-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OCa5VRNPQ5MiQJUdg8h2jjDa+P/C6uoxJCHHQMyuazQeGUf4TCUgwbJDMBo00CcU pSNVBdF0xM22TU5edTfGsA== /in/edgar/work/0001116502-00-500131/0001116502-00-500131.txt : 20001116 0001116502-00-500131.hdr.sgml : 20001116 ACCESSION NUMBER: 0001116502-00-500131 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOLLYWOOD COM INC CENTRAL INDEX KEY: 0000912544 STANDARD INDUSTRIAL CLASSIFICATION: [5990 ] IRS NUMBER: 650385686 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14332 FILM NUMBER: 769384 BUSINESS ADDRESS: STREET 1: 2255 GLADES RD STREET 2: STE 237 W CITY: BOCA RATON STATE: FL ZIP: 33431 BUSINESS PHONE: 5619988000 MAIL ADDRESS: STREET 1: 2255 GLADES RD STREET 2: STE 237 W CITY: BOCA RATON STATE: FL ZIP: 33431 FORMER COMPANY: FORMER CONFORMED NAME: BIG ENTERTAINMENT INC DATE OF NAME CHANGE: 19930924 10-Q 1 0001.txt QUARTERLY REPORT U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2000 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ Commission File No. 0-22908 HOLLYWOOD.COM, INC. (Exact name of registrant as specified in its charter) Florida 65-0385686 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2255 Glades Road, Suite 237 West Boca Raton, Florida 33431 (Address of principal executive offices) (zip code) (561) 998-8000 (Registrant's telephone number) Big Entertainment, Inc. ----------------------- (Former Name) Indicated by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- ----------- As of November 9, 2000, the number of shares outstanding of the issuer's common stock, $.01 par value, was 24,814,994. HOLLYWOOD.COM, INC. Table of Contents
Page(s) ------- PART I FINANCIAL INFORMATION - ------ --------------------- ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 2000 (unaudited) and December 31, 1999...................................... 3 Consolidated Statements of Operations for the Nine and Three Months ended September 30, 2000 and 1999 (unaudited) .................. 4 Consolidated Statement of Shareholders' Equity for the Nine Months ended September 30, 2000 (unaudited)....................... 5 Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2000 and 1999 (unaudited)................... 6 Notes to Consolidated Financial Statements (unaudited)................. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................................................................. 18 PART II OTHER INFORMATION - ------- ----------------- ITEM 1. LEGAL PROCEEDINGS............................................................ 29 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS..................................... 29 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K... .......................................... 31 Signature .............................................................................. 33
2 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
September 30, December 31, 2000 1999 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 4,887,581 $ 2,475,345 Receivables, net 2,458,283 1,155,999 Inventories 1,318,988 1,246,733 Prepaid expenses 1,327,363 1,687,347 Note receivable 360,516 -- Other receivables 24,292 18,037 Other current assets 126,758 67,541 Deferred advertising - CBS 21,579,445 -- ------------- ------------- Total current assets 32,083,226 6,651,002 PROPERTY AND EQUIPMENT, net 2,812,215 1,877,959 INVESTMENTS 1,649,402 549,975 NONCURRENT DEFERRED ADVERTISING - CBS 98,604,998 -- INTANGIBLE ASSETS, net 4,161,555 3,770,590 GOODWILL, net 46,848,136 46,483,647 OTHER ASSETS 2,463,554 3,149,652 ------------- ------------- TOTAL ASSETS $ 188,623,086 $ 62,482,825 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 4,151,543 $ 2,181,089 Accrued professional fees 54,094 199,514 Other accrued expenses 1,819,461 1,579,682 Loan from shareholder/officer 1,600,000 -- Customer deposits 882,281 -- Deferred advertising - CBS -- 2,344,950 Accrued reserve for closed stores 732,737 2,366,432 Deferred revenue 1,661,108 308,061 Note payable 750,000 1,928,138 Current portion of capital lease obligations 580,777 561,015 ------------- ------------- Total current liabilities 12,232,001 11,468,881 ------------- ------------- CAPITAL LEASE OBLIGATIONS, less current portion 853,532 995,213 ------------- ------------- DEFERRED REVENUE 365,132 249,117 ------------- ------------- MINORITY INTEREST 152,045 270,828 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 13) SHAREHOLDERS' EQUITY: Preferred Stock, $.01 par value, 539,127 shares authorized; none outstanding -- -- Common stock, $.01 par value, 100,000,000 shares authorized; 24,075,920 (unaudited) and 15,143,216 shares issued at September 30, 2000 and December 31,1999, respectively 240,759 151,432 Warrants outstanding 6,656,612 5,096,704 Deferred compensation (153,100) (306,200) Additional paid-in capital 261,309,024 105,500,656 Accumulated deficit (93,032,919) (60,943,806) ------------- ------------- Total shareholders' equity 175,020,376 49,498,786 ------------- ------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 188,623,086 $ 62,482,825 ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 3 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (Unaudited)
Nine Months Ended September 30, Three Months Ended September 30, ------------------------------- ------------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ NET REVENUES $ 18,012,265 $ 5,829,924 $ 8,029,020 $ 2,774,734 COST OF REVENUE 6,374,119 1,941,347 3,494,409 630,390 ------------ ------------ ------------ ------------ Gross profit 11,638,146 3,888,577 4,534,611 2,144,344 ------------ ------------ ------------ ------------ OPERATING EXPENSES: General and administrative 7,979,538 4,482,558 2,768,025 1,967,124 Selling and marketing 8,057,898 2,338,092 2,760,214 1,270,224 Salaries and benefits 8,364,459 3,640,877 3,203,955 1,826,172 Amortization of CBS advertising - non-cash 14,855,465 -- 5,479,561 -- Depreciation and amortization 1,050,316 1,036,381 391,841 422,342 Amortization of goodwill and intangibles 5,065,645 2,102,688 1,735,076 1,455,856 Reserve for closed stores and leased termination costs 9,519 341,188 (236) 293,391 ------------ ------------ ------------ ------------ Total operating expenses 45,382,840 13,941,784 16,338,436 7,235,109 ------------ ------------ ------------ ------------ Operating loss (33,744,694) (10,053,207) (11,803,825) (5,090,765) EQUITY IN NET EARNINGS - INVESTMENTS 2,099,865 1,210,063 845,906 87,472 OTHER: Interest, net (201,887) (462,340) (86,084) (93,378) Other, net 34,599 8,091 6,192 (971) ------------ ------------ ------------ ------------ Loss before minority interest (31,812,117) (9,297,393) (11,037,811) (5,097,642) MINORITY INTEREST (276,996) (343,191) (124,141) (104,239) ------------ ------------ ------------ ------------ Net loss $(32,089,113) $ (9,640,584) $(11,161,952) $ (5,201,881) ============ ============ ============ ============ Basic and diluted loss per common share $ (1.40) $ (0.86) $ (0.47) $ (0.36) ============ ============ ============ ============ Weighted average common and common equivalent shares outstanding - basic and diluted 22,911,866 11,372,691 23,639,409 14,343,100 ============ ============ ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 4 HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDER'S EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (Unaudited)
Additional Common Paid-in Warrants Stock Capital Outstanding ------------- ------------- ------------- Balance - December 31,1999 $ 151,432 $ 105,500,656 $ 5,096,704 Issuance of common stock and common stock warrants pursuant to CBS agreement 66,720 130,037,885 7,114,781 Stock options and warrants exercised 14,604 19,586,041 (7,114,781) Issuance of common stock - acquisitions 3,454 1,667,262 -- Issuance of common stock - private placement 3,656 2,544,351 358,016 Common stock warrants issued in connection with investment in Movietickets.com -- -- 1,000,000 Issuance of common stock, stock options and warrants for services rendered 95 189,215 201,892 Issuance of common stock - payment of note payable 1,525 1,926,613 -- Non-cash issuance of common stock - franchise agreement 1,000 1,649,000 -- Amortization of employee stock bonuses -- -- -- Shares repurchased (1,727) (1,791,999) -- Net loss -- -- -- ------------- ------------- ------------- Balance - September 30,2000 $ 240,759 $ 261,309,024 $ 6,656,612 ============= ============= =============
[RESTUBBED]
Deferred Accumulated Compensation Deficit Total ------------- ------------- ------------- Balance - December 31,1999 $ (306,200) $ (60,943,806) $ 49,498,786 Issuance of common stock and common stock warrants pursuant to CBS agreement -- -- 137,219,386 Stock options and warrants exercised -- -- 12,485,864 Issuance of common stock - acquisitions -- -- 1,670,716 Issuance of common stock - private placement 2,906,023 -- 2,906,023 Common stock warrants issued in connection with investment in Movietickets.com -- -- 1,000,000 Issuance of common stock, stock options and warrants for services rendered -- -- 391,202 Issuance of common stock - payment of note payable -- -- 1,928,138 Non-cash issuance of common stock - franchise agreement -- -- 1,650,000 Amortization of employee stock bonuses 153,100 -- 153,100 Shares repurchased -- -- (1,793,726) Net loss -- (32,089,113) (32,089,113) ------------- ------------- ------------- Balance - September 30,2000 $ (153,100) $ (93,032,919) $ 175,020,376 ============= ============= =============
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. HOLLYWOOD.COM, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Nine Months Ended September 30, ---------------------------- 2000 1999 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(32,089,113) $ (9,640,584) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of CBS advertising - non-cash 14,855,465 -- Depreciation and amortization 6,115,961 3,139,069 Equity in earnings, net of return of invested capital (1,099,427) 121,630 Issuance of stock options and warrants for services rendered 189,310 169,888 Amortization of employee stock bonuses 153,100 153,100 Recognition of deferred gain -- (9,062) Provision for bad debts 145,816 -- Provision for inventory obsolescence 95,010 -- Amortization of deferred financing costs 6,435 295,644 Reserve for closed store and lease termination costs 9,519 341,188 Minority interest 276,996 343,191 Changes in assets and liabilities: Receivables (691,061) 547,986 Prepaid expenses 385,057 (511,001) Merchandise inventories (3,784) 45,934 Other current assets (65,031) (83,107) Other assets (89,181) 44,116 Accounts payable 403,312 (1,445,474) Accrued professional fees (145,420) 105,525 Customer deposits 882,281 -- Deferred revenue 1,670,954 (15,064) Other accrued expenses 246,564 (221,789) ------------ ------------ Net cash used in operating activities (8,747,237) (6,618,810) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisitions, net of cash received (247,862) (7,307,908) Investment in trademarks (1,070,000) -- Capital expenditures, net (1,410,319) (175,348) Return of capital from Tekno Books to minority partner (395,779) (301,844) ------------ ------------ Net cash used in investing activities (3,123,960) (7,785,100) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments from revolving line of credit -- (758,917) Proceeds from shareholder/officer loan 2,050,000 711,000 Repayments of shareholder/officer loan (450,000) (811,000) Loan to employee, net (360,516) -- Net proceeds from issuance of common stock 8,209,053 17,077,334 Proceeds from exercise of stock options and warrants 7,017,363 4,846,669 Dividends on preferred stock -- (28,097) Payments to repurchase common stock (1,793,726) (668,729) Repayments under capital lease obligations (388,741) (463,688) ------------ ------------ Net cash provided by financing activities 14,283,433 19,904,572 ------------ ------------ Net increase in cash and cash equivalents 2,412,236 5,500,662 CASH AND CASH EQUIVALENTS, beginning of period 2,475,345 729,334 ------------ ------------ CASH AND CASH EQUIVALENTS, end of period $ 4,887,581 $ 6,229,996 ============ ============ SUPPLEMENTAL SCHEDULE OF CASH RELATED ACTIVITIES: Interest paid $ 320,335 $ 253,231 ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 6 HOLLYWOOD.COM, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION: In the opinion of management, the accompanying consolidated financial statements have been prepared by Hollywood.com, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. However, the Company believes that the disclosures contained herein are adequate to make the information presented not misleading. The financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to present fairly the Company's financial position and results of operations. The results of operations and cash flows for the nine and three months ended September 30, 2000 are not necessarily indicative of the results of operations or cash flows which may be recorded for the remainder of 2000. The accompanying consolidated financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. (2) ACQUISITIONS: (a) CinemaSource, Inc.: On May 18, 1999, the Company acquired substantially all of the assets of CinemaSource, Inc. ("CinemaSource"), a privately held company, pursuant to the terms of the Asset Purchase Agreement dated March 29, 1999 for $6.5 million in cash and 436,191 shares of the Company's common stock valued at $12.50 per share. At the closing of the acquisition, the Company directed CinemaSource to transfer the assets sold, on the Company's behalf, to its wholly owned subsidiary, Showtimes.com, Inc. ("Showtimes.com"). The shares of the Company's common stock issued at the time of acquisition were restricted from resale for the first 12 months following the closing of the transaction and are subject to volume limitations regarding resale thereafter. CinemaSource gathers movie data, including showtimes, synopses, photos and trailers, and then licenses this data, in a compiled manner, to various Internet companies, newspapers and wireless providers. 7 (b) hollywood.com, Inc.: On May 20, 1999, the Company acquired all of the capital stock of Hollywood Online Inc., ("hollywood.com"), from The Times Mirror Company ("Times Mirror"). The aggregate consideration paid to Times Mirror by the Company consisted of a one-year unsecured promissory note for $1,928,138 and 2,300,075 shares of common stock, which was valued as of the date of the transaction at $12.64 per share. As part of the transaction costs the Company issued 53,452 shares of common stock for services rendered in connection with the acquisition. The Hollywood.com website offers viewers movie information, movie trailers, box office charts, movie soundtracks, photos and exclusive interactive games, celebrity interviews, local movie showtimes, and coverage of movie premieres, film festivals and movie-related events. Hollywood.com has an exclusive contract with the National Association of Theatre Owners ("NATO"). Through this contract, Hollywood.com promotes its website to movie audiences by airing trailers featuring Hollywood.com before the feature films that play in most NATO-member theatres. In exchange, hollywood.com provides websites for the exhibiting NATO members. The value of this contract was recorded as an intangible asset of $4.6 million and is being amortized over the remaining life of the contract, approximately three years. (c) Baseline II, Inc.: On August 31, 1999, the Company purchased substantially all of the motion picture-related data assets of Baseline II, Inc. and Paul Kagan Associates, Inc., which includes the PKBaseline.com website (now called HollywoodPro.com), several publications, including the Motion Picture Investor newsletter, and a consumer oriented movie website (the "Baseline assets"). HollywoodPro.com is a subscription pay-per-use website for research analysts, movie professionals, investment bankers and news organizations. The aggregate purchase price paid for the Baseline assets consisted of 492,611 shares of common stock valued at $17.81 per share and warrants to purchase an aggregate of 54,735 shares of common stock at an exercise price of $18.27 per share valued at $543,588. The shares of common stock issued in the transaction cannot be transferred by the holders for a period of 24 months following the closing of the transaction. The acquisitions of CinemaSource, hollywood.com and Baseline II were accounted for under the purchase method of accounting and accordingly, the operating results of CinemaSource, hollywood.com and Baseline have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase prices over the fair value of net assets acquired in 1999 of $48.9 million is being amortized over 10 years. (d) BroadwayTheater.com, Inc.: On May 1, 2000, the Company acquired substantially all of the assets of BroadwayTheater.com, Inc. ("BroadwayTheater.com"), a privately held company, for $135,000 in cash and 83,214 shares of the Company's common stock valued at $14.00 per share. The seller of BroadwayTheater.com, Inc. has the right to earn up to a maximum of 85,714 additional shares of the Company's common stock if the business meets specified gross profit targets during the three years following the closing of the acquisition. BroadwayTheater.com sells theater tickets online predominately for Broadway, off-Broadway and London's West End theater performances, through the Broadway.com website which is owned by the Company. (e) Theatre Direct NY, Inc. (D/B/A Theater Direct International): On September 15, 2000, the Company acquired Theatre Direct NY, Inc. ("TDI") from Cameron Mackintosh for 262,165 shares of common stock valued at $2 million and assumed a $500,000 inter-company promissory note. Of the shares issued at closing, 195,874 shares are held in escrow for a period of twelve months and will be delivered to the seller if certain conditions are satisfied at the end of the twelve month period. TDI is a ticketing wholesaler primarily to the travel industry (including travel agencies and tour operators) and educational institutions for live theater productions running on Broadway, off-Broadway and London. TDI sells tickets through an 800 number, through SABRE (a travel agent reservation system), via the Web and by fax. As a marketing partner, TDI represents 11 producers and 16 Broadway shows to the travel industry around the world. 8 The acquisitions of BroadwayTheater.com and TDI were accounted for as a purchase and, accordingly, the operating results of BroadwayTheater.com and TDI have been included in the Company's consolidated financial statements since the date of acquisition. The excess of the aggregate purchase price over the fair market value of net assets acquired of $4.5 million is being amortized over 10 years. The purchase price of CinemaSource (a), hollywood.com (b), Baseline II, Inc. (c), BroadwayTheater.com (d) and TDI (e) was allocated to assets and liabilities acquired as follows: 2000(d)(e) 1999(a)(b)(c) ------------ ------------ Tangible assets $ 1,085,019 $ 2,873,237 Intangible assets -- 4,564,513 Goodwill 3,150,702 48,511,847 Liabilities assumed (2,317,143) (586,877) ------------ ------------ Total purchase price 1,918,578 55,362,720 Less value of common stock and warrants issued (1,670,716) (46,126,674) Less value of note issue -- (1,928,138) ------------ ------------ Subtotal $ 247,862 $ 7,307,908 ============ ============ Paid in cash - purchase price, net of cash Acquired $ (192,938) $ 6,500,000 Paid in cash - acquisition costs 440,800 807,908 ------------ ------------ Total cash paid, net of cash acquired $ 247,862 $ 7,307,908 ============ ============ The Company incurred $185,008 in purchase price adjustments during the six months ended June 30, 2000 relating to acquisitions in 1999 which have been included in Goodwill. 9 The following are unaudited pro forma combined results of operations of the Company, hollywood.com, CinemaSource, Baseline II and TDI for the nine and three months ended September 30, 2000 and 1999, as if the acquisitions of hollywood.com, CinemaSource, Baseline II and TDI had occurred on January 1, 1999:
Nine Months Ended September 30, Three Months Ended September 30, ------------------------------ ------------------------------- 2000 1999 2000 1999 -------------- ------------- -------------- -------------- Net Revenues $ 35,769,113 $ 21,063,260 $ 13,118,653 $ 7,822,624 ============= ============ ============= ============ Net Loss $ (32,059,956) $(17,495,455) $ (11,119,384) $ (5,566,891) ============= ============ ============= ============ Pro Forma Diluted Loss Per Share $ (1.40) $ (1.33) $ (0.47) $ (0.38 ============= ============ ============= ============ Weighted Average Shares Outstanding 22,976,948 13,236,754 23,702,097 14,748,056 ============= ============ ============= ============
These unaudited pro forma combined results have been prepared for comparative purposes only and include certain adjustments, such as additional amortization expense as a result of goodwill and certain contractual adjustments to salaries. They do not purport to be indicative of the results of operations which actually would have resulted had the acquired companies been under common control prior to the date of the acquisition or which may result in the future. The pre-acquisition results of operations of BroadwayTheater.com are not material to the Company's consolidated results of operations and therefore have been excluded from the pro forma combined results of operations. (3) NOTE RECEIVABLE: On April 14, 2000, the Company advanced $1,737,513 to an employee of the Company, who is the former shareholder of CinemaSource, to enable the employee to pay his income taxes relating to the sale of CinemaSource by him to the Company. As of September 30, 2000, $1,376,997 of the loan had been repaid to the Company leaving a balance of $360,516. The loan has a one year term, bears interest at prime rate plus 1% and is secured by shares of Common Stock of the Company owned by the borrower. On January 6, 2000 the Company acquired the web address Broadway.com for a purchase price of $1.6 million, paid with $1 million in cash and 35,294 shares of common stock valued at $17.00 per share. The common stock was issued in 1999 and delivered in anticipation of the January 2000 closing. The Company launched the Broadway.com website on May 1, 2000. In addition to selling tickets to live theater events, the Broadway.com website offers a comprehensive database of professional theater showtimes listings, with listings for more than 2,400 venues around the country and in London, as well as show synopses, cast and crew credits and biographies, digitized show previews and showtunes, a community chat area and interviews. (4) DEBT: On May 20, 1999, the Company delivered a $1,928,138 one-year unsecured promissory note of the Company payable to Times Mirror as partial consideration for the acquisition of hollywood.com, Inc. This note was paid on June 16, 2000 by issuing 152,548 shares of the Company's common stock valued at approximately $12.64 per share. During the second quarter of 2000, the Company's Chairman of the Board and Chief Executive Officer and the Company's Vice Chairman and President advanced $2,050,000 to the Company to enable the Company to meet its obligation to lend to a former shareholder of CinemaSource funds to pay the shareholder's taxes under the purchase agreement between the Company and the former shareholder of CinemaSource. As of September 30, 2000, $450,000 of the loan had been repaid leaving a balance of $1,600,000. This loan was repaid in full subsequent to September 30, 2000. The loan bears interest at the J.P. Morgan Bank prime rate of interest. 10 (5) OTHER ACCRUED EXPENSES: Included in other accrued expenses of $1,819,461 at September 30, 2000 is accrued payroll, accrued vacation, taxes payable and packaging fees payable. (6) CUSTOMER DEPOSITS: At September 30, 2000 the Company recorded $882,281 in proceeds received from a tour company to be used by the Company to purchase theater tickets to performances in London and Toronto for the 2001 tour season on behalf of the tour company. Any unused portion of the deposit will be returned to the tour company at the end of the agreement. (7) ACCRUED RESERVE FOR CLOSED STORES: The Company recorded a liability for estimated cost of early lease terminations and other costs related to the closure of the Company's brick and mortar retail operations of $2,366,432 at December 31, 1999. During the first quarter of 2000, $1,650,000 of the liability was satisfied, (see Note 8). The balance in accrued reserve for closed stores at September 30, 2000 was $732,737. (8) COMMON STOCK: On January 3, 2000, the Company issued 6,672,031 shares of common stock valued at $19.50 per share and a warrant to purchase 1,178,892 shares of common stock valued at $7,114,781, with an exercise price of $10,937,002 as consideration for $100,000,000 of CBS advertising, promotion and content over a seven year period and $5,303,030 in cash. In March 2000, CBS exercised a warrant to acquire an additional approximate 5% equity interest in the Company. The exercise price of these warrants was $10,937,002 consisting of $5,468,501 in cash and $5,468,501 in additional promotional advertising from CBS. The value of the common stock and warrants issued to CBS has been recorded in the balance sheet as deferred advertising and is being amortized over each related contract year. On February 8, 2000, the Company issued 100,000 shares of common stock valued at $1,650,000 in order to reacquire territorial rights as per a franchise agreement. The Company closed its retail operations in December 1999 and $1,650,000 was accrued for in the accompanying December 31, 1999 consolidated balance sheet as accrued reserve for closed stores. On May 1, 2000, the Company acquired substantially all the assets of BroadwayTheater.com for $135,000 in cash and 83,214 shares of common stock valued at $14.00 per share. On June 16, 2000, the Company issued 152,548 shares of common stock valued at approximately $12.64 per share in order to pay-off an unsecured promissory note payable to the Times Mirror Company. On August 22, 2000 the Company issued 358,423 shares of common stock in a private placement at a purchase price of $8.37 per share. In addition, the Company issued to the same investors warrants to purchase an aggregate of 60,000 shares of common stock at a price of $10 per share. These warrants have been valued at $358,016. The Company incurred $93,977 in transaction costs and issued 7,168 shares of common stock as a fee to the placement agent. On September 15, 2000 the Company acquired TDI for 262,165 shares of common stock valued at $2,000,000. Of the shares issued at closing, 195,874 shares of common stock are to be held in escrow for a period of twelve months and will be delivered if certain conditions are satisfied at the end of the twelve month period. 