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INDEX TO FINANCIAL
As filed with the Securities and Exchange Commission on October 16, 2015.
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Match Group, Inc.
(Exact name of registrant as specified in its charter)
Delaware (State or other jurisdiction of incorporation or organization) |
7389 (Primary Standard Industrial Classification Code Number) |
26-427817 (I.R.S. Employer Identification Number) |
8300 Douglas Avenue
Suite 800
Dallas, TX 75225
Telephone: (214) 576-9352
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
Gregg J. Winiarski
Executive Vice President and General Counsel
IAC/InterActiveCorp
555 West 18th Street
New York, NY 10011
Telephone: (212) 314-7300
Facsimile: (212) 314-7309
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to: | ||
Andrew J. Nussbaum Ante Vucic Wachtell, Lipton, Rosen & Katz 51 West 52nd Street New York, New York 10019 Telephone: (212) 403-1000 Facsimile: (212) 403-2000 |
David J. Goldschmidt Skadden, Arps, Slate, Meagher & Flom LLP 4 Times Square New York, New York 10036 Telephone: (212) 735-3000 Facsimile: (212) 735-2000 |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o | Accelerated filer o | Non-accelerated filer ý (Do not check if a smaller reporting company) |
Smaller reporting company o |
CALCULATION OF REGISTRATION FEE
|
||||
Title of each class of securities to be registered |
Proposed maximum aggregate offering price(1)(2) |
Amount of registration fee |
||
---|---|---|---|---|
Common stock, par value $0.001 per share |
$100,000,000 | $10,070 | ||
|
(1) Includes additional shares that the underwriters have an option to purchase.
(2) Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
The Registrant hereby amends this Registration Statement on such date as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. The securities may not be sold until the Registration Statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion, dated October 16, 2015
Preliminary Prospectus
shares
Common stock
This is an initial public offering of common stock by Match Group, Inc. The estimated initial public offering price is between $ and $ per share.
We have applied to list our common stock on the NASDAQ Global Select Market under the symbol "MTCH."
Following this offering, we will have three classes of authorized common stock: common stock, Class B common stock and Class C common stock. The rights of the holders of the shares of common stock, Class B common stock and Class C common stock are generally identical, except with respect to voting and conversion. Each holder of common stock is entitled to one vote per share. Each holder of Class B common stock is entitled to ten votes per share and each share of Class B common stock is convertible at any time at the election of the holder into one share of common stock. Holders of Class C common stock are not entitled to any votes per share except as (and then only to the extent) otherwise required by the laws of the State of Delaware, in which case holders of Class C common stock will be entitled to one-hundredth (1/100) of a vote on such matters for each share of Class C common stock held. There will be no outstanding shares of Class C common stock upon completion of this offering. Holders of our common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law. IAC/InterActiveCorp, or IAC, which is our parent company, will own all of the shares of outstanding Class B common stock, representing approximately % of our total outstanding shares of our capital stock, and approximately % of the total voting power of our outstanding capital stock upon completion of this offering (or approximately % of our total outstanding shares of capital stock and approximately % of the total voting power of our outstanding capital stock, if the underwriters exercise in full their option to purchase additional shares of our common stock in this offering). As a result of IAC's ownership of all of our Class B common stock following this offering, we will be a "controlled company" under the Marketplace Rules of the NASDAQ Stock Market.
Match Group, Inc. is offering the shares to be sold in this offering. Match Group, Inc. currently intends to pay $ of the net proceeds of this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and to use the remainder of the net proceeds for general corporate purposes.
We are an "emerging growth company" under the federal securities laws and, as such, will be subject to reduced public company reporting requirements.
Investing in our common stock involves risks. See "Risk factors," beginning on page 15.
Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
| | | | | | | |
|
Per Share |
Total |
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
Initial public offering price |
$ | $ | (1 | ) | |||
Underwriting discounts and commissions(2) |
$ | $ | (1 | ) | |||
Proceeds to us, before expenses |
$ | $ | (1 | ) | |||
| | | | | | | |
(1) Assumes no exercise of the underwriters' option to purchase additional shares of our common stock described below.
(2) See "Underwriting" for additional disclosure regarding underwriting discounts, commissions and estimated offering expenses.
We have granted the underwriters an option for a period of 30 days to purchase from us up to additional shares of our common stock at the initial public offering price, less the underwriting discounts and commissions. See "Underwriting."
The underwriters expect to deliver the shares of common stock against payment in New York, New York on , 2015.
J.P. Morgan | Allen & Company LLC | BofA Merrill Lynch |
, 2015
You should rely only on the information contained in this prospectus or contained in any free writing prospectus filed with the Securities and Exchange Commission. Neither we nor the underwriters have authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus filed with the Securities and Exchange Commission. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we nor any of the underwriters has done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the shares of common stock and the distribution of this prospectus outside the United States.
i
Unless otherwise indicated or the context otherwise requires, all references in this prospectus to "we," "our," "us," "Match Group," "the Company," and "our company" refer to Match Group, Inc. and its combined subsidiaries.
In this prospectus, references to "North America" refer to the United States and Canada; references to "Western Europe" refer to Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom; references to "other selected countries" refer to Argentina, Australia, Brazil, Chile, China, Colombia, Costa Rica, Czech Republic, Greece, Hong Kong SAR, Hungary, Iceland, India, Indonesia, Israel, Japan, South Korea, Kuwait, Malaysia, Mexico, New Zealand, Philippines, Poland, Romania, the Russian Federation, Singapore, South Africa, Thailand, Turkey, Ukraine, United Arab Emirates and Vietnam; references to "monthly active users," or MAU, means users who logged in through our mobile or web applications in the last 28 days as of the date of measurement (reported MAU is the sum total of MAUs of each of our individual brands, and users active on multiple brands are counted in the MAU of each brand); and references to "paid members" means users with a paid membership at that time. In this prospectus, information regarding MAU and paid members as of the quarter ended September 30, 2015, as well as related growth rate information, includes/reflects MAU and paid members of Plentyoffish Media Inc. Except as discussed in the immediately preceding sentence, users and paid members of acquired companies are included in MAU and paid member information from and after the date of acquisition.
References to our "certificate of incorporation" refer to our Amended and Restated Certificate of Incorporation and references to our "bylaws" refer to our Amended and Restated By-laws, as each will be in effect upon the completion of this offering.
We have made rounding adjustments to some of the figures in this prospectus. Accordingly, numerical figures shown as totals in some tables may not be an arithmetic aggregation of the figures that precede them.
This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the ® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies' trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.
This prospectus contains industry, market and competitive position data that is based on industry publications and studies conducted by independent third parties that we believe to be reliable sources, including survey data reported from a July 31, 2015 survey administered by Research Now on our behalf. References in this prospectus to the size of our target users and addressable market are based on population data from the World Bank, marital status information from the United Nations, internet penetration rates from the Economist Intelligence Unit and percentage of singles data obtained from Research Now. Where we make projections involving growth rates of the single population, we assume the single population in each country grows in line with the projected growth rate of the country's total population. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same source, unless otherwise expressly stated or the context otherwise requires. The market data and industry forecasts that we have included in this prospectus have not been expertized. Forward-looking information obtained from third-party sources is subject to the same qualifications and the uncertainties regarding the other forward-looking statements in this prospectus. See "Risk factors" and "Cautionary note regarding forward-looking statements."
ii
This summary highlights selected information contained elsewhere in this prospectus. This summary does not contain all of the information that you should consider before deciding to purchase our common stock in this offering. You should read the entire prospectus carefully, including the section titled "Risk factors," before making an investment decision.
Our mission
Establishing a romantic connection is a fundamental human need. Whether it's a good date, a meaningful relationship or an enduring marriage, romantic connectivity lifts the human spirit. Our mission is to increase romantic connectivity worldwide.
Who we are
Match Group is the world's leading provider of dating products. We operate a portfolio of over 45 brands, including Match, OkCupid, Tinder, Meetic, Twoo, OurTime and FriendScout24, each designed to increase our users' likelihood of finding a romantic connection. Through our portfolio of trusted brands, we provide tailored products to meet the varying preferences of our users. In addition, we have agreed to acquire Plentyoffish Media Inc. See "Proposed Acquisition of PlentyOfFish." We currently offer our dating products in 38 languages across more than 190 countries, and we had approximately 59 million monthly active users, or MAU, and approximately 4.7 million paid members, using our dating products as of the quarter ended September 30, 2015.
Our target market includes all adults in North America, Western Europe and other select countries around the world who are not in a committed relationship and who have access to the internet, which, based on a survey administered by Research Now in July 2015, we estimate at approximately 511 million people. Consumer preferences within this population vary significantly, influenced in part by demographics, geography, religion and sensibility. As a result, the market for dating products is fragmented, and no single product has been able to effectively serve the dating category as a whole.
Given wide ranging consumer preferences, we approach the category with a brand portfolio strategy, through which we attempt to offer dating products that collectively appeal to the broadest spectrum of consumers. We believe that this approach maximizes our ability to capture additional users, as demonstrated by our MAU and paid member count compound annual growth rates between the quarter ended September 30, 2011, and the quarter ended September 30, 2015 of 63% and 23%, respectively. We increasingly apply a centralized discipline to learnings, best practices and technologies across our brands in order to increase growth, reduce costs and maximize profitability. This approach allows us to quickly introduce new products and features, optimize marketing strategies, reduce operating costs and more effectively deploy talent across our organization.
Coinciding with the general trend toward mobile technology, we have experienced a meaningful shift in our user base from desktop devices to mobile devices, and now offer mobile experiences on substantially all of our dating products. During the first half of 2015, 68% of our new users signed up for our products through mobile channels, as compared to only 27% during the first half of 2013. This shift has enabled us to reach groups of users which had previously proven elusive, such as the millennial audience; for example, Tinder, a mobile-only product, has been able to tap into this audience rapidly over the last few years. Additionally, in previously desktop-oriented products like Match, the shift to mobile has led to increased usage of our products, as mobile users on average access our products at meaningfully higher
rates than do those users who access our products on desktop. According to data obtained from mobile analytics firm AppAnnie, during the three months ended June 30, 2015, we operated four of the top five revenue grossing dating applications across the Apple App Store and Google Play Store in North America, and three of the top five worldwide, in each case, pro forma for the acquisition of PlentyOfFish.
Substantially all of our dating revenue is derived directly from our users. The significant majority of that revenue comes from recurring membership fees, which typically provide unlimited access to a bundle of features for a specific period of time, and the balance from à la carte features, where users pay a fee for a specific action or event. Each of our brands offers a combination of free and paid features targeted to its unique community. On a brand-by-brand basis, our monetization decisions seek to optimize user growth, revenue and the vibrancy and productivity of the relevant community of users. In addition to direct revenue from our users, we generate revenue from online advertisers who pay to reach our large audiences.
In addition to our dating business, we also operate a non-dating business in the education industry through our ownership of The Princeton Review. The Princeton Review provides a variety of test preparation, academic tutoring and college counseling services.
Our revenue increased from $713.4 million in 2012 to $803.1 million in 2013 and then to $888.3 million in 2014, representing year-over-year increases of 13% and 11%, respectively. In 2012, 2013 and 2014, we generated Adjusted EBITDA of $236.5 million, $271.2 million, and $273.4 million, respectively, operating income of $186.6 million, $221.3 million and $228.6 million, respectively, and net earnings of $90.3 million, $126.6 million and $148.4 million, respectively. See "Selected historical combined financial and other information" for a description of how we define Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating income.
Market opportunity
Connecting with people and fostering relationships are critical needs that influence everyone's happiness. As a result, the dating market presents a significant opportunity for Match Group. We consider our addressable market to be all adults in North America, Western Europe and other select countries around the world who are not in committed relationships and have access to the internet, which, based on a survey administered by Research Now in July 2015, we estimate at approximately 511 million people.
In countries with developed economies such as the United States, our addressable market has been expanding due to the aging population, increasing internet use among older adults and growth in singles as a percent of the total population. In countries with emerging economies, such as India and China, growth in the addressable market is driven by similar factors, most notably pronounced growth in internet access. Overall, our addressable market is expected to grow from approximately 511 million people to approximately 672 million people by 2019, assuming the single population in each country grows in line with the projected growth rate of the country's total population.
Enabling dating in a digital world
Prior to the proliferation of computers and mobile devices, human connections traditionally were limited by social circles, geography and time. Today, the adoption of the internet and mobile technology has significantly expanded the ways in which people can build relationships, create new interactions and develop romantic connections.
2
We believe dating products serve as a natural extension of the traditional means of meeting people and provide a number of benefits for their users, including:
When selecting a dating product, we believe that users consider the following attributes:
Our competitive advantages
We believe the following attributes provide us with competitive advantages in the dating business:
3
of the top five brands in North America measured in terms of unaided awareness, and we believe that this scale is one of the big competitive advantages for our principal brands.
4
devote resources to developing new dating products and believe our industry expertise and significant cash flow provide a unique ability to succeed in this endeavor.
Our strategy
We are pursuing the following principal strategies to grow our dating business:
5
Organizational approach
We operate a portfolio of brands that both compete and collaborate with each other. We attempt to empower individual business leaders with the authority and incentives to grow each of our brands. Our businesses compete with each other and with third-party businesses in our category on brand characteristics, product features and business model. We also attempt to centrally facilitate excellence and efficiency across the entire portfolio by:
Relationship with IAC/InterActiveCorp
We are currently a wholly-owned subsidiary of IAC/InterActiveCorp. Upon completion of this offering, IAC will own all of the shares of our outstanding Class B common stock, representing approximately % of our total outstanding shares of capital stock and approximately % of the total voting power of our outstanding capital stock (or approximately % of our total outstanding shares of capital stock and approximately % of the total voting power of our outstanding capital stock, if the underwriters exercise in full their option to purchase additional shares of our common stock in this offering).
We intend to enter into various agreements with IAC for administrative and other services, including a master transaction agreement, an employee matters agreement, a tax sharing agreement, a services agreement and an investor rights agreement. For more information regarding these agreements, see "Certain relationships and related party transactions."
Proposed acquisition of PlentyOfFish
On July 13, 2015, we entered into a stock purchase agreement to acquire all of the outstanding equity interests in Plentyoffish Media Inc., or PlentyOfFish, for aggregate consideration of $575.0 million, subject to a customary post-closing adjustment based on, among other things, the amount of working capital in the business at the closing date.
We currently anticipate that the acquisition of PlentyOfFish will close in the fourth quarter of 2015, although there can be no assurance that the acquisition will close in a timely manner or at all.
Implications of being an emerging growth company
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will continue to be an emerging growth company until the earliest to occur of:
6
Until we cease to be an emerging growth company, we may take advantage of reduced reporting requirements generally unavailable to other public companies. Those provisions allow us to:
The JOBS Act also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies, and exempts an emerging growth company such as us from Sections 14A(a) and (b) of the Securities Exchange Act of 1934, or the Exchange Act, which require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
We have elected to adopt the reduced disclosure requirements described above for purposes of the registration statement of which this prospectus is a part. In addition, for so long as we qualify as an emerging growth company, we expect to take advantage of certain of the reduced reporting and other requirements of the JOBS Act with respect to the periodic reports we will file with the Securities and Exchange Commission, or the SEC, and proxy statements that we use to solicit proxies from our stockholders.
We have elected to not take advantage of the extended transition period that allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies, which means that the financial statements included in this prospectus, as well as financial statements we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies. Our election not to take advantage of the extended transition period is irrevocable.
We were incorporated in the State of Delaware on February 12, 2009. Our principal executive offices are located at 8300 Douglas Avenue, Dallas, Texas, 75225, and our telephone number is (214) 576-9332. Our website address is . Information contained on, or accessible through, our website is not a part of this prospectus, and the inclusion of our website address in this prospectus is an inactive textual reference.
7
Shares of common stock offered by us | shares. | |
Option to purchase additional shares of common stock | shares. | |
Shares to be outstanding after this offering: | ||
Common stock |
shares of common stock (or shares if the underwriters exercise their option to purchase additional shares of our common stock in full). | |
Class B common stock |
shares of Class B common stock. | |
Class C common stock |
No shares of Class C common stock. | |
Voting rights: | ||
Common stock voting rights |
One vote per share, representing, in the aggregate, approximately % of the combined voting power of our capital stock outstanding after this offering (or % if the underwriters exercise in full their option to purchase additional shares of our common stock). | |
Class B common stock voting rights |
Ten votes per share, representing, in the aggregate, approximately % of the combined voting power of our capital stock outstanding after this offering (or % if the underwriters exercise in full their option to purchase additional shares of our common stock). | |
Class C common stock voting rights |
No votes per share, except as (and then only to the extent) otherwise required by the laws of the State of Delaware, in which case one-hundredth (1/100) of a vote per share. | |
Use of proceeds | Assuming an initial public offering price of $ per share, which is the midpoint of the offering price range set forth on the cover page of this prospectus, we estimate that the net proceeds to us from the sale of our common stock in this offering will be $ (or $ if the underwriters exercise in full their option to purchase additional shares of our common stock), after deducting underwriting discounts and commissions and estimated offering expenses. | |
We currently intend to pay $ of the net proceeds of this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and to use the remainder for general corporate purposes. | ||
See "Use of proceeds." |
8
Dividends | Other than the dividend to IAC described under "Use of proceeds," we do not expect to pay cash dividends on our capital stock in the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination to pay dividends on our capital stock will be made by our board of directors and will depend upon our results of operations, financial condition, capital requirements, business strategy, regulatory and contractual restrictions, general economic conditions and other factors that our board of directors deems relevant. See "Dividend policy." | |
Directed share program | At our request, the underwriters have reserved for sale, at the initial public offering price, up to % of the shares of common stock offered by this prospectus for sale to our employees and directors and those of IAC. These sales will be made by an affiliate of , an underwriter of this offering, through a directed share program. If these persons purchase reserved shares it will reduce the number of shares of common stock available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock offered by this prospectus. See "UnderwritingDirected share plan." | |
Listing | We have applied to list our common stock on the NASDAQ Global Select Market under the trading symbol "MTCH." | |
Risk factors | Investing in our common stock involves risks. See "Risk factors," beginning on page 14, for a discussion of certain factors that you should carefully consider before making an investment decision. |
The number of shares of our common stock and Class B common stock to be outstanding after this offering is based on no shares of common stock and shares of Class B common stock to be outstanding immediately prior to the consummation of this offering. Unless otherwise noted, references in this prospectus to number of shares outstanding exclude:
9
Prior to the offering, the equity awards that relate to our common stock or the common stock of certain of our subsidiaries are settlable in shares of IAC common stock. Upon completion of the offering, the options that relate to our common stock will be exercisable for shares of our common stock, and the equity awards that relate to our subsidiaries will be settlable, at IAC's election, in shares of IAC common stock or in shares of our common stock. See "Management's discussion and analysis of financial condition and results of operationsCritical accounting policiesStock-based compensation."
Unless otherwise indicated, the information contained in this prospectus is as of the date set forth on the cover of this prospectus and assumes:
10
Summary historical and pro forma combined financial and other information
The following summary historical combined financial information as of December 31, 2013 and 2014 and for the years ended December 31, 2012, 2013 and 2014 has been derived from our audited combined financial statements included elsewhere in this prospectus. The following summary historical combined financial information as of June 30, 2015 and for the six months ended June 30, 2014 and 2015 has been derived from our unaudited interim combined financial statements included elsewhere in this prospectus. The unaudited interim combined financial statements have been prepared on the same basis as our audited combined financial statements and, in the opinion of our management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of this information. Our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year. The following unaudited pro forma combined financial information presents Match Group's consolidated balance sheet and statement of operations after giving effect to the PlentyOfFish acquisition. The financial data for the twelve-month period ending June 30, 2015 is derived by adding the financial data from the unaudited pro forma combined statement of operations for the six months ended June 30, 2015 with the unaudited pro forma combined statement of operations for the year ended December 31, 2014 and then deducting the financial data from the unaudited pro forma combined statement of operations for the six months ended June 30, 2014. The pro forma information under combined statement of operations information gives effect to the PlentyOfFish acquisition as if it had occurred on January 1, 2014. The information under combined balance sheet information gives effect to the PlentyOfFish acquisition as if it had occurred on June 30, 2015.
Our historical combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of IAC. The combined financial statements reflect the historical financial position, results of operations and cash flows of the businesses that now make up Match Group, Inc. since their respective dates of acquisition by IAC and the allocation to us of certain IAC corporate expenses relating to us and our businesses based on the historical financial statements and accounting records of IAC. In the opinion of our management, the assumptions underlying our historical combined financial statements, including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, stand-alone company for the periods presented. Our historical combined financial statements may not reflect what our actual financial position, results of operation and cash flows would have been if we had been an independent, stand-alone company for the periods presented. For the purposes of our financial statements, our income taxes have been computed on an as-if standalone, separate tax return basis.
The historical information presented below should be read in conjunction with the information under "Management's discussion and analysis of financial condition and results of operations" and our audited and unaudited combined financial statements, including the notes thereto, appearing elsewhere in this prospectus. The pro forma trailing twelve month financial information as of June 30, 2015 is for informational purposes and is not necessarily indicative of our results of operation or future results of operation. The information presented below should be read in conjunction with the information under
11
"Unaudited pro forma combined financial statements", including the notes thereto, appearing elsewhere in this prospectus.
| | | | | | | | | | | | | | | | | | | |
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Years ended December 31, | Six months ended June 30, |
Pro forma trailing twelve months ended June 30, |
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2012 |
2013 |
2014 |
2014 |
2015 |
2015 |
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|
(in thousands) |
||||||||||||||||||
Combined statement of operations information: |
|||||||||||||||||||
Revenue |
$ | 713,449 | $ | 803,089 | $ | 888,268 | $ | 421,691 | $ | 483,886 | $ | 1,019,232 | |||||||
Operating costs and expenses: |
|||||||||||||||||||
Cost of revenue (exclusive of depreciation) |
72,794 | 85,945 | 120,024 | 48,632 | 83,482 | 161,421 | |||||||||||||
Selling and marketing expense |
304,597 | 321,870 | 335,107 | 184,591 | 200,146 | 362,191 | |||||||||||||
General and administrative expense |
76,711 | 93,641 | 117,890 | 51,327 | 75,322 | 149,328 | |||||||||||||
Product development expense |
38,921 | 42,973 | 49,738 | 24,112 | 33,929 | 60,690 | |||||||||||||
Depreciation |
16,341 | 20,202 | 25,547 | 11,348 | 13,667 | 30,192 | |||||||||||||
Amortization of intangibles |
17,455 | 17,125 | 11,395 | 3,520 | 9,778 | 18,726 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses |
526,819 | 581,756 | 659,701 | 323,530 | 416,324 | 782,548 | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
Operating income |
186,630 | 221,333 | 228,567 | 98,161 | 67,562 | 236,684 | |||||||||||||
Interest expenserelated party |
(29,489 | ) | (34,307 | ) | (25,541 | ) | (20,870 | ) | (4,561 | ) | (9,232 | ) | |||||||
Other (expense) income, net |
(7,428 | ) | 217 | 12,610 | (490 | ) | 6,806 | 20,311 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
Earnings before income taxes |
149,713 | 187,243 | 215,636 | 76,801 | 69,807 | 247,763 | |||||||||||||
Income tax provision |
(59,432 | ) | (60,616 | ) | (67,277 | ) | (27,851 | ) | (20,496 | ) | (70,238 | ) | |||||||
| | | | | | | | | | | | | | | | | | | |
Net earnings |
90,281 | 126,627 | 148,359 | 48,950 | 49,311 | 177,525 | |||||||||||||
Net (earnings) loss attributable to noncontrolling interests |
(4,606 | ) | (1,624 | ) | (595 | ) | (307 | ) | 220 | (68 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 85,675 | $ | 125,003 | $ | 147,764 | $ | 48,643 | $ | 49,531 | $ | 177,457 | |||||||
| | | | | | | | | | | | | | | | | | | |
Other combined financial information: |
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Adjusted EBITDA(1)(2) |
$ | 236,490 | $ | 271,231 | $ | 273,448 | $ | 124,536 | $ | 96,698 | $ | 287,725 | |||||||
| | | | | | | | | | | | | | | | | | | |
(1) In considering the financial performance of the business, management and our chief operating decision maker analyze the primary financial performance measure of Adjusted EBITDA. Adjusted EBITDA is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. For a reconciliation of Adjusted EBITDA to operating income for our historical results, see "Selected historical combined financial and other information."
(2) The following table reconciles Pro forma Adjusted EBITDA to operating income for the trailing twelve months, as well as a reconciliation from Pro forma Adjusted EBITDA to Pro forma Adjusted EBITDA as per the Credit Agreement. The Revolving Credit Facility assesses covenant compliance on a pro forma trailing twelve-month basis and provides for adjustments to exclude certain charges not associated with the
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underlying operating performance of the business, including the exclusion of restructuring costs and the addback of the write-off of deferred revenue arising from purchase accounting. Presented below is the calculation of Pro forma Adjusted EBITDA as per the Credit Agreement.
| | | | |
|
Pro forma trailing twelve months ended June 30, |
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---|---|---|---|---|
|
2015 |
|||
| | | | |
Operating income |
$ | 236,684 | ||
Stock-based compensation expense |
27,970 | |||
Depreciation |
30,192 | |||
Amortization of intangibles |
18,726 | |||
Acquisition-related contingent consideration fair value adjustments |
(25,847 | ) | ||
| | | | |
Pro forma Adjusted EBITDA |
$ | 287,725 | ||
| | | | |
Costs incurred related to the streamlining of systems and consolidation of European operations(3) |
16,662 | |||
Acquisition-related deferred revenue write-downs(4) |
14,356 | |||
| | | | |
Pro forma Adjusted EBITDA as per the Credit Agreement |
$ | 318,743 | ||
| | | | |
(3) We are currently in the process of an ongoing streamlining and partial consolidation of the technology and network systems and infrastructures of a number of our businesses, including Match, OurTime and Meetic. The goal of this project is to modernize, optimize and improve the scalability and cost effectiveness of these systems and infrastructures and to increase our ability to deploy product changes more rapidly across devices and product lines.
(4) Generally accepted accounting principles ("GAAP") require the historical deferred revenue balance of acquired businesses to be recorded at fair value following the acquisition. The adjustment to fair value reduces the balance of deferred revenue. Therefore, following an acquisition, GAAP reported revenue and operating income is reduced. This adjustment, which is non-cash in nature and primarily relates to the acquisition of The Princeton Review and FriendScout24, reflects the reduction in operating income arising from the acquisition related adjustment to deferred revenue.
| | | | | | | | | | | | |
|
As of December 31, | |
|
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|
As of June 30, 2015 |
Pro forma as of June 30, 2015 |
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|
2013 |
2014 |
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| | | | | | | | | | | | |
|
(in thousands) |
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Combined balance sheet information: |
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Cash and cash equivalents |
$ | 125,226 | $ | 127,630 | $ | 136,373 | $ | 61,373 | ||||
Total current assets |
174,966 | 195,102 | 226,111 | 158,130 | ||||||||
Total assets |
1,292,122 | 1,308,034 | 1,358,430 | 1,865,570 | ||||||||
Total liabilities |
390,848 | 504,580 | 556,502 | 563,642 | ||||||||
Total shareholder equity |
877,026 | 799,776 | 796,098 | 1,296,098 | ||||||||
| | | | | | | | | | | | |
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In connection with the management of our business, we identify, measure and assess a variety of key metrics. The principal metrics we use in managing our dating business are set forth below:
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
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| | | | | | | | | | | | | | | | |
|
(in thousands, except ARPPU) |
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Direct Revenue:(1) |
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North America |
$ | 454,996 | $ | 493,729 | $ | 525,928 | $ | 257,222 | $ | 285,352 | ||||||
International |
233,531 | 260,340 | 273,599 | 137,617 | 129,966 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Direct Revenue |
688,527 | 754,069 | 799,527 | 394,839 | 415,318 | |||||||||||
| | | | | | | | | | | | | | | | |
Indirect Revenue(2) |
24,922 | 34,128 | 36,931 | 17,761 | 17,779 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Dating Revenue |
$ | 713,449 | $ | 788,197 | $ | 836,458 | $ | 412,600 | $ | 433,097 | ||||||
| | | | | | | | | | | | | | | | |
Average PMC:(3) |
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North America |
1,920 | 2,169 | 2,404 | 2,364 | 2,626 | |||||||||||
International |
876 | 1,020 | 1,097 | 1,080 | 1,273 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
2,796 | 3,189 | 3,501 | 3,444 | 3,899 | |||||||||||
| | | | | | | | | | | | | | | | |
ARPPU:(4) |
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North America |
$ | 0.65 | $ | 0.62 | $ | 0.60 | $ | 0.60 | $ | 0.60 | ||||||
International |
$ | 0.73 | $ | 0.70 | $ | 0.68 | $ | 0.70 | $ | 0.56 | ||||||
Total |
$ | 0.67 | $ | 0.65 | $ | 0.63 | $ | 0.63 | $ | 0.59 | ||||||
| | | | | | | | | | | | | | | | |
(1) "Direct Revenue" is revenue that is directly received from an end user of our products.
