitled to 2 votes for each having a $50.00 face value and a termshare of 20 years, which is referredUSA Series A Cumulative Convertible Preferred Stock held on all matters presented to in this document as USA preferred stock.such
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shareholders. Each share of USA preferred stockSeries A Cumulative Convertible Preferred Stock is convertible, at the option of the holder at any time, into that number of shares of USA common stock equal to the quotient obtained by dividing $50 by the conversion price per share of USA common stock. The initial conversion price is initially equal to $33.75 per share of USA common stock and is subject tostock. The conversion price will be adjusted downward adjustment if the share price of USA common stock exceeds $35.10 at the time of conversion pursuant to a formula set forth inconversion. Each USA warrant gives the certificate of designation for the USA preferred stock. Shares of USA preferred stock may be put to USA on the fifth, seventh, tenth and fifteenth anniversary of February 4, 2002 for cash or stock at USA's option. USA also hasholder the right to redeem the shares of USA preferred stock for cash or stock commencing on the tenth anniversary of February 4, 2002. In the event of a voluntary or involuntary liquidation, dissolution or winding-up of USA, holders of USA preferred stock will be entitled to receive, in preference to any holderacquire one share of USA common stock orat an exercise price of $35.10 through February 4, 2009. The USA Class Bcumulative preferred stock trades on OTC under the symbol "USAIP" and the USA warrants trade on Nasdaq under the symbol "USAIW."
Vivendi Transaction (Subsequent Event—Unaudited)
As noted in Footnote 1, on May 7, 2002, the Company completed the VUE transaction pursuant to which USA contributed USA's Entertainment Group to a joint venture with Vivendi, which joint venture also holds the film, television and theme park businesses of Universal. In relation to the transaction, USA issued shares of common stock an amount per share equaland warrants to all accrued and unpaid dividends plus the greateracquire shares of (a) face value, or (b) the liquidating distribution that would be received had such holder converted the USA preferred stock into USA common stock, immediately priorand USA canceled shares of USANi LLC that were exchangeable into shares of USA common stock. Pro forma for the VUE transaction and after giving effect to the liquidation, dissolution or winding-upexchange of USA.
Anti-Takeover Provisions in USA's By-Laws
USA's by-laws contain provisions that could delay or make more difficult the acquisitionall of USA by means of a hostile tender offer, open market purchases, a proxy contest or otherwise. We also refer you to "Risk Factors—USA is controlled by Mr. Diller and in his absence will be controlled byLiberty's Holdco shares, Liberty, Media Corporation" for information on other factors which could impact a change of control. In addition, USA's by-laws provide that, subject to the rights of holders of preferred stock, only USA's chairman of the board of directors or a majority of USA's board of directors may call a special meeting of stockholders.
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Effect of Delaware Anti-Takeover Statute
USA is subject to Section 203 of the DGCL, which regulates corporate acquisitions. Section 203 generally prevents corporations from engaging in a business combination with any interested stockholder for three years following the date that the stockholder became an interested stockholder, unless that business combination has been approved in one of a number of specific ways. For purposes of Section 203, a "business combination" includes, among other things, a merger or consolidation involving USA and the interested stockholder and a sale of more than 10% of its assets. In general, the anti-takeover law defines an "interested stockholder" as any entity or person beneficially owning 15% or more of a company's outstanding voting stock and any entity or person affiliated with or controlling or controlled by that entity or person. A Delaware corporation may "opt out" of Section 203 with an express provision in its original certificate of incorporation or an express provision in its certificate of incorporation or by-laws resulting from amendments approved by holders of at least a majority of a corporation's outstanding voting shares. USA has not "opted out" of the provisions of Section 203.
Under the DGCL, unless a company's certificate of incorporation expressly prohibits action by the written consent of stockholders, any action required or permitted to be taken by its stockholders at a duly called annual or special meeting may be taken by a consent in writing executed by stockholders possessing the requisite votes for the action to be taken. USA's certificate of incorporation does not expressly prohibit action by the written consent of stockholders. As a result, Mr. Diller, who as of the date of this information statement/prospectus controlled (throughthrough companies owned by Liberty and Mr. Diller, hisowns approximately 10.2% of USA's outstanding common stock and 79.3% of USA's outstanding Class B common stock, Vivendi (through subsidiaries), would own holdingsapproximately 11.4% of USA's outstanding common stock and pursuant20.7% of USA's outstanding Class B common stock and the public shareholders, including Mr. Diller and other USA officers and directors, will own approximately 78.4% of USA's common stock. Vivendi's ownership, however, is in the form of 43.2 million shares of USA common stock and 13.4 million shares of Class B common stock (for a total of 56.6 million USA shares), which number of shares are required to be held by Vivendi in connection with its obligations related to the Stockholders Agreement)Class B preferred interest in VUE. The preferred is to be settled by Universal at its then face value with a majoritymaximum of approximately 56.6 million USA common shares, provided that Universal may substitute cash in lieu of shares of USA common stock (but not USA Class B common stock), at its election. If USA's share price exceeds $40.82 per share at the time of settlement, fewer than 56.6 million shares would be cancelled.
Pro forma for the VUE transaction and after giving effect to the exchange of all of Liberty's Holdco shares, Mr. Diller controls 69.6% of the outstanding total voting power of USA. Upon the closing of the VUE transaction, Vivendi's limited veto rights have been eliminated and Liberty's veto rights have been limited to fundamental changes in the event USA's total debt ratio (as defined in the Amended and Restated Governance Agreement, among USA, Vivendi, Universal, Liberty and Mr. Diller, to become effective at the closing of the Vivendi transaction) equals or exceeds 4:1 over a twelve-month period.
Also in connection with the transaction, Liberty exchanged 7,079,726 shares of USANi LLC for shares of USA common stock, and subsequently transferred to Universal 25,000,000 shares of USA common stock, its remaining 38,694,982 shares of USANi LLC, as well as the assets and liabilities of Liberty Programming France (which consist primarily of 4,921,250 shares of multiThematiques S.A., a French entity), in exchange for 37,386,436 Vivendi ordinary shares.
In addition, USA issued to Universal ten-year warrants to acquire shares of USA common stock as follows: 24,187,094 shares at $27.50 per share; 24,187,094 shares at $32.50 per share; and 12,093,547 shares at $37.50 per share.
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NOTE 10—LITIGATION
In the ordinary course of business, the Company is engaged in various lawsuits, including a certain class action lawsuit initiated in connection with the Vivendi Transaction. In the opinion of management, the ultimate outcome of the various lawsuits should not have a material impact on the liquidity, results of operations or financial condition of the Company.
NOTE 11—BENEFIT PLANS
The Company offers various plans pursuant to Section 401(k) of the Internal Revenue Code covering substantially all full-time employees who are not party to collective bargaining agreements. The Company's share of the Match.com employer contributions is set at the discretion of the Board of Directors or the applicable committee thereof.
NOTE 12—STOCK OPTION PLANS
The following describes the stock option plans. Share numbers, prices and earnings per share reflect the Company's two-for-one stock split which became effective for holders of record as of the close of business on February 10, 2000.
The Company has outstanding options to employees of the Company under several plans (the "Plans") which provide for the grant of options to purchase the Company's common stock at not less than fair market value on the date of the grant. The options under the Plans vest ratably, generally over a range of three to five years from the date of grant and generally expire not more than 10 years from the date of grant. Five of the Plans have options available for future grants.
The Company also has outstanding options to outside directors under one plan (the "Directors Plan") which provides for the grant of options to purchase the Company's common stock at not less than fair market value on the date of the grant. The options under the Directors Plan vest ratably, generally over three years from the date of grant and expire not more than 10 years from the date of grant. A summary of changes in outstanding options under the stock option plans following the Company's two-for-one stock split, is as follows:
| | December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||||
| | Shares | Price Range($) | Shares | Price Range($) | Shares | Price Range($) | ||||||
| | (Shares in Thousands) | |||||||||||
| Outstanding at beginning of period | 88,755 | 1-28 | 75,955 | 1-37 | 78,428 | 1-37 | ||||||
| Granted or issued in connection with mergers | 7,503 | 19-28 | 19,526 | 4-28 | 10,007 | 16-28 | ||||||
| Exercised | (9,116 | ) | 1-28 | (4,277 | ) | 1-20 | (11,155 | ) | 1-13 | |||
| Cancelled | (2,716 | ) | 3-28 | (2,449 | ) | 6-37 | (1,325 | ) | 6-18 | |||
| Outstanding at end of period | 84,426 | 1-28 | 88,755 | 1-28 | 75,955 | 1-37 | ||||||
| Options exercisable | 63,023 | 1-37 | 56,968 | 1-28 | 47,987 | 1-37 | ||||||
| Available for grant | 10,379 | 33,628 | 27,225 | |||||||||
The weighted average exercise prices during the year ended December 31, 2001, were $23.02, $8.88 and $20.47 for options granted, exercised and cancelled, respectively. The weighted average fair value of options granted during the year was $9.69.
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The weighted average exercise prices during the year ended December 31, 2000, were $21.05, $7.92 and $19.93 for options granted, options exercised and options cancelled, respectively. The weighted average fair value of options granted during the year was $8.10.
The weighted average exercise prices during the year ended December 31, 1999, were $23.77, $6.05 and $11.56 for options granted, exercised and cancelled, respectively. The weighted average fair value of options granted during the year was $9.52.
| | Options Outstanding | | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Options Exercisable | |||||||||||
| | | Weighted Average Remaining Contractual Life | | |||||||||
| Range of Exercise Price | Outstanding at December 31, 2001 | Weighted Average Exercise Price | Exercisable at December 31, 2000 | Weighted Average Exercise Price | ||||||||
| | (Options In Thousands) | |||||||||||
$ 0.01 to $ 5.00 | 18,418 | 3.9 | $ | 4.72 | 18,224 | $ | 4.72 | |||||
| $ 5.01 to $10.00 | 32,301 | 5.0 | 8.30 | 32,137 | 8.31 | |||||||
| $10.01 to $15.00 | 4,959 | 6.5 | 12.43 | 3,470 | 12.40 | |||||||
| $15.01 to $20.00 | 9,613 | 7.2 | 18.76 | 4,151 | 18.75 | |||||||
| $20.01 to $25.00 | 14,348 | 8.4 | 22.75 | 2,947 | 22.42 | |||||||
| $25.01 to $27.91 | 4,787 | 8.1 | 27.67 | 2,094 | 27.86 | |||||||
| 84,426 | 5.7 | 12.51 | 63,023 | 9.49 | ||||||||
Pro forma information regarding net income and earnings per share is required by SFAS 123. The information is determined as if the Company had accounted for its employee stock options granted subsequent to December 31, 1994 under the fair market value method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2001, 2000 and 1999: risk-free interest rates of 5.0%; a dividend yield of zero; a volatility factor of .72, .62, and .44, respectively, based on the expected market price of USAi Common Stock based on historical trends; and a weighted-average expected life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating the fair market value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options and because changes in the subjective input assumptions can materially affect the fair market value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
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For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
| | (In Thousands, Except Per Share Data) | |||||||||
| Pro forma net income (loss) | $ | 303,277 | $ | (209,183 | ) | $ | (68,858 | ) | ||
| Pro forma basic earnings (loss) | $ | 0.81 | $ | (0.58 | ) | $ | (.21 | ) | ||
| Pro forma diluted earnings (loss) | $ | 0.81 | $ | (0.58 | ) | $ | (.21 | ) | ||
These pro forma amounts may not be representative of future disclosures since the estimated fair value of stock options is amortized to expense over the vesting period and additional options may be granted in future years.
Employees of the Entertainment group had 4.6 million unvested options as of the close, May 7, 2002. The options have been terminated in accordance with their terms. There were 1.6 million vested options remaining with the Company that are exercisable. Options that are not exercised within ninety days/three months, as applicable, after May 7, 2002 will be ableterminate in accordance with their terms.
NOTE 13—STATEMENTS OF CASH FLOWS
Supplemental Disclosure of Non-Cash Transactions for the year ended December 31, 2001:
For the year ended December 31, 2001, interest accrued on the $200.0 million advance to take any actionUniversal amounted to $3.9 million.
For the twelve months ended December 31, 2001, the Company incurred non-cash distribution and marketing expense of $26.4 million and non-cash compensation expense of $7.8 million.
In 2001 the Company realized pre-tax losses of $30.7 million on equity losses in unconsolidated subsidiaries, resulting primarily from HOT Networks, which operates electronic retailing operations in Europe. In 2001 the Company realized pre-tax losses of $18.7 million related to the write-off of equity investments to fair value. The write-off in equity investments was based upon management's estimate of the current value of the investments, considering the current business environment, financing opportunities of the investees, anticipated business plans and other factors. Note that the majority of investments were in Internet related companies.
Supplemental Disclosure of Non-Cash Transactions for the year ended December 31, 2000:
As of January 1, 2000, the Company presents the operations of HOT Germany, an electronic retailer operating principally in Germany, on a consolidated basis, whereas its investment in HOT Germany was previously accounted for under the equity method of accounting.
On January 20, 2000, the Company completed its acquisition of Ingenious Designs, Inc. ("IDI"), by issuing approximately 190,000 shares of USA common stock for all the outstanding stock of IDI, for a total value of approximately $5.0 million.
On January 31, 2000, TMCS completed its acquisition of 2b Technology, Inc. ("2b"), by issuing approximately 458,005 shares of TMCS Class B Common Stock for all the outstanding stock of 2b, for a total value of approximately $17.1 million.
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On April 5, 2000, USA completed its acquisition of PRC by issuing approximately 24.3 million shares of USAi common stock for all of the outstanding stock of PRC, for a total value of approximately $711.7 million.
On May 26, 2000, TMCS completed its acquisition of Ticketweb, Inc. ("Ticketweb"), by issuing approximately 1.8 million shares of TMCS Class B Common Stock for all the outstanding stock of Ticketweb, for a total value of approximately $35.3 million.
For the year ended December 31, 2000, interest accrued on the $200.0 million advance to Universal amounted to $8.7 million.
For the year ended December 31, 2000, the Company recorded a pre-tax gain of $104.6 million related to the Styleclick transaction, and $3.7 million related to the Hotels IPO (see Note 3).
For the year ended December 31, 2000, the Company incurred non-cash distribution and marketing expense of $11.7 million and non-cash compensation expense of $12.7 million, including $3.8 million related to an agreement with an executive.
In 2000 the Company realized pre-tax losses of $7.9 million on equity losses in unconsolidated subsidiaries resulting primarily from HOT Networks, which operates electronic retailing operations in Europe. In 2000 the Company also realized pre-tax losses of $46.1 million related to the write-off of equity investments to fair value. The write-off in equity investments was based upon management's estimate of the current value of the investments, considering the current business environment, financing opportunities of the investees, anticipated business plans and other factors. Note that the majority of investments were in Internet related companies.
Supplemental Disclosure of Non-Cash Transactions for the year ended December 31, 1999:
On March 29, 1999, TMCS completed its acquisition of City Auction, Inc. ("City Auction"), a person-to-person online auction community, by issuing approximately 800,000 shares of TMCS Class B Common Stock for all the outstanding stock of City Auction, for a total value of $27.2 million.
On June 14, 1999, TMCS completed the acquisition of Match.com., Inc ("Match.com."), an Internet personals company. In connection with the acquisition, TMCS issued approximately 1.9 million shares of TMCS Class B Common Stock to the former owners of Match.com. representing a total purchase price of approximately $43.3 million.
On September 13, 1999, TMCS purchased all the outstanding limited liability company units ("Units") of Web Media Ventures, L.L.C., an Internet personals company distributing its services through a network of affiliated Internet sites. In connection with the acquisition, TMCS issued 1.2 million shares of TMCS Class B Common Stock in exchange for all of the Web Media Units. In addition, TMCS is obligated to issue additional contingent shares related to certain revenue targets. The total purchase price recorded at September 13, 1999, without considering the contingent shares, was $36.6 million.
On September 18, 1999, TMCS acquired certain assets associated with the entertainment city guide portion of the Sidewalk.com web site ("Sidewalk") from Microsoft Corporation ("Microsoft"). The Company also entered into a four year distribution agreement with Microsoft pursuant to which the Company became the exclusive provider of local city guide content on the Microsoft Network ("MSN") and the Company's internet personals Web sites became the premier provider of personals content to
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MSN. In addition, the Company and Microsoft entered into additional cross-promotional arrangements. TMCS issued Microsoft 7.0 million shares of TMCS Class B Common Stock. The fair value of the consideration provided in exchange for the Sidewalk assets and distribution agreement amounted to $338.0 million.
For the period May 28 to December 31, 1999, interest accrued on the $200.0 million advance to Universal amounted to $6.7 million.
In 1999, the Company acquired post-production and other equipment through capital leases totaling $2.5 million.
In 1999, TMCS issued shares with a value of $10.5 million in exchange for an equity investment.
In 1999, the Company leased an airplane which was accounted for as a capital lease in the amount of $20.8 million.
For the year ended December 31, 1999, the Company incurred non-cash compensation expense of $6.4 million.
DISCONTINUED OPERATIONS
On May 28, 1999, in connection with the October Films/PFE Transaction, the Company issued 600,000 shares of Common Stock, with a value of approximately $12.0 million.
Supplemental Disclosure of Cash Flow Information:
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
| | (In Thousands) | |||||||||
| Cash paid during the period for: | ||||||||||
| Interest | $ | 39,285 | $ | 38,946 | $ | 51,368 | ||||
| Income tax payments | 23,584 | 16,663 | 22,323 | |||||||
| Income tax refund | 1,053 | 1,662 | 632 | |||||||
NOTE 14—RELATED PARTY TRANSACTIONS
As of December 31, 2001, the Company was involved in several agreements with related parties as follows:
CONTINUING OPERATIONS
The Company has a secured, non-recourse note receivable of $5.0 million from its Chairman and Chief Executive Officer. See Note 9.
Under the USANi LLC Operating Agreement, USANi LLC is obligated to make a distribution to each of the LLC members in an amount equal to each member's share of USANi LLC's taxable income at a specified tax rate. The estimated amount for 2001 is $153.5 million and is expected to be taken by stockholders (other than with respectpaid on February 28, 2002. In March 2000, the Company made a mandatory tax distribution payment to
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Universal and Liberty in the amount of $68.1 million related to the electionyear ended December 31, 1999. The amount for the year ended December 31, 1998 was $28.8 million and it was paid in March 1999.
DISCONTINUED OPERATIONS
Universal provides certain support services to the Company under a Transition Services agreement entered into in connection with the Universal Transaction. For these services, which include use of pre-production, production and post-production facilities, information technology services, physical distribution, contract administration, legal services and office space, Universal charged the Company $7.1 million, $8.2 million and $12.5 million for the years ended December 31, 2001, 2000 and 1999, respectively, of which $5.7 million, $4.7 million and $8.0 million was capitalized to production costs, respectively.
Universal and the Company entered into an International Television Distribution Agreement under which the Company pays to Universal a distribution fee of 10% on all programming owned or controlled by the Company distributed outside of the United States. For the years ended December 31, 2001, 2000 and 1999, the fee totaled $13.6 million, $14.0 million and $9.0 million, respectively.
In addition, the Company and Universal entered into a Domestic Television Distribution Agreement under which the Company distributes in the United States certain of Universal's television programming. For the years ended December 31, 2001, 2000 and 1999, Universal paid the Company $4.1 million, $1.5 million and $1.5 million, respectively.
Pursuant to the October Films/PFE Transaction, the company entered into a series of agreements on behalf of its filmed entertainment division ("Films") with entities owned by Universal, to provide distribution services, video fulfillment and other interim and transitional services. These agreements are described below.
Under a distribution agreement covering approximately fifty films owned by Universal, Films earns a distribution fee and remits the balance of revenues to a Universal entity. For the twelve month periods ending December 31, 2001 and 2000, Films earned distribution fees of approximately $5.7 million and $10.7 million, respectively, from the distribution of these films. Films is responsible for collecting the full amount of the sale and remitting the net amount after its fee to Universal, except for amounts applied against the Universal Advance (see Note 3).
In addition, Films acquired home video distribution rights to a number of "specialty video" properties. Universal holds a profit participation in certain of these titles. No amounts were earned by Universal under this agreement to date.
Films is party to a "Videogram Fulfillment Agreement" with a Universal entity pursuant to which such entity provides certain fulfillment services for the United States and Canadian home video markets. In the period ending December 31, 2001 and 2000, Films incurred fees to Universal of approximately $5.6 million and $3.5 million, respectively, for such services.
Films has entered into other agreements with Universal pursuant to which Universal administers certain music publishing rights controlled by Films and has licensed to Universal certain foreign territorial distribution rights in specified films from which it received $0.0 million and $5.8 million in revenue during the period ending December 31, 2001 and 2000, respectively.
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In connection with the settlement of its interest in an international joint venture, the Company received $24.0 million from Universal during 2001.
NOTE 15—QUARTERLY RESULTS (UNAUDITED)
| | Quarter Ended December 31, | Quarter Ended September 30, | Quarter Ended June 30, | Quarter Ended March 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands, Except Per Share Data) | ||||||||||||
| Year Ended December 31, 2001 | |||||||||||||
| Net revenues | $ | 948,506 | $ | 837,839 | $ | 861,853 | $ | 820,662 | |||||
| Operating loss | (35,276 | ) | (79,930 | ) | (47,689 | ) | (53,528 | ) | |||||
| Loss from continuing operations(a) | (46,440 | ) | (62,876 | ) | (33,860 | ) | (43,623 | ) | |||||
| Earnings (loss) before cumulative effect of accounting change(a)(b) | (56,948 | ) | 427,575 | 39,551 | (17,383 | ) | |||||||
| Net earnings (loss)(a)(b)(c)(g)(i) | (56,948 | ) | 427,575 | 39,551 | (26,570 | ) | |||||||
| Loss per Share—Continuing Operations | |||||||||||||
| Basic and diluted loss per common share(d) | (.12 | ) | (.17 | ) | (.09 | ) | (.12 | ) | |||||
| Earnings (loss) per Share—Before Cumulative Effect of Accounting Change | |||||||||||||
| Basic earnings (loss) per common share(d) | (.15 | ) | 1.14 | .11 | (.05 | ) | |||||||
| Diluted net earnings (loss) per common share(d) | (.15 | ) | 1.14 | .11 | (.05 | ) | |||||||
| Net earnings (loss) per Share | |||||||||||||
| Basic net earnings (loss) per common share(d) | (.15 | ) | 1.14 | .11 | (.07 | ) | |||||||
| Diluted net earnings (loss) per common share(d) | (.15 | ) | 1.14 | .11 | (.07 | ) | |||||||
| Year Ended December 31, 2000 | |||||||||||||
| Net revenues | $ | 863,076 | $ | 750,611 | $ | 719,226 | $ | 631,699 | |||||
| Operating loss | (218,965 | ) | (57,452 | ) | (46,721 | ) | (26,609 | ) | |||||
| Loss from continuing operations(e)(f) | (83,513 | ) | (26,001 | ) | (35,200 | ) | (27,684 | ) | |||||
| Net loss(e)(f)(g)(i) | (80,285 | ) | (21,063 | ) | (27,738 | ) | (18,897 | ) | |||||
| Loss per Share—Continuing Operations | |||||||||||||
| Basic and diluted loss per common share(d)(h) | (.23 | ) | (.07 | ) | (.10 | ) | (.08 | ) | |||||
| Net loss per Share | |||||||||||||
| Basic and diluted net loss per common share(d)(h) | (.22 | ) | (.06 | ) | (.08 | ) | (.06 | ) | |||||
F-32
NOTE 16—INDUSTRY SEGMENTS
The Company operates principally in the following industry segments: Home Shopping Network (including HSN International and HSN.com); Ticketmaster (Nasdaq: TMCS), which operates Ticketmaster, Ticketmaster.com, Citysearch and Match.com; Hotels (Nasdaq: ROOM); Electronic Commerce Solutions; Styleclick (OTC: IBUY); and Precision Response Corporation. The USA Entertainment Group is presented as discontinued operations and accordingly are excluded from the schedules below except for Assets, which are included in Corporate & other.
Adjusted earnings before interest, income taxes, depreciation and amortization ("Adjusted EBITDA") is defined as operating profit plus (1) depreciation and amortization, (2) amortization of cable distribution fees of $44.0 million, $36.3 million and $26.7 million in fiscal years 2001, 2000 and 1999, respectively (3) amortization of non-cash distribution and marketing expense and (4) non-recurring charges, including disengagement expenses (described below) of $4.1 million in 2001 and restructuring charges not impacting EBITDA. Adjusted EBITDA is presented here as a tool and as a valuation methodology used by management in evaluating the business. Adjusted EBITDA does not purport to represent cash provided by operating activities. Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Adjusted EBITDA may not be comparable to calculations of similarly titled measures presented by other companies.
F-33
NOTE 16—INDUSTRY SEGMENTS (Continued)
The following is a reconciliation of Operating Income to Adjusted EBITDA for 2001, 2000 and 1999.
| | Twelve Months Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
| | (In Thousands) | |||||||||
| Operating loss | $ | (216,423 | ) | $ | (349,746 | ) | $ | (48,842 | ) | |
| Depreciation and amortization | 425,891 | 565,742 | 205,843 | |||||||
| Amortization of cable distribution fees | 43,975 | 36,322 | 26,680 | |||||||
| Amortization of non-cash distribution and marketing | 26,384 | 11,665 | — | |||||||
| Amortization of non cash compensation expense | 7,800 | 12,740 | 6,423 | |||||||
| Disengagement expenses | 4,052 | — | — | |||||||
| Restructuring charges not impacting EBITDA | 6,248 | — | — | |||||||
| Adjusted EBITDA | $ | 297,927 | $ | 276,723 | $ | 190,104 | ||||
| | Years Ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | ||||||||
| | (In Thousands) | ||||||||||
| Revenues | |||||||||||
| HSN-U.S.(a) | $ | 1,658,904 | $ | 1,533,271 | $ | 1,332,911 | |||||
| Ticketing | 579,679 | 518,565 | 442,742 | ||||||||
| Hotels.com | 536,497 | 327,977 | 124,113 | ||||||||
| Precision Response | 298,678 | 212,471 | — | ||||||||
| Match.com | 49,249 | 29,122 | 9,000 | ||||||||
| Citysearch and related | 46,108 | 50,889 | 27,329 | ||||||||
| Electronic Commerce Solutions/Styleclick | 34,229 | 46,603 | 49,202 | ||||||||
| HSN-International and other(b) | 272,569 | 245,714 | 8,917 | ||||||||
| Other | — | — | 6,894 | ||||||||
| Intersegment Elimination | (7,053 | ) | — | — | |||||||
| Total | $ | 3,468,860 | $ | 2,964,612 | $ | 2,001,108 | |||||
| Operating Profit (Loss) | |||||||||||
| HSN-U.S.(a),(c) | $ | 103,866 | $ | 130,442 | $ | 137,670 | |||||
| Ticketing | 25,351 | 25,453 | 32,503 | ||||||||
| Hotels.com | 15,811 | 9,166 | 5,654 | ||||||||
| Precision Response | (40,857 | ) | (7,282 | ) | — | ||||||
| Match.com | (3,004 | ) | (12,484 | ) | (7,451 | ) | |||||
| Citysearch and related | (171,351 | ) | (207,004 | ) | (119,521 | ) | |||||
| Electronic Commerce Solutions/Styleclick | (73,145 | ) | (240,085 | ) | (51,701 | ) | |||||
| HSN International and other(b) | (34,907 | ) | 4,641 | (4,517 | ) | ||||||
| Corporate & other | (46,494 | ) | (52,593 | ) | (41,479 | ) | |||||
| Intersegment Elimination | 8,307 | — | — | ||||||||
| Total | $ | (216,423 | ) | $ | (349,746 | ) | $ | (48,842 | ) | ||
F-34
| Adjusted EBITDA | |||||||||||
| HSN-U.S.(a) | $ | 230,280 | $ | 236,752 | $ | 214,893 | |||||
| Ticketing | 106,248 | 99,375 | 93,432 | ||||||||
| Hotels.com | 81,449 | 52,641 | 18,891 | ||||||||
| Precision Response | 26,044 | 35,165 | — | ||||||||
| Match.com | 16,512 | 6,241 | (400 | ) | |||||||
| Citysearch and related | (44,417 | ) | (66,356 | ) | (60,444 | ) | |||||
| Electronic Commerce Solutions/Styleclick | (58,364 | ) | (60,227 | ) | (41,652 | ) | |||||
| HSN International and other(b) | (25,306 | ) | 10,740 | (4,505 | ) | ||||||
| Corporate & other | (34,519 | ) | (37,608 | ) | (30,111 | ) | |||||
| Total | $ | 297,927 | $ | 276,723 | $ | 190,104 | |||||
| Assets | |||||||||||
| HSN-U.S. | $ | 1,704,335 | $ | 1,729,266 | $ | 1,601,470 | |||||
| Ticketing | 1,109,661 | 1,089,965 | 1,004,277 | ||||||||
| Hotels.com | 643,835 | 555,613 | 202,666 | ||||||||
| Precision Response | 850,485 | 795,531 | — | ||||||||
| Match.com | 83,032 | 73,293 | 77,316 | ||||||||
| Citysearch and related | 209,212 | 364,631 | 573,632 | ||||||||
| Electronic Commerce Solutions/Styleclick | 33,111 | 61,025 | 28,623 | ||||||||
| HSN International and other | 212,549 | 133,654 | 37,840 | ||||||||
| Corporate & other | 1,693,630 | 843,312 | 1,625,336 | ||||||||
| Total | $ | 6,539,850 | $ | 5,646,290 | $ | 5,151,160 | |||||
| Depreciation and amortization of intangibles and cable distribution fees(d) | |||||||||||
| HSN-U.S. | $ | 122,115 | $ | 106,059 | $ | 83,796 | |||||
| Ticketing | 80,897 | 73,922 | 60,846 | ||||||||
| Hotels.com | 48,662 | 39,215 | 13,237 | ||||||||
| Precision Response | 66,901 | 42,447 | — | ||||||||
| Match.com | 19,516 | 18,725 | 7,051 | ||||||||
| Citysearch and related | 106,700 | 130,207 | 59,077 | ||||||||
| Electronic Commerce Solutions/Styleclick | 14,589 | 179,854 | 3,251 | ||||||||
| HSN-International and other | 9,601 | 6,099 | 12 | ||||||||
| Corporate & other | 7,133 | 5,536 | 5,253 | ||||||||
| Total | $ | 476,114 | $ | 602,064 | $ | 232,523 | |||||
F-35
| Capital expenditures | |||||||||||
| HSN-U.S. | $ | 42,615 | $ | 34,122 | $ | 33,412 | |||||
| Ticketing | 24,465 | 23,282 | 23,789 | ||||||||
| Hotels.com | 16,022 | 2,859 | 1,092 | ||||||||
| Precision Response | 25,775 | 43,505 | — | ||||||||
| Match.com | 3,268 | 2,485 | — | ||||||||
| Citysearch and related | 5,017 | 9,262 | 11,328 | ||||||||
| Electronic Commerce Solutions/Styleclick | 2,292 | 5,047 | 13,657 | ||||||||
| HSN-International and other | 6,031 | 18,105 | 13,746 | ||||||||
| Corporate & other | 5,051 | 21,756 | 4,673 | ||||||||
| Total | $ | 130,536 | $ | 160,423 | $ | 101,697 | |||||
NOTE 17—FINANCIAL INSTRUMENTS
The additional disclosure below of the estimated fair value of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies when available. The carrying values of all financial instruments approximates their respective fair values.
| | December 31, 2001 | December 31, 2000 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||
| | | (In Thousands) | | ||||||||||
| Cash and cash equivalents | $ | 978,377 | $ | 978,377 | $ | 244,223 | $ | 244,223 | |||||
| Long-term investments | 64,731 | 64,731 | 48,949 | 48,949 | |||||||||
| Long-term obligations | (577,891 | ) | (577,891 | ) | (576,514 | ) | (576,514 | ) | |||||
F-36
NOTE 18—MARKETABLE SECURITIES AND INVESTMENTS HELD FOR SALE
At December 31, 2001, marketable securities available-for-sale were as follows (in thousands):
| | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| U.S. Government and agencies | $ | 147,106 | $ | 230 | $ | (217 | ) | $ | 147,119 | |||
| Non-US government securities and other fixed Term obligations | 22,350 | — | — | 22,350 | ||||||||
| Corporate debt securities | 1,970 | 25 | — | 1,995 | ||||||||
| Total marketable securities | 171,426 | 255 | (217 | ) | 171,464 | |||||||
| Investment held for sale | — | — | — | — | ||||||||
| Total | $ | 171,426 | $ | 255 | $ | (217 | ) | $ | 171,464 | |||
Income tax expense of $15 were recorded on these securities for the year ended December 31, 2001.