11 During the three months ended September 30, 2000 the Company issued 9,511 shares of common stock valued at $76,767 for services rendered. In 1998, the Company's Board of Directors approved a plan for the repurchase of the Company's common stock. Pursuant to the plan, during the nine months ended September 30, 2000 the Company repurchased 171,700 shares of its common stock for an aggregate consideration of $1,793,726, and an average purchase price of $10.45 per share. During the nine months ended September 30, 2000, the Company issued 1,460,344 shares of common stock upon the exercise of outstanding stock options and warrants, for which the Company received $7,017,363 in cash exercise proceeds and $5,468,501 in additional promotional advertising from CBS. (9) INVESTMENTS: (a) NETCO PARTNERS: The Company owns a 50% interest in a joint venture called NetCo Partners. The Company records its investment under the equity method of accounting, recognizing 50% of NetCo Partners' income or loss as Equity in Net Earnings - Investments. NetCo Partners is engaged in the licensing of intellectual properties. NetCo Partners has entered into numerous licensing agreements, including book publishing agreements with The Berkley Publishing Group, Books on Tape, Inc. and various foreign publishers, and an ABC television mini-series agreement. NetCo Partners recognizes revenues pursuant to these contracts when the earnings process has been completed based on the terms of the various contracts and at the point where ultimate collection of such revenue is no longer subject to significant contingencies such that collection is substantially assured. The revenues, gross profit and net income of NetCo Partners for the nine and three months ended September 30, 2000 and 1999 are presented below: Nine Months Ended Three Months Ended September 30, September 30, --------------------------- ------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues $5,556,639 $3,075,677 $2,483,866 $319,807 Gross Profit 4,560,878 2,508,575 1,984,960 270,417 Net Income 4,546,059 2,420,126 1,952,583 174,945 The revenues, gross profit and net income of NetCo Partners for the three months ended September 30, 2000 are principally attributable to the delivery to the publisher of the manuscript for adult book number five in the Tom Clancy's NetForce series of books. As of September 30, 2000, NetCo Partners has $2,938,370 in accounts receivable. Management of NetCo Partners believes that these receivables will be collected in full and no reserves have been established. NetCo Partners' deferred revenues, consisting of cash advances received but not yet recognized as income, amounted to $749,804 as of September 30, 2000. As of September 30, 2000, the Company has received cumulative profit distributions from NetCo Partners since its formation totaling $4,997,368, in addition to reimbursement of substantially all amounts advanced by the Company to fund the operations of NetCo Partners. 12 (b) MOVIETICKETS.COM, INC.: The Company entered into a joint venture agreement on February 29, 2000 with the movie theater chains AMC Entertainment Inc. and National Amusements, Inc. to form MovieTickets.com, Inc., ("MovieTickets.com"). The joint venture has entered into an agreement in principle for Viacom Inc. to acquire a five percent interest for $25 milliam of advertising over 5 years. The Company owned 31.67% of the MovieTickets.com, Inc. joint venture at September 30, 2000. The Company records its investment under the equity method of accounting, recognizing its percentage ownership of MovieTickets.com income or loss as equity in net earnings - investments. For the nine months ended September 30, 2000, the Company recorded a loss of $173,165 in its investment in MovieTickets.com. The MovieTickets.com website, which launched in late May 2000, allows users to purchase movie tickets online. At September 30, 2000, the Company contributed $400,000 in cash to MovieTickets.com and issued warrants to acquire 90,573 shares of common stock at an exercise price of $17.875 per share and valued at $1,000,000. This warrant was recorded as goodwill and is being amortized over a life of ten years. (10) LOSS PER COMMON SHARE: Basic loss per common share is computed by dividing net loss, after deducting dividends applicable to preferred stock, by the weighted average number of common shares outstanding. The following table sets forth the computation of basic and diluted loss per share for the nine and three months ended September 30, 2000 and 1999:
Nine Months Ended September 30, Three Months Ended September 30, 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net Loss $(32,089,113) $ (9,640,584) $(11,161,952) $ (5,201,881) Preferred Stock Dividends -- (119,557) -- (28,097) ------------ ------------ ------------ ------------ Net Loss Available to Common Shareholders $(32,089,113) $ (9,760,141) $(11,161,952) $ (5,229,978) Weighted Average Shares Outstanding 22,911,866 11,372,691 23,639,409 14,343,100 ------------ ------------ ------------ ------------ Basic and Diluted Loss per Share $ (1.40) $ (0.86) $ (0.47) $ (0.36) ============ ============ ============ ============
Inclusion of convertible preferred shares as dilutive securities would have an antidilutive effect on the loss per share calculation. Accordingly, these shares have been excluded from the calculation for the nine and three months ended September 30, 2000 and 1999. Options and warrants to purchase 3,968,898 shares of common stock at exercise prices ranging from $0.01 to $23.00 per share were also not included in the computation of loss per share for the nine months ended September 30, 2000 because the result would be antidilutive. 13 (11) SEGMENT REPORTING: The Company has six reportable segments: Internet ad sales, business to business (b2b), ticketing, e-commerce, retail, and intellectual properties. The Internet ad sales segment sells advertising on the Hollywood.com, Broadway.com and Hollywood.com International websites. The business to business segment (b2b) licenses entertainment content and data and includes the divisions CinemaSource (which licenses movie showtimes and other movie content), EventSource (which licenses local event data), TheaterSource (which licenses live theater showtimes and content) and ConcertSource (which licenses local listings of concerts and music related events) to Internet, media and wireless companies. The ticketing segment sells tickets to live theater events for Broadway, off-Broadway and London's West End on the Internet and to domestic and international travel professionals including travel agencies and tour operators, educational institutions and traveling consumers. E-commerce sells entertainment related merchandise over the Internet. The retail segment operated retail studio stores that sold entertainment-related merchandise and was closed in December 1999. The intellectual properties segment owns or controls the exclusive rights to certain intellectual properties created by best-selling authors and media celebrities, which it licenses across all media, including books. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on a comparison of actual profit or loss from operations before income taxes, depreciation, interest, and nonrecurring gains and losses to budgeted amounts. 14 The following table illustrates the financial information regarding the Company's reportable segments.
Nine Months Ended September 30, Three Months Ended September 30, ---------------------------- ---------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net Revenues: Internet Ad Sales $ 7,548,400 $ 2,020,732 $ 2,679,901 $ 1,308,537 Business to Business 3,872,023 836,808 1,515,674 639,282 Ticketing 4,382,367 -- 3,021,517 -- E-Commerce 796,510 436,257 350,467 254,228 Retail 23,370 1,276,485 -- 340,822 Intellectual Properties 1,389,595 1,259,642 461,461 231,865 Other -- -- -- -- ------------ ------------ ------------ ------------ $ 18,012,265 $ 5,829,924 $ 8,029,020 $ 2,774,734 ============ ============ ============ ============ Gross Profit: Internet Ad Sales $ 6,832,485 $ 1,843,458 $ 2,443,624 $ 1,196,778 Business to Business 3,682,912 788,575 1,465,483 604,891 Ticketing 535,070 -- 322,594 -- E-Commerce 88,751 96,364 77,492 67,626 Retail 45,000) 415,534 (45,000) 145,770 Intellectual Properties 543,928 744,646 270,418 129,279 Other -- -- -- -- ------------ ------------ ------------ ------------ $ 11,638,146 $ 3,888,577 $ 4,534,611 $ 2,144,344 ============ ============ ============ ============ Operating Income (Loss)(a): Internet Ad Sales (a) $(24,003,727) $ (2,170,520) $ (8,472,163) $ (2,442,293) Business to Business 281,967 237,040 159,661 162,084 Ticketing 204,489 -- 79,088 -- E-Commerce (2,021,911) (1,032,230) (637,756) (459,128) Retail (91,129) (2,056,416) (49,071) (161,952) Intellectual Properties 558,036 697,469 309,133 32,453 Other (8,672,419) (5,728,550) (3,192,717) (2,221,929) ------------ ------------ ------------ ------------ $(33,744,694) $(10,053,207) $(11,803,825) $ (5,090,765) ============ ============ ============ ============ Depreciation and Amortization: Internet Ad Sales $ 2,020,084 $ 720,749 $ 708,267 $ 495,448 Business to Business 86,768 11,483 32,714 9,527 Ticketing 3,975 -- 3,975 -- E-Commerce 12,831 8,887 4,653 8,887 Retail -- 259,814 -- 91,818 Intellectual Properties 5,355 3,810 1,575 1,270 Other 3,986,948 2,134,326 1,375,733 1,271,248 ------------ ------------ ------------ ------------ $ 6,115,961 $ 3,139,069 $ 2,126,917 $ 1,878,198 ============ ============ ============ ============ Interest, net: Internet Ad Sales $ 17,471 $ -- 8,487 -- Business to Business 216 313 (563) 313 Ticketing -- -- -- -- E-Commerce -- -- -- -- Retail 110,333 374,926 24,933 74,438 Intellectual Properties (7,219) (3,280) (3,407) (1,291) Other 81,086 90,381 56,634 19,918 ------------ ------------ ------------ ------------ $ 201,887 462,340 86,084 93,378 ============ ============ ============ ============ Capital Expenditure: Internet Ad Sales $ 1,074,532 $ 91,673 $ 180,682 $ 69,183 Business to Business 180,593 -- 49,858 -- Ticketing -- -- -- -- E-Commerce 13,347 65,058 969 -- Retail -- -- -- -- Intellectual Properties 5,188 -- -- -- Other 136,659 18,617 -- -- ------------ ------------ ------------ ------------ $ 1,410,319 $ 175,348 $ 754,198 $ 69,183 ============ ============ ============ ============
(a) Includes $14,855,465 and $5,479,561 in amortization of non-cash CBS advertising for the nine and three months ended September 30, 2000, respectively. 15 (12) USE OF ESTIMATES: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from these estimates. Significant estimates include management's estimate that accounts receivable of NetCo Partners as of September 30, 2000 will be collected in full, and that no reserve for uncollectible accounts is necessary (see Note 9). (13) COMMITMENTS AND CONTINGENCIES: Litigation - The Company is a party to various legal proceedings arising in the ordinary course of business, none of which are expected to have a material adverse impact on the Company's financial condition or results of operations. The following lawsuits were initiated in third quarter 2000. Steven B. Katinsky v. The Times Mirror Company, Hollywood.com, Inc. and Hollywood Online Inc. filed on September 8, 2000 in Superior Court of the State of California for the County of Los Angeles. Claim against Tribune Company (formerly The Times Mirror Company) and the Company seeking a performance cycle bonus allegedly owing to the plaintiff by Tribune Company in connection with the sale of Hollywood Online Inc. from Tribune Company to the Company. The plaintiff is seeking monetary damages in excess of $19.8 million for alleged fraud by the defendants in connection with the sale of Hollywood Online Inc. to the Company. The Company is indemnified by Tribune Company for the amount of any such performance cycle bonus payable to the plaintiff. The Company believes that all claims by the plaintiff against the Company are without merit and intends to defend them vigorously. Interviews.com v. Hollywood Online, Inc. filed on August 17, 2000 in Superior Court of the State of California for the County of Los Angeles. Claim by Interviews.com that the Company's wholly owned subsidiary, hollywood.com, Inc. (formerly known as Hollywood Online, Inc.), did not timely perform its obligations with respect to the transfer of several domain names under an Assignment Agreement dated December 17, 1997. Interviews.com is owned and controlled by Steven Katinsky, the plaintiff in the lawsuit described above. All matters related to this claim occurred prior to the Company's acquisition of Hollywood Online, Inc. in May 1999 and all domain names subject to the dispute have been transferred to the plaintiff. The domain names transferred were not being utilized by the Company and were not related to the Company's business.The plaintiff is seeking monetary damages in excess of $5 million. The Company believes that this claim is without merit and intends to defend it vigorously. (14) RECLASSIFICATION: Certain amounts in the 1999 financial statements have been reclassified to conform with the 2000 classification. (15) SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: For the Nine Months ended September 30, 2000: o The Company issued 100,000 shares of common stock, valued at $1,650,000. This amount was accrued for at December 31, 1999 in accrued reserve for closed stores. 16 o Warrants to acquire 90,573 shares of common stock at an exercise price of $17.875 valued at $1.0 million were issued in connection with the Company's investment in MovieTickets.com, Inc. o The Company recorded $5,468,501 in deferred advertising in connection with the exercise of warrants by CBS. o Capital lease transactions totaled $266,822. o A note payable for $1,928,138 was paid by issuing 152,548 shares of common stock valued at approximately $12.64 per share. For the Nine Months ended September 30, 1999: o The Company recorded the conversion of $6,152,261 of Series A,B,C,D, and D-2 Preferred Stock into 1,580,490 shares of common stock. o Non-cash dividends on its Series A,B,C,D and D-2 Convertible Preferred Stock in the amount of $83,657 were recorded, of which $79,808 was paid through the issuance of 6,675 shares of common stock. o Capital lease transactions totaled $56,068. o The Company issued 2,500 shares of restricted stock valued at $46,250 as an incentive stock bonus to an officer. 17 ITEM 2. MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion contains, in addition to historical information, "forward-looking statements" with respect to Hollywood.com, Inc. (the "Company") which represent the Company's expectations or beliefs, including, but not limited to, statements concerning industry performance, the Company's operations, performance, financial condition, growth, acquisition, and divestiture strategies, margins, and growth in sales of the Company's products. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may", "will", "expect", "believe", "anticipate", "intend", "could", "estimate", or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, certain of which are beyond the Company's control, and actual results may differ materially depending on a variety of important factors. Factors that may affect the Company's results include, but are not limited to, our continuing operating losses and accumulated deficit, our limited operating history, the need for additional capital to finance our operations, the need to manage our growth and integrate new businesses into the Company, our ability to develop strategic relationships with media and entertainment organizations, our ability to compete successfully with other Internet companies, technology risks and the general risk of doing business over the Internet, future government regulation, dependence on our founders, the interests of our largest shareholder, Viacom Inc. (formerly CBS Corporation), and accounting considerations related to our strategic alliance with Viacom. The Company is also subject to other risks detailed herein or detailed from time to time in the Company's filings with the Securities and Exchange Commission. Introduction We are an entertainment-focused media and Internet company that offers widely recognized brands and a broad and deep collection of entertainment content data and related information in the industry. Our businesses include an extensive ticketing network through which we sell movie tickets online for theaters throughout the United States and Canada, live theater tickets online, and to the tourism and travel industry for shows in New York and London. We also operate the intellectual property business from which our Company has expanded and evolved. Our Internet business generates revenues through the sale of advertising on Hollywood.com and Broadway.com and the business-to-business (b2b) syndication of our content to major newspapers, web portals, and wireless companies, such as AOL's Digital City, Yahoo!, Go Network, Excite, Ticketmaster/CitySearch, Zip2, The New York Times website, usatoday.com, latimes.com, Sprint PCS and AT&T Wireless. Our businesses, Hollywood.com, Broadway.com, CinemaSource, EventSource, TheaterSource, ConcertSource, and HollywoodPro.com, provide in-depth entertainment information, including movie and theater descriptions and reviews, showtimes and live theater listings, entertainment news and an extensive multimedia library. Our ticketing businesses, Broadway.com, MovieTickets.com 31.67 ownership percentage) and Theatre Direct International, generate revenues through the sale of tickets and service fees and commissions earned in connection with the sale of tickets, the sale of advertising online and through cooperative marketing programs and by providing various ancillary services related to the sale of tickets. In January 2000 we entered into an agreement with CBS Corporation providing for $100 million of advertising and promotion of the Hollywood.com website over seven years and $5.3 million in cash in exchange for an approximate 30% equity interest in the Company. In March 2000 CBS Corporation exercised a warrant to acquire an additional approximate 5% equity interest in the Company for $5.5 million in cash and $5.5 million in additional promotional advertising. CBS Corporation merged with and into Viacom, Inc. in May 2000. 18 Internet Businesses Hollywood.com. Hollywood.com is a premier entertainment related website featuring over one million pages of in-depth movie, television and other entertainment content, including movie descriptions and reviews, digitized movie trailers and photos, movie showtime listings, entertainment news, box office results, interactive games, movie soundtracks, television listings, concert information, celebrity profiles and biographies, comprehensive coverage of entertainment awards shows and film festivals and exclusive video coverage of movie premieres. We sell banner advertising and sponsorships on Hollywood.com through a relationship with DoubleClick, Inc. and through an internal advertising staff. Some of our recent advertisers include Microsoft, Toyota, Universal Studios, eBay, Proctor &Gamble, iVillage, Visa, M&Ms, New Line Cinema, JC Penny, US Army, Nissan, AT&T, Discovery/TLC, Nextel and Women.com. We promote the Hollywood.com website through our strategic relationships with CBS and the National Association of Theatre Owners ("NATO"). Through exclusive contracts with NATO and over 85 of its member theater exhibitors, we promote the Hollywood.com website to movie audiences by airing trailers about Hollywood.com before feature films that play in participating theaters and by displaying posters and other promotional materials in those theaters. In exchange, we develop and maintain websites for many of the theater exhibitors that feature their movie showtimes. In January 2000 we entered into a strategic, seven-year relationship with CBS that provides for extensive promotion of the Hollywood.com website. CBS has agreed to provide Hollywood.com with $100 million of promotion across its full range of media properties, including the CBS television network, CBS owned and operated television stations, CBS cable networks, Infinity Broadcasting Corporation's radio stations and outdoor billboards, CBS Internet sites and CBS syndicated television and radio programs. To supplement our internal sales efforts, we also have the right to reallocate a portion of each year's promotional budget and require CBS to sell up to $1.5 million of advertising on the Hollywood.com and Broadway.com websites. CBS has agreed to include the Hollywood.com website in all advertising sale programs and presentations that are appropriate for the sale of advertising on the website. We will pay an 8% commission on any additional advertising revenues generated by CBS for us in excess of the $1.5 million guaranteed amount selected by us each year. Broadway.com. We launched the Broadway.com website on May 1, 2000. Broadway.com features theater showtimes for virtually all professional live theater venues in the U.S. as well as London's West End and hundreds of college and local live theater venues; the ability to purchase Broadway, off-Broadway and West End theater tickets online; the latest theater news; interviews with stage actors and playwrights; opening-night coverage; original theater reviews; and video excerpts from selected shows. The Broadway.com website also offers current box office results, show synopses, cast and crew credits and biographies, digitized show previews, digitized showtunes, and an in-depth Tony Awards(R) area. Broadway.com generates revenue from advertising sales, ticket sales and syndication of content to other Internet companies. Hollywood.com International. We have entered into and are pursuing several strategic relationships geared toward leveraging the Hollywood.com brand internationally. We entered into an agreement with America Online Latin America, Inc. in late 1999 pursuant to which we agreed to launch Portuguese and Spanish versions of the Hollywood.com website to be promoted on AOL in countries throughout Latin America. We launched the br.hollywood.com Portuguese-language website in Brazil in November 1999 and the mx.hollywood.com and ar.hollywood.com Spanish-language websites in Mexico and Argentina in May 2000. These websites are tailored to the local movie-going audience and feature much of the same content that is on Hollywood.com, including daily entertainment news, movie descriptions and reviews, movie previews, movie soundtracks, celebrity profiles and biographies and interactive games. Each of these websites are featured and promoted on the entertainment channels of both AOL Latin America and El Sitio.com, a Latin American-based Internet portal. 19 The Company has entered into an agreement in principle to form a strategic partnership to distribute Hollywood.com content, in the Chinese language, throughout China on all new Legend personal computers along with Legend's new Chinese-language portal, FM365.com. We have also entered into an agreement in principle to form a strategic partnership to distribute Hollywood.com content across British Telecom's multiple Internet platforms, including narrowband ISP, broadband DSL access and wireless WAP technologies, throughout the United Kingdom. CinemaSource. CinemaSource is the largest supplier of movie showtimes to the Internet and compiles movie showtimes for every movie theater in the United States and Canada, representing approximately 36,000 movie screens. Since its start in 1995, CinemaSource has substantially increased its operations and currently provides movie showtime listings to more than 200 different Internet sites and media outlets, including Yahoo!, Excite, Go Network, Ticketmaster/CitySearch, Zip2, NBCi and iWon.com, major newspapers xsuch as The New York Times website, usatoday.com, latimes.com, The Washington Post website, the Boston Globe website, and the Newsday website and wireless providers such as Spring PCS and AT&T Wireless. In addition, CinemaSource recently expanded its syndication business to include entertainment news, movie reviews, and celebrity biographies. In addition to charging guaranteed amounts for the data that it provides to its customers, CinemaSource often shares in the advertising revenue generated by its customers in connection with the data. EventSource. We launched the EventSource business in mid-1999 as an expansion of the operations of CinemaSource. EventSource compiles and syndicates detailed information on community events in cities around the country, including concerts and live music, sporting events, festivals, fairs and live theater. EventSource entered into an agreement with AOL's Digital City in April 2000 to provide event listings for up to 200 cities nationwide. In addition to Digital City, other EventSource customers include the websites of The New York Times and Knight Ridder. TheaterSource. We launched the TheaterSource business in mid-2000 as a further expansion of the operations of EventSource. TheaterSource compiles and syndicates a comprehensive database of theater productions and showtimes, covering shows on Broadway, off-Broadway, touring companies, community playhouses, dinner theaters throughout North America and in London's West End theater district. ConcertSource. We launched this business in October 2000. ConcertSource offers extensive local listings of concerts and music-related events from major arenas to small local jazz clubs, including a complete listing of every performance from major touring groups to hometown bands. ConcertSouce currently covers concert and event listings for the top 60 markets in the United States and plans to expand its coverage to more than 200 markets throughout North America. HollywoodPro. We own and operate the HollywoodPro.com website (formerly called Baseline), a pay-per-use subscription website geared to movie professionals such as Bloomberg, Daily Variety, People Magazine, and which we acquired from media analyst Paul Kagan. The HollywoodPro business maintains one of the most comprehensive movie and television-related databases and has been in operation for over 15 years. The HollywoodPro.com website is a comprehensive database of information on over 67,000 films and television programs, as well as biographies on over one million entertainment industry professionals. This rich, interactive database is accessible online to our subscribers and includes credits, synopses, reviews and box office statistics. HollywoodPro continuously tracks production, distribution, and exhibition of feature films worldwide, including box office projections, budgets, and trends. HollywoodPro customers include major movie studios, investment banks, news agencies, consulting firms and other professionals in the entertainment industry. 