(2) "Indirect Revenue" is revenue that is not received directly from an end user of our products, substantially all of which is currently advertising revenue.
(3) "Average PMC" is calculated by summing the number of paid members, or paid member count (PMC), at the end of each day in the relevant measurement period and dividing it by the number of calendar days in that period.
(4) "ARPPU" or Average Revenue per Paying User, is Direct Revenue in the relevant measurement period divided by the Average PMC in such period divided by the number of calendar days in such period.
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Investing in our common stock involves risks. In addition to the other information contained in this prospectus, you should carefully consider the following risks before deciding to purchase shares of our common stock in this offering. The occurrence of any of the following risks might cause you to lose all or a part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to "Cautionary note regarding forward-looking statements" for more information regarding forward-looking statements.
Risks relating to our business
The limited operating history of our newer dating brands and products makes it difficult to evaluate our current business and future prospects.
We seek to tailor each of our dating brands and products to meet the preferences of specific communities of users. Building a given brand or product is generally an iterative process that occurs over a meaningful period of time and involves considerable resources and expenditures. Although certain of our newer brands and products have experienced significant growth over relatively short periods of time, you cannot necessarily rely on the historical growth rates of these brands and products as an indication of future growth rates for our newer brands and products generally. We have encountered, and may continue to encounter, risks and difficulties as we build our newer brands and products. The failure to successfully address these risks and difficulties could adversely affect our business, financial condition and results of operations.
The dating industry is competitive, with low switching costs and a consistent stream of new products and entrants, and innovation by our competitors may disrupt our business.
The dating industry is competitive, with a consistent stream of new products and entrants. Some of our competitors may enjoy better competitive positions in certain geographical regions or user demographics that we currently serve or may serve in the future. These advantages could enable these competitors to offer products that are more appealing to users and potential users than our products or to respond more quickly and/or cost-effectively than us to new or changing opportunities.
In addition, within the dating industry generally, costs for consumers to switch between products are low, and consumers have a propensity to try new approaches to connecting with people. As a result, new products, entrants and business models are likely to continue to emerge. It is possible that a new product could gain rapid scale at the expense of existing brands through harnessing a new technology or distribution channel, creating a new approach to connecting people or some other means. If we are not able to compete effectively against our current or future competitors and products that may emerge, the size and level of engagement of our user base may decrease, which could have an adverse effect on our business, financial condition and results of operations.
Each of our dating products monetizes users at different rates. If a meaningful migration of our user base from our higher monetizing dating products to our lower monetizing dating products were to occur, it could adversely affect our business, financial condition and results of operations.
We own, operate and manage a large and diverse portfolio of dating products. Each dating product has its own mix of free and paid features designed to optimize the user experience and revenue generation from that product's community of users. In general, the mix of features for the various dating products within our more established brands leads to higher monetization rates per user than the mix of features for the various dating products within our newer brands. If a significant portion of our user base were to migrate
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to our less profitable brands, our business, financial condition and results of operations could be adversely affected.
Our growth and profitability rely, in part, on our ability to attract and retain users through cost-effective marketing efforts. Any failure in these efforts could adversely affect our business, financial condition and results of operations.
Attracting and retaining users for our dating products involve considerable expenditures for online and offline marketing. Historically, we have had to increase our marketing expenditures over time in order to attract and retain users and sustain our growth.
Evolving consumer behavior can affect the availability of profitable marketing opportunities. For example, as traditional television viewership declines and as consumers spend more time on mobile devices rather than desktop computers, the reach of many of our traditional advertising channels is contracting. Similarly, as consumers communicate less via e-mail and more via text messaging and other virtual means, the reach of e-mail campaigns designed to attract new and repeat users (and retain current users) for our dating products is adversely impacted. To continue to reach potential users and grow our businesses, we must identify and devote more of our overall marketing expenditures to newer advertising channels, such as mobile and online video platforms as well as targeted campaigns in which we communicate directly with potential, former and current users via new virtual means. Generally, the opportunities in and sophistication of newer advertising channels are relatively undeveloped and unproven, and there can be no assurance that we will be able to continue to appropriately manage and fine-tune our marketing efforts in response to these and other trends in the advertising industry. Any failure to do so could adversely affect our business, financial condition and results of operations.
Communicating with our users via email is critical to our success, and any erosion in our ability to communicate in this fashion that is not sufficiently replaced by other means could adversely affect our business, financial condition and results of operations.
As consumer habits evolve in the era of smart phones and messaging/social networking apps, usage of email, particularly among our younger users, has declined. In addition, deliverability restrictions imposed by third party email providers could limit or prevent our ability to send emails to our users. One of our primary means of communicating with our users and keeping them engaged with our products is via email. Our ability to communicate via email enables us to keep our users updated on activity with respect to their profile, present or suggest new or interesting users from the community, invite them to offline events and present discount and free trial offers, among other things. Any erosion in our ability to communicate successfully with our users via email could have an adverse impact on user experience and the rate at which non-paying users become paid members.
While we continually work to find new means of communicating and connecting with our members (for example, through push notifications), there is no assurance that such alternative means of communication will be as effective as email has been. Any failure to develop or take advantage of new means of communication could have an adverse effect on our business, financial condition and results of operations.
Our quarterly results or operating metrics could fluctuate significantly, which could cause the trading price of our common stock to decline.
Our quarterly results and operating metrics have fluctuated historically and we expect that they could continue to fluctuate in the future as a result of a number of factors, many of which are outside of our control and may be difficult to predict, including:
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The occurrence of any one of these factors, as well as other factors, or the cumulative effect of the occurrence of one or more of such factors could cause our quarterly results and operating metrics to fluctuate significantly. As a result, quarterly comparisons of results and operating metrics may not be meaningful.
In addition, the variability and unpredictability of our quarterly results or operating metrics could result in our failure to meet our expectations, or those of any of our investors or of analysts that cover our company, with respect to revenues or other operating results for a particular period. If we fail to meet or exceed such expectations for these or any other reasons, the market price of our common stock could fall substantially.
Foreign currency exchange rate fluctuations could adversely affect our results of operations.
We operate in various international markets, primarily in various jurisdictions within the European Union. During fiscal year 2014 and the six months ended June 30, 2015, 35% and 31% of our total revenues, respectively, were international revenues. Our primary exposure to foreign currency exchange risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. dollar, primarily the Euro.
As foreign currency exchange rates fluctuate, the translation of our international results into U.S. dollars affects the period-over-period comparability of our U.S dollar-denominated operating results. For example, the average Euro to U.S. dollar exchange rate was 18% lower in the first half of 2015 than it was in the first half of 2014, which significantly reduced our revenue. Our total revenue, dating revenue and international dating revenue for the six months ended June 30, 2015, as compared to the six months period ended June 30, 2014, would have increased approximately 21%, 11% and 13%, respectively, as compared to the reported increases of 15% and 5% and a decrease of 5%, respectively, had foreign currency exchange rates remained constant during such period.
Historically, we have not hedged any foreign currency exposures. Our international operations' continued growth and expansion into new countries increases our exposure to foreign exchange rate fluctuations. These fluctuations could have a significant impact on our future results of operations.
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Distribution and use of our dating products depends, in significant part, on a variety of third party publishers, platforms and mobile app stores. If these third parties limit, prohibit or otherwise interfere with the distribution or use of our dating products in any material way, it could adversely affect our business, financial condition and results of operations.
We market and distribute our dating products (including related mobile applications) through a variety of third party publishers and distribution channels. Our ability to market our brands on any given property or channel is subject to the policies of the relevant third party. Certain publishers and channels have, from time to time, limited or prohibited advertisements for dating products for a variety of reasons, including as a result of poor behavior by other industry participants. There is no assurance that we will not be limited or prohibited from using certain current or prospective marketing channels in the future. If this were to happen in the case of a significant marketing channel and/or for a significant period of time, our business, financial condition and results of operations could be adversely affected.
Additionally, our mobile applications are increasingly accessed through the Apple App Store and the Google Play Store. Both Apple and Google have broad discretion to change their respective terms and conditions applicable to the distribution of our applications, and to interpret their respective terms and conditions in ways that may limit, eliminate or otherwise interfere with our ability to distribute our applications through their stores. There is no assurance that Apple or Google will not limit or eliminate or otherwise interfere with the distribution of our applications. If either or both of them did so, our business, financial condition and results of operations could be adversely affected.
Lastly, in the case of Tinder, users currently register for (and log in to) the application exclusively through their Facebook profiles. Facebook has broad discretion to change its terms and conditions applicable to the use of its platform in this manner and to interpret its terms and conditions in ways that could limit, eliminate or otherwise interfere with our ability to use Facebook in this manner and if Facebook did so, our business, financial condition and results of operations could be adversely affected.
As the distribution of our dating products through app stores increases, in order to maintain our profit margins, we may need to offset increasing app store fees by decreasing traditional marketing expenditures, increasing user volume or monetization per user or by engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected.
As our user base continues to shift to mobile solutions, we increasingly rely on the Apple App Store and the Google Play Store to distribute our mobile applications and related in-app products. While our mobile applications are generally free to download from these stores, we offer our users the opportunity to purchase paid memberships and certain à la carte features through these applications. We determine the prices at which these memberships and features are sold and, in exchange for facilitating the purchase of these memberships and features through these applications to users who download our applications from these stores, we pay Apple and Google, as applicable, a share (currently 30%) of the revenue we receive from these transactions. As the distribution of our dating products through app stores increases, we may need to offset these increased app store fees by decreasing traditional marketing expenditures as a percentage of revenue, increasing user volume or monetization per user, or by engaging in other efforts to increase revenue or decrease costs generally, or our business, financial condition and results of operations could be adversely affected.
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Our success depends, in part, on the integrity of our systems and infrastructures and on our ability to enhance, expand and adapt these systems and infrastructures in a timely and cost-effective manner.
In order for us to succeed, our systems and infrastructures must perform well on a consistent basis. From time to time, we may experience system interruptions that make some or all of our systems or data unavailable and prevent our products from functioning properly for our users; any such interruption could arise for any number of reasons. Further, our systems and infrastructures are vulnerable to damage from fire, power loss, telecommunications failures and similar events. While we have backup systems in place for certain aspects of our operations, our systems and infrastructures are not fully redundant, disaster recovery planning is not sufficient for all eventualities and our property and business interruption insurance coverage may not be adequate to compensate us fully for any losses that we may suffer. Any interruptions or outages, regardless of the cause, could negatively impact our users' experiences with our products, tarnish our brands' reputation and decrease demand for our products, any or all of which could adversely affect our business, financial condition and results of operations.
We also continually work to expand and enhance the efficiency and scalability of our technology and network systems to improve the experience of our users, accommodate substantial increases in the volume of traffic to our various dating products and to keep up with changes in technology and user preference. Any failure to do so in a timely and cost-effective manner could adversely affect our users' experience with our various products and thereby negatively impact the demand for our products, and could increase our costs, either of which could adversely affect our business, financial condition and results of operations.
We are currently undertaking a significant and complex update to the technology relating to some of our businesses, and failure to complete this project in a timely and effective manner could adversely affect our business.
We are currently in the process of an ongoing consolidation and streamlining of the technology and network systems and infrastructures of a number of our businesses, including Match, OurTime and Meetic. The goal of this project is to modernize, optimize and improve the scalability and cost-effectiveness of these systems and infrastructures and to increase our ability to deploy product changes more rapidly across devices and product lines. We have budgeted significant human and financial resources for these efforts and if we experience delays, inefficiencies or operational failures, we will incur additional costs, which would adversely affect our profitability. Moreover, these efforts may not be successful generally, may not be completed in a timely or cost-effective manner, may not result in the cost savings or other benefits we anticipate and may disrupt operations, any or all of which could adversely affect our business, financial condition and results of operations.
We may not be able to protect our systems and infrastructures from cyber attacks and may be adversely affected by cyber attacks experienced by third parties.
We are frequently under attack by perpetrators of random or targeted malicious technology-related events, such as cyber attacks, computer viruses, worms or other destructive or disruptive software or distributed denial of service attacks. While we have invested heavily in the protection of our systems and infrastructures and in related training, there can be no assurance that our efforts will prevent significant breaches in our systems or other such events from occurring. Any cyber or similar attack we are unable to protect ourselves against could damage our systems and infrastructure, prevent us from providing our products, erode our reputation and brands and/or be costly to remedy.
The impact of cyber security events experienced by third parties with whom we do business (or upon whom we otherwise rely in connection with our day-to day operations) could have a similar effect on us. Moreover, even cyber or similar attacks that do not directly affect us or third parties with whom we do
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business may result in a loss of consumer confidence generally, which could make users less likely to use or continue to use our products. The occurrence of any of these events could have an adverse effect on our business, financial condition and results of operations.
Our success depends, in part, on the integrity of third party systems and infrastructures.
We rely on third parties, primarily data center service providers, as well as third party computer systems, broadband and other communications systems and service providers, in connection with the provision of our products generally, as well as to facilitate and process certain transactions with our users. We have no control over any of these third parties or their operations.
Problems experienced by third party data center service providers upon whom we rely, the telecommunications network providers with whom they contract or with the systems through which telecommunications providers allocate capacity among their customers could also adversely affect us. Any changes in service levels at our data centers or any interruptions, outages or delays in our systems or those of our third party providers, or deterioration in the performance of these systems, could impair our ability to provide our products or process transactions with our users, which would adversely impact our business, financial condition and results of operations.
If the security of personal and confidential user information that we maintain and store is breached or otherwise accessed by unauthorized persons, it may be costly to mitigate the impact of such an event and our reputation could be harmed.
We receive, process, store and transmit a significant amount of personal user and other confidential information and enable our users to share their personal information with each other. In some cases, we retain third party vendors to store this information. We continuously develop and maintain systems to protect the security, integrity and confidentiality of this information, but cannot guarantee that inadvertent or unauthorized use or disclosure will not occur or that third parties will not gain unauthorized access to this information despite our efforts. If any such event were to occur, we may not be able to remedy the event, and we may have to expend significant capital and resources to mitigate the impact of such an event, and to develop and implement protections to prevent future events of this nature from occurring. If a breach of our security (or the security of our vendors and partners) occurs, the perception of the effectiveness of our security measures and our reputation may be harmed, we could lose current and potential users and the recognition of our various brands and their competitive positions could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
Unauthorized access of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights.
Security breaches or other unauthorized access to, or the use or transmission of, personal user information could result in a variety of claims against us, including privacy-related claims. There are numerous laws in the countries in which we operate regarding privacy and the storage, sharing, use, processing, disclosure and protection of this kind of information, the scope of which are changing, inconsistent and conflicting and subject to differing interpretations. For example, the European Commission has proposed and is currently debating comprehensive privacy and data protection reforms in the European Union, certain developing countries in which we do business are currently considering adopting privacy and data protection laws and regulations, and legislative proposals concerning privacy and the protection of user information are often pending before the U.S. Congress and various U.S. state legislatures.
While we believe that we comply with industry standards and applicable laws and industry codes of conduct relating to privacy and data protection, there is no assurance that we will not be subject to claims
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that we have violated applicable laws or codes of conduct or that we will be able to successfully defend against such claims.
Any failure or perceived failure by us (or the third parties with whom we have contracted to store such information) to comply with applicable privacy laws, privacy policies or privacy-related contractual obligations or any compromise of security that results in unauthorized access to personal information may result in governmental enforcement actions, significant fines, litigation, claims of breach of contract and indemnity by third parties and adverse publicity. In the case of such an event, our reputation may be harmed, we could lose current and potential users and the competitive positions of our various brands could be diminished, any or all of which could adversely affect our business, financial condition and results of operations.
We are subject to a number of risks related to credit card payments, including data security breaches and fraud that we or third parties experience or additional regulation, any of which could adversely affect our business, financial condition and results of operations.
We accept payment from our users primarily through credit card transactions and certain online payment service providers. The ability to access credit card information on a real time-basis without having to proactively reach out to the consumer each time we process an auto-renewal payment or a payment for the purchase of a premium feature on any of our dating products is critical to our success.
When we or a third party experiences a data security breach involving credit card information, affected cardholders will often cancel their credit cards. In the case of a breach experienced by a third party, the more sizable the third party's customer base and the greater the number of credit card accounts impacted, the more likely it is that our users would be impacted by such a breach. To the extent our users are ever affected by such a breach experienced by us or a third party, affected users would need to be contacted to obtain new credit card information and process any pending transactions. It is likely that we would not be able to reach all affected users, and even if we could, some users' new credit card information may not be obtained and some pending transactions may not be processed, which could adversely affect our business, financial condition and results of operations.
Even if our users are not directly impacted by a given data security breach, they may lose confidence in the ability of service providers to protect their personal information generally, which could cause them to stop using their credit cards online and choose alternative payment methods that are not as convenient for us or restrict our ability to process payments without significant user effort.
Additionally, if we fail to adequately prevent fraudulent credit card transactions, we may face civil liability, diminished public perception of our security measures and significantly higher credit card-related costs, any of which could adversely affect our business, financial condition and results of operations.
Finally, the passage or adoption of any legislation or regulation affecting the ability of service providers to periodically charge consumers for recurring membership payments may adversely affect our business, financial condition and results of operations.
Inappropriate actions by certain of our users could be attributed to us and damage our brands' reputation, which in turn could adversely affect our business.
The reputation of our brands may be adversely affected by the actions of our users that are deemed to be hostile, offensive, defamatory, inappropriate or unlawful. While we monitor and review the appropriateness of the content accessible through our dating products and have adopted policies regarding illegal or offensive use of our dating products, our users could nonetheless engage in activities that violate our
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policies. These safeguards may not be sufficient to avoid harm to our reputation and brands, especially if such hostile, offensive or inappropriate use is well-publicized.
In addition, it is possible that a user of our products could be physically, financially, emotionally or otherwise harmed by an individual that such user met through the use of one of our products. If one or more of our users suffers or alleges to have suffered any such harm, we could experience negative publicity or legal action that could damage our reputation and our brands. Similar events affecting users of our competitors' dating products could result in negative publicity for the dating industry generally, which could in turn negatively affect our business. Concerns about such harms and the use of dating products and social networking platforms for illegal conduct, such as romance scams and financial fraud, could produce future legislation or other governmental action that could require changes to our dating products, restrict or impose additional costs upon the conduct of our business generally or cause users to abandon our dating products.
We may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties.
We rely heavily upon our trademarks and related domain names and logos to market our brands and to build and maintain brand loyalty and recognition, as well as upon trade secrets. We also rely, to a lesser extent, upon patented and patent-pending proprietary technologies relating to matching process systems and related features and products.
We also rely on a combination of laws, and contractual restrictions with employees, customers, suppliers, affiliates and others, to establish and protect our various intellectual property rights. For example, we have generally registered and continue to apply to register and renew, or secure by contract where appropriate, trademarks and service marks as they are developed and used, and reserve, register and renew domain names as we deem appropriate. Effective trademark protection may not be available or may not be sought in every country in which our products are made available and contractual disputes may affect the use of marks governed by private contract. Similarly, not every variation of a domain name may be available or be registered, even if available.
We also generally seek to apply for patents or for other similar statutory protections as and if we deem appropriate, based on then-current facts and circumstances, and will continue to do so in the future. No assurances can be given that any patent application we have filed or will file will result in a patent being issued, or that any existing or future patents will afford adequate protection against competitors and similar technologies. In addition, no assurances can be given that third parties will not create new products or methods that achieve similar results without infringing upon patents we own.
Despite these measures, our intellectual property rights may still not be protected in a meaningful manner, challenges to contractual rights could arise or third parties could copy or otherwise obtain and use our intellectual property without authorization. The occurrence of any of these events could result in the erosion of our brands and limit our ability to market our brands using our various domain names, as well as impede our ability to effectively compete against competitors with similar technologies, any of which could adversely affect our business, financial condition and results of operations.
From time to time, we have been subject to legal proceedings and claims, including claims of alleged infringement of trademarks, copyrights, patents and other intellectual property rights held by third parties. In addition, litigation may be necessary in the future to enforce our intellectual property rights, protect our trade secrets or to determine the validity and scope of proprietary rights claimed by others. Any litigation of this nature, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could adversely affect our business, financial condition and results of operations.
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We operate in various international markets, including certain markets in which we have limited experience. As a result, we face additional risks in connection with certain of our international operations.
Our brands are available in over 190 countries. Our international revenue represented 35% and 31% of our total revenue for the fiscal year ended December 31, 2014 and six months ended June 30, 2015, respectively.
Operating internationally, particularly in countries in which we have limited experience, exposes us to a number of additional risks, including:
The occurrence of any or all of the events described above could adversely affect our international operations, which could in turn adversely affect our business, financial condition and results of operations.
We may experience operational and financial risks in connection with acquisitions.
We have made numerous acquisitions in the past and we continue to seek potential acquisition candidates. We may experience operational and financial risks in connection with historical and future acquisitions if we are unable to:
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Furthermore, we may not be successful in addressing other challenges encountered in connection with our acquisitions. The anticipated benefits of one or more of our acquisitions may not be realized or the value of goodwill and other intangible assets acquired could be impacted by one or more continuing unfavorable events or trends, which could result in significant impairment charges. The occurrence of any these events could have an adverse effect on our business, financial condition and results of operations.
We will incur some increased costs and devote substantial management time as a result of operating as a public company.
We expect that the obligations of being a public company, including public reporting and investor relations obligations, will require new expenditures, place new demands on our management and will require the hiring of additional personnel. While IAC will continue to provide us with certain corporate and shared services related to corporate functions for a period of time for negotiated fees, we also expect that we will need to implement additional systems and hire additional personnel to adequately function as a public company. We cannot precisely predict the amount and timing of these significant expenditures. See "Risks related to our ongoing relationship with IACThe services that IAC will provide to us following the initial public offering may not be sufficient to meet our needs, and we may have difficulty finding replacement services or be required to pay increased costs to replace these services if we no longer receive these services from IAC."
We may not realize the potential benefits from our initial public offering.
We may not realize the benefits that we anticipate from our initial public offering. These benefits include the following:
We may not achieve the anticipated benefits from our initial public offering for a variety of reasons. For example, the process of operating as an independent public company may distract our management from focusing on our business and strategic priorities. In addition, although we will have direct access to the debt and equity capital markets following the offering, we may not be able to issue debt or equity on terms acceptable to us or at all. The availability of tradable shares of our common stock for use as consideration for acquisitions also will not ensure that we will be able to successfully pursue acquisitions or that the acquisitions will be successful. We also may not fully realize the anticipated benefits from our initial public offering if any of the matters identified as risks in this "Risk factors" section were to occur. If we do not realize the anticipated benefits from our initial public offering for any reason, our business may be adversely affected.
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We are subject to litigation and adverse outcomes in such litigation could have an adverse effect on our financial condition.
We are, and from time to time may become, subject to litigation and various legal proceedings, including litigation and proceedings related to intellectual property matters and privacy and consumer protection laws, that involve claims for substantial amounts of money or for other relief or that might necessitate changes to our business or operations. The defense of these actions may be both time consuming and expensive. We evaluate these litigation claims and legal proceedings to assess the likelihood of unfavorable outcomes and to estimate, if possible, the amount of potential losses. Based on these assessments and estimates, we may establish reserves and/or disclose the relevant litigation claims or legal proceedings, as and when required or appropriate. These assessments and estimates are based on information available to management at the time of such assessment or estimation and involve a significant amount of judgment. As a result, actual outcomes or losses could differ materially from those envisioned by our current assessments and estimates. Our failure to successfully defend or settle any of these litigations or legal proceedings could result in liability that, to the extent not covered by our insurance, could have an adverse effect on our business, financial condition and results of operations.
Risks related to our ongoing relationship with IAC
IAC controls our company and will have the ability to control the direction of our business.
After the completion of this offering, IAC will own all of the shares of our Class B common stock, representing approximately % of the total outstanding shares of our capital stock and approximately % of the total voting power of our outstanding capital stock (or % of the total outstanding shares of our capital stock and % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our common stock). As long as IAC owns shares of Class B common stock representing a majority of the total voting power of our outstanding capital stock, it will be able to control any corporate action that requires a stockholder vote, regardless of the vote of any other stockholder. As a result, IAC will have the ability to control significant corporate activities, including:
This voting control will limit the ability of other stockholders to influence corporate matters and, as a result, we may take actions that stockholders other than IAC do not view as beneficial. This voting control
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may also discourage transactions involving a change of control of our company, including transactions in which you as a holder of our common stock might otherwise receive a premium for your shares. Furthermore, after the expiration of the 180-day lock-up period, IAC generally has the right at any time to sell or otherwise dispose of the shares of our capital stock that it owns, including the ability to transfer a controlling interest in us to a third party, without your approval and without providing for a purchase of your shares. See "Shares eligible for future sale."
Even if IAC owns shares of Class B common stock representing less than a majority of the total voting power of our outstanding capital stock, so long as IAC retains shares representing a significant percentage of our total voting power, IAC will have the ability to substantially influence these significant corporate activities.
In addition, pursuant to the investor rights agreement we will enter into with IAC, IAC has the right to maintain its level of ownership in our Company to the extent we issue additional shares of our capital stock in the future and, pursuant to the employee matters agreement we will enter into with IAC, IAC may receive payment for certain compensation expenses through receipt of additional shares of our stock. For a more complete summary of our agreements with IAC, see "Certain relationships and related party transactions."
Until such time as IAC no longer controls or has the ability to substantially influence us, we will continue to face the risks described in this "Risk factors" section relating to IAC's control of us and the potential conflicts of interest between IAC and us.
Our certificate of incorporation could prevent us from benefiting from corporate opportunities that might otherwise have been available to us.
Our certificate of incorporation will include a "corporate opportunity" provision in which we renounce any interests or expectancy in corporate opportunities which become known to (i) any of our directors or officers who are also officers, directors, employees or other affiliates of IAC or its affiliates (except that we and our subsidiaries shall not be deemed affiliates of IAC or its affiliates for the purposes of the foregoing) or (ii) IAC itself, and which relate to the business of IAC or may constitute a corporate opportunity for both IAC and us. Generally, neither IAC nor our officers or directors who are also officers or directors of IAC will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such person pursues or acquires any corporate opportunity for the account of IAC, directs or transfers such corporate opportunity to IAC, or does not communicate information regarding such corporate opportunity to us. The corporate opportunity provision may exacerbate conflicts of interest between IAC and us because the provision effectively permits one of our directors or officers who also serves as an officer or director of IAC to choose to direct a corporate opportunity to IAC instead of to us.
IAC's interests may conflict with our interests and the interests of our stockholders. Conflicts of interest between IAC and us could be resolved in a manner unfavorable to us and our public stockholders.
Various conflicts of interest between us and IAC could arise. of our directors are current or former members of the board of directors or executive officers of IAC. Ownership interests of directors or officers of IAC in our stock and ownership interests of our directors and officers in the stock of IAC, or a person's service as either a director or officer of both companies, could create or appear to create potential conflicts of interest when those directors and officers are faced with decisions relating to our company. These decisions could include:
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Potential conflicts of interest could also arise if we decide to enter into any new commercial arrangements with IAC in the future or in connection with IAC's desire to enter into new commercial arrangements with third parties.
Furthermore, disputes may arise between IAC and us relating to our past and ongoing relationship, and these potential conflicts of interest may make it more difficult for us to favorably resolve such disputes, including those related to:
We may not be able to resolve any potential conflicts, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated party. While we are controlled by IAC, we may not have the leverage to negotiate amendments to these agreements, if required, on terms as favorable to us as those we would negotiate with an unaffiliated third party.
Our historical and pro forma combined financial information may not be representative of the results we would have achieved as a public company and may not be a reliable indicator of our future results.