The contractual maturities of debt securities classified as available-for-sale as of December 31, 2001 are as follows (in thousands):
| | Amortized Cost | Estimated Fair Values | ||||
|---|---|---|---|---|---|---|
| Due in one year or less | $ | 65,922 | $ | 66,035 | ||
| Due after one year through two years | 7,461 | 7,398 | ||||
| Due after two through five years | 22,977 | 22,956 | ||||
| Due over five years | 75,066 | 75,075 | ||||
| Total | $ | 171,426 | $ | 171,464 | ||
At December 31, 2000, marketable securities available-for-sale were as follows (in thousands):
| | Cost | Gross Unrealized Gains | Gross Unrealized Losses | Estimated Fair Value | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Corporate debt securities | $ | 81,066 | $ | 9 | $ | (14 | ) | $ | 81,061 | |||
| U.S. Government and agencies | 26,928 | 118 | (12 | ) | 27,034 | |||||||
| Certificate of deposit | 10,175 | 20 | — | 10,195 | ||||||||
| Treasury Bill | 8,048 | 14 | — | 8,062 | ||||||||
| Total debt securities | 126,217 | 161 | (26 | ) | 126,352 | |||||||
| Investment held for sale | 10,041 | — | (9,291 | ) | 750 | |||||||
| Total Marketable Securities | $ | 136,258 | $ | 161 | $ | (9,317 | ) | $ | 127,102 | |||
Income tax benefit of $3.6 million was recorded on these securities for the year ended December 31, 2000.
The contractual maturities of debt securities classified as available-for-sale as of December 31, 2000 are as follows (in thousands):
| | Amortized Cost | Estimated Fair Values | ||||
|---|---|---|---|---|---|---|
| Due in one year or less | $ | 113,865 | $ | 113,976 | ||
| Due after one year through two years | 997 | 1,012 | ||||
| Due after two through five years | 2,002 | 2,019 | ||||
| Due over five years | 9,353 | 9,345 | ||||
| Total | $ | 126,217 | $ | 126,352 | ||
F-37
NOTE 19—EQUITY INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
At December 31, 2001, USA beneficially owned 46.7% of the outstanding common stock of Hot Networks AG, a German stock corporation, the subsidiaries of which operate electronic retailing operations in Europe. This investment is accounted for using the equity method. Due to the significance of the results of Hot Networks, AG, in relation to USA's results, summary financial information for Hot Networks AG is presented below. There were no significant operations in 1999.
| | As of and for the Years Ended December 31, | ||||||
|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | |||||
| | (In Thousands) | ||||||
| Current assets | $ | 17,597 | $ | 6,943 | |||
| Non-current assets | 157,274 | 42,784 | |||||
| Current liabilities | 46,085 | 37,531 | |||||
| Non-current liabilities | 194,249 | 23,668 | |||||
| Net sales | 8,215 | 6,242 | |||||
| Gross profit | 277 | 1,301 | |||||
| Net loss | (51,453 | ) | (20,254 | ) | |||
To date, the Company has contributed approximately $125.3 million, including $105.5 million in 2001, and recorded equity losses in unconsolidated subsidiaries of $30.5 million, including $27.6 million in 2001.
NOTE 20—SAVOY SUMMARIZED HISTORICAL FINANCIAL INFORMATION (Discontinued operation)
The Company has not prepared separate financial statements and other disclosures concerning Savoy because management has determined that such information is not material to holders of the Savoy Debentures, all of which have been assumed by the Company as a joint and several obligor. The information presented is reflected at Savoy's historical cost basis.
Summary Consolidated Statements of Operations
| | Years Ended December 31, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | ||||||
| | (In Thousands) | ||||||||
| Net sales | $ | 3,591 | $ | 6,678 | $ | 7,890 | |||
| Operating expenses | 118 | 3,236 | 3,431 | ||||||
| Operating income | 3,473 | 3,442 | 4,459 | ||||||
| Net income | 5,681 | 6,354 | 7,143 | ||||||
F-38
Summary Consolidated Balance Sheets
| | December 31, | |||||
|---|---|---|---|---|---|---|
| | 2001 | 2000 | ||||
| | (In Thousands) | |||||
| Current assets | $ | 10,709 | $ | — | ||
| Non-current assets | 53,563 | 158,561 | ||||
| Current liabilities | 4,861 | 17,021 | ||||
| Non-current liabilities | 44,530 | 38,902 | ||||
NOTE 21—DISCONTINUED OPERATIONS
Sale of USA Broadcasting
In August 2001, the Company completed its previously announced sale of all of the capital stock of certain USA Broadcasting ("USAB") subsidiaries that own 13 full-power television stations and minority interests in four additional full-power stations to Univision Communications Inc. ("Univision"). Total cash proceeds were $1.1 billion, of which $510.4 million was collected in fiscal year 2001 and $589.6 million in January 2002. The gain on the sale of the stations of $517.8 million, net of tax of $377.4 million. USAB is presented as a discontinued operation for all periods presented. The revenues for USAB were $19.7 million and $8.6 million in the years ended 2000 and 1999, respectively. The loss for USAB was $59.4 million (net of tax benefit of $21.3 million) and $44.1 million (net of tax benefit of $12.1 million) in the years ended 2000 and 1999, respectively.
Contribution of the USA Entertainment Group to VUE
On May 7, 2002, USA completed its previously announced transaction with Vivendi to create a joint venture called Vivendi Universal Entertainment ("VUE") (the "VUE Transaction"). VUE is controlled by Vivendi and its subsidiaries, with the common interests owned 93.06% by Vivendi, 5.44% by USA and 1.5% by Mr. Diller, Chairman and CEO of USA.
In connection with the VUE Transaction, USA and its subsidiaries received the following at the closing: (i) approximately $1.62 billion in cash, debt-financed by VUE, subject to tax-deferred treatment for a 15-year period, (ii) a $750 million face value Class A preferred interest in VUE, with a 5% annual paid-in-kind dividend and a 20-year term, to be settled in cash at its then face value at maturity; (iii) a $1.75 billion face value Class B preferred interest in VUE, with a 1.4% annual paid-in-kind dividend, a 3.6% annual cash dividend, callable and puttable after 20 years, to be settled by Universal at its then face value with a maximum of approximately 56.6 million USA common shares, provided that Universal may substitute cash in lieu of shares of USA common stock of 25% of the members of USA's board of directors and certain matters as to which a separate class vote of the holders of shares of USA common stock,(but not USA Class B common stock), at its election; (iv) a 5.44% common interest in VUE, generally callable by Universal after five years and puttable by USA after eight years, which may be settled in either Vivendi stock or cash, at Universal's election, and (v) a cancellation of Universal's USANi LLC interests that were exchangeable into USA preferred stock is required) withoutcommon shares including USANi LLC interests obtained from Liberty in connection with a related transaction. In connection with the necessity of holding a stockholders meeting.transaction, USA has retired approximately 321 million shares previously owned by Vivendi, thereby reducing USA's fully diluted shares to 477 million shares.
The transfer agentRelated to the transaction, Liberty exchanged 7,079,726 shares of USANi LLC for shares of USA common stock, and subsequently transferred to Universal 25,000,000 shares of USA common stock, its remaining 38,694,982 shares of USANi LLC, as well as the assets and liabilities of Liberty Programming France (which consist primarily of 4,921,250 shares of multiThematiques S.A., a French entity), in exchange for 37,386,436 Vivendi ordinary shares.
USA contributed to VUE USA Cable, which includes USA Network, SCI FI Channel, TRIO and Newsworld International; Studios USA, which produces and distributes television programming; USA Films, which produces and distributes films. Vivendi contributed the film, television and theme park businesses of its subsidiary, Universal Studios, Inc. In addition, USA issued to Universal ten-year warrants to acquire shares of USA common stock as follows: 24,187,094 shares at $27.50 per share; 24,187,094 shares at $32.50 per share; and 12,093,547 shares at $37.50 per share. Barry Diller, USA's chairman and chief executive officer, will receive a common interest in VUE with a 1.5% profit sharing percentage, with a minimum value of $275.0 million, in return for his agreeing to specified non-competition provisions and agreeing to serve as chairman and chief executive officer of VUE. USA and Mr. Diller have agreed that they will not compete with Vivendi's television and filmed entertainment businesses (including VUE) for a minimum of 18 months. The transaction has been accounted for as an asset sale. The after-tax gain associated with this transaction is preliminarily estimated at $3.5 billion.
The USA Entertainment Group is presented as a discontinued operation for all periods presented. The revenues for the USA Entertainment Group were $1.8 billion, $1.6 billion and $1.4 billion in the years ended 2001, 2000 and 1999, respectively. The net income, net of the effect of minority interest, for the USA Entertainment Group was $61.8 million (net of tax expense of $106.4 million), $83.8 million (net of tax expense of $69.0 million) and $85.7 million (net of tax expense of $74.5 million) in the years ended 2001, 2000 and 1999, respectively.
F-40
NOTE 22—EARNINGS (LOSS) PER SHARE
The following table sets forth the computation of Basic and Diluted earnings per share. All share numbers have been adjusted to retroactively reflect the impact of the two-for-one stock split of USA's common stock and Class B common stock and USA preferredpaid on February 24, 2000. All share numbers give effect to such stock is The Bank of New York.split.
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
| | (In Thousands, Except Per Share Data) | |||||||||
| Continuing Operations: | ||||||||||
| Numerator: | ||||||||||
| Earnings (loss) | $ | (186,799 | ) | $ | (172,398 | ) | $ | (69,212 | ) | |
| Denominator: | ||||||||||
| Denominator for basic and diluted earnings per share- weighted average shares(a) | 374,101 | 359,688 | 327,816 | |||||||
| Basic earnings (loss) per share | $ | (.50 | ) | $ | (.48 | ) | $ | (.21 | ) | |
| Diluted earnings (loss) per share | $ | (.50 | ) | $ | (.48 | ) | $ | (.21 | ) | |
| | Years Ended December 31, | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
| | (In Thousands, Except Per Share Data) | |||||||||
| Earnings (loss) before cumulative effect of accounting change, net of tax: | ||||||||||
| Numerator: | ||||||||||
| Net earnings (loss) | $ | 392,795 | $ | (147,983 | ) | $ | (27,631 | ) | ||
| Denominator: | ||||||||||
| Denominator for basic and diluted earnings per share-weighted average shares(a) | 374,101 | 359,688 | 327,816 | |||||||
| Basic earnings (loss) per share | $ | 1.05 | $ | (.41 | ) | $ | (.08 | ) | ||
| Diluted earnings (loss) per share | $ | 1.05 | $ | (.41 | ) | $ | (.08 | ) | ||
Net Earnings (loss): | ||||||||||
| Numerator: | ||||||||||
| Net earnings (loss) | $ | 383,608 | $ | (147,983 | ) | $ | (27,631 | ) | ||
| Denominator: | ||||||||||
| Denominator for basic and diluted earnings per share — weighted average shares(a) | 374,101 | 359,688 | 327,816 | |||||||
| Basic earnings (loss) per share | $ | 1.03 | $ | (.41 | ) | $ | (.08 | ) | ||
| Diluted earnings (loss) per share | $ | 1.03 | $ | (.41 | ) | $ | (.08 | ) | ||
F-41
Listing
NOTE 23—NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
SharesIn December 2002, the Company initiated an offering of USA common stockSenior Notes (the "Offered Notes"). The Offered Notes, by their terms, are listed on the Nasdaq National Market under the ticker symbol "USAI." Shares of USA preferred stock are traded in the over the counter market under the ticker symbol "USAIP.OB."
77
COMPARISON OF STOCKHOLDER RIGHTS
USAfully and Ticketmaster are incorporated under the laws of the State of Delaware. If the mergerunconditionally guaranteed by USANi LLC (the "Guarantor"). USANi LLC is completed, Ticketmaster stockholders, whose rights are currently governedwholly owned, directly or indirectly, by the DGCL, the amended and restated certificate of incorporation of Ticketmaster, as amended, and the amended and restated bylaws of Ticketmaster, will become stockholders of USA, and their rights as such will be governed by the DGCL, the restated certificate of incorporation of USA, as amended, and the amended and restated by-laws of USA. The material differences between the rights of holders of Ticketmaster common stock and the rights of holders of USA common stock, resulting from the differences in their governing documents, are summarized below.Company.
The following summary does not purport to betables present condensed consolidating financial information for the years ended December 31, 2001, 2000, and 1999 for: (1) the Company on a complete statementstand-alone basis, (2) the Guarantor, USANi LLC, on a stand-alone basis, (3) the combined non-guarantor subsidiaries of the rightsCompany (including the subsidiaries of holdersUSANi LLC (collectively, the "Non-Guarantor Subsidiaries")) and (4) the Company on a consolidated basis.
F-42
As of and for the Year Ended December 31, 2001
| | USA | USANi LLC | Non-Guarantor Subsidiaries | Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Balance Sheet as of December 31, 2001: | ||||||||||||||||
| Current assets | $ | 585,212 | $ | 796,233 | $ | 965,871 | $ | — | $ | 2,347,316 | ||||||
| Property and equipment, net | — | 24,755 | 374,232 | — | 398,987 | |||||||||||
| Goodwill and other intangible assets, net | 71,598 | 2,260 | 3,220,624 | — | 3,294,482 | |||||||||||
| Investment in subsidiaries | 3,525,102 | 7,301,359 | — | (10,826,461 | ) | — | ||||||||||
| Other assets | 81,902 | 30,974 | 347,846 | — | 460,722 | |||||||||||
| Net current assets of discontinued operations | — | — | 38,343 | — | 38,343 | |||||||||||
| Total assets | $ | 4,263,814 | $ | 8,155,581 | $ | 4,946,916 | $ | (10,826,461 | ) | $ | 6,539,850 | |||||
| Current liabilities | $ | 238,365 | $ | 31,135 | $ | 735,223 | $ | — | $ | 1,004,723 | ||||||
| Long-term debt, less current portion | — | 498,515 | 45,857 | — | 544,372 | |||||||||||
| Other liabilities | 222,275 | (311 | ) | 14,570 | — | 236,534 | ||||||||||
| Intercompany liabilities | (142,327 | ) | 1,086,565 | (944,238 | ) | — | — | |||||||||
| Minority interest | — | — | 452,308 | 254,380 | 706,688 | |||||||||||
| Interdivisional equity | — | — | 3,840,046 | (3,840,046 | ) | — | ||||||||||
| Shareholders' equity | 3,945,501 | 6,539,677 | 701,118 | (7,240,795 | ) | 3,945,501 | ||||||||||
| Net non current liabilities of discontinued operations | — | — | 102,032 | — | 102,032 | |||||||||||
| Total liabilities and shareholders' equity | $ | 4,263,814 | $ | 8,155,581 | $ | 4,946,916 | $ | (10,826,461 | ) | $ | 6,539,850 | |||||
| Revenue | $ | — | $ | — | $ | 3,468,860 | $ | — | $ | 3,468,860 | ||||||
| Operating expenses | (10,725 | ) | (34,154 | ) | (3,640,404 | ) | — | (3,685,283 | ) | |||||||
| Interest expense, net | (21,757 | ) | 4,650 | (2,078 | ) | — | (19,185 | ) | ||||||||
| Other income (expense), net | (154,317 | ) | 299,621 | (42,309 | ) | (154,844 | ) | (51,849 | ) | |||||||
| Provision for income taxes | — | — | (2,450 | ) | — | (2,450 | ) | |||||||||
| Minority interest | — | — | 49,300 | 53,808 | 103,108 | |||||||||||
| (Loss) income from continuing operations | (186,799 | ) | 270,117 | (169,081 | ) | (101,036 | ) | (186,799 | ) | |||||||
| Discontinued operations, net of tax | 61,747 | 67,752 | 61,747 | (129,499 | ) | 61,747 | ||||||||||
| Gain on disposal of Broadcasting Stations, net of tax | 517,847 | — | — | — | 517,847 | |||||||||||
| Cumulative effect of accounting change from discontinued operations, net of tax | (9,187 | ) | 6,470 | (9,187 | ) | 2,717 | (9,187 | ) | ||||||||
| Net Earnings (loss) | $ | 383,608 | $ | 344,339 | $ | (116,521 | ) | $ | (227,818 | ) | $ | 383,608 | ||||
| Cash flows from operations | $ | (36,116 | ) | $ | (25,770 | ) | $ | 360,221 | $ | — | $ | 298,335 | ||||
| Cash flows used in investing activities | 31,993 | (7,774 | ) | 10,833 | — | 35,052 | ||||||||||
| Cash flows from financing activities | 4,123 | 745,346 | (693,213 | ) | — | 56,256 | ||||||||||
| Net Cash used by discontinued operations | — | — | 348,174 | — | 348,174 | |||||||||||
| Effect of exchange rate | — | (417 | ) | (3,246 | ) | — | (3,663 | ) | ||||||||
| Cash at the beginning of the period | — | 78,079 | 166,144 | — | 244,223 | |||||||||||
| Cash at the end of the period | $ | — | $ | 789,464 | $ | 188,913 | $ | — | $ | 978,377 | ||||||
F-43
NOTE 23—NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION (Continued)
As of and for the Year Ended December 31, 2000
| | USA | USANi LLC | Non- Guarantor Subsidiaries | Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Balance Sheet as of December 31, 2000: | ||||||||||||||||
| Current Assets | $ | (5,150 | ) | $ | 80,996 | $ | 872,171 | $ | — | $ | 948,017 | |||||
| Property and equipment, net | — | 24,203 | 384,747 | — | 408,950 | |||||||||||
| Goodwill and other intangible assets, net | 73,693 | — | 3,296,155 | — | 3,369,848 | |||||||||||
| Investment in subsidiaries | 3,210,434 | 6,888,058 | 244 | (10,098,736 | ) | — | ||||||||||
| Other assets | 95,220 | 25,898 | 278,184 | — | 399,302 | |||||||||||
| Net current assets of discontinued operations | — | — | 86,517 | — | 86,517 | |||||||||||
| Net non current assets of discontinued operations | — | — | 433,656 | — | 433,656 | |||||||||||
| Total assets | $ | 3,374,197 | $ | 7,019,155 | $ | 5,351,674 | $ | (10,098,736 | ) | $ | 5,646,290 | |||||
| Current liabilities | $ | 6,553 | $ | 30,518 | $ | 642,306 | $ | — | $ | 679,377 | ||||||
| Long-term debt, less current portion | 0 | 498,212 | 53,554 | — | 551,766 | |||||||||||
| Other liablilities | 12,829 | (11,671 | ) | 65,287 | — | 66,445 | ||||||||||
| Intercompany liabilities | (85,056 | ) | 301,992 | (216,936 | ) | — | — | |||||||||
| Minority interest | — | 60,373 | 400,483 | 447,975 | 908,831 | |||||||||||
| Interdivisional equity | — | — | 3,962,022 | (3,962,022 | ) | — | ||||||||||
| Shareholders' equity | 3,439,871 | 6,139,731 | 444,958 | (6,584,689 | ) | 3,439,871 | ||||||||||
| Total liabilities and shareholders' equity | $ | 3,374,197 | $ | 7,019,155 | $ | 5,351,674 | $ | (10,098,736 | ) | $ | 5,646,290 | |||||
| Revenue | $ | — | $ | — | $ | 2,964,612 | $ | — | $ | 2,964,612 | ||||||
| Operating expenses | (15,184 | ) | (37,369 | ) | (3,261,805 | ) | — | (3,314,358 | ) | |||||||
| Interest expenses, net | (26,195 | ) | 22,208 | (3,379 | ) | — | (7,366 | ) | ||||||||
| Other income, expense | (131,019 | ) | 247,699 | (108,677 | ) | 41,014 | 49,017 | |||||||||
| Provision for income taxes | — | — | (43,850 | ) | — | (43,850 | ) | |||||||||
| Minority interest | — | — | 104,584 | 74,963 | 179,547 | |||||||||||
| Earnings (loss) from continuing operations | (172,398 | ) | 232,538 | (348,515 | ) | 115,977 | (172,398 | ) | ||||||||
| Discontinued operations, net of tax | 24,415 | 97,339 | 24,415 | (121,754 | ) | 24,415 | ||||||||||
| Net earnings (loss) | $ | (147,983 | ) | $ | 329,877 | $ | (324,100 | ) | $ | (5,777 | ) | $ | (147,983 | ) | ||
| Cash flows from operations | $ | (34,654 | ) | $ | (12,013 | ) | $ | 133,988 | $ | — | $ | 87,321 | ||||
| Cash flows used in investing activities | 18,711 | (63,754 | ) | (362,973 | ) | — | (408,016 | ) | ||||||||
| Cash flows from financing activities | 15,943 | (125,442 | ) | 167,662 | — | 58,163 | ||||||||||
| Net Cash used by discontinued operations | — | — | 86,266 | — | 86,266 | |||||||||||
| Effect of exchange rate | — | — | (2,687 | ) | — | (2,687 | ) | |||||||||
| Cash at the beginning of the period | — | 279,288 | 143,888 | — | 423,176 | |||||||||||
| Cash at the end of the period | $ | — | $ | 78,079 | $ | 166,144 | $ | — | $ | 244,223 | ||||||
F-44
As of and for the Year Ended December 31, 1999
| | USA | USANi LLC | Non- Guarantor Subsidiaries | Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Revenue | $ | — | $ | — | $ | 2,001,108 | $ | — | $ | 2,001,108 | ||||||
| Operating expenses | (10,074 | ) | (27,171 | ) | (2,012,705 | ) | — | (2,049,950 | ) | |||||||
| Interest expense, net | (10,713 | ) | (11,837 | ) | (7,145 | ) | — | (29,695 | ) | |||||||
| Other income (expense), net | (48,425 | ) | 350,486 | 60,502 | (366,832 | ) | (4,269 | ) | ||||||||
| Provision for income taxes | — | — | (28,558 | ) | — | (28,558 | ) | |||||||||
| Minority interest | — | — | 56,741 | (14,589 | ) | 42,152 | ||||||||||
| Earnings (loss) from continuing operations | (69,212 | ) | 311,478 | 69,943 | (381,421 | ) | (69,212 | ) | ||||||||
| Discontinued operations, net of tax | 41,581 | 83,510 | — | (83,510 | ) | 41,581 | ||||||||||
| Net earnings (loss) | $ | (27,631 | ) | $ | 394,988 | $ | 69,943 | $ | (464,931 | ) | $ | (27,631 | ) | |||
| Cash flows from operations | $ | (33,127 | ) | $ | (31,200 | ) | $ | 142,087 | $ | — | $ | 77,760 | ||||
| Cash flows used in investing activities | (401,082 | ) | (53,645 | ) | (13,591 | ) | — | (468,318 | ) | |||||||
| Cash flows from financing activities | 434,209 | 212,973 | (546,978 | ) | — | 100,204 | ||||||||||
| Net cash used by discontinued operations | — | — | 267,651 | — | 267,651 | |||||||||||
| Effect of exchange rate | — | — | (123 | ) | — | (123 | ) | |||||||||
| Cash at the beginning of the period | — | 151,160 | 294,842 | — | 446,002 | |||||||||||
| Cash at the end of the period | $ | — | $ | 279,288 | $ | 143,888 | $ | — | $ | 423,176 | ||||||
Note 24—SUBSEQUENT EVENTS (UNAUDITED)
Accounting for Goodwill and Other Intangible Assets
Effective January 1, 2002, USA common stock under applicable Delaware law,adopted Statement of Financial Accounting Standards No. 142, "Accounting for Goodwill and Other Intangible Assets." The new rules eliminate amortization of goodwill and other intangible assets with indefinite lives and establish new measurement criterion for these assets. As previously discussed, USA recorded a pre-tax write-off before minority interest of $499 million related to the restated certificate of incorporation of USA,Citysearch and Precision Response ("PRC") businesses. Although Citysearch and PRC are expected to generate positive cash flows in the future, due to cash flow discounting techniques to estimate fair value as amended,required by the new rules, the future estimated discounted cash flows do not support current carrying values. The Citysearch write-off was $115 million, and the by-laws of USA or the rights of the holders of Ticketmaster common stock under applicable Delaware law, the amended and restated certificate of incorporation of Ticketmaster, as amended, and the amended and restated bylaws of Ticketmaster, or a complete description of the specific provisions referred to herein. This summary contains a list of the material differences but is not meant to be relied upon as an exhaustive list or a detailed description of the provisions discussed and is qualified in its entirety by reference to the DGCL and the governing corporate instruments of USA and Ticketmaster. We urge you to read those documents carefully in their entirety. Copies of the applicable governing corporate instruments of USA (as well as the Stockholders Agreement and the Governance Agreement) and Ticketmaster are available, without charge, to any person, including any beneficial owner to whom this information statement/prospectus is delivered, by following the instructions listed under "Where You Can Find More Information."PRC write-off was $384 million.