20 Hollywood.com Studio Store. Our online studio store located at shopping.hollywood.com features a product line of branded licensed merchandise including toys, apparel, video games, art, collectibles, movie posters, games, high tech merchandise and media items. We cross-promote the Hollywood.com studio store to movie and entertainment enthusiasts through banners and links on our other websites. The website is promoted on numerous affiliate websites, including latimes.com, usatoday.com, Yahoo!, Excite, nj.com and others. We also sell a comprehensive collection of merchandise related to current and classic Broadway shows through the Broadway.com website. Ticketing Businesses MovieTickets.com. MovieTickets.com, a joint venture among Hollywood.com, AMC Entertainment Inc. and National Amusements, Inc. was launched in late May 2000. Each of Hollywood.com, AMC Entertainment, National Amusements, Inc. owns approximately 31.67% of the equity of MovieTickets.com, Inc. and the joint venture has entered into an agreement in principle for Viacom Inc. to acquire a five percent interest for $25 million of advertising over 5 years. MovieTickets.com will be promoted through on-screen advertising in each participating exhibitor's movie screens and through $25 million of CBS advertising and promotion over the next five years. MovieTickets.com's current participating exhibitors include AMC Entertainment Inc., National Amusements, Inc., Famous Players Inc., Marcus Theaters, Muvico Entertainment and several regional exhibitors. These exhibitors operate theaters located in all of the top twenty markets and approximately 70% of the top 50 markets in the United States and Canada and represent approximately 50% of the top 100 grossing theaters in North America. AMC Entertainment Inc. is the largest movie theater operator in the United States based on box office sales and Famous Players generates approximately half of all box office sales in Canada. The MovieTickets.com website allows users to purchase movie tickets and retrieve them at "will call" windows or kiosks at theaters. The website also features movie content from Hollywood.com for all current and future release movies, movie reviews and synopses, digitized movie trailers and photos, and box office results. We expect the website to generate revenues from the sale of advertising and from service fees charged to users for the purchase of tickets. DoubleClick, Inc. is the exclusive online advertiser for Movietickets.com. Theatre Direct International. We acquired Theatre Direct International (TDI) effective as of September 15, 2000. Founded in 1990, TDI is a live theater marketing and sales agency serving over 40,000 domestic and international travel professionals, traveling consumers and New York-area theater patrons. TDI is a ticketing wholesaler to the travel industry that provides groups and individuals with access to low-cost tickets and knowledgeable service, covering shows on Broadway, long running shows off-Broadway and shows in London. TDI sells tickets through an 800 number, through SABRE (a travel agent reservation system), via the Web and by fax. As a marketing agency, TDI represents 11 producers and 16 Broadway shows to the travel industry around the world. The 16 Broadway shows are Aida, Annie Get Your Gun, Beauty and the Beast, Cabaret, Chicago, Contact, Fosse, Jekyll and Hyde, Kiss Me Kate, Les Miserables, Rent, Riverdance, Swing, The Lion King, The Music Man and The Phantom of the Opera. In addition, TDI's Education division, Broadway Classroom, markets group tickets to schools across the country. TDI's offline ticketing service complements the online ticketing services available on Broadway.com, since its launch on May 1. The combined companies will provide live theater ticketing and related content for all Broadway shows and most shows running off-Broadway and in London's West End at over 200 venues in multiple markets to a customer base consisting over 40,000 travel agencies, tour operators, corporations and educational institutions, in addition to numerous newspapers and web sites. 21 Intellectual Properties Business Intellectual Properties. Our intellectual properties division owns the exclusive rights to intellectual properties, which are complete stories and ideas for stories, created by best-selling authors and media celebrities. Some examples of our intellectual properties are Leonard Nimoy's Primortals, Mickey Spillane's Mike Danger and Anne McCaffrey's Acorna the Unicorn Girl. We license rights to our intellectual properties to companies such as book publishers, film and television studios, multi-media software companies and producers of other products. These licensees develop books, television series and other products based on the intellectual properties licensed from us. We generally obtain the exclusive rights to the intellectual properties and the right to use the creator's name in the titles of the intellectual properties (e.g., Mickey Spillane's Mike Danger and Leonard Nimoy's Primortals). NetCo Partners. In June 1995, the Company and C.P. Group Inc. ("C.P. Group"), entered into an agreement to form NetCo Partners. NetCo Partners is engaged in the publishing and licensing of entertainment properties, including Tom Clancy's NetForce. The Company and C.P. Group are each 50% partners in NetCo Partners. Tom Clancy owns 50% of C.P. Group. At the inception of the partnership, C.P. Group contributed to NetCo Partners all rights to Tom Clancy's NetForce, and the Company contributed to NetCo Partners all rights to Tad Williams' MirrorWorld, Arthur C. Clarke's Worlds of Alexander, Neil Gaiman's Lifers, and Anne McCaffrey's Saraband. NetCo Partners continues to own Tom Clancy's NetForce and, in accordance with the terms of the partnership agreement, the other properties have reverted back to the Company. Pursuant to the terms of the NetCo Partners Joint Venture Agreement, the Company is responsible for developing, producing, manufacturing, advertising, promoting, marketing and distributing NetCo Partners' illustrated novels and related products and for advancing all costs incurred in connection therewith. All amounts advanced by the Company to fund NetCo Partners' operations are treated as capital contributions of the Company and the Company is entitled to a return of such capital contributions before distributions of cash flow are split equally between the Company and C.P. Group. Book Development and Book Licensing. Our intellectual properties division also includes a book development and book licensing operation through our 51% owned subsidiary, Tekno Books, that develops and executes book projects, typically with best-selling authors. Tekno Books has worked with approximately 50 New York Times best-selling authors, including Tom Clancy, Jonathan Kellerman, Dean Koontz, Tony Hillerman, Robert Ludlum and Scott Turow, and numerous media celebrities, including David Copperfield, Louis Rukeyser and Willard Scott. Our intellectual properties division has licensed books for publication with more than 60 book publishers, including HarperCollins, Bantam Doubleday Dell, Random House, Simon & Schuster, Penguin Putnum and Warner Books. The book development and book licensing division has a library of more than 1,100 books. The Chief Executive Officer of Tekno Books, Dr. Martin H. Greenberg, is also a director of the Company and owner of the remaining 49% interest in Tekno Books. Tekno Books also owns a 50% interest in Mystery Scene Magazine, a trade journal of the mystery genre of which Dr. Greenberg is co-publisher. During 1995, the Company directly acquired an additional 25% interest in the magazine. The Company is currently working to develop an area on the Hollywood.com website initially dedicated to mysteries. Management believes that this is an example of one of the many synergistic opportunities between the Company's Internet and intellectural properties businesses. 22 Results of Operations The following table summarizes the Company's net revenues, cost of revenues and gross profit by business segment for the nine months ended September 30, 2000 ("Y3-00") and 1999 ("Y3-99") and the three months ended September 30, 2000 ("Q3-00") and 1999 ("Q3-99"), respectively:
Business Internet to Business E- Intellectual Ad Sales (b2b) Ticketing Commerce Properties Retail Total ----------- ----------- ----------- ----------- ----------- ----------- ----------- Y3-00 Net Revenues $ 7,548,400 $ 3,872,023 $ 4,382,367 $ 796,510 $ 1,389,595 $ 23,370 $18,012,265 Cost of Revenues 715,915 189,111 3,847,297 707,759 845,667 68,370 6,374,119 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Gross Profit $ 6,832,485 $ 3,682,912 $ 535,070 $ 88,751 $ 543,928 $ (45,000) $11,638,146 =========== =========== =========== =========== =========== =========== =========== Y3-99 Net Revenues $ 2,020,732 $ 836,808 $ -- $ 436,257 $ 1,259,642 $ 1,276,485 $ 5,829,924 Cost of Revenues 177,274 48,233 -- 339,893 514,996 860,951 1,941,347 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Gross Profit $ 1,843,458 $ 788,575 $ -- $ 96,364 $ 744,646 $ 415,534 $ 3,888,577 =========== =========== =========== =========== =========== =========== =========== Q3-00 Net Revenues $ 2,679,901 $ 1,515,674 $ 3,021,517 $ 350,467 $ 461,461 $ -- $ 8,029,020 Cost of Revenues 236,277 50,191 2,698,923 272,975 191,043 45,000 3,494,409 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Gross Profit $ 2,443,624 $ 1,465,483 $ 322,594 $ 77,492 $ 270,418 $ (45,000) $ 4,534,611 =========== =========== =========== =========== =========== =========== =========== Q3-99 Net Revenues $ 1,308,537 $ 639,282 $ -- $ 254,228 $ 231,865 $ 340,822 $ 2,774,734 Cost of Revenues 111,758 34,391 -- 186,602 102,587 195,052 630,390 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Gross Profit $ 1,196,779 $ 604,891 $ -- $ 67,626 $ 129,278 $ 145,770 $ 2,144,344 =========== =========== =========== =========== =========== =========== ===========
NET REVENUES Total net revenues for the nine months ended September 30, 2000 and 1999 were $18,012,265 and $5,829,924, respectively. Net revenues increased $12,182,341 or 209% from Y3-99 to Y3-00. Net revenue for the three months ended September 30, 2000 increased to $8,029,020 from $2,774,734 for the three months ended September 30, 1999, an increase of $5,254,286 or 189%. Net revenues increased in both periods predominately due to increases in revenues from the Company's Internet ad sales, business to business (b2b), ticketing segments and acquisitions. The Company acquired the businesses that generate Internet ad sales revenues and business to business revenues in May and August of 1999. On May 1, 2000 the Company acquired BroadwayTheater.com, Inc. which sells live theater tickets over the Internet. On September 15, 2000, the Company acquired TDI which is a live theater marketing and sales agency that sells tickets to groups and individuals for shows running on Broadway, off -Broadway and in London. From the date of acquisition the Company recorded net revenues of approximately $1.3 million for TDI. Internet ad sales revenue increased to $7,548,400 for Y3-00 from $2,020,732 for Y3-99, an increase of $5,527,668 or 274%; and increased $1,371,364 or 105% from $1,308,537 for Q3-99 to $2,679,901 for Q3-00. Internet ad sales revenue is derived from the sale of banner advertisements and sponsorships on the Hollywood.com, Broadway.com and Hollywood.com international websites. 23 Barter transactions that generate non-cash advertising revenue (included in Internet ad sales revenues), in which the Company received advertising or other services in exchange for content or advertising on its websites, was $1,464,229 for Y3-00 and $595,143 for Q3-00 and accounted for 8.1% and 7.4% of the Company's total net revenue for Y3-00 and Q3-00, respectively. Barter revenue was $76,707 for Y3-99 and Q3-99, representing approximately 1.3% and 2.8% of the Company's total net revenues for Y3-99 and Q3-99 respectively. In future periods, management intends to maximize cash advertising revenue, although the Company will continue to enter into barter relationships when deemed appropriate as a cashless method for the Company to market its business. The Company also records barter income earned under a contract with the National Association of Theatre Owners ("NATO"), which the Company acquired through its acquisition of hollywood.com on May 20, 1999. This income is included in Internet ad sales revenue. Through the NATO contract, the Company promotes its website to movie audiences by airing movie trailers about Hollywood.com, 40 out of 52 weeks per year, before the feature films that play in most NATO-member theaters. In exchange, the Company provides websites and movie showtimes for the exhibiting NATO members, promotional materials and movie information, advertising and editorial content. The Company recorded $2,236,313 and $1,167,854 in promotional non-cash revenue and non-cash expense under the NATO contract for Y3-00 and Y3-99, respectively. Barter income from NATO recorded accounted for 12% and 20% of the Company's total net revenue for Y3-00 and Y3-99, respectively. In Q3-00 and Q3-99 the Company recorded $745,437 in barter revenue or 9.3% and 26.9% of the Company's total net revenue, respectively. Business to business revenue (b2b) increased to $3,872,023 for Y3-00 from $836,808 for Y3-99, an increase of $3,035,215 or 363%, and increased $876,392 or 137% to $1,515,674 for Q3-00 from $639,282 for Q3-99. Business to business revenue is generated by the licensing of movie, event and theater showtimes and other content information to other Internet and media companies including AOL Digital City, Yahoo!, Excite, Zip2, NBCi, Go Network, and usatoday.com as well as other newspapers and wireless providers. The Company acquired the business to business operations of CinemaSource and HollywoodPro (formerly known as Baseline) on May 18, 1999 and August 31, 1999, respectively. Revenues have increased predominately from revenues generated from the EventSource division. EventSource entered into a contract with AOL's Digital City in April 2000 to provide event listing for up to 200 cities nationwide. Ticketing revenue for Y3-00 and Q3-00 was $4,382,367 and $3,021,517 respectively. Ticketing revenue is generated from the sales of live theater tickets for Broadway, off-Broadway and London's West End on the Internet and to domestic and international travel professionals, traveling consumers and New York area theater patrons. The Company acquired BroadwayTheater.com on May 1, 2000 and TDI on September 15, 2000. E-commerce revenue increased $360,253 or 83% from $436,257 for Y3-99 to $796,510 for Y3-00 and increased $96,239 or 38% from $254,228 for Q3-99 to $350,467 for Q3-00. Revenue increased due to improved product promotion through the Company's relationship with CBS, other affiliate relationships, and conversion to sales of the increased traffic on the website. Revenues from the Company's intellectual properties segment increased $129,953 or 10.3% to $1,389,595 for Y3-00 from $1,259,642 for Y3-99 and increased $229,596 or 99% from $231,865 for Q3-99 to $461,461 for Q3-00. The increase in revenues is attributable to a greater number of manuscripts being delivered for Y3-00 and Q3-00 as compared to Y3-99 and Q3-99. The intellectual properties division generates revenues from several different activities including book development and licensing, intellectual property licensing, and publishing Mystery Scene Magazine. Revenues vary quarter to quarter dependent on the various stages of the book projects. Revenues are recognized when ultimate collection of such revenues is no longer subject to contingencies. 24 Retail revenues decreased from $1,276,485 for Y3-99 to $23,370 for Y3-00 and from $340,822 for Q3-99 to $0 for Q3-00. The revenue recognized in Y3-00 represents proceeds received for the liquidation of inventory remaining after the closure of all the brick and mortar locations in December 1999. COST OF REVENUE Cost of revenue increased to $6,374,119 for Y3-00 from $1,941,347 for Y3-99. As a percentage of net revenues, cost of revenues was 35% for Y3-00 and 33% for Y3-99. The cost of revenues were comparable for Y3-00 and Y3-99. As a percentage of net revenue, cost of revenue was 44% and 23% for Q3-00 and Q3-99, respectively. Cost of revenues as a percentage of net revenues will increase in the future as our ticketing businesses are expanded. Gross margins expected to be generated from ticketing are approximately 13%. Cost of revenues consists of the cost of products sold, including shipping and handling costs, for the Company's e-commerce segment; commissions due to ad agencies, ad rep firms and other third parties for revenue generated for the Internet ad sales and business to business (b2b) segments, and fees and royalties paid to authors and co-editors for the Company's intellectual properties segment. EQUITY IN NET EARNINGS - INVESTMENTS Equity in net earnings of investments consists of the Company's 50% interest in NetCo Partners and 31.67% interest in MovieTickets.com, Inc. The Company's equity in net earnings of investments increased by 74% or $889,802 to $2,099,865 for Y3-00 from $1,210,063 for Y3-99. Equity in net earnings of investments increased $758,434 from $87,472 for Q3-99 to $845,906 for Q3-00. On book projects, as it relates to NetCo Partners, revenues are typically recognized upon delivery of the manuscripts to the publishers. Equity in earnings increased due to the delivery of a novel in the Tom Clancy's NetForce series of books delivered to the publisher during Q3-00. These increases were offset by the recognition of $173,165 and $130,386 in losses generated by MovieTickets.com, Inc. for Y3-00 and Q3-00 respectively. MovieTickets.com, Inc. began its operations in late May 2000. OPERATING EXPENSES General and administrative expenses. General and administrative expenses increased $3,496,980 or 78% to $7,979,538 for Y3-00 from $4,482,558 for Y3-99 and increased $800,901 or 41% to $2,768,025 for Q3-00 from $1,967,124 for Q3-99. These increases are primarily attributable to the acquisitions made in May and August of 1999, a Broadway ticketing business acquired in May 2000, a Broadway ticketing business acquired in September 2000 and expenses relating to the launch and operations of Broadway.com as well as the Hollywood.com International websites during Q2-00. Selling and marketing expenses. Selling and marketing expenses increased $5,719,806 or 245% to $8,057,898 for Y3-00 from $2,338,092 for Y3-99 and increased $1,489,990 or 117% to $2,760,214 for Q3-00 from $1,270,224 for Q3-99. Included in selling and marketing are non-cash barter transactions of $3,700,542 and $1,464,500 for Y3-00 and Y3-99, respectively and $1,400,891 and $822,145 for Q3-00 and Q3-99, respectively. Barter transactions accounted for approximately 46% and 63% of selling and marketing expense for Y3-00 and Y3-99, respectively and 51% and 65% for Q3-00 and Q3-99, respectively. Excluding non-cash barter transactions, the increase in selling and marketing expense of $3,483,284 from Y3-99 to Y3-00 and $911,244 from Q3-99 to Q3-00 is primarily the result of increased advertising on radio, television, online and outdoor for the Company's Internet ad sales and e-commerce segments and additional advertising related to the launch of Broadway.com on May 1, 2000. In addition, the Company incurred production costs associated with advertising on CBS's media properties. The Company and Viacom entered into a seven year agreement in January 2000; therefore there were no comparable costs in Y3-99 and Q3-99. 25 Salaries and benefits. Salaries and benefits increased $4,723,582 or 130% to $8,364,459 for Y3-00 from $3,640,877 for Y3-99 and increased $1,377,783 or 75% to $3,203,955 for Q3-00 from $1,826,172 for Q3-99. This increase is attributable to the acquisitions made in May and August of 1999; and in May and September 2000, the launch of various websites during the second quarter of 2000 and an increase in the infrastructure to support the growth of the Company incurred in the first and second quarter 2000. Amortization. Amortization of goodwill and intangibles was $5,065,645 and $2,102,688 for Y3-00 and Y3-99, respectively and $1,735,076 and $1,455,856 for Q3-00 and Q3-99, respectively. The increase in amortization is attributable to goodwill and intangibles recorded with the three Internet businesses acquired in May and August of 1999 and the ticketing companies acquired on May 1, 2000 and September 15, 2000. Amortization of CBS non-cash advertising relating to the Company's agreement with Viacom (the parent of CBS) was $14,855,465 for Y3-00 and $5,479,561 for Q3-00. Under the Company's agreement with Viacom, the Company issued shares of Common Stock and warrants in consideration for CBS's advertising and promotional efforts over seven years across its full range of media properties. The value of the common stock and warrants issued to Viacom has been recorded in the balance sheet as deferred advertising and is being amortized over each related contract year. The agreement with Viacom closed in January 2000; therefore there is no comparable expense for the period Y2-99 and Q2-99. Depreciation and amortization. Depreciation and amortization was $1,050,316 for Y3-00 and $1,036,381 for Y3-99 and $391,841 for Q3-00 and $422,342 for Q3-99. The minimal increase in depreciation and amortization expense from Y3-99 to Y3-00 is attributable to the increase in capital expenditures to support the websites launched during Q2-00, additional capital expenditures required to support the growth in traffic on the Company's websites and additional equipment required for the expansion of the business to business (b2b) segment. Depreciation and amortization decreased from Q3-99 to Q3-00 due to the closure of our retail business in December 1999. Interest Expense, net. Interest expense, net for Y3-00 was $201,887 compared to $462,340 for Y3-99 and $86,084 for Q3-00 as compared to $93,378 for Q3-99. The decrease is primarily attributable to an increase in interest income earned on a higher average balance of cash, decrease in interest due on capital lease obligations and a decrease in interest paid on the Company's capital lease obligations and inventory line of credit as it relates to the Company's retail operations that were closed in December 1999. NET LOSS The Company generated a net loss of $32,089,113 for Y3-00 as compared to a net loss of $9,640,584 for Y3-99, an increase of $22,448,529 or 233%. For Q3-00 the net loss increased by $5,960,071 or 115% from $5,201,881 for Q3-99 to $11,161,952 for Q3-00. A significant portion of the increased loss for Y3-00 and Q3-00 is amortization of non-cash CBS advertising and amortization of goodwill and intangibles attributable to the acquisitions made in 1999 and in 2000. These non-cash expenses were $20,971,426 for Y3-00 and $7,606,478 for Q3-00 as compared to $3,139,069 for Y3-99 and $1,878,198 for Q3-99. Net loss for Y3-00 compared to Y3-99 excluding amortization of CBS advertising and goodwill and intangibles was $11,117,687 for Y3-00 as compared to $6,501,515 for Y3-99 and $3,555,474 for Q3-00 as compared to $3,323,683 for Q3-99. On a per share basis, the loss per common share increased by ($.54) from ($.86) for Y3-99 to ($1.40) for Y3-00, while the loss per common share increased by ($.11) from ($.36) for Q3-99 to ($.47) for Q3-00. If non-cash amortization of CBS advertising and goodwill and intangibles are excluded from the loss per share calculation then loss per share for Q3-00 decreased by $.08 to ($.15) for Q3-00 from ($.23) for Q3-99. 