The historical and pro forma combined financial information that we have included in this prospectus may not necessarily reflect what our financial position, results of operations or cash flows would have been had we been a public company during the periods presented or those that we will achieve in the future. Our combined financial statements reflect the historical financial position, results of operations and cash flows of our various businesses since their respective dates of acquisition by IAC and the allocation to us by IAC of expenses for certain functions based on various methodologies. We have not adjusted our historical and pro forma combined financial information to reflect changes that will occur in our cost structure, financing and operations as a result of our transition to becoming a public company, including anticipated increased costs associated with public company reporting and other obligations. Accordingly, our historical and pro forma combined financial information may not necessarily be indicative of what our financial position, results of operations or cash flows will be in the future.
We will be a "controlled company" as defined in the NASDAQ rules, and will rely on exemptions from certain corporate governance requirements that provide protection to stockholders of other companies.
Upon completion of this offering, IAC will own more than 50% of the total voting power of our share capital and we will be a "controlled company" under the Marketplace Rules of the NASDAQ Stock Market,
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or the Marketplace Rules. As a "controlled company," certain exemptions under the NASDAQ standards will free us from the obligation to comply with certain Marketplace Rules related to corporate governance, including the requirements:
Accordingly, for so long as we are a "controlled company," you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the Marketplace Rules.
In order to preserve the ability of IAC to distribute its shares of our capital stock on a tax-free basis, we may be prevented from pursuing opportunities to raise capital, to effectuate acquisitions or to provide equity incentives to our employees, which could hurt our ability to grow.
Under current laws, IAC must retain beneficial ownership of at least 80% of the total voting power and 80% of each class of nonvoting capital stock, if any is outstanding, in order to effect a tax-free distribution of our shares held by IAC to its stockholders. IAC has advised us that it does not have any present intention or plans to undertake such a tax-free distribution. However, IAC currently intends to use its majority voting interest to retain its ability to engage in such a transaction. This intention may cause IAC to not support transactions we wish to pursue that involve issuing shares of our common stock, including for capital raising purposes, as consideration for an acquisition or as equity incentives to our employees. The inability to pursue such transactions, if it occurs, may adversely affect our company. See "IAC controls our company and will have the ability to control the direction of our business" and "IAC's interests may conflict with our interests and the interests of our stockholders. Conflicts of interest between IAC and us could be resolved in a manner unfavorable to us and our public stockholders."
Our agreements with IAC will require us to indemnify IAC for certain tax liabilities and may limit our ability to engage in desirable strategic or capital raising transactions, including following any distribution by IAC of our capital stock to its stockholders.
In connection with the offering, we will enter into a tax sharing agreement with IAC. Under the tax sharing agreement, we generally will be responsible and will be required to indemnify IAC for (i) all taxes imposed with respect to any consolidated, combined or unitary tax return of IAC or one of its subsidiaries that includes us or any of our subsidiaries to the extent attributable to us or any of our subsidiaries, as determined under the tax sharing agreement, and (ii) all taxes imposed with respect to any consolidated, combined, unitary or separate tax returns of us or any of our subsidiaries. To the extent IAC failed to pay taxes imposed with respect to any consolidated, combined or unitary tax return of IAC or one of its subsidiaries that includes us or any of our subsidiaries, the relevant taxing authority could seek to collect such taxes (including taxes for which IAC is responsible under the tax sharing agreement) from us or our subsidiaries.
Under the tax sharing agreement, we generally will be responsible for any taxes and related amounts imposed on IAC or us that arise from the failure of a future spin-off of IAC's retained interest in us to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under
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Section 368(a)(1)(D) and/or Section 355 of the Internal Revenue Code of 1986, as amended, or the Code, to the extent that the failure to so qualify is attributable to (i) a breach of the relevant representations and covenants made by us in the tax sharing agreement or any representation letter provided in support of any tax opinion or ruling obtained by IAC with respect to the U.S. federal income tax treatment of such spin-off, or (ii) an acquisition of our equity securities.
To preserve the tax-free treatment of any potential future spin-off by IAC of its interest in us, and in addition to our indemnity obligation described above, the tax sharing agreement will restrict us, for the two-year period following any such spin-off, except in specific circumstances, from: (i) entering into any transaction pursuant to which all or a portion of shares of our stock would be acquired, whether by merger or otherwise, (ii) issuing equity securities beyond certain thresholds, (iii) repurchasing our shares other than in certain open-market transactions, (iv) ceasing to actively conduct our businesses or (v) taking or failing to take any other action that prevents the distribution and related transactions from qualifying as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Section 368(a)(1)(D) and/or Section 355 of the Code.
The indemnity obligations and other limitations could have an adverse effect on our business, financial condition and results of operations. For a more complete description of the tax sharing agreement, see "Certain relationships and related party transactionsTax sharing agreement."
Future sales or distributions of our shares by IAC could depress our common stock price.
After this offering, and subject to the lock-up period described below, IAC will have the right to sell or distribute to its stockholders all or a portion of our Class B common stock that it holds. Although as of the date of this prospectus IAC has advised us that it does not have any present intention or plans to undertake such a sale or distribution, sales by IAC in the public market or distributions to its stockholders of substantial amounts of our stock in the form of common stock or Class B common stock, or the filing by IAC of a registration statement relating to a substantial amount of our stock, could depress the price of our common stock.
In addition, IAC will have the right, subject to certain conditions, to require us to file registration statements covering the sale of its shares or to include its shares in other registration statements that we may file. In the event IAC exercises its registration rights and sells all or a portion of its shares of our capital stock, the price of our common stock could decline. See "Shares eligible for future saleRegistration rights."
The services that IAC will provide to us following the initial public offering may not be sufficient to meet our needs, which may result in increased costs and otherwise adversely affect our business.
Prior to completion of this offering, IAC has provided to us significant corporate and shared services related to corporate functions such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, tax, treasury and other services. Following this offering, we expect IAC to continue to provide many of these services for a fee provided in the services agreement described in "Certain relationships and related party transactions." IAC will not be obligated to provide these services in a manner that differs from the nature of the service today, and thus we may not be able to modify these services in a manner desirable to us as a stand-alone public company. Further, if we no longer receive these services from IAC, we may not be able to perform these services ourselves, or to find appropriate third-party arrangements at a reasonable cost, and the cost may be higher than that charged by IAC.
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Risks related to this offering
The multi class structure of our capital stock has the effect of concentrating voting control with holders of our Class B common stock and limiting your ability to influence corporate matters.
Our Class B common stock has ten votes per share, our common stock, which is being offered by us in this initial public offering, has one vote per share and our Class C common stock does not have any voting rights except as required by the laws of the State of Delaware, in which case, our Class C common stock will have one-hundredth vote per share. When this offering is completed, IAC, as holder of all of our outstanding Class B common stock, will beneficially own shares representing % of the total voting power of our outstanding capital stock (or % of the total voting power of our outstanding capital stock if the underwriters exercise in full their option to purchase additional shares of our common stock). There will be no shares of our Class C common stock outstanding immediately following this offering. Due to the ten-to-one voting ratio between our Class B common stock and common stock, the holders of our Class B common stock collectively will continue to control a majority of the combined voting power of our capital stock, even when the outstanding shares of Class B common stock represent a small minority of our equity, and such voting control will be concentrated with IAC. This concentrated control will significantly limit your ability to influence corporate matters.
The difference in the voting rights of our common stock and our Class B common stock may harm the value and liquidity of our common stock.
The holders of Class B common stock will be entitled to ten votes per share and the holders of our common stock will be entitled to one vote per share. The difference in the voting rights of our common stock and Class B common stock could harm the value of our common stock to the extent that any investor or potential future purchaser of our common stock ascribes value to the right of the holders of our Class B common stock to ten votes per share. The existence of two classes of common stock with voting rights could result in less liquidity for either class of stock than if there were only one class of our common stock. See "Description of capital stock" for descriptions of our common stock and our Class B common stock and the rights associated with each.
Purchasers in this offering will experience immediate and substantial dilution in the book value of their investment.
The initial public offering price of our common stock is substantially higher than the net tangible book value per share of our common stock outstanding prior to this offering. Therefore, if you purchase our common stock in this offering, you will incur an immediate substantial dilution of $ in net tangible book value per share from the price you paid (calculated based on the assumed initial public offering price of $ per share, which represents the midpoint of the estimated offering price range set forth on the cover of this prospectus). For additional information about the dilution that you will experience immediately after this offering, see "Dilution."
There has been no prior public market for our common stock, the price of our common stock may be volatile or may decline regardless of our operating performance, and you may not be able to resell your shares at or above the initial public offering price.
Prior to this offering, there has been no public market for shares of our common stock. The initial public offering price of our common stock was determined through negotiation between us and the underwriters. This price does not necessarily reflect the price at which investors in the market will be willing to buy and sell shares of our common stock following this offering. In addition, the market price of our common stock following this offering may be highly volatile and could be subject to wide fluctuations in response to various factors, many of which are beyond our control.
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The market price of our common stock following this offering may be higher or lower than the initial public offering price. The market price of our common stock following this offering will depend on a number of factors, many of which are beyond our control and may not be related to our operating performance. These fluctuations could cause you to lose part of your investment in our common stock since you might be unable to sell your shares at or above the price you paid in this offering. Factors that could cause fluctuations in the market price of our common stock include the following:
In addition, in the past, following periods of volatility in the overall market and the market price of a particular company's securities, securities class action litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion of our management's attention and resources.
Future sales, or the perception of future sales, of our common stock may depress the price of our common stock.
The market price of our common stock could decline significantly as a result of sales of a large number of shares of our stock in the market after this offering, including shares which might be offered for sale by
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IAC. The perception that these sales might occur could depress the market price of common stock. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate. See "Future sales or distributions of our shares by IAC could depress our common stock price."
Upon completion of this offering, we will have shares of common stock ( shares if the underwriters exercise in full their option to purchase additional shares of our common stock), shares of Class B common stock and no shares of Class C common stock outstanding. The shares of common stock offered in this offering will be freely tradable without restriction under the Securities Act of 1933, or the Securities Act, except for any shares of common stock that may be held or acquired by our directors, executive officers and other affiliates, as that term is defined in the Securities Act, which will be restricted securities under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We will grant registration rights to IAC with respect to shares of our common stock and Class B common stock. Any shares registered pursuant to the registration rights agreement described in "Certain relationships and related party transactions" will be freely tradable in the public market following a 180-day lock-up period as described below.
In connection with this offering, we, certain of our directors and executive officers and IAC will each agree to enter into a lock-up agreement and thereby be subject to a lock-up period, meaning that they and their permitted transferees will not be permitted to sell any of the shares of our capital stock for 180 days after the date of this prospectus, subject to certain exceptions without the prior consent of J.P. Morgan Securities LLC and Allen & Company LLC. Although we have been advised that there is no present intention to do so, the representatives at the underwriters may, in their sole discretion and without notice, release all or any portion of the shares from the restrictions in any of the lock-up agreements described above. See "Underwriting."
Also, in the future, we may issue our securities in connection with investments or acquisitions. The amount of shares of our capital stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding shares of our common stock.
An active trading market for our common stock may never develop or be sustained.
We have applied to list our common stock on the NASDAQ Global Select Market under the symbol "MTCH". However, we cannot assure you that an active trading market for our common stock will develop on that exchange or elsewhere or, if developed, that any market will be sustained. Accordingly, we cannot assure you of the likelihood that an active trading market for our common stock will develop or be maintained, the liquidity of any trading market, your ability to sell your shares of our common stock when desired or the prices that you may obtain for your shares.
In making your investment decision, you should understand that we and the underwriters have not authorized any other party to provide you with information concerning us or this offering, you should not rely on information in public media that is published by third parties and you should rely only on statements made in this prospectus in determining whether to purchase our shares.
You should carefully evaluate all of the information in this prospectus. We have in the past received, and may continue to receive, a high degree of media coverage, including coverage that is not directly attributable to statements made by our officers and employees, that incorrectly reports on statements made by our officers or employees, or that is misleading as a result of omitting information provided by us, our officers or employees. We cannot confirm the accuracy of such coverage. We and the underwriters have not authorized any other party to provide you with information concerning us or this offering. As a
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result, you should carefully evaluate all of the information in this prospectus and rely only on the information contained in this prospectus in determining whether to purchase our shares of common stock.
We do not expect to declare any dividends in the foreseeable future.
Other than the dividend described in "Use of proceeds," we do not intend to pay dividends on our common stock, Class B common stock or Class C common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors, including:
We are not obligated to pay dividends on our common stock, Class B common stock or Class C common stock. Consequently, investors may need to rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking cash dividends should not purchase our common stock.
Provisions in our certificate of incorporation and bylaws or Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Delaware corporate law and our certificate of incorporation and bylaws contain provisions that could discourage, delay or prevent a change in control of our company or changes in our management that the stockholders of our company may deem advantageous, including provisions which:
Any provision of our certificate of incorporation, our bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.
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Cautionary note regarding forward-looking statements
This prospectus contains forward-looking statements. These forward-looking statements reflect our current views with respect to, among other things, future events and our business, financial condition and results of operations. These statements are often, but not always, made through the use of words or phrases such as "may," "should," "could," "predict," "potential," "believe," "will likely result," "expect," "continue," "will," "anticipate," "seek," "estimate," "intend," "plan," "projection," "would" and "outlook," or the negative version of those words or other comparable words of a future or forward-looking nature. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to:
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The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which new factors will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We do not undertake to update these forward-looking statements, except as required by law.
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We estimate that our net proceeds from this offering will be approximately $ (or $ if the underwriters exercise in full their option to purchase additional shares of our common stock), based on an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and less underwriting discounts and commissions and estimated offering expenses payable by us.
We currently intend to pay $ of our net proceeds from this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and to use the remainder of our net proceeds from this offering for general corporate purposes.
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share would increase (decrease) the net proceeds to us from this offering by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and less underwriting discounts and commissions and estimated offering expenses payable by us. Similarly, each increase (decrease) of one million shares in the number of shares of common stock offered by us would increase (decrease) the net proceeds to us from this offering by $ , assuming that the initial public offering price remains the same and less underwriting discounts and commissions and estimated offering expenses payable by us.
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Other than the cash dividend described in "Use of proceeds," we do not intend to pay dividends on our common stock, Class B common stock or Class C common stock for the foreseeable future. Instead, we anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development of our business. Any future determination relating to our dividend policy will be made by our board of directors and will depend on a number of factors, including:
We are not obligated to pay dividends on our common stock, our Class B common stock or our Class C common stock.
As a Delaware corporation, we will be subject to certain restrictions on dividends under the Delaware General Corporation Law, or the DGCL. Generally, a Delaware corporation may only pay dividends either out of "surplus" or out of the current or the immediately preceding year's net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation's assets can be measured in a number of ways and may not necessarily equal their book value.
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The following table shows our cash and cash equivalents and capitalization as of June 30, 2015:
You should read the following table in together with "Selected historical combined financial and other information," and "Management's discussion and analysis of financial condition and results of operations" and our combined financial statements and related notes appearing elsewhere in this prospectus.
| | | | | | | |
|
As of June 30, 2015 | ||||||
---|---|---|---|---|---|---|---|
|
Actual |
As adjusted(1) |
|||||
| | | | | | | |
|
(dollars in thousands) |
||||||
Cash and cash equivalents |
$ | 136,373 | $ | ||||
| | | | | | | |
Long-term debtrelated party(2) |
$ | 185,302 | $ | ||||
Term loan credit facility(3) |
| ||||||
Revolving credit facility(3) |
| ||||||
% Notes due 2022(3) |
| ||||||
Shareholder equity: |
|||||||
Common stock, $0.001 par value; actual: shares authorized, shares issued and shares outstanding; as adjusted: shares authorized, shares issued and shares outstanding |
| ||||||
Class B common stock, $0.001 par value; actual: shares authorized, shares issued and shares outstanding; as adjusted: shares authorized, shares issued and shares outstanding |
| ||||||
Class C common stock, $0.001 par value; actual: shares authorized, shares issued and shares outstanding; as adjusted: shares authorized, shares issued and shares outstanding |
| ||||||
Invested capital |
912,170 | ||||||
Accumulated other comprehensive loss |
(116,072 | ) | |||||
| | | | | | | |
Total shareholders equity. |
796,098 | ||||||
| | | | | | | |
Total capitalization |
$ | 981,400 | $ | ||||
| | | | | | | |
(1) A $1.00 increase (decrease) in the assumed initial public offering price of $ per share (the midpoint of the price range on the cover page of this prospectus) would increase (decrease) each of cash and cash equivalents, total shareholders equity and total capitalization by $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, and less the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters' option to purchase additional shares of our common stock is exercised in full, the as adjusted amount of each of cash and cash equivalents, total shareholders equity and total capitalization would increase by approximately $ , and less underwriting discounts and commissions and estimated expenses payable by us.
(2) Long-term debtrelated party consists of $79.0 million in notes payable in three installments of $26.3 million each due on September 1, 2021, 2023 and 2026, a €53 million ($59.3 million at June 30, 2015) note due December 15, 2021 and a $47.0 million note due December 15, 2021, all of which will be repaid in connection with this offering. We and certain of our domestic subsidiaries are also guarantors of IAC's senior notes and credit facility. Prior to the closing of the offering, we will no longer be a restricted subsidiary of IAC for purposes of its debt facilities, nor will we guarantee any debt of IAC. See "Management's discussion and analysis of financial condition and results of operationsLiquidity and capital resources."
(3) See "Description of indebtedness."
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If you invest in our common stock, your ownership interest will be diluted to the extent that the initial public offering price per share of our common stock exceeds the tangible book value per share of our common stock immediately following this offering. Tangible book value per share of common stock is equal to our total stockholders' equity, less intangible assets, divided by the number of shares of common stock and Class B common stock outstanding. There will be no outstanding shares of Class C common stock upon completion of this offering. The tangible book value of our common stock and Class B common stock as of June 30, 2015 was $ , or $ per share.
After giving effect to our sale of shares of common stock in this offering at an assumed initial public offering price of $ per share (the midpoint of the price range on the cover page of this prospectus), and less underwriting discounts and commissions and estimated offering expenses payable by us, the as adjusted net tangible book value of our common stock and Class B common stock at June 30, 2015 would have been approximately $ , or $ per share. Therefore, this offering will result in an immediate increase of $ in the tangible book value per share of our common stock and Class B common stock to existing stockholders and an immediate dilution of $ in the tangible book value per share of our common stock to investors purchasing shares in this offering.
The following table illustrates the calculation of the amount of dilution per share that a purchaser of our common stock in this offering will incur given the assumptions above:
| | | | | | | |
Assumed initial public offering price per share |
$ | ||||||
Net tangible book value per share of common stock at June 30, 2015 |
$ | ||||||
Increase in net tangible book value per share of common stock attributable to new investors |
|||||||
| | | | | | | |
As adjusted net tangible book value per share of common stock upon completion of this offering |
|||||||
| | | | | | | |
Dilution per share of common stock to new investors from this offering |
$ | ||||||
| | | | | | | |
A $1.00 increase (decrease) in the assumed initial public offering price of $ per share, the midpoint of the estimated price range set forth on the cover page of this prospectus, would increase (decrease) as adjusted net tangible book value per share after this offering by $ per share and increase (decrease) the dilution to new investors by $ per share, in each case assuming the number of shares of common stock offered by us, as set forth on the cover page of this prospectus, remains the same and less underwriting discounts and commissions and estimated offering expenses payable by us.
The following table summarizes, as of June 30, 2015, the difference between existing stockholders and new investors with respect to the number of shares of capital stock purchased, the total consideration paid or to be paid for these shares, and the average price per share paid by our existing stockholders and to be paid by the new investors in this offering. The calculation below reflecting the effect of shares purchased by new investors is based on the initial public offering price of $ per share (the midpoint of the
39
price range on the cover page of this prospectus), less underwriting discounts and commissions and estimated offering expenses payable by us.
| | | | | | | | | | | | | | | | |
|
Shares purchased | Total consideration | Average price per share |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number |
Percent |
Amount |
Percent |
||||||||||||
| | | | | | | | | | | | | | | | |
Existing stockholders |
$ | |||||||||||||||
New investors |
$ | |||||||||||||||
| | | | | | | | | | | | | | | | |
Total |
100.0% | 100.0% | ||||||||||||||
| | | | | | | | | | | | | | | | |
If the underwriters' option to purchase additional shares of common stock is exercised in full, the number of shares held by existing stockholders after this offering would be reduced to % of the total number of shares outstanding after this offering, and the number of shares held by new investors would increase to shares, or % of the total number of shares outstanding after this offering.
40
Selected historical combined financial and other information
The following selected historical combined financial information as of December 31, 2013 and 2014, and for each of the years in the three year period ended December 31, 2014, has been derived from our audited combined financial statements included elsewhere in this prospectus. The following selected historical combined financial information as of June 30, 2015, and for the six months ended June 30, 2014 and 2015, has been derived from our unaudited interim combined financial statements included elsewhere in this prospectus. The unaudited interim combined financial statements have been prepared on the same basis as our audited combined financial statements and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of this information. Our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year.
Our historical combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of IAC. The combined financial statements reflect the historical financial position, results of operations and cash flows of our businesses since their respective dates of acquisition by IAC and the allocation to us of certain IAC corporate expenses relating to us based on the historical financial statements and accounting records of IAC. In the opinion of our management, the assumptions underlying our historical combined financial statements, including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, stand-alone company for the periods presented. Our historical combined financial statements may not reflect what our actual financial position, results of operation and cash flows would have been if we had been an independent, stand-alone company for the periods presented. For the purposes of our financial statements, income taxes have been computed for us on an as if stand-alone, separate tax return basis.
41
The information presented below should be read in conjunction with the information under "Management's discussion and analysis of financial condition and results of operations" and our audited and unaudited combined financial statements, including the notes thereto, appearing elsewhere in this prospectus.
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in thousands) |
|||||||||||||||
Combined statement of operations information: |
||||||||||||||||
Revenue |
$ | 713,449 | $ | 803,089 | $ | 888,268 | $ | 421,691 | $ | 483,886 | ||||||
Operating costs and expenses: |
||||||||||||||||
Cost of revenue (exclusive of depreciation)(1) |
72,794 | 85,945 | 120,024 | 48,632 | 83,482 | |||||||||||
Selling and marketing expense(1) |
304,597 | 321,870 | 335,107 | 184,591 | 200,146 | |||||||||||
General and administrative expense(1) |
76,711 | 93,641 | 117,890 | 51,327 | 75,322 | |||||||||||
Product development expense(1) |
38,921 | 42,973 | 49,738 | 24,112 | 33,929 | |||||||||||
Depreciation |
16,341 | 20,202 | 25,547 | 11,348 | 13,667 | |||||||||||
Amortization of intangibles |
17,455 | 17,125 | 11,395 | 3,520 | 9,778 | |||||||||||
| | | | | | | | | | | | | | | | |
Total operating costs and expenses |
526,819 | 581,756 | 659,701 | 323,530 | 416,324 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income |
186,630 | 221,333 | 228,567 | 98,161 | 67,562 | |||||||||||
Interest expenserelated party |
(29,489 | ) | (34,307 | ) | (25,541 | ) | (20,870 | ) | (4,561 | ) | ||||||
Other (expense) income, net |
(7,428 | ) | 217 | 12,610 | (490 | ) | 6,806 | |||||||||
| | | | | | | | | | | | | | | | |
Earnings before income taxes |
149,713 | 187,243 | 215,636 | 76,801 | 69,807 | |||||||||||
Income tax provision |
(59,432 | ) | (60,616 | ) | (67,277 | ) | (27,851 | ) | (20,496 | ) | ||||||
| | | | | | | | | | | | | | | | |
Net earnings |
90,281 | 126,627 | 148,359 | 48,950 | 49,311 | |||||||||||
Net (earnings) loss attributable to noncontrolling interests |
(4,606 | ) | (1,624 | ) | (595 | ) | (307 | ) | 220 | |||||||
| | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 85,675 | $ | 125,003 | $ | 147,764 | $ | 48,643 | $ | 49,531 | ||||||
| | | | | | | | | | | | | | | | |
Other combined financial information: |
||||||||||||||||
Adjusted EBITDA(2) |
$ | 236,490 | $ | 271,231 | $ | 273,448 | $ | 124,536 | $ | 96,698 | ||||||
| | | | | | | | | | | | | | | | |
(1) Includes stock-based compensation expense as follows:
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in thousands) |
|||||||||||||||
Cost of revenue |
$ | 1,975 | $ | 1,012 | $ | 396 | $ | 174 | $ | 209 | ||||||
Selling and marketing expense |
823 | 562 | 194 | 142 | 3,361 | |||||||||||
General and administrative expense |
10,368 | 8,520 | 17,326 | 8,901 | 11,980 | |||||||||||
Product development expense |
2,898 | 2,134 | 2,935 | 1,589 | 2,375 | |||||||||||
| | | | | | | | | | | | | | | | |
Total stock-based compensation expense |
$ | 16,064 | $ | 12,228 | $ | 20,851 | $ | 10,806 | $ | 17,925 | ||||||
| | | | | | | | | | | | | | | | |
(2) In considering the financial performance of the business, management and our chief operating decision maker analyze the primary financial performance measure of Adjusted EBITDA. Adjusted EBITDA is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements.
42
We believe Adjusted EBITDA is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole. We exclude the above items from Adjusted EBITDA because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced.
Adjusted EBITDA has limitations as an analytical tool. It is not a presentation made in accordance with U.S. generally accepted accounting principles, or GAAP, is not a measure of financial condition or liquidity and should not be considered as an alternative to operating income or net income determined in accordance with GAAP. Adjusted EBITDA is not necessarily comparable to similarly titled measures used by other companies. As a result, you should not consider Adjusted EBITDA in isolation from, or as a substitute analysis for, our results of operations as determined in accordance with GAAP. See "Management's discussion and analysis of financial condition and results of operationsPrinciples of financial reporting."
The following table reconciles Adjusted EBITDA to operating income for the periods presented:
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in thousands) |
|||||||||||||||
Operating income |
$ | 186,630 | $ | 221,333 | $ | 228,567 | $ | 98,161 | $ | 67,562 | ||||||
Stock-based compensation expense |
16,064 | 12,228 | 20,851 | 10,806 | 17,925 | |||||||||||
Depreciation |
16,341 | 20,202 | 25,547 | 11,348 | 13,667 | |||||||||||
Amortization of intangibles |
17,455 | 17,125 | 11,395 | 3,520 | 9,778 | |||||||||||
Acquisition-related contingent consideration fair value adjustments |
| 343 | (12,912 | ) | 701 | (12,234 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Adjusted EBITDA |
$ | 236,490 | $ | 271,231 | $ | 273,448 | $ | 124,536 | $ | 96,698 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | |
|
As of December 31, | |
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
As of June 30, 2015 |
|||||||||
|
2013 |
2014 |
||||||||
| | | | | | | | | | |
|
(in thousands) |
|||||||||
Combined balance sheet information: |
||||||||||
Cash and cash equivalents |
$ | 125,226 | $ | 127,630 | $ | 136,373 | ||||
Total current assets |
174,966 | 195,102 | 226,311 | |||||||
Total assets |
1,292,122 | 1,308,034 | 1,358,430 | |||||||
Total liabilities |
390,848 | 504,580 | 556,602 | |||||||
Total shareholder equity |
877,026 | 799,776 | 796,098 | |||||||
| | | | | | | | | | |
43
In connection with the management of our business, we identify, measure and assess a variety of key metrics. The principal metrics we use in managing our dating business are set forth below:
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in thousands, except ARPPU) |
|||||||||||||||
Direct Revenue:(1) |
||||||||||||||||
North America |
$ | 454,996 | $ | 493,729 | $ | 525,928 | $ | 257,222 | $ | 285,352 | ||||||
International |
233,531 | 260,340 | 273,599 | 137,617 | 129,966 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Direct Revenue |
688,527 | 754,069 | 799,527 | 394,839 | 415,318 | |||||||||||
| | | | | | | | | | | | | | | | |
Indirect Revenue(2) |
24,922 | 34,128 | 36,931 | 17,761 | 17,779 | |||||||||||
| | | | | | | | | | | | | | | | |
Total Dating Revenue |
$ | 713,449 | $ | 788,197 | $ | 836,458 | $ | 412,600 | $ | 433,097 | ||||||
| | | | | | | | | | | | | | | | |
Average PMC:(3) |
||||||||||||||||
North America |
1,920 | 2,169 | 2,404 | 2,364 | 2,626 | |||||||||||
International |
876 | 1,020 | 1,097 | 1,080 | 1,273 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
2,796 | 3,189 | 3,501 | 3,444 | 3,899 | |||||||||||
| | | | | | | | | | | | | | | | |
ARPPU:(4) |
||||||||||||||||
North America |
$ | 0.65 | $ | 0.62 | $ | 0.60 | $ | 0.60 | $ | 0.60 | ||||||
International |
$ | 0.73 | $ | 0.70 | $ | 0.68 | $ | 0.70 | $ | 0.56 | ||||||
Total |
$ | 0.67 | $ | 0.65 | $ | 0.63 | $ | 0.63 | $ | 0.59 | ||||||
| | | | | | | | | | | | | | | | |
(1) "Direct Revenue" is revenue that is directly received from an end user of our products.