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83F-45
BENEFICIAL OWNERSHIPUSA INTERACTIVE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHARES OF USA AND TICKETMASTEROPERATIONS
(Unaudited)
| | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | |||||||||
| | (In Thousands, except per share data) | ||||||||||||
| Product sales | $ | 449,620 | $ | 453,447 | $ | 1,358,438 | $ | 1,368,299 | |||||
| Service revenue | 742,876 | 384,392 | 1,923,798 | 1,152,055 | |||||||||
| Net revenue | 1,192,496 | 837,839 | 3,282,236 | 2,520,354 | |||||||||
| Operating costs and expenses: | |||||||||||||
| Cost of sales product sales | 275,835 | 301,748 | 856,830 | 907,500 | |||||||||
| Cost of sales service revenue | 437,322 | 268,778 | 1,157,702 | 791,163 | |||||||||
| Selling and marketing | 153,099 | 86,732 | 410,818 | 244,026 | |||||||||
| General and administrative | 130,377 | 109,192 | 356,119 | 308,186 | |||||||||
| Other operating costs | 21,832 | 22,552 | 60,637 | 62,435 | |||||||||
| Amortization of non-cash distribution and marketing expense | 10,416 | 5,218 | 27,485 | 19,866 | |||||||||
| Amortization of non-cash compensation expense | 2,998 | 1,268 | 10,199 | 5,431 | |||||||||
| Amortization of cable distribution fees | 12,615 | 9,986 | 38,679 | 29,384 | |||||||||
| Depreciation | 47,679 | 35,407 | 128,042 | 100,498 | |||||||||
| Amortization of intangibles and goodwill | 63,149 | 73,975 | 113,875 | 219,545 | |||||||||
| Restructuring charges | 31,411 | 2,914 | 71,625 | 13,466 | |||||||||
| Goodwill impairment | — | — | 22,247 | — | |||||||||
| Total operating costs and expenses | 1,186,733 | 917,770 | 3,254,258 | 2,701,500 | |||||||||
| Operating (loss) profit | 5,763 | (79,931 | ) | 27,978 | (181,146 | ) | |||||||
| Other income (expense): | |||||||||||||
| Interest income | 38,231 | 7,671 | 73,384 | 21,478 | |||||||||
| Interest expense | (10,273 | ) | (10,888 | ) | (33,755 | ) | (34,486 | ) | |||||
| Loss in unconsolidated subsidiaries and other | (18,082 | ) | (12,937 | ) | (131,975 | ) | (25,406 | ) | |||||
| Total other income (expense), net | 9,876 | (16,154 | ) | (92,346 | ) | (38,414 | ) | ||||||
| Income/(loss) from continuing operations before income taxes and minority interest | 15,639 | (96,085 | ) | (64,368 | ) | (219,560 | ) | ||||||
| Income tax expense | (31,849 | ) | 878 | (58,407 | ) | (3,563 | ) | ||||||
| Minority interest expense | (17,155 | ) | 32,332 | (17,964 | ) | 82,765 | |||||||
| Loss from continuing operations before cumulative effect of accounting change | (33,365 | ) | (62,875 | ) | (140,739 | ) | (140,358 | ) | |||||
| Gain on contribution of USA Entertainment to VUE | — | — | 2,378,311 | — | |||||||||
| Gain on disposal of Broadcasting Stations | — | 468,018 | — | 517,847 | |||||||||
| Discontinued operations, net of tax | — | 22,433 | 28,803 | 72,255 | |||||||||
| Earnings (loss) before cumulative effect of accounting change | (33,365 | ) | 427,576 | 2,266,375 | 449,744 | ||||||||
| Cumulative effect of accounting change, net of tax and minority interest | — | — | (461,389 | ) | (9,187 | ) | |||||||
| Net income (loss) | (33,365 | ) | 427,576 | 1,804,986 | 440,557 | ||||||||
| Preferred dividend | (3,264 | ) | — | (8,495 | ) | — | |||||||
| Net income (loss) available to common stockholders | $ | (36,629 | ) | $ | 427,576 | $ | 1,796,491 | $ | 440,557 | ||||
| Loss per share from continuing operations before cumulative effect of accounting change available to common shareholders: | |||||||||||||
| Basic and diluted loss per common share | $ | (0.08 | ) | $ | (0.17 | ) | $ | (0.36 | ) | $ | (0.38 | ) | |
| Earnings (loss) per share before cumulative effect of accounting change available to common stockholders: | |||||||||||||
| Basic and diluted earnings per common share | $ | (0.08 | ) | $ | 1.14 | $ | 5.39 | $ | 1.21 | ||||
| Net Income (Loss) per Share Available to Common Stockholders: | |||||||||||||
| Basic and diluted earnings per common share | $ | (0.08 | ) | $ | 1.14 | $ | 4.29 | $ | 1.18 | ||||
USA Common Stock and Public Subsidiary Shares
The following table presents, asaccompanying Notes to Consolidated Financial Statements are an integral part of September 15, 2002, information relating to the beneficial ownership of USA's common stock by (1) each person known by USA to own beneficially more than 5% of the outstanding shares of USA's common stock, (2) each director of USA, (3) each of the Chief Executive Officer and the four other most highly compensated executive officers of USA who served in such capacities as of December 31, 2001 (the "Named Executive Officers"), and (4) all executive officers and directors of USA as a group. The table also presents, as of September 15, 2002, information relating to the beneficial ownership of shares of the following subsidiaries of USA: Class A common stock of Hotels.com ("Hotels"), shares of Class A common stock of Expedia, Inc. ("Expedia"), shares of Class A common stock of Styleclick, Inc. ("Styleclick"), and shares of Class B common stock of Ticketmaster, by (1) each director of USA, (2) each of the Named Executive Officers, and (3) all executive officers and directors of USA as a group.these statements.
Unless otherwise indicated, beneficial owners listed here may be contacted at USA's corporate headquarters address, 152 West 57th Street, New York, New York 10019. For each listed person, the number of shares of USA common stock, Hotels Class A common stock, Styleclick Class A common stock, Ticketmaster Class B common stock and percent of each such class listed assumes the conversion of any shares of USA Class B common stock, Hotels Class B common stock, Styleclick Class B common stock and Ticketmaster Class A common stock owned by such person, but does not assume the conversion of those shares owned by any other person. Shares of USA Class B common stock may at the option of the holder be converted on a one-for-one basis into shares of USA common stock. Shares of Hotels Class B common stock may at the option of the holder be converted on a one-for-one basis into shares of Hotels Class A common stock. Shares of Styleclick Class B common stock may at the option of the holder be converted on a one-for-one basis into shares of Styleclick Class A common stock. Shares of Ticketmaster Class A common stock may at the option of the holder be converted on a one-for-one basis into shares of Ticketmaster Class B common stock. Under the rules of the SEC, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be the beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities and a person may be deemed to be a beneficial owner of securities as to which that person has no economic interest. For each listed person, the number of shares and percent of class listed includes shares of USA common stock, Hotels Class A common stock, Styleclick Class A common stock and Ticketmaster Class B common stock that may be acquired by such person upon exercise of stock options that are or will be exercisable within 60 days of September 15, 2002. Unless specifically set forth in the following table, the listed person did not beneficially own, as of September 15, 2002, any shares of Hotels common stock, Ticketmaster common stock, Styleclick common stock or Expedia common stock.
The percentage of votes for all classes of USA common stock is based on one vote for each share of USA common stock, ten votes for each share of USA Class B common stock and two votes for each share of USA preferred stock. The percentage of votes for all classes of Hotels common stock is based on one vote for each share of Hotels Class A common stock and 15 votes for each share of Hotels Class B common stock. The percentage of votes for all classes of Styleclick common stock is based on one vote for each share of Styleclick Class A common stock and 15 votes for each share of Styleclick Class B common stock. The percentage of votes for all classes of Ticketmaster common stock is based
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on 15 votes for each share of Ticketmaster Class A common stock and one vote for each share of Ticketmaster Class B common stock.
| Name and Address of Beneficial Owner | Title of Class | Number of Shares | Percent of Class | Percent of Votes (All Classes) | |||||
|---|---|---|---|---|---|---|---|---|---|
| Capital Research & Management Co. 333 South Hope Street Los Angeles, CA 90071 | USA common | 33,446,816 | (1) | 8.7 | % | 3.2 | % | ||
| Liberty Media Corporation 12300 Liberty Boulevard Englewood, CO 80112 | USA common | 89,738,567 | (2) | 20.6 | % | 52.1 | % | ||
| Microsoft Corporation One Microsoft Way Redmond, WA 98052 | USA common USA preferred | 53,318,277 12,808,605 | (3) (3) | 12.8 | % | 5.0 | % | ||
| Vivendi Universal S.A. 42, Avenue Friedland 75380 Paris cedex 08/France | USA common | 117,079,043 | (4) | 25.5 | % | 21.3 | % | ||
| Janus Capital Management LLC 100 Fillmore Street Denver, CO 80206 | USA common | 19,661,260 | (1) | 5.1 | % | 1.9 | % | ||
| Barry Diller | USA common Hotels Class A Styleclick Class A Ticketmaster Class B Expedia Class A | 256,183,004 — — — — | (2)(5) (6) (7) (8) (9) | 46.0 * * * * | % | 72.0 * * * * | % | ||
| Robert R. Bennett | USA common | 26,096 | (10) | * | * | ||||
| Edgar Bronfman, Jr. | USA common | — | * | * | |||||
| Anne M. Busquet | USA common | 28,165 | (11) | * | * | ||||
| Jean-René Fourtou | USA common | — | * | * | |||||
| Julius Genachowski | USA common Ticketmaster Class B | 186,311 700 | (12) | * * | * * | ||||
| Victor A. Kaufman | USA common | 1,076,250 | (13) | * | * | ||||
| Donald R. Keough | USA common | 211,341 | (14) | * | * | ||||
| Dara Khosrowshahi | USA common Hotels Class A Ticketmaster Class B | 394,842 23,965 500 | (15) (16) | * * * | * * * | ||||
| Marie-Josée Kravis | USA common | 4,999 | (17) | * | * | ||||
| John C. Malone | USA common | — | (10) | * | * | ||||
| Daniel Marriott | USA common Ticketmaster Class B | 90,500 666,311 | (18) (19) | * * | * * | ||||
| Gen. H. Norman Schwarzkopf | USA common | 169,664 | (20) | * | * | ||||
| Michael Sileck | USA common | — | (21) | * | * | ||||
| Diane Von Furstenberg | USA common | 24,165 | (22) | * | * | ||||
| All executive officers and directors as a group (19 persons) | USA common Hotels Class A Ticketmaster Class B | 258,395,337 23,965 667,511 | 46.3 * * | % | 73.7 * * | % |
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USA Class B Common Stock
The following table presents, as of September 15, 2002, information relating to the beneficial ownership of USA's Class B common stock:
| Name and Address of Beneficial Owner | Number of Shares | Percent of Class | |||
|---|---|---|---|---|---|
| Barry Diller c/o USA Interactive 152 West 57th Street New York, NY 10019 | 64,629,996 | 100 | % | ||
Liberty Media Corporation(1) 9197 South Peoria Street Englewood, CO 80112 | 51,199,996 | 79.2 | % | ||
BDTV Entities(1) (includes BDTV INC., BDTV II INC., BDTV III INC. and BDTV IV INC.) 8800 Sunset Boulevard West Hollywood, CA 90069 | 48,846,808 | 75.6 | % | ||
Vivendi Universal, S.A.(2) 42 avenue de Friedland 75380 Paris Cedex 08/France | 13,430,000 | 16.8 | % |
Ticketmaster Class B Common Stock
The following table sets forth, as of September 15, 2002, certain information regarding the beneficial ownership of Ticketmaster Class B common stock by: (1) each person or entity who is known by Ticketmaster to beneficially own 5% or more of outstanding Ticketmaster Class B common stock; (2) each Ticketmaster director; (3) each person who served as Ticketmaster's Chief Executive Officer during fiscal year 2001; (4) each of Ticketmaster's four other most highly compensated executive officers who was serving as an executive officer at the end of fiscal year 2001 whose total annual salary and bonus exceeded $100,000 during fiscal year 2001; and (5) all of Ticketmaster's directors and
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executive officers as a group. The persons named in (3) and (4) above are collectively referred to as Ticketmaster's "Named Officers."
| Name and Address of Beneficial Owner(1) | Number of Shares(2) | Percent of Class(2) | Percent of Votes (All Classes)(2) | ||||
|---|---|---|---|---|---|---|---|
| USA Interactive 152 West 57th Street, 42nd Floor New York, NY 10019 | 95,782,544 | 66.63 | % | 93.09 | % | ||
Microsoft Corporation(3) One Microsoft Way Redmond, WA 98052 | 8,810,400 | 8.33 | % | 1.18 | % | ||
Terry Barnes(4) | 19,125 | * | ** | ||||
Robert Davis(5) | 6,250 | * | ** | ||||
Barry Diller(6) | 95,782,544 | 66.63 | % | 93.09 | % | ||
David Ellen(7) | — | — | — | ||||
Julius Genachowski(8) | 700 | * | ** | ||||
Victor Kaufman | — | — | — | ||||
Dara Khosrowshahi(9) | 500 | * | ** | ||||
Bryan Lourd(10) | 18,125 | * | ** | ||||
John Pleasants(11) | 789,565 | * | ** | ||||
Michael Schrage(12) | 6,250 | * | ** | ||||
Alan Spoon(13) | 18,125 | * | ** | ||||
Daniel Marriott(14) | 666,311 | * | ** | ||||
Thomas McInerney(15) | 352,266 | * | ** | ||||
Brad Serwin(16) | 112,675 | * | ** | ||||
All executive officers and directors as a group (17 persons)(17) | 97,938,994 | 67.12 | % | 93.11 | % |
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footnote, and subject to community property laws where applicable, the persons named in the table above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them. Amounts shown in the above table and the following notes include shares issuable upon exercise of stock options to purchase shares of Ticketmaster Class A common stock and Ticketmaster Class B common stock which are exercisable within 60 days of March 15, 2002. To calculate percentage of total voting power, each share of Ticketmaster Class A common stock is multiplied by 15 (the amount of votes to which each share is entitled under Ticketmaster's certificate of incorporation).
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Ticketmaster Class A Common Stock
The following table sets forth, as of September 15, 2002, certain information relating to the beneficial ownership of Ticketmaster Class A common stock by (1) each person or entity who is known by Ticketmaster to beneficially own 5% or more of outstanding Ticketmaster Class A common stock; (2) each Ticketmaster director; (3) each of Ticketmaster's Named Officers; and (4) all Ticketmaster directors and executive officers as a group.
| Name and Address of Beneficial Owner(1) | Beneficially Owned(2) | Percentage of Class(2) | |||
|---|---|---|---|---|---|
| USA Interactive 152 West 57th Street, 42nd Floor New York, NY 10019 | 42,480,143 | 99.49 | % | ||
Terry Barnes | — | — | |||
Robert Davis | — | — | |||
Barry Diller(3) | 42,480,143 | 99.49 | % | ||
David Ellen(4) | — | — | |||
Julius Genachowski(5) | — | — | |||
Victor Kaufman | — | — | |||
Dara Khosrowshahi | — | — | |||
Bryan Lourd | — | — | |||
John Pleasants | — | — | |||
Michael Schrage | — | — | |||
Alan Spoon | — | — | |||
Daniel Marriott(6) | 10,106 | * | |||
Thomas McInerney | — | — | |||
Brad Serwin | — | — | |||
All executive officers and directors as a group (17 persons)(7) | 42,490,349 | 99.49 | % |
91
shares of Ticketmaster Class A common stock which are exercisable within 60 days of September 15, 2002. Shares of Ticketmaster Class A common stock can be converted at any time into an equal number of shares of Ticketmaster Class B common stock.
92F-46
WHERE YOU CAN FIND MORE INFORMATIONUSA INTERACTIVE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
USA and Ticketmaster file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that USA and Ticketmaster file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the public reference room.ASSETS
| | September 30, 2002 | December 31, 2001 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands, except share data) | ||||||||
| CURRENT ASSETS | |||||||||
| Cash and cash equivalents | $ | 675,413 | $ | 978,377 | |||||
| Restricted cash equivalents | 13,931 | 9,107 | |||||||
| Marketable securities | 2,470,615 | 171,464 | |||||||
| Accounts and notes receivable, net of allowance of $23,493 and $16,252, respectively | 316,615 | 276,716 | |||||||
| Receivable from sale of USAB | — | 589,625 | |||||||
| Inventories, net | 216,909 | 197,354 | |||||||
| Deferred tax assets | 74,850 | 39,946 | |||||||
| Other current assets, net | 106,041 | 84,727 | |||||||
| Net current assets of discontinued operations | — | 38,343 | |||||||
| Total current assets | 3,874,374 | 2,385,659 | |||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||||
| Computer and broadcast equipment | 510,754 | 349,145 | |||||||
| Buildings and leasehold improvements | 139,394 | 125,491 | |||||||
| Furniture and other equipment | 133,158 | 91,292 | |||||||
| Land | 15,605 | 15,665 | |||||||
| Projects in progress | 22,324 | 45,754 | |||||||
| 821,235 | 627,347 | ||||||||
| Less accumulated depreciation and amortization | (386,971 | ) | (228,360 | ) | |||||
| Total property, plant and equipment | 434,264 | 398,987 | |||||||
OTHER ASSETS | |||||||||
| Goodwill | 6,294,921 | 3,070,129 | |||||||
| Intangible assets, net | 714,457 | 230,843 | |||||||
| Cable distribution fees, net | 173,800 | 158,880 | |||||||
| Long-term investments | 1,605,605 | 64,731 | |||||||
| Preferred interest exchangeable for common stock | 1,428,530 | — | |||||||
| Note receivables and advances, net of current portion ($5,572 and $99,819, respectively, from related parties) | 16,797 | 108,095 | |||||||
| Advance to Universal | — | 39,265 | |||||||
| Deferred charges and other, net | 159,400 | 83,261 | |||||||
| Total other assets | 10,393,510 | 3,755,204 | |||||||
| TOTAL ASSETS | $ | 14,702,148 | $ | 6,539,850 | |||||
USA and Ticketmaster's SEC filingsThe accompanying Notes to Consolidated Financial Statements are also available to the public from commercial retrieval services and at the website maintained by the SEC atwww.sec.gov. Information contained on USA's and Ticketmaster's website is notan integral part of this information statement/prospectus.
USA filed a registration statement on Form S-4 to register with the SEC the USA common stock USA will issue in the merger. This information statement/prospectus is a part of that registration statement. The SEC allows us to "incorporate by reference" information into this information statement/prospectus, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this information statement/prospectus, except for any information superseded by information contained directly in this information statement/prospectus or in a later filed document incorporated by reference in this information statement/prospectus. This information statement/prospectus incorporates by reference the documents set forth below that USA, Ticketmaster, Expedia, Inc. and Hotels.com have previously filed with the SEC. These documents contain important information about USA and Ticketmaster, as well as other information required to be disclosed or incorporated by reference into this information statement/prospectus. You may obtain copies of the Form S-4 (and any amendments to the Form S-4), as well as the documents incorporated by reference into this information statement/prospectus, in the manner described above.
93
All documents filed by USA and Ticketmaster pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act with the SEC from the date of this information statement/prospectus through the completion of the merger (or, if earlier, the date on which the merger agreement is terminated) are also deemed to be incorporated by reference into this information statement/prospectus. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy and informationthese statements.
94
USA has supplied all information contained or incorporated by reference into this information statement/prospectus relating to USA and its subsidiaries (other than Ticketmaster and its subsidiaries), and Ticketmaster has supplied all information contained in or incorporated by reference into this information statement/prospectus relating to Ticketmaster and its subsidiaries.
If you are a Ticketmaster stockholder, documents incorporated by reference into this information statement/prospectus are available from USA and Ticketmaster without charge upon written or oral request at the information below. Exhibits to documents incorporated by reference into this information statement/prospectus will only be furnished if they are specifically incorporated by reference into this document. If you request any incorporated documents from USA or from Ticketmaster, they will be mailed to you by first class mail, or another equally prompt means, within one business day after the date your request is received. You may obtain documents incorporated by reference into this information statement/prospectus by requesting them in writing or by telephone from the appropriate company at the following addresses and phone numbers:
You also may obtain documents incorporated by reference into this information statement/prospectus, without charge, by requesting them in writing or by telephone from MacKenzie Partners, Inc., the information agent for the merger, at the following address and telephone number:
105 Madison AvenueNew York, New York 10016(212) 929-5500 (collect)(800) 322-2885 (toll-free)
Only one copy of this information statement/prospectus is being delivered to multiple Ticketmaster stockholders sharing an address unless Ticketmaster has received contrary instructions from one or more of the stockholders. Upon written or oral request, Ticketmaster will promptly deliver a separate copy of this information statement/prospectus statement to a Ticketmaster stockholder at a shared address to which a single copy of this information statement/prospectus has been delivered. Ticketmaster stockholders at a shared address who would like to receive a separate copy of this information statement/prospectus, or a separate copy of future USA proxy statements or annual reports following completion of the merger, should contact Ticketmaster or MacKenzie Partners, Inc. at the telephone numbers or mailing addresses provided above. In the event that you are receiving multiple copies of annual reports or proxy statements at an address to which you would like to receive a single copy, multiple Ticketmaster stockholders sharing an address may also contact Ticketmaster or MacKenzie Partners, Inc. at the above listed telephone numbers or mailing addresses to receive a single copy of annual reports and proxy statements in the future.
95F-47
STOCKHOLDER PROPOSALSUSA INTERACTIVE AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
If the merger is not completed, Ticketmaster will hold a 2003 annual meetingLIABILITIES AND STOCKHOLDERS' EQUITY
| | September 30, 2002 | December 31, 2001 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands, except share data) | ||||||||
| CURRENT LIABILITIES | |||||||||
| Current maturities of long-term obligations | $ | 36,231 | $ | 33,519 | |||||
| Accounts payable, trade | 383,307 | 309,609 | |||||||
| Accounts payable, client accounts | 182,860 | 102,011 | |||||||
| Cable distribution fees payable | 65,852 | 32,795 | |||||||
| Deferred revenue | 307,832 | 75,256 | |||||||
| Income tax payable | 207,766 | 188,806 | |||||||
| Other accrued liabilities | 503,715 | 262,727 | |||||||
| Total current liabilities | 1,687,563 | 1,004,723 | |||||||
| Long-Term Obligations,net of current maturities | 508,237 | 544,372 | |||||||
| Other Long-Term Liabilities | 84,405 | 26,350 | |||||||
| Deferred Income Taxes | 2,207,243 | 210,184 | |||||||
| Minority Interest | 1,009,953 | 706,688 | |||||||
| Net Long-term Liabilities of Discontinued Operations | — | 102,032 | |||||||
| Common Stock Exchangeable For Preferred Interest | 1,428,530 | — | |||||||
STOCKHOLDERS' EQUITY | |||||||||
| Preferred stock—$.01 par value; authorized 100,000,000 shares; issued and outstanding 13,118,182 and 0 shares, respectively | 131 | — | |||||||
| Common stock—$.01 par value; authorized 1,600,000,000 shares; issued 390,945,859 and 321,461,696 shares respectively, and outstanding 384,344,158 and 315,060,017 shares, respectively | 3,838 | 3,147 | |||||||
| Class B convertible common stock — $.01 par value; authorized 400,000,000 shares; issued and outstanding 64,629,996 and 63,033,452 shares, respectively | 646 | 630 | |||||||
| Additional paid-in capital | 5,933,863 | 3,918,401 | |||||||
| Retained earnings | 1,977,758 | 181,267 | |||||||
| Accumulated other comprehensive income | 11,774 | (11,605 | ) | ||||||
| Treasury stock—6,601,701 and 6,401,679 shares, respectively | (146,795 | ) | (141,341 | ) | |||||
| Note receivable from key executive for common stock issuance | (4,998 | ) | (4,998 | ) | |||||
| Total stockholders' equity | 7,776,217 | 3,945,501 | |||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 14,702,148 | $ | 6,539,850 | |||||
The accompanying Notes to Consolidated Financial Statements are an integral part of stockholders. Any proposal relating to a proper subject which an eligible stockholder of Ticketmaster may intend to present for action at the 2003 annual meeting of stockholders, if such meeting is held, must be received by the Secretary of Ticketmaster in writing at the address of Ticketmaster not later than the close of business on March 24, 2003, and not earlier than the close of business on February 21, 2003, to be considered for inclusion in Ticketmaster's proxy statement and form of proxy relating to that meeting. Ticketmaster anticipates that, if the merger is not completed, the 2003 annual meeting of stockholders will take place on or about May 22, 2003.these statements.
The validity of the USA common stock being offered by this information statement/prospectus will be passed upon for USA by Wachtell, Lipton, Rosen & Katz of New York, New York. It is a condition to the consummation of the merger that USA receive an opinion from Wachtell, Lipton, Rosen & Katz, special counsel to USA, and that Ticketmaster receive an opinion from Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., special counsel to the special committee, each to the effect that, among other things, the merger will constitute a "reorganization" within the meaning of Section 368(a) of the Code. See "The Merger Agreement—Conditions to the Merger" and "The Merger—Material United States Federal Income Tax Consequences."
The consolidated financial statements of USA and its subsidiaries incorporated into this information statement/prospectus by reference to USA's Annual Report on Form 10-K, as amended by amendments No. 1 and 2 on Form 10-K/A, for the year ended December 31, 2001, have been incorporated by reference herein in reliance upon the report of Ernst & Young LLP, independent auditors, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Ticketmaster and its subsidiaries incorporated into this information statement/prospectus by reference to Ticketmaster's Annual Report on Form 10-K for the year ended December 31, 2001, have been incorporated by reference herein in reliance upon the report of Ernst & Young LLP, independent auditors, and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements and the related financial statement schedule incorporated in this information statement/prospectus by reference from Expedia, Inc.'s Transition Report on Form 10-K for the six-month period ended December 31, 2001, have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are incorporated herein by reference, and have so been incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
No person has been authorized to give any information or make any representation on behalf of USA or Ticketmaster not contained in this information statement/prospectus, and if given or made, such information or representation must not be relied upon as having been authorized. The information contained in this information statement/prospectus is accurate only as of the date of this information statement/prospectus and, with respect to material incorporated into this document by reference, the dates of such referenced material.
If you live in a jurisdiction where it is unlawful to offer to exchange or sell, or to ask for offers to exchange or buy, the securities offered by this document, or if you are a person to whom it is unlawful to direct these activities, then the offer presented by this document does not extend to you.
96
Appendix A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
USA INTERACTIVE
T MERGER CORP.
AND
TICKETMASTER
AS OF OCTOBER 9, 2002
A-i
A-iiF-48
INDEXUSA INTERACTIVE AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF DEFINED TERMSSTOCKHOLDERS' EQUITY
(Unaudited)
| | Total | Preferred Stock | Common Stock | Class B Convertible Common Stock | Addit. Paid-in Capital | Retained Earnings | Accum. Other Comp. Income | Treasury Stock | Note Receivable From Key Executive for Common Stock Issuance | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||||||||||||||
| Balance as of December 31, 2001 | $ | 3,945,501 | $ | — | $ | 3,147 | $ | 630 | $ | 3,918,401 | $ | 181,267 | $ | (11,605 | ) | $ | (141,341 | ) | $ | (4,998 | ) | |||||||
| Comprehensive income: | ||||||||||||||||||||||||||||
| Net income for the nine months ended September 30, 2002 | 1,804,986 | — | — | — | — | 1,804,986 | — | — | — | |||||||||||||||||||
| Increase in unrealized gains in available for sale securities | 3,767 | — | — | — | — | — | 3,767 | — | — | |||||||||||||||||||
| Foreign currency translation | 19,612 | — | — | — | — | — | 19,612 | — | — | |||||||||||||||||||
| Comprehensive income | 1,828,365 | |||||||||||||||||||||||||||
| Issuance of securities in connection with the Expedia transaction | 1,497,894 | 131 | 206 | — | 1,497,557 | — | — | — | — | |||||||||||||||||||
| Issuance of common stock upon exercise of stock options | 122,151 | — | 78 | — | 122,073 | �� | — | — | — | |||||||||||||||||||
| Income tax benefit related to stock options exercised | 25,428 | — | — | — | 25,428 | — | — | — | — | |||||||||||||||||||
| Issuance of stock in connection with other transactions | 59,141 | — | 22 | — | 59,119 | — | — | — | — | |||||||||||||||||||
| Issuance of stock for LLC Exchange | 178,650 | — | 71 | — | 178,579 | — | — | — | — | |||||||||||||||||||
| Issuance of stock for Holdco Exchange | 750,695 | — | 316 | 16 | 750,363 | — | — | — | — | |||||||||||||||||||
| Securities issued in VUE transaction | 810,873 | — | — | — | 810,873 | — | — | — | — | |||||||||||||||||||
| Common stock exchangeable for preferred interest | (1,428,530 | ) | — | — | — | (1,428,530 | ) | — | — | — | — | |||||||||||||||||
| Dividend on preferred stock | (8,495 | ) | — | — | — | — | (8,495 | ) | — | — | — | |||||||||||||||||
| Purchase of treasury stock | (5,456 | ) | — | (2 | ) | — | — | — | — | (5,454 | ) | — | ||||||||||||||||
| Balance as of September 30, 2002 | $ | 7,776,217 | $ | 131 | $ | 3,838 | $ | 646 | $ | 5,933,863 | $ | 1,977,758 | $ | 11,774 | $ | (146,795 | ) | $ | (4,998 | ) | ||||||||
A-iii Accumulated other comprehensive income is comprised of unrealized (losses) gains on available for sale securities of $3,806 and $39 as of September 30, 2002 and December 31, 2001, respectively, and foreign currency translation adjustments of $7,968 and $(11,644) as of September 30, 2002 and December 31, 2001, respectively.
A-iv Comprehensive loss for the three months ended September 30, 2002 was $(31,622).
The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
F-49
AGREEMENTUSA INTERACTIVE AND PLANSUBSIDIARIES
CONSOLIDATED STATEMENTS OF MERGERCASH FLOWS
(Unaudited)
| | Nine Months Ended September 30, | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | |||||||
| | (In Thousands) | ||||||||
| Cash flows from operating activities: | |||||||||
| Loss from continuing operations before cumulative effect of accounting change | $ | (140,739 | ) | $ | (140,358 | ) | |||
| Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||||
| Amortization of non-cash distribution and marketing | 27,485 | 19,866 | |||||||
| Amortization of non-cash compensation expense | 10,199 | 5,431 | |||||||
| Amortization of cable distribution fees | 38,679 | 29,384 | |||||||
| Amortization of deferred financing costs | 2,208 | 1,149 | |||||||
| Depreciation and amortization | 241,917 | 320,043 | |||||||
| Goodwill impairment | 22,247 | — | |||||||
| Deferred income taxes | 6,974 | 4,945 | |||||||
| Equity in losses of unconsolidated affiliates | 132,807 | 22,021 | |||||||
| Non-cash interest income | (13,538 | ) | (3,396 | ) | |||||
| Minority interest expense | 17,964 | (82,765 | ) | ||||||
| Non-cash restructuring charge | 36,908 | 6,248 | |||||||
| Changes in current assets and liabilities: | |||||||||
| Accounts receivable | 46,861 | 9,804 | |||||||
| Inventories | (12,141 | ) | 4,490 | ||||||
| Accounts payable | 53,393 | 3,357 | |||||||
| Accrued liabilities and deferred revenue | (8,122 | ) | 11,223 | ||||||
| Increase in cable distribution fees | (34,874 | ) | (18,511 | ) | |||||
| Other, net | 25,986 | 6,698 | |||||||
| Net Cash Provided By Operating Activities | 454,214 | 199,629 | |||||||
| Cash flows from investing activities: | |||||||||
| Acquisitions and deal costs, net of cash acquired | (551,570 | ) | (191,474 | ) | |||||
| Capital expenditures | (110,897 | ) | (89,575 | ) | |||||
| Recoupment of advance to Universal | 39,422 | 58,698 | |||||||
| (Increase) decrease in long-term investments and notes receivable | 23,953 | (76,707 | ) | ||||||
| Purchase of marketable securities, net of redemptions | (2,340,791 | ) | (21,373 | ) | |||||
| Proceeds from VUE transaction | 1,618,710 | — | |||||||
| Proceeds from sale of broadcast stations | 589,625 | 510,374 | |||||||
| Other, net | (18,628 | ) | (21,626 | ) | |||||
| Net Cash Provided By Investing Activities | (750,176 | ) | 168,317 | ||||||
| Cash flows from financing activities: | |||||||||
| Borrowings | 22,972 | 21,974 | |||||||
| Principal payments on long-term obligations | (63,074 | ) | (11,941 | ) | |||||
| Purchase of treasury stock | (5,456 | ) | (1,401 | ) | |||||
| Payment of mandatory tax distribution to LLC partners | (154,083 | ) | (17,369 | ) | |||||
| Proceeds from sale of subsidiary stock | 57,179 | 10,447 | |||||||
| Proceeds from issuance of common stock and LLC shares | 129,341 | 73,052 | |||||||
| Dividend | (6,922 | ) | — | ||||||
| Other, net | (157 | ) | (10,437 | ) | |||||
| Net Cash (Used In) Provided By Financing Activities | (20,200 | ) | 64,325 | ||||||
| Net Cash Provided By Discontinued Operations | 5,351 | 226,691 | |||||||
| Effect of exchange rate changes on cash and cash equivalents | 7,847 | (3,426 | ) | ||||||
| Net Increase In Cash and Cash Equivalents | (302,964 | ) | 655,536 | ||||||
| Cash and cash equivalents at beginning of period | 978,377 | 244,223 | |||||||
| Cash And Cash Equivalents at End of Period | $ | 675,413 | $ | 899,759 | |||||
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is dated as of October 9, 2002, by and amongUSA INTERACTIVE, a Delaware corporation ("Parent"),T MERGER CORP., a Delaware corporation and a wholly owned subsidiary of Parent ("Sub"), andTICKETMASTER, a Delaware corporation (the "Company").