26 The Company has made several modifications to its initial business plan in order to reverse its losses. During 1999, the Company closed its brick and mortar retail operations and focused on its Internet business. The Company acquired three new businesses in 1999 and two ticketing businesses in 2000. The Company is evaluating the operations of all its new businesses and is working toward achieving economies of scale among all its operations to result in reduced general and administrative expenses and salaries and benefits. As a result, certain activities at the Santa Monica and New York locations were consolidated during the third quarter of 2000 at the Boca Raton offices, expecting to produce economies of scale and reduce operational expenses by over $2.5 million. The Company is presently focusing its resources on the expansion of its b2b and Broadway ticketing businesses. The Company plans to expand its Internet and ticketing operations, both through acquisitions and strategic alliances and through internal development. While the Company believes that these measures will ultimately reverse its operating losses, there can be no assurances that for the foreseeable future the revenues generated will be sufficient to offset the associated expenses incurred. LIQUIDITY AND CAPITAL RESOURCES At September 30, 2000 the Company had cash and cash equivalents of $4,887,581 and working capital of $19,851,225 compared to cash and cash equivalents of $2,475,345 and a working capital deficit of $4,817,879 at December 31, 1999. Net cash used in operating activities during Y3-00 was $8,747,237 primarily representing cash used to fund the Company's net loss and the launch and promotion of various businesses. Net cash used in investing activities was $3,123,960, while $14,283,433 in cash was provided by financing activities. As a result of the above, cash and cash equivalents increased by $2,412,236 for the nine months ended September 30, 2000. During the nine months ended September 30, 1999, net cash used in operating activities was $6,618,810, net cash used in investing activities was $7,785,100, and $19,904,572 in cash was provided by financing activities. On January 3, 2000, the Company issued 6,672,031 shares of common stock valued at $19.50 per share and a warrant with an exercise price of $10,937,002 and valued at $7,114,781 as consideration for $100,000,000 of CBS advertising, promotion and content over a seven year period and $5,303,030 in cash. On February 8, 2000, the Company issued 100,000 shares of common stock valued at $1,650,000 in order to reacquire territorial rights under a franchise agreement. The company closed its retail operations in December 1999 and $1,650,000 was accrued for the accompanying December 31, 1999 consolidated balance sheet as accrued reserve for closed stores. On May 1, 2000, the Company acquired substantially all the assets of BroadwayTheater.com for $135,000 in cash and 83,214 shares of common stock valued at $14.00 per share. On June 16, 2000, the Company issued 152,548 shares of common stock valued at approximately $12.64 per share in order to repay an unsecured promissory note. On August 22, 2000 the Company issued 358,423 shares of common stock in a private placement at a purchase price of $8.37 per share. In addition, the Company issued to the same investors warrants to purchase an aggregate of 60,000 shares of common stock at a price of $10 per share. These warrants have been valued at $358,016. The Company incurred $93,977 in transaction costs and issued 7,168 shares of common stock as a fee to the placement agent. 27 On September 15, 2000 the Company acquired TDI for 262,165 shares of common stock valued at $2,000,000. Of the shares issued at closing, 195,874 shares of common stock are to be held in escrow for a period of twelve months and will be deliverable based on attainment of certain conditions pursuant to the agreement and plan of merger. During the nine months ended September 30, 2000 the company issued 9,511 shares of common stock valued at $76,767 for services rendered. In 1998, the Company's Board of Directors approved a plan for the repurchase of the Company's common stock. Pursuant to the plan, during the nine months ended September 30, 2000 the Company repurchased 171,700 shares of its common stock for an aggregate consideration of $1,793,726, and an average purchase price of $10.45 per share. During the second quarter of 2000, the Company's Chief Executive Officer and President advanced $2,050,000 to the Company to enable the Company to meet its obligation to lend to a former shareholder of CinemaSource funds to pay the shareholder's taxes under the purchase agreement between the Company and the former shareholder of CinemaSource. The Company repaid $450,000 of this loan during the third quarter of 2000. During the nine months ended September 30, 2000, the Company issued 1,460,344 shares of common stock upon the exercise of outstanding stock options and warrants, for which the Company received $7,017,363 in cash exercise proceeds and $5,468,501 in additional promotional advertising from CBS. Subsequent to September 30, 2000 the Company issued 733,696 shares of common stock in a private placement to six accredited investors and received gross proceeds of $4,250,000. The growth of our operations has required substantial financing and we expect to continue to require additional financing to fund our growth plan and for working capital. Our operating plans and assumptions indicate that anticipated cash flows when combined with other potential sources of capital, will be enough to meet our working capital requirements for the year 2000. If plans change or our assumptions prove to be inaccurate, we may need to seek further financing or curtail our operations. Our long-term financial success depends on our ability to generate enough revenue to offset operating expenses. To the extent we do not generate sufficient revenues to offset expenses we will require further financing to fund our ongoing operations. INFLATION AND SEASONALITY Although the Company cannot accurately determine the precise effects of inflation, it does not believe inflation has a material effect on the Company's sales or results of operations. The Company does, however, consider its business to be somewhat seasonal and expects net revenues to be generally higher during the second and fourth quarters of each fiscal year for its Tekno Books book development and licensing operation as a result of the general publishing industry practice of paying royalties semi-annually. In addition, although not seasonal, the Company's intellectual properties division and NetCo Partners both experience significant fluctuations in their respective revenue streams, earnings and cash flow as a result of the significant amount of time that is expended in the creation and development of the intellectual properties and their respective licensing agreements. While certain of the development costs are incurred as normal recurring operating expenses, the recognition of licensing revenue is typically triggered by specific contractual events which occur at different points in time rather than on an evenly recurring basis. 28 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Steven B. Katinsky v. The Times Mirror Company, Hollywood.com, Inc. and Hollywood Online Inc. filed on September 8, 2000 in Superior Court of the State of California for the County of Los Angeles. Claim against Tribune Company (formerly The Times Mirror Company) and the Company seeking a performance cycle bonus allegedly owing to the plaintiff by Tribune Company in connection with the sale of Hollywood Online Inc. from Tribune Company to the Company. The plaintiff is seeking monetary damages in excess of $19.8 million for alleged fraud by the defendants in connection with the sale of Hollywood Online Inc. to the Company. The Company is indemnified by Tribune Company for the amount of any such performance cycle bonus payable to the plaintiff. The Company believes that all claims by the plaintiff against the Company are without merit and intends to defend them vigorously. Interviews.com v. Hollywood Online, Inc. filed on August 17, 2000 in Superior Court of the State of California for the County of Los Angeles. Claim by Interviews.com that the Company's wholly owned subsidiary, hollywood.com, Inc. (formerly known as Hollywood Online, Inc.), did not timely perform its obligations with respect to the transfer of several domain names under an Assignment Agreement dated December 17, 1997. Interviews.com is owned and controlled by Steven Katinsky, the plaintiff in the lawsuit described above. All matters related to this claim occurred prior to the Company's acquisition of Hollywood Online, Inc. in May 1999 and all domain names subject to the dispute have been transferred to the plaintiff. The domain names transferred were not being utilized by the Company and were not related to the Company's business. The plaintiff is seeking monetary damages in excess of $5 million. The Company believes that this claim is without merit and intends to defend it vigorously. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS During the quarter ended September 30, 2000, the Company issued a total of 48,720 shares of its common stock upon the exercise of outstanding warrants and options with exercise prices ranging from $5.00 to $6.346 per share. The Company received gross proceeds of $261,080 for issuance of this common stock and paid no fees or commissions related thereto. On August 22, 2000, the Company issued 358,423 shares of common stock in a private placement at a purchase price of $8.37 per share. In addition, the Company issued to the same investors warrants to purchase an aggregate of 60,000 shares of common stock at a price of $10 per share. If the investors continue to hold at least seventy-five percent of the shares of common stock issued to them in the transaction as of May 7, 2000, the exercise price of the warrants will be decreased to $8.84. We also issued adjustment warrants to these investors. The right to purchase additional shares under the adjustment warrants will be determined at the conclusion of ten adjustment periods in accordance with the terms of those adjustment warrants. If the average of the five lowest volume weighted average prices of the common stock during the final fifteen days of an adjustment period is below $9.63, the Company will be obligated to issue additional shares to those selling shareholders for no additional consideration. The precise number of shares of common stock, if any, which will be issued will be determined in accordance with a formula set forth in the adjustment warrants. The Company incurred $93,977 in transaction costs and issued 7,168 shares of common stock as a fee to the placement agent. On September 15, 2000, the Company acquired TDI for 262,165 shares of common stock valued at $2,000,000. 195,874 of the shares issued at closing are held in escrow for a period of twelve months and will be delivered to the seller only if certain conditions are satisfied at the end of the 12-month period. 29 During the quarter ended June 30, 2000, the Company issued stock options and warrants to purchase an aggregate of 224,500 shares of the Company's common stock, including 64,500 stock options granted to employees at exercise prices ranging from $7.688 to $11 per share. Options granted to employees are subject to vesting periods ranging from six months to four years and generally expire five years from the date of issuance. The common stock issued by the Company upon exercise of options granted under the Company's 1993 Stock Option Plan were registered under the Securities Act of 1933 pursuant to a registration Statement on Form S-8 filed by the Company with the Securities and Exchange Commission on October 23, 1996. The other securities described above were issued without registration under the Securities Act of 1933 by reason of the exemption from registration afforded by the provisions of Section 4(2) thereof, as transactions by an issuer not involving a public offering, each recipient of securities having delivered appropriate investment representations to the Company with respect thereto and having consented to the imposition of restrictive legends upon the certificates evidencing such securities. 30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits
Exhibit Incorporated by No. Description Reference From --- ----------- -------------- 3.1 Amended and Restated Articles of Incorporation (1) 3.2 Bylaws (2) 4.1 Form of Common Stock Certificate (2) 4.2 Rights Agreement dated as of August 23, 1996 between the Company and (3) American Stock transfer & Trust Company, as Rights Agent 10.1 Common Stock Investment Agreement dated as of August 22, 2000 among the (4) Company, Elliott Associates, L.P. and Westgate International, L.P. 10.2 Registration Rights Agreement dated August 22, 2000 among the Company, (4) Elliott Associates, L.P. and Westgate International, L.P. 10.3 Common Stock Adjustment Warrant dated August 22, 2000 between the Company (4) and Elliott Associates, L.P. 10.4 Common Stock Adjustment Warrant dated August 22, 2000 between the Company (4) and Westgate International, L.P. 10.5 Common Stock Purchase Warrant dated August 22, 2000 between the Company and (4) Elliott Associates, L.P. 10.6 Common Stock Purchase Warrant dated August 22, 2000 between the Company and (4) Westgate International, L.P. 10.7 Purchase Agreement effective as of September 29, 2000 among Hollywood.com, (5) Inc. and the Purchasers named therein. 10.8 Agreement and Plan of Merger dated as of September 15, 2000 by and among * Cameron Mackintosh, Inc., Theatre Direct NY, Inc., Hollywood.com, Inc. and Theater Acquisition Corp. 27.1 Financial Data Schedule *
31 - ------------------ * Filed as an exhibit to this Form 10-Q (1) Incorporated by reference from the exhibit filed with the Company's Annual Report on Form 10-K for the year ended December 31, 1999 (2) Incorporated by reference from the exhibit filed with the Company's Registration Statement on Form SB-2 (No. 33-69294). (3) Incorporated by reference from Exhibit 1 to the Company's Current Report on Form 8-K filed on October 20, 1999. (4) Incorporated by reference from the exhibits to the Company's Current Report on Form 8-K filed on August 29, 2000. (5) Incorporated by reference from the exhibit to the Company's Current Report on Form 8-K filed on October 5, 2000. (b) Reports on Form 8-K The Company filed a Current Report on Form 8-K on August 29, 2000 disclosing the Company's issuance of 358,423 shares of the Company's common stock to two investors at $8.37 per share for a total purchase price of $3,000,000 in cash. 32 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOLLYWOOD.COM, INC. Date: November 14, 2000 By: /s/ Mitchell Rubenstein ---------------------------------- Mitchell Rubenstein, Chairman of the Board and Chief Executive Officer (Principal executive, financial and accounting officer) 33 EX-10.8 2 0002.txt AGREEMENT AND PLAN OF MERGER EXECUTION COPY AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of September 15, 2000 is by and among CAMERON MACKINTOSH INC., a Delaware corporation, ("CMI"), THEATRE DIRECT NY, INC., a Delaware corporation and a wholly owned subsidiary of CMI ("TDI"), HOLLYWOOD.COM, INC., a Florida corporation ("Parent"), and THEATER ACQUISITION CORP., a Delaware corporation ("Sub"). RECITALS WHEREAS the Boards of Directors of TDI, Parent and Sub have each (i) determined that the Merger (as defined below) is fair and in the best interests of their respective stockholders and (ii) approved the Merger and the issuance by Parent of shares of Parent Common Stock (as defined below), to CMI, upon the terms and subject to the conditions set forth in this Agreement; WHEREAS for federal income tax purposes it is intended that the Merger qualify as a reorganization under the provisions of Sections 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, TDI, Parent and Sub desire that the Merger and the other transactions contemplated herein be consummated upon the terms and subject to the conditions set forth herein. NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained and intending to be legally bound hereby, CMI, TDI, Parent and Sub hereby agree as follows: ARTICLE 1 THE MERGER SECTION 1.1. The Merger. At the Effective Time (as defined below) and upon the terms and subject to the conditions of this Agreement and in accordance with the Delaware General Corporation Law (the "DGCL"), Sub shall be merged with and into TDI (the "Merger"). Following the Merger, TDI shall continue as the surviving corporation (the "Surviving Corporation") and the separate corporate existence of Sub shall cease. SECTION 1.2. Effective Time. Subject to the terms and conditions set forth in this Agreement, a Certificate of Merger (the "Merger Certificate") shall be duly executed and acknowledged by Parent, Sub and TDI and thereafter delivered to the Secretary of State of the State of Delaware for filing pursuant to the DGCL on the Closing Date. The Merger shall become effective at such time as a properly executed copy of the Merger Certificate is duly filed with the Secretary of State of the State of Delaware in accordance with the DGCL, or such later time as TDI and Sub may agree upon and set forth in the Merger Certificate (the time the Merger becomes effective being referred to herein as the "Effective Time"). SECTION 1.3. Closing of the Merger. The closing of the Merger (the "Closing") will take place at a time and on a date (the "Closing Date") to be specified by the parties, which shall be no later than the first business day following the satisfaction or waiver of the conditions set forth in Section 2.1 below, at such place as the parties shall mutually agree in writing, unless another time or date is agreed to in writing by the parties hereto. SECTION 1.4. Effects of the Merger. The Merger shall have the effects set forth in the DGCL. Without limiting the generality of the foregoing and subject thereto, at the Effective Time the Surviving Corporation shall succeed to all the rights and property of Sub and TDI and shall be subject to all liabilities of Sub and TDI. SECTION 1.5. Certificate of Incorporation and Bylaws. The Certificate of Incorporation and Bylaws of TDI in effect at the Effective Time shall be the Certificate of Incorporation and Bylaws of the Surviving Corporation until amended in accordance with applicable law. SECTION 1.6. Directors. The directors of Sub at the Effective Time shall be the initial directors of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and bylaws of the Surviving Corporation until such director's successor is duly elected or appointed and qualified. SECTION 1.7. Officers. The officers of Sub at the Effective Time shall be the initial officers of the Surviving Corporation, each to hold office in accordance with the Articles of Incorporation and bylaws of the Surviving Corporation until such officer's successor is duly elected or appointed and qualified. SECTION 1.8. Aggregate Stock Consideration. ----------------------------- (a) Common Stock Merger Consideration. --------------------------------- (i) Conversion of Shares. At the Effective Time, all of the shares of common stock, $0.01 par value per share, of TDI (individually a "Share" and collectively the "Shares") issued and outstanding immediately prior to the Effective Time (other than Shares held in TDI's treasury, which shall be canceled as provided in Section 1.8(c)) shall, by virtue of the Merger and without any action on the part of Sub, TDI or the holder thereof, be converted into and shall become a number of fully paid and nonassessable shares of common stock, $.01 par value per share, of Parent ("Parent Common Stock") equal to the quotient of (A) the aggregate amount of two million dollars ($2,000,000) divided by (B) the Parent Common Stock Price (as defined below) (the "Common Stock Merger Consideration"). (ii) Parent Common Stock Price. The "Parent Common Stock Price" shall be equal to, with respect to one share of Parent Common Stock, the average of the per share closing prices (the "Average Share Price") of Parent Common Stock on the NASDAQ National Market for the fifteen (15) trading days ending on the third trading day immediately preceding the Closing Date. 2 (b) Conversion of Stock of Sub. At the Effective Time, each outstanding share of the common stock, par value $.01 per share, of Sub shall be converted into one share of common stock, par value $0.01 per share, of the Surviving Corporation. (c) Cancellation of Treasury Shares. At the Effective Time, each Share held in the treasury of TDI shall, by virtue of the Merger and without any action on the part of Sub, TDI or the holder thereof, be canceled, retired and cease to exist and no shares of Parent Common Stock or other consideration shall be delivered with respect thereto. SECTION 1.9. Vesting of Common Stock Merger Consideration. -------------------------------------------- (a) Twenty-five percent (25%) of the Common Stock Merger Consideration shall be delivered to CMI pursuant to Section 1.10(a). The remaining seventy-five percent (75%) of the Common Stock Merger Consideration (the "Escrowed Consideration") shall be issued by Parent at the Effective Time and deposited into escrow pursuant to the Escrow Agreement substantially in the form of Exhibit A hereto (the "Escrow Agreement"). The Escrowed Consideration shall be held under the Escrow Agreement for 12 months following the Closing Date and shall only be payable under this Agreement and deliverable to CMI to the extent the Vesting Conditions have been satisfied with respect to one or more of the Houses (as defined below) at the 12-month anniversary of the Closing Date (the "Vesting Date"). The Escrowed Consideration shall be allocated among The Shubert Organization, Inc., Jujamcyn Theaters Corporation and The Nederlander Organization (collectively, the "Houses") as follows to the extent the Vesting Conditions are satisfied as of the Vesting Date with respect to some but not all of the Houses: The Shubert Organization, Inc. 50% The Nederlander Organization 34% Jujamcyn Theaters Corporation 16% (b) As used herein, "Vesting Conditions" shall mean, with respect to each of the Houses: 3 (i) The Broker Agreement for such House shall be in full force and effect and the House shall not have delivered any notice of termination or cancellation of any such agreement. (ii) TDI, or any successor to TDI, shall have the right to purchase the ticketing inventory for theaters owned or operated by such House and resell such ticketing inventory to groups, individuals and through the Internet on substantially the same terms as TDI was able to purchase and resell such ticketing inventory (A) as of June 21, 2000 with respect to The Nederlander Organization and (2) as of the date of this Agreement with respect to The Shubert Organization and Jujamcyn Theaters Corporation. (c) Notwithstanding Sections 1.9(a) and (b) above, the Escrowed Consideration shall be released under the Escrow Agreement and delivered to CMI if Parent shall dissolve TDI or otherwise cease to operate TDI as a going concern at any time prior to the Vesting Date (a "Dissolution Event"). In addition, if TDI shall fail to maintain in full force and effect the bonds issued pursuant to a Broker Agreement for any House for a period in excess of fifteen (15) business days prior to the Vesting Date or at any time within the five (5) business days up to and including the Vesting Date (a "Bond Failure" and, together with a Dissolution Event, the "Triggering Events"), the applicable portion of the Escrowed Consideration for such House shall be released under the Escrow Agreement and delivered to CMI. SECTION 1.10. Exchange of Certificates. ------------------------ (a) Delivery of Certificates Representing Common Stock Merger Consideration. At the Effective Time, Parent shall deliver to CMI in exchange for certificates representing the outstanding Shares (i) certificates representing twenty-five percent (25%) of the number of shares of Parent Common Stock to be delivered pursuant to Section 1.8(a) and (ii) cash to be paid in lieu of fractional shares of Parent Common Stock as contemplated by Section 1.10(c). The balance of the shares representing the Common Stock Merger Consideration shall be delivered as provided in Section 1.9(a). (b) Delivery of Certificates Representing Shares. At the Effective Time, CMI shall deliver to Parent for cancellation in accordance with this Article 1 certificates representing the outstanding Shares. (c) Fractional Shares. No fractions of a share of Parent Common Stock shall be issued in the Merger. In lieu thereof, in the event that CMI would otherwise be entitled to a fraction of a share of Parent Common Stock, CMI shall, upon surrender of its certificate or certificates representing outstanding Shares, be entitled to receive an amount of cash (without interest) determined by multiplying the Average Share Price by the fractional share interest to which CMI would otherwise be entitled. The parties acknowledge that payment of the cash consideration in lieu of issuing fractional shares was not separately bargained for consideration but merely represents a mechanical rounding off for purposes of simplifying the corporate and accounting complexities which would otherwise be caused by the issuance of fractional shares. (d) Effect of Exchange. All shares of Parent Common Stock delivered upon the surrender of certificates representing Shares in accordance with the terms hereof (including any cash paid pursuant to Section 1.10(c)) shall be deemed, to the fullest extent permitted by applicable law, to have been delivered in full satisfaction of all rights pertaining to such Shares, and after the Effective Time there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of the Shares which were outstanding immediately prior to the Effective Time. 4 ARTICLE 2 CONDITIONS TO CONSUMMATION OF MERGER SECTION 2.1. Conditions to All Parties' Obligations. The respective obligations of the parties hereto to consummate the Merger shall be subject to the satisfaction (or waiver by each party) as of the Effective Time of the following conditions: (a) HSR Act; Other Governmental Approvals. Any waiting period applicable to the consummation of the Merger contemplated under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder (the "HSR Act") shall have expired or have been terminated, and any other notices, registrations, consents, approvals or authorizations to or of any federal, state or foreign governmental authority with respect to the Merger shall have been either filed, in the case of notices or registrations, or received, in the case of consents, approvals and authorizations. (b) No Order. No federal, state or foreign governmental authority or other agency or commission or court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, injunction or other order (whether temporary, preliminary or permanent) which remains in effect, and which has the effect of making the transactions contemplated hereby illegal or otherwise prohibiting consummation of the transactions contemplated by this Agreement. SECTION 2.2. Conditions to Parent's and Sub's Obligations. The obligations of Parent and Sub to consummate the Merger are subject to the satisfaction (or waiver by each of Parent and Sub) as of the Effective Time of the following conditions: (a) Representations, Warranties and Covenants. Subject to Section 2.3, the representations and warranties of each of TDI and CMI made in this Agreement, the Ancillary Agreements and any certificate or document required to be delivered by CMI or TDI pursuant to the terms of this Agreement and not qualified as to materiality or TDI Material Adverse Effect shall be true and correct in all material respects and those representations and warranties of each of TDI and CMI so qualified shall be true and correct in all respects, in each case as of the date of this Agreement, and each of TDI and CMI shall have performed or complied with, or shall have caused to be performed or complied with, all obligations and covenants required by this Agreement, the Ancillary Agreements and any certificate or document required to be delivered by CMI or TDI pursuant to the terms of this Agreement to be performed or complied with by TDI and CMI by the Effective Time. (b) Certificates of Good Standing. Parent and Sub shall have received from TDI (i) certificates as to TDI issued by the appropriate governmental authority of the state of incorporation of TDI, and (ii) certificates as to TDI issued by the appropriate governmental authority of each of the states set forth on Schedule 3.1, in each case evidencing its good standing in such jurisdiction or state as of a date not more than ten days prior to the Effective Time (such good standing to be reaffirmed by bring-down telegram or other official means on the Closing Date). 