(2) "Indirect Revenue" is revenue that is not received directly from an end user of our products, substantially all of which is currently advertising revenue.
(3) "Average PMC" is calculated by summing the number of paid members, or paid member count ("PMC"), at the end of each day in the relevant measurement period and dividing it by the number of calendar days in that period.
(4) "ARPPU" or Average Revenue per Paying User, is Direct Revenue in the relevant measurement period divided by the Average PMC in such period divided by the number of calendar days in such period.
44
Unaudited pro forma combined financial statements
The unaudited pro forma combined statement of operations for the year ended December 31, 2014 and six months ended June 30, 2014 and 2015 presents the acquisition of PlentyOfFish and this offering as if each had been completed as of January 1, 2014. The unaudited pro forma combined balance sheet as of June 30, 2015 presents the acquisition and this offering as if each had been completed as of June 30, 2015. The pro forma adjustments give effect to the following: (1) the acquisition of PlentyOfFish and (2) this offering and the use of the net proceeds therefrom, as described below.
The unaudited pro forma combined financial statements were prepared using, and should be read in conjunction with: (i) the historical combined financial statements of Match Group, Inc. and Subsidiaries for the year ended December 31, 2014 and the six months ended June 30, 2014 and 2015 and (ii) the historical consolidated financial statements of Plentyoffish Media Inc. and Subsidiaries for the year ended December 31, 2014 and the six months ended June 30, 2014 and 2015. The following unaudited pro forma combined financial statements should be read in conjunction with "Management's discussion and analysis of financial condition and results of operations."
The assumptions used and pro forma adjustments derived from such assumptions are based on currently available information and management believes such assumptions are reasonable.
These unaudited pro forma combined financial statements are for informational purposes and are not necessarily indicative of our results of operations or financial condition had the acquisition of PlentyOfFish and the offering been completed on the dates assumed. In addition, they may not reflect the results of operations or financial condition that would have resulted had we been operating as an independent publicly-traded company during such periods. These unaudited pro forma combined financial statements are not necessarily indicative of our future results of operations or financial condition.
Prior to completion of this offering, IAC has provided to us significant corporate and shared services related to corporate functions, such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, tax, treasury and other services. Following this offering, we expect IAC to continue to provide many of these services for a fee pursuant to the services agreement described in "Certain relationships and related party transactions." While we expect to incur additional expenses as a public company, including pursuant to the services agreement with IAC, we do not expect these expenses to materially affect our overall profitability or impede our growth prospects. No additional amounts have been included in the pro forma financial statements for the incremental expenses that we expect to incur as a public company.
On July 13, 2015, we entered into a stock purchase agreement to acquire all of the outstanding equity interests in PlentyOfFish for aggregate consideration of $575.0 million, subject to a customary post-closing adjustment based on, among other things, the amount of working capital in the business at the closing date. The acquisition price will be allocated to the fair value of the assets acquired and liabilities assumed.
The fair value of the assets acquired and liabilities assumed are based upon preliminary estimates. Accordingly, the purchase price allocation and pro forma adjustments are subject to further adjustments as additional information becomes available and additional analyses are performed, and each further adjustment may be material.
45
Public offering and use of proceeds
This offering consists of the issuance of shares of common stock in exchange for net proceeds of approximately $ , based on an assumed initial public offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus) and less underwriting discounts and commissions and estimated offering expenses payable by us.
We currently intend to pay $ of our net proceeds from this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and to use the remainder of our net proceeds from this offering for general corporate purposes. See "Use of proceeds."
46
Match Group, Inc.
Unaudited pro forma combined balance sheet
June 30, 2015
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except share data) |
Match Group Historical |
PlentyOfFish Historical(f) |
Acquisition Pro Forma Adjustments |
Note |
As Adjusted before Offering |
Offering Pro Forma Adjustments |
Note |
Match Group Pro Forma |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | |
ASSETS |
|||||||||||||||||||||||
Current Assets: |
|||||||||||||||||||||||
Cash and cash equivalents |
$ | 136,373 | $ | 21,289 | $ | (11,489 | ) | (a) | $ | | (g) | ||||||||||||
|
22,523 | (a) | | (h) | |||||||||||||||||||
|
(32,323 | ) | (a) | ||||||||||||||||||||
|
(75,000 | ) | (b) | $ | 61,373 | $ | 61,373 | ||||||||||||||||
Accounts receivable, net of allowance |
49,462 |
4,120 |
|
53,582 |
|
53,582 |
|||||||||||||||||
Other current assets |
40,276 | 2,899 | | 43,175 | | 43,175 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total current assets |
226,111 | 28,308 | (96,289 | ) | 158,130 | | 158,130 | ||||||||||||||||
Property and equipment, net |
38,470 |
3,728 |
|
42,198 |
|
42,198 |
|||||||||||||||||
Goodwill |
815,718 | | 491,888 | (b) | 1,307,606 | | 1,307,606 | ||||||||||||||||
Intangible assets, net |
204,624 | | 78,500 | (b) | 283,124 | | 283,124 | ||||||||||||||||
Receivables from related parties |
| 22,523 | (22,523 | ) | (a) | | | | |||||||||||||||
Long-term investments |
66,957 | | | 66,957 | | 66,957 | |||||||||||||||||
Other non-current assets |
6,550 | 1,154 | (149 | ) | (b) | 7,555 | | 7,555 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
TOTAL ASSETS |
$ | 1,358,430 | $ | 55,713 | $ | 451,427 | $ | 1,865,570 | $ | | $ | 1,865,570 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
LIABILITIES AND SHAREHOLDER EQUITY |
|||||||||||||||||||||||
LIABILITIES: |
|||||||||||||||||||||||
Accounts payable |
$ | 16,031 | $ | 1,107 | $ | | $ | 17,138 | $ | | $ | 17,138 | |||||||||||
Deferred revenue |
154,384 | 13,005 | (13,005 | ) | (b) | 154,384 | | 154,384 | |||||||||||||||
Accrued expenses and other current liabilities |
104,337 | 2,860 | (2,429 | ) | (b) | 104,768 | | 104,768 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total current liabilities |
274,752 | 16,972 | (15,434 | ) | 276,290 | | 276,290 | ||||||||||||||||
Long-term debtrelated party |
185,302 |
|
|
185,302 |
|
(h) |
185,302 |
||||||||||||||||
Income taxes payable |
10,696 | 524 | | 11,220 | | 11,220 | |||||||||||||||||
Deferred income taxes |
49,853 | | 5,078 | (b) | 54,931 | | 54,931 | ||||||||||||||||
Other long-term liabilities |
35,899 | | | 35,899 | | 35,899 | |||||||||||||||||
Redeemable noncontrolling interests |
5,830 |
|
|
5,830 |
|
5,830 |
|||||||||||||||||
Redeemable preferred stock |
| 11,489 | (11,489 | ) | (a) | | | | |||||||||||||||
Contingencies and commitments |
|||||||||||||||||||||||
Shareholder Equity: |
|||||||||||||||||||||||
Class A, B, C and D shares no par value; no maximum shares authorized; no shares issued or outstanding |
| | | | | | |||||||||||||||||
Class E shares no par value, no maximum shares authorized; 1,000,000 shares issued and outstanding |
| | | | | | |||||||||||||||||
Invested capital |
912,170 | | 500,000 | (b) | 1,412,170 | | (g) | 1,412,170 | |||||||||||||||
Common stock, $0.001 par value; shares authorized; shares issued and shares outstanding |
| | | | | (g) | | ||||||||||||||||
Class B common stock, $0.001 par value shares authorized; shares issued; and shares outstanding |
| | | | | (g) | | ||||||||||||||||
Class C common stock; $0.001 par value; shares authorized; shares issued; and no shares outstanding |
| | | | | (g) | | ||||||||||||||||
Additional paid-in capital |
| 1,417 | (1,417 | ) | (b) | | | (h) | | ||||||||||||||
Retained earnings |
|
25,311 |
(32,323 |
) |
(a) |
||||||||||||||||||
|
7,012 | (b) | | | | ||||||||||||||||||
Accumulated other comprehensive loss |
(116,072 |
) |
|
|
(116,072 |
) |
|
(116,072 |
) |
||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total Match Group, Inc. shareholder equity |
796,098 | 26,728 | 473,272 | 1,296,098 | | 1,296,098 | |||||||||||||||||
Noncontrolling interest |
| | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total shareholder equity |
796,098 | 26,728 | 473,272 | 1,296,098 | | 1,296,098 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDER EQUITY |
$ | 1,358,430 | $ | 55,713 | $ | 451,427 | $ | 1,865,570 | $ | | $ | 1,865,570 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Derived from the historical unaudited balance sheets as of June 30, 2015 for Match Group and PlentyOfFish.
See notes to unaudited pro forma combined financial statements.
47
Match Group, Inc.
Unaudited pro forma combined statement of operations
six months ended June 30, 2015
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) |
Match Group Historical |
PlentyOfFish Historical(f) |
Acquisition Pro Forma Adjustments |
Note |
As Adjusted before Offering |
Offering Pro Forma Adjustments |
Note |
Match Group Pro Forma |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
$ | 483,886 | $ | 40,164 | $ | (277 | ) | (e) | $ | 523,773 | $ | | $ | 523,773 | |||||||||
Operating costs and expenses: |
|||||||||||||||||||||||
Cost of revenue (exclusive of depreciation shown separately below) |
83,482 | 3,835 | | 87,317 | | 87,317 | |||||||||||||||||
Selling and marketing expense |
200,146 | 8,206 | (277 | ) | (e) | 208,075 | | 208,075 | |||||||||||||||
General and administrative expense |
75,322 | 3,766 | (756 | ) | (d) | 78,332 | | 78,332 | |||||||||||||||
Product development expense |
33,929 | 571 | | 34,500 | | 34,500 | |||||||||||||||||
Depreciation |
13,667 | 1,082 | | 14,749 | | 14,749 | |||||||||||||||||
Amortization of intangibles |
9,778 | | 537 | (c) | 10,315 | | 10,315 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses |
416,324 | 17,460 | (496 | ) | 433,288 | | 433,288 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating Income |
67,562 | 22,704 | 219 | 90,485 | | 90,485 | |||||||||||||||||
Interest expensethird party |
|
|
|
|
|
|
|||||||||||||||||
Interest expenserelated party |
(4,561 | ) | | | (4,561 | ) | | (i) | (4,561 | ) | |||||||||||||
Other income (expense), net |
6,806 | (285 | ) | | 6,521 | | 6,521 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes |
69,807 | 22,419 | 219 | 92,445 | | 92,445 | |||||||||||||||||
Income tax provision |
(20,496 |
) |
(5,829 |
) |
(140 |
) |
(c), (d) |
(26,465 |
) |
|
(j) |
(26,465 |
) |
||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings |
49,311 | 16,590 | 79 | 65,980 | | 65,980 | |||||||||||||||||
Net loss attributable to noncontrolling interests |
220 | | | 220 | | 220 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 49,531 | $ | 16,590 | $ | 79 | $ | 66,200 | $ | | $ | 66,200 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings per share:(k) |
|||||||||||||||||||||||
Basic earnings per share |
$ | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share |
$ | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Derived from the historical unaudited statements of operations for the six months ended June 30, 2015 for Match Group and
PlentyOfFish.
See notes to unaudited pro forma combined financial statements.
48
Match Group, Inc.
Unaudited pro forma combined statement of operations
six months ended June 30, 2014
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) |
Match Group Historical |
PlentyOfFish Historical(f) |
Acquisition Pro Forma Adjustments |
Note |
As Adjusted before Offering |
Offering Pro Forma Adjustments |
Note |
Match Group Pro Forma |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
$ | 421,691 | $ | 24,838 | $ | (480 | ) | (e) | $ | 446,049 | $ | | $ | 446,049 | |||||||||
Operating costs and expenses: |
|||||||||||||||||||||||
Cost of revenue (exclusive of depreciation shown separately below) |
48,632 | 1,841 | | 50,473 | | 50,473 | |||||||||||||||||
Selling and marketing expense |
184,591 | 3,480 | (480 | ) | (e) | 187,591 | | 187,591 | |||||||||||||||
General and administrative expense |
51,327 | 4,047 | | 55,374 | | 55,374 | |||||||||||||||||
Product development expense |
24,112 | 465 | | 24,577 | | 24,577 | |||||||||||||||||
Depreciation |
11,348 | 766 | | 12,114 | | 12,114 | |||||||||||||||||
Amortization of intangibles |
3,520 | | 8,337 | (c) | 11,857 | | 11,857 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses |
323,530 | 10,599 | 7,857 | 341,986 | | 341,986 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating Income |
98,161 | 14,239 | (8,337 | ) | 104,063 | | 104,063 | ||||||||||||||||
Interest expensethird party |
| | | | | | |||||||||||||||||
Interest expenserelated party |
(20,870 | ) | | | (20,870 | ) | | (i) | (20,870 | ) | |||||||||||||
Other (expense) income, net |
(490 | ) | 275 | | (215 | ) | | (215 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes |
76,801 | 14,514 | (8,337 | ) | 82,978 | | 82,978 | ||||||||||||||||
Income tax provision |
(27,851 | ) | (3,774 | ) | 2,168 | (c) | (29,457 | ) | | (j) | (29,457 | ) | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings |
48,950 | 10,740 | (6,169 | ) | 53,521 | | 53,521 | ||||||||||||||||
Net earnings attributable to noncontrolling interests |
(307 | ) | | | (307 | ) | | (307 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc's. shareholder |
$ | 48,643 | $ | 10,740 | $ | (6,169 | ) | $ | 53,214 | $ | | $ | 53,214 | ||||||||||
Net earnings per share: (k) |
|||||||||||||||||||||||
Basic earnings per share |
$ | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share |
$ | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Derived from the historical unaudited statements of operations for the six months ended June 30, 2014 and 2015 for Match Group
and PlentyOfFish.
See notes to unaudited pro forma combined financial statements.
49
Match Group, Inc.
Unaudited pro forma combined statement of operations
Year Ended December 31, 2014
| | | | | | | | | | | | | | | | | | | | | | | |
(In thousands, except per share data) |
Match Group Historical |
PlentyOfFish Historical(f) |
Acquisition Pro Forma Adjustments |
Note |
As Adjusted before Offering |
Offering Pro Forma Adjustments |
Note |
Match Group Pro Forma |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | |
Revenue |
$ | 888,268 | $ | 54,126 | $ | (886 | ) | (e) | $ | 941,508 | $ | | $ | 941,508 | |||||||||
Operating costs and expenses: |
|||||||||||||||||||||||
Cost of revenue (exclusive of depreciation shown separately below) |
120,024 | 4,553 | | 124,577 | | 124,577 | |||||||||||||||||
Selling and marketing expense |
335,107 | 7,486 | (886 | ) | (e) | 341,707 | | 341,707 | |||||||||||||||
General and administrative expense |
117,890 | 8,480 | | 126,370 | | 126,370 | |||||||||||||||||
Product development expense |
49,738 | 1,029 | | 50,767 | | 50,767 | |||||||||||||||||
Depreciation |
25,547 | 2,010 | | 27,557 | | 27,557 | |||||||||||||||||
Amortization of intangibles |
11,395 | | 8,873 | (c) | 20,268 | | 20,268 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses |
659,701 | 23,558 | 7,987 | 691,246 | | 691,246 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Operating Income |
228,567 | 30,568 | (8,873 | ) | 250,262 | | 250,262 | ||||||||||||||||
Interest expensethird party |
|
|
|
|
|
|
|||||||||||||||||
Interest expenserelated party |
(25,541 | ) | | | (25,541 | ) | | (i) | (25,541 | ) | |||||||||||||
Other income, net |
12,610 | 965 | | 13,575 | | 13,575 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Earnings from continuing operations before income taxes |
215,636 | 31,533 | (8,873 | ) | 238,296 | | 238,296 | ||||||||||||||||
Income tax provision |
(67,277 |
) |
(8,260 |
) |
2,307 |
(c) |
(73,230 |
) |
|
(j) |
(73,230 |
) |
|||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings |
148,359 | 23,273 | (6,566 | ) | 165,066 | | 165,066 | ||||||||||||||||
Net earnings attributable to noncontrolling interests |
(595 | ) | | | (595 | ) | | (595 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 147,764 | $ | 23,273 | $ | (6,566 | ) | $ | 164,471 | $ | | $ | 164,471 | ||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Net earnings per share:(k) |
|||||||||||||||||||||||
Basic earnings per share |
$ | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Diluted earnings per share |
$ | | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Derived from the historical audited statements of operations for the year ended December 31, 2014 for Match Group and
PlentyOfFish.
See notes to unaudited pro forma combined financial statements.
50
Match Group, Inc.
Notes to unaudited pro forma combined
financial statements
Note 1Adjustments related to the PlentyOfFish acquisition:
The funding of the acquisition and the purchase price allocation for the transaction is as follows:
| | | | |
(In thousands) |
||||
---|---|---|---|---|
| | | | |
Calculation of allocable purchase price |
||||
Capital contribution from IAC |
$ | 500,000 | ||
Cash on hand |
75,000 | |||
| | | | |
Total purchase price |
575,000 | |||
Net liabilities assumed |
5,595 |
|||
| | | | |
Purchase price in excess of net liabilities assumed |
$ | 580,595 | ||
| | | | |
Allocation of purchase price |
||||
Adjust deferred revenue to fair value |
$ | 13,005 | ||
Adjust income taxes payable to fair value |
2,429 | |||
Record fair value of definite- and indefinite-lived intangible assets |
78,500 |
|||
Record deferred income taxes: |
||||
Write-off existing net deferred tax asset |
(149 | ) | ||
Establish deferred tax liability |
(5,078 | ) | ||
Goodwill |
491,888 | |||
| | | | |
Total |
$ | 580,595 | ||
| | | | |
51
| | | | |
CAD/U.S. |
||||
---|---|---|---|---|
| | | | |
Period end exchange rate as of June 30, 2015 (balance sheet) |
0.8101 | |||
Average exchange rate for the six months ended June 30, 2015 (statement of operations) |
0.8118 | |||
Average exchange rate for the six months ended June 30, 2014 (statement of operations) |
0.9120 | |||
Average exchange rate for the year ended December 31, 2014 (statement of operations) |
0.9070 | |||
| | | | |
Note 2Adjustments related to the IPO
52
range set forth on the cover page of this prospectus). The remainder of the proceeds from this offering shall be used for general corporate purposes.
| | | | | | | | | | | | | |
|
Year ended December 31, 2014 |
Six months ended June 30, 2015 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Basic |
Diluted |
Basic |
Diluted |
|||||||||
| | | | | | | | | | | | | |
(In thousands, except per share data) |
|||||||||||||
Numerator: |
|||||||||||||
Net earnings |
$ | | $ | | $ | | $ | | |||||
Net earnings attributable to noncontrolling interests |
| | | | |||||||||
| | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc. shareholders |
$ | | $ | | $ | | $ | | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Denominator (Pro forma): |
|||||||||||||
Weighted average basic shares outstanding |
| | | | |||||||||
Add: Pro forma adjustment to reflect assumed shares issued pursuant to the initial public offering |
| | | | |||||||||
| | | | | | | | | | | | | |
Pro forma weighted average basic shares outstanding |
| | | | |||||||||
Dilutive securities including stock options and other securities |
| | | | |||||||||
| | | | | | | | | | | | | |
Pro forma denominator for earnings per shareweighted average shares |
| | | | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Pro forma earnings per share attributable to Match Group, Inc. shareholders |
$ | | $ | | $ | | $ | | |||||
| | | | | | | | | | | | | |
53
Management's discussion and analysis of financial condition and results of operations
The following discussion and analysis of our financial condition and results of operations should be read together with our historical combined financial statements and the related notes and the other financial information included elsewhere in this prospectus. Our historical combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of IAC. The combined financial statements reflect the historical financial position, results of operations and cash flows of our businesses since their respective dates of acquisition by IAC and the allocation to us of certain IAC corporate expenses relating to us based on the historical financial statements and accounting records of IAC. In the opinion of our management, the assumptions underlying our historical combined financial statements, including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, stand-alone company for the periods presented. For the purposes of our financial statements, income taxes have been computed for us on an as if stand-alone, separate tax return basis. Our historical results do not necessarily reflect what our historical financial position and results of operations would have been had we been a stand-alone public company during the periods presented. In addition, our historical results are not necessarily indicative of the results to be expected for any future period, and results for any interim period are not necessarily indicative of the results to be expected for the full year.
This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results, performance and achievements could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this prospectus, particularly under "Risk factors."
Match Group is the world's leading provider of dating products. Our mission is to increase romantic connectivity worldwide.
In the dating category, there is a wide spectrum of consumer preferences that dictate the type of dating product that has the most appeal to a given user. Accordingly, different brands resonate differently with different groups of people. As a result, we approach the category with a portfolio of trusted brands so that we are able to provide tailored products that collectively appeal to the broadest spectrum of consumer preferences. We believe that this portfolio approach maximizes our ability to capture the largest number of users at meaningfully better economics than we would be able to achieve with a single brand approach. We operate over 45 brands, including Match, OkCupid, Tinder, Meetic, Twoo, OurTime and FriendScout24, and our products are offered in 38 languages in over 190 countries. We increasingly apply a centralized discipline to learnings, best-practices and technologies across our dating products in order to increase growth, reduce costs and maximize profitability. This approach allows us to quickly introduce and deploy products and features, optimize marketing strategies, reduce operational costs and more effectively focus talent across the organization.
All our dating products provide the use of certain features for free, and then offer a variety of additional features for paid members. Substantially all of our Dating revenue is derived directly from users in the form of recurring membership fees, which typically provide unlimited access to a bundle of features for a specific period of time, and fees paid for à la carte features, which are typically for a specific action or event.
54
We have historically grown our business both organically and through strategic acquisitions. We have developed a core competency for identifying, acquiring, integrating and scaling businesses. Since January 2009, we have successfully completed a total of 25 Dating acquisitions (including PlentyOfFish), enabling us to strengthen our business in existing markets and expand our product offerings globally. For example, in 2011, we acquired OkCupid which had a large and loyal user base in the United States, and in 2014, we acquired the remaining outstanding shares of Meetic that we did not already own in order to expand our operations in Europe.
While we currently offer our products in over 190 countries, we have been most heavily concentrated in North America and Western Europe. However, with the launch of Tinder, and the acquisitions of Twoo and Pairs, we are increasingly exploiting opportunities in the rest of the world, which we believe are significant.
Trends affecting our Dating business
Significant user growth. Over the last several years, our Dating business has seen strong user growth, rising from approximately 8 million MAU as of the quarter ended September 30, 2011 to approximately 59 million MAU as of the quarter ended September 30, 2015, a compound annual growth rate of 63%. This rapid growth has been primarily organic, with a compound annual growth rate of 48%, excluding acquisitions during this period. This growth has been driven by, or coincided with, five principal dynamics: mobile adoption, brand mix, increases in younger users, significant decline in the average cost of acquiring a user and significant changes in paid acquisition dynamics. Each of these trends is discussed below.
Mobile adoption. We have seen strong growth in the usage of our products through mobile devices. The percentage of new users coming through mobile channels across our portfolio was 68% in the first half of 2015, compared to 27% in the first half of 2013. Mobile adoption leads to higher user engagement and opens up new acquisition channels, but also requires dedication of additional product and technology resources and often requires the payment of additional fees to app stores. Mobile versions of a given product currently tend to convert users into paid members ("conversion") at a lower rate than desktop products. As our focus on mobile products has increased, we have improved the conversion characteristics of our mobile products, but not as quickly as our overall usage has shifted to mobile. We believe that this mobile migration will slow substantially over the next couple of years as it achieves a more stable level of penetration, and that we will continue to improve the conversion characteristics of our mobile products.
Brand mix shift. Each of our brands has its own mix of free and paid features, as well as its own pricing structure, which impacts conversion rates and overall pricing. This leads to some brands monetizing an average user better than others. While user growth has continued in our higher monetizing brands, the mix of users has shifted more heavily in favor of our lower monetizing brands as they have grown more rapidly, leading to both a lower average conversion rate and a lower average revenue per paid user, or ARPPU, across the portfolio. While we expect the overall mix shift toward lower monetizing brands to continue, we believe that our higher monetizing brands will continue to grow, and that conversion rates and ARPPU in most of our significant brands will improve over time. Monetization rates should especially increase in our brands that have most recently begun generating Direct Revenue. For example, the percentage of OkCupid MAU who purchase a premium membership today is meaningfully larger than it was at the end of 2011, which was the first year that we owned OkCupid and in which generating Direct Revenue became a primary focus. Currently, Tinder is in its first year of generating Direct Revenue, and PlentyOfFish, while it has been generating Direct Revenue for several years, is new to our portfolio and we expect it to receive added lifts in this area as a result of our expertise. Accordingly, we believe that similar directional dynamics should manifest themselves at Tinder and, to a lesser extent, PlentyOfFish, offsetting, at least to some extent, the trend toward lower monetization per user.
55
Younger users. Over the last few years, while user growth in all age cohorts has continued, we have seen a significant acceleration of our growth in younger users. This, in part, correlates to the increase in mobile adoption and the brand mix shift toward lower monetizing products, each of which tend to attract younger users. As of December 31, 2011, 36% of our users were under 35, and by June 30, 2015, that number has grown to 62% of our users. We view this significant increase in younger users as a positive indicator of future growth, given the significantly greater duration we have to potentially engage these users within our portfolio.
Lower cost users. All of our brands rely on word-of-mouth, or free, customer acquisition to varying degrees. Word-of-mouth acquisition is typically a function of scale (with larger communities driving greater numbers of referrals), youthfulness (with the viral effect being more pronounced in younger populations due, in part, to a significantly higher concentration of single people in any given social circle) and monetization rate (with people generally more likely to talk openly about using dating products that are less heavily monetized). Additionally, some, but not all, of our brands spend meaningfully on paid marketing. Accordingly, the average amount we spend to acquire a user differs significantly across brands based in large part on each brand's mix of paid and free acquisition channels. As our mix has shifted toward younger users, our mix of acquisition channels has shifted toward free channels, driving a decline in the average amount we spend to acquire a new user across our portfolio. We expect the dynamics that have led to the growth in word-of-mouth customer acquisition to continue going forward and for our brands to continue to acquire significant numbers of users through low-cost means.
Changing paid acquisition dynamics. Even as our acquisition of lower cost users increases, paid acquisition of users remains an important driver of our business. The channels through which we market our brands are always evolving, but we are currently in a period of rapid change as video consumption patterns evolve and internet consumption shifts from desktop to mobile devices. These changes are leading to a decrease in effectiveness of traditional paid acquisition channels and an opening of new acquisition channels. However, the more nascent channels are currently less proven and our related marketing outcomes less certain. As we improve our expertise at exploiting the evolving marketing channels, and as these channels become more established, we expect to be able to increase our marketing efficiency.
Other factors affecting the comparability of our results
Advertising spend. Our advertising spend, which is included in our selling and marketing expense, has consistently been our largest operating expense. In recent periods, we have focused our adverting spend on display, mobile, television and search channels. We seek to optimize for total return on advertising spend by frequently analyzing and adjusting this spend through numerous campaigns to focus on marketing channels and markets that generate a high return. Our data-driven approach provides us the flexibility to scale and optimize our advertising spend. We spend marketing dollars against an expected lifetime value of a customer that is realized by us over a multi-year period; and while this marketing is intended to be profitable on that basis, it is nearly always negative during the period in which the expense is incurred. Accordingly, our operating results, in particular our profit measures, for a particular period may be meaningfully impacted by the timing, size, number or effectiveness of our advertising campaigns in that period. Additionally, advertising spend is typically higher during the first quarter of our fiscal year, and lower during the fourth quarter. See "Seasonality."