A. The Executive Committee of the Board of Directors of Parent and the Boards of Directors of Sub and the Company each have approved the terms and conditions of the business combination between Parent and the Companyaccompanying Notes to be effected by the merger of Sub with and into the Company (the "Merger"), pursuant to the terms and subject to the conditions of this Agreement and the General Corporation Law of the State of Delaware (the "Delaware Statute"), and each deems the Merger advisable and in the best interests of their respective stockholders. A Special Committee of the Board of Directors of the Company (the "Special Committee") has determined that the Merger is fair to, and in the best interests of, the holders of shares of Class A common stock, $.01 par value, of the Company ("Company Class A Common Stock") and the holders of shares of Class B common stock, $.01 par value, of the Company ("Company Class B Common Stock," and together with the Class A Common Stock, "Company Common Stock"), other than Parent and its subsidiaries, and has recommended to the Board of Directors of the Company that it approve the terms and conditions of the Merger, including this Agreement.
B. Each of Parent, Sub and the Company desires to make certain representations, warranties, covenants and agreements in connection with the Merger.
C. For U.S. federal income tax purposes, it is intended that the Merger and the transactions contemplated thereby qualify as a reorganization under the provisions of Section 368(a) of the United States Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and mutual covenants and agreements contained in this Agreement, the parties hereto agree as follows:
Section 1.1. The Merger. Upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware Statute, at the Effective Time, Sub shall be merged with and into the Company. Following the Merger, the Company shall continue as the surviving corporation (the "Surviving Corporation") and the separate corporate existence of Sub shall cease. Sub and the CompanyConsolidated Financial Statements are collectively referred to as the "Constituent Corporations."
Section 1.2. Effective Time of the Merger. Subject to the provisions of this Agreement, the Merger shall become effective (the "Effective Time") upon the filing of a properly executed certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in accordance with the Delaware Statute, or at such later time as agreed to by the parties and set forth in the Certificate of Merger.
Section 1.3. Closing. Unless this Agreement shall have been terminated pursuant to Section 7.1, the closing of the Merger (the "Closing") will take place at 10:00 a.m. on a date (the "Closing Date") to be mutually agreed upon by the parties hereto, which date shall be no later than the third Business Day after satisfaction of the latest to occur of the conditions set forth in Article 6 (other than those conditions that by their terms are to be satisfied at the Closing), unless another date is agreed to in
A-1
writing by the parties hereto. The Closing shall take place at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, unless another place is agreed to in writing by the parties hereto. "Business Day" shall mean any day, other than a Saturday, Sunday or legal holiday on which banks are permitted to close in the City and State of New York.
Section 1.4. Effects of the Merger. At the Effective Time: (a) the separate existence of Sub shall cease and Sub shall be merged with and into the Company, with the result that the Company shall be the Surviving Corporation, and (b) the Merger shall have all of the effects provided by the Delaware Statute.
Section 1.5. Certificate of Incorporation and Bylaws of Surviving Corporation; Directors and Officers. At the Effective Time, (a) the Certificate of Incorporation of the Company shall be amended so as to read in its entirety in the form set forth asExhibit A hereto, and, as so amended, until thereafter and further amended as provided therein and under the Delaware Statute it shall be the Certificate of Incorporation of the Surviving Corporation, (b) the Bylaws of Sub shall become the Bylaws of the Surviving Corporation until altered, amended or repealed as provided under the Delaware Statute or in the Certificate of Incorporation or Bylaws of the Surviving Corporation, (c) the directors of Sub shall become the initial directors of the Surviving Corporation, such directors to hold office from the Effective Time until their respective successors are duly elected or appointed as provided in the Certificate of Incorporation and Bylaws of the Surviving Corporation, and (d) the officers of the Company shall continue as the officers of the Surviving Corporation until such time as their respective successors are duly elected as provided in the Bylaws of the Surviving Corporation.
Section 1.6. Exchange of Embedded Shares for Shares of Company Preferred Stock Prior to the Effective Time, the Company shall file with the Secretary of State of the State of Delaware a properly executed certificate of designations (the "Certificate of Designations") in the form set forth asExhibit B hereto designating the powers, preferences, rights and qualifications, limitations and restrictions of the preferred stock, par value $0.01 per share, of the Company (the "Company Preferred Stock"). Immediately prior to the Effective Time, the Company shall cause all of the Embedded Shares to be exchanged for one share of Company Preferred Stock.
ARTICLE 2EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THECONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
Section 2.1. Effect of Merger on Capital Stock. At the Effective Time, subject and pursuant to the terms of this Agreement, by virtue of the Merger and without any action on thean integral part of the Constituent Corporations or the holders of any shares of capital stock of the Constituent Corporations:
(a) Capital Stock of Sub. Each issued and outstanding share of common stock, $.01 par value per share, of Sub ("Sub Common Stock"), shall be converted into and exchanged for a number of validly issued, fully paid and nonassessable shares of Class B common stock, $.01 par value per share, of the Surviving Corporation ("Surviving Corporation Class B Common Stock"), equal to the quotient obtained by dividing (i) the aggregate number of shares of Company Class A Common Stock and Company Class B Common Stock issued and outstanding immediately prior the Effective Time, excluding shares of Company Common Stock being converted into shares of Surviving Corporation Common Stock pursuant to Section 2.1(b) below, by (ii) 100, rounded to the nearest whole number of shares of Surviving Corporation Class B Common Stock.these statements.
(b) Treatment of Certain Company Shares. Each share of Company Common Stock that is owned by the Company as treasury stock, and each share of Company Common Stock that is owned by Parent or any wholly owned subsidiary of Parent, shall be cancelled and retired and shall cease to exist. The share of Company Preferred Stock that is owned directly or indirectly by a
A-2
wholly owned subsidiary of the Company shall be converted into and exchanged for 92,740,544 validly issued, fully paid and nonassessable shares of common stock, $.01 par value per share, of the Surviving Corporation ("Surviving Corporation Common Stock").
(c) Exchange Ratio for Company Common Stock. Each share of Company Class��A Common Stock and each share of Company Class B Common Stock issued and outstanding immediately prior to the Effective Time (other than shares of Company Class A Common Stock and shares of Company Class B Common Stock described in Section 2.1(b) and other than Dissenting Shares), shall, subject to Section 2.1(d), be converted into the right to receive 0.935 (the "Exchange Ratio") of a fully paid and nonassessable share of common stock, $.01 par value per share, of Parent ("Parent Common Stock") (the "Merger Consideration"). At the Effective Time, all such shares of Company Common Stock shall no longer be outstanding, and shall automatically be cancelled and retired and cease to exist, and each holder of a certificate representing any such shares of Company Common Stock shall cease to have any rights with respect thereto, except the right to receive the shares of Parent Common Stock to be issued in consideration therefor upon the surrender of such certificate in accordance with Section 2.2, without interest. No fractional shares of Parent Common Stock shall be issued; and, in lieu thereof, a cash payment shall be made pursuant to Section 2.2(e).
(d) Adjustment of Exchange Ratio for Dilution and Other Matters. If, between the date of this Agreement and the Effective Time, the outstanding shares of Parent Common Stock shall have been changed into a different number of shares or a different class by reason of any reclassification, recapitalization, reorganization, split-up, stock dividend (including any dividend or distribution of securities convertible into, or exercisable or exchangeable for, Parent Common Stock), stock combination, exchange of shares, readjustment or otherwise, as the case may be, then the Exchange Ratio and the Merger Consideration shall be correspondingly adjusted.
Section 2.2. Exchange of Certificates.
(a) Exchange Agent. Prior to the Closing Date, Parent shall select a bank or trust company reasonably acceptable to the Company to act as exchange agent in the Merger (the "Exchange Agent"). Prior to the Effective Time, Parent shall deposit with the Exchange Agent, for the benefit of the holders of shares of Company Common Stock, for exchange in accordance with this Article 2, certificates representing the shares of Parent Common Stock (such shares of Parent Common Stock, together with any dividends or distributions with respect thereto, the "Exchange Fund") issuable pursuant to Section 2.1(c) at the Effective Time in exchange for outstanding shares of Company Common Stock, which shall include such shares of Parent Common Stock to be sold by the Exchange Agent pursuant to Section 2.2(e).
(b) Exchange Procedures. As soon as practicable after the Effective Time (but in any event within ten Business Days after the Effective Time), Parent shall cause the Exchange Agent to mail to each holder of record (other than the Company, Parent, Sub and any wholly owned subsidiary of the Company) of a certificate or certificates that immediately prior to the Effective Time represented issued and outstanding shares of Company Common Stock (collectively, the "Certificates") whose shares were converted into the right to receive Parent Common Stock pursuant to Section 2.1(c), (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent and the Company may reasonably specify) and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificates representing Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with a duly executed letter of transmittal and such other documents as may be reasonably required by the Exchange Agent, the holder of such Certificate shall be entitled to receive in exchange therefor a certificate representing
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that number of whole shares of Parent Common Stock which such holder has the right to receive pursuant to the provisions of this Article 2 and any cash in lieu of fractional shares of Parent Common Stock, and the Certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of shares of Company Common Stock which is not registered on the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock and any cash in lieu of fractional shares of Parent Common Stock may be issued and paid to a transferee if the Certificate representing such Company Common Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer and by evidence that any applicable stock transfer taxes have been paid. Until surrendered as contemplated by this Section 2.2, each Certificate shall be deemed, from and after the Effective Time, to represent only the right to receive upon such surrender the certificate representing shares of Parent Common Stock and cash in lieu of any fractional shares of Parent Common Stock as contemplated by this Article 2 and the Delaware Statute. The consideration to be issued in the Merger will be delivered by the Exchange Agent as promptly as practicable following surrender of a Certificate and any other required documents. No interest will be payable on such consideration, regardless of any delay in making payments.
(c) Distributions with Respect to Unsurrendered Certificates. No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate with respect to the shares of Parent Common Stock represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.2(e) until the holder of record of such Certificate shall surrender such Certificate. Subject to the effect, if any, of applicable laws, following surrender of any such Certificate, there shall be paid to the record holder of the certificates representing whole shares of Parent Common Stock issued in exchange therefor or such holder's transferee pursuant to Section 2.2(e), without interest, (i) at the time of such surrender, the amount of any cash payable in lieu of a fractional share of Parent Common Stock to which such holder is entitled pursuant to Section 2.2(e) and the amount of dividends or other distributions on Parent Common Stock with a record date after the Effective Time theretofore paid with respect to such whole shares of Parent Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions on Parent Common Stock with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of Parent Common Stock.
(d) No Further Ownership Rights in Company Common Stock. All shares of Parent Common Stock issued upon the surrender for exchange of shares of Company Common Stock in accordance with the terms of this Article 2 (plus any cash paid pursuant to Section 2.2(c) or 2.2(e)) shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to such shares of Company Common Stock. From and after the Effective Time, the stock transfer books of the Company shall be closed with respect to the shares of Company Common Stock, and there shall be no further registration of transfers on the stock transfer books of the Company or the Surviving Corporation of the shares of Company Common Stock that were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be cancelled and exchanged as provided in this Article 2.
(e) No Issuance of Fractional Shares.
(i) No certificates or scrip for fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates, and such fractional share interests will not entitle the owner thereof to vote or to any rights of a stockholder of Parent.
(ii) As promptly as practicable following the Effective Time, the Exchange Agent shall determine the excess of (A) the number of full shares of Parent Common Stock delivered to the
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Exchange Agent by Parent pursuant to Section 2.2(a) over (B) the aggregate number of full shares of Parent Common Stock to be distributed to holders of Company Common Stock pursuant to Section 2.2(b) (such excess, the "Excess Shares"). As soon after the Effective Time as practicable, the Exchange Agent, as agent for the holders of Company Common Stock, shall sell the Excess Shares at then prevailing prices in the over-the-counter market, all in the manner provided in clause (iii) of this Section 2.2(e).
(iii) The sale of the Excess Shares by the Exchange Agent shall be executed in the over-the-counter market through one or more member firms of the National Association of Securities Dealers, Inc. (the "NASD") and shall be executed in round lots to the extent practicable. Until the net proceeds of such sale or sales have been distributed to the holders of Company Common Stock, the Exchange Agent will hold such proceeds in trust for the holders of Company Common Stock (the "Common Shares Trust"). Parent shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent incurred in connection with such sale of the Excess Shares. The Exchange Agent shall determine the portion of the Common Shares Trust to which each holder of Company Common Stock shall be entitled, if any, by multiplying the amount of the aggregate net proceeds comprising the Common Shares Trust by a fraction, the numerator of which is the amount of the fractional share interest to which such holder of Company Common Stock is entitled and the denominator of which is the aggregate amount of fractional share interests to which all holders of Company Common Stock are entitled.
(iv) As soon as practicable after the determination of the amount of cash, if any, to be paid to the holders of Company Common Stock in lieu of any fractional share interests and subject to clause (v) of this Section 2.2(e), the Exchange Agent shall make available such amounts to such holders of Company Common Stock.
(v) Parent or the Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant to this Agreement to any holder of shares of Company Common Stock such amounts as Parent or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by Parent or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the shares of Company Common Stock in respect of which such deduction and withholding was made by Parent or the Exchange Agent.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund and Common Shares Trust that remains undistributed to the stockholders of the Company for 12 months after the Effective Time shall be delivered to Parent, upon demand, and any former stockholders of the Company that have not theretofore complied with this Article 2 shall thereafter look only to Parent for payment of their claim for Parent Common Stock, any cash in lieu of fractional shares of Parent Common Stock and any dividends or distributions with respect to Parent Common Stock.
(g) Dissenting Shares. Notwithstanding anything to the contrary in this Agreement, shares of Company Class A Common Stock which are outstanding immediately prior to the Effective Time and are held by stockholders who have not voted in favor of the Merger or consented thereto in writing and who have demanded appraisal rights with respect thereto in accordance with Section 262 of the Delaware Statute (the "Dissenting Shares") shall not be converted into or be exchangeable for the right to receive shares of Parent Common Stock in accordance with Section 2.1(c), but holders of such shares shall be entitled to receive payment of the appraised value of such shares in accordance with the provisions of such Section 262, except that any Dissenting Shares held by a stockholder who shall thereafter withdraw such demand for appraisal of such shares or lose the right to appraisal as provided in Section 262 shall thereupon be deemed to have been converted into and to have become
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exchangeable for, at the Effective Time, the Merger Consideration, without any interest thereon. The Company shall give Parent (i) prompt notice of any written demands for appraisal of any shares of Company Class A Common Stock, attempted withdrawals of such demands, and any other instruments served pursuant to the Delaware Statute received by the Company relating to stockholders' rights of appraisal, and (ii) the opportunity to direct all negotiations and proceedings with respect to demands for appraisals under the Delaware Statute. The Company shall not, except with the prior written consent of Parent, voluntarily make any payment with respect to any demands for appraisals of Company Class A Common Stock, offer to settle or settle any such demands or approve any withdrawal of any such demands. All payments to holders of Dissenting Shares shall be paid by the Company out of its own funds, and no funds shall be supplied directly or indirectly by Parent for that purpose.
(h) No Liability. Neither the Exchange Agent, Parent, Sub nor the Company shall be liable to any holder of shares of Company Common Stock or Parent Common Stock, as the case may be, for shares (or dividends or distributions with respect thereto) from the Exchange Fund or cash from the Common Shares Trust delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
(i) Lost, Stolen or Destroyed Certificates. In the event any Certificates shall have been lost, stolen or destroyed, the holder of such lost, stolen or destroyed Certificates shall execute an affidavit of that fact upon request. The holder of any such lost, stolen or destroyed Certificates shall also deliver a reasonable indemnity against any claim that may be made against Parent or the Exchange Agent with respect to the Certificates alleged to have been lost, stolen or destroyed. The affidavit and any indemnity that may be required hereunder shall be delivered to the Exchange Agent, who shall be responsible for making payment for such lost, stolen or destroyed Certificate(s).
Section 2.3. Stock Compensation Awards.
(a) At the Effective Time, the Company's obligation with respect to each option (each, a "Company Option") to purchase shares of Company Common Stock issued pursuant to the Company's 1999 Stock Plan, 1998 Stock Option Plan, 1996 Stock Option Plan and the TicketWeb, Inc. 2000 Stock Plan, as amended (collectively, the "Stock Plans") that is outstanding immediately prior to the Effective Time, shall be assumed by Parent. The Company Options so assumed by Parent shall continue to have, and be subject to, the same terms and conditions as set forth in the applicable Stock Plan and the agreements pursuant to which such Company Options were issued as in effect immediately prior to the Effective Time, which Stock Plan and agreements shall be assumed by Parent, except that (in accordance with the applicable provisions of such Stock Plan) (a) each such Company Option shall be exercisable for that number of shares of Parent Common Stock equal to the product of (i) the number of shares of Company Common Stock subject to such Company Option immediately prior to the Effective Time and (ii) the Exchange Ratio, rounded to the nearest whole number of shares of Parent Common Stock, and (b) the exercise price per share of Parent Common Stock shall be equal to the quotient of (x) the exercise price per share of Company Common Stock immediately prior to the Effective Time and (y) the Exchange Ratio. The adjustment provided herein with respect to any Company Options that are "Incentive Stock Options" (as defined in Section 422 of the Code) shall be and is intended to be effected in a manner that is consistent with Section 424(a) of the Code. Parent shall reserve for issuance the number of shares of Parent Common Stock that will become issuable upon the exercise of such Company Options pursuant to this Section 2.3.
(b) At the Effective Time, the Company's obligation with respect to each award of Company Common Stock granted under the Stock Plans that is subject to restrictions on vesting or transfer or subject to a repurchase right (each, a "Restricted Stock Award") that is outstanding immediately prior to the Effective Time shall be assumed by Parent. The Restricted Stock Awards so assumed by Parent shall continue to have, and be subject to, the same terms and conditions as set forth in the applicable Stock Plan and the agreements pursuant to which such Restricted Stock Awards were issued as in
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effect immediately prior to the Effective Time, which Stock Plans and agreements shall be assumed by Parent, except that (in accordance with the applicable provisions of such Stock Plan) each Restricted Stock Award shall be converted into a number of shares of Parent Common Stock equal to the product of (i) the number of shares of Company Common Stock subject to such Restricted Stock Award immediately prior to the Effective Time and (ii) the Exchange Ratio, rounded to the nearest whole number of shares of Parent Common Stock.
(c) Promptly following the Effective Time (and in any event not later than 2 Business Days following the Effective Time), Parent shall file a registration statement on Form S-8 (or any successor or, including if Form S-8 is not available, other appropriate forms) with respect to the shares of Parent Common Stock subject to such options or restricted stock awards assumed by Parent in accordance with Sections 2.3(a) and (b) and shall maintain the effectiveness of such registration statement or registration statements (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such options or restricted stock awards remain outstanding.
(d) All stock options and restricted stock awards previously granted to directors, officers, employees and consultants of the Company and its subsidiaries under stock plans of Parent and outstanding immediately prior to the Effective Time will, upon completion of the Merger, remain outstanding and in full force and effect, subject to their existing terms and conditions.
Section 2.4. Further Assurances. If, at any time after the Effective Time, any such further action is necessary or desirable to carry out the purposes of this Agreement, or to vest, perfect or confirm of record or otherwise establish in the Surviving Corporation full right, title and interest in, to or under any of the assets, property, rights, privileges, powers and franchises of the Company and Sub, the officers and directors of the Surviving Corporation are fully authorized in the name and on behalf of each of the Constituent Corporations or otherwise to take all such lawful and reasonably necessary or desirable action.
Section 2.5. Company Warrants. To the extent expressly required by the terms of any warrant to acquire shares of Company Common Stock (each, a "Company Warrant"), at the Effective Time, the Company's obligation with respect to each such Company Warrant outstanding and unexercised immediately prior to the Effective Time shall be assumed by Parent. The Company Warrants so assumed by Parent shall continue to have, and be subject to, the same terms and conditions as set forth in the applicable warrant agreements as in effect immediately prior to the Effective Time, except that (in accordance with, and without duplication of, the provisions set forth in the applicable warrant agreement) (a) each such Company Warrant shall be exercisable solely for a number of shares of Parent Common Stock equal to the product of (i) the number of shares of Company Common Stock subject to such Company Warrant immediately prior to the Effective Time and (ii) the Exchange Ratio, rounded to the nearest whole number of shares of Parent Common Stock, and (b) the exercise price with respect to each such Company Warrant shall be appropriately adjusted.
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ARTICLEUSA INTERACTIVE AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—ORGANIZATION
USA Interactive ("USA" or the "Company") (Nasdaq: USAI) consists of Home Shopping Network (including HSN International and HSN.com); Ticketmaster (Nasdaq: TMCS), which operates Ticketmaster, Ticketmaster.com, Citysearch and Match.com; Hotels.com (formerly Hotel Reservations Network) (Nasdaq: ROOM); Expedia, Inc. (Nasdaq: EXPE); Interval International, Inc. ("Interval"); TV Travel Shop, which is based in the UK selling packaged vacations primarily over the television ("TVTS"); Precision Response Corporation ("PRC"); and Electronic Commerce Solutions and Styleclick (OTCBB: IBUYA). Through May 7, 2002, USA also included the USA Entertainment Group, which consists of USA Cable, including USA Network and Sci Fi Channel and Emerging Networks TRIO and Newsworld International; Studios USA, which produces and distributes television programming; and USA Films, which produces and distributes films. USA Entertainment was contributed to a joint venture with Vivendi Universal, S.A. ("Vivendi") called Vivendi Universal Entertainment LLLP ("VUE") (the "VUE Transaction") on May 7, 2002 and the results of operations and statement of position of the USA Entertainment Group are presented as discontinued operations for all periods presented. See Note 8 for further discussion of the VUE Transaction.
On February 4, 2002, USA completed its acquisition of a controlling interest in Expedia, Inc. ("Expedia") through a merger of one of its subsidiaries with and into Expedia. See Note 3 below for further discussion.
In connection with the VUE Transaction, shares of USANi LLC held by Liberty Media Corporation ("Liberty") were exchanged for 7.1 million USA shares, with the remaining approximately 320.9 million USANi LLC shares held by Vivendi (including USANi shares obtained from Liberty) cancelled.
On June 27, 2002, the Company and Liberty completed the exchange of Liberty's Home Shopping Network ("Holdco") shares, with the Company issuing an aggregate of 31.6 million shares of Common Stock and 1.6 million shares of Class B Common Stock. Therefore, at this time USA owns 100% of USANi LLC and Holdco. Previously, USA maintained control and management of Holdco and USANi LLC, and managed the businesses held by USANi LLC, in substantially the same manner, as they would be if USA held them directly through wholly owned subsidiaries.
On September 24, 2002, the Company completed its acquisition of Interval for approximately $533 million in cash, subject to a working capital adjustment. Miami-based Interval, a leading membership-services company providing timeshare exchange and other value-added programs to its timeshare-owner consumer members and resort developers.
HSE-Germany and HOT Networks
As previously disclosed, HSN entered into various transactions with its European partners, Georg Kofler and Thomas Kirch, to increase HSN's ownership in its European operations. The transactions were largely completed during the third quarter, and the total purchase price was approximately $100 million. As a result of the transactions, HSN increased its ownership interest to 100% of HOT Networks and approximately 90% of HSE-Germany, with Quelle owning the remainder. HOT Networks' principal assets are its direct and indirect interests in EUVÍA Media AG & Co. KG ("EUVÍA"), a German limited partnership, and HSE-Italy. As discussed below, the Company recorded a write-down of $31.4 million in the third quarter of 2002 related to HSE-Italy. HOT Networks holds a
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48.6% limited partnership interest in EUVÍA, which in turn, through certain subsidiaries, operates two businesses, "Neun Live," a game show oriented TV channel, and "Travel TV," a travel oriented shopping TV channel under the brand name "Sonnenklar." In connection with the partnership formed to operate these businesses, HOT Networks has undertaken to fund 100% of the cash requirements and operating losses up to Euro 179 million, with the funding obligations terminating if EUVÍA remains profitable for two consecutive fiscal years. Through September 30, 2002, HOT Networks has funded EUVÍA with approximately Euro 59 million. HOT Networks expects an additional Euro 10 million of funding may be required prior to EUVÍA achieving profitability for two consecutive fiscal years. In the event EUVÍA's current business plan is revised to require additional funding to achieve profitability for two consecutive years, HOT Networks may have additional contractual rights exercisable on or after June 30, 2003 that reduce its ongoing funding obligations below Euro 179 million assuming it has met certain funding thresholds as of June 30, 2003. Although it is not expected that these additional contractual rights will prove relevant in light of EUVÍA's current business plan, HOT Networks continues to actively monitor EUVÍA's funding requirements.
USA has classified $115.7 million of redeemable equity interests issued by EUVIA as minority interest. The redeemable equity interests are due in 2006, but EUVÍA has the right to extend maturity to 2016 based on meeting certain financial covenants. The amount is only due to the holder under German law to the extent sufficient funds in excess of fixed share capital at EUVÍA are available.
HOT Networks has a voting arrangement in place with Christiane zu Salm, who holds a 3% stake in EUVÍA that obligates her to vote with HSN. This voting arrangement, plus HSN's 48.6% ownership, serves as the basis for HSN's consolidation of EUVÍA in its financial statements. It is also expected that HOT Networks will convey to Georg Kofler a 3% interest in EUVÍA, in which case HSN's effective stake in EUVÍA would be reduced to 45.6%. In such event, HSN and Kofler have agreed to long-term voting arrangements (similar to the zu Salm arrangements) that would continue to support consolidation of EUVÍA absent new circumstances. ProSiebenSat owns the remaining 48.4% stake in EUVÍA.
During the third quarter of 2002, the Company decided to discontinue its active majority interest in HSE-Italy and wrote down its investment in Italy, resulting in a non-recurring charge of $31.4 million. On November 13, 2002, the Company entered into an agreement with Convergenza, its current partner, to sell Convergenza a substantial stake in the Italian home shopping business, leaving the Company with a passive minority interest of 35% without any funding obligations or ability to significantly influence the operations of the business. This 35% interest may be further decreased if and when additional partners or investors are brought into the business.
Basis of Presentation
The Company representsinterim Consolidated Financial Statements and warrants to Parent and Sub as follows:
Section 3.1. Organization and Qualification. EachNotes thereto of the Company are unaudited and its "Significant Subsidiaries" (as definedshould be read in Regulation S-X promulgatedconjunction with the audited Consolidated Financial Statements and Notes thereto for the twelve months ended December 31, 2001.
In the opinion of the Company, all adjustments necessary for a fair presentation of such Consolidated Financial Statements have been included. Such adjustments consist of normal recurring items. Interim results are not necessarily indicative of results for a full year. The interim Consolidated
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Financial Statements and Notes thereto are presented as permitted by the Securities and Exchange Commission (the "SEC") and which are referred to herein asdo not contain certain information included in the "Significant Subsidiaries") is a corporation or other entity duly incorporated or organized, validly existingCompany's audited Consolidated Financial Statements and as applicable, in good standing under the laws of the jurisdiction of its incorporation or organization, and has the requisite corporate or other power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. EachNotes thereto.
Accounting Estimates
Management of the Company is required to make certain estimates and its Significant Subsidiaries isassumptions during the preparation of consolidated financial statements in possessionaccordance with generally accepted accounting principles. These estimates and assumptions impact the reported amount of all franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvalsassets and orders necessary to own, leaseliabilities and operate the properties it purports to own, operate or leasedisclosures of contingent assets and to carry on its business as it is now being conducted, except where the failure to have such franchises, grants, authorizations, licenses, permits, easements, consents, certificates, approvals and orders would not, individually or in the aggregate, have a Company Material Adverse Effect. Each of the Company and its subsidiaries is, as applicable, duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so duly qualified or licensed and in good standing that would not, either individually or in the aggregate, have a Company Material Adverse Effect. "Company Material Adverse Effect" shall mean any change, event or effect that is materially adverse to the business, financial condition or results of operations of the Company and its subsidiaries taken as a whole, excluding (i) any changes or effects resulting from any matter, which matter was expressly approved by the Board of Directors of the Company following the date hereof unless, with respect to such matter, the directors of the Company who are also executive officers of Parent either voted against or abstained from voting (such matter and related contemplated transactions, an "Approved Matter"), (ii) changes in economic or regulatory conditions in the industries in which the Company carries on businessliabilities as of the date hereof,of the consolidated financial statements. They also impact the reported amount of net earnings during any period. Actual results could differ from those estimates.