5 (c) Resolutions. Parent and Sub shall have received (i) from TDI certified copies of resolutions duly adopted by the Board of Directors of TDI authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby and (ii) from CMI certified copies of resolutions duly adopted by the Board of Directors of CMI authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby and (iii) from CMI certified copies of resolutions acting in its capacity as the sole Shareholder of TDI approving this Agreement and each of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby, and all such resolutions shall not have been revoked and shall remain in full force and effect as of the Effective Time. (d) Third-Party Consents. TDI and CMI shall have obtained in writing any third-party consents required under any of the Contracts that are indicated with an asterisk on Schedule 3.4. (e) Broker Agreements. Each of the Broker Agreements shall be in full force and effect in accordance with its terms as of the date hereof, TDI shall not be in default thereunder, there shall not be any event or circumstance that would have, or could be reasonably expected to have, a material adverse effect on TDI's rights and obligations thereunder or give rise to any right of termination, cancellation or non-renewal of any other party thereto and there shall not otherwise have been any material adverse change to TDI's rights and obligations thereunder. (f) Ancillary Agreements. The Non-Competition Agreement substantially in the form of Exhibit B (the "Non-Competition Agreement"), the Escrow Agreement and the Allocation Agreement in the form of Exhibit C (the "Allocation Agreement") shall have been executed and delivered by the parties thereto (the Non-Competition Agreement, the Escrow Agreement and the Allocation Agreement are collectively referred to as the "Ancillary Agreements"). SECTION 2.3. Conditions to CMI's and TDI's Obligations. The obligations of CMI and TDI to consummate the Merger are subject to the satisfaction (or waiver by each of CMI and TDI) as of the Effective Time of the following conditions: (a) Representations, Warranties and Covenants; Officers' Certificates. The representations and warranties of each of Parent and Sub made in this Agreement and not qualified as to materiality or Parent Material Adverse Effect shall be true and correct in all material respects, and those representations and warranties of each of TDI and CMI so qualified shall be true and correct in all respects, in each case as of the date of this Agreement, and each of Parent and Sub shall have performed or complied with all obligations and covenants required by this Agreement to be performed or complied with by Parent or Sub by the Effective Time. (b) Resolutions. TDI and CMI shall have received (i) from Parent certified copies of resolutions duly adopted by the Board of Directors of Parent authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby, (ii) from Sub certified copies of resolutions duly adopted by the Board of Directors of Sub authorizing the execution, delivery and performance of this Agreement and each of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby and (iii) from Parent certified copies of resolutions acting in its capacity as the sole Shareholder of Sub approving this Agreement and each of the Ancillary Agreements to which it is a party and the consummation of the transactions contemplated hereby and thereby, and all such resolutions shall not have been revoked and shall remain in full force and effect as of the Effective Time. 6 (c) Merger Consideration. Parent shall have delivered to CMI all Common Stock Merger Consideration to be paid at the Effective Time pursuant to Section 1.10. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF TDI TDI hereby represents and warrants to each of Parent and Sub as follows: SECTION 3.1. Organization and Good Standing of TDI. TDI is a corporation duly organized and validly existing under the laws of the State of Delaware. TDI has all requisite corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to carry on its business as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which would not have a material adverse effect on the business, assets, properties, liabilities, financial or other condition or results of operations of TDI (such effects, taken individually or in the aggregate, an "TDI Material Adverse Effect"). TDI is duly qualified and in good standing to do business in the jurisdictions set forth on Schedule 3.1, which jurisdictions constitute each jurisdiction in which the nature of its business or the ownership, leasing or holding of its properties makes such qualification necessary, except such jurisdictions where the failure to be so qualified or in good standing would not have an TDI Material Adverse Effect. SECTION 3.2. Authority. TDI has all requisite corporate power and authority to execute and deliver this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions contemplated hereby and thereby. All necessary corporate action required to have been taken by or on behalf of TDI by law or its charter documents has been taken to authorize (a) the approval, execution and delivery on behalf of TDI of this Agreement and each Ancillary Agreement to which it is a party and (b) the performance by TDI of its obligations under this Agreement and each Ancillary Agreement to which it is a party and the consummation of the transactions contemplated hereby and thereby. This Agreement and each Ancillary Agreement to which it is a party constitutes a valid and binding agreement of TDI, enforceable against it in accordance with its terms, except (i) as the same may be limited by applicable bankruptcy, insolvency, moratorium or similar laws of general application relating to or affecting creditors' rights, including the effect of statutory or other laws regarding fraudulent conveyances and preferential transfers and (ii) for the limitations imposed by general principles of equity (the foregoing exceptions set forth in clauses (i) and (ii) being referred to as the "Enforceability Exceptions"). 7 SECTION 3.3. No Breach. None of the execution and delivery by TDI of this Agreement and each Ancillary Agreement to which it is a party, the consummation of the transactions to which TDI is a party contemplated hereby or thereby, or compliance by TDI with any provisions hereof or thereof will (i) conflict with or result in any breach of any provision of the Certificate of Incorporation or By-laws of TDI, (ii) violate any order, injunction, judgment, decree, ruling, writ, assessment or arbitration award (each, an "Order") or statute, rule or regulation of any governmental body by which TDI or any of its properties or assets is bound, (iii) conflict with, violate, result in the breach or termination of, or (with or without due notice or the lapse of time or both) constitute a default or give rise to any right of termination or acceleration or right to increase the obligations under or otherwise modify any of the terms, conditions or provisions of any note, bond, mortgage, license, franchise, permit, indenture, contract, agreement or other instrument or obligation to which TDI is a party, or by which TDI or any of its properties or assets is or may be bound, or (iv) result in the creation of any lien upon any of TDI's properties or assets. SECTION 3.4. Consents and Approvals. Except for (a) the filing and recordation of the Merger Certificate as required by the DGCL and (b) filings, permits, notifications, registrations, authorizations, consents and approvals as may be required under applicable requirements of the HSR Act and applicable law, neither the execution and delivery by TDI of this Agreement or any Ancillary Agreement to which it is a party nor the consummation of the transactions to which TDI is a party contemplated hereby and thereby will require any consent, approval, authorization or permit of, or filing with or notification to, or registration with, any federal, state or foreign governmental or regulatory authority. SECTION 3.5. Capital Stock of TDI. The authorized capital stock of TDI consists of two hundred (200) shares of common stock, without par value, of which two hundred (200) shares, constituting the Shares, are duly authorized and validly issued and outstanding, fully paid and nonassessable. Except for the Shares, there are no shares of capital stock or other equity securities of TDI outstanding. The Shares have not been issued in violation of, and none of the Shares is subject to, any preemptive or subscription rights. There are no outstanding warrants, options, "phantom" stock rights, agreements, convertible or exchangeable securities or other commitments (other than this Agreement) pursuant to which TDI is or may become obligated to issue, sell, purchase, return or redeem any shares of capital stock or other securities of TDI, and no equity securities of TDI are reserved for issuance for any purpose. Other than this Agreement, the Shares are not subject to any voting trust agreement or other contract, agreement, arrangement, commitment or understanding, including any such agreement, arrangement, commitment or understanding restricting or otherwise relating to the voting, registration, dividend rights or disposition of the Shares or any other securities exchangeable or exercisable for or convertible into Shares or any other capital stock of TDI. SECTION 3.6. Equity Interests. Except as set forth on Schedule 3.6, TDI does not directly or indirectly own any capital stock of or other equity interests in any corporation, partnership or other entity. 8 SECTION 3.7. Financial Statements. CMI has delivered to Parent final trial balances for TDI as of and for the fiscal years ended on each of March 31, 1997, March 31, 1998, March 31, 1999 and March 31, 2000 (the "Financial Information"). The Financial Information has been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved and fairly presents in all material respects the financial position of TDI as of the dates thereof and the results of its operations and cash flows for the periods then ended. Set forth on Schedule 3.7 is a complete list of all accounts receivable and accounts payable existing with respect to TDI as of September 18, 2000. SECTION 3.8. No Indebtedness. Except as set forth on Schedule 3.8, as of the date hereof and as of the Effective Time, TDI shall not have any indebtedness of any kind. SECTION 3.9. Assets Other Than Real Property. TDI has good and marketable title to all of its assets and properties, tangible or intangible, free and clear of all mortgages, liens, security interests or other encumbrances of any nature whatsoever, except (a) such as are disclosed on Schedule 3.9 and (b) Permitted Liens. For purposes of this Agreement, "Permitted Liens" shall mean (i) mechanics', carriers', workmen's, warehousemen's, repairmen's or other like liens arising in the ordinary course of business, and (ii) liens for Taxes and other governmental obligations not yet due and payable. This Section 3.9 does not relate to real property or interests in real property, which are the subject of Section 3.10, or to intellectual property, which is the subject of Section 3.11. SECTION 3.10. Real Property. ------------- (a) Owned Property. TDI does not own, or have any beneficial interest in, any real property. (b) Leased Property. Schedule 3.10(b) sets forth a true and complete list of all real property and interests in real property leased by TDI ("Leased Properties") and identifies any leases relating to the Leased Properties, each as amended to date (true and complete copies of which leases, as so amended, have heretofore been delivered to Parent). TDI has not received any written notices of any violations of Applicable Laws relating to the Leased Properties. No work has been performed or is in progress at, and no materials have been furnished with respect to, the Leased Properties or any portion thereof which might give rise to mechanics', materialmens' or other similar liens. (c) Title to Real Property. TDI has good and marketable title to the leasehold estates in all Leased Properties, free and clear of all mortgages, liens, security interests, easements, covenants, rights-of-way and other similar restrictions of any nature whatsoever, except (i) Permitted Liens, (ii) easements, covenants, rights-of-way and other similar restrictions of record and (iii) (A) zoning, building and other similar restrictions, (B) mortgages, liens, security interests or encumbrances that have been placed by any developer, landlord or other third party on property over which TDI has easement rights or on any Leased Property and subordination or similar agreements relating thereto and (C) unrecorded easements, covenants, rights-of-way or other similar restrictions, none of which items set forth in clauses (A), (B) and (C) above materially impairs the continued use in the business of TDI and the operation of the property to which they relate. 9 SECTION 3.11. Intellectual Property. --------------------- (a) Proprietary Rights. Schedule 3.11(a) sets forth a true and complete list of trademarks, trade names and service marks and applications therefor and all patents (if any), copyrights and applications therefor that are registered or filed in the name of TDI or are otherwise material to TDI's business as presently conducted and all other licenses or other like rights relating to intellectual property of any kind that are material to the operation of TDI's business (the "Intellectual Property"). Except as set forth on Schedule 3.11(a), as to Intellectual Property owned by TDI, TDI has valid title and ownership, free and clear of any liens or claims of third parties and, as to Intellectual Property licensed for use in TDI's business, TDI has the valid right to use such Intellectual Property in accordance with the terms of any such licenses. (b) Licenses. Except for the licenses as disclosed in Schedule 3.11(b), or pursuant to a Contract identified on Schedule 3.12(k), if any, TDI has not licensed to any third party the right to use or exploit any of the Intellectual Property or any portion thereof in any jurisdiction in a manner that is material, individually or in the aggregate. (c) Trade Secrets. TDI has at all times exercised reasonable precautions to maintain the confidentiality of its information that derives economic value, actual or potential, from not being generally known to other persons who can obtain economic value from its disclosure or use. (d) Claims. ------ (i) Except as set forth on Schedule 3.11(d), no claims are pending or, to the knowledge of TDI, threatened against TDI by any person with respect to the ownership, validity, enforceability or use of any Intellectual Property or otherwise challenging or questioning the validity or effectiveness of any Intellectual Property. Except as set forth on Section 3.11(d), no claims are pending or, to the knowledge of TDI, threatened against TDI by any person in which such person alleges that any activities or conduct of business of TDI infringes upon the intellectual property rights, moral rights or rights of publicity of any third party. (ii) Except as set forth on Schedule 3.11(d), no past or present officer, employee or consultant of TDI has a basis for claiming an ownership interest in any of the processes, software or products used in the operation of the business of TDI as a result of having been involved in the development of such process, software or product while employed by or consulting to TDI. SECTION 3.12. Contracts. Schedules 3.12(a) through 3.12(k) set forth a true and complete list of all agreements (whether in writing or oral) to which TDI is a party (together with the leases related to the Leased Properties, "Contracts"), including but not limited to the following (true and complete copies of which, each as currently in effect, have been delivered to Parent): 10 (a) Employment, Independent Contractor and Consulting Agreements. (i) Any employment agreement, (ii) any agreement providing for the payment of any "phantom" stock rights or severance compensation or for the provision, vesting and/or acceleration of any employee benefits following a change of ownership or control of TDI, and (iii) any independent contractor or consulting agreement; (b) Non-Competition Agreements. Any covenant or agreement that restricts the ability of TDI to compete in any line of business in any place in the world; (c) Leases of Real Property. Any lease under which TDI is a lessor or sublessor of, or makes available for use by any third party, any Real Property; (d) Personal Property Leases. Any lease under which (i) TDI is lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible personal property owned by a third party or (ii) TDI is a lessor or sublessor of, or makes available for use by any third party, any tangible personal property owned or leased by TDI; (e) Broker Agreements. Any agreement with any owner or operator of theatres (the "Broker Agreements"); (f) Producer Agreements. Any agreement with any producer of a live stage production; (g) Indebtedness. Any agreement under which TDI has borrowed or loaned any money or issued any note, bond, indenture or other evidence of indebtedness or directly or indirectly guaranteed indebtedness, liabilities or obligations of others (other than endorsements for the purpose of collection in the ordinary course of business), or any other note, bond, indenture or other evidence of indebtedness; (h) Guarantees. Any agreement under which CMI or any other person has directly or indirectly guaranteed indebtedness, liabilities or obligations of TDI and any guarantees by TDI or similar contracts obligating TDI for the indebtedness of any person; (i) Partnerships and Joint Ventures. Any partnership agreement or joint venture agreement to which TDI is a party; Except as disclosed on Schedules 3.12(a) through 3.12(i) or the other schedules hereto, each of CMI and TDI has performed in all respects all obligations required to be performed by it to date under the Contracts to which it is a party and it is not in breach or default in any material respect thereunder and, to the knowledge of TDI, no other party to any of the Contracts is in breach or default in any material respect thereunder. 11 SECTION 3.13. Litigation; Decrees. Schedule 3.13 sets forth a list, as of the date of this Agreement, of all pending and, to the knowledge of TDI, threatened lawsuits or claims by or against TDI or otherwise involving TDI or its properties, assets, operations or business. TDI is not in default under any judgment, order or decree of any court, administrative agency or commission or other governmental authority or instrumentality, domestic or foreign, applicable to TDI or its properties, assets, operations or business. SECTION 3.14. Employee Benefits and Related Matters. ------------------------------------- (a) Plans. Schedule 3.14(a) sets forth each employee pension, retirement, profit sharing, stock bonus, stock option, stock purchase, incentive, deferred compensation, medical, dental, vision, life insurance, accidental death and dismemberment insurance, business travel insurance, vacation pay, salary continuation, sick pay, disability, severance, golden parachute or other plan, fund, program, policy, contract or arrangement providing employee benefits that is maintained or contributed to by CMI or TDI in which any TDI personnel have participated or under which any TDI personnel have accrued and remain entitled to any benefits (the "Plans"). Each Plan covering only TDI personnel and which is sponsored by TDI (an "TDI Plan") is identified as such on Schedule 3.14(a). Each Plan not so identified shall, for purposes of this Agreement, be referred to as a "CMI Plan." TDI has made available to Parent true, complete and correct copies of (i) each Plan (or, in the case of any unwritten Plans, descriptions thereof), (ii) the most recent annual report on Form 5500 filed with the IRS with respect to each Plan (if any such report was required), (iii) the most recent summary plan description for each Plan for which such a summary plan description is required and (iv) each trust agreement and group annuity contract relating to any Plan. Neither TDI nor any corporation or trade or business (whether or not incorporated) which would be treated as a member of the controlled group including TDI under Sections 414(b), (c), (m) and (o) of the Code or Section 4001(a)(14) of ERISA (as defined in Section 3.14(b)) (an "ERISA Affiliate") sponsors, maintains or contributes or is obligated to contribute to, or has ever sponsored, maintained or contributed or been obligated to contribute to, any "pension plan" within the meaning of Section 3(2) of ERISA, including any "multiemployer plan" within the meaning of Section 3(37) of ERISA. None of the Plans provide for post-employment life or health insurance, benefits or coverage for any participant or any beneficiary of a participant, except as may be required under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"). Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby will (i) result in any payment becoming due to any employee (current, former or retired) of TDI, (ii) increase any benefits otherwise payable under any Plan or (iii) result in the acceleration of the time of payment or vesting of any such benefits under any such plan. No Plan includes any common stock or other security issued by CMI or any ERISA Affiliate among its assets. (b) Compliance with ERISA and the Code. None of CMI, TDI or any of the Plans or any trust created thereunder, or any trustee or administrator thereof, has engaged in a transaction in connection with which TDI would be subject to either a material liability or civil penalty assessed pursuant to Sections 409, 502(i) or 502(1) of ERISA or a material Tax imposed pursuant to Section 4971, 4972, 4974, 4975, 4976 or 4980B of the Code. Except as described on Schedule 3.14(b), each of the Plans has been operated and administered in all material respects in accordance with its terms and applicable laws, including the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and the Code. Each Plan intended to be a qualified plan under Code Section 401 has received a favorable determination letter to that effect (a copy of which has been made available to Parent) and nothing has occurred since the issuance of such letter that would adversely affect the Tax qualification of any such Plan. There are no pending or, to the knowledge of CMI or TDI, threatened claims by or on behalf of any of the Plans, by any employee or beneficiary covered under any such Plan, or otherwise involving any such Plan (other than ordinary course claims for benefits). 12 (c) Employee Welfare Benefit Plans. With respect to any Plan that is an employee welfare benefit plan, except as disclosed on Schedule 3.14(c), (i) no such Plan is funded through a welfare benefits fund, as such term is defined in Section 419(e) of the Code and (ii) each such Plan that is a group health plan, as such term is defined in Section 5000(b)(1) of the Code, complies with the applicable requirements of Section 4980B(f) of the Code. (d) Contributions. All contributions (including all employer contributions and employee salary reduction contributions) required to have been made under any of the Plans or by law (without regard to any waivers granted under Section 412 of the Code) with respect to any TDI personnel, to any funds or trusts established thereunder or in connection therewith have been made by the due date thereof (including any valid extension), and all contributions for any period ending on or before the Closing Date which are not yet due will have been paid or accrued on the Financial Information on or prior to the Closing Date. (e) Claims. There are no pending actions, claims or lawsuits that have been asserted or instituted against the Plans, the assets of any of the trusts under such plans or the plan sponsor or the plan administrator, or against any fiduciary of the Plans with respect to the operation of such plans (other than routine benefit claims), nor does CMI or TDI have knowledge of facts which could form the basis for any such claim or lawsuit. SECTION 3.15. Absence of Changes or Events. Since December 31, 1997, there has not been any event or circumstance which has caused or is reasonably likely to cause a TDI Material Adverse Effect. Except as disclosed on Schedule 3.15 or as contemplated by this Agreement, since December 31, 1997, the business of TDI has been conducted only in the ordinary course and has not taken any of the actions prohibited or restricted under Section 6.2. SECTION 3.16. Compliance with Applicable Laws. TDI is in compliance with, and has not received written notice of any alleged non-compliance with, all applicable statutes, laws, ordinances, rules, orders and regulations of any governmental authority or instrumentality, domestic or foreign. This Section 3.16 does not relate to matters with respect to Taxes or environmental matters. SECTION 3.17. Environmental Matters. --------------------- (a) Compliance. TDI is in compliance with all applicable Environmental Laws. (b) Hazardous Materials. There has been no release of any Hazardous Material to soil or water originating at, on, or from any of the Real Properties during the period that TDI or any of its divisions has leased such Real Property, except for any such releases that would not have an TDI Material Adverse Effect. 