Seasonality. Historically, our Dating business has experienced seasonal fluctuations in quarterly operating results, particularly with respect to our profit measurements. This is driven primarily by a higher concentration of advertising spend in the first quarter, when advertising prices are lowest and demand for our products is highest, and a lower concentration of advertising spend in the fourth quarter, when advertising costs are highest and demand for our products is lowest.
56
International markets. Our products are available in over 190 countries. Our international revenue represented 35% and 31% of our total revenue for the fiscal year ended December 31, 2014 and six months ended June 30, 2015, respectively. We vary our pricing to align with local market conditions and our international businesses typically earn revenue in local currencies, primarily the Euro. As foreign currency exchange rates change, translation of the statements of operations of our international businesses into U.S. dollars affects year-over-year comparability of operating results.
Business combinations. Acquisitions are an important part of our growth strategy, and we expect to make additional acquisitions in the future. Since January 2009 we have invested approximately $1,284.0 million to acquire 25 new brands for our dating portfolio (including PlentyOfFish). As a consequence of the contributions of these businesses and acquisition-related expenses, our combined results of operations may not be comparable between periods.
Public company expenses. Prior to completion of this offering, IAC has provided to us significant corporate and shared services related to corporate functions such as executive oversight, risk management, information technology, accounting, audit, legal, investor relations, tax, treasury and other services. Following this offering, we expect IAC to continue to provide many of these services for a fee pursuant to the services agreement described in "Certain relationships and related party transactions." While we expect to incur additional expenses as a public company, including pursuant to the services agreement with IAC, we do not expect these expenses to materially affect our overall profitability or to impede our growth prospects.
In addition to our Dating business, we also operate a Non-dating business in the education category through our ownership of The Princeton Review. The Princeton Review provides a variety of test preparation, academic tutoring and college counseling services. We acquired this business because it relies on many of the same competencies as those relied upon by our Dating business, such as paid customer acquisition, a combination of paid and free business models, a deep understanding of the lifetime values of customers and a strong expertise in user-interface development. The Princeton Review's revenue consists primarily of fees received for in-person and online test preparation classes, access to online test preparation materials and individual tutoring services.
In connection with the management of our businesses we identify, measure and assess a variety of key metrics. The principal metrics we use in managing our Dating business are set forth below:
Operating metrics
57
time, as this cohort of users grows and we develop and implement the ability to accurately track these users, we may change this metric to include such users.
Historically, there has been an inverse relationship between Average PMC and ARPPU. Increases in prices tend to lower the percentage of users who convert to paid members, while lowering prices tend to increase the percentage of users who convert to paid members. Since we seek to optimize the Company's business, both for financial performance and user experience, rather than seeking to maximize Average PMC or ARPPU, our brands are continuously engaged in calibrating between pricing and the impact of changes in pricing on the number of paying users.
Geographical metrics
Our Dating business consists of a portfolio of individual brands. Some of these brands operate within a single geographic territory while others operate across multiple geographies. While we do not organize our management around geographic territories, from a consumer perspective, our brands tend to be local, competing for local users with some, but not all, of the global competitive set. Accordingly, we provide our key metrics geographically to enable investors to understand our portfolio performance in key geographic markets in which we compete, even though it does not reflect the way that we manage the business.
Key components of results of operations
Revenue
Substantially all of our Dating revenue is derived directly from users in the form of recurring membership fees.
Membership revenue is presented net of credits and credit card chargebacks. Revenue recognition occurs ratably over the terms of the applicable membership term, which primarily range from one to six months, beginning when there is persuasive evidence of an arrangement, delivery has occurred (access has been granted), the fees are fixed or determinable, and collection is reasonably assured. Members pay in advance, primarily by using a credit card, and, subject to certain conditions identified in our terms and conditions, all purchases are final and nonrefundable. Fees collected in advance for memberships are deferred and recognized as revenue using the straight-line method over the terms of the applicable membership period. Dating deferred revenue was $116.5 million, $117.9 million and $130.0 million at December 31, 2013 and 2014 and June 30, 2015, respectively. We also earn Dating revenue from online advertising, the purchase of à la carte features and offline events. Online advertising revenue is recognized every time an advertisement is displayed. Revenue from the purchase of à la carte features is recognized based on usage. Revenue and the related expenses associated with offline events are recognized when each event occurs. A substantial majority of our revenue for the six months ended June 30, 2015 was derived from the following brands within our Dating segment: Match, Meetic, OurTime and OkCupid.
Non-dating revenue consists primarily of fees received for in-person and online test preparation classes, access to online test preparation materials and individual tutoring services. Fees from classes and access to online materials are recognized over the period of the course and the period of the online access, respectively. Tutoring fees are generally collected in the form of membership fees that entitle the member to a certain number of tutoring sessions over a certain period of time. These fees are recognized over the term of the membership based on usage. Non-dating deferred revenue was $3.5 million, $18.0 million and $25.4 million at December 31, 2013 and 2014 and June 30, 2015, respectively.
Cost of revenue
Cost of revenue consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in data center and customer care functions, in-app purchase fees, content acquisition costs, credit card processing fees, hosting fees, and data center rent, energy and bandwidth costs. In-app purchase fees are monies paid to Apple and Google for distribution and the facilitating of in-app purchase of product features. Content acquisition cost consists principally of payments made to tutors at The Princeton Review.
58
Selling and marketing expense
Selling and marketing expense consists primarily of advertising expenditures and compensation (including stock-based compensation) and other employee-related costs for personnel engaged in sales, and sales support functions. Advertising and promotional spend includes online marketing, including fees paid to search engines, offline marketing, which is primarily television advertising and partner-related payments to those who direct traffic to our brands. We plan to continue to expand sales and marketing efforts to attract new users, retain existing users and increase sales to both new and existing users.
General and administrative expense
General and administrative expense consists primarily of compensation (including stock-based compensation) and other employee-related costs for personnel engaged in executive management, finance, legal, tax and human resources, facilities costs and fees for professional services.
Product development expense
Product development expense consists primarily of compensation (including stock-based compensation) and other employee-related costs that are not capitalized for personnel engaged in the design, development, testing and enhancement of product offerings and related technology.
The following table sets forth our combined statement of operations information for the years ended December 31, 2012, 2013 and 2014 and the six months ended June 30, 2014 and 2015:
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
|||||||||||
| | | | | | | | | | | | | | | | |
|
(in thousands) |
|||||||||||||||
Revenue |
$ | 713,449 | $ | 803,089 | $ | 888,268 | $ | 421,691 | $ | 483,886 | ||||||
Operating costs and expenses: |
||||||||||||||||
Cost of revenue (exclusive of depreciation) |
72,794 | 85,945 | 120,024 | 48,632 | 83,482 | |||||||||||
Selling and marketing expense |
304,597 | 321,870 | 335,107 | 184,591 | 200,146 | |||||||||||
General and administrative expense |
76,711 | 93,641 | 117,890 | 51,327 | 75,322 | |||||||||||
Product development expense |
38,921 | 42,973 | 49,738 | 24,112 | 33,929 | |||||||||||
Depreciation |
16,341 | 20,202 | 25,547 | 11,348 | 13,667 | |||||||||||
Amortization of intangibles |
17,455 | 17,125 | 11,395 | 3,520 | 9,778 | |||||||||||
| | | | | | | | | | | | | | | | |
Total operating costs and expenses |
526,819 | 581,756 | 659,701 | 323,530 | 416,324 | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income |
186,630 | 221,333 | 228,567 | 98,161 | 67,562 | |||||||||||
Interest expenserelated party |
(29,489 | ) | (34,307 | ) | (25,541 | ) | (20,870 | ) | (4,561 | ) | ||||||
Other (expense) income, net |
(7,428 | ) | 217 | 12,610 | (490 | ) | 6,806 | |||||||||
| | | | | | | | | | | | | | | | |
Earnings before income taxes |
149,713 | 187,243 | 215,636 | 76,801 | 69,807 | |||||||||||
Income tax provision |
(59,432 | ) | (60,616 | ) | (67,277 | ) | (27,851 | ) | (20,496 | ) | ||||||
| | | | | | | | | | | | | | | | |
Net earnings |
90,281 | 126,627 | 148,359 | 48,950 | 49,311 | |||||||||||
Net (earnings) loss attributable to noncontrolling interests |
(4,606 | ) | (1,624 | ) | (595 | ) | (307 | ) | 220 | |||||||
| | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 85,675 | $ | 125,003 | $ | 147,764 | $ | 48,643 | $ | 49,531 | ||||||
| | | | | | | | | | | | | | | | |
59
The following table sets forth our combined statement of operations information as a percentage of total revenues for the years ended December 31, 2012, 2013 and 2014 and the six months ended June 30, 2014 and 2015:
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
2014 |
2015 |
|||||||||||
| | | | | | | | | | | | | | | | |
Revenue |
100.0% | 100.0% | 100.0% | 100.0% | 100.0% | |||||||||||
Operating costs and expenses: |
||||||||||||||||
Cost of revenue (exclusive of depreciation) |
10.2% | 10.7% | 13.5% | 11.5% | 17.3% | |||||||||||
Selling and marketing expense |
42.7% | 40.1% | 37.7% | 43.8% | 41.4% | |||||||||||
General and administrative expense |
10.8% | 11.7% | 13.3% | 12.2% | 15.6% | |||||||||||
Product development expense |
5.5% | 5.4% | 5.6% | 5.7% | 7.0% | |||||||||||
Depreciation |
2.3% | 2.5% | 2.9% | 2.7% | 2.8% | |||||||||||
Amortization of intangibles |
2.4% | 2.1% | 1.3% | 0.8% | 2.0% | |||||||||||
| | | | | | | | | | | | | | | | |
Total operating costs and expenses |
73.8% | 72.4% | 74.3% | 76.7% | 86.0% | |||||||||||
| | | | | | | | | | | | | | | | |
Operating income |
26.2% | 27.6% | 25.7% | 23.3% | 14.0% | |||||||||||
Interest expenserelated party |
(4.1)% | (4.3)% | (2.9)% | (4.9)% | (0.9)% | |||||||||||
Other (expense) income, net |
(1.0)% | 0.0% | 1.4% | (0.1)% | 1.4% | |||||||||||
| | | | | | | | | | | | | | | | |
Earnings before income taxes |
21.0% | 23.3% | 24.3% | 18.2% | 14.4% | |||||||||||
Income tax provision |
(8.3)% | (7.5)% | (7.6)% | (6.6)% | (4.2)% | |||||||||||
| | | | | | | | | | | | | | | | |
Net earnings |
12.7% | 15.8% | 16.7% | 11.6% | 10.2% | |||||||||||
Net (earnings) loss attributable to noncontrolling interests |
(0.6)% | (0.2)% | (0.1)% | (0.1)% | 0.0% | |||||||||||
| | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
12.0% | 15.6% | 16.6% | 11.5% | 10.2% | |||||||||||
| | | | | | | | | | | | | | | | |
60
Results of operations for the six months ended June 30, 2014 and 2015
Revenue
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands except ARPPU) |
|||||||||
Direct Revenue: |
||||||||||
North America |
$ | 257,222 | $ | 285,352 | 10.9% | |||||
International |
137,617 | 129,966 | (5.6)% | |||||||
| | | | | | | | | | |
Total Direct Revenue |
394,839 | 415,318 | 5.2% | |||||||
Indirect Revenue |
17,761 | 17,779 | 0.1% | |||||||
| | | | | | | | | | |
Total Dating Revenue |
412,600 | 433,097 | 5.0% | |||||||
Non-dating Revenue |
9,091 | 50,789 | 458.7% | |||||||
| | | | | | | | | | |
Total Revenue |
$ | 421,691 | $ | 483,886 | 14.7% | |||||
| | | | | | | | | | |
Percentage of Total Revenue: |
||||||||||
Direct Revenue: |
||||||||||
North America |
61.0% | 59.0% | ||||||||
International |
32.6% | 26.9% | ||||||||
| | | | | | | | | | |
Total Direct Revenue |
93.6% | 85.9% | ||||||||
Indirect Revenue |
4.2% | 3.7% | ||||||||
| | | | | | | | | | |
Total Dating Revenue |
97.8% | 89.6% | ||||||||
Non-dating Revenue |
2.2% | 10.4% | ||||||||
| | | | | | | | | | |
Total Revenue |
100.0% | 100.0% | ||||||||
| | | | | | | | | | |
Average PMC: |
||||||||||
North America |
2,364 | 2,626 | 11.1% | |||||||
International |
1,080 | 1,273 | 17.9% | |||||||
| | | | | | | | | | |
Total |
3,444 | 3,899 | 13.2% | |||||||
| | | | | | | | | | |
ARPPU: |
||||||||||
North America |
$ | 0.60 | $ | 0.60 | (0.1)% | |||||
International |
$ | 0.70 | $ | 0.56 | (19.9)% | |||||
Total |
$ | 0.63 | $ | 0.59 | (7.1)% | |||||
| | | | | | | | | | |
Revenue increased $62.2 million, or 14.7%, in 2015 versus 2014, or 20.8% excluding the effects of foreign exchange.
North America Direct Revenue grew by $28.1 million, or 10.9%, in 2015 versus 2014, driven by 11.1% growth in Average PMC, partially offset by a 0.1% decline in ARPPU. Average PMC growth was driven by growth in new users, a higher percentage of new users becoming paid members and higher beginning PMC. ARPPU decreased due to mix shifts to lower rate brands, which was mostly offset by increases in mix-adjusted rates.
International Direct Revenue declined by $7.7 million, or 5.6%, in 2015 versus 2014, driven by a 19.9% decline in ARPPU, partially offset by 17.9% growth in Average PMC. Average PMC growth was driven by a higher percentage of new users becoming paid members, as well as increases in new users and higher starting PMC. ARPPU decreased primarily due to the effects of foreign exchange. Adjusting for foreign exchange effects, International Direct Revenue grew 12.5%, and International ARPPU declined 4.5% due to a mix shift to lower rate brands, partially offset by mix-adjusted rate increases.
61
The Non-dating revenue increase of $41.7 million, or 458.7%, was driven primarily by the acquisition of The Princeton Review.
Cost of revenue (exclusive of depreciation)
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Cost of revenue |
$ | 48,632 | $ | 83,482 | 71.7% | |||||
Percentage of revenue |
11.5% | 17.3% | ||||||||
| | | | | | | | | | |
Cost of revenue increased $34.9 million, or 71.7%, in 2015 versus 2014.
Dating cost of revenue increased $16.8 million, or 37.9%, meaningfully more than growth in revenue, driven primarily by a significant increase in in-app purchase fees given that our native mobile apps were largely introduced in the second quarter of 2014, as well as higher hosting fees driven by growth in users and product features.
Non-dating cost of revenue increased $18.1 million, or 413.9%, driven by the acquisition of The Princeton Review, for which cost of revenue represents a meaningfully larger percentage of revenue than in Dating.
Selling and marketing expense
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Selling and marketing expense |
$ | 184,591 | $ | 200,146 | 8.4% | |||||
Percentage of revenue |
43.8% | 41.4% | ||||||||
| | | | | | | | | | |
Selling and marketing expense increased $15.6 million, or 8.4%, in 2015 versus 2014.
Dating selling and marketing expense increased $10.3 million, or 5.7%, largely in line with Dating revenue, driven by a decline in advertising as a percent of revenue, generally offset by an increase in stock-based compensation expense.
Non-dating selling and marketing expense increased $5.2 million, or 173.8%, primarily driven by the acquisition of The Princeton Review, for which selling and marketing represents a smaller percentage of revenue than in Dating.
General and administrative expense
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
General and administrative expense |
$ | 51,327 | $ | 75,322 | 46.7% | |||||
Percentage of revenue |
12.2% | 15.6% | ||||||||
| | | | | | | | | | |
General and administrative expense increased $24.0 million, or 46.7%, in 2015 versus 2014.
Dating general and administrative expense increased $1.8 million, or 3.8%, driven primarily by an increase of $5.0 million in severance expense and costs in the current year related to our ongoing consolidation and streamlining of technology systems and European operations, as well as an increase in stock-based
62
compensation expense due to new grants, partially offset by a decrease of $12.9 million in acquisition-related contingent consideration fair value adjustments. Additionally, 2014 was impacted by a $3.9 million benefit related to the expiration of the statute of limitations for a non-income tax matter.
Non-dating general and administrative expense increased $22.2 million, or 501.5%, driven by the acquisition of The Princeton Review.
Product development expense
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Product development expense |
$ | 24,112 | $ | 33,929 | 40.7% | |||||
Percentage of revenue |
5.7% | 7.0% | ||||||||
| | | | | | | | | | |
Product development expense increased $9.8 million, or 40.7%, in 2015 versus 2014, driven primarily by $3.4 million in severance expense and costs in the current year related to our ongoing consolidation and streamlining of technology systems and European operations at Dating and $3.2 million related to acquisitions.
Depreciation
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Depreciation |
$ | 11,348 | $ | 13,667 | 20.4% | |||||
Percentage of revenue |
2.7% | 2.8% | ||||||||
| | | | | | | | | | |
Depreciation increased $2.3 million, or 20.4%, in 2015 versus 2014, driven by the acquisition of The Princeton Review, partially offset by a decline in depreciation of Dating.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure and is defined in "Principles of financial reporting." Refer to Note 6 to our combined interim financial statements for reconciliations of Adjusted EBITDA to operating income and net earnings attributable to Match Group, Inc.'s shareholder.
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Adjusted EBITDA |
$ | 124,536 | $ | 96,698 | (22.4)% | |||||
Percentage of revenue |
29.5% | 20.0% | ||||||||
| | | | | | | | | | |
Adjusted EBITDA decreased $27.8 million, or 22.4%, in 2015 versus 2014.
Dating Adjusted EBITDA decreased $23.3 million, or 18.2%, despite higher revenue, primarily due to $12.3 million of costs in the current year across our expense categories related to our ongoing consolidation and streamlining of technology systems and European operations, an increase in cost of revenue and a $3.9 million benefit in the prior year related to the expiration of the statute of limitations for a non-income tax matter.
63
Non-dating Adjusted EBITDA loss increased $4.5 million, or 127.4%, primarily due to $5.0 million in losses from the acquisition of The Princeton Review.
Operating income
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Operating income |
$ | 98,161 | $ | 67,562 | (31.2)% | |||||
Percentage of revenue |
23.3% | 14.0% | ||||||||
| | | | | | | | | | |
Operating income decreased $30.6 million, or 31.2%, in 2015 versus 2014.
Dating operating income decreased $19.6 million, or 18.9%, primarily due to the decrease of $23.3 million in Adjusted EBITDA described above and increases of $7.3 million in stock-based compensation expense, partially offset by a decrease of $12.9 million in acquisition-related contingent consideration fair value adjustments. The increase in stock-based compensation expense is due to new grants and certain performance based RSUs. The decrease in acquisition-related contingent consideration fair value adjustments was the result of an update of the future forecast of earnings and operating metrics related to certain acquired businesses.
Non-dating operating loss increased $11.0 million, or 209.4%, primarily due to the increase in Adjusted EBITDA losses of $4.5 million described above and increases of $4.2 million in depreciation expense and $2.4 million in amortization expense, which are primarily due to the acquisition of The Princeton Review.
At June 30, 2015, there was $78.2 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2.6 years.
Interest expenserelated party
| | | | | | | | | | |
|
Six months ended June 30, |
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||||
| | | | | | | | | | |
|
(dollars in thousands) |
|||||||||
Interest expenserelated party |
$ | (20,870) | $ | (4,561) | (78.1)% | |||||
Percentage of revenue |
(4.9)% | (0.9)% | ||||||||
| | | | | | | | | | |
Interest expenserelated party includes interest charged by IAC and its subsidiaries on the outstanding long-term debtrelated party notes, as well as on other acquisition related loans, a portion of which were capitalized on June 30, 2014.
Other (expense) income, net
| | | | | | | | |
|
Six months ended June 30, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
% change |
|||||||
|
2014 |
2015 |
||||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Other (expense) income, net |
$ | (490 | ) | $ | 6,806 | NM | ||
Percentage of revenue |
(0.1)% | 1.4% | ||||||
| | | | | | | | |
Other (expense) income, net in 2015 includes $5.3 million in foreign currency exchange gains related to our €53 million 5.00% Note payable to an IAC subsidiary. The note was issued on April 8, 2014 and matures on December 15, 2021.
64
Income tax provision
| | | | | | | | |
|
Six months ended June 30, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2014 |
2015 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Income tax provision |
$ | (27,851 | ) | $ | (20,496 | ) | (26.4)% | |
Effective income tax rate |
36.3% | 29.4% | ||||||
| | | | | | | | |
The effective income tax rate for 2014 is higher than the statutory rate of 35% due primarily to state taxes. The effective income tax rate for 2015 is lower than the statutory rate of 35% due principally to the non-taxable gain on contingent consideration fair value adjustments in the current year.
We are routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC's federal income tax returns for the years ended December 31, 2010 through 2012, which includes our operations. Various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon the resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by us are recorded in the period they become known.
At December 31, 2014 and June 30, 2015, unrecognized tax benefits, including interest, are $12.1 million and $11.4 million, respectively. If unrecognized tax benefits at June 30, 2015 are subsequently recognized, $11.0 million, net of related deferred tax assets and interest, would reduce income tax provision. We believe that it is reasonably possible that our unrecognized tax benefits could decrease by approximately $1.6 million within twelve months of June 30, 2015.
65
Results of operations for the years ended December 31, 2013 and 2014
Revenue
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands, except ARPPU) |
|||||||
Direct Revenue: |
||||||||
North America |
$ | 493,729 | $ | 525,928 | 6.5% | |||
International |
260,340 | 273,599 | 5.1% | |||||
| | | | | | | | |
Total Direct Revenue |
754,069 | 799,527 | 6.0% | |||||
Indirect Revenue |
34,128 | 36,931 | 8.2% | |||||
| | | | | | | | |
Total Dating Revenue |
788,197 | 836,458 | 6.1% | |||||
Non-dating Revenue |
14,892 | 51,810 | 247.9% | |||||
| | | | | | | | |
Total Revenue |
$ | 803,089 | $ | 888,268 | 10.6% | |||
| | | | | | | | |
Percentage of Total Revenue: |
||||||||
Direct Revenue: |
||||||||
North America |
61.5% | 59.2% | ||||||
International |
32.4% | 30.8% | ||||||
| | | | | | | | |
Total Direct Revenue |
93.9% | 90.0% | ||||||
Indirect Revenue |
4.2% | 4.2% | ||||||
| | | | | | | | |
Total Dating Revenue |
98.1% | 94.2% | ||||||
Non-dating Revenue |
1.9% | 5.8% | ||||||
| | | | | | | | |
Total Revenue |
100.0% | 100.0% | ||||||
| | | | | | | | |
Average PMC: |
||||||||
North America |
2,169 | 2,404 | 10.8% | |||||
International |
1,020 | 1,097 | 7.5% | |||||
| | | | | | | | |
Total |
3,189 | 3,501 | 9.8% | |||||
| | | | | | | | |
ARPPU: |
||||||||
North America |
$ | 0.62 | $ | 0.60 | (3.9%) | |||
International |
$ | 0.70 | $ | 0.68 | (2.3%) | |||
Total |
$ | 0.65 | $ | 0.63 | (3.4%) | |||
| | | | | | | | |
Revenue increased $85.2 million, or 10.6%, in 2014 versus 2013.
North America Direct Revenue grew by $32.2 million, or 6.5%, in 2014 versus 2013, driven by 10.8% growth in Average PMC, partially offset by a 3.9% decline in ARPPU. Average PMC growth was driven by a strong increase in beginning PMC and strong new user growth, partially offset by mix shift to brands where a lower percentage of new users become paid members. ARPPU decreased due to mix shifts to lower rate brands as well as a decline in mix-adjusted rates.
International Direct Revenue grew by $13.3 million, or 5.1%, in 2014 versus 2013, driven by 7.5% growth in Average PMC, partially offset by a 2.3% decline in ARPPU. Average PMC growth was driven by a strong increase in beginning PMC, the acquisition of FriendScout24 and growth in new users, partially offset by
66
mix shift to brands where a lower percentage of new users become paid members. ARPPU decreased due to mix shift to lower rate brands, partially offset by mix-adjusted rate increases.
Non-dating revenue grew $36.9 million, or 247.9%, as a result of our acquisition of The Princeton Review in August 2014.
Cost of revenue (exclusive of depreciation)
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Cost of revenue |
$ | 85,945 | $ | 120,024 | 39.7% | |||
Percentage of revenue |
10.7% | 13.5% | ||||||
| | | | | | | | |
Cost of revenue increased $34.1 million, or 39.7%, in 2014 versus 2013.
Dating cost of revenue increased $16.0 million, or 20.4%, meaningfully more than the growth in revenue driven primarily by a significant increase in in-app purchases given that our native mobile apps were largely introduced in the second quarter of 2014, as well as higher hosting fees driven by growth in users and product features.
Non-dating cost of revenue increased $18.0 million, or 250.6%, driven by the acquisition of The Princeton Review, for which cost of revenue represents a meaningfully larger percentage of revenue than in Dating.
Selling and marketing expense
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Selling and marketing expense |
$ | 321,870 | $ | 335,107 | 4.1% | |||
Percentage of revenue |
40.1% | 37.7% | ||||||
| | | | | | | | |
Selling and marketing expense increased $13.2 million, or 4.1%, in 2014 versus 2013.
Dating selling and marketing expense increased $8.3 million, or 2.6%, driven by an increase of $5.4 million from the acquisition of FriendScout24 and an increase in advertising spend.
Non-dating selling and marketing expense increased $5.0 million, or 91.7%, driven primarily by $4.5 million from the acquisition of The Princeton Review.
General and administrative expense
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
General and administrative expense |
$ | 93,641 | $ | 117,890 | 25.9% | |||
Percentage of revenue |
11.7% | 13.3% | ||||||
| | | | | | | | |
67
General and administrative expense increased $24.2 million, or 25.9%, in 2014 versus 2013.
Dating general and administrative expense increased $1.7 million, or 2.0%, primarily driven by an increase in compensation of $10.7 million at our existing businesses, primarily due to an increase of $8.5 million in stock-based compensation expense due to new grants and increases in headcount. These increases were partially offset by a decrease of $13.3 million for an acquisition-related contingent consideration fair value adjustment at Twoo driven by changes in the forecast of earnings and operating metrics, and a $3.9 million benefit recorded in the first quarter of 2014 related to the expiration of the statute of limitations for a non-income tax matter.
Non-dating general and administrative expense increased $22.5 million, or 327.2%, driven primarily by $21.2 million from the acquisition of The Princeton Review.
Product development expense
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Product development expense |
$ | 42,973 | $ | 49,738 | 15.7% | |||
Percentage of revenue |
5.4% | 5.6% | ||||||
| | | | | | | | |
Product development expense increased $6.8 million, or 15.7%, in 2014 versus 2013, primarily driven by an increase in compensation driven by increased headcount at Tinder and Tutor.com (now The Princeton Review).
Depreciation
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Depreciation |
$ | 20,202 | $ | 25,547 | 26.5% | |||
Percentage of revenue |
2.5% | 2.9% | ||||||
| | | | | | | | |
Depreciation increased by $5.3 million, or 26.5%, in 2014 versus 2013, primarily driven by $3.8 million from the acquisition of The Princeton Review and the incremental depreciation associated with capital expenditures.
68
Adjusted EBITDA
Adjusted EBITDA is non-GAAP measure and is defined in "Principles of financial reporting." Refer to Note 9 to our combined audited financial statements for reconciliations of Adjusted EBITDA to operating income and net earnings attributable to Match Group, Inc.'s shareholder.
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Adjusted EBITDA |
$ | 271,231 | $ | 273,448 | 0.8% | |||
Percentage of revenue |
33.8% | 30.8% | ||||||
| | | | | | | | |
Adjusted EBITDA increased $2.2 million, or 0.8%, in 2014 versus 2013.
Dating Adjusted EBITDA increased $11.8 million or 4.3%, due primarily to the increase in revenue of 6.1%, partially offset by the increase in cost of revenue, which grew at a meaningful faster rate than revenue due to the factors described above.