Significant estimates underlying the accompanying consolidated financial statements include the inventory carrying adjustment, sales return and other revenue allowances, allowance for doubtful accounts, recoverability of intangibles and other long-lived assets, estimates of film revenue ultimates (included in discontinued operations), program rights and film cost amortization (included in discontinued operations), and various other operating allowances and accruals.
New Accounting Pronouncements
Accounting for Goodwill and Other Intangible Assets
Effective January 1, 2002, USA adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Accounting for Goodwill and Other Intangible Assets." The new rules eliminate amortization of goodwill and other intangible assets with indefinite lives and establish new measurement criterion for these assets. Goodwill amortization recorded in continuing operations in the three and nine months ended September 30, 2001 was $54.6 million and $161.1 million, respectively. Goodwill amortization recorded in discontinued operations in the three and nine months ended September 30, 2001 was $29.9 million and $98.0 million, respectively. As previously discussed in USA's Form 10-Q for the quarter ended March 31, 2002, USA recorded a write-off before tax and minority interest of $499 million related to the Citysearch and PRC businesses as a cumulative effect of accounting change. Although Citysearch and PRC are expected to generate positive cash flows in the future, due to cash flow discounting techniques to estimate fair value as required by the new rules, the future estimated discounted cash flows did not support current carrying values at the time of the evaluation on January 1, 2002. The Citysearch write-off was $115 million, and the PRC write-off was $384 million.
Adoption of the new standard resulted in a one-time, non-cash after-tax, after minority interest expense of $461.4 million. The expense is reflected as a cumulative effect of an accounting change in the accompanying consolidated statement of operations as of January 1, 2002. See Note 6 for additional information regarding goodwill.
In addition, in the second quarter of 2002, USA recorded a further write-down of $22.2 million related to PRC. The write-down resulted from contingent purchase price recorded in the second quarter.
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Impairment or Disposal of Long-Lived Assets
The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", during the three months ended March 31, 2002. This statement supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed Of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions", for the disposal of a segment of a business (as previously defined in that opinion). SFAS No. 144 established a single accounting model, based on the framework established in SFAS No. 121 for long-lived assets to be disposed of for sale. It retains the fundamental provisions of SFAS No. 121 for (a) recognition and measurement of the impairment of long-lived assets to be held and used and (b) measurement of long-lived assets to be disposed of by sale.
During the third quarter of 2002, the Company decided to discontinue its active majority interest in HSE-Italy and wrote down its investment in Italy, resulting in a non-recurring charge of $31.4 million.
Accounting by Producers or Distributors of Films (Discontinued Operations)
The Company adopted Statements of Position No. 00-2, "Accounting by Producers or Distributors of Films" ("SOP 00-2") during the three months ended March 31, 2001. SOP 00-2 established new film accounting standards, including changes in general economic, regulatory or political conditions, including, without limitation, actsrevenue recognition and accounting for advertising, development and overhead costs. Specifically, SOP 00-2 requires advertising costs for theatrical and television product to be expensed as incurred. This compares to the Company's previous policy of war or terrorism,first capitalizing these costs and (iii) changes resultingthen expensing them over the related revenue streams. In addition, SOP 00-2 requires development costs for abandoned projects and certain indirect overhead costs to be charged directly to expense, instead of those costs being capitalized to film costs, which was required under the previous accounting rules. SOP 00-2 also requires all film costs to be classified in the balance sheet as non-current assets. Provisions of SOP 00-2 in other areas, such as revenue recognition, generally are consistent with the Company's existing accounting policies.
SOP 00-2 was adopted as of January 1, 2001, and the Company recorded a one-time, non-cash after-tax expense of $9.2 million related to the entertainment assets that were contributed to VUE. The expense is reflected as a cumulative effect of an accounting change in the accompanying consolidated statement of operations.
Rescission of SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt"
In April 2002, the announcementFASB issued SFAS No. 145, Rescission of SFAS No. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections. SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt", and an amendment of that Statement, SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". Under SFAS No. 4, all gains and losses from extinguishment of debt were required to be aggregated and, if material, classified as an extraordinary item. The rescission of SFAS No. 4 stipulates that gains and losses from extinguishment of debt should be classified as extraordinary items only if they meet the criteria in Accounting
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Principles Board Opinion No. 30, "Reporting the Results of Operations Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions".
During the second quarter of 2002, the Company adopted SFAS No. 145. On May 31, 2002, the Company fully redeemed the unsecured $37,782,000 aggregate principal amount of 7% Convertible Subordinated Debentures due July 1, 2003 (the "Savoy Debentures"). In connection with this redemption, the Company recorded a loss of $2.0 million, which was recorded as interest expense.
Reclassifications
Certain amounts in the prior years' consolidated financial statements have been reclassified to conform to the 2002 presentation. The statements of operations, balance sheets and statements of cash flows of USA Entertainment have been classified as discontinued operations for all periods presented. See Note 9 for further discussion of discontinued operations.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
See the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as amended, for a summary of all significant accounting policies. The following discussion relates to significant matters relating to accounting policies since the Annual Report on Form 10-K was filed.
Revenue Presentation for Merchant Hotel Business
As reported in the Company's press release dated July 24, 2002, the Company has chosen to discuss the revenue presentation of Hotels.com and Expedia with the SEC, as Hotels.com accounts for merchant hotel revenue on a gross basis and Expedia on a net basis. The presentations are consistent with the respective management team's interpretation of the Transactionsaccounting rules, based on their respective facts and any other public announcementcircumstances, and each company's conclusions were reached in close consultation with their external auditors. USA is always striving to report its results in the most transparent and meaningful manner. The Company is discussing the issue with the SEC with the goal of Parentreaching a conclusion during the termfourth quarter. The Company believes the accounting models used by Expedia and Hotels.com continue to be appropriate based on their facts and circumstances. However, any change to the presentation of Expedia or Hotels.com will be limited to the presentation of revenue, cost of sales and operating margins, and will have no impact on the timing of revenue recognition (both defer revenue until the conclusion of the customer stay), gross profit, operating income, net income, earnings per share or cash flows.
Stock-Based Compensation
The Company announced its intention to account for stock-based compensation issued to employees in accordance with SFAS No. 123, "Accounting for Stock Based Compensation" ("FAS 123"). The Company will adopt FAS 123 as of January 1, 2003, in accordance with the requirements for the timing of adoption in the standard. If the Company had adopted FAS 123 as of January 1, 1994, the date the standard went into effect, net income would have been reduced by $80.3 million for the year ended December 31, 2001. However, going forward, the Company intends to
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issue restricted stock that will vest in future periods instead of stock options. For restricted stock issued, the accounting charge will be measured at the grant date and amortized ratably as non-cash compensation over the vesting term. At this time it is not possible to predict the effect of this Agreementcontemplated plan on net income.
NOTE 3—BUSINESS ACQUISITIONS
Expedia Transaction
On February 4, 2002, USA completed its acquisition of a controlling interest in Expedia through a merger of one of its subsidiaries with and into Expedia. Immediately following the merger, USA owned all of the outstanding shares of Expedia Class B common stock, representing approximately 64.2% of Expedia's outstanding shares, and 94.9% of the voting interest in Expedia. On February 20, 2002, USA acquired 936,815 shares of Expedia common stock, increasing USA's ownership to 64.6% of Expedia's the then outstanding shares, with USA's voting percentage remaining at 94.9%. In the merger, USA issued to former holders of Expedia common stock who elected to receive USA securities an aggregate of 20.6 million shares of USA common stock, 13.1 million shares of $50 face value 1.99% cumulative convertible preferred stock of USA and warrants to acquire 14.6 million shares of USA common stock at an exercise price of $35.10. Expedia trades on Nasdaq under the symbol "EXPE," the USA cumulative preferred stock trades on OTC under the symbol "USAIP" and the USA warrants trade on Nasdaq under the symbol "USAIW."
Pursuant to the extentterms of the USA/Expedia transaction documents, Microsoft Corporation, which beneficially owned 33,722,710 shares of Expedia common stock, elected to exchange all of its Expedia common stock for USA securities in the merger. Expedia shareholders who did not coveredreceive USA securities in anythe transaction retained their Expedia shares and received for each Expedia share held 0.1920 of a new Expedia warrant.
The aggregate purchase price, including transaction costs, was $1.5 billion.
The Expedia transaction has been accounted for under the purchase method of accounting by USA. The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their respective fair values at the date of purchase. USA obtained an independent valuation of the assets and liabilities acquired, including the identification of intangible assets other public announcementthan goodwill, which identified $545.0 million of intangible assets other than goodwill. The unallocated excess of acquisition costs over net assets acquired of $907.6 million was allocated to goodwill. Intangible assets without indefinite lives will be amortized over a period of 3 to 5 years, and include technology, distribution agreements, customer lists and supplier relationships. Assets and liabilities of
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Expedia as of the acquisition date, including the preliminary application of purchase accounting by USA, consist of the following:
| | (In Thousands) | ||
|---|---|---|---|
| Current assets | $ | 320,224 | |
| Non-current assets | 34,528 | ||
| Goodwill and indefinite lived intangible assets | 1,222,570 | ||
| Intangible assets | 230,000 | ||
| Current liabilities | 205,163 | ||
| Non-current liabilities | 87,072 | ||
The following unaudited pro forma condensed consolidated financial information for the three and nine months ended September 30, 2002 and 2001, is presented to show the results of the Company, duringas if the termExpedia transaction and the merger of this AgreementTicketmaster and Ticketmaster Online Citysearch, which was completed on January 31, 2001 and which did not impact revenues or based upon information provided to Parent byoperating profit, but rather minority interest and income taxes, plus the Company. Other than wholly owned subsidiaries and except as disclosed7.1 million shares exchanged for LLC interests in the Company SEC Reports or Section 3.1VUE Transaction, plus the 33.2 million shares issued to Liberty for its interest in Holdco, had occurred at the beginning of the Company Disclosure Letter,periods presented. The pro forma results include certain adjustments, including increased amortization related to intangible assets, and are not necessarily indicative of what the Company does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, limited liability company, joint venture or other business, association or entity.results would have been had the transactions actually occurred on the aforementioned dates. Note that the amounts exclude USA Broadcasting ("USAB") and USA Entertainment, which are presented as discontinued operations (see Note 9).
| | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | |||||||||
| | (In Thousands, except per share data) | ||||||||||||
| Net revenue | $ | 1,192,496 | $ | 917,317 | $ | 3,317,723 | $ | 2,735,528 | |||||
| Loss from continuing operations before cumulative effect of accounting change and preferred dividend | (33,365 | ) | (69,686 | ) | (140,664 | ) | (165,942 | ) | |||||
| Basic and diluted loss from continuing operations before cumulative effect of accounting change and preferred dividend per common share | (0.07 | ) | (0.16 | ) | (0.32 | ) | (0.38 | ) | |||||
NOTE 4—STATEMENTS OF CASH FLOWS
Section 3.2. Capitalization. The authorized capital stockSupplemental Disclosure of Non-Cash Transactions for the Company consists solelyNine Months Ended September 30, 2002:
In May 2002, USA acquired TVTS for a combination of 150,000,000cash and common stock. USA issued 1.6 million shares of Company Class A Common Stock, 250,000,000 shares of Company Class B Common Stock, 2,883,506 shares of Class C common stock, par value $.01 per share, of the Companyvalued at approximately $48.1 million.
In April 2002, Ticketmaster acquired Soulmates Technology Pty. Ltd ("Company Class C Common Stock"Soulmates"), none of which have beena global online personals company. Ticketmaster issued 0.8 million shares valued at any time on or prior toapproximately $23.6 million.
For the date hereof, and 2,000,000 shares of Company Preferred Stock, none of which have been issued at any time on or prior to the date hereof. At the close of business onnine months ended September 30, 2002, (a) 42,722,393 shares of Company Class A Common Stock and 101,281,810 shares of Company Class B Common Stock were issued and outstanding, (b) no shares of Company Common Stock were heldpaid in treasury by the Company, and (c) 42,480,143 shares of Company Class A Common Stock and 50,260,401 shares of Company Class B Common Stock (collectively, the "Embedded Shares") were held by wholly owned subsidiaries of the Company. All shares of Company Common Stock that are issued and outstandingkind interest accrued on the date hereof are duly authorized, validly issued and fully paid and nonassessable. Except as set forth in this Section 3.2 or as disclosed in Section 3.2 ofVUE Series A Preferred amounted to $14.0 million.
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For the disclosure letter delivered by the Company to Parent on or prior to the date hereof (the "Company Disclosure Letter"), as ofnine months ended September 30, 2002, interest accrued on the $200.0 million advance to Universal amounted to $0.3 million.
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there are no options, warrants, rights, puts, calls, commitments, or other contracts, arrangements or understandings issued by or binding upon For the Company requiring or providing for, and there are no outstanding debt or equity securities of the Company which upon the conversion, exchange or exercise thereof would require or provide for the issuance by the Company of any new or additional shares of Company Common Stock, Company Class C Common Stock or Company Preferred Stock (or any other securities of the Company) which, with or without notice, lapse of time and/or payment of monies, are or would be convertible into or exercisable or exchangeable for shares of Company Common Stock, Company Class C Common Stock or Company Preferred Stock (or any other securities of the Company). Sincenine months ended September 30, 2002, the Company has not issued any sharesincurred non-cash distribution and marketing expense of its capital stock or any securities convertible into or exercisable for any shares$27.5 million and non-cash compensation expense of its capital stock, other than pursuant$10.2 million.
On May 31, 2002, the Company redeemed in full the Savoy Debentures. The Company recorded a loss of $2.0 million, of which $1.4 million was related to the exercisewrite-off of employee stock options granted prior to such date or in connection withdeferred finance costs.
During the conversion, if any,nine months ended September 30, 2002, the Company realized a pre-tax loss of shares of Company Class A Common Stock into shares of Company Class B Common Stock. There are no preemptive or other similar rights available$11.5 million related to the existing holderswrite-down of Company Common Stock.investments to fair value.
Section 3.3. Authority RelativeSupplemental Disclosure of Non-Cash Transactions for the Nine Months Ended September 30, 2001:
For the nine months ended September 30, 2001, interest accrued on the $200.0 million advance to this Agreement; Board Approval.Universal amounted to $3.3 million.
(a)For the nine months ended September 30, 2001, the Company incurred non-cash distribution and marketing expense of $19.9 million and non-cash compensation expense of $5.4 million.
During the nine months ended September 30, 2001, the Company realized a pre-tax loss of $6.7 million related to the write-down of investments to fair value.
NOTE 5—INDUSTRY SEGMENTS
The Company has all necessary corporate poweroperates principally in the following industry segments: Home Shopping Network-US (including HSN.com) ("HSN-US"); Ticketing, (including Ticketmaster and authority to executeTicketmaster.com); Hotels.com (Nasdaq: ROOM); Expedia (Nasdaq: EXPE); Interval; PRC; Match.com; Citysearch; USA Electronic Commerce Solutions LLC ("ECS")/Styleclick (OTCBB: IBUYA); and deliver this AgreementInternational TV shopping and to perform its obligations hereunderother (which includes HSN-International and subject to obtaining the approvalTVTS, which was acquired in May 2002).
Adjusted earnings before interest, income taxes, depreciation and amortization ("Adjusted EBITDA") is defined as operating profit (loss) plus (1) depreciation and amortization, including goodwill impairment, (2) amortization of the stockholderscable distribution fees (3) amortization of the Company of this Agreement, to consummate the transactions contemplated by this Agreement (the "Transactions"). The executionnon-cash distribution and delivery of this Agreement by the Companymarketing expense and the consummation by the Company of the Transactions have been dulynon-cash compensation expense and validly authorized by all necessary corporate action on the part of the Company(4) non-recurring items, including disengagement expenses and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or to consummate the Transactions (other than, with respect to the Merger, the approval of this Agreement by the holders of a majority of the voting power of Company Class A Common Stock and Company Class B Common Stock, voting togetherrestructuring charges not impacting EBITDA. Adjusted EBITDA is presented here as a single class, which approval is the only approval required to consummate the Transactions under the Company's Certificate of Incorporationmanagement tool and the Delaware Statute). This Agreement has been duly and validly executed and delivered by the Company and, assuming the due authorization, execution and delivery by Parent and Sub, constitutes the legal and binding obligation of the Company, enforceable against the Company in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to creditors rights generally and (ii) the availability of specific performance or injunctive relief and other equitable remedies.
(b) The Board of Directors of the Company, based on the recommendation of the Special Committee (which recommendation was a condition to the approval of the Company's Board of Directors set forth in clause (i) of this sentence) has, prior to the execution of this Agreement, (i) approved this Agreement and the Transactions (including for purposes of Section 144 of the Delaware Statute), (ii) determined that the Transactions are fair to and in the best interests of its public stockholders, and (iii) recommended that the stockholders of the Company approve this Agreement and the Transactions. This Agreement and the Transactions have been approved by the unanimous vote of the members of the Special Committee and the unanimous vote of the members of the Board of Directors of the Company, excluding the directors of the Company that are also directors or officers of Parent.
Section 3.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do not, and the performance of its obligations hereunder and the consummation of the Transactions by the Company will not, (i) conflict with or violate the Certificate of Incorporation, Bylaws or equivalent organizational documents of the Company or any of its Significant Subsidiaries; (ii) subject to obtaining the approval of the Company's stockholders of this Agreement in accordance with the Delaware Statute and the Company's Certificate of Incorporation and Bylaws and compliance with the requirements set forth in Section 3.4(b), conflict with or violate any law, rule, regulation, order, judgment or decree applicable to
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the Company or any of its subsidiaries or by which any of their respective properties is bound or affected; or (iii) except as set forth in Section 3.4 of the Company Disclosure Letter, result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or alter the rights or obligations of any third party or the Company or its subsidiaries under, or give to others any rights of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a lien or other encumbrance on any of the properties or assets of the Company or any of its subsidiaries pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties are bound or affected, in each case having value or requiring payments over the term thereof equal to or greater than $2.5 million, except, in the case of clause (ii) above, for any such conflicts or violations that would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent the Company from performing its obligations under this Agreement in any material respect, and would not have, individually or in the aggregate, a Company Material Adverse Effect. Section 3.4(a) of the Company Disclosure Letter lists all material consents, waivers and approvals under any agreements, contracts, licenses or leases required to be obtained by the Company or its Significant Subsidiaries in connection with the consummation of the Transactions.
(b) The execution and delivery of this Agreement by the Company do not, and the performance of its obligations hereunder and the consummation of the Transactions by the Company will not, require any consent, approval, authorization or permit of, or registration or filing with or notification to, any court, administrative agency, commission, governmental or regulatory authority, domestic or foreign (a "Governmental Entity"), except (i) the filing of documents to satisfy the applicable requirements, if any, of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and state takeover laws, (ii) the filing with the SEC of the Information Statement and prospectus in definitive form relating to the Transactions, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate corresponding documents with the Secretary of State of other states in which the Company is qualified to transact business as a foreign corporation, (iv) filings under the rules and regulationsvaluation methodology. Adjusted EBITDA does not purport to represent cash provided by operating activities. Adjusted EBITDA should not be considered in isolation or as a substitute for measures of the NASD, and (v) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications (A) would not prevent or delay consummation of the Merger in any material respect or otherwise prevent or delay in any material respect the Company from performing its obligations under this Agreement or (B) would not, individually or in the aggregate, have a Company Material Adverse Effect.
Section 3.5. Compliance with Laws. Except as set forth in Section 3.5 of the Company Disclosure Letter, neither the Company nor any of its subsidiaries is in conflict with, or in default or violation of (a) any law, rule, regulation, order, judgment or decree applicable to the Company or any of its subsidiaries or by which any of their respective properties is bound, or (b) whether after the giving of notice or passage of time or both, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries or any of their respective properties is bound, except for any conflicts, defaults or violations that do not and would not have, individually or in the aggregate, a Company Material Adverse Effect.
Section 3.6. SEC Filings; Financial Statements.
(a) The Company has made available to Parent a correct and complete copy of each report, schedule, registration statement (but only such registration statements that have become effective prior to the date hereof) and definitive proxy statement filed by the Company with the SEC on or since January 1, 2002 and prior to the date of this Agreement (the "Company SEC Reports"), which are all the forms, reports and documents required to be filed by the Company with the SEC since such date;provided that, if the Company amends any of the Company SEC Reports, such amendment shall not mean or imply that any representation or warranty in this Agreement was not true when made or
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became untrue thereafter. As of their respective dates, the Company SEC Reports and any forms, reports and other documents filed by the Company with the SEC after the date of this Agreement (i) complied or will comply in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable thereto, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing) or will not at the time they are filed contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading,provided, however, that no representation is made with respect to information included in the Company SEC Reports that was provided in writing by Parent or Sub. None of the Company's subsidiaries is required to file any reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Company SEC Reports complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, had beenperformance prepared in accordance with generally accepted accounting principles ("GAAP") applied onprinciples. Adjusted EBITDA may not be comparable to calculations of similarly titled measures presented by other companies.
The following is a consistent basis throughoutreconciliation of Operating Profit/ (Loss) to Adjusted EBITDA for the periods involved (except as may be indicatedthree and nine months ended September 30, 2002 and 2001:
| | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | ||||||||||
| | (In Thousands) | |||||||||||||
| Operating profit (loss) | $ | 5,763 | $ | (79,931 | ) | $ | 27,978 | $ | (181,146 | ) | ||||
| Depreciation and amortization | 110,828 | 109,382 | 241,917 | 320,043 | ||||||||||
| Goodwill impairment | — | — | 22,247 | — | ||||||||||
| Amortization of cable distribution fees | 12,615 | 9,986 | 38,679 | 29,384 | ||||||||||
| Amortization of non-cash distribution and marketing | 10,416 | 5,218 | 27,485 | 19,866 | ||||||||||
| Amortization of non cash compensation expense | 2,998 | 1,268 | 10,199 | 5,431 | ||||||||||
| Disengagement expenses | 4,560 | — | 22,326 | — | ||||||||||
| Restructuring charges not impacting EBITDA(a) | 31,411 | 469 | 36,908 | 6,248 | ||||||||||
| Adjusted EBITDA | $ | 178,591 | $ | 46,392 | $ | 427,739 | $ | 199,826 | ||||||
| Revenue: | ||||||||||||||
| HSN-US(b) | $ | 370,742 | $ | 396,435 | $ | 1,141,270 | $ | 1,163,630 | ||||||
| Ticketing | 162,140 | 133,897 | 490,925 | 447,903 | ||||||||||
| Match.com | 33,394 | 12,478 | 88,182 | 31,687 | ||||||||||
| Hotels.com | 277,386 | 151,241 | 672,814 | 394,829 | ||||||||||
| Expedia | 166,619 | — | 389,865 | — | ||||||||||
| Interval | 2,319 | — | 2,319 | — | ||||||||||
| PRC | 75,001 | 72,610 | 217,212 | 228,926 | ||||||||||
| Citysearch and related | 7,617 | 11,078 | 22,479 | 35,851 | ||||||||||
| International TV Shopping & other(c) | 91,839 | 57,013 | 234,557 | 200,620 | ||||||||||
| USA Electronic Commerce Solutions LLC/Styleclick | 7,615 | 5,378 | 30,386 | 21,781 | ||||||||||
| Intersegment elimination | (2,176 | ) | (2,291 | ) | (7,773 | ) | (4,873 | ) | ||||||
| Total | $ | 1,192,496 | $ | 837,839 | $ | 3,282,236 | $ | 2,520,354 | ||||||
| Operating profit/(loss): | ||||||||||||||
| HSN-US(b)(d) | $ | 11,408 | $ | 21,501 | $ | 63,233 | $ | 67,462 | ||||||
| Ticketing(e) | 25,690 | (83 | ) | 83,804 | 26,009 | |||||||||
| Match.com | 3,762 | (88 | ) | 13,396 | (8,173 | ) | ||||||||
| Hotels.com(f) | 33,289 | 5,895 | 79,580 | 10,573 | ||||||||||
| Expedia(g) | 24,156 | — | 55,776 | — | ||||||||||
| Interval | 255 | — | 255 | — | ||||||||||
| PRC(h) | (677 | ) | (14,191 | ) | (26,793 | ) | (25,650 | ) | ||||||
| Corporate & other(i) | (15,085 | ) | (13,654 | ) | (28,257 | ) | (33,733 | ) | ||||||
| Citysearch and related | (24,650 | ) | (41,802 | ) | (74,648 | ) | (127,007 | ) | ||||||
| International TV Shopping & other(c)(j) | (11,640 | ) | (16,322 | ) | (31,437 | ) | (23,142 | ) | ||||||
| USA Electronic Commerce Solutions LLC/Styleclick(k) | (9,334 | ) | (18,273 | ) | (35,306 | ) | (54,019 | ) | ||||||
| Restructuring charges(a) | (31,411 | ) | (2,914 | ) | (71,625 | ) | (13,466 | ) | ||||||
| Total | $ | 5,763 | $ | (79,931 | ) | $ | 27,978 | $ | (181,146 | ) | ||||
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| Adjusted EBITDA: | ||||||||||||||
| HSN-US(b) | $ | 67,400 | $ | 48,899 | $ | 187,738 | $ | 155,840 | ||||||
| Ticketing(e) | 36,279 | 19,021 | 113,643 | 84,775 | ||||||||||
| Match.com | 6,950 | 5,801 | 23,522 | 8,908 | ||||||||||
| Hotels.com(f) | 39,492 | 21,775 | 98,142 | 58,591 | ||||||||||
| Expedia(g) | 47,876 | — | 116,531 | — | ||||||||||
| Interval | 431 | — | 431 | — | ||||||||||
| PRC(h) | 9,607 | 3,017 | 23,441 | 23,217 | ||||||||||
| Corporate & other(i) | (11,183 | ) | (11,512 | ) | (29,560 | ) | (27,756 | ) | ||||||
| Citysearch and related | (9,893 | ) | (11,635 | ) | (29,241 | ) | (34,304 | ) | ||||||
| International TV Shopping & other(c)(j) | 350 | (12,117 | ) | (14,014 | ) | (16,443 | ) | |||||||
| USA Electronic Commerce Solutions LLC/Styleclick(k) | (8,718 | ) | (14,412 | ) | (28,177 | ) | (45,784 | ) | ||||||
| Restructuring charges(a) | — | (2,445 | ) | (34,717 | ) | (7,218 | ) | |||||||
| Total | $ | 178,591 | $ | 46,392 | $ | 427,739 | $ | 199,826 | ||||||
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NOTE 6—GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets is comprised of goodwill of $6.3 billion, intangible assets with indefinite lives of $325.8 million related primarily to tradenames acquired in the Expedia transaction, and other intangible assets of $388.7 million. The other intangible assets relate primarily to purchased technology, distribution agreements, customer lists and supplier relationships, and include $230.0 million related to the Expedia transaction. The amounts for Expedia are preliminary at this time, as the Company has not completed its purchase price allocation. The intangible assets that do not have indefinite lives are being amortized over periods ranging from 2 to 10 years. Goodwill amortization recorded in continuing operations in the three and its consolidated subsidiariesnine months ended September 30, 2001 was $54.6 million and $161.1 million, respectively. Goodwill amortization recorded in all material respects as atdiscontinued operations in the respective dates thereofthree and nine months ended September 30, 2001 was $29.9 million and $98.0 million, respectively. The large increase in amortization of intangibles between periods is due primarily to the Expedia transaction and the consolidated resultsstep-up in basis of its operations and cash flows for the periods indicated (subject, in the case of the unaudited interim financial statements, to normal audit adjustments which were not and are not expected, individually or in the aggregate, to be material in amount).
Section 3.7. Registration Statement; Information Statement. None of the information supplied or to be supplied by the Company in writing specifically for inclusion or incorporation by reference in (a) the registration statement on Form S-4 to be filed with the SEC by Parent in connection with the issuance of the Parent Common Stock in or as a result of the Merger (the "S-4") will, at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading; and (b) the Information Statement will, at the date the Information Statement is mailed to the stockholders of the Company and as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, the Company makes no representation or warranty with respect to any information provided by or required to be provided by Parent or Sub and/or by their auditors, legal counsel, financial advisors or other consultants or advisors specifically for use in the S-4 or Information Statement. The Information Statement will comply as to form in all material respects with the provisions of the Exchange Act and the rules and regulations promulgated by the SEC thereunder.
Section 3.8. Brokers. Other than Credit Suisse First Boston Corporation (the "Company Banker"), no broker, finder or investment banker is entitled to any brokerage, finders' or other fee or commission in connection with the Merger and the other Transactions based upon arrangements made by or on behalf of the Company. The Company heretofore has furnished to Parent a complete copy of all agreements between the Company and the Company Banker pursuant to which such firm would be entitled to any payment relating to the Merger and the other Transactions.
Section 3.9. Opinion of Financial Advisor. The Special Committee and the Company's Board of Directors have received the written opinion, dated October 9, 2002, of the Company Banker that, as of October 9, 2002, the Exchange Ratio is fair to the holders of Company Common Stock (other than
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Parent or any subsidiary of Parent) from a financial point of view, a copy of which opinion has been delivered to Parent.
Section 3.10. Employee Benefit Plans.