13 (c) Notices of Certain Environmental Matters. TDI has not received written notice of (i) any alleged violation of Environmental Law or (ii) liability for any release of any Hazardous Material or violation of any Environmental Laws in connection with the present or past business or properties of TDI, and there exists no pending or, to the knowledge of TDI, threatened writ, injunction, decree, order or judgment outstanding, nor any pending or, to the knowledge of TDI, threatened lawsuit, proceeding, citation, claims, summons or government agency investigation relating thereto. (d) Definitions. For purposes of Sections 3.16(b) and 3.16(c): (i) "Hazardous Material" means any material, chemical, substance or waste the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, or common law; or which is characterized, classified or otherwise defined as a hazardous toxic, pollutant or contaminant or words of similar meaning and is regulated as such by any governmental authority, agency, department, commission, board, agency or instrumentality of the United States or state or any political subdivision thereof, including but not limited to, petroleum, asbestos, polychlorinated biphenyls and radioactive materials. (ii) "Environmental Law" means any applicable law (including common law), statute, regulation, rule, ordinance, code, license, order or other legal requirement, of any governmental agency, department, commission, board, bureau or instrumentality of the United States, states and political subdivisions thereof and all applicable judicial and administrative and regulatory decrees, judgments and orders relating to the protection of human health or the environment or natural resources, including the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation Recovery Act, the Clean Air Act, the Clean Water Act and the Occupational Safety and Health Act or analogous state laws. SECTION 3.18. Taxes. Except as set forth on Schedule 3.18: (a) Definitions: For purposes of this Agreement: (i) "Affiliated Group" means any affiliated group within the meaning of Section 1504 of the Code, or any combined, unitary or similar group under a similar provision of state, local or foreign law. (ii) "Taxes" (each individually, a "Tax") means all federal, state, local or foreign taxes, assessments, duties, levies or similar charges of any kind including, without limitation, net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, withholding, payroll, employment, excise, stamp, premium, property or other taxes of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts with respect thereto, whether disputed or not, and shall include any transferee or successor liability in respect of Taxes (whether by contract or otherwise) and any liability in respect of Tax as a result of being a member of any Affiliated Group, including any consolidated, combined, unitary or similar group. (iii) "Tax Return" means any return (including any consolidated, combined or unitary return in which TDI is, or was, included or includable), declaration, claim for refund, report, statement or information statement required to be filed with respect to Taxes or any amendment thereto, and including any schedule or attachment thereto. 14 (b) All Tax Returns that are required to be filed by, or on behalf of, TDI have been duly filed on a timely basis under the statutes, rules and regulations of each jurisdiction in which such Tax Returns are required to be filed. All such Tax Returns are true, complete and accurate in all material respects. All Taxes due with respect to such Tax Returns have been timely paid. (c) TDI has duly and timely withheld and paid over to the appropriate taxing authorities all Taxes and other amounts required to be so withheld and paid for all periods under all applicable laws in connection with amounts paid or owing to any employee, independent contractor, subcontractor, lender, stockholder or other third party or other personnel supplied by any third party. (d) No claim for assessment or collection of Taxes has been asserted against or with respect to TDI. Neither TDI nor CMI has any notice of any pending audit, action, proceeding or investigation with respect to TDI by any taxing authority for the assessment or collection of Taxes, nor does TDI or CMI have any knowledge of any such threatened audit, action, proceeding or investigation. (e) No claim has ever been made by a taxing authority in a jurisdiction with respect to which a Tax Return is not currently filed by or on behalf of TDI that TDI is or may be subject to taxation by that jurisdiction, nor is TDI or CMI aware that any such assertion of jurisdiction is threatened. (f) None of the assets of TDI is (a) "tax-exempt use" property within the meaning of Section 168(h) of the Code, (b) required to be treated as owned by another person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (c) "tax-exempt bond financed property" within the meaning of Section 168(g) of the Code, or (d) "limited use property" (as that term is used in Rev. Proc. 76-30). (g) Neither TDI nor CMI with respect to TDI has (A) filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to the disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the TDI, (B) is required to make any adjustments pursuant to Section 481(a) of the Code or any other similar provision of state, local or foreign law by reason of a change in accounting method initiated by TDI or has any Knowledge that the Internal Revenue Service ("IRS") has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of TDI, other than as described on Schedule 3.18(g)(B), (C) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law with respect to TDI, (D) executed a power of attorney with respect to any Tax matter which is currently in force, other than with respect to federal income Tax matters or (E) requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed, or (F) executed or filed with the IRS or any other taxing authority any agreement, waiver, or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitations). 15 (h) TDI is not a party to any tax sharing, tax indemnification or similar agreement or arrangement (whether or not written) with respect to Taxes pursuant to which it will or may have any obligation to make any payments after the Closing Date. (i) For federal income tax purposes, TDI is a member of the Affiliated Group of which CMI is the common parent, and joins in the filing of a consolidated federal income tax with CMI. TDI is not now and has never been a member of any Affiliated Group (other than the Affiliated Group of which CMI is the common parent). (j) TDI is not party to any joint venture, partnership or other arrangement or contract that constitutes a partnership for federal income tax purposes. (k) TDI has not constituted either a "distributing corporation" or a "controlled corporation" (within the meaning of Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for tax-free treatment under Section 355 of the Code (i) in the two years prior to the date of this Agreement or (ii) in a distribution which could otherwise constitute part of a "plan" or "series of related transactions" (within the meaning of Section 355(e) of the Code) in conjunction with the Merger. (l) No gain or loss will be recognized by TDI, for federal income tax purposes, upon the Merger by reason of the consolidated return Treasury Regulations promulgated under Section 1502 of the Code. (m) Schedule 3.17 lists all the material Tax elections made by or with respect to TDI or as to which TDI would be bound with respect to taxable periods ending after the Closing Date. (n) TDI has received no prepaid subscription income which would or may be includable in the gross income of TDI after the Closing Date under Section 455 of the Code. (o) There is no contract, agreement, plan or arrangement covering any Person that could give rise to the payment of any amount that would not be deductible by TDI by reason of Section 280G of the Code. (p) Each of TDI and CMI has no reason to believe that any conditions exist that could reasonably be expected to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a)(1)(A) and Section 368(a)(2)(E) of the Code. (q) At the Effective Time, TDI will hold at least 90% of the fair market value of its net assets, and at least 70% of the fair market value of its gross assets, held immediately prior to the Effective Time. For purposes of this representation, any amounts paid by TDI to CMI in connection with or pursuant to the Merger, any amounts used by TDI to pay its transaction expenses and those of CMI, and all redemptions and distributions (except for regular, normal dividends) made by TDI are treated as assets of TDI immediately prior to the Effective Time. 16 (r) Prior to and in connection with the Merger, no outstanding stock of TDI has been or will be (i) redeemed by TDI, (ii) acquired by a person related to TDI (within the meaning of Treasury Regulation Section 1.368-1(e)(3) determined without regard to Treasury Regulation Section 1.368-1(e)(3)(i)(A)) for consideration other than Parent Common Stock, or (iii) the subject of any extraordinary distribution by TDI. (s) In connection with the Merger, TDI has not sold, transferred or otherwise disposed of any of its assets as would prevent Parent or members of its qualified group (within the meaning of Treasury Regulation 1.368-1(d)(4)(ii)) from continuing the historic business of TDI or using a significant portion of TDI's historic business assets in a business after the Merger. (t) TDI has not borne and will not bear any of CMI's transaction expenses. (u) Schedule 3.18(u) sets forth the following for federal income tax purposes (including alternative minimum Tax purposes) as of the most recent practicable date (but not earlier than December 31, 1999) with respect to TDI: (i) the tax basis of TDI's assets, (ii) the amount of any net operating loss, net capital loss and unused investment tax and other credits of TDI (and any limitations with respect thereto), (iii) the accumulated earnings and profits of TDI, and (iv) any intercompany transaction as a result of which (x) income, gain, loss or deduction currently is deferred under Treas. Reg. ss. 1.1502-13 (or any predecessor provision thereof) and the amount so deferred, or (y) the character or attributes of the property that was the subject of the intercompany transaction thereafter would be determined, in whole or in part, with reference to the transferor with respect to such intercompany transaction. (v) None of the Shares is subject to a substantial risk of forfeiture within the meaning of Section 83 of the Code. (w) TDI does not have outstanding any options, warrants or similar rights to acquire Shares at a nominal exercise price. (x) None of the debt obligations of TDI constitutes "corporate acquisition indebtedness" within the meaning of Section 279(b) of the Code. (y) CMI is not a foreign person within the meaning of Section 1445 of the Code, nor is the Company a foreign person within the meaning of Section 1445 of the Code. SECTION 3.19. Labor Matters. There is no labor strike, dispute, or work stoppage or lockout pending or, to the knowledge of TDI, threatened against or affecting TDI and there is no pending or, to the knowledge of TDI, threatened grievance asserting that TDI has committed an unfair labor practice. TDI is not a party to or otherwise bound by any collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, no such contract or agreement is being negotiated, and there is not and has not been, in the last five years, any application for certification or recognition by any union or organization for any of TDI's employees. There are no complaints, charges or claims against TDI or to TDI's Knowledge threatened against TDI, with any public or governmental authority, arbitrator or court based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment of TDI, of any individual. TDI is in compliance with all laws, regulations and orders relating to the employment of labor, including all such laws, regulations and orders relating to wages, hours, WARN, collective bargaining, discrimination, civil rights, safety and health, workers' compensation and the collection and payment of withholding and/or social security taxes and any similar tax. 17 SECTION 3.20. Insurance. Set forth on Schedule 3.20 is a true and complete list of all fire and casualty, general liability, business interruption and product liability insurance policies maintained with respect to TDI's business as of the date of this Agreement. All such policies are with reputable insurance carriers, provide (together with any self-insurance) adequate coverage for all normal risks in accordance with customary practices for comparable businesses, are in full force and effect, all premiums due and payable thereon have been paid (other than retroactive or retrospective premium adjustments that are not yet, but may be, required to be paid with respect to any period ending prior to the Closing Date), and no notice of cancellation or termination has been received with respect to any such policy which has not been replaced on substantially similar terms. The activities and operations of TDI have been conducted in a manner so as to conform in all respects to all applicable provisions of such insurance policies. SECTION 3.21. Year 2000. Each computer program and software application used by TDI in its business is Year 2000 Compliant. "Year 2000 Compliant" means that such program is capable of managing and manipulating data involving dates after the year 1999 without any functional or data abnormality and without inaccurate result related to such dates, to the extent that other computer programs or applications, used in combination with the computer programs or applications used by TDI, properly exchanges data involving dates with it. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF CMI CMI hereby represents and warrants to Parent and Sub as follows: SECTION 4.1. Organization and Good Standing of CMI. CMI is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. CMI has all requisite corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to carry on its business as presently conducted, other than such franchises, licenses, permits, authorizations and approvals the lack of which would not materially impair CMI from performing its obligations under this Agreement. SECTION 4.2. Authority. CMI has all requisite corporate power and authority to execute and deliver this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions to which CMI is a party contemplated hereby and thereby. All necessary corporate action required to have been taken by or on behalf of CMI by applicable law or its charter documents has been taken to authorize (a) the approval, execution and delivery on behalf of CMI of this Agreement and each Ancillary Agreement to which it is a party and (b) the performance by CMI of its obligations under this Agreement and each Ancillary Agreement to which it is a party and the consummation of the transactions contemplated hereby and thereby. This Agreement and each Ancillary Agreement to which it is a party constitutes a valid and binding agreement of CMI, enforceable against it in accordance with its terms, except as the same may be limited by the Enforceability Exceptions. 18 SECTION 4.3. No Breach. The execution and delivery by CMI of this Agreement and each Ancillary Agreement to which it is a party do not, and the consummation of the transactions to which CMI is a party contemplated hereby and thereby will not, (a) violate or conflict with the Certificate of Incorporation or bylaws of CMI or (b) constitute a material breach or default or give rise to any lien, third-party right of termination, cancellation, material modification or acceleration under any material agreement, understanding or undertaking to which CMI is a party or by which it is bound, or violate or conflict with any applicable law. SECTION 4.4. Consents and Approvals. Except for (a) the filing and recordation of the Merger Certificate as required by the DGCL and (b) filings, permits notifications, registrations, authorizations, consents and approvals as may be required under applicable requirements of the HSR Act and applicable law, neither the execution and delivery by CMI of this Agreement nor any Ancillary Agreement to which it is a party nor the consummation of the transactions to which CMI is a party contemplated hereby and thereby will require any consent, approval, authorization or permit of, or filing with or notification to, or registration with, any federal, state or foreign governmental or regulatory authority. SECTION 4.5. Title to and Transfer of the Shares. CMI is the record and sole beneficial owner of the Shares and has good and marketable title thereto, free and clear of any liens, claims, encumbrances, security interests, options, charges and other rights and restrictions of any kind and, at the Effective Time, Parent will have good and marketable title to the Shares, free and clear of any liens, claims, encumbrances, security interests, options, charges and other rights and restrictions of any kind. SECTION 4.6. Brokers. No broker, finder or investment banker is entitled to any brokerage finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of CMI or TDI. SECTION 4.7. Investor Representations. The shares of Parent Common Stock received by CMI pursuant to the Merger will be acquired for CMI's own account and not with a view to or in connection with the sale or distribution of any part thereof. SECTION 4.8. Exemption from Registration; Restricted Securities. CMI understands that the shares of Parent Common Stock received by CMI pursuant to the Merger will not be registered under the Securities Act of 1933, as amended (the "Securities Act") on the ground that such sale provided for in this Agreement is exempt from registration under the Securities Act, and that the reliance of Parent on such exemption is predicated on CMI's representations set forth in this Agreement and the certificates representing the same will bear an appropriate legend reflecting such exempt issuance without registration. CMI understands that the shares of Parent Common Stock received by CMI pursuant to the Merger will be restricted securities within the meaning of Rule 144 under the Securities Act. 19 ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB Parent and Sub hereby represent and warrant to each of CMI and TDI as follows: SECTION 5.1. Organization and Good Standing. Each of Parent and Sub is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation. Parent has all requisite corporate power and authority and possesses all governmental franchises, licenses, permits, authorizations and approvals necessary to enable it to carry on its business as presently conducted other than such franchises, licenses, permits, authorizations and approvals the lack of which would not have a material adverse effect on the business, assets, properties, liabilities, financial or other condition or results of operations of Parent or on the ability of Parent to perform its obligations under this Agreement (such effects, taken individually or in the aggregate, a "Parent Material Adverse Effect"). SECTION 5.2. Authority. Each of Parent and Sub has all requisite corporate power and authority to execute and deliver this Agreement and each Ancillary Agreement to which it is a party and to consummate the transactions to which each of Parent and Sub is a party contemplated hereby and thereby. All necessary corporate action required to have been taken by or on behalf of each of Parent and Sub by Applicable Law or its charter documents has been taken to authorize (a) the approval, execution and delivery on behalf of each of Parent and Sub of this Agreement and each Ancillary Agreement to which it is a party and (b) the performance by each of Parent and Sub of its obligations under this Agreement and each Ancillary Agreement to which it is a party and the consummation of the transactions contemplated hereby and thereby. This Agreement and each Ancillary Agreement to which it is a party constitutes a valid and binding agreement of each of Parent and Sub, enforceable against each of them in accordance with its terms, except as the same may be limited by the Enforceability Exceptions. SECTION 5.3. No Breach. The execution and delivery by each of Parent and Sub of this Agreement and each Ancillary Agreement to which it is a party do not, and the consummation of the transactions to which each of Parent and Sub is a party contemplated hereby and thereby will not, (a) violate or conflict with the organizational documents of Parent or Sub or (b) constitute a material breach or default or give rise to any lien or other encumbrance, third-party right of termination, cancellation, material modification or acceleration under any material agreement, understanding or undertaking to which Parent is a party or by which it is bound, or violate or conflict with any Applicable Law (assuming that the consents contemplated by Section 5.4 are obtained and in effect). 20 SECTION 5.4. Consents and Approvals. Except for (a) the filing and recordation of the Merger Certificate as required by the DGCL and (b) filings, permits, notifications, registrations, authorizations, consents and approvals as may be required under applicable requirements of the Securities Act, the Exchange Act, state securities or blue sky laws, the HSR Act and Applicable Law, neither the execution and delivery by Parent or Sub of this Agreement or any Ancillary Agreement to which it is a party nor the consummation of the transactions to which either Parent or Sub is a party contemplated hereby and thereby will require any consent, approval, authorization or permit of, or filing with or notification to, or registration with, any governmental or regulatory authority, except where the failure to obtain such consent, approval, authorization or permit, or to make such filing, registration or notification (A) would not materially impair Parent or Sub from performing is respective obligations under this Agreement and (B) would not have a Parent Material Adverse Effect. SECTION 5.5. Capital Stock of Parent. ----------------------- (a) The authorized capital stock of Parent consists of (i) 100,000,000 shares of Parent Common Stock, of which, as of the date hereof, 23,935,602 shares of Parent Common Stock were issued and outstanding (each together with a Parent Common Stock purchase right (the "Parent Rights") issued pursuant to the Rights Agreement (the "Parent Rights Agreement"), dated as of August 23, 1996 and most recently amended as of October 1, 1999 by and between Parent and American Stock Transfer & Trust Company); and (ii) one million shares of Preferred Stock ("Parent Preferred Stock"), none of which are, as of the date hereof, issued or outstanding. All of the shares of Parent Common Stock are duly authorized and validly issued and outstanding, fully paid and nonassessable. Except for the outstanding shares of the Parent Common Stock, as of the date hereof, there are no shares of capital stock or other equity securities of Parent outstanding. (b) The Parent Common Stock constitutes the only class of equity securities or Parent or its subsidiaries registered or required to be registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). SECTION 5.6. SEC Reports; Financial Statements. --------------------------------- (a) Parent has filed all required forms, reports and documents required to be filed by it with the Securities and Exchange Commission on or after December 31, 1998 ("Parent SEC Reports"), each of which has complied as to form in all material respects with all applicable requirements of the Securities Act, and the Exchange Act, each as in effect on the dates such forms, reports and documents were filed. None of such Parent SEC Reports, including, without limitation, any financial statements or schedules included or incorporated by reference therein, contained, as of their respective dates (and, if amended or superseded by a filing prior to the date of this Agreement or the Effective Time, then on the date of such filing), any untrue statement of a material fact or omitted to state a material fact required to be stated or incorporated by reference therein or necessary in order to make the statements therein in light of the circumstances under which they were made not misleading. The audited consolidated financial statements of Parent included in the Parent SEC Reports were prepared in accordance with generally accepted accounting principles and present fairly the consolidated financial position of Parent and its consolidated subsidiaries as of the dates thereof and their consolidated results of operations and changes in financial position for the periods then ended. 