Non-dating Adjusted EBITDA loss increased $9.6 million, or 154.2%, due primarily to losses from the acquisition of The Princeton Review.
Operating income
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Operating income |
$ | 221,333 | $ | 228,567 | 3.3% | |||
Percentage of revenue |
27.6% | 25.7% | ||||||
| | | | | | | | |
Operating income increased $7.2 million, or 3.3%, in 2014 versus 2013.
Dating operating income increased $23.5 million, or 10.2%, primarily due to the increase of $11.8 million in Adjusted EBITDA described above and decreases of $13.3 million in acquisition-related contingent consideration fair value adjustments and $7.7 million in amortization of intangibles, partially offset by an increase of $7.8 million in stock-based compensation expense. The change in acquisition-related contingent consideration fair value adjustments was related to changes in Twoo's forecast of earnings and operating metrics. The decrease in amortization of intangibles was primarily related to lower amortization expense due to certain intangible assets becoming fully amortized. The increase in stock-based compensation expense was primarily due to new grants.
Non-dating operating loss increased $16.2 million, or 181.4%, primarily due to the increase in Adjusted EBITDA loss of $9.6 million described above as well as increases of $3.8 million in depreciation expense and $2.0 million in amortization of intangibles due primarily to the acquisition of The Princeton Review.
69
Interest expenserelated party
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Interest expenserelated party |
$ | (34,307 | ) | $ | (25,541 | ) | (25.6%) | |
Percentage of revenue |
(4.3% | ) | (2.9% | ) | ||||
| | | | | | | | |
Interest expenserelated party includes interest charged by IAC and its subsidiaries on the outstanding long-term debtrelated party notes, as well as on other acquisition related loans, a portion of which were capitalized on June 30, 2014.
Other income, net
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
% change |
|||||||
|
2013 |
2014 |
||||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Other income, net |
$ | 217 | $ | 12,610 | NM | |||
Percentage of revenue |
0.0% | 1.4% | ||||||
| | | | | | | | |
Other income, net in 2014 includes $8.3 million in foreign currency exchange gains related to our €53 million 5.00% Note payable to an IAC subsidiary. The note was issued on April 8, 2014 and is due on December 15, 2021.
Income tax provision
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2013 |
2014 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Income tax provision |
$ | (60,616 | ) | $ | (67,277 | ) | 11.0% | |
Effective income tax rate |
32.4% | 31.2% | ||||||
| | | | | | | | |
In 2013, the effective income tax rate was lower than the statutory rate of 35% due primarily to the settlements of uncertain tax positions. In 2014, the effective income tax rate was lower than the statutory rate of 35% due primarily to non-taxable contingent consideration fair value adjustments and non-taxable foreign currency exchange gains.
At December 31, 2013 and 2014, we had unrecognized tax benefits, including interest, of $12.4 million and $12.1 million, respectively. Included in unrecognized tax benefits at December 31, 2013 and 2014, is approximately $0.5 million and $0.7 million, respectively, for tax positions included in IAC's consolidated tax return filings. Unrecognized tax benefits, including interest, for the year ended December 31, 2014 decreased by $0.3 million due principally to foreign statute expirations. If unrecognized tax benefits at December 31, 2014 are subsequently recognized, $11.8 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2013 is $12.0 million. We believe that it is reasonably possible that its unrecognized tax benefits could decrease by approximately $1.2 million by December 31, 2015, primarily due to expirations of statutes of limitations.
70
Results of operations for the years ended December 31, 2012 and 2013
Revenue
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
|
|
|
|||||
(dollars in thousands, except ARPPU) |
||||||||
Direct Revenue: |
||||||||
North America |
$ | 454,996 | $ | 493,729 | 8.5% | |||
International |
233,531 | 260,340 | 11.5% | |||||
| | | | | | | | |
Total Direct Revenue |
688,527 | 754,069 | 9.5% | |||||
Indirect Revenue |
24,922 | 34,128 | 36.9% | |||||
| | | | | | | | |
Total Dating Revenue |
713,449 | 788,197 | 10.5% | |||||
Non-dating Revenue |
| 14,892 | NA | |||||
| | | | | | | | |
Total Revenue |
$ | 713,449 | $ | 803,089 | 12.6% | |||
| | | | | | | | |
Percentage of Total Revenue: |
||||||||
Direct Revenue: |
||||||||
North America |
63.8% | 61.5% | ||||||
International |
32.7% | 32.4% | ||||||
| | | | | | | | |
Total Direct Revenue |
96.5% | 93.9% | ||||||
Indirect Revenue |
3.5% | 4.2% | ||||||
| | | | | | | | |
Total Dating Revenue |
100.0% | 98.1% | ||||||
Non-dating Revenue |
% | 1.9% | ||||||
| | | | | | | | |
Total Revenue |
100.0% | 100.0% | ||||||
| | | | | | | | |
Average PMC: |
||||||||
North America |
1,920 | 2,169 | 13.0% | |||||
International |
876 | 1,020 | 16.6% | |||||
| | | | | | | | |
Total |
2,796 | 3,189 | 14.1% | |||||
| | | | | | | | |
ARPPU: |
||||||||
North America |
$ | 0.65 | $ | 0.62 | (3.7)% | |||
International |
$ | 0.73 | $ | 0.70 | (4.1)% | |||
Total |
$ | 0.67 | $ | 0.65 | (3.7)% | |||
| | | | | | | | |
Revenue increased $89.6 million, or 12.6%, in 2013 versus 2012.
North America Direct Revenue increased by $38.7 million, or 8.5%, in 2013 versus 2012, driven by 13.0% growth in Average PMC, partially offset by a 3.7% decline in ARPPU. Average PMC growth was driven by growth in new users, as well as an increase in beginning PMC, partially offset by mix shift to brands where a lower percentage of users become paid members. ARPPU decreased due to mix shifts to lower rate brands as well as a decline in mix-adjusted rates.
International Direct Revenue grew by $26.8 million, or 11.5%, in 2013 versus 2012, driven by 16.6% growth in Average PMC, partially offset by a 4.1% decline in ARPPU. Average PMC growth was driven by the acquisition of Twoo as well as new user growth, partially offset by mix shift to brands where a lower
71
percentage of users become paid members. ARPPU decreased due to mix shifts to lower rate brands as well as a decline in mix-adjusted rates.
Non-dating revenue was $14.9 million in 2013 due to the contribution of Tutor.com (now The Princeton Review), which was acquired December 14, 2012.
Cost of revenue (exclusive of depreciation)
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Cost of revenue |
$ | 72,794 | $ | 85,945 | 18.1% | |||
Percentage of revenue |
10.2% | 10.7% | ||||||
| | | | | | | | |
Cost of revenue increased $13.2 million, or 18.1%, in 2013 versus 2012, driven primarily by an increase of $6.1 million in content acquisition costs from Tutor.com (now The Princeton Review), which was not included in the full prior year period and $5.1 million from acquisitions at Dating.
Selling and marketing expense
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Selling and marketing expense |
$ | 304,597 | $ | 321,870 | 5.7% | |||
Percentage of revenue |
42.7% | 40.1% | ||||||
| | | | | | | | |
Selling and marketing expense increased $17.3 million, or 5.7%, in 2013 versus 2012, driven primarily by an increase of $10.5 million in advertising spend and an increase in compensation. The increase in compensation was primarily due to increased headcount at Meetic and acquisitions.
General and administrative expense
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
General and administrative expense |
$ | 76,711 | $ | 93,641 | 22.1% | |||
Percentage of revenue |
10.8% | 11.7% | ||||||
| | | | | | | | |
General and administrative expense increased $16.9 million, or 22.1%, in 2013 versus 2012, driven primarily by $10.9 million from acquisitions, an increase in compensation at Dating, resulting from an increase in headcount, and an increase in professional fees due, in part, to transaction fees related to the tender offer by the Company in the fourth quarter of 2013 for the remaining 12.5% of Meetic that it did not already own.
72
Product development expense
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Product development expense |
$ | 38,921 | $ | 42,973 | 10.4% | |||
Percentage of revenue |
5.5% | 5.4% | ||||||
| | | | | | | | |
Product development expense increased $4.1 million, or 10.4%, in 2013 versus 2012, driven primarily by acquisitions.
Depreciation
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Depreciation |
$ | 16,341 | $ | 20,202 | 23.6% | |||
Percentage of revenue |
2.3% | 2.5% | ||||||
| | | | | | | | |
Depreciation increased by $3.9 million, or 23.6%, in 2013 versus 2012, driven primarily by capital expenditures and acquisitions, partially offset by certain fixed assets becoming fully depreciated.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP measure and is defined in "Principles of financial reporting." Refer to Note 9 to the combined audited financial statements for reconciliations of Adjusted EBITDA to operating income and net earnings attributable to Match Group, Inc.'s shareholder.
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Adjusted EBITDA |
$ | 236,490 | $ | 271,231 | 14.7% | |||
Percentage of revenue |
33.1% | 33.8% | ||||||
| | | | | | | | |
Adjusted EBITDA increased $34.7 million, or 14.7%, in 2013 versus 2012, primarily due to the revenue growth noted above.
Operating income
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Operating income |
$ | 186,630 | $ | 221,333 | 18.6% | |||
Percentage of revenue |
26.2% | 27.6% | ||||||
| | | | | | | | |
73
Operating income increased $34.7 million, or 18.6%, in 2013 versus 2012, primarily due to the increase of $34.7 million in Adjusted EBITDA described above and a decrease of $3.8 million in stock-based compensation expense, partially offset by a $3.9 million increase in depreciation. The decrease in stock-based compensation expense is primarily a result of the vesting of certain awards and an increase in the number of awards forfeited as compared to the prior year.
Interest expenserelated party
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Interest expenserelated party |
$ | (29,489 | ) | $ | (34,307 | ) | 16.3% | |
Percentage of revenue |
(4.1 | )% | (4.3 | )% | ||||
| | | | | | | | |
Interest expenserelated party includes interest charged by IAC and its subsidiaries on the outstanding long-term debtrelated party notes, as well as on other acquisition related loans.
Other (expense) income, net
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Other (expense) income, net |
$ | (7,428 | ) | $ | 217 | NM | ||
Percentage of revenue |
(1.0 | )% | 0.0% | |||||
| | | | | | | | |
Other expense, net in 2012 includes an $8.7 million other-than-temporary impairment charge related to a long-term marketable equity security as a result of our assessment of the investment's near-term prospects in relation to the severity and duration of its unrealized loss.
Income tax provision
| | | | | | | | |
|
Years ended December 31, |
|
||||||
---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
% change |
|||||
| | | | | | | | |
|
(dollars in thousands) |
|||||||
Income tax provision |
$ | (59,432 | ) | $ | (60,616 | ) | 2.0% | |
Effective income tax rate |
39.7% | 32.4% | ||||||
| | | | | | | | |
In 2012 the effective income tax rate was higher than the statutory rate of 35% due primarily to a valuation allowance on the deferred tax asset created by the other-than-temporary impairment charge related to a long-term marketable equity security. In 2013, the effective income tax rate was lower than the statutory rate of 35% due primarily to the settlements of uncertain tax positions.
Quarterly results of operations
The following table sets forth selected unaudited quarterly statement of operations information for each of the ten quarters ended June 30, 2015. The information for each of these quarters has been prepared on
74
the same basis as the audited annual financial statements included elsewhere in this prospectus and, in the opinion of management, includes all adjustments, which includes only normal recurring adjustments, necessary for the fair presentation of the results of operations for these periods presented in accordance with GAAP. This information should be read in conjunction with our combined financial statements and related notes included elsewhere in this prospectus. These quarterly operating results are not necessarily indicative of our operating results for a full year or any future period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Three months ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar 31, 2013 |
Jun 30, 2013 |
Sep 30, 2013 |
Dec 31, 2013 |
Mar 31, 2014 |
Jun 30, 2014 |
Sep 30, 2014 |
Dec 31, 2014 |
Mar 31, 2015 |
June 30, 2015 |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
(in thousands) |
||||||||||||||||||||||||||||||
Revenue |
$ | 192,555 | $ | 197,468 | $ | 204,521 | $ | 208,545 | $ | 209,785 | $ | 211,906 | $ | 227,581 | $ | 238,996 | $ | 235,069 | $ | 248,817 | |||||||||||
Operating costs and expenses: |
|||||||||||||||||||||||||||||||
Cost of revenue (exclusive of depreciation shown separately below) |
20,164 | 20,827 | 21,700 | 23,254 | 24,145 | 24,487 | 33,447 | 37,945 | 38,953 | 44,529 | |||||||||||||||||||||
Selling and marketing expense |
92,460 | 77,729 | 82,997 | 68,684 | 101,577 | 83,014 | 86,645 | 63,871 | 111,965 | 88,181 | |||||||||||||||||||||
General and administrative expense |
26,592 | 24,980 | 22,046 | 20,023 | 23,273 | 28,054 | 23,024 | 43,539 | 29,738 | 45,584 | |||||||||||||||||||||
Product development expense |
10,529 | 10,038 | 10,682 | 11,724 | 12,479 | 11,633 | 12,502 | 13,124 | 16,451 | 17,478 | |||||||||||||||||||||
Depreciation |
4,706 | 4,838 | 5,043 | 5,615 | 5,778 | 5,570 | 5,774 | 8,425 | 7,045 | 6,622 | |||||||||||||||||||||
Amortization of intangibles |
4,540 | 5,105 | 3,153 | 4,327 | 1,837 | 1,683 | 3,321 | 4,554 | 3,877 | 5,901 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total operating costs and expenses |
158,991 | 143,517 | 145,621 | 133,627 | 169,089 | 154,441 | 164,713 | 171,458 | 208,029 | 208,295 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Operating income |
$ | 33,564 | $ | 53,951 | $ | 58,900 | $ | 74,918 | $ | 40,696 | $ | 57,465 | $ | 62,868 | $ | 67,538 | $ | 27,040 | $ | 40,522 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table reconciles Adjusted EBITDA to operating income for each of the ten quarters ended June 30, 2015.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Three months ended | ||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar 31, 2013 |
Jun 30, 2013 |
Sep 30, 2013 |
Dec 31, 2013 |
Mar 31, 2014 |
Jun 30, 2014 |
Sep 30, 2014 |
Dec 31, 2014 |
Mar 31, 2015 |
June 30, 2015 |
|||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
(in thousands) |
||||||||||||||||||||||||||||||
Operating income |
$ | 33,564 | $ | 53,951 | $ | 58,900 | $ | 74,918 | $ | 40,696 | $ | 57,465 | $ | 62,868 | $ | 67,538 | $ | 27,040 | $ | 40,522 | |||||||||||
Stock-based compensation expense |
4,152 | 418 | 3,283 | 4,375 | 4,997 | 5,809 | 5,804 | 4,241 | 6,299 | 11,626 | |||||||||||||||||||||
Depreciation |
4,706 | 4,838 | 5,043 | 5,615 | 5,778 | 5,570 | 5,774 | 8,425 | 7,045 | 6,622 | |||||||||||||||||||||
Amortization of intangibles |
4,540 | 5,105 | 3,153 | 4,327 | 1,837 | 1,683 | 3,321 | 4,554 | 3,877 | 5,901 | |||||||||||||||||||||
Acquisition-related contingent consideration fair value adjustments |
1,458 | 4,249 | 632 | (5,996 | ) | (27 | ) | 728 | (14,282 | ) | 669 | (11,011 | ) | (1,223 | ) | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Adjusted EBITDA |
$ | 48,420 | $ | 68,561 | $ | 71,011 | $ | 83,239 | $ | 53,281 | $ | 71,255 | $ | 63,485 | $ | 85,427 | $ | 33,250 | $ | 63,448 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The following table sets forth our key Dating metrics for each of the ten quarters ended June 30, 2015.
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|
Three months ended | ||||||||||||||||||||||||||||||
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|
Mar 31, 2013 |
Jun 30, 2013 |
Sep 30, 2013 |
Dec 31, 2013 |
Mar 31, 2014 |
Jun 30, 2014 |
Sep 30, 2014 |
Dec 31, 2014 |
Mar 31, 2015 |
June 30, 2015 |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
(in thousands, except ARPPU) |
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Direct Revenue: |
|||||||||||||||||||||||||||||||
North America |
$ | 118,872 | $ | 122,778 | $ | 127,097 | $ | 124,982 | $ | 127,011 | $ | 130,210 | $ | 134,325 | $ | 134,382 | $ | 138,522 | $ | 146,830 | |||||||||||
International |
62,367 | 63,318 | 65,754 | 68,901 | 69,341 | 68,276 | 67,741 | 68,241 | 63,364 | 66,602 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Direct Revenue |
181,239 | 186,096 | 192,851 | 193,883 | 196,352 | 198,486 | 202,066 | 202,623 | 201,886 | 213,432 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Indirect Revenue |
7,622 | 8,225 | 8,218 | 10,063 | 8,680 | 9,081 | 9,341 | 9,829 | 8,261 | 9,518 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total Dating Revenue |
$ | 188,861 | $ | 194,321 | $ | 201,069 | $ | 203,946 | $ | 205,032 | $ | 207,567 | $ | 211,407 | $ | 212,452 | $ | 210,147 | $ | 222,950 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Average PMC: |
|||||||||||||||||||||||||||||||
North America |
2,062 | 2,152 | 2,208 | 2,254 | 2,356 | 2,373 | 2,457 | 2,429 | 2,553 | 2,699 | |||||||||||||||||||||
International |
967 | 992 | 1,043 | 1,078 | 1,086 | 1,074 | 1,101 | 1,127 | 1,179 | 1,366 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Total |
3,029 | 3,144 | 3,251 | 3,332 | 3,442 | 3,447 | 3,558 | 3,556 | 3,732 | 4,065 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
ARPPU: |
|||||||||||||||||||||||||||||||
North America |
$ | 0.64 | $ | 0.63 | $ | 0.63 | $ | 0.60 | $ | 0.60 | $ | 0.60 | $ | 0.59 | $ | 0.60 | $ | 0.60 | $ | 0.60 | |||||||||||
International |
$ | 0.72 | $ | 0.70 | $ | 0.69 | $ | 0.69 | $ | 0.71 | $ | 0.70 | $ | 0.67 | $ | 0.66 | $ | 0.60 | $ | 0.54 | |||||||||||
Total |
$ | 0.66 | $ | 0.65 | $ | 0.64 | $ | 0.63 | $ | 0.63 | $ | 0.63 | $ | 0.62 | $ | 0.62 | $ | 0.60 | $ | 0.58 | |||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
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Quarterly trends
Quarterly Direct Revenue increased sequentially in all of the periods presented except one, driven by growth in Average PMC, partially offset by sequential decreases in ARPPU in some periods. ARPPU decreases in sequential quarters are driven largely by mix shifts to lower monetizing brands. In the three months ended March 31, 2015 and the three months ended June 30, 2015, foreign exchange movements meaningfully affected International Direct Revenue and total Direct Revenue growth. But for the significant effects of foreign exchange, International Direct Revenue and total Direct Dating Revenue in the three months ended March 31, 2015 would have also sequentially increased.
Our advertising spend is typically higher during the first quarter of a fiscal year, and lower during the fourth quarter. This mix is driven by the seasonally low cost of advertising during the first quarter, coupled with the seasonally high demand for our products at such time, and the seasonally high cost of advertising in the fourth quarter coupled with the seasonally low demand for our products at such time.
Adjusted EBITDA is generally increasing sequentially and on a year on year basis, but is impacted by the aforementioned selling and marketing trends, which drive lower or sometimes negative, year on year Adjusted EBTIDA growth in the first quarter of the fiscal year. Increased investment in Non-dating driven by The Princeton Review also impacted Adjusted EBITDA beginning with the three months ended September 30, 2014.
Liquidity and capital resources
The following table summarizes our total cash and cash equivalents as at December 31, 2012, 2013 and 2014 and June 30, 2014 and 2015 as well as our operating, investing and financing activities for the years ended December 31, 2012, 2013 and 2014 and the six months ended June 30, 2014 and 2015.
| | | | | | | | | | | | | | | | |
|
Years ended December 31, | Six months ended June 30, |
||||||||||||||
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|
2012 |
2013 |
2014 |
2014 |
2015 |
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| | | | | | | | | | | | | | | | |
|
(in thousands) |
|||||||||||||||
Cash and cash equivalents (end of period) |
$ | 107,164 | $ | 125,226 | $ | 127,630 | $ | 141,839 | $ | 136,373 | ||||||
Net cash provided by (used in): |
||||||||||||||||
Operating activities |
$ | 164,371 | $ | 174,797 | $ | 173,615 | $ | 72,071 | $ | 93,483 | ||||||
Investing activities |
(79,355 | ) | (53,986 | ) | (140,200 | ) | (14,930 | ) | (51,869 | ) | ||||||
Financing activities |
(47,968 | ) | (105,262 | ) | (20,058 | ) | (44,870 | ) | (32,135 | ) | ||||||
Effect of exchange rate on cash and cash equivalents |
1,814 | 2,513 | (10,953 | ) | 4,342 | (736 | ) | |||||||||
| | | | | | | | | | | | | | | | |
Net increase in cash and cash equivalents |
$ | 38,862 | $ | 18,062 | $ | 2,404 | $ | 16,613 | $ | 8,743 | ||||||
| | | | | | | | | | | | | | | | |
At June 30, 2015, we had $136.4 million of cash and cash equivalents. Internationally, cash equivalents primarily consist of AAA rated money market funds and time deposits. Domestically, we participate in IAC's centrally managed U.S. treasury management function in which IAC sweeps our domestic cash. Long-term debt-related party consists of $79.0 million in notes payable in three installments of $26.3 million each due on September 1, 2021, 2023 and 2026, a €53 million ($59.3 million at June 30, 2015) note due December 15, 2021 and a $47.0 million note due December 15, 2021, all of which will be repaid in connection with this offering.
We and certain of our domestic subsidiaries are also guarantors of IAC's 2013 Senior Notes ($500 million aggregate principal amount of 4.875% Senior Notes due November 30, 2018) and 2012 Senior Notes
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($500 million aggregate principal amount of 4.75% Senior Notes due December 15, 2022). IAC's $300 million revolving credit facility as amended and restated, which terminates on October 7, 2020, is also unconditionally guaranteed by us and the same domestic subsidiaries that guarantee the 2013 and 2012 Senior Notes and is also secured by our stock and the stock of certain of our domestic and foreign subsidiaries. At June 30, 2015, there are no outstanding borrowings under IAC's revolving credit facility. See "Certain relationships and related party transactionsPre-offering relationship with IAC." We have not recorded a liability pursuant to this guarantor obligation because we have not agreed to pay a specific amount through an arrangement with our co-obligors and we do not expect to pay any amount as a result of our guarantee of IAC's Senior Notes and revolving credit facility. Prior to the closing of the offering, we will no longer be a restricted subsidiary of IAC for purposes of its debt facilities, nor will we guarantee any debt of IAC nor will the stock of any of our subsidiaries be pledged to secure IAC's debt.
At June 30, 2015, $129.2 million of the $136.4 million of cash and cash equivalents was held by our foreign subsidiaries. We currently do not anticipate a need to repatriate these funds to finance our U.S. operations and it is our intent to indefinitely reinvest these funds outside of the U.S., and therefore, we have not provided for any U.S. income taxes.
On October 7, 2015, we entered into a credit agreement, which provides for a five-year $500 million revolving credit facility that includes a $40 million sub-limit for letters of credit. The obligations under the revolving credit facility are secured by the stock of certain of our subsidiaries and guaranteed by certain of our subsidiaries. See "Description of indebtedness".
Prior to the offering, our principal sources of liquidity have been cash flows generated from operations and the funding we receive from IAC, including loans from certain IAC foreign subsidiaries, as well as our cash and cash equivalents. These sources have been sufficient to enable us to fund our normal operating requirements, including capital expenditures, and our acquisitions. We expect that our acquisition of PlentyOfFish for $575.0 million will be funded through a combination of cash on hand and a capital contribution from IAC. In connection with the offering, we currently intend to use $ of our net proceeds from this offering immediately upon completion of the offering to repay indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and to use the remainder of our net proceeds from this offering for general corporate purposes. After the completion of this offering, IAC will own all of the shares of our Class B common stock, representing approximately % of the total outstanding shares of our capital stock and approximately % of the total voting power of our outstanding capital stock. As a result, IAC will have the ability to control our financing activities, including the issuance of additional debt and equity securities, or the incurrence of other indebtedness generally. We believe our existing cash and cash equivalents together with our expected positive cash flows generated from operations and the net proceeds from this offering retained for general corporate purposes, will be sufficient to fund our normal operating requirements, including capital expenditures and other commitments, for at least the next twelve months. Our liquidity could be negatively affected by a decrease in demand for our products and services. While we believe we will have the ability to access debt and equity markets if needed, such transactions may require the approval of IAC either due to its control of the majority of our voting power, or its majority director position. Additional financing may not be available at all or on terms favorable to us.
We expect that 2015 capital expenditures will be higher than those made in 2014, driven by our ongoing consolidation and streamlining of technology systems at our dating business.
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Cash flows provided by operating activities
Net cash provided by operating activities consists of earnings adjusted for non-cash items, including stock-based compensation expense, depreciation, amortization of intangibles, excess tax benefits from stock-based awards, deferred income taxes, acquisition-related contingent consideration fair value adjustments, and the effect of changes from working capital activities.
Net cash provided by operating activities in the six months ended June 30, 2015 consists of net earnings of $49.3 million, adjustments for non-cash items of $2.9 million, and an increase from working capital activities of $41.3 million. Adjustments for non-cash items primarily consist of $17.9 million of stock-based compensation expense, $13.7 million of depreciation and $9.8 million of amortization of intangibles, partially offset by $17.4 million of excess tax benefits from stock-based awards and $12.2 million of acquisition-related contingent consideration fair value adjustments. The increase in cash from changes from working capital is due primarily to an increase in accounts payable and accrued expenses and other current liabilities of $25.0 million, an increase of $22.2 million in deferred revenue and an increase in income taxes payable of $15.3 million, partially offset by an increase in accounts receivable of $14.8 million and an increase in other current assets of $6.4 million. The increase in accounts payable and accrued expenses and other current liabilities is primarily due to an increase in accrued advertising arising from increased online spending, and costs associated with the consolidation and streamlining of technology systems and European operations at the Dating business. The increase in deferred revenue is primarily due to growth in membership fees in the Dating business and a seasonal increase in class enrollment in the Non-dating business. The increase in income taxes payable is due to current year income tax accruals in excess of current year income tax payments. The increase in accounts receivable is primarily due to growth from in-app purchases sold through Dating's mobile products, and growth from acquisitions. The increase in other current assets is primarily due to an increase in prepaid expenses and VAT refund receivables.
Net cash provided by operating activities in the six months ended June 30, 2014 consists of net earnings of $49.0 million, adjustments for non-cash items of $22.1 million and an increase from working capital activities of $1.0 million. Adjustments for non-cash items primarily consist of $11.3 million of depreciation, $10.8 million of stock-based compensation expense, $3.5 million of amortization of intangibles, and $3.4 million of deferred income taxes, partially offset by $5.4 million of excess tax benefits from stock-based awards. The increase in cash from changes in working capital is due primarily to an increase of $5.6 million in deferred revenue, partially offset by an increase in other current assets of $4.6 million. The increase in deferred revenue is primarily due to growth in membership fees. The increase in other assets is primarily due to an increase in prepaid expenses.
Net cash provided by operating activities in 2014 consists of net earnings of $148.4 million, adjustments for non-cash items of $24.6 million, and an increase from working capital activities of $0.6 million. Adjustments for non-cash items primarily consist of $25.5 million of depreciation, $20.9 million of stock-based compensation expense and $11.4 million of amortization of intangibles, partially offset by $12.9 million in acquisition-related contingent consideration fair value adjustments, $9.0 million in other, net, principally related to an $8.3 million foreign currency gain on the €53 million note, $5.9 million of deferred income taxes and $5.3 million of excess tax benefits from stock based awards. The changes from working capital activities primarily consist of an increase in other current assets of $10.6 million and a decrease of $8.0 million in accounts payable and accrued expenses and other current liabilities, partially offset by an increase in deferred revenue of $8.6 million and an increase in income taxes payable of $8.1 million. The increase in other current assets is due to an increase in prepaid marketing at Dating and an increase in prepaid hosting fees in connection with the growth at Tinder. The decrease in accounts payable and accrued expenses and other current liabilities is due to the timing of payments. The increase
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in deferred revenue is primarily due to the acquisition of The Princeton Review and growth in subscription revenue. The increase in income taxes payable is due to current year income tax accruals in excess of current year income tax payments.