(a) The Company will deliver promptly following the execution of this Agreement a list of, and upon request thereafter, true and complete copies of, all material pension, retirement, profit-sharing, deferred compensation, stock option, employee stock ownership, severance pay, vacation, bonus or other material incentive or employee benefit plans, arrangements or agreements, whether arrived at through collective bargaining or otherwise, including, without limitation, all "employee benefit plans" (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), currently adopted, maintained by, sponsored in whole or in part by, or contributed to by the Company or any entity required to be aggregated with the Company pursuant to Section 414 of the Code for the benefit of current or former employees, retirees, dependents, spouses, directors, independent contractors or other beneficiaries and under which current or former employees, retirees, dependents, spouses, directors, independent contractors or other beneficiaries are eligible to participate, excluding any such plans, arrangements or agreements that are offered or maintained by Parent (collectively, the "Company Benefit Plans"). Any of the Company Benefit Plans which is an "employee pension benefit plan," as that term is defined in Section 3(2) of ERISA, is referred to herein as an "ERISA Plan." No Company Benefit Plan is or has been a multiemployer plan within the meaning of Section 3(37) of ERISA (a "Multiemployer Plan").
(b) (i) Each of the Company Benefit Plans has been operated and administered in all material respects in compliance with applicable laws, including, but not limited to, ERISA (as defined herein) and the Code, (ii) except as set forth on Section 3.10(b) of the Company Disclosure Letter, each of the Company Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of the Code has received a favorable determination letter, and there are no existing circumstances or any events that have occurred that would be reasonably expected to affect adversely the qualified status of any such Company Benefit Plan, (iii) no Company Benefit Plan provides benefits, including, without limitation, death or medical benefits (whether or not insured), with respect to current or former employees or directors of Company or its subsidiaries beyond their retirement or other termination of service, other than (A) coverage mandated by applicable law, (B) death benefits or retirement benefits under any "employee pension plan" (as such term is defined in Section 3(2) of ERISA, (C) deferred compensation benefits accrued as liabilities on the books of the Company or its subsidiaries, or (D) benefits the full cost of which is borne by the current or former employee or director (or his beneficiary), and (vi) to the best knowledge of the Company there are no pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Company Benefit Plans or any trusts related thereto.
(c) No ERISA Plan is subject to Title IV or Section 302 of ERISA, and no circumstances exist that could result in material liability to the Company under Title IV or Section 302 of ERISA.
(d) Except as set forth in Section 3.10 of the Company Disclosure Letter, as described in any Company SEC Reports or as provided under the Stock Plans or any related agreement, neither the execution and delivery of this Agreement nor the consummation of the Transactions (or any termination of employment in connection with the Transactions) will (i) result in any payment becoming due to any current or former director or employee of the Company or any of its affiliates from the Company or any of its affiliates under any Company Benefit Plan or otherwise, (ii) increase any benefits otherwise payable under any Company Benefit Plan or (iii) result in any acceleration of the time of payment or vesting of any such benefits, except for any payments or vesting which would occur upon a termination of employment absent the consummation of the Transactions or which arise under any plan, agreement or arrangement offered or maintained by Parent.
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Section 3.11. Tax Matters. Neither the Company nor any of its subsidiaries has taken or agreed to take any action (including in connection with the Transactions) that would prevent the Merger from constituting a reorganization qualifying under the provisions of Section 368(a) of the Code.
Section 3.12. Litigation. Except as disclosed in the Company SEC Reports or Section 3.12 of the Company Disclosure Letter, there are no claims, actions, suits, investigations or proceedings pending or, to the best knowledge of the Company, threatened against the Company or any of its subsidiaries, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that, individually or in the aggregate, would, or would reasonably be anticipated to, have a Company Material Adverse Effect.
ARTICLE 4REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company, as follows:
Section 4.1. Organization and Qualification. Each of Parent and Sub has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, and has the requisite corporate power and authority to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Each of Parent and Sub is duly qualified or licensed as a foreign corporation to do business and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for such failures to be so duly licensed or qualified and in good standing would not, individually or in the aggregate, have a Parent Material Adverse Effect. "Parent Material Adverse Effect" shall mean any change, event or effect that is materially adverse to the business, financial condition or results of operations of Parent and its subsidiaries taken as a whole, in each case excluding (i) changes in economic or regulatory conditions in the industries in which Parent carries on business as of the date hereof, and changes in general economic, regulatory or political conditions, including, without limitation, acts of war or terrorism, and (ii) changesHSN resulting from the announcement of the Transactions and any other public announcement of the Company during the term of this Agreement.VUE
Section 4.2. Capitalization. At the close of businessF-61
transaction. Amortization expense based on September 30, 2002 (a) 390,437,524 sharesbalances for the next five years is estimated to be as follows (in thousands):
The balance of Parent Common Stock were issuedgoodwill and 383,835,823 shares of Parent Common Stock were outstanding (in each case excluding 508,336 restricted shares of Parent Common Stock), 64,629,996 shares of Parent Class B Common Stock and 13,118,182 shares of Parent Preferred Stock were issued and outstanding, in each case, except as disclosed in the Parent's proxy statement dated March 25, 2002 (the "Parent Proxy Statement"), not subject to any preemptive rights, and (b) 6,601,701 shares of Parent Common Stock and no shares of Parent Class B Common Stock or Parent Preferred Stock were held in treasury by Parent or by subsidiaries of Parent. Other than (a) options to purchase 69,311,267 shares of Parent Common Stock issued pursuant to employee benefit plans and agreements of Parent, (b) 75,058,291 shares of Parent Common Stock issuable upon exercise of outstanding warrants, (c) up to 25,721,925 shares of Parent Common Stock issuable upon conversion of Parent Series A Preferred Stock, (d) 508,336 restricted shares of Parent Common Stock, and (e) 3,778 shares of Parent Common Stock issuable pursuant to Parent's Bonus Stock Purchase Program,intangible assets as of September 30, 2002 except in connection with this Agreement,is as disclosed in the disclosure letter delivered by Parent to the Companyfollows:
| Goodwill | $ | 6,294,921 | |
| Intangible assets with indefinite lives | 325,788 | ||
| Intangible assets with definite lives | 388,669 | ||
| $ | 7,009,378 | ||
Amortization expense based on or prior to the date hereof (the "Parent Disclosure Letter"), or in connection with the agreements described in the Parent Proxy Statement, there were no options, warrants, puts, calls, commitment or other contracts, arrangements or understandings issued or binding upon Parent requiring or providing for, and there are no outstanding debt or equity securities of Parent which upon the conversion, exchange or exercise thereof would require or provide for the issuance by Parent of any new or additional shares of Parent Common Stock (or any other securities of Parent) which, with or without notice, lapse of time and/or payment of monies, are or would be convertible into or exercisable or exchangeable for Parent
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Common Stock (or any other securities of Parent). Since September 30, 2002 Parent has not issued any sharesbalances for the next five years is estimated to be as follows (in thousands):
| Three months ended December 31, 2002 | $ | 36,257 | |
| Year ended December 31, 2003 | 120,164 | ||
| Year ended December 31, 2004 | 101,050 | ||
| Year ended December 31, 2005 | 57,298 | ||
| Year ended December 31, 2006 | 47,194 | ||
| Year ended December 31, 2007 and thereafter | 26,706 | ||
| $ | 388,669 | ||
The amount of its capital stock or any securities convertible into or exercisable for any sharesamortization of its capital stock, other than pursuantintangibles in future periods could be greater due to the exercisefollowing factors. In relation to the VUE Transaction and the exchange of employee stock options granted prior to such date. The authorized capital stock of Sub consists of 1,000Holdco and LLC shares of Sub Common Stock, ofby Liberty, the businesses that were owned by USANi LLC, primarily HSN, HSN-International and ECS/Styleclick, which USA retained after the transaction, are treated as an acquisition by USA of the date hereof, 100 shares of Sub Common Stock are issued and outstanding. All of the outstanding shares of Sub Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. The shares of Parent Common Stockminority interests in these entities. Thus, USA has recorded a step-up to be issued in the Merger will, upon issuance, be validly issued, fully paid, nonassessable, except as disclosed in the Parent Proxy Statement, not subject to any preemptive rights, and free and clear of all security interests, liens, claims, pledges or other encumbrances of any nature whatsoever (in each case to which Parent is a party).
Section 4.3. Authority Relative to this Agreement; Board Approval.
(a) Each of Parent and Sub has all necessary corporate power and authority to execute and deliver this Agreement, and to perform its obligations hereunder and to consummate the Transactions. The execution and delivery of this Agreement by Parent and Sub and the consummation by Parent and Sub of the Transactions have been duly and validly authorized by all necessary corporate actioncarrying value based on the partfair value of Parent and Sub and no other corporate proceedings on the part of Parent or Sub are necessary to authorize this Agreement, or to consummate the Transactions (other than the approval of the NASD listing application with respect to the issuance of shares of Parent Common Stock in the Merger). This Agreement has been duly and validly executed and delivered by Parent and Sub and, assuming the due authorization, execution and delivery by the Company, constitutes the legal and binding obligations of Parent and Sub, enforceable against Parent and Sub in accordance with its terms, subject to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting or relating to creditors rights generally and (ii) the availability of specific performance or injunctive relief and other equitable remedies.
(b) The Executive Committee of the Board of Directors of Parent has (i) approved this Agreement and the Transactions and (ii) determined that the Transactions are fair to and in the best interests of the stockholders of Parent. No vote of Parent's stockholders is required in connection with the Transactions.
Section 4.4. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and Sub do not, and the performance of their respective obligations hereunder and the consummation of the Transactions by Parent and Sub will not, (i) conflict with or violate the Certificate of Incorporation, Bylaws or equivalent organizational documents of Parent or Sub; (ii) subject to compliance with the requirements set forth in Section 4.4(b), conflict with or violate any law, rule, regulation, order, judgment or decree applicable to Parent or Sub or by which their respective properties are bound or affected; or (iii) result in any breach of or constitute a default (or an event that with notice or lapse of time or both would become a default) under, or alter the rights or obligations of any third party or of Parent or Sub under, or give to others any rights of termination, amendment, acceleration, increased payments or cancellation of, or result in the creation of a lien or other encumbrance on any of the properties or assets of Parent or Sub pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or Sub is a party or by which Parent or Sub or any of their respective properties are bound or affected, except in the cases of clauses (ii) and (iii) above, for any such conflicts, violations, breaches, defaults or other alterations or occurrences that would not prevent or delay consummation of the Merger in any material respect, or otherwise prevent Parent and Sub from performing their respective obligations under this Agreement in any material respect, and would not have, individually or in the aggregate, a Parent Material Adverse Effect. There are no material consents, waivers, and approvals under any agreements, contracts, licenses or leases required to be obtained by Parent or Sub in connection with the consummation of the Transactions.
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(b) The execution and delivery of this Agreement by Parent and Sub do not, and the performance of their respective obligations hereunder and the consummation of the Transactions by Parent and Sub will not, require any consent, approval, authorization or permit of, or registration or filing with or notification to, any Governmental Entity except (i) the filing of documents to satisfy the applicable requirements, if any, of the Exchange Act and state takeover laws, (ii) the filing with the SEC of the Information Statement and the declaration of effectiveness of the S-4 by the SEC, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate corresponding documents with the Secretary of State of other states in which the Company is qualified to transact business as a foreign corporation, (iv) filings under the rules and regulations of the NASD, (v) filings under state securities laws ("Blue Sky Laws"), and (vi) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications (A) would not prevent or delay consummation of the Merger in any material respect or otherwise prevent or delay in any material respect Parent or Sub from performing their respective obligations under this Agreement or (B) would not, individually or in the aggregate, have a Parent Material Adverse Effect.
Section 4.5. Compliance with Laws. Except as set forth in Section 4.5 of the Parent Disclosure Letter, neither Parent nor any of its subsidiaries is in conflict with, or in default or violation of (a) any law, rule, regulation, order, judgment or decree applicable to Parent or any of its subsidiaries or by which any of their respective properties is bound, or (b) whether after the giving of notice or passage of time or both, any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or other instrument or obligation to which Parent or any of its subsidiaries is a party or by which Parent or any of its subsidiaries or any of their respective properties is bound, except for any such conflicts, defaults or violations which do not and would not have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 4.6. SEC Filings; Financial Statements.
(a) Parent has made available to the Company a correct and complete copy of each report, schedule, registration statement and definitive proxy statement filed by Parent with the SEC on or after January 1, 2002 and prior to the date of this Agreement (the "Parent SEC Reports"), which are all the forms, reports and documents required to be filed by Parent with the SEC since such date;provided that, if Parent amends any of the Parent SEC Reports, such amendment shall not mean or imply that any representation or warranty in this Agreement was not true when made or became untrue thereafter. As of their respective dates, the Parent SEC Reports and any forms, reports and other documents filed by Parent and Sub after the date of this Agreement (i) complied or will comply in all material respects with the requirements of the Securities Act or the Exchange Act, as the case may be, and the rules and regulations of the SEC thereunder applicable thereto, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement then on the date of such filing) or will not at the time they are filed contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading,provided,however, that no representation is made with respect to information included in the Parent SEC Reports that was provided in writing by the Company.
(b) Each of the consolidated financial statements (including, in each case, any related notes thereto) contained in the Parent SEC Reports complied as to form in all material respects with applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, had been prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q or the Exchange Act regulations promulgated by the SEC) and each fairly presented the consolidated financial position of Parent and its consolidated subsidiaries in all material respects as at the respective dates thereof and the consolidated results of its operations and cash flows for the periods indicated (subject, in the case of the unaudited interim financial statements,
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to normal audit adjustments which were not and are not expected, individually or in the aggregate, to be material in amount).
Section 4.7. Registration Statement; Information Statement. None of the information supplied or to be supplied by Parent in writing specifically for inclusion or incorporation by reference in (a) the S-4 will, at the time the S-4 is filed with the SEC and at the time it becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, and (b) the Information Statement will, at the date the Information Statement is mailed to the stockholders of the Company and as of the Effective Time, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. Notwithstanding the foregoing, Parent and Sub make no representation or warranty with respect to any information provided by or required to be provided by the Company and/or its auditors, legal counsel, financial advisors or other consultants or advisors specifically for use in the S-4 or the Information Statement. The S-4 will comply as to form in all material respects with the provisions of the Securities Act and the rules and regulations promulgated by the SEC thereunder.
Section 4.8. Brokers. Other than Allen & Company Incorporated (the "Parent Banker"), no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the Merger and the other Transactions based upon arrangements made by or on behalf of Parent or Sub.
Section 4.9. Interim Operations of Sub. Sub is a direct wholly owned subsidiary of Parent and was formed solely for the purpose of engaging in the Merger, has engaged in no other business activities and has conducted its operations only as contemplated hereby.
Section 4.10. Tax Matters. Neither Parent nor any of its affiliates has taken or agreed to take any action (including in connection with the Transactions) that would prevent the Merger from constituting a reorganization qualifying under the provisions of Section 368(a) of the Code.
Section 4.11. Litigation. Except as disclosed in the Parent SEC Reports or Section 4.11 of the Parent Disclosure Letter, there are no claims, actions, suits, investigations or proceedings pending or, to the best knowledge of Parent, threatened against Parent, before any court, arbitrator or administrative, governmental or regulatory authority or body, domestic or foreign, that, individually or in the aggregate, would, or would reasonably be anticipated to, have a Parent Material Adverse Effect.
Section 4.12. Ownership of Company Common Stock. As of the date hereof, Parent owns directly 42,480,143 shares of Company Class A Common Stock and 53,302,401 shares of Company Class B Common Stock.
ARTICLE 5CONDUCT AND TRANSACTIONS PRIOR TOEFFECTIVE TIME; ADDITIONAL AGREEMENTS
Section 5.1. Information and Access. From the date of this Agreement and continuing until the Effective Time, Parent, as to itself and Sub, on the one hand, and the Company, as to itself and its subsidiaries, on the other hand, each agrees that it shall afford and, with respect to clause (b) below, shall cause its independent auditors to afford, (a) to the officers, independent auditors, counsel and other representatives of the other reasonable access, upon reasonable advance notice, to its (and in the case of Parent, Sub's, and in the case of the Company, its subsidiaries') properties, books, records (including tax returns filed and those in preparation) and executives and personnel in order that the other may have a full opportunity to make such investigation as it reasonably desires to make of the other consistent with their rights under this Agreement, and (b) to the independent auditors of the
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other, reasonable access to the audit work papers and other records of its independent auditors. No investigation pursuant to this Section 5.1 shall affect or otherwise obviate or diminish any representations and warranties of any party or conditions to the obligations of any party. No party shall be required to provide access to or to disclose information where such access or disclosure would violate or prejudice the rights of its customers, jeopardize the attorney-client privilege or the institution in possession or control of such information or contravene any law, rule, regulations, order, judgment, decree, fiduciary duty or binding agreement entered into prior to the date of this Agreement. The parties hereto will make appropriate substitute disclosure arrangements under circumstances in which the restrictions of the preceding sentence apply.
Section 5.2. Conduct of Business of the Company. Except as contemplated by this Agreement (including Section 5.2 of the Company Disclosure Letter) or with respect to Approved Matters, during the period from the date of this Agreement and continuing until the Effective Time or until the termination of this Agreement pursuant to Section 7.1, (a) the Company and its subsidiaries shall conduct their respectivethese businesses in the ordinary and usual course consistent with past practice, including, without limitation, consulting with, advising and obtaining the approval of Parent, in each case consistent with past practice, and (b) without limiting the provisions of clause (a) in this paragraph, neither the Company nor any of its subsidiaries shall without the prior written consent of Parent (or, to the extent consistent with past practice with regard to the matter at issue, the prior oral consent of Parent):
(i) declare, set aside or pay any dividends on or make any other distribution in respect of any of its capital stock, except dividends or distributions declared and paid by a wholly owned subsidiary of the Company only tominority interest acquired. The step-up for the portion not previously owned by USA is approximately $1.8 billion. In addition, the Company or another wholly owned subsidiaryacquired TVTS in May 2002 and Interval in September 2002, which resulted in excess purchase price over the net assets acquired of approximately $142.4 million and $563.9 million, respectively, which has been preliminarily allocated to goodwill. Furthermore, as discussed in Note 1, HSN increased its ownership in HSE-Germany from 46.67% to 90%. The total purchase price was approximately $100 million. As a result of the Company;
(ii) split, combine or reclassify anytransactions, HSN increased its ownership to 100% of HOT Networks and approximately 90% of HSE-Germany, with Quelle owning the remainder. USA has not completed its capital stock or issue or authorize or propose the issuance or authorizationallocation of any other securities in respect of, in lieu of, or in substitution for shares of its capital stock or repurchase, redeem or otherwise acquire any shares of its capital stock;
(iii) issue, deliver, pledge, encumber or sell, or authorize or propose the issuance, delivery, pledge, encumbrance or sale of, or purchase or propose the purchase price of any sharesthese transactions, as it is in the process of its capital stock or securities convertible into, or rights, warrants or options to acquire, any such shares of capital stock or other convertible securities (other than the issuance of such capital stock to the Company or a wholly owned subsidiaryobtaining an independent valuation of the assets and liabilities acquired, including identification of intangibles other than goodwill. Potential intangible assets that USA may identify include trade names and trademarks, supply agreements, customer relationships, technology and commercial arrangements. USA expects to complete the allocation of the purchase price during the fourth quarter of 2002. The Company or uponhas included an estimate of $32.1 million in the exercise or conversionfinancial statements as amortization of outstanding options or warrantsintangibles expense based on preliminary reports obtained from the valuation experts for the three months ended September 30, 2002. In addition, the merger of USA and Ticketmaster (see Note 10) could result in accordanceadditional amortization of intangibles for the step-up in basis.
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Reported net earnings (loss) and basic and diluted net earnings (loss) per share adjusted to exclude amortization expense related to goodwill and other intangible assets with the Stock Plan inindefinite lives is as follows:
| | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | ||||||||||
| | (In Thousands, except per share data) | |||||||||||||
| EARNINGS/ (LOSS) FROM CONTINUING OPERATIONS AVAILABLE TO COMMON SHAREHOLDERS | ||||||||||||||
| Reported earnings (loss) from continuing operations | $ | (36,629 | ) | $ | (62,875 | ) | $ | (149,234 | ) | $ | (140,358 | ) | ||
| Add: goodwill amortization | — | 33,154 | — | 100,374 | ||||||||||
| Net earnings (loss) from continuing operations—as adjusted | $ | (36,629 | ) | $ | (29,721 | ) | $ | (149,234 | ) | $ | (39,984 | ) | ||
| Basic and diluted earnings per share from continuing operations—as adjusted: | ||||||||||||||
| Reported basic and diluted loss per share | $ | (0.08 | ) | $ | (0.17 | ) | $ | (0.36 | ) | $ | (0.38 | ) | ||
| Add: goodwill amortization | — | 0.09 | — | 0.27 | ||||||||||
| Adjusted basic and diluted net earnings per share | $ | (0.08 | ) | $ | (0.08 | ) | $ | (0.36 | ) | $ | (0.11 | ) | ||
| NET INCOME/ (LOSS) AVAILABLE TO COMMON SHAREHOLDERS | ||||||||||||||
| Reported net income (loss)(a) | $ | (36,629 | ) | $ | 427,576 | $ | 1,796,491 | $ | 440,557 | |||||
| Add: goodwill amortization | — | 43,395 | — | 132,445 | ||||||||||
| Net income (loss)—as adjusted | $ | (36,629 | ) | $ | 470,971 | $ | 1,796,491 | $ | 573,002 | |||||
| Basic and diluted earnings per share—as adjusted: | ||||||||||||||
| Reported basic and diluted loss per share | $ | (0.08 | ) | $ | 1.14 | $ | 4.29 | $ | 1.18 | |||||
| Add: goodwill amortization | — | 0.11 | — | 0.36 | ||||||||||
| Adjusted basic and diluted net earnings per share | $ | (0.08 | ) | $ | 1.25 | $ | 4.29 | $ | 1.54 | |||||
(iv) amend its Certificate of Incorporation, Bylaws or other organizational documents in any manner;
(v) take any action that would reasonably be expected to result in any of the conditions to the Transactions set forth in Article 6 not being satisfied;
(vi) merge or consolidate with any other person, or acquire any assets or capital stock of any other person, other than acquisitions of assets in the ordinary course of business, such as for inventory or relating to the ordinary operations of the Company;
(vii) incur any indebtedness for money borrowed or guarantee any such indebtedness of another person or increase indebtedness for money borrowed outstanding under any current agreement relating to indebtedness for money borrowed, or as disclosed on Section 5.2 of the Company Disclosure Letter, in each case in the ordinary course of business;
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(viii) make or authorize any capital expenditures of the Company and its subsidiaries taken as a whole, other than capital expenditures permitted pursuant to Section 5.2 of Company Disclosure Letter and other than capital expenditures that are part of the Company's then existing budget, which has previously been approved by the Company and Parent in the ordinary course;
(ix) except as may be required by changes in applicable law or GAAP, change any method, practice or principle of accounting;
(x) enter into any new employment agreements, or increase the compensation of any officer or director of the Company or any senior executive of any of its subsidiaries or operating units (including entering into any bonus, severance, change of control, termination, reduction-in-force or consulting agreement or other employee benefits arrangement or agreement pursuant to which such person has the right to any form of compensation from the Company or any of its subsidiaries), other than as required by law or by written agreements in effect on the date hereof with such person, or otherwise amend in any material respect any existing agreements with any such person or use its discretion to amend any Company Benefit Plan or accelerate the vesting or any payment under any Company Benefit Plan;
(xi) enter into any transaction with any officer or director of the Company or any senior executive of any of its subsidiaries or operating units, other than as provided for in the terms of any agreement in effect on or prior to the date hereof and described in the Company Disclosure Letter;
(xii) settle or otherwise compromise any material litigation, arbitration or other judicial or administrative dispute or proceeding relating to the Company or any of its subsidiaries; or
(xiii) authorize or enter into any contract, agreement, commitment or arrangement to do any of the foregoing.
Section 5.3. Conduct of Business of Parent. Except as contemplated by this Agreement (including the Parent Disclosure Letter), and agreements described in the Parent Proxy Statement, during the period from the date of this Agreement and continuing until the Effective Time or until the termination of this Agreement pursuant to Section 7.1, Parent shall not, without the prior written consent of the Company, take any action that would reasonably be expected to result in any of the conditions to the Transactions set forth in Article 6 not being satisfied.
Section 5.4. Preparation of S-4 and Information Statement; Other Filings. As promptly as practicable after the date of this Agreement, Parent and the Company shall prepare, and Parent and Sub shall file with the SEC, a preliminary information statement, in form and substance reasonably satisfactory to each of Parent and the Company, and Parent shall prepare and file with the SEC the S-4, in which the preliminary information statement (or portion thereof) will be included as part of a prospectus. Each of Parent and the Company shall use its reasonable best efforts to respond to any comments of the SEC, to have the S-4 declared effective under the Securities Act as promptly as practicable after such filing and to cause the information statement in definitive form (the "Information Statement") to be mailed to the Company's stockholders at the earliest practicable time after the S-4 is declared effective under the Securities Act. As promptly as practicable after the date of this Agreement, Parent and the Company shall prepare and file any other filings required under the Exchange Act, the Securities Act or any other federal laws relating to the Transactions (the "Other Filings"). The Company and Parent will notify the other party promptly of the receipt of any comments, whether oral or written, from the SEC or its staff and of any request by the SEC or its staff or any other government officials for amendments or supplements to the S-4 or the Information Statement or any Other Filing or for additional information, and will supply the other with copies of all correspondence between it or any of its representatives, on the one hand, and the SEC, or its staff or any other government officials, on the other hand, with respect to the S-4, the Information Statement or the Merger. The Information Statement and the S-4 shall comply in all material respects with all
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applicable requirements of law. No amendment or supplement to the Information Statement or S-4 will be made by the Company or Parent without the prior approval of the other party, except as required by applicable laws and then only to the extent necessary, or without providing the other party the opportunity to review and comment thereon. Parent shall advise the Company, promptly after it receives notice thereof, of the time when the S-4 has been declared effective, the issuance of any stop order, or the suspension of the qualification of Parent Common Stock issuable in connection with the Merger for offering or sale in any jurisdiction. If, at any time prior to the Effective Time, any information relating to the Company or Parent, or any of their respective affiliates, officers or directors should be discovered by the Company or Parent which should be set forth in an amendment or supplement to any of the S-4, the Information Statement or any Other Filing so that any of such documents would not include any misstatement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or an event occurs which is required to be set forth in an amendment or supplement to the Information Statement, the S-4 or any Other Filing, the party that discovers such information shall promptly notify the other party and an amendment or supplement describing such information shall be promptly filed with the SEC and, to the extent required by law, disseminated to the Company's stockholders. The Information Statement shall include, subject to applicable fiduciary duties (based on advice of outside counsel to the Special Committee), the recommendations of the Board of Directors of the Company in favor of approval of this Agreement and the Transactions;provided that the Board of Directors of the Company will not recommend approval of this Agreement and the Transactions without the recommendation of the Special Committee. In the event that a meeting of stockholders of the Company is required in connection with the Transactions, the Company shall call and convene such meeting at the earliest practicable date following the date hereof. The Company and Parent each shall promptly provide the other (or its counsel) copies of all filings made by it with any Governmental Entity in connection with this Agreement and the Transactions.
F-63 The following table presents the balance of goodwill by segment, including the changes in carrying amount of goodwill for the nine months ended September 30, 2002 (in thousands): NOTE 7—RESTRUCTURING CHARGES Restructuring related expenses were $71.6 million ($34.7 million impacting Adjusted EBITDA) in the nine months ended September 30, 2002 compared to $13.5 million ($7.2 million impacting Adjusted EBITDA) in the nine months ended September 30, 2001. The 2002 amounts relate to various initiatives across business segments, including $16.2 million for ECS related to rationalizing the business, $14.8 million for HSN-International related to the shut-down of HSN-Espanol, the Company's Spanish language electronic retailing operation, $9.3 million for PRC related principally to the shut-down of three call centers and employee terminations and $31.4 million related to HSE-Italy. Costs that relate to ongoing operations are not part of the restructuring charges and are not included in "Restructuring Charges" on the statement of operations. Furthermore, all one-time inventory and accounts receivable adjustments that may result from the actions are classified as operating expenses in the statement of operations. The 2001 amounts relate to the restructuring of the operations of Styleclick and the Section 5.5. Written Consent. Parent agrees that concurrent with the execution and delivery of this Agreement, it shall deliver to the Company a duly executed written consent with respect to all shares of the Company owned by it adopting the Agreement as approved by the Board of Directors of the Company. If this Agreement is subsequently amended and such amendment is approved by the Board of Directors of Parent and the Company or if a subsequent consent is deemed necessary to consummate the Transactions contemplated by this Agreement, then Parent shall as soon thereafter as practicable either (a) execute and deliver a written consent with respect to all shares of Common Stock owned directly or indirectly by it on the date hereof adopting this Agreement, or (b) at a meeting of the Company's stockholders at which any proposal to adopt the Merger Agreement is proposed, cause all shares of Common Stock owned directly or indirectly by it on the date hereof (i) to appear, in person or by proxy, so that all such shares are counted for the purpose of obtaining a quorum at any such meeting of stockholders of the Company, and at any adjournment or adjournments thereof, and (ii) to vote, in person or by proxy, with respect to such shares to adopt this Agreement. Parent shall cause all shares of Common Stock owned directly or indirectly by it on the date hereof to vote against, and refrain from executing and delivering written consents in favor of, any proposal that is contrary2002 related to the adoption of this AgreementFAS 142, and in 2001 related to the adoption of SOP 00-2. Balance as of
January 1, 2002 Additions Foreign Exchange
Translation Adoption of
FAS 142 Balance as of
September 30, 2002HSN-US $ 1,162,575 $ 1,737,747 $ — $ — $ 2,900,322 Ticketing 729,442 6,485 1,459 — 737,386 Match.com 45,738 17,999 445 — 64,182 Hotels.com 362,464 40 — — 362,504 Expedia — 943,491 — — 943,491 Interval — 563,887 — — 563,887 PRC(a) 696,778 — — (384,455 ) 312,323 Citysearch and related(b) 58,994 — — (58,994 ) — TVTS — 142,405 — — 142,405 International TV shopping & other 14,138 254,283 — — 268,421 USA Electronic Commerce Solutions LLC/Styleclick — — — — — Goodwill $ 3,070,129 $ 3,666,337 $ 1,904 $ (443,449 ) $ 6,294,921 Transactions contemplated hereby. Following delivery of any written consent of Parent contemplated by this Section 5.5, the Company shall provide to its stockholders the notice required pursuant to Section 228(e)reduction of the Delaware Statute.