21 SECTION 5.7. Brokers. No broker, finder or investment banker is entitled to any brokerage finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Sub. ARTICLE 6 COVENANTS OF TDI AND CMI SECTION 6.1. Access. Prior to the Effective Time, TDI and CMI and their officers, directors, employees, advisors, representatives and authorized agents will provide Parent and Sub and their representatives, employees, counsel and accountants, access to the personnel, properties, books and records of TDI and CMI (to the extent related to TDI), including access to TDI employees for the purpose of pre-enrolling such TDI employees in any employee benefit or welfare plans of Parent. SECTION 6.2. Ordinary Conduct. Except as contemplated by this Agreement or as set forth on Schedule 6.2, from the date of this Agreement to the Effective Time, TDI will, and CMI will cause TDI to, conduct TDI's business in the ordinary course consistent with present practices and make all reasonable efforts to preserve and maintain all its relationships with customers, suppliers and others with whom TDI deals. In any event, except as specifically contemplated by this Agreement, TDI will not, and CMI will cause TDI not to, do any of the following, without the prior written consent of Parent: (a) Charter and Bylaws. Amend its Certificate of Incorporation or bylaws; (b) Dividends. Declare, set aside or pay any dividend or make any other distributions to CMI whether or not upon or in respect of any shares of its capital stock. (c) Capital Stock. (i) Sell, pledge or otherwise dispose of any of the Shares or (ii) issue, sell, make any changes in, redeem or otherwise acquire any shares of its capital stock or issue any capital stock or any option, warrant or right relating thereto or any securities convertible into or exchangeable or exercisable for any shares of capital stock; (d) Employee Matters. Adopt any new "employee benefit plans", as defined in Section 3(3) of ERISA, or other bonus, incentive, equity or equity-based compensation, or deferred compensation or similar arrangements or plan or amend any Plan or collective bargaining agreement, except as required by applicable law; 22 (e) Compensation. (i) Grant to any executive officer or employee any increase in compensation or benefits or any rights to receive severance payments or other benefits upon a termination of employment or a change of ownership or control of the employer, or (ii) terminate any executive officer or employee other than in the ordinary course of business, consistent with past practice; (f) Indebtedness. Incur or assume any liabilities, obligations or indebtedness for borrowed money (except for any monetary amounts owed to CMI under any intercompany loans which shall be canceled without consideration at the Closing) or guarantee any such liabilities, obligations or indebtedness; (g) Encumbrances. Permit, allow or suffer any of its assets to be subjected to any mortgage, pledge, lien, encumbrance, restriction or charge of any kind, other than those excepted from the representations set forth in Sections 3.9 and 3.10; (h) Related-Party Transactions. Except in the ordinary course of business and consistent with past practice, pay, loan or advance any amount to, or sell, transfer or lease any of its assets to, or enter into any agreement or arrangement with CMI or any affiliate of CMI; (i) Accounting Policies and Tax Matters. Make (i) any change in any method of accounting or accounting practice or policy other than those required by generally accepted accounting practices or (ii) any change in any Tax election or settle or compromise any Tax liability; (j) Acquisitions; Reorganizations. Acquire or agree to acquire by merging or consolidating with, or by purchasing the stock of, or a substantial portion of the assets of, or by any other manner, any business or any corporation, partnership, association or other business organization or division thereof or otherwise acquire or agree to acquire any assets (other than in the ordinary course of business, consistent with past practice), except as specifically contemplated under the terms of this Agreement; (k) Capital Expenditures. Make or incur any capital expenditures; (l) Asset Dispositions. Sell, lease or otherwise dispose of, or agree to sell, lease or otherwise dispose of, any of its assets, except in the ordinary course of business; (m) Other Actions. Knowingly take any action or omit to take any action that would cause any of its representations and warranties to become untrue in any respect; (n) Contracts. Modify, amend, grant any consent, waiver or release under, assign, transfer or terminate any Contract or enter into any agreement, contract or arrangement with any person which would constitute a Contract, except for contracts entered into in the ordinary course of business, consistent with past practice; or (o) Agreements. Agree, whether in writing or otherwise, to do any of the foregoing. 23 SECTION 6.3. Insurance; Bonds. CMI and TDI shall keep, or cause to be kept, all insurance policies and bonds presently maintained relating to TDI and its properties, or suitable replacements therefor, in full force and effect through the close of business at the Effective Time. Schedule 3.20 sets forth a true and complete list of all the insurance policies and bonds presently owned and maintained by or for the benefit of TDI. SECTION 6.4. No Sale or Pledge. From the date hereof until the earlier of the Closing and the termination of this Agreement pursuant to Section 9.1, TDI shall not, and CMI shall not permit TDI to merge, consolidate or enter into any share exchange, recapitalization, business combination or similar transaction with any other person (any such transaction other than the transactions contemplated by this Agreement, an "Acquisition Proposal"). In addition, from the date hereof until the earlier of the Closing and the termination of this Agreement pursuant to Section 9.1, TDI shall not, and CMI shall cause TDI not to, and each of CMI and TDI shall not permit or authorize any of its directors, officers, employees, agents or other representatives (including legal and financial advisors) to, directly or indirectly, (i) solicit, initiate or encourage the submission of any Acquisition Proposal or (ii) participate in any discussions or negotiations regarding, or furnish to any Person any information with respect to, or take any other action to facilitate, any Acquisition Proposal or any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Acquisition Proposal. Immediately after the execution and delivery of this Agreement, each of CMI and TDI shall, and shall cause their respective officers, directors, employees, investment bankers, attorneys, accountants and other agents of either of them to, cease and terminate any existing activities, discussions or negotiations with any parties conducted heretofore with respect to any possible Acquisition Proposal. SECTION 6.5. Notice of Breach by CMI or TDI. CMI promptly shall notify Parent in writing of any inaccuracy in or any breach of any representation and warranty of CMI or TDI contained in this Agreement or any certificate or document delivered pursuant to this Agreement that it acquires knowledge of subsequent to the date of this Agreement and before the Closing and shall also notify Parent in writing of any event or occurrence after the date hereof that it acquires knowledge of subsequent to the date of this Agreement and before the Closing which, if it had existed or occurred on or prior to the date hereof and was not disclosed to Parent at such time, would have caused the representation and warranty to which such event or occurrence relates to be untrue. ARTICLE 7 COVENANTS OF PARENT AND SUB SECTION 7.1. Confidentiality. Each of Parent and Sub acknowledges that the information being provided to each of them by or on behalf of TDI and CMI is subject to the terms of the Confidentiality Agreement dated as of June 21, 2000 between Parent and TDI (the "Confidentiality Agreement"), the terms of which are incorporated herein by reference. Effective as of, and only as of, the Effective Time, the Confidentiality Agreement will terminate only with respect to information relating solely to TDI, and each of Parent and Sub acknowledges that any and all other information provided to it by CMI or CMI's representatives concerning any other subsidiary of CMI or any other operations of CMI shall remain subject to the terms and conditions of the Confidentiality Agreement after the Effective Time. 24 SECTION 7.2 Piggyback Registration. If at any time within the two-year period following the Closing Date, Parent proposes to register shares of Parent Common Stock under the Securities Act (other than a registration on Form S-4 or Form S-8, or any successor or similar forms) to be sold in a firm commitment underwritten public offering for cash, it will promptly give written notice to CMI of its intention to do so (the "Registration Notice"). Parent will use its best efforts to include in the proposed registration all shares of Parent Common Stock included within the Common Stock Merger Consideration (excluding any Escrowed Consideration) that Parent is requested in writing, within ten (10) days after the Registration Notice is given, to register by CMI; provided, however, that if, at any time after giving written notice of its intention to register shares of Parent Common Stock and prior to the effective date of the registration statement filed in connection with such registration, Parent shall determine for any reason not to register the Parent Common Stock, Parent may, at its election, give written notice of such determination to CMI and, thereupon, shall be relieved of its obligation to register any Parent Common Stock in connection with such abandoned registration. Nothwithstanding the foregoing, if the managing underwriter for a registration under this Section 7.2 advises Parent in writing that, in its opinion, the inclusion of some or all of the Common Stock Merger Consideration to be sold for the account of CMI would adversely affect the price per unit to be derived from the offering or otherwise materially and adversely affect the success of the offering, then the number of shares of Common Stock Merger Consideration to be included in the registration shall be reduced in accordance with the managing underwriter's written opinion to the minimum extent necessary to eliminate any suich adverse effects. Parent shall pay all expenses incident to the performance of its obligations under this Section 7.2; provided, however, that Parent shall not be required to pay any discounts, commissions or fees of underwriters, selling brokers and dealers relating to the sale and distribution of the Common Stock Merger Consideration included in the registration. SECTION 7.3. Notice of Breach by Parent or Sub. Parent shall promptly notify CMI in writing of any inaccuracy in or any breach of any representation and warranty of Parent or Sub contained in this Agreement or any certificate or document delivered pursuant to this Agreement that it acquires knowledge of subsequent to the date of this Agreement and before the Closing and shall also notify CMI in writing of any event or occurrence after the date hereof that it acquires knowledge of subsequent to the date of this Agreement and before the Closing which, if it had existed or occurred on or prior to the date hereof and was not disclosed to CMI at such time, would have caused the representation and warranty to which such event or occurrence relates to be untrue. SECTION 7.4. Broker Agreements. If at any time during the 12-month period following the Closing Date, Parent or TDI receives notice from any of the other parties to the Broker Agreements that any of them are terminating or canceling a Broker Agreement or otherwise adversely modifying TDI's right to purchase tickets under such agreements, Parent shall promptly notify CMI of such notice. Following receipt of any such notice, Parent shall use all commercially reasonable efforts to preserve its right to purchase tickets under the Broker Agreements. Parent shall keep CMI fully informed with respect to its efforts to preserve its right to purchase tickets under the Broker Agreements and shall afford CMI the opportunity to meet with Parent and the other parties to the Broker Agreements, as applicable, to remedy the situation. 25 ARTICLE 8 MUTUAL COVENANTS SECTION 8.1. Cooperation. TDI, CMI and Parent shall use all reasonable commercial efforts to cooperate with each other and to cause their respective officers, employees, affiliates, agents, auditors and representatives to cooperate with each other after the Effective Time to ensure the orderly transfer of TDI to Parent and to minimize any disruption to the respective businesses of TDI or Parent that might result from the transactions contemplated hereby. SECTION 8.2. Publicity. Each of TDI, CMI, Parent and Sub agrees that, from the date of this Agreement through the Effective Time, no public release or announcement concerning the transactions contemplated hereby shall be issued by any party without the prior consent of each other party (which consent shall not be unreasonably withheld), except as such release or announcement may be required by applicable law or the rules or regulations of any United States or foreign securities exchange, in which case the party required to make the release or announcement shall allow each other party reasonable time to comment on such release or announcement in advance of such issuance. SECTION 8.3. Records. ------- (a) At the Effective Time, CMI shall deliver or cause to be delivered to Parent true and complete copies of all original agreements, documents, books, records and files, each as currently in effect (collectively, "Records"), in the possession of CMI related to the business and operations of TDI to the extent not then in the possession of TDI, subject to the following exceptions: (i) Parent recognizes that certain Records may contain incidental information relating to TDI or may relate primarily to subsidiaries or divisions of CMI other than TDI or businesses of TDI previously sold, and that CMI may retain such Records and shall provide true and complete copies of the relevant portions thereof to Parent and TDI; (ii) CMI may retain all Records prepared in connection with the sale of the Shares, including bids received from other parties and analyses relating to TDI; and (iii) CMI may retain any Tax Returns or Tax records, and Parent and TDI shall be provided with copies of such Tax Returns or Tax records to the extent they relate to TDI. 26 (b) After the Effective Time, upon reasonable written notice, CMI and Parent agree to furnish or cause to be furnished to each other and their representatives, employees, counsel and accountants access, during normal business hours, to such information (including Records pertinent to TDI) and assistance relating to TDI as is reasonably necessary for financial reporting and accounting matters, the preparation and filing of any Tax Returns or the defense of any Tax Claim or assessment; provided, however, that such access does not unreasonably disrupt the normal operations of CMI, Parent or TDI. SECTION 8.4. Reasonable Efforts; Additional Agreements. Subject to the terms and conditions provided herein, each of the parties hereto agrees to use all reasonable commercial efforts to take or cause to be taken all actions and to do or cause to be done all things reasonably necessary, proper or advisable under applicable law to consummate and make effective the transactions contemplated by this Agreement and each of the Ancillary Agreements to which it is a party, including, without limitation: (a) executing any additional agreements, instruments or other documents or taking any other actions necessary to consummate the transactions contemplated hereby; and (b) not knowingly taking or agreeing to take any action that would cause any of the representations and warranties contained in this Agreement or any certificate or other document being delivered pursuant to the terms of this Agreement to be untrue in any material respect. SECTION 8.5. Tax Free Reorganization. No party hereto shall, employing reasonable efforts, take any action or fail to take any action, within the six month period following the Effective Time, that would cause the Merger not to qualify as a reorganization under Section 368(a)(1)(A) of the Code. ARTICLE 9 TERMINATION; AMENDMENT; WAIVER SECTION 9.1. Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Effective Time: (a) by mutual written consent of CMI and Parent; (b) by CMI, TDI, Parent or Sub if (i) any federal, state or foreign governmental authority or other agency or commission or court of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order, decree or ruling which remains in effect, and which has the effect of making the transactions contemplated hereby illegal or otherwise prohibiting consummation of the transactions contemplated by this Agreement and such order, decree, ruling or other action is or shall have become nonappealable or (ii) the Merger has not been consummated within 120 days after the date hereof; and (c) Subject to Section 2.3, by CMI or TDI if either Parent or Sub, or by Parent or Sub if either CMI or TDI, (i) shall have materially breached any of its agreements and covenants under this Agreement or any Ancillary Agreement or (ii) any representation or warranty of such party contained in this Agreement or any certificate or other document being delivered pursuant to this Agreement shall fail to be true and correct in all material respects, and, in the cases of the foregoing clauses (i) and (ii), such breach or failure shall continue for 30 days without cure after written notice thereof. 27 Notwithstanding anything to the contrary contained in this Agreement, the right of a party to terminate this Agreement under this Section 9.1 shall not be available to any party (i) which is in material breach of its obligations hereunder or (ii) whose failure to fulfill its obligations hereunder is the cause of, or results in, the failure to satisfy any of the conditions to the consummation of the Merger set forth in Article 2. SECTION 9.2. Effects of Termination. If this Agreement is terminated and the transactions contemplated hereby are abandoned pursuant to Section 9.1, this Agreement shall become void and of no further force and effect, except for the provisions of (a) Section 8.2 relating to publicity, (b) Section 12.1 relating to expenses generally, (c) Section 12.4 relating to notices, (d) Section 12.10 relating to arbitration and consent to jurisdiction, (e) Section 12.13 relating to the limitation on consequential and punitive damages and (f) this Article 9. Nothing in this Article 9 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement. ARTICLE 10 EMPLOYEE AND RELATED MATTERS SECTION 10.1. Offers of Employment. The Surviving Corporation shall have continued responsibility for all TDI employees on substantially the same terms and conditions to which such employees were subject immediately prior to the Effective Time, subject to the provisions of this Article 10. Any TDI employee who is not actively employed at the Effective Time shall be offered active employment with the Surviving Corporation following the expiration of such leave of absence only to the extent that TDI would have been obligated to offer employment to any such employee. SECTION 10.2. Continuation of Plans. As of the Effective Time, TDI personnel shall cease to participate in or be covered by all CMI Plans, and neither TDI nor any other affiliate of TDI after the Merger, including the Parent and Sub shall have any responsibility for benefits under such Plans. As of the Effective Time, Parent or TDI shall remain the sponsor of each TDI Plan, and neither CMI nor any other affiliate of CMI shall have any responsibility for benefits under any such Plan. SECTION 10.3. Mutual Cooperation. Each of Parent and TDI agrees to cooperate, and agrees to use its best efforts to cause its affiliates to cooperate and in a complete, diligent and timely manner to provide CMI with such compensation, service, payroll and other pertinent census data as may be required by CMI for purposes of calculating or affecting distribution of benefits to which any TDI employee or former employee may be entitled under any benefit plan established, maintained or contributed to by CMI. ARTICLE 11 INDEMNIFICATION SECTION 11.1. Indemnification by CMI. Without duplication of any amounts payable for indemnification under Section 11.5, CMI shall indemnify Parent, Sub, the Surviving Corporation, each of their affiliates and each of their respective officers, directors, Shareholders, partners, employees and agents against and hold them harmless from any and all damage, loss, liability, claim, penalty, judgment, assessment, cost and expense of any kind (including reasonable attorneys' fees and expenses) (collectively, "Losses") suffered or incurred by any such indemnified party to the extent arising from (a) any alleged liability of TDI under ERISA arising from TDI having been a member of CMI's "control group" prior to the Effective Time and from TDI's participation in any CMI Plan; (b) any breach or inaccuracy in any representation or warranty contained in Article 3 or 4 of this Agreement; and (c) any breach by CMI or TDI of any of the covenants of CMI or TDI contained in this Agreement. 28 SECTION 11.2. Indemnification by Parent. Parent shall indemnify CMI and its affiliates, officers, directors, Shareholders, partners, employees and agents against and hold them harmless from any Losses suffered or incurred by any such indemnified party to the extent arising from (a) any breach or inaccuracy in any representation or warranty contained in Article 5 of this Agreement; and (b) any breach by Parent or Sub of any of the covenants of Parent or Sub contained in this Agreement. SECTION 11.3. Adjustments to Losses; Determination of Damages; Termination of Indemnification. (a) The amount of any Losses for which indemnification is provided under this Article 11 shall be reduced by any amounts recovered or recoverable by the indemnified party under insurance policies with respect to such Losses. (b) An indemnifying party shall not have any liability under Sections 11.1 or 11.2, respectively, unless the aggregate amount of Losses to the indemnified parties arising thereunder exceeds $25,000, and then shall have liability for the full amount of any such Losses. (c) In the absence of fraud or willful misconduct on the part of an indemnifying party, except with respect to Losses in respect of Third-Party Claims, an indemnifying party shall not have liability for Losses indemnifiable under Section 11.1(b) or (c) or Section 11.2(a) or (b) in excess of $2,500,000. (d) The obligations to indemnify and hold harmless pursuant to Section 11.1(b) and Section 11.2(a) shall terminate on the third anniversary of the Closing Date. SECTION 11.4. Procedures Relating to Indemnification for Third Party Claims. In order for a party (the "indemnified party") to be entitled to any indemnification provided for under Sections 11.1 and 11.2 of this Agreement in respect of, arising out of or involving a claim or demand made by any person, firm, governmental authority or corporation against the indemnified party (a "Third-Party Claim"), such indemnified party must notify the indemnifying party in writing, and in reasonable detail, of the Third-Party Claim within 15 days after receipt by such indemnified party of written notice of the Third-Party Claim; provided, however, that failure to give such notification shall not affect the indemnification provided hereunder except to the extent the indemnifying party shall have been actually and materially prejudiced as a result of such failure. Thereafter, the indemnified party shall deliver to the indemnifying party, within 3 business days after the indemnified party's receipt thereof, copies of all notices and documents (including court papers) received by the indemnified party relating to the Third-Party Claim. If a Third-Party Claim is made against an indemnified party, the indemnifying party will be entitled to participate in the defense thereof and, if it so chooses, to assume the defense thereof with counsel selected by the indemnifying party and reasonably satisfactory to the indemnified party; provided, however, that CMI shall not be entitled to assume the defense of any Third-Party Claim for Taxes with respect to a period ending after the Closing Date. If the indemnifying party assumes such defense, the indemnified party shall have the right to participate in the defense thereof and to employ counsel, at its own expense, separate from the counsel employed by the indemnifying party, it being understood that the indemnifying party shall 29 control such defense. Nothwithstanding the foregoing, if the named parties to any such claim or proceeding include both such indemnified party and the indemnifying party and such indemnified party has been advised by legal counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party, then the indemnifying party shall pay the fees and expenses of one separate counsel for the indemnified party (in which case, if such indemnified party informs the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim or proceeding on behalf of such indemnified party). If the indemnifying party chooses to defend or prosecute any Third-Party Claim, all the parties hereto shall cooperate in the defense or prosecution thereof. Such cooperation shall include the retention and (upon the indemnifying party's request) the provision to the indemnifying party of records and information which are reasonably relevant to such Third-Party Claim, and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The indemnifying party shall not settle any Third-Party Claim against the indemnified party without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. So long as the indemnifying party is in good faith defending any Third-Party Claim, the indemnified party shall not compromise or settle such claim without the prior written consent of the indemnifying party, which consent shall not be unreasonably withheld. SECTION 11.5. Tax Matters (a) Tax Indemnification. CMI agrees to be responsible for, and to indemnify and hold the indemnified parties listed in Section 11.1 harmless from and against, any and all Losses relating to, resulting from or based upon: (i) any and all Taxes with respect to any taxable periods of TDI (or any predecessor) ending on or prior to the Closing Date; (ii) any and all Taxes of TDI for the period allocated to CMI pursuant to Section 11.5(b)(iii) but not including any Taxes attributable to the portion of the Closing Date after the Closing (determined applying similar principle to Section 11.5(b)(iii)); and (iii) any liability under Treasury Regulation Section 1.1502-6(a) or any analogous or similar state, local or foreign law or regulation as a result of TDI (or any predecessor) being a member of any Affiliated Group at any time on or prior to the Closing Date. (b) Preparation of Tax Returns; Payment of Taxes. (i) CMI. (1) CMI (A) shall include, or cause to be included, TDI in, and shall file, (I) the United States consolidated federal income Tax Return of CMI for its taxable year ended March 31, 2000 and for all subsequent taxable periods of TDI ending on or prior to the Closing Date and (II) all other consolidated, combined or unitary Tax Returns of CMI or its subsidiaries in which TDI has been, or is required to be, includable for the taxable periods of TDI ending on or prior to the Closing Date and (B) also shall file, or shall cause TDI to file, all other Tax Returns of, or which include, TDI required to be filed (taking into account any extensions) on or prior to the Closing Date. Such Tax Returns shall be prepared in a manner consistent with prior practice with respect to TDI. CMI shall prepare and deliver any such Tax Returns (or the relevant portions thereof), to Parent at least 10 business days prior to their due date and Parent shall have the right to review and approve (which approval shall not be unreasonably withheld) such Tax Returns (or the relevant portions thereof). 