Net cash provided by operating activities in 2013 consists of net earnings of $126.6 million, adjustments for non-cash items of $35.7 million, and an increase from working capital activities of $12.4 million. Adjustments for non-cash items primarily consist of $20.2 million of depreciation, $17.1 million of amortization of intangibles and $12.2 million of stock-based compensation expense, partially offset by $10.8 million of excess tax benefits from stock-based awards. The changes from working capital activities primarily consist of an increase in deferred revenue of $12.4 million and an increase in income taxes payable of $4.8 million, partially offset by an increase in accounts receivable of $3.7 million. The increase in deferred revenue is primarily due to the growth in membership revenue. The increase in income taxes payable is due to current year income tax accruals in excess of current year income tax payments. The increase in accounts receivable is primarily due to growth in advertising revenue.
Net cash provided by operating activities in 2012 consists of net earnings of $90.3 million, adjustments for non-cash items of $47.6 million, and an increase from working capital activities of $26.5 million. Adjustments for non-cash items primarily consist of $17.5 million of amortization of intangibles, $16.3 million of depreciation, $16.1 million of stock-based compensation expense and an $8.7 million asset impairment charge related to a long-term marketable security, partially offset by $8.4 million of excess tax benefits from stock-based awards. The changes from working capital activities primarily consist of an increase in income taxes payable of $15.1 million and an increase in deferred revenue of $8.7 million. The increase in income taxes payable is due to current year income tax accruals in excess of current year income tax payments. The increase in deferred revenue is primarily due to the growth in membership revenue.
Cash flows used in investing activities
Net cash used in investing activities in the six months ended June 30, 2015 includes cash consideration used in acquisitions of $40.7 million and capital expenditures of $10.0 million, primarily related to the internal development of software to support our products and services.
Net cash used in investing activities in the six months ended June 30, 2014 includes capital expenditures of $9.6 million primarily related to the internal development of software to support our products and services and cash consideration used in acquisitions and investments of $5.5 million.
Net cash used in investing activities in 2014 includes acquisitions of $114.1 million, which include The Princeton Review, and capital expenditures of $21.8 million, primarily related to the internal development of software to support our products and services.
Net cash used in investing activities in 2013 includes acquisitions of $32.1 million, which include Twoo, and capital expenditures of $19.8 million primarily related to the internal development of software to support our products and services.
Net cash used in investing activities in 2012 includes acquisitions of $59.5 million, primarily related to Tutor.com and Date Hookup, and capital expenditures of $19.9 million primarily related to the internal development of software to support our products and services.
Cash flows used in financing activities
Net cash used in financing activities in the six months ended June 30, 2015 includes cash transfers of $43.7 million to IAC and $5.5 million in contingent consideration payments, partially offset by $17.4 million
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in excess tax benefits from stock-based awards. The cash transfers to IAC relate to IAC's centrally managed U.S. treasury management function.
Net cash used in financing activities in the six months ended June 30, 2014 includes cash transfers of $144.3 million to IAC, $30.0 million for the purchase of noncontrolling interests, and $7.4 million in contingent consideration payments related to the 2013 Twoo acquisition, partially offset by $119.1 million in proceeds from the issuance of related party debt, the return of $12.4 million of funds held in escrow related to the Meetic tender offer and $5.4 million in excess tax benefits from stock-based awards.
Net cash used in financing activities in 2014 includes cash transfers of $108.1 million to IAC, $33.2 million for the purchase of noncontrolling interests in Tinder and Meetic and a $7.4 million contingent consideration payment related to the 2013 Twoo acquisition, partially offset by $111.6 million in proceeds from the issuance of related party debt, the return of $12.4 million of funds held in escrow related to the Meetic tender offer and $5.3 million in excess tax benefits from stock based awards.
Net cash used in financing activities in 2013 includes $71.5 million held in escrow related to the Meetic tender offer and $52.6 million for the purchase of noncontrolling interests in Meetic, partially offset by $10.8 million in excess tax benefits from stock-based awards and cash transfers of $9.7 million from IAC.
Net cash used in financing activities in 2012 includes cash transfers of $53.4 million to IAC, partially offset by $8.4 million in excess tax benefits from stock-based awards.
Contractual obligations and contingencies
Our principal commitments consist of obligations under related party debt and operating leases for equipment and office space. The following table summarizes our contractual obligations as of June 30, 2015.
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|
Payments due by period | |||||||||||||||
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|
Less than 1 year |
1 to 3 years |
3 to 5 years |
More than 5 years |
|
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|
Total |
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| | | | | | | | | | | | | | | | |
|
(in thousands) |
|||||||||||||||
Long-term debtrelated party(1) |
$ | 8,558 | $ | 17,117 | $ | 17,117 | $ | 208,999 | $ | 251,791 | ||||||
Operating leases(2) |
12,900 | 15,703 | 7,225 | 6,676 | 42,504 | |||||||||||
Purchase obligations(3) |
4,161 | | | | 4,161 | |||||||||||
| | | | | | | | | | | | | | | | |
Total contractual obligations(4) |
$ | 25,619 | $ | 32,820 | $ | 24,342 | $ | 215,675 | $ | 298,456 | ||||||
| | | | | | | | | | | | | | | | |
(1) Long-term debtrelated party consists of $79.0 million in notes payable in three installments of $26.3 million each due on September 1, 2021, 2023 and 2026, a €53 million ($59.3 million at June 30, 2015) note due December 15, 2021 and a $47.0 million note due December 15, 2021, all of which will be repaid in connection with this offering. We and certain of our domestic subsidiaries are also guarantors of IAC's senior notes and credit facility. Prior to the closing of the offering, we will no longer be a restricted subsidiary of IAC for purposes of its debt facilities, nor will we guarantee any debt of IAC. See "Management's discussion and analysis of financial condition and results of operationsLiquidity and capital resources." The amounts in the table above are inclusive of interest.
(2) We lease office space, data center facilities and equipment used in connection with our operations under various operating leases, many of which contain escalation clauses. In addition, future minimum lease payments include our allocable share of an IAC data center lease.
(3) Purchase obligations primarily include advertising commitments, which commitments are reducible or terminable such that these commitments can never exceed associated revenue by a meaningful amount.
(4) We have excluded $11.0 million in unrecognized tax benefits and related interest from the table above as we are unable to make a reasonably reliable estimate of the period in which these liabilities might be paid. For additional information on income taxes, see Note 3 to our audited combined financial statements included elsewhere in this prospectus.
In addition to what is included in the table above, as of June 30, 2015, we may be required to pay, in connection with our acquisitions, up to an additional $168.2 million of cash consideration based on the
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combination of earnings performance and user growth at the businesses acquired. A substantial portion of the $168.2 million maximum liability ($81.5 million) relates to the contingent consideration arrangement entered into in connection with one acquisition, which has its final measurement period at the end of 2015. Based on current forecasts and the fact that the relevant measurement period for that acquisition is nearly completed, the Company believes that it will not have to make any further payments with respect to this acquisition. The Company has other contingent consideration arrangements for which it has accrued $27.2 million as of June 30, 2015.
We also had $0.2 million of surety bonds outstanding as of June 30, 2015 that could potentially require performance by the Company in the event of demands by third parties or contingent events.
Off-balance sheet arrangements
Other than the items described above, we have no significant off-balance sheet arrangements.
Principles of financial reporting
We report Adjusted EBITDA as a supplemental measure to GAAP. This measure is one of the primary metrics by which we evaluate the performance of our businesses, on which our internal budgets are based and by which management is compensated. We believe that investors should have access to, and we are obligated to provide, the same set of tools that we use in analyzing our results. This non-GAAP measure should be considered in addition to results prepared in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. We endeavor to compensate for the limitations of the non-GAAP measure presented by providing the comparable GAAP measure with equal or greater prominence and descriptions of the reconciling items, including quantifying such items, to derive the non-GAAP measure. We encourage investors to examine the reconciling adjustments between the GAAP and non-GAAP measure, which we discuss below.
Adjusted EBITDA is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. We believe this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to our combined statement of operations of certain expenses.
Non-cash expenses that are excluded from Adjusted EBITDA
Stock-based compensation expense consists principally of expense associated with the grants of stock options, restricted stock units, or RSUs, and performance-based RSUs. These expenses are not paid in cash. Upon the exercise of certain stock options and vesting of RSUs and performance-based RSUs, the awards are settled, at the Company's discretion, on a net basis, with the Company remitting the required tax-withholding amount from its current funds.
Depreciation is a non-cash expense relating to our property and equipment and is computed using the straight-line method to allocate the cost of depreciable assets to operations over their estimated useful lives.
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Amortization of intangible assets and impairments of goodwill and intangible assets are non-cash expenses. At the time of an acquisition, the identifiable definite-lived intangible assets of the acquired company, such as customer lists, content, trade names, technology and franchise rights are valued and amortized over their estimated lives. Value is also assigned to acquired indefinite-lived intangible assets, which comprise trade names and trademarks, and goodwill that are not subject to amortization. An impairment is recorded when the carrying value of an intangible asset or goodwill exceeds its fair value. While it is likely that we will have significant intangible amortization expense as we continue to acquire companies, we believe that intangible assets represent costs incurred by the acquired company to build value prior to acquisition and the related amortization and impairment charges of goodwill or intangible assets, if applicable, are not ongoing costs of doing business.
Gains and losses recognized on changes in the fair value of contingent consideration arrangements are accounting adjustments to report contingent consideration liabilities at fair value. These adjustments can be highly variable and are excluded from our assessment of performance because they are considered non-operational in nature and, therefore, are not indicative of current or future performance or ongoing costs of doing business.
Quantitative and qualitative disclosures about market risk
Equity price risk
At December 31, 2014 and June 30, 2015, we have one investment in an equity security of a publicly traded company. This available-for-sale marketable equity security is reported at fair value based on its quoted market price with any unrealized gain or loss, net of tax, included as a component of "Accumulated other comprehensive loss" in the accompanying combined balance sheet. Investments in equity securities of publicly traded companies are exposed to significant fluctuations in fair value due to the volatility of the stock market. During 2013 and 2014 and for the six months ended June 30, 2015, we did not record any other-than-temporary impairment charges related to this available-for-sale marketable equity security. During 2012, we recorded an $8.7 million other-than-temporary impairment charge related to this available-for-sale marketable equity security. The other-than-temporary impairment charge is included in "Other (expense) income, net" in the accompanying combined statement of operations.
Foreign currency exchange risk
We conduct business in certain foreign markets, primarily in the European Union. For the six months ended June 30, 2015, international revenue accounted for 31% of combined revenue. Our primary exposure to foreign currency exchange risk relates to investments in foreign subsidiaries that transact business in a functional currency other than the U.S. Dollar, primarily the Euro. As foreign currency exchange rates change, translation of the statements of operations of our international businesses into U.S. dollars affects year-over-year comparability of operating results. The average Euro versus the U.S. Dollar exchange rate was 18% lower in the first half of 2015 than 2014. The decrease had a significant impact to revenue. Total revenue, Dating revenue and International Dating Revenue would have increased approximately 21%, 11% and 13%, respectively, as compared to the reported increases of 15% and 5% and a decrease of 5%, respectively, had the foreign currency exchange rates been the same as the first half of 2014.
Foreign currency exchange losses and gains included in our earnings for the six months ended June 30, 2014 and 2015 are a loss of $1.8 million and a gain of $5.1 million, respectively. Included in the June 30, 2015 amount is a foreign currency exchange gain of $5.3 million related to our €53 million 5.00% Note that was issued to an IAC subsidiary on April 8, 2014 in connection with the financing of the purchase of the remaining publicly-traded shares of Meetic. This related party debt is a liability of one of our subsidiaries with a U.S. dollar functional currency and the gain is due to the significant strengthening of
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the U.S. dollar versus the euro in 2015. This related party debt is our primary exposure to foreign currency exchange transaction risk and will be repaid in connection with this offering.
The impact on foreign currency exchange gains for the six month ended June 30, 2015, assuming a 10% increase in the euro to the U.S. dollar would increase foreign currency exchange gains by $0.5 million. Assuming a 10% decrease in the euro to the U.S. dollar, foreign currency exchange gains would decrease by $0.5 million. Such potential increase or decrease is based on certain simplifying assumptions, including a constant level and rate of debt and an immediate across-the-board increase or decrease in the exchange rate with no other subsequent changes for the remainder of the period.
Historically, we have not hedged any foreign currency exposures. Our continued international expansion increases our exposure to exchange rate fluctuations and as a result such fluctuations could have a significant impact on our future results of operations.
The following disclosure is provided to supplement the descriptions of our accounting policies contained in Note 2 to our combined financial statements in regard to significant areas of judgment. Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its combined financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amount of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities as of the date of the combined financial statements. Actual results could differ from those estimates. Because of the size of the financial statement elements to which they relate, some of our accounting policies and estimates have a more significant impact on our combined financial statements than others. What follows is a discussion of some of our more significant accounting policies and estimates.
Business combinations
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based on detailed valuations that use information and assumptions provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill.
In connection with some business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements are recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company generally determines the fair value of contingent consideration using probability-weighted analyses over the period in which the obligation is expected to be settled, and, to the extent the arrangement is long-term in nature, applies a discount rate that appropriately captures the risk associated with the obligation. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement. Determining fair value is inherently difficult and subjective and can have a material impact on our combined financial statements. The changes in the remeasured fair value of the contingent consideration arrangements each reporting period are recognized in "General and administrative expense" in the accompanying combined statement of operations. See Note 6 to our combined financial statements for a discussion of contingent consideration arrangements.
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Recoverability of goodwill and indefinite-lived intangible assets
Goodwill and indefinite-lived intangible assets, which consist of our acquired trade names and trademarks, are assessed annually for impairment as of October 1 or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value. The 2012, 2013 and 2014 annual assessments identified no material impairments. The value of goodwill and indefinite-lived intangible assets that is subject to annual assessment for impairment is $793.8 million and $180.6 million, respectively, at December 31, 2014.
We have the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If we elect to perform a qualitative assessment and conclude it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise goodwill must be tested for impairment using a two-step process. The first step involves a comparison of the estimated fair value of each of our reporting units to its carrying value, including goodwill. In performing the first step, we determine the fair value of a reporting unit using both an income approach based on discounted cash flows, or DCF, and a market approach based on multiples of earnings. Determining fair value requires the exercise of significant judgment with respect to several items, including judgment about the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on our most recent budget and, for years beyond the budget, our estimates, which are based, in part, on forecasted growth rates. The discount rate used in the DCF analysis are intended to reflect the risks inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed annually based on the reporting units' current results and forecast, as well as macroeconomic and industry specific factors. The discount rate used in our annual goodwill impairment assessment was approximately 16%. If the estimated fair value of a reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired and the second step of the impairment test is not necessary. If the carrying value of a reporting unit exceeds its estimated fair value, then the second step of the goodwill impairment test must be performed. The second step of the goodwill impairment test compares the implied fair value of the reporting unit's goodwill with its carrying value to measure the amount of impairment, if any. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. In other words, the estimated fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid. If the carrying value of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment is recognized in an amount equal to that excess.
Any impairment charge that might result in the future would be determined based upon the excess of the carrying value of goodwill over its implied fair value using the second step of the impairment analysis that is described above but, in any event, would not be expected to be lower than the excess of the carrying value of the reporting unit over its fair value. A primary driver in the DCF valuation analyses and the determination of the fair values of our reporting units is the estimate of future revenue and profitability. Generally, we would expect an impairment if forecasted revenue and profitability are no longer expected to be achieved and as a result, the carrying value of a reporting unit(s) exceeds its fair value. This assessment would be based, in part, upon the performance of its businesses relative to budget, our assessment of macroeconomic factors, industry and competitive dynamics and the strategies of its businesses in response to these factors.
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We also have the option to qualitatively assess whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value. If we elect to perform a qualitative assessment and conclude it is not more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying value, the fair value of the asset does not need to be determined; otherwise the fair value of the indefinite-lived intangible asset must be determined and compared to its carrying value. If the carrying value of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. The estimates of fair value of indefinite-lived intangible assets are determined using an avoided royalty DCF valuation analysis. Significant judgments inherent in this analysis include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license our trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in our annual indefinite-lived impairment assessment ranged from 10% to 18% in 2013 and 10% to 20% in 2014, and the royalty rates used ranged from 3% to 7% in both 2013 and 2014.
Recoverability of long-lived assets
We review the carrying value of all long-lived assets, comprising property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. The carrying value of property and equipment and definite-lived intangible assets is $70.1 million at December 31, 2014.
Income taxes
We recognize liabilities for uncertain tax positions based on the two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement. This measurement step is inherently difficult and requires subjective estimations of such amounts to determine the probability of various possible outcomes. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately anticipate actual outcomes. At December 31, 2014, we had unrecognized tax benefits of $12.1 million, including interest. Changes to reserves from period to period and differences between amounts paid, if any, upon resolution of issues raised in audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by us are recorded in the period they become known.
We account for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. As of
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December 31, 2014, the balance of deferred tax liabilities, net, is $40.9 million. Actual income taxes could vary from these estimates due to future changes in income tax law, state income tax apportionment or the outcome of any review of our tax returns by the various tax authorities, as well as actual operating results that vary significantly from our anticipated results.
Stock-based compensation
The stock-based compensation expense reflected in our combined statements of operations consists of expense related to our stock options, IAC stock options and restricted stock units issued to our employees prior to the offering, restricted shares issued to employees of Meetic, which was publicly-traded prior to its acquisition by us in 2011, and stock options and stock appreciation rights issued by certain of our other subsidiaries.
Prior to the offering, the equity awards that relate to our common stock or the common stock of certain of our subsidiaries are settlable in shares of IAC common stock having a value equal to the difference between the exercise price and the fair market value of our common stock or that of the relevant subsidiary. Upon completion of the offering, the options that relate to our common stock will be adjusted in accordance with their terms to provide that the awards are exercisable for shares of our common stock, and the equity awards that relate to these subsidiaries will provide that the awards will be settlable, at IAC's election, in shares of IAC common stock or in shares of our common stock. To the extent shares of IAC common stock are issued in settlement of these awards, we will reimburse IAC for the cost of those shares by issuing IAC additional shares of our common stock.
We measure and recognize compensation expense for all stock-based awards based on the grant date fair value of the awards. The fair value of stock options is estimated using the Black-Scholes option-pricing model. Fair value is generally recognized as an expense on a straight-line basis, net of estimated forfeitures, over the requisite service period, which is the vesting period of the award. For awards with vesting subject to both a service condition and a performance measure, the expense is measured at the grant date and expensed over the vesting term if the performance measure is considered probable of being achieved.
The Black-Scholes option-pricing model requires the use of highly subjective and complex assumptions, the most significant of which include estimating the fair value of the underlying shares, expected term, expected volatility of the underlying shares, risk-free interest rates and the expected dividend yield. In addition, the recognition of stock-based compensation expense is impacted by our estimated forfeiture rates. The assumptions used in our option pricing model represent management's best estimates. If factors change and different assumptions are used, our stock-based compensation expense could be materially different in the future.
The key assumptions used in our option-pricing model are estimated as follows:
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used the historical volatilities of a peer group whose members were chosen on the basis of their similarity to us in terms of consumer use, monetization model, margin and growth characteristics and brand strength, operating across the following sectors: dating and matching, gaming, social, subscription, eCommerce without inventory, and branded consumer internet companies with strong earnings growth. As the value of our company continued to represent an increasingly large percentage of the overall value of IAC, at the beginning of 2014 we concluded that the most relevant reference point for determining our volatility was IAC's historical volatility. Therefore, since that time, IAC's historical volatility has been used to estimate our volatility. We intend to continue to consistently apply this process for our equity awards until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.
The following table summarizes the weighted-average assumptions used in our option pricing model for option grants made during the periods indicated for our stock option awards:
| | | | | | | | | | |
|
Year ended December 31, 2013 |
Year ended December 31, 2014 |
Six months ended June 30, 2015 |
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---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Grant date fair value of shares |
$ | 238.28 | $ | 325.06 | $ | 403.78 | ||||
Expected term (in years) |
4.2 | 4.2 | 3.5 | |||||||
Expected volatility |
41% | 29% | 27% | |||||||
Risk-free interest rate |
0.8% | 1.3% | 1.2% | |||||||
Expected dividend yield |
% | % | % | |||||||
| | | | | | | | | | |
In addition to the above assumptions, we also estimate a forfeiture rate to calculate stock-based compensation expense, which is based on an analysis of our historical forfeitures. We will continue to evaluate the appropriateness of the forfeiture rate based on our actual forfeiture experience, analysis of employee turnover and other factors. Changes in the estimated forfeiture rate can have a significant impact on our stock-based compensation expense as the cumulative effect of adjusting the forfeiture rate is recognized in the period in which the estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made resulting in a decrease to the stock-based compensation expense recognized in our combined financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made resulting in an increase to the stock-based compensation expense recognized in our combined financial statements.
We will continue to use judgment in evaluating the assumptions related to our stock-based awards on a prospective basis. As we continue to accumulate additional data related to our awards, we may have refinements to our estimates and forfeiture rates, which could materially impact our future stock-based compensation expense.
Based on the Black-Scholes assumptions in the table above, the weighted average fair value of stock options granted during the years ended December 31, 2013 and 2014 and for the six months ended June 30, 2015, are $79.57, $83.24 and $86.72, respectively.
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Stock option grants and common stock valuations
We granted stock options with the following exercise prices between January 1, 2014 and June 30, 2015(1):
| | | | | | | | | | |
Grant date |
Number of awards granted (#) |
Exercise price ($) |
Grant date fair value per unit ($) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
January 20, 2014 |
144,534 | $ | 319.76 | $ | 319.76 | |||||
February 11, 2014 |
163,375 | $ | 319.76 | $ | 319.76 | |||||
April 22, 2014 |
500 | $ | 319.76 | $ | 319.76 | |||||
May 27, 2014 |
1,000 | $ | 319.76 | $ | 319.76 | |||||
June 9, 2014 |
300 | $ | 319.76 | $ | 319.76 | |||||
July 7, 2014 |
5,000 | $ | 319.76 | $ | 319.76 | |||||
August 11, 2014 |
11,300 | $ | 319.76 | $ | 319.76 | |||||
October 6, 2014 |
25,100 | $ | 393.90 | $ | 393.90 | |||||
February 11, 2015 |
345,150 | $ | 403.78 | $ | 403.78 | |||||
June 15, 2015 |
17,600 | $ | 403.78 | $ | 403.78 | |||||
| | | | | | | | | | |
(1) The number of options, exercise price and fair value per share for these awards reflects information before giving effect to adjustments to be made in connection with the recapitalization of our equity that will occur prior to the completion of this offering and the distribution of a portion of the net proceeds of this offering to IAC. Prior to the offering, these options are settlable in shares of IAC common stock having a value equal to the difference between the option exercise price and the fair market value of our common stock. Upon completion of the offering, these options will be adjusted in accordance with their terms to provide that the awards are exercisable for shares of our common stock.
We are required to estimate the fair value of our common stock when performing fair value calculations with the Black-Scholes option-pricing model. The fair values of our common stock were approved by the Compensation and Human Resources Committee of the IAC Board of Directors, or the IAC Committee, after consultation with IAC management and based on valuations prepared by IAC management and valuations prepared by an unrelated third party valuation advisory firm. The IAC Committee intended all options granted to be exercisable at a price per share not less than the per share fair value of our common stock on the grant date. In the absence of a public trading market of our shares, the IAC Committee exercised its reasonable judgment and considered numerous objective and subjective factors to determine what it believed to be the best estimate of the fair value of our shares. These factors generally included the following:
Estimates and assumptions will no longer be necessary to determine the fair value of our common stock once it begins trading.
IAC management performed valuations of our company as of January 2014, February 2014, October 2014, February 2015 and June 2015. The valuation advisory firm prepared valuations of our company as of January 1, 2014 and February 1, 2015. The dates of our valuation reports were not always contemporaneous with the grant dates of our stock-based awards. In determining whether it was
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reasonable to rely on the most recent valuation, we considered whether there were any material changes to our business since the date of such valuation, taking into account our actual operating and financial performance, current business conditions, our financial projections, the market performance of comparable publicly traded companies, the U.S. capital market conditions generally, and any other factors we deemed relevant at the time. There were significant judgments and estimates inherent in these valuations, which included assumptions regarding our future operating performance and the determinations of the appropriate valuation methods to be applied. If we had made different estimates or assumptions, our stock-based compensation expense and net income could have been significantly different from those reported in this prospectus.
In valuing our shares, we determined our equity value by assessing by a combination of the value indicators using a market comparable approach and an income approach. The valuation method ultimately selected to determine valuation was the market comparable approach after determining that the resulting valuation was reasonable given the range of valuations determined using the income approach.
Market comparable approach
The market comparable approach considers multiples of financial metrics based on both acquisitions and trading multiples of a selected peer group of companies. From the comparable companies, a representative market multiple is determined which is applied to financial metrics to estimate the value of our company.
To determine our peer group of companies, we considered companies relevant in terms of consumer use, monetization model, margin and growth characteristics and brand strength operating in these sectors: dating and matching, gaming, social, subscription, eCommerce without inventory, and branded consumer internet companies with strong earnings growth.
Income approach
For the income approach, a discounted cash flow method was utilized to estimate the enterprise value based on the estimated present value of future net cash flows we are expected to generate over a forecasted period and an estimate of the present value of cash flows beyond that period. The present value was estimated using a discount rate, which accounts for the time value of money and the appropriate degree of risks inherent in the business. For these valuations, we prepared financial projections to be used in the income approach. The financial projections took into account our historical financial results of operations, our business experiences and our future expectations. We factored the risk associated with achieving our forecasts into selecting the appropriate exit multiple and discount rate. There is inherent uncertainty in these estimates, as the assumptions we used were highly subjective and subject to change as a result of new operating data and economic and other conditions that impact our business.
In connection with the recapitalization of our equity that will occur prior to the completion of this offering and the distribution of a portion of the net proceeds of this offering to IAC, we will make appropriate adjustments to outstanding awards that are denominated in the equity of our company to reflect the transactions contemplated in connection with the offering. Any such adjustments will be made in accordance with our stock incentive plans and applicable tax rules.
Long-term investments
At December 31, 2014, long-term investments include three cost method investments and a marketable equity security.
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We evaluate our cost method investments for indicators of impairment on a quarterly basis, and recognizes an impairment loss if the decline in value is deemed to be other-than-temporary. Future events may result in reconsideration of the nature of losses as other-than-temporary and market and other factors may cause the value of our investments to decline.
We employ a methodology that considers available evidence in evaluating potential other-than-temporary impairments of its investments. Investments are considered to be impaired when a decline in fair value below the amortized cost basis is determined to be other-than-temporary. Such impairment evaluations include, but are not limited to: the length of time and extent to which fair value has been less than the cost basis, the current business environment, including competition; going concern considerations such as financial condition, the rate at which the investee utilizes cash and the investee's ability to obtain additional financing to achieve business plan; the need for changes to the investee's existing business model due to changing business and regulatory environments and its ability to successfully implement necessary changes; and comparable valuations. During 2012, we recorded an impairment charge of $8.7 million related to its long-term marketable equity security.
Recent accounting pronouncements
For a discussion of recent accounting pronouncements, see Note 2 to the audited combined financial statements included elsewhere in this prospectus.
As a company with less than $1.0 billion in revenue during our last fiscal year, we qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. We will continue to be an emerging growth company until the earliest to occur of:
Until we cease to be an emerging growth company, we may take advantage of reduced reporting requirements generally unavailable to other public companies. Those provisions allow us to:
The JOBS Act also permits an emerging growth company such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies, and exempts an emerging growth company such as us from Sections 14A(a) and (b) of the Exchange Act, which
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require companies to hold shareholder advisory votes on executive compensation and golden parachute compensation.
We have elected to adopt the reduced disclosure requirements described above for purposes of the registration statement of which this prospectus is a part. In addition, for so long as we qualify as an emerging growth company, we expect to take advantage of certain of the reduced reporting and other requirements of the JOBS Act with respect to the periodic reports we will file with the SEC and proxy statements that we use to solicit proxies from our stockholders.