Section 5.6. Agreements to Take Reasonable Action.
(a) The parties shall take,work force and shall cause their respective subsidiaries to take, all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on them with respect to the Merger and shall take all reasonable actions necessary to cooperate promptly with and furnish information to the other parties in connection with any such requirements imposed upon them or anycapacity of their subsidiaries in connection with the Merger. Each party shall take, and shall cause its subsidiaries to take, all reasonable actions necessary (i) to obtain (and will take all reasonable actionsPRC.
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necessary to promptly cooperate with the other parties in obtaining) any clearance, consent, authorization, order or approval of, or any exemption by, any Governmental Entity, or other third party, required to be obtained or made by it (or by the other parties or any of their respective subsidiaries) in connection with the Transactions or the taking of any action contemplated by this Agreement; (ii) to lift, rescind or mitigate the effect of any injunction or restraining order or other order adversely affecting its ability to consummate the Transactions; (iii) to fulfill all conditions applicable to the parties pursuant to this Agreement; (iv) to prevent, with respect to a threatened or pending temporary, preliminary or permanent injunction or other order, decree or ruling or statute, rule, regulation or executive order, the entry, enactment or promulgation thereof, as the case may be; (v) to defend any lawsuit or other legal proceeding, whether judicial or administrative, challenging the Agreement, the consummation of the Transactions or the terms thereof; and (vi) to execute and deliver any additional agreements or instruments necessary to consummate the Transactions and fully carry out the purposes of the Agreementprovided,however, that with respect to clauses (i) through (vi) above, the parties will take only such curative measures (such as licensing and divestiture) as the parties determine to be reasonable.
(b) Subject to the terms and conditions of this Agreement, each of the parties shall use all reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective as promptly as practicable the Merger, subject to the appropriate approval of the stockholders of the Company.
Section 5.7. Consents. Parent, Sub and the Company shall each use all reasonable efforts to obtain the consent and approval of, or effect the notification of or filing with, each person or authority whose consent or approval is required in order to permit the consummation of the Merger and to enable the Surviving Corporation to conduct and operate the business of the Company and its subsidiaries substantially as presently conducted and as contemplated to be conducted.
Section 5.8. NASDAQ Quotation. Parent shall use its reasonable best efforts to cause the shares of Parent Common Stock issuable to the stockholders of the Company in the Merger (including the shares of Parent Common Stock reserved for issuance with respect to Company Options) to be eligible for quotation on the NASD National Market (or other national market or exchange on which Parent Common Stock is then traded or quoted) prior to the Effective Time.
Section 5.9. Affiliates. At least ten Business Days prior to the anticipated Closing Date, the Company shall deliver to Parent a list of names and addresses of those persons who, at the Closing Date, would be "affiliates" of the Company within the meaning of Rule 145 under the Securities Act. The Company shall use its reasonable efforts to deliver or cause to be delivered to Parent, prior to the Effective Time, from each of the affiliates of the Company identified in the foregoing list, agreements substantially in the form attached to this Agreement asExhibit C.
Section 5.10. Indemnification. (a) Parent shall cause the Surviving Corporation to maintain in effect for the benefit of individuals who at or prior to the Effective Time were directors or officers of the Company the current provisions regarding indemnification and exculpation of officers and directors (including with respect to advancement of expenses) contained in the Certificate of Incorporation and Bylaws of the Company on the date hereof, which provisions shall not be amended, modified or otherwise repealed for a period of six (6) years from the Effective Time in any manner that would adversely affect the rights thereunder as of the Effective Time of such individuals, unless such modification is required after the Effective Time by applicable law and then only to the minimum extent required by such applicable law or except to make changes permitted by applicable law that would enlarge the exculpation or rights of indemnification thereunder;provided,however, that if any claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) hereunder in respect of such claims shall continue, without diminution, until disposition of all such claims.
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(b) The Surviving Corporation shall (and Parent shall causeNOTE 7—RESTRUCTURING CHARGES (Continued)
For the Surviving Corporation to),nine months ended September 30, 2002, the charges associated with the restructurings were as follows (in thousands):
| Continuing lease obligations | $ | 12,479 | |
| Asset impairments | 5,497 | ||
| Employee termination costs | 4,981 | ||
| Write-down of prepaid cable distribution fees | 10,852 | ||
| HSE-Italy | 31,411 | ||
| Other | 6,405 | ||
| $ | 71,625 | ||
Continuing lease obligations primarily relate to excess call center, warehouse and office space of PRC and ECS. Asset impairments relates primarily to leasehold improvements that are being abandoned. Prepaid cable distribution fees relate to non-refundable upfront amounts paid by HSN-Espanol for carriage, primarily in Mexico.
As of September 30, 2002, the Company has a balance of $22.9 million accrued, as $43.0 million of the charge related to assets that had been written off and $5.7 million was paid during the year related to the maximum extent permitted under applicable law, providerestructuring reserve.
NOTE 8—CONTRIBUTION OF THE USA ENTERTAINMENT GROUP TO VUE
On May 7, 2002, USA completed its previously announced transaction with Vivendi to create a joint venture called VUE. VUE is controlled by Vivendi and its subsidiaries, with the current directorscommon interests owned 93.06% by Vivendi, 5.44% by USA and 1.5% by Mr. Diller, Chairman and CEO of USA (economic interests in a portion of his common interests have been assigned by Mr. Diller to three executive officers of USA.).
In connection with the CompanyVUE Transaction, USA and its subsidiaries received the maximum indemnification protection (including with respectfollowing at the closing: (i) approximately $1.62 billion in cash, debt-financed by VUE, subject to advancement of expenses, including advancing expenses as incurred) permitted under the Delaware Statutetax-deferred treatment for a 15-year period, (ii) a $750 million face value Class A preferred interest in VUE, with a 5% annual paid-in-kind dividend and a 20-year term, to be settled in cash at its then face value at maturity; (iii) a $1.75 billion face value Class B preferred interest in VUE, with a 1.4% annual paid-in-kind dividend, a 3.6% annual cash dividend, callable and puttable after 20 years, to be settled by Universal Studios, Inc. ("Universal") at its then accreted face value with a maximum of six (6)approximately 56.6 million USA common shares, provided that Universal may substitute cash in lieu of shares of USA common stock (but not USA Class B common stock), at its election; (iv) a 5.44% common interest in VUE, generally callable by Universal after five years and puttable by USA after the Effective Time;provided,however,eight years, which may be settled in either Vivendi stock or cash, at Universal's election, and (v) a cancellation of Universal's USANi LLC interests that if any claims are asserted or made within such six-year period, all rights to indemnification (and to advancement of expenses) hereunderwere exchangeable into USA common shares including USANi LLC interests obtained from Liberty in respect of such claims shall continue, without diminution, until disposition of all such claims.
(c) The Surviving Corporation shall (and Parent shall cause the Surviving Corporation to) assume, honor and fulfill in all respects the obligations of the Company pursuant to any indemnification agreements, including those contained in employment agreements (the employee parties under such agreements being referred to as the "Covered Persons")connection with a related transaction. In connection with the Company's directors, officers and other employees (if any) existing at the Effective Time. In addition, Parent shall provide, or cause the Surviving Corporationtransaction, USA retired approximately 320.9 million USANi LLC shares previously owned by Vivendi, thereby reducing USA's fully diluted shares to provide, for a periodapproximately 472 million shares as of not less than six (6) years after the Effective Time, the Company's current and former directors and officers who are currently covered by the Company's existing insurance and indemnification policy with an insurance and indemnification policy (including, without limitation, by arranging for run-off coverage, if necessary) that provides coverage for events occurring at or prior to the Effective Time (the "D&O Insurance") that is no less favorable than the existing policy (it being acknowledged and understood that the Company currently self-insures for legally indemnifiable claims and maintains liability insurance solely for claims not so indemnifiable or in circumstances in which the Company cannot provide indemnification), or, if substantially equivalent insurance coverage is unavailable, the most advantageous D&O Insurance obtainable for an annual premium equal to 200% of the annual premium currently in place for the Company for such insurance;provided,however, that Parent and the Surviving Corporation shall not be required to pay an annual premium for the D&O Insurance in excess of 200% of the annual premium currently in place for the Company for such insurance, calculated on the basis of a fair allocation of the portion of such premium if Parent arranges such coverage on a group basis.June 30, 2002.
(d) This Section 5.10 shall survive the Effective Time, is intended to benefit the Surviving Corporation, the Indemnified Parties and the Covered Persons and shall be enforceable by the Indemnified Parties and the Covered Persons, their heirs, assigns and representatives and are in addition to, and not in substitution for, any other rights to indemnification or contribution that any such person may have by contract or otherwise. In the event the Corporation or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, proper provision shall be made so that the successors and assigns of the Surviving Corporation, or at Parent's option, Parent, shall assume the obligations set forth in this Section 5.10.
Section 5.11. Notification of Certain Matters. Each of the Company, Parent and Sub shall give prompt notice to the other such parties of the occurrence, or failure to occur, of any event, which occurrence or failure to occur would be likely to cause (a) any representation or warranty contained in this Agreement to be untrue or inaccurate in any material respect at any time from the date of this Agreement to the Effective Time, or (b) any material failure of the Company, Parent, or Sub as the case may be, or of any officer, director, employee or agent thereof, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under this Agreement. Notwithstanding the foregoing, the delivery of any notice pursuant to this Section 5.11 shall not limit or otherwise affect the remedies available hereunder to the party receiving such notice.
Section 5.12. Employee Agreements. From and after the Effective Time, Parent shall cause the Surviving Corporation to fulfill all written employment, severance, termination, consulting and retirement agreements, as in effect on the date hereof, to which the Company or any of its subsidiaries is a party, pursuant to the terms thereof and applicable law.
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Section 5.13. Reorganization. From and after the date hereof, each of Parent and the Company and their respective subsidiaries shall not, and shall use reasonable efforts to cause their affiliates not to, take any action, or fail to take any action, that would jeopardize qualification of the Merger as a reorganization within the meaning of Section 368(a) of the Code or enter into any contract, agreement, commitment or arrangement that would have such effect.
Section 5.14. Public Announcements. The initial press release relating Related to the Transactions shall betransaction, Liberty exchanged 7,079,726 shares of USANi LLC for shares of USA common stock, and subsequently transferred to Universal 25 million shares of USA common stock, its remaining 38,694,982 shares of USANi LLC, as well as the assets and liabilities of Liberty Programming France (which consist primarily of 4,921,250 shares of multiThematiques S.A., a joint press release,French entity), in exchange for 37,386,436 Vivendi ordinary shares.
USA contributed to be agreed upon byVUE USA Cable, which includes USA Network, SCI FI Channel, TRIO and Newsworld International; Studios USA, which produces and distributes television programming; USA Films, which produces and distributes films. Vivendi contributed the Parentfilm, television and the Company. Thereafter, Parenttheme park businesses of its subsidiary, Universal Studios, Inc. In addition, USA issued to a subsidiary of Vivendi ten-year warrants to acquire shares of USA common stock as follows: 24,187,094 shares at $27.50 per share; 24,187,094 shares at $32.50 per share; and the Company shall use their reasonable efforts to consult12,093,547 shares at $37.50 per share. Barry Diller, USA's chairman and chief executive officer, received a common interest in VUE with each other before issuing any press releasea 1.5% profit sharing percentage, with respect to this Agreement or the Transactions.
Section 5.15. Stockholder Litigation. Eacha minimum value of the Company and the Parent shall give the other the reasonable opportunity to participate$275.0 million (economic interests in the defensea portion of any stockholder litigation against the Company or the Parent and their respective directors and officers, as applicable, relating to the Transactions or this Agreement.
Section 5.16. Section 16b-3. Parent, Sub and the Company shall take all reasonable steps to cause the transactions contemplated by Section 2.3 and any other disposition of equity securities of the Company (including derivative securities) or acquisitions of equity securities of Parent by each individual who (a) is a director or officer of the Company, or (b) at the Effective Time will become a director or officer of Parent, to be exempt under Rule 16b-3 promulgated under the Exchange Act.
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger are subject to the satisfaction prior to the Closing Date of the following conditions:
(a) Information Statement. Twenty (20) calendar days shall have elapsed from the mailing of the Information Statement to the Company's stockholders.
(b) Effectiveness of the S-4. The S-4 shallhis common interests have been declared effectiveassigned by the SEC under the Securities ActMr. Diller to three executive officers of USA), in return for his agreeing to specified non-competition provisions and shall not be the subject of any stop order or proceeding by the SEC seeking a stop order.
(c) Governmental Entity Approvals. All other material authorizations, consents, orders or approvals of, or declarations or filings with, or expiration of waiting periods imposed by, any Governmental Entity necessary for the consummation of the Merger shall have been filed, expired or been obtained, other than those that, individually or in the aggregate, the failureagreeing to be filed, expired or obtained would not, in the reasonable opinion of Parent, have a Parent Material Adverse Effect or a Company Material Adverse Effect.
(d) No Injunctions or Restraints; Illegality. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Transactions shall be in effect, nor shall any proceeding brought by an administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, seeking any of the foregoing be pending or threatened;serve as chairman and there shall not be any action taken, or any statute, rule, regulation or order (whether temporary, preliminary or permanent) enacted, entered or enforced which makes the consummation of the Transactions illegal or prevents or prohibits the Transactions.
(e) NASDAQ Quotation. The shares of Parent Common Stock issuable to the holders of the Company Common Stock pursuant to the Merger (including the shares of Parent Common Stock reserved for issuance with respect to Company Options) shall have been authorized for quotation
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on the NASD National Market (or other national market or exchange on which Parent Common Stock is then traded or quoted), upon official notice of issuance.
Section 6.2. Conditions of Obligations of Parent and Sub. The obligations of Parent and Sub to effect the Merger are subject to the satisfaction of the following additional conditions, unless waived in writing by Parent:
(a) Representations and Warranties. (i) The representations and warranties of the Company set forth in Section 3.7 shall be true and correct as of the Closing Date as if made on such date, (ii) except to the extent that the failure of the representations and warranties of the Company set forth in this Agreement to be true and correct, in the aggregate, would not have a Company Material Adverse Effect, the representations and warranties of the Company made in this Agreement, without regard to any materiality or "Material Adverse Effect" qualification, shall be true and correct as of the date hereof, and (iii) Parent shall have received a certificate signed by a seniorchief executive officer of the Company certifying the fulfillmentVUE. USA and Mr. Diller have agreed that they will not compete with Vivendi's television and filmed entertainment businesses (including VUE) for a minimum of the conditions set forth in clauses (i) and (ii)18 months. The transaction has been accounted for as an asset sale.
USA's contribution of this Section 6.2(a).
(b) Performance of Obligations of the Company. The Company shall have performed in all material respects all of its obligations and covenants, taken as a whole, requiredbusinesses to be performed by it under this Agreement prior to or as of the Closing Date, and Parent shall have received a certificate to such effect signed by a senior executive officer of the Company.
(c) Tax Opinion. Parent and Sub shall have received the opinion, dated the Closing Date, of Wachtell, Lipton, Rosen & Katz, special counsel to Parent, based upon customary representations, to the effect that (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that each of the Company, Sub and Parent will be a party to that reorganization within the meaning of Section 368(b) of the Code, and (ii) no taxable gain or loss will be recognized, for federal income tax purposes, by stockholders of the Company who exchange Company Common Stock for shares of Parent Common Stock pursuant to the Merger (except with respect to cash received in lieu of fractional shares).
Section 6.3. Conditions of Obligations of the Company. The obligation of the Company to effect the Merger is subject to the satisfaction of the following conditions, unless waived in writing by the Company:
(a) Representations and Warranties. (i) The representations and warranties of Parent set forth in Section 4.7 shall be true and correct as of the Closing Date as if made on such date, (ii) except to the extent that the failure of the representations and warranties of Parent and Sub set forth in this Agreement to be true and correct, in the aggregate, would not have a Parent Material Adverse Effect, the representations and warranties of Parent and Sub made in this Agreement, without regard to any materiality or "Material Adverse Effect" qualification, shall be true and correct as of the date hereof, and (iii) the Company shall have received a certificate signed by a senior executive officer of Parent certifying the fulfillment of the conditions set forth in clauses (i) and (ii) of this Section 6.3(a) with respect to Parent mattersVUE and the Company shall have receivedreceipt of consideration by USA results in an after tax gain of $2.4 billion. The gain was determined as follows (in thousands):
| Estimated fair value: | |||||
| Class A preferred interest in VUE | $ | 514,000 | |||
| Class B preferred interest in VUE | 1,428,530 | ||||
| Common interest in VUE | 1,000,000 | ||||
| Cash | 1,618,710 | ||||
| Estimated step-up in fair value of Home Shopping resulting from cancellation of LLC shares | 1,213,876 | ||||
| Total book value of consideration | 5,775,116 | ||||
| Entertainment net assets sold, net of minority interest | (498,046 | ) | |||
| Transaction costs | (29,544 | ) | |||
| Pre tax gain | 5,247,526 | ||||
| Tax provided at 39.225% | (2,058,342 | ) | |||
| Taxable gain before allocation to warrant value | 3,189,184 | ||||
| Fair value of warrants | (810,873 | ) | |||
| Gain on transaction | $ | 2,378,311 | |||
In a certificate signed bypress release dated August 14, 2002, Vivendi announced its unaudited, preliminary income statement data, presented on a senior executive officerFrench GAAP basis for the period ending June 30, 2002. The press release stated that "in light of Sub certifying the fulfillment of the condition set forth in clauses (ii) of this Section 6.3(a) with respect to Sub matters.
(b) Performance of Obligations of Parent and Sub. Each of Parent and Sub shall have performed in all material respects all of their respective obligations and covenants, taken as a whole, required to be performed by such party under this Agreement prior to or as of the Closing Date,deteriorating economic conditions since December 2001 and the Company shall have received certificates to such effect signed by a senior executive officerimpact of Parent with respect to Parent matters and of Sub with respect to Sub matters.
(c) Tax Opinion. The Company shall have received the opinion, dated the Closing Date, of Mintz Levin Cohn Ferris Glovsky and Popeo, PC, special counsel to the Company, based upon
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customary representations, to the effect that (i) the Merger will be treated for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Code, and that each of the Company, Sub and Parent will be a party to that reorganization within the meaning of Section 368(b) of the Code, and (ii) no taxable gain or loss will be recognized, for federal income tax purposes, by stockholders of the Company who exchange Company Common Stock for shares of Parent Common Stock pursuant to the Merger (except with respect to cash received in lieu of fractional shares).
Section 7.1. Termination. This Agreement may be terminated at any time prior to the Effective Time of the Merger, whether before or after approval of the Merger by the stockholders of the Company:
(a) by mutual written consent duly authorized by the Boards of Directors of Parent and the Company based on the recommendation of the Special Committee;
(b) by either Parent or the Company if the Merger shall not have been consummated by June 30, 2003 (provided, that the right to terminate this Agreement under this Section 7.1(b) shall not be available to any party whose action or failure to act has been the cause of or resulted in the failure of the Merger to occur on or before such date and such action or failure to act constitutes a breach of this Agreement);
(c) by either Parent or the Company, if a court of competent jurisdiction or other Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order, decree or ruling is final and nonappealable;
(d) by the Company, upon a breach of any representation, warranty, covenant or agreement on the part of Parent set forth in this Agreement such that the conditions set forth in Section 6.3(a) or Section 6.3(b) shall have become incapable of fulfillment and such breach shall not have been waived by the Company; or
(e) by Parent, upon a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in this Agreement such that the conditions set forth in Section 6.2(a) or Section 6.2(b) shall have become incapable of fulfillment and such breach shall not have been waived by Parent.
Section 7.2. Effect of Termination. In the event of the termination of this Agreement as provided in Section 7.1, this Agreement shall be of no further force or effect, except (a) as set forth in the last sentence of this Section 7.2, Section 7.3, and Article 8, each of which shall survive the termination of this Agreement, and (b) nothing herein shall relieve any party from liability for any breach of this Agreement.
Section 7.3. Fees and Expenses. All fees and expenses incurred in connection with this Agreement and the Transactions shall be paid by the party incurring such expenses, whether or not the Merger is consummated.
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Section 8.1. Amendment. This Agreement (including the Exhibits and disclosure letters hereto) may be amended prior to the Effective Time by Parent and the Company, by action taken by the Board of Directors of Parent and the Board of Directors of the Company (provided, that no amendment shall be approved by the Board of Directors of the Company unless such amendment shall have been recommended by the Special Committee and, if required by law, approved by the disinterested directors of the Company), at any time before or after approval of the Merger by the stockholders of the Company but, after any such approval, no amendment shall be made which by law requires further approval by such stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties.
Section 8.2. Extension; Waiver. At any time prior to the Effective Time (whether before or after approval of the stockholders of the Company), Parent and the Company may (a) extend the timehigher financing costs for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement and (c) waive compliance with any of the agreements or conditions contained in this Agreement. Any extension or waiver on behalf of the Company shall be taken only upon the recommendation of the Special Committee (and, if required by law, by the disinterested directors of the Company). Any agreement on the part ofcompany, management has recorded a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.preliminary impairment
Section 8.3. Nonsurvival of Representations, Warranties and Agreements. All representations, warranties and agreements in this Agreement or in any instrument or certificate delivered pursuant to this Agreement shall be deemed to be conditions to the Merger and shall not survive the Merger, except for the agreements contained in Sections 2.2 (Exchange of Certificates), 2.3 (Stock Compensation Awards), 2.4 (Further Assurances), 5.10 (Indemnification), 5.12 (Employee Agreements) and 5.13 (Reorganization), each of which shall survive the Merger.
Section 8.4. Entire Agreement. This Agreement (including the Exhibits and disclosure letters hereto) contains the entire agreement among all of the parties with respect to the subject matter hereof and supersedes all prior arrangements and understandings, both written and oral, with respect thereto, but shall not supersede any agreements among any group of the parties hereto entered into on or after the date hereof.
Section 8.5. Severability. It is the desire and intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under the law and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, in the event that any provision of this Agreement would be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Section 8.6. Notices. All notices and other communications pursuant to this Agreement shall be in writing and shall be deemed to be sufficient if contained in a written instrument and shall be deemed given if delivered personally, telecopied, sent by nationally recognized, overnight courier or mailed by registered or certified mail (return receipt requested), postage prepaid, to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
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USA Interactive152 West 57th StreetNew York, NY 10019Attention: General CounselTelecopier: (212) 314-7439
Wachtell, Lipton, Rosen & Katz51 West 52nd StreetNew York, NY 10019Attention: Pamela S. SeymonTelecopier: (212) 403-2000
Ticketmaster3701 Wilshire BoulevardLos Angeles, CA 90010Attention: General CounselTelecopier: (213) 382-2738
Mintz Levin Cohn Ferris Glovsky and Popeo, PC1 Financial CenterBoston, MA 02111Attention: Robert PopeoTelecopier: (617) 542-2241
All such notices and other communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of a telecopy, when the party receiving such telecopy shall have confirmed receipt of the communication, (c) in the case of delivery by nationally recognized overnight courier, on the Business Day following dispatch and (d) in the case of mailing, on the third Business Day following such mailing.
Section 8.7. Headings; Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. As used in this Agreement, "subsidiary" with respect to any person shall mean any entity which such person has the ability to control the voting power thereof, either through ownership of equity interests or otherwise,provided that under no circumstances shall the Company and its subsidiaries be deemed to be subsidiaries of Parent.
Section 8.8. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
Section 8.9. Benefits; Assignment. This Agreement is not intended to confer upon any person other than the parties any rights or remedies hereunder and shall not be assigned by operation of law or otherwise;provided,however, that the officers and directors of the Company are intended beneficiaries of the covenants and agreements contained in Section 5.10.
Section 8.10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein, without giving effect to laws that might otherwise govern under applicable principles of conflicts of law.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be signed by their respective officers thereunto duly authorized, as of the date first written above.
[Signature page to Agreement and Plan of Merger]
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Appendix B
Technology Group
October 9, 2002
Special Committee of the Board of DirectorsTicketmaster3701 Wilshire BoulevardLos Angeles, California 90010
Members of the Special Committee:
You have asked us to advise you with respect to the fairness, from a financial point of view, to the holders of shares of class A common stock, par value $0.01 per share ("Class A Stock"), and class B common stock, par value $0.01 per share (the "Class B Stock" and together with the Class A Stock, the "Company Common Stock"), of Ticketmaster, a Delaware corporation (the "Company"), other than USA Interactive (the "Acquiror") and its affiliates, of the Exchange Ratio (as defined below) set forth in the Agreement and Plan of Merger dated as of October 9, 2002 (the "Agreement"), by and among the Acquiror, T Merger Corp., a wholly-owned subsidiary of the Acquiror ("Merger Sub"), and the Company. The Agreement provides for, among other things, the merger of the Merger Sub with and into the Company (the "Merger"), pursuant to which each outstanding share of Company Common Stock not held by the Company, the Acquiror or any wholly-owned subsidiary of the Acquiror will be converted into the right to receive 0.935 (the "Exchange Ratio") shares of common stock, par value $0.01 per share, of the Acquiror ("Acquirer Common Stock").
In arriving at our opinion, we have reviewed the Agreement, as well as certain publicly available business and financial information relating to the Company and the Acquiror. We have also reviewed certain other information relating to the Company, including financial forecasts, provided to or discussed with us by the Company, and have met with the management of the Company to discuss the business and prospects of the Company. We have also reviewed certain other information relating to the Acquiror, including publicly available financial forecasts, and have met with the management of the Acquiror to discuss the business and prospects of the Acquiror. We also have considered certain financial and stock market data of the Company and the Acquiror, and we have compared those data with similar data for other publicly held companies in businesses we deemed similar to those of the Company and the Acquiror, and we have considered, to the extent publicly available, the financial terms of certain other business combinations and other transactions which have recently been announced or effected. We also considered such other information, financial studies, analyses and investigations and financial, economic and market criteria which we deemed relevant.
In connection with our review, we have not assumed any responsibility for independent verification of any of the foregoing information and have relied on its being complete and
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accurate in all material respects. With respectcharge", with an amount associated to the financial forecasts relating to the Company, we have been advised and we have assumed that such forecasts have been reasonably prepared on bases reflecting the best currently available estimates and judgmentsVUE of the management2.6 billion euros as of the Company as to the future financial performance of the Company. With respect to the publicly available financial forecasts for the Acquiror referred to above, we have reviewed and discussed such forecasts with the management of the Acquiror and have been advised, and have assumed, with your consent, that such forecasts represent reasonable estimates and judgments as to the future financial performance of the Acquiror. In addition, we have relied upon, without independent verification, the assessments of the managements of the Company and the Acquiror as to (i) the existing and future technology, services and products of the Company and the Acquiror and the risks associated with such technology, services and products, (ii) their ability to integrate the businesses of the Company and the Acquiror, and (iii) their ability to retain key employees of the Company and the Acquiror.
We have assumed, with your consent, that in the course of obtaining any necessary regulatory and third party approvals and consents for the Merger, no modification, delay, limitation, restriction or condition will be imposed that will have a material adverse effect on the Company or the Acquiror or the contemplated benefits of the Merger andJune 30, 2002. The press release further stated that the Merger will be consummated in accordance with the terms of the Agreement, without waiver, modification or amendment of any material terms, conditions or agreements therein. We also have assumed, with your consent, that the Merger will be treated as a tax-free reorganization for federal income tax purposes. In addition, you have advised us that the Acquiror and its affiliates beneficially own, in the aggregate, in excess of 90% of the voting power of the Class A Stock and, consequently, we have considered, for purposes of our analysis, the shares of Class A Stock and Class B Stock identical in all respects. In addition, we have not been requested to make, and have not made, an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Company and the Acquiror, nor have we been furnished with any such evaluations or appraisals. Ourreported adjustment "reflects Vivendi management's opinion is necessarily based upon information available to us and financial, economic, market and other conditions as they exist and can be evaluated on the date hereof.
We are not expressing any opinion as to the actual value of the Acquiror Common Stock when issued to the holders of Company Common Stock pursuant to the Merger or the prices at which the Acquiror Common Stock will trade at any time. Our opinion does not address the relative merits of the Merger as compared to other business strategies that might be available to the Company, nor does it address the underlying business decision of the Company to proceed with the Merger. We were not requested to, and did not, solicit third party indications of interest in acquiring all or any part of the Company.
We have acted as financial advisor to the Special Committee of the Board of Directors of the Company in connection with the Merger and will receive a fee for our services, a significant portion of which is contingent upon the consummation of the Merger. We will also receive a fee upon the rendering of this opinion. In addition, the Company has agreed to indemnify us for certain liabilities arising out of our engagement. In the past, we and our affiliates have provided certain investment banking and financial services unrelated to the proposed Merger to the Company and the Acquiror and their respective affiliates for which we have received compensation, and, may in the future provide certain investment banking and financial services to the Acquiror and its affiliates, for which we expect to receive compensation. In the ordinary course of our business, we and our affiliates may actively trade the debt and equity securities of the Company and the Acquiror for our and
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such affiliates' own accounts and for the accounts of customers and, accordingly, may at any time hold a long or short position in such securities.
It is understood that this letter is for the information of the Special Committee of the Board of Directors of the Company in connection with its consideration of the Merger and does not constitute a recommendation to any stockholder as to how such stockholder should vote or act on any matter relating to the Merger.
Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Exchange Ratio is fair, from a financial point of view, to the holders of Company Common Stock, other than the Acquiror and its affiliates.