30 (2) Following the Closing, CMI shall be responsible for preparing or causing to be prepared all foreign, state and local Tax Returns required to be filed by TDI on a separate return basis after the Closing Date with respect to taxable periods that end on or prior to the Closing Date. Such Tax Returns shall be prepared in a manner consistent with prior practice. CMI shall prepare and deliver such Tax Returns, along with the amount of any Taxes shown due thereon that is the responsibility of CMI in accordance with Section 11.5(a), to Parent for filing at least 10 business days prior to their due date and Parent shall have the right to review and approve such Tax Returns (which approval shall not be unreasonably withheld). (3) Notwithstanding the foregoing, following the Closing Date, neither CMI nor any subsidiary shall amend any Tax Return without the prior written consent of Parent (which consent shall not be unreasonably withheld) if any adjustment provided in such Tax Return would adversely affect the Taxes payable by TDI for taxable periods ending after the Closing Date. Similarly, neither Parent nor TDI shall amend any Tax Return with respect to Tax years ending on or before the Closing Date or straddle years without the prior written consent of CMI (which consent shall not be unreasonably withheld) if any adjustment provided in such Tax Return would adversely affect the Taxes or indemnification payments payable by CMI for taxable periods ending on or before the Closing Date. (ii) Parent. ------ (1) Parent shall cause to be filed all Tax Returns required to be filed by TDI after the Closing Date, and shall, subject to receiving the payments from CMI referred to in Section 11.6(b)(ii)(2), pay the Taxes shown due thereon. Nothing contained in the foregoing shall in any manner terminate, limit or adversely affect any right of any party to receive indemnification pursuant to any provision in this Agreement. (2) With respect to any Tax Returns which Parent shall cause to be filed pursuant to Section 11.5(b)(ii)(1) hereof, CMI shall pay to Parent an amount equal to that portion of the Taxes shown on such Tax Return for which CMI has an obligation to indemnify any party pursuant to the provisions of Section 11.5(a). With respect to Tax Returns relating to Taxes measured based on income or gross receipts, Parent shall provide CMI with a schedule showing the computation of such amount at least 35 days prior to the due date (including extensions, if any) for filing the Tax Returns which reflects Taxes for which CMI has an obligation to indemnify any party pursuant to the provisions of Section 11.5(a) along with a copy of such Tax Return (or the relevant portions thereof). CMI shall have the right to review any such Tax Return (or the relevant portion thereof) and schedule, and Parent and CMI shall attempt in good faith mutually to resolve any disagreements regarding the determination of such amount within ten (10) days of the CMI's receipt thereof. Any disagreement regarding such determination shall be resolved by an independent nationally recognized accounting firm (the "Accounting Firm"). The parties will instruct the Accounting Firm to reach its conclusion regarding any such dispute within fifteen (15) days after its appointment. The report of the Accounting Firm shall be final, binding and conclusive on CMI and Parent. The fees and expenses of the Accounting Firm shall be borne equally by CMI and Parent. Any amount owing under this Section 11.5(b)(ii)(2) shall be paid no later than five (5) days before the due date for payment of Taxes with respect to any such Tax Return. (3) With respect to all Tax Returns other than Tax Returns relating to Taxes measured based on income or gross receipts, Parent shall provide CMI with a copy of the Tax Return (or the relevant portions thereof) and a schedule showing the computation of the portion of Taxes shown due on such Tax Return for which CMI has an obligation to indemnify pursuant to the provisions of Section 11.5(a) prior to filing such Tax Return. CMI shall pay to Parent the portion of Taxes for which it is responsible within 10 days of receipt of the Tax Return. If any dispute with respect to such Tax Return is not resolved prior to the date payment is due to Parent, CMI shall pay to Parent the amount that Parent believes is due, and any unresolved disputes shall be resolved in accordance with Section 12.10(a). Upon resolution of the dispute in accordance with Section 12.10(a), Parent will reimburse to CMI the amount of any payment made to Parent in accordance with the preceding sentence in excess of the amount determined to be due under Section 12.10(a). (iii) Closing Taxable Year; Allocation for Straddle Year. For federal income tax purposes, the taxable year of TDI shall end as of the close of the Closing Date and, with respect to all other Taxes, CMI and Parent will, unless prohibited by applicable law, close the taxable period of TDI as of the close of the Closing Date. Except as otherwise required by applicable law, neither CMI nor Parent shall take any position inconsistent with the preceding sentence on any Tax Return. In any case where applicable law does not permit TDI to close its taxable year on the Closing Date or in any case in which a Tax is assessed with respect to a taxable period which includes the Closing Date (but does not begin or end on that day), then Taxes, if any, attributable to the taxable period of TDI beginning before and ending after the Closing Date shall be allocated (A) to CMI for the period up to and including the Closing Date, and (B) to Parent for the period subsequent to the Closing Date. Any allocation of 31 income, deductions, credits or other items required to determine any Taxes attributable to any period beginning before and ending after the Closing Date shall be prepared by Parent and shall be made by means of a closing of the books and records of TDI as of the close of the Closing Date, provided that exemptions, allowances, deductions or other items that are calculated on an annual basis (including, but not limited to, depreciation and amortization deductions) shall be allocated between the period ending on the Closing Date and the period after the Closing Date in proportion to the number of days in each such period. (c) Carrybacks. CMI shall pay to Parent the amount of any Tax refund received (or utilized as a credit against Taxes due by CMI or any member of its Affiliated Group) as a result of the carryback of any Tax loss, deduction or credit of TDI from any taxable period beginning after the Closing Date to the taxable period, or portion thereof, ending on or before the Closing Date. CMI shall pay such amount to Parent within 5 business days after such Tax benefit is realized by CMI or any member of its Affiliated Group as a refund or otherwise, provided that Parent shall return to CMI the amount, if any, by which the amount of such Tax benefit is thereafter reduced pursuant to a final determination. (d) Cooperation with Respect to Taxes. Parent and CMI agree to furnish or cause to be furnished to each other, and each at their own expense, as promptly as practicable, such information (including access to books and records) and assistance, including making employees available on a mutually convenient basis to provide additional information and explanations of any material provided, relating to TDI as is reasonably necessary for the determination of any Taxes, for the filing of any Tax Return (including any amended Tax Return or claim for refund), for the preparation for any audit, and for the prosecution or defense of any claim, suit or proceeding relating to any adjustment or proposed adjustment with respect to Taxes. Each of Parent and CMI agree (A) to retain all books and records with respect to Tax matters pertinent to TDI relating to any taxable period beginning before the Closing Date until the expiration of the relevant statute of limitations (and such longer period as reasonably requested in writing), and (B) to give the other party reasonable written notice prior to transferring, destroying or discarding any such books and records and, in such event, if the other party so requests, to allow the other party to take possession of such books and records. (e) Tax Proceedings. --------------- (i) In the event that any audit or examination shall be instituted, or any deficiency asserted or assessment made, or any administrative or court proceeding commenced by the IRS or any other taxing authority (a "Tax Proceeding") with respect to any taxable period ending prior to or on the Closing Date of which Parent has notice, Parent shall promptly cause written notice of the Tax Proceeding to be forwarded to CMI. Similarly, CMI shall promptly cause written notice of any Tax Proceeding of which CMI has notice relating to any indemnifiable Taxes to be forwarded to Parent. 32 (ii) CMI shall have the right to elect, at its sole option and expense, and subject to the provisions of this Section 11.5(e), to represent the interests of TDI in any Tax Proceeding with respect to any taxable period ending prior to or on the Closing Date, with counsel of its choice reasonably satisfactory to Parent. In the event CMI elects to represent TDI in such Tax Proceeding, CMI shall within five (5) days (or sooner, if the nature of the Tax Proceeding so requires) notify Parent of its intent to do so and Parent shall cause TDI to appoint CMI as attorney in fact with the exclusive authority to represent TDI in the Tax Proceeding. Parent shall have (x) the right to participate fully in the Tax Proceeding, including through separate counsel of its own choosing at its sole cost and expense, (y) the right to receive reasonable advance notice from CMI of any meetings, hearings or proceedings, and (z) the right, if possible, to review in advance and comment on any pleadings, briefs, or other documents to be filed. CMI shall not enter into any settlement, closing or other agreement with respect to any Tax Proceeding without the prior written consent of Parent (not to be unreasonably withheld, conditioned or delayed) if such settlement, closing agreement or other agreement could adversely affect Taxes payable by TDI for taxable periods (or portions thereof) beginning after the Closing Date. If CMI elects not to represent TDI in the Tax Proceeding, or fails to timely notify Parent of its election herein provided or contests its obligation to indemnify, then Parent may represent the interests of TDI in any Tax Proceeding in any manner that it reasonably may deem appropriate. (iii) Parent and CMI jointly shall represent the interests of TDI in any Tax Proceeding relating to any taxable period of TDI which includes (but does not begin or end on) the Closing Date. Any disputes regarding the conduct or resolution of any such Tax Proceeding shall be resolved by the Accounting Firm. The parties will instruct the Accounting Firm to reach its conclusion regarding any such dispute within 20 days after its appointment. The report of the Accounting Firm shall be final, binding and conclusive on CMI and Parent. All costs, fees and expenses paid to third parties in the course of such Tax Proceeding (including the fees of the Accounting Firm) shall be borne by Parent and CMI in the same ratio as the ratio in which, pursuant to the terms of this Agreement (including Section 11.5(b) hereof), Parent and CMI would share the responsibility for payment of the Taxes asserted by the taxing authority in such Tax Proceeding if such Tax Proceeding were sustained in its entirety. (f) Claim Period. Any claim for indemnity under this Section 11.5 may be made at any time prior to 90 days after the expiration of the applicable Tax statute of limitations with respect to the relevant taxable period of TDI or of such indemnified party (including all periods of extension, whether automatic or permissive), and, nothwithstanding anything to the contrary herein, all representations in Section 3.18 shall survive until 90 days after the expiration of the last day on which any Tax may be validly assessed by the IRS or any other government entity or otherwise claimed by any other party against TDI or any of its properties with respect to any matter in which any such representations or warranty has a bearing. (g) Termination of Tax Sharing Arrangements. Any tax sharing, tax indemnification or similar agreement or arrangement with respect to Taxes (other than the provisions of this Agreement) between or among TDI, CMI and any subsidiary of CMI shall be terminated as to TDI as of the Closing Date and TDI shall have no liability from and after the Closing Date under any such agreements or arrangements. 33 (h) Transfer Taxes. CMI shall be liable for and shall pay all sales, use, stamp, documentary, filing, recording, transfer or similar fees or taxes or governmental charges as levied by any taxing authority or governmental authority in connection with the transactions contemplated by this Agreement. CMI and Parent hereby agree to file all necessary documents with respect to all such amounts. (i) Conflicts. In the event of a conflict between the provisions of Section 11.4 and the provision of this Section 11.5 with respect to a claim for Taxes, the provisions of Section 11.5 shall govern. Section 11.6 Payment of Indemnity Claims (a) Notwithstanding anything to the contrary herein, any liability of CMI under this Article 11 to indemnified persons listed in Section 11.1 shall be satisfied through, at the option of CMI (1) payments solely in cash, or (2) the payment of cash and Parent Common Stock with 20% of all payments in cash and the balance (to the extent of the Common Stock Merger Consideration) of all payments in shares of Parent Common Stock, such shares to be valued at the Parent Common Stock Price. (b) Nothwithstanding anything to the contrary herein, any liability of the Parent under this Article 11 shall be satisfied solely through the issuance of additional shares of Parent Common Stock, such shares to be valued at the Parent Common Stock Price. ARTICLE 12 MISCELLANEOUS SECTION 12.1. Expenses. Whether or not the transactions contemplated hereby are consummated, and except as otherwise provided in this Agreement, all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses. Without limiting the generality of the immediately preceding sentence, the fees, costs and expenses incurred by TDI in connection with this Agreement and the transactions contemplated hereby shall be borne by CMI and none of such fees, costs or expenses shall be paid by TDI. SECTION 12.2. Assignment. This Agreement and the rights and obligations hereunder shall not be assignable or transferable by Parent, Sub, CMI or TDI without the prior written consent of the other parties hereto. SECTION 12.3. No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person or entity, other than the parties hereto and such assigns, any legal or equitable rights hereunder. 34 SECTION 12.4. Notices. All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent prepaid telecopy, or sent, postage prepaid, by registered, certified or express mail, or reputable overnight courier service and shall be deemed given when so delivered by hand or telecopied, or if mailed, three days after mailing (one business day in the case of express mail or overnight courier service), as follows: (a) if to Parent, Sub or the Surviving Corporation: Hollywood.com, Inc. 2255 Glades Road Suite 237 West Boca Raton, Florida 33431 Attention: Mitchell Rubenstein Telecopier No.: (561) 998-2974 with a copy to: Hollywood.com Inc. 2255 Glades Road Suite 237 West Boca Raton, Florida 33431 Attention: W. Robert Shearer Telecopier No.: (561) 998-2974 (b) if to CMI: --------- Cameron Macintosh, Inc. 1650 Broadway, Suite 800 New York, NY 10019 Attention: Telecopier No.: (212) 921-9271 with a copy to: Frankfurt, Garbus, Klein & Selz, P.C. 488 Madison Avenue - 9th Floor New York, NY 10022 Attention: S. Jean Ward Telecopier No.: (212) 593-9175 (c) if to TDI: --------- Theatre Direct NY, Inc. 1650 Broadway, Suite 910 New York, NY 10019 Attention: Bruce Amick Telecopier No.: (212) 541-4892 35 SECTION 12.5. 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 such counterparts have been signed by each of the parties and delivered to the other party. SECTION 12.6. Entire Agreement. This Agreement, the Ancillary Agreements and the Confidentiality Agreement and the Schedules attached hereto and thereto and any certificates delivered pursuant hereto or thereto contain the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. SECTION 12.7. Severability. If any provision of this Agreement or the application of any such provision to any person or circumstance shall be held invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof. SECTION 12.8. Amendment. This Agreement may be amended by action taken by TDI, CMI, Parent and Sub at any time only by an instrument in writing signed on behalf of each of the parties hereto. SECTION 12.9. Extension; Waiver. At any time prior to the Effective Time, any party hereto may (a) extend the time for the performance of any of the obligations or other acts of any other party, (b) waive any inaccuracies in the representations and warranties of any other party contained herein or in any document, certificate or writing delivered pursuant hereto or (c) waive compliance by any other party with any of the agreements or conditions contained herein. Any agreement on the part of any party hereto to any such extension or waiver shall be valid only if set forth in an instrument, in writing, signed on behalf of such party. The failure of any party hereto to assert any of its rights hereunder shall not constitute a waiver of such rights. SECTION 12.10. Dispute Resolution; Equitable Enforcement. ----------------------------------------- (a) Accounting Disputes. Except for disputes to be resolved in accordance with Sections 11.5(b)(ii)(2) and 11.5(e)(iii), any controversy, dispute or claim arising under this Agreement related to or arising out of accounting or tax matters relating to this Agreement shall be resolved by means of discussions between the regularly retained independent certified public accountants of Parent and CMI. In the event that the independent certified public accountants of each of Parent and CMI are unable to resolve the dispute within 60 days after the dispute is first submitted to them, then a third independent certified public accountant of recognized national standing shall be selected by the independent certified public accountants of each of Parent and CMI and the determination of such third independent certified public accountant, with respect to the matter in dispute, shall be rendered within 45 days after the dispute has been submitted to it and such determination shall be final and binding on all of the parties hereto. 36 (b) Arbitration. Except as otherwise provided in Section 12.10(a) or (c), any controversy, dispute or claim arising under this Agreement which cannot be settled by mutual agreement shall be finally settled by arbitration as follows: any party who is aggrieved shall deliver a notice to other party setting forth the specific points in dispute. Any points remaining in dispute twenty (20) days after the giving of such notice shall be submitted to arbitration in New York, New York to Endispute, before a single arbitrator appointed in accordance with Endispute's Arbitration Rules, modified only as herein expressly provided. The arbitrator may enter a default decision against any party who fails to participate in the arbitration proceedings. The decision of the arbitrator on the points in dispute will be final, unappealable and binding and judgment on the award may be entered in any court having jurisdiction thereof. The parties agree that this clause has been included to rapidly and inexpensively resolve any disputes between them with respect to this Agreement, and that this clause shall be grounds for dismissal of any court action commenced by either party with respect to this Agreement, other than post-arbitration actions seeking to enforce an arbitration award. The parties shall keep confidential, and shall not disclose to any person, except as may be required by law, the existence of any controversy hereunder, the referral of any such controversy to arbitration or the status or resolution thereof. (c) Equitable Enforcement. Notwithstanding anything to the contrary contained in this Section 12.10, any claim by either party for injunctive or other equitable relief, including specific performance (including specific performance of the agreement to resolve disputes related to or arising out of accounting matters contained in Section 12.10(a) and the agreement to arbitrate contained in Section 12.10(b)), may be brought in any state or federal court located in the Southern District of New York in the State of New York, before or as a result of arbitration, and any judgment, order or decree relating thereto shall have precedence over any arbitral award or proceeding. Each of Parent, Sub, CMI and TDI irrevocably submits to the exclusive jurisdiction of the state or federal courts situated in the Southern District in the State of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby. Each of Parent, Sub, CMI and TDI agrees to commence any action, suit or proceeding relating hereto in any of such courts only. Each of Parent, Sub, CMI and TDI further agrees that service of any process, summons, notice or document by U.S. registered mail to such party's respective address set forth in Section 12.4 above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction as set forth above in the immediately preceding sentence. Each of Parent, Sub, CMI and TDI irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in any of such courts only and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum. SECTION 12.11. Interpretation of this Agreement. -------------------------------- (a) Construction. Unless the context of this Agreement clearly requires otherwise, references to the plural include the singular, the singular includes the plural, the part includes the whole, "including" is not limiting and "or" has the inclusive meaning represented by the phrase "and/or." The words "hereof," "herein," "hereby," "hereunder" and similar terms in this Agreement refer to this Agreement as a whole (including the Preamble, the Recitals, the Schedules and the Exhibits) and not to any particular provision of this Agreement. Article, section, exhibit, schedule, recital and preamble references in this Agreement are to those portions of this Agreement unless otherwise specified. 37 (b) Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such State. (c) Headings, Exhibits and Schedules. The headings contained in this Agreement, in any Exhibit or Schedule hereto and in the Table of Contents to this Agreement, are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning as defined in this Agreement. Any matter disclosed in one Schedule hereto shall be deemed incorporated by reference into each other Schedule hereto and disclosed in each such Schedule to the extent that the relevancy of such matter to each such other Schedule is apparent from the disclosure included on the Schedule. IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of Merger to be duly executed as of the date first written above. CAMERON MACKINTOSH, INC., a Delaware corporation By: /s/ S. Jean Ward ---------------------------------------- Name: S. Jean Ward Title: Vice President and Secretary THEATRE DIRECT NY, INC., a Delaware corporation By: /s/ S. Jean Ward ---------------------------------------- Name: S. Jean Ward Title: Secretary 38 HOLLYWOOD.COM, INC., a Florida corporation By: /s/ W. Robert Shearer ----------------------------------------- Name: W. Robert Shearer Title: Senior Vice President and General Counsel THEATER ACQUISITION CORP., a Delaware corporation By: /s/ W. Robert Shearer ------------------------------------------ Name: W. Robert Shearer Title: Senior Vice President and General Counsel EX-27.1 3 0003.txt FDS
5 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 4,887,581 0 2,619,862 161,579 1,318,988 32,083,226 4,448,030 (1,635,815) 190,117,366 12,232,001 0 0 0 240,759 176,273,897 190,117,366 18,012,265 18,012,265 6,374,119 45,382,840 (34,599) 0 201,887 (32,089,113) 0 (32,089,113) 0 0 0 (32,089,113) (1.40) (1.40)
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