We have elected to not take advantage of the extended transition period that allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies, which means that the financial statements included in this prospectus, as well as financial statements we file in the future, will be subject to all new or revised accounting standards generally applicable to public companies. Our election not to take advantage of the extended transition period is irrevocable.
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Establishing a romantic connection is a fundamental human need. Whether it's a good date, a meaningful relationship or an enduring marriage, romantic connectivity lifts the human spirit. Our mission is to increase romantic connectivity worldwide.
Match Group is the world's leading provider of dating products. We operate a portfolio of over 45 brands, including Match, OkCupid, Tinder, Meetic, Twoo, OurTime, BlackPeopleMeet and FriendScout24, each designed to increase our users' likelihood of finding a romantic connection. Through our portfolio of trusted brands, we provide tailored products to meet the varying preferences of our users. We currently offer our dating products in 38 languages across more than 190 countries, and we had approximately 59 million MAU, and approximately 4.7 million paid members, using our dating products as of the quarter ended September 30, 2015.
Our target market includes all adults in North America, Western Europe and other select countries around the world who are not in a committed relationship and who have access to the internet, which based on a survey administered by Research Now in July 2015, we estimate at approximately 511 million people. Consumer preferences within this population vary significantly, influenced in part by demographics, geography, religion and sensibility. As a result, the market for dating products is fragmented, and no single product has been able to effectively serve the dating category as a whole.
Given wide ranging consumer preferences, we approach the category with a brand portfolio strategy, through which we attempt to offer dating products that collectively appeal to the broadest spectrum of consumers. We believe that this approach maximizes our ability to capture additional users, as demonstrated by our MAU and paid member count compound annual growth rates between the quarter ended September 30, 2011 and the quarter ended September 30, 2015 of 63% and 23%, respectively. We increasingly apply a centralized discipline to learnings, best practices and technologies across our brands in order to increase growth, reduce costs and maximize profitability. This approach allows us to quickly introduce new products and features, optimize marketing strategies, reduce operating costs and more effectively deploy talent across the organization.
Coinciding with the general trend toward mobile technology, we have experienced a meaningful shift in our user base from desktop devices to mobile devices, and now offer mobile experiences on substantially all of our dating products. During the first half of 2015, 68% of our new users signed up for our products through mobile channels, as compared to only 27% during the first half of 2013. This shift has enabled us to reach groups of users which had previously proven elusive, such as the millennial audience; for example, Tinder, a mobile-only product, has been able to tap into this audience rapidly over the last few years. Additionally, in previously desktop-oriented products like Match, the shift to mobile has led to increased usage of our products, as mobile users on average access our products at meaningfully higher rates than do those users who access our products on desktop. According to data obtained from mobile analytics firm AppAnnie, during the three months ended June 30, 2015, we operated four of the top five revenue grossing dating applications across the Apple App Store and Google Play Store in North America, and three of the top five worldwide, in each case, pro forma for the acquisition of PlentyOfFish.
Substantially all of our dating revenue is derived directly from our users. The significant majority of that revenue comes from recurring membership fees, which typically provide unlimited access to a bundle of
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features for a specific period of time, and the balance from à la carte features, where users pay a fee for a specific action or event. Examples of à la carte features include "Profile Pro," through which a user receives assistance with the preparation of a profile and "Boost/TopSpot," which allows a user to gain increased exposure within the community for a fixed period of time. Each of our brands offers a combination of free and paid features targeted to its unique community. On a brand-by-brand basis, our monetization decisions seek to optimize user growth, revenue and the vibrancy and productivity of the relevant community of users. In addition to direct revenue from our users, we generate revenue from online advertisers who pay to reach our large audiences.
In addition to our dating business, we also operate a non-dating business in the education industry through our ownership of The Princeton Review. The Princeton Review provides a variety of test preparation, academic tutoring and college counseling services. We acquired this business because it relies on many of the same competencies as our dating business, such as paid customer acquisition, a combination of free and paid features, deep understanding of the lifetime values of customers, and strong expertise in user interface development. Substantially all of our revenue from our non-dating business, or non-dating revenue, is derived directly from our students.
Our revenue increased from $713.4 million in 2012 to $803.1 million in 2013 and then to $888.3 million in 2014, representing year-over-year increases of 13% and 11%, respectively. In 2012, 2013 and 2014, we generated Adjusted EBITDA of $236.5 million, $271.2 million, and $273.4 million, respectively, operating income of $186.6 million, $221.3 million and $228.6 million, respectively, and net earnings of $90.3 million, $126.6 million and $148.4 million, respectively. See "Selected historical combined financial and other information" for a description of how we define Adjusted EBITDA and a reconciliation of Adjusted EBITDA to operating income.
Connecting with people and fostering relationships are critical needs that influence everyone's happiness. As a result, the dating market presents a significant opportunity for Match Group. We consider our addressable market to be all adults in North America, Western Europe and other select countries around the world who are not in committed relationships and have access to the internet, which based on a survey administered by Research Now in July 2015, we estimate at approximately 511 million people.
In countries with developed economies such as the United States, our addressable market has been expanding due to the aging population, increasing internet use among older adults and growth in singles as a percent of the total population. In countries with emerging economies, such as India and China, growth in the addressable market is driven by similar factors, most notably pronounced growth in internet access. Overall, our addressable market is expected to grow from approximately 511 million people to approximately 672 million people by 2019, assuming the single population in each country grows in line with the projected growth rate of the country's total population.
Enabling dating in a digital world
Prior to the proliferation of computers and mobile devices, human connections traditionally were limited by social circles, geography and time. Today, the adoption of the internet and mobile technology has significantly expanded the ways in which people can build relationships, create new interactions and develop romantic connections.
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We believe dating products serve as a natural extension of the traditional means of meeting people and provide a number of benefits for their users, including:
Depending on a person's circumstances at any given time, dating products can act as supplement to, or substitute for, the traditional means of meeting people. When selecting a dating product, we believe that users consider the following attributes:
We believe the following attributes provide us with competitive advantages in the dating business:
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North America recognize at least one of our brands when shown a list of dating brands, in each case, pro forma for the acquisition of PlentyOfFish.
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for each to quickly leverage the successes of other brands and avoid their failures, substantially increases the success rates for each brand in each of these key drivers of business performance.
We are pursuing the following principal strategies to grow our dating business:
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We operate a portfolio of brands that both compete and collaborate with each other. We attempt to empower individual business leaders with the authority and incentives to grow each of our brands. Our businesses compete with each other and with third-party businesses in our category on brand characteristics, product features, and business model. We also attempt to centrally facilitate excellence and efficiency across the entire portfolio by:
Dating is a highly personal endeavor and consumers have a wide variety of preferences that determine what type of dating product they choose. For example, some users may look for a specific type of user interface, while others may look for a dating product that offers a community of people with similar demographic characteristics or that has a particular mix of free and paid features.
As a result, we approach the category with a portfolio strategy in order to reach a broad range of users. Our portfolio consists of over 45 brands, available in 38 languages, and offered in over 190 countries. The following is a list of our key brands:
Match
Match was launched in 1995 and helped create the online dating category. Among its distinguishing features is the ability to both search profiles, receive algorithmic matches and the ability to attend live events, promoted by Match, with other members. Because the ability to communicate between members is generally a component of paid membership, Match has a high percentage of paying users which generally indicates a higher level of intent than some of our other brands. Match relies heavily on word-of-mouth traffic, repeat usage and paid marketing, and has a relatively balanced age distribution across the single
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population. According to data obtained from Research Now, Match is a category leader in North America, based on unaided awareness among singles.
Meetic
Meetic was founded in 2001 and enjoys market leadership by number of users in France, Spain, Italy and the Netherlands. Similar to Match, among its distinguishing features is the ability to both search profiles, receive algorithmic matches and the ability to attend live events, promoted by Meetic, with other members. Also, similar to Match, because the ability to communicate between members is generally a component of paid membership, Meetic's high percentage of paying users indicates a generally higher level of intent than some of our other brands. Meetic relies heavily on word-of-mouth traffic, repeat usage and paid marketing, and has a relatively balanced age distribution across the single population.
OkCupid
OkCupid was launched in 2004, and has attracted users through a mathematical and Q&A approach to the category. Additionally, it has published much of the data it collects in its popular blog, generating a bold and edgy reputation. OkCupid has grown meaningfully over the years without significant marketing spend. OkCupid has a loyal user base in many major United States cities, which tends, on average, to be younger than the user base of Match.
Tinder
Tinder was launched in 2012, and has since risen to scale and popularity faster than any other product in the dating category. Tinder's mobile-only offering and distinctive "right swipe" and location-based features have led to significant adoption among the millennial generation, previously underserved by the dating category.
OurTime, BlackPeopleMeet and our other affinity brands
Our affinity brands serve the needs of individuals for whom commonalities around age, religion, ethnicity or circumstance are of fundamental importance when making a romantic connection. For example, OurTime is age-centric, while BlackPeopleMeet is race-centric.
Twoo
Twoo was founded in 2011 and has been highly successful in creating dating products seeded through existing social networks. Its viral acquisition tactics and internationalized platform have enabled Twoo to rapidly expand in over 190 countries and 38 languages in a relatively short time. Twoo's user base is concentrated in Europe, Asia and South America.
FriendScout24
Founded in 2007, FriendScout24 is the market leader in dating products in Germany with a strong presence in Austria and Switzerland. It is characterized by its search-based product offering, in contrast to the "matching" products which are otherwise predominant in the German markets.
All our Dating products enable a user to establish a profile and review other people's profiles without charge. Each of them also offers additional features, some of which are free, and some of which require payment depending on the particular product. For example, in order to send emails to, and read emails from, other users, Match, Meetic, OurTime and BlackPeopleMeet require a paid membership, while communicating with other members on Tinder and OkCupid does not. Conversely, on Match you can search profiles for free in any geographic area, whereas Tinder requires payment in order to review profiles outside a user's current geography. Similarly, on Match, a non-paying user can perform custom searches and change their username for free, whereas OkCupid only enables these features for paying users. On
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certain products, like OkCupid and Tinder, purchasing a premium package eliminates a viewer's exposure to advertisements. In general, access to premium features requires a paid membership, which is typically offered in packages from one-month to 12 months, depending on the product and circumstance. Prices differ meaningfully within a given brand by the duration of membership purchased, by the bundle of paid features that a user chooses to access, and by whether or not a customer is taking advantage of any special offers. In addition to paid memberships, many of our products, such as Match, Meetic and OkCupid, now offer the user the ability to promote themselves for a given period of time, or to review certain profiles without any signaling to the other members, and these features are offered on a pay-per-use basis. The precise mix of paid and premium features is established over time on a brand-by-brand basis and is constantly subject to iteration and evolution.
Our geographic reach includes more than 190 countries around the world. Our primary market is North America, where we derived 69% of our total dating revenue for the six months ended June 30, 2015.
In the same period, we derived 31% of our total dating revenue from international markets compared to 9% during the same period in 2011.
We attract the majority of our users through word-of-mouth and other free channels. In addition, many of our brands rely on paid customer acquisition for a significant percentage of their users. Our online marketing activities generally consist of purchasing banner and other display advertising, search engine marketing, email campaigns and business development or partnership deals. Our offline marketing activities generally consist of television advertising and related public relations efforts, as well as events.
Consistent with our general operating philosophy, each of our brands tends to develop its own technology systems to support its product, leveraging both open-source and vendor supported software technology. Each of our brands has dedicated engineering teams responsible for software development and creation of new features to support our products across the full range of devices, from desktop to mobile-web to native mobile applications. Our engineering teams use an agile development process, allowing us to deploy frequent iterative releases for product features. The Company spent $38.9 million, $43.0 million, $49.7 million, $24.1 million and $33.9 million in the years ended December 31, 2012, 2013 and 2014 and for the six months ended June 30, 2014 and 2015, respectively, on product development.
We are currently working to modernize the software and technology supporting certain of our North American brands and to consolidate their back-end services such as billing and payments, online marketing, chat and photos, as well as reusable API services that will be leveraged by an adaptive desktop and mobile web front end unique to each brand. We will continue to support brand-specific native mobile applications that will integrate to the common back-end and API services layer. Similar efforts are underway at Meetic and our other predominantly European brands. We expect these initiatives will allow us to increase speed to market, reduce execution time and drive cost efficiencies.
We host the majority of our brands in leased data centers located within the general geography served by the brand. Other brands utilize Amazon Web Services to support their infrastructure.
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In addition to growing our brands organically, we opportunistically pursue acquisitions of brands and businesses that will enhance our portfolio offering. Since January 2009, we have invested approximately $1,284.0 million to acquire 25 new brands for our dating portfolio (inclusive of PlentyOfFish), enabling us to strengthen our business in existing markets and expand our product offerings globally. These acquired businesses have generated significant Adjusted EBITDA, have grown meaningfully since acquisition, and we expect them to increasingly contribute to future earnings.
On July 13, 2015, we entered into a stock purchase agreement to acquire all of the outstanding equity interests in PlentyOfFish, for aggregate consideration of $575.0 million, subject to a customary post-closing adjustment based on, among other things, the amount of working capital in the business at the closing date. At closing, approximately $71.9 million of the consideration will be placed in escrow as security for potential purchase price adjustments and indemnification claims.
Founded in 2003, PlentyOfFish has steadily grown to become one of the largest dating communities in the United States, the United Kingdom, Canada, and Australia. PlentyOfFish has a broader age distribution, and less urban concentration, than both OkCupid and Tinder.
The consummation of the acquisition is subject to customary conditions, including the receipt of regulatory approval pursuant to the Investment Canada Act. The stock purchase agreement may be terminated under certain circumstances, including by either party if the acquisition has not been completed by January 13, 2016 (or as such date may be extended pursuant to the terms of the stock purchase agreement). We currently anticipate that the acquisition of PlentyOfFish will close in the fourth quarter of 2015, though there can be no assurance that the acquisition will close in a timely manner or at all.
We believe that our expertise as the world's leading provider of dating products enables us to understand the growth prospects of dating businesses better than most other parties. We expect that there will continue to be opportunities from time to time for us to expand our portfolio of dating brands by acquiring companies at favorable valuations.
Additionally, we purchased Tutor.com and then The Princeton Review in 2012 and 2014, respectively. Successful operation of these businesses depends in substantial part on a common set of competencies with our dating business, and we believe we can expand the portfolio of assets over which we can leverage our competencies beyond dating. It is possible that we may acquire other non-dating assets if they meet the relevant criteria and provide the right value creation opportunity.
The dating industry is competitive and has no single, dominant brand. We compete primarily with other companies that provide similar dating and matchmaking products, including eHarmony, Spark Networks (Jdate, ChristianMingle), Zoosk, Parship, ElitePartner and Adopteunmec.
In addition to other online dating brands, we compete indirectly with offline dating services, such as in-person matchmakers, and social media platforms. Arguably, our biggest competition comes from the traditional ways that people meet each other, and the choices some people make to not utilize dating products or services.
We believe that our ability to compete successfully will depend primarily upon the following factors:
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The majority of users in our category use multiple dating products at any given time, making our broad portfolio of brands a competitive advantage.
We are subject to foreign and domestic laws and regulations that affect companies conducting business on the internet generally, including laws relating to the liability of providers of online services for their operations and the activities of their users. As a result, we could be subject to actions based on negligence, various torts and trademark and copyright infringement, among other actions. See "Risk factorsRisks relating to our businessInappropriate actions by certain of our users could be attributed to us and damage our brands' reputation, which in turn could adversely affect our business" and "Risk factorsRisks relating to our businessWe may fail to adequately protect our intellectual property rights or may be accused of infringing the intellectual property rights of third parties."
Because we receive, store and use a substantial amount of information received from or generated by our users, we are also impacted by laws and regulations governing privacy, use of personal data and data breaches, primarily in the case of our operations in the European Union. As a result, we could be subject to various private and governmental claims and actions. See "Risk factorsRisks relating to our businessUnauthorized access of personal data could give rise to liabilities as a result of governmental regulation, conflicting legal requirements or differing views of personal privacy rights."
As the provider of dating products with a membership-based element, we are also subject to laws and regulations in certain U.S. states and other countries that apply to our automatically-renewing membership payment models. Finally, certain U.S. states and certain countries in Asia have laws that specifically govern dating services.
As of June 30, 2015, we had approximately 1,600 full-time employees and approximately 3,300 part-time employees worldwide. Substantially all of our part-time employees are employed by our non-dating businesses and perform academic tutoring, test preparation and college counseling services. We are not subject to any collective bargaining agreements and believe that our relationship with our employees is good.
We regard our intellectual property rights, including trademarks, domain names and other intellectual property, as critical to our success.
For example, we rely heavily upon the use of trademarks (primarily Match, Meetic, OkCupid, OurTime, Tinder and The Princeton Review, and associated domain names, taglines and logos) to market our dating products and applications and build and maintain brand loyalty and recognition. We have an ongoing trademark and service mark registration program, pursuant to which we register our brand names and product names, taglines and logos and renew existing trademark and service mark registrations in the
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United States and other jurisdictions to the extent we determine it to be necessary or otherwise appropriate and cost-effective. In addition, we have a trademark and service mark monitoring policy pursuant to which we monitor applications filed by third parties to register trademarks and service marks that may be confusingly similar to ours, as well as potential unauthorized use of our material trademarks and service marks. Our enforcement of this policy affords us valuable protection under current laws, rules and regulations. We also reserve and file registrations (to the extent available) and renew existing registrations for domain names that we believe are material to our business.
We also rely upon a combination of in-licensed third-party and proprietary trade secrets, including proprietary algorithms, and to a lesser extent, upon patented and patent-pending technologies, processes and features relating to our matching process systems or related features, products and services with expiration dates from 2025 to 2034. We have an ongoing invention recognition program pursuant to which we apply for patents to the extent we determine it to be necessary or otherwise appropriate and cost-effective.
We rely on a combination of internal and external controls, including applicable laws, rules and regulations and contractual restrictions with employees, contractors, customers, suppliers, affiliates and others, to establish, protect and otherwise control access to our various intellectual property rights.
Our corporate headquarters are located in Dallas, Texas. We do not own any real property.
Our facilities, which we lease (in some cases, from IAC) both in the United States and abroad, consist of executive and administrative offices and data centers. Certain significant properties that we lease, all of which consist of executive and administrative offices, are described in the table immediately below.
| | | | | | |
Location |
Approximate Area |
Lease Expiration Date |
Use |
|||
---|---|---|---|---|---|---|
| | | | | | |
Dallas, Texas |
50,000 square feet | September 30, 2016 | Corporate/Match headquarters | |||
Paris, France |
41,000 square feet | December 31, 2021 | Meetic headquarters | |||
New York, New York |
11,000 square feet | October 31, 2017 | OkCupid headquarters | |||
West Hollywood, California |
9,000 square feet | January 14, 2019 | Tinder headquarters | |||
Ghent, Belgium |
12,000 square feet | December 31, 2018 | Twoo headquarters | |||
| | | | | | |
We also lease space in four data centers: two for our North American, Latin American and Asian operations (one in North Dallas, Texas from a third party and another in Ashburn, Virginia from IAC), and two for our European operations (one in Paris, France and another in Zaventem, Belgium, both from third parties).
We believe that our current facilities are adequate to meet our ongoing needs. We also believe that, if we require additional space, we will be able to lease additional facilities on commercially reasonable terms.
From time to time, we are involved in various legal proceedings arising in the normal course of business activities, such as patent infringement claims, trademark oppositions and consumer or advertising complaints. Although the results of legal proceedings and claims cannot be predicted with certainty, we are not currently a party to any legal proceedings the outcome of which, we believe, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations. See "Risk factorsRisks relating to our businessWe are subject to litigation and adverse outcomes in such litigation could have an adverse effect on our financial condition."
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Executive officers upon completion of the offering
The following table sets forth information as of the date of this prospectus regarding individuals who are expected to serve as our executive officers following the completion of this offering.
| | | | | |
Name |
Age |
Current position |
|||
---|---|---|---|---|---|
| | | | | |
Gregory R. Blatt |
47 | Chairman | |||
Sam Yagan |
38 | Chief Executive Officer | |||
Gary Swidler |
45 | Chief Financial Officer | |||
| | | | | |
Executive biographies
Gregory R. Blatt has been the Chairman of Match Group since December 2013. Prior to his current role, Mr. Blatt served as the Chief Executive Officer of IAC from December 2010 through December 2013, and prior to that as head of its Match segment and as its General Counsel. Prior to joining IAC, Mr. Blatt was General Counsel at Martha Stewart Living Omnimedia and an associate at the law firms Grubman Indursky & Shire and Wachtell, Lipton, Rosen & Katz. He has a B.A. from Colgate University and a J.D. from Columbia Law School.
Sam Yagan is the Chief Executive Officer of the Company, a position he has held since September 2012. Prior to his current role, Mr. Yagan served as Chief Executive Officer of OkCupid. Mr. Yagan co-founded OkCupid in 2003 and grew it into one of the most popular dating sites in America. In 2011, the Company acquired OkCupid. His prior entrepreneurial ventures in the consumer internet sector include SparkNotes (founded in 1999) and eDonkey (founded in 2002). Mr. Yagan has a B.A. from Harvard College and an MBA from the Stanford Graduate School of Business.
Gary Swidler was appointed to the role of Chief Financial Officer of Match Group in August 2015. Prior to that, Mr. Swidler was a Managing Director and Head of the Financial Institutions Investment Banking Group at Bank of America Merrill Lynch. Mr. Swidler held a variety of positions at Bank of America Merrill Lynch and its predecessors from 1997 to 2015. Prior to joining Merrill Lynch, Mr. Swidler was an associate at the law firm of Wachtell, Lipton, Rosen & Katz. Mr. Swidler has a BSE from the Wharton School at the University of Pennsylvania and a J.D. from NYU School of Law.
Match Group announced that it will be consolidating the roles of Chief Executive Officer and Chairman by the end of 2015, and that this position will be held by Greg Blatt, the current Chairman. Sam Yagan will continue to serve as Chief Executive Officer until that time and is expected to continue to serve in a senior leadership position with the Company thereafter.
Board of directors upon completion of the offering
Upon the completion of this offering, we expect our board of directors to have eight members, including Mr. Blatt, three IAC representatives and four directors who satisfy applicable director independence requirements (see "Director independence"). The following table sets forth information as of the date of this prospectus regarding individuals who are expected to serve as members of our board of directors upon completion of this offering.
| | | | | |
Name |
Age |
Position |
|||
---|---|---|---|---|---|
| | | | | |
|
|||||
| | | | | |
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Director biographies
Upon completion of this offering, IAC will continue to control a majority of the voting power of our outstanding capital stock. As a result, we will be a "controlled company" under the Marketplace Rules. As a controlled company, we will be exempt from the obligation to comply with certain corporate governance requirements under the Marketplace Rules, including the requirements that:
We do not currently intend to establish a separate nominating/governance committee, and nomination and corporate governance functions will be managed by the full board of directors until the Marketplace Rules change, we cease to be a "controlled company" or we otherwise determine to do so. The "controlled company" exemption does not modify the independence requirements for the audit committee, and we will comply with the requirements of the SEC and Marketplace Rules requiring that our audit committee be composed exclusively of independent directors, subject to the phase-in provisions of the applicable listing requirements and the SEC's rules, which permit up to one committee member that does not satisfy the applicable independence requirements for up to one year after the date of the offering.
Director independence
Pursuant to the Marketplace Rules, our board of directors will have a responsibility to make an affirmative determination that those members of our board of directors that serve as independent directors do not have any relationships with us and our businesses that would impair their independence. In addition to determining whether each director satisfies the independence requirements set forth in the Marketplace Rules, in the case of members of the Audit and Compensation Committees, our board will also have to make an affirmative determination that such members also satisfy separate independence requirements and current standards imposed by the SEC and Marketplace Rules for audit committee members and by the SEC, the Marketplace Rules and the Internal Revenue Service for compensation committee members. In connection with these determinations, our board will review information regarding transactions, relationships and arrangements involving us and our businesses and each director that we deems relevant to independence, including those required by the Marketplace Rules and the rules of the SEC and the Internal Revenue Service, as applicable. This information is obtained from director responses to a questionnaire that will be circulated by our management, our records and publicly available information. Following these determinations, our management will monitor those transactions, relationships and arrangements that are relevant to such determinations, as well as solicit updated information potentially relevant to independence from internal personnel and directors, in order to determine whether there have been any developments that could potentially have an adverse impact on our prior independence determinations.
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Compensation Committee interlocks and insider participation
No member of our Compensation Committee is or has been one of our officers or employees, and none has any relationships with us of the type that is required to be disclosed under Item 404 of Regulation S-K. None of our executive officers serves or has served as a member of the board of directors, compensation committee or other board committee performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our Compensation Committee.
Board committees
Our board of directors will establish standing committees in connection with the discharge of its responsibilities. Upon completion of the offering, these committees will include an Audit Committee and a Compensation Committee. Our board of directors also may establish such other committees as it deems appropriate, in accordance with applicable law and regulations and our corporate governance documents.
Audit Committee. The Audit Committee will function pursuant to a written charter adopted by the board of directors. The Audit Committee will be appointed by the board to assist the board with a variety of matters described in its charter, which include monitoring: (i) the integrity of the our financial statements, (ii) the effectiveness of our internal control over financial reporting, (iii) the qualifications and independence of our independent registered public accounting firm, (iv) the performance of our internal audit function and independent registered public accounting firm, (v) our risk assessment and risk management policies as they relate to financial and other risk exposures and (vi) our compliance with legal and regulatory requirements. In fulfilling its purpose, the Audit Committee will maintains free and open communication among itself, our independent registered public accounting firm, our internal auditors and management.
Upon completion of this offering, the Audit Committee will be composed solely of members who satisfy the applicable independence and other requirements of the Marketplace Rules and the SEC for audit committees, and at least one of its members will be an "audit committee financial expert."
Compensation Committee. The Compensation Committee will function pursuant to a written charter adopted by the board of directors. The Compensation Committee will be appointed by the board to assist the board with all matters relating to the compensation of our executive officers and will have overall responsibility for approving and evaluating all compensation plans, policies and programs of the company as they affect our executive officers. The Compensation Committee will have the ability to form and delegate authority to subcommittees, as well as delegate authority to one or more of its members. The Compensation Committee will also have the ability to delegate the authority to make grants of equity based compensation to eligible individuals (other than directors or executive officers) to one or more of our executive officers to the extent allowed under applicable law.
Upon completion of this offering, the Compensation Committee will be composed solely of members who satisfy the applicable independence and other requirements of the Marketplace Rules, the SEC and the Internal Revenue Service for compensation committee members.
Code of business conduct and ethics
Prior to the completion of this offering, our board of directors will adopt a code of business conduct and ethics, or the Code of Ethics, that will apply to all of our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer and persons performing similar functions. The Code of Ethics will be available upon written request to or on our website at . If we amend or grant any waiver from a provision of our Code of Ethics that applies to our executive officers, we will publicly disclose such amendment or waiver on our website and as required by applicable law, including by filing a Current Report on Form 8-K.
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The following section provides compensation information pursuant to the scaled disclosure rules applicable to "emerging growth companies" under the rules of the SEC, including reduced narrative and tabular disclosure obligations regarding executive compensation.
This Executive compensation section sets forth certain information regarding total compensation earned by our named executives for the years set forth below, as well as equity awards held by our named executives on December 31, 2014. Our compensation packages for executive officers primarily consist of salary, annual bonuses, equity awards and, in certain instances, perquisites and other benefits. During the years covered in the tables below, our named executives were granted a mix of equity awards denominated in IAC equity and stock options and stock appreciation rights denominated in the equity of certain IAC subsidiaries, including Match Group, Inc. Information regarding these awards is included below.
| | | | | | | | | | | | | | | | | | | | | | |
Name and principal position |
Year |
Salary ($) |
Bonus ($)(1) |
Stock awards ($)(2) |
Option awards ($)(3) |
All other compensation ($)(4) |
Total ($) |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | |
Gregory R. Blatt(4) |
2014 | $ | $ | $ | $ | $ | ||||||||||||||||
Chairman |
2013 | $ | $ | $ | $ | $ | $ | |||||||||||||||
|
2012 | $ | $ | $ | $ | |||||||||||||||||
Sam Yagan |
2014 |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||
Chief Executive Officer |