Very truly yours,
CREDIT SUISSE FIRST BOSTON CORPORATION
/s/ Credit Suisse First Boston Corporation
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APPENDIX C: SECTION 262 OF THE GENERAL CORPORATION LAWOF THE STATE OF DELAWARE
(a) Any stockholder of a corporation of this State who holds shares of stock on the date of the making of a demand pursuant to subsection (d) of this section with respect to such shares, who continuously holds such shares through the effective date of the merger or consolidation, who has otherwise complied with subsection (d) of this section and who has neither voted in favor of the merger or consolidation nor consented thereto in writing pursuant to Section 228 of this title shall be entitled to an appraisal by the Court of Chancery of the fair value of the stockholder'score assets on a permanent ongoing concern basis with Vivendi". USA owns various securities in VUE, including a 5.44% common interest, with USA's common interest subject to a call right beginning in 2007, and USA having a put right beginning in 2010, in both cases based on private market values at the time. USA believes that its circumstances, including its financing cost, are, at present, very different than Vivendi's, and that the entertainment assets have significant long-term value, although market valuations of media assets have declined since the close of the VUE transaction on May 7, 2002. USA believes that it is too early to determine whether potential declines in its VUE common interest are other than temporary and will assess the carrying value of the VUE securities on a continuing basis. USA believes that the action taken by Vivendi has no bearing on the value of its preferred partnership interests in VUE, which are senior to the common interests.
To the extent that USA management subsequently determines that the declines are other than temporary, USA may take an equity write-down of its common interest to fair value. Furthermore, USA may record an equity loss for its proportionate common interest in VUE, if the venture also records a write-down of the assets under US GAAP.
USA did record a $2.7 million equity loss in the third quarter of 2002 relating to VUE's results of operations. USA will record its income or loss in the partnership on a one quarter lag.
NOTE 9—DISCONTINUED OPERATIONS
The USA Entertainment Group, which was contributed to VUE on May 7, 2002, is presented as discontinued operations for all applicable periods presented. The revenues and net income, net of the effect of minority interest for the USA Entertainment Group, were as follows:
| | Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2002 | 2001 | ||||||||||
| | (In Thousands) | |||||||||||||
| Net revenue | $ | — | $ | 419,816 | $ | 593,450 | $ | 1,423,764 | ||||||
| Income before tax and minority interest | — | 110,733 | 135,837 | 347,022 | ||||||||||
| Tax expense | — | (22,779 | ) | (24,719 | ) | (67,628 | ) | |||||||
| Minority interest | — | (65,521 | ) | (82,315 | ) | (207,139 | ) | |||||||
| Net income | $ | — | $ | 22,433 | $ | 28,803 | $ | 72,255 | ||||||
During the three months ended March 31, 2001, USA Entertainment Group recorded expense of $9.2 million related to the cumulative effect of adoption of SOP 00-2 "Accounting By Producers or Distributors of Films."
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NOTE 10—NOTES OFFERING AND GUARANTOR AND NON-GUARANTOR FINANCIAL INFORMATION
In December 2002, the Company initiated an offering of Senior (the "Offered Notes"). The Offered Notes, by their terms, are fully and unconditionally guaranteed by USANi LLC (the "Guarantor"). USANi LLC is wholly owned, directly or indirectly, by the Company.
The following tables present condensed consolidating financial information for the nine months ended September 30, 2002 and 2001 for: (1) the Company on a stand-alone basis, (2) the Guarantor, USANi LLC, on a stand-alone basis, (3) the combined non-guarantor subsidiaries of the Company (including the subsidiaries of USANi LLC (collectively, the "Non-Guarantor Subsidiaries")) and (4) the Company on a consolidated basis.
As of and for the Nine Months Ended September 30, 2002
| | USA | USANi LLC | Non-Guarantor Subsidiaries | Total Eliminations | USA Consolidated | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | ||||||||||||||
| Balance Sheet as of September 30, 2002: | |||||||||||||||
| Current Assets | $ | (2,313 | ) | $ | 1,925,213 | $ | 1,951,474 | $ | — | $ | 3,874,374 | ||||
| Property and equipment, net | — | 20,850 | 413,414 | — | 434,264 | ||||||||||
| Goodwill and other intangible assets, net | — | 2,260 | 7,007,118 | — | 7,009,378 | ||||||||||
| Investment in subsidiaries | 6,335,472 | 3,219,045 | — | (9,554,517 | ) | — | |||||||||
| Other assets | 310,084 | 2,827,547 | 246,501 | — | 3,384,132 | ||||||||||
| Total assets | $ | 6,643,243 | $ | 7,994,915 | $ | 9,618,507 | $ | (9,554,517 | ) | $ | 14,702,148 | ||||
| Current liabilities | $ | 63,021 | $ | 27,785 | $ | 1,596,757 | $ | — | $ | 1,687,563 | |||||
| Long-term debt, less current portion | — | 498,718 | 9,519 | — | 508,237 | ||||||||||
| Other liabilities | 2,212,927 | — | 78,721 | — | 2,291,648 | ||||||||||
| Intercompany liabilities | (4,837,452 | ) | 4,685,710 | 151,742 | — | — | |||||||||
| Minority interest | — | — | 514,401 | 495,552 | 1,009,953 | ||||||||||
| Common stock exchangeable for preferred interest | 1,428,530 | — | — | — | 1,428,530 | ||||||||||
| Interdivisional equity | — | — | 7,267,367 | (7,267,367 | ) | — | |||||||||
| Stockholders' equity | 7,776,217 | 2,782,702 | — | (2,782,702 | ) | 7,776,217 | |||||||||
| Total liabilities and stockholders equity | $ | 6,643,243 | $ | 7,994,915 | $ | 9,618,507 | $ | (9,554,517 | ) | $ | 14,702,148 | ||||
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| | USA | USANi LLC | Non-Guarantor Subsidiaries | Total Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Statement of operations for the three months ended September 30, 2002 | ||||||||||||||||
| Revenue | $ | — | $ | — | $ | 1,192,496 | $ | — | $ | 1,192,496 | ||||||
| Operating expenses | (246 | ) | (14,477 | ) | (1,172,010 | ) | — | (1,186,733 | ) | |||||||
| Interest expenses, net | 5,315 | 20,226 | 2,417 | — | 27,958 | |||||||||||
| Other income, expense | (38,434 | ) | (40,427 | ) | (3,859 | ) | 64,638 | (18,082 | ) | |||||||
| Provision for income taxes | — | — | (31,849 | ) | — | (31,849 | ) | |||||||||
| Minority interest | — | — | (717 | ) | (16,438 | ) | (17,155 | ) | ||||||||
| Income (loss) | (33,365 | ) | (34,678 | ) | (13,522 | ) | 48,200 | (33,365 | ) | |||||||
| Preferred dividend | (3,264 | ) | — | — | — | (3,264 | ) | |||||||||
| Net income (loss) available to common | $ | (36,629 | ) | $ | (34,678 | ) | $ | (13,522 | ) | $ | 48,200 | $ | (36,629 | ) | ||
| | USA | USANi LLC | Non-Guarantor Subsidiaries | Total Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Statement of operations for the nine months ended September 30, 2002 | ||||||||||||||||
| Revenue | $ | — | $ | — | $ | 3,282,236 | $ | — | $ | 3,282,236 | ||||||
| Operating expenses | (4,878 | ) | (31,134 | ) | (3,218,246 | ) | — | (3,254,258 | ) | |||||||
| Interest expenses, net | 14,110 | 22,018 | 3,501 | — | 39,629 | |||||||||||
| Other income, expense | (149,971 | ) | (205,733 | ) | (118,966 | ) | 342,695 | (131,975 | ) | |||||||
| Provision for income taxes | — | — | (58,407 | ) | — | (58,407 | ) | |||||||||
| Minority interest | — | — | 2,300 | (20,264 | ) | (17,964 | ) | |||||||||
Net income (loss) from continuing operations | (140,739 | ) | (214,849 | ) | (107,582 | ) | 322,431 | (140,739 | ) | |||||||
| Gain on contribution of USA Entertainment to VUE | 2,378,311 | — | — | — | 2,378,311 | |||||||||||
| Discontinued operations, net of tax | 28,803 | 33,237 | 29,044 | (62,281 | ) | 28,803 | ||||||||||
| Cumulative effect of accounting change, net of tax and minority interest | (461,389 | ) | — | (461,389 | ) | 461,389 | (461,389 | ) | ||||||||
| Income (loss) | 1,804,986 | (181,612 | ) | (539,927 | ) | 721,539 | 1,804,986 | |||||||||
| Preferred dividend | (8,495 | ) | — | — | — | (8,495 | ) | |||||||||
| Net income (loss) available to common | $ | 1,796,491 | $ | (181,612 | ) | $ | (539,927 | ) | $ | 721,539 | $ | 1,796,491 | ||||
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| | USA | USANi LLC | Non-Guarantor Subsidiaries | Total Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Cash flow for the nine months ended September 30, 2002 | ||||||||||||||||
| Cash flow provided by (used in) operations | $ | (28,228 | ) | $ | (6,806 | ) | $ | 489,248 | $ | — | $ | 454,214 | ||||
| Cash flow providedby (used in) investing activities | 2,406 | (374,287 | ) | (425,295 | ) | 47,000 | (750,176 | ) | ||||||||
| Cash flow provided by (used in) financing activities | 25,822 | (384,019 | ) | 384,997 | (47,000 | ) | (20,200 | ) | ||||||||
| Net Cash provided by (used in) Discontinued Operations | — | — | 5,351 | — | 5,351 | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | — | 7,847 | — | 7,847 | |||||||||||
| Cash at beginning of period | — | 789,464 | 188,913 | — | 978,377 | |||||||||||
| Cash at end of period | $ | — | $ | 24,352 | $ | 651,061 | $ | — | $ | 675,413 | ||||||
| | USA | USANi LLC | Non-Guarantor Subsidiaries | Total Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Statement of operations for the three months ended September 30, 2001 | ||||||||||||||||
| Revenue | $ | — | $ | — | $ | 837,839 | $ | — | $ | 837,839 | ||||||
| Operating expenses | (3,411 | ) | (16,031 | ) | (898,328 | ) | — | (917,770 | ) | |||||||
| Interest expenses, net | (5,253 | ) | 2,455 | (419 | ) | — | (3,217 | ) | ||||||||
| Other income, expense | (54,211 | ) | (13,418 | ) | (12,938 | ) | 67,630 | (12,937 | ) | |||||||
| Provision for income taxes | — | — | 878 | — | 878 | |||||||||||
| Minority interest | — | — | 15,296 | 17,036 | 32,332 | |||||||||||
| Net income (loss) from continuing operations | (62,875 | ) | (26,994 | ) | (57,672 | ) | 84,666 | (62,875 | ) | |||||||
| Gain on disposal of Broadcasting stations | 468,018 | — | — | — | 468,018 | |||||||||||
| Discontinued operations, net of tax | 22,433 | 23,489 | 24,270 | (47,759 | ) | 22,433 | ||||||||||
| Earnings (loss) | 427,576 | (3,505 | ) | (33,402 | ) | 36,907 | 427,576 | |||||||||
| Preferred dividend | — | — | — | — | — | |||||||||||
| Net earnings (loss) available to common | $ | 427,576 | $ | (3,505 | ) | $ | (33,402 | ) | $ | 36,907 | $ | 427,576 | ||||
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| | USA | USANi LLC | Non-Guarantor Subsidiaries | Total Eliminations | USA Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (In Thousands) | |||||||||||||||
| Statement of operations for the nine months ended September 30, 2001 | ||||||||||||||||
| Revenue | $ | — | $ | — | $ | 2,520,354 | $ | — | $ | 2,520,354 | ||||||
| Operating expenses | (8,481 | ) | (46,781 | ) | (2,646,238 | ) | — | (2,701,500 | ) | |||||||
| Interest expenses, net | (18,195 | ) | 5,665 | (478 | ) | — | (13,008 | ) | ||||||||
| Other income, expense | (113,682 | ) | (30,707 | ) | (25,407 | ) | 144,390 | (25,406 | ) | |||||||
| Provision for income taxes | — | — | (3,563 | ) | — | (3,563 | ) | |||||||||
| Minority interest | — | — | 38,268 | 44,497 | 82,765 | |||||||||||
| Earnings (loss) from continuing operations | (140,358 | ) | (71,823 | ) | (117,064 | ) | 188,887 | (140,358 | ) | |||||||
| Gain on disposal of Broadcasting stations | 517,847 | — | — | — | 517,847 | |||||||||||
| Discontinued operations, net of tax | 72,255 | 77,283 | 74,078 | (151,361 | ) | 72,255 | ||||||||||
| Cumulative effect of accounting change, net of tax and minority interest | (9,187 | ) | — | (9,187 | ) | 9,187 | (9,187 | ) | ||||||||
| Earnings (loss) | 440,557 | 5,460 | (52,173 | ) | 46,713 | 440,557 | ||||||||||
| Preferred dividend | — | — | — | — | — | |||||||||||
| Net earnings (loss) available to common | $ | 440,557 | $ | 5,460 | $ | (52,173 | ) | $ | 46,713 | $ | 440,557 | |||||
| Cash flow for the nine months ended September 30, 2001 | ||||||||||||||||
| Cash flow provided by (used in) operations | $ | (18,398 | ) | $ | (9,300 | ) | $ | 227,327 | $ | — | $ | 199,629 | ||||
| Cash flow provided by (used in) investing activities | 53,756 | (4,367 | ) | 118,928 | — | 168,317 | ||||||||||
| Cash flow provided by (used in) financing activities | (35,358 | ) | 608,814 | (509,131 | ) | — | 64,325 | |||||||||
| Net Cash provided by (used in) Discontinued Operations | — | — | 226,691 | — | 226,691 | |||||||||||
| Effect of exchange rate changes on cash and cash equivalents | — | (278 | ) | (3,148 | ) | — | (3,426 | ) | ||||||||
| Cash at beginning of period | — | 78,079 | 166,144 | — | 244,223 | |||||||||||
| Cash at end of period | $ | — | $ | 672,948 | $ | 226,811 | $ | — | $ | 899,759 | ||||||
NOTE 11—SUBSEQUENT EVENT—USA AND TICKETMASTER MERGER
USA and Ticketmaster announced on October 10, 2002 that they have entered into an agreement by which Ticketmaster would be merged with USA. The agreement followed the unanimous recommendation of an independent Special Committee of the Ticketmaster Board. USA, which is now the controlling shareholder and majority owner of Ticketmaster, would acquire all Ticketmaster shares that it does not presently own in a tax-free transaction.
Under the agreement, Ticketmaster shareholders would receive 0.935 of a share of USA common stock for each share of Ticketmaster common stock that they own. Based on the current number of Ticketmaster shares outstanding, USA would issue to Ticketmaster public shareholders approximately 45.1 million shares upon the closing of the transaction, which is anticipated by the fourth quarter of 2002 or the first quarter of 2003. Furthermore, based on the current number of options and warrants outstanding, USA would issue approximately 10.0 million stock options and 4.2 million warrants.
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Each broker-dealer that receives exchange notes for its own account under the circumstances described in subsections (b)exchange offer must acknowledge that it will deliver a prospectus as part of any resale of the exchange notes. The Letter of Transmittal states that by so acknowledging and (c)by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of this section. Asthe Securities Act. This prospectus, as it may be amended or supplemented from time to time, may be used in this section, the word "stockholder" means a holder of record of stock in a stock corporation and also a member of record of a nonstock corporation; the words "stock" and "share" mean and include what is ordinarily meant by those words and also membership or membership interest of a member of a nonstock corporation; and the words "depository receipt" mean a receipt or other instrument issued by a depository representing an interestbroker-dealer as part of resales of exchange notes received in one or more shares, or fractions thereof, solely of stock of a corporation, which stock is deposited withexchange for old 7% notes where the depository.
(b) Appraisal rights shall be available for the shares of any class or series of stock of a constituent corporation in a merger or consolidation to be effected pursuant to Section 251 (other than a merger effected pursuant to Section 251(g) of this title), Section 252, Section 254, Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be available for the shares of any class or series of stock, which stock, or depository receipts in respect thereof, at the record date fixed to determine the stockholders entitled to receive notice of and to vote at the meeting of stockholders to act upon the agreement of merger or consolidation,old 7% notes were either (i) listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders; and further provided that no appraisal rights shall be available for any shares of stock of the constituent corporation surviving a merger if the merger did not require for its approval the vote of the stockholders of the surviving corporation as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under this section shall be available for the shares of any class or series of stock of a constituent corporation if the holders thereof are required by the terms of an agreement of merger or consolidation pursuant to Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in respect thereof, which shares of stock (or depository receipts in respect thereof) or depository receipts at the effective date of the merger or consolidation will be either listed on a national securities exchange or designated as a national market system security on an interdealer quotation system by the National Association of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash instead of fractional shares or fractional depository receipts described in the foregoing subparagraphs a. and b. of this paragraph; or
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d. Any combination of the shares of stock, depository receipts and cash in lieu of fractional shares or fractional depository receipts described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to a merger effected under Section 253 of this title is not owned by the parent corporation immediately prior to the merger, appraisal rights shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that appraisal rights under this section shall be available for the shares of any class or series of its stockacquired as a result of an amendment to its certificatemarket-making activities or other trading activities. We have agreed that for a period of incorporation, any merger or consolidation in which the corporation is a constituent corporation or the sale of all or substantially all of the assets of the corporation. If the certificate of incorporation contains such a provision, the procedures of this section, including those set forth in subsections (d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are provided under this section is to be submitted for approval at a meeting of stockholders, the corporation, not less than 20 days prior to the meeting, shall notify each of its stockholders who was such on the record date for such meeting with respect to shares for which appraisal rights are available pursuant to subsection (b) or (c) hereof that appraisal rights are available for any or all of the shares of the constituent corporations, and shall include in such notice a copy of this section. Each stockholder electing to demand the appraisal of such stockholder's shares shall deliver to the corporation, before the taking of the vote on the merger or consolidation, a written demand for appraisal of such stockholder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such stockholder's shares. A proxy or vote against the merger or consolidation shall not constitute such a demand. A stockholder electing to take such action must do so by a separate written demand as herein provided. Within 1090 days after the effectiveexpiration date, of such mergerwe will make this prospectus, as amended or consolidation, the surviving or resulting corporation shall notify each stockholder of each constituent corporation who has complied with this subsection and has not voted in favor of or consentedsupplemented, available to the merger or consolidation of the date that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228 or Section 253 of this title, then, either a constituent corporation before the effective date of the merger or consolidation, or the surviving or resulting corporation within ten days thereafter, shall notify each of the holders of any class or series of stock of such constituent corporation who are entitled to appraisal rights of the approval of the merger or consolidation and that appraisal rights are availablebroker-dealer for any or all shares of such class or series of stock of such constituent corporation, and shall include in such notice a copy of this section. Such notice may, and, if given on or after the effective date of the merger or consolidation, shall, also notify such stockholders of the effective date of the merger or consolidation. Any stockholder entitled to appraisal rights may, within 20 days after the date of mailing of such notice, demand in writing from the surviving or resulting corporation the appraisal of such holder's shares. Such demand will be sufficient if it reasonably informs the corporation of the identity of the stockholder and that the stockholder intends thereby to demand the appraisal of such holder's shares. If such notice did not notify stockholders of the effective date of the merger or consolidation, either (i) each such constituent corporation shall send a second notice before the effective date of the merger or consolidation notifying each of the holders of any class or series of stock of such constituent corporation that are entitled to appraisal rights of the effective date of the merger or consolidation or (ii) the surviving or resulting
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corporation shall send such a second notice to all such holders on or within 10 days after such effective date; provided, however, that if such second notice is sent more than 20 days following the sending of the first notice, such second notice need only be sent to each stockholder who is entitled to appraisal rights and who has demanded appraisal of such holder's shares in accordance with this subsection. An affidavit of the secretary or assistant secretary or of the transfer agent of the corporation that is required to give either notice that such notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. For purposes of determining the stockholders entitled to receive either notice, each constituent corporation may fix, in advance, a record date that shall be not more than 10 days prior to the date the notice is given, provided, that if the notice is given on or after the effective date of the merger or consolidation, the record date shall be such effective date. If no record date is fixed and the notice is given prior to the effective date, the record date shall be the close of business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the surviving or resulting corporation or any stockholder who has complied with subsections (a) and (d) hereof and who is otherwise entitled to appraisal rights, may file a petition in the Court of Chancery demanding a determination of the value of the stock of all such stockholders. Notwithstanding the foregoing, at any time within 60 days after the effective date of the merger or consolidation, any stockholder shall have the right to withdraw such stockholder's demand for appraisal and to accept the terms offereduse upon the merger or consolidation. Within 120 days after the effective date of the merger or consolidation, any stockholder who has complied with the requirements of subsections (a) and (d) hereof, upon written request, shall be entitled to receive from the corporation surviving the merger or resulting from the consolidation a statement setting forth the aggregate number of shares not voted in favor of the merger or consolidation and with respect to which demands for appraisal have been received and the aggregate number of holders of such shares. Such written statement shall be mailed to the stockholder within 10 days after such stockholder's written request for such a statement is received by the surviving or resulting corporation or within 10 days after expiration of the period for delivery of demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, serviceresale. See "Plan of a copy thereof shall be made upon Distribution."
$750,000,000
Offer for All Outstanding 7% Senior Notes due 2013
in Exchange for 7% Senior Notes due 2013,
Which Have Been Registered Under
the surviving or resulting corporation, which shall within 20 days after such service file in the officeSecurities Act of the Register in Chancery in which the petition was filed a duly verified list containing the names and addresses of all stockholders who have demanded payment for their shares and with whom agreements as to the value of their shares have not been reached by the surviving or resulting corporation. If the petition shall be filed by the surviving or resulting corporation, the petition shall be accompanied by such a duly verified list. The Register in Chancery, if so ordered by the Court, shall give notice of the time and place fixed for the hearing of such petition by registered or certified mail to the surviving or resulting corporation and to the stockholders shown on the list at the addresses therein stated. Such notice shall also be given by 1 or more publications at least 1 week before the day of the hearing, in a newspaper of general circulation published in the City of Wilmington, Delaware or such publication as the Court deems advisable. The forms of the notices by mail and by publication shall be approved by the Court, and the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders who have complied with this section and who have become entitled to appraisal rights. The Court may require the stockholders who have demanded an appraisal for their shares and who hold stock represented by certificates to submit their certificates of stock to the Register in Chancery for notation thereon of the pendency of the appraisal proceedings; and if any stockholder fails to comply with such direction, the Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall appraise the shares, determining their fair value exclusive of any element of value arising from the accomplishment
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or expectation of the merger or consolidation, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. In determining such fair value, the Court shall take into account all relevant factors. In determining the fair rate of interest, the Court may consider all relevant factors, including the rate of interest which the surviving or resulting corporation would have had to pay to borrow money during the pendency of the proceeding. Upon application by the surviving or resulting corporation or by any stockholder entitled to participate in the appraisal proceeding, the Court may, in its discretion, permit discovery or other pretrial proceedings and may proceed to trial upon the appraisal prior to the final determination of the stockholder entitled to an appraisal. Any stockholder whose name appears on the list filed by the surviving or resulting corporation pursuant to subsection (f) of this section and who has submitted such stockholder's certificates of stock to the Register in Chancery, if such is required, may participate fully in all proceedings until it is finally determined that such stockholder is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares, together with interest, if any, by the surviving or resulting corporation to the stockholders entitled thereto. Interest may be simple or compound, as the Court may direct. Payment shall be so made to each such stockholder, in the case of holders of uncertificated stock forthwith, and the case of holders of shares represented by certificates upon the surrender to the corporation of the certificates representing such stock. The Court's decree may be enforced as other decrees in the Court of Chancery may be enforced, whether such surviving or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon the parties as the Court deems equitable in the circumstances. Upon application of a stockholder, the Court may order all or a portion of the expenses incurred by any stockholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys' fees and the fees and expenses of experts, to be charged pro rata against the value of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no stockholder who has demanded appraisal rights as provided in subsection (d) of this section shall be entitled to vote such stock for any purpose or to receive payment of dividends or other distributions on the stock (except dividends or other distributions payable to stockholders of record at a date which is prior to the effective date of the merger or consolidation); provided, however, that if no petition for an appraisal shall be filed within the time provided in subsection (e) of this section, or if such stockholder shall deliver to the surviving or resulting corporation a written withdrawal of such stockholder's demand for an appraisal and an acceptance of the merger or consolidation, either within 60 days after the effective date of the merger or consolidation as provided in subsection (e) of this section or thereafter with the written approval of the corporation, then the right of such stockholder to an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed as to any stockholder without the approval of the Court, and such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of such objecting stockholders would have been converted had they assented to the merger or consolidation shall have the status of authorized and unissued shares of the surviving or resulting corporation.
C-4PROSPECTUS
February 13, 2003
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
The Registrant'sUSA Interactive's Restated Certificate of Incorporation, as amended, limits, to the maximum extent permitted by Delaware law, the personal liability of directors for monetary damages for breach of their fiduciary duties as a director. The Registrant'sUSA Interactive's Amended and Restated By-Laws provide that the directors and officers (and legal representatives of such directors and officers) will be indemnified to the fullest extent authorized by the Delaware General Corporation Law with respect to third-party actions, suits, investigations or proceedings provided that any such person has met the applicable standard of conduct set forth in the Delaware General Corporation Law described below. The Registrant'sUSA Interactive's Amended and Restated By-Laws further provide that directors and officers (and legal representatives of such directors and officers) will be indemnified with respect to actions or suits initiated by such person only if such action was first approved by the board of directors. The Registrant'sUSA Interactive's Amended and Restated By-Laws allow the RegistrantUSA Interactive to pay all expenses incurred by a director or officer (or legal representatives of such directors or officers) in defending any proceeding in which the scope of the indemnification provisions as such expenses are incurred in advance of its final disposition, upon an undertaking by such party to repay such expenses, if it is ultimately determined that such party was not entitled to indemnity by the Registrant.USA Interactive. From time to time, officers and directors may be provided with indemnification agreements that are consistent with the foregoing provisions. The RegistrantUSA Interactive has policies of directors' and officers' liability insurance which insure directors and officers against the costs of defense, settlement and/or payment of judgment under certain circumstances. The RegistrantUSA Interactive believes that these agreements and arrangements are necessary to attract and retain qualified persons as directors and officers.
Section 145 of the General Delaware General Corporation Law provides that a corporation may indemnify a director, officer, employee or agent who was or is a party, or is threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he was a director, officer, employee or agent of the corporation or was serving at the request of the corporation against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.
Item 21. Exhibits and Financial Statement Schedules.
| Exhibit Number | Description | |
|---|---|---|
| *4.2 | Form of 7% Senior Notes due 2013 (included as Exhibit B to | |
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| 5.1 | Opinion of | |
| 23.1 | Consent of Ernst & Young | |
| 23.2 | ||
| Consent of Deloitte & Touche |
II-1
| Consent of | ||
| *24.1 | Powers of | |
| *24.2 | Powers of Attorney for USANi LLC. | |
| *25.1 | Statement of Eligibility of Trustee on Form T-1 related to the notes. | |
| 99.1 | ||
| 99.2 | ||
| 99.3 | Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. | |
| 99.4 | Form of Letter to Clients. |
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(b) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the
II-2
securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(d) That, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference into the registration statement shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(e) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form.
(f) That every prospectus: (i) that is filed pursuant to paragraph (e) immediately preceding, or (ii) that purports to meet the requirements of Section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the registration statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof.
(g) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in the documents filed subsequent to the effective date of the registration statement through the date of responding to the request.
(h)(c) To supply by means of a post-effective amendment all information concerning a transaction and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective.
Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
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Pursuant to the requirements of the Securities Act, the RegistrantUSA Interactive has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on December 17, 2002.February 13, 2003.
| USA INTERACTIVE | |||
By: | /s/ | ||
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities indicated as of December 17, 2002.February 13, 2003.
| Signature | Title | |
|---|---|---|
Barry Diller | Chairman of the Board, Chief Executive Officer and Director | |
Victor A. Kaufman | Vice Chairman and Director | |
Dara Khosrowshahi | Executive Vice President and Chief Financial Officer | |
/s/ William J. Severance | Vice President and Controller (Chief Accounting Officer) | |
Richard N. Barton | Director | |
* Robert R. Bennett | Director | |
Edgar Bronfman, Jr. | Director | |
Anne M. Busquet | ||
Director | ||
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Director | ||
* Donald R. Keough | Director | |
Marie-Josée Kravis | Director | |
John C. Malone | Director | |
Gen. H. Norman Schwarzkopf | Director | |
Alan Spoon | Director | |
Diane Von Furstenberg | Director |
*By: | /s/ WILLIAM J. SEVERANCE Attorney-In-Fact |
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Pursuant to the requirements of the Securities Act, USANi LLC has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on February 13, 2003.
| USANi LLC | |||
By: | /s/ WILLIAM J. SEVERANCE William J. Severance Vice President and Controller | ||
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities indicated as of February 13, 2003.
| Signature | Title | |
|---|---|---|
| * Dara Khosrowshahi | President, Principal Executive Officer and Director | |
/s/ WILLIAM J. SEVERANCE William J. Severance | Vice President and Controller (Chief Financial Officer and Chief Accounting Officer) | |
* David Ellen | Director |
*By: | /s/ WILLIAM J. SEVERANCE William J. Severance Attorney-In-Fact |
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| Exhibit Number | Description | |
|---|---|---|
| *4.2 | Form of 7% Senior Notes due 2013 (included as Exhibit B to | |
| 5.1 | Opinion of | |
| 23.1 | Consent of Ernst & Young | |
| 23.2 | ||
| Consent of Deloitte & Touche | ||
| Consent of | ||
| *24.1 | Powers of | |
| *24.2 | Powers of Attorney for USANi LLC. | |
| *25.1 | Statement of Eligibility of Trustee on Form T-1 related to the notes. | |
| 99.1 | ||
| 99.2 | ||
| 99.3 | Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. | |
| 99.4 | Form of Letter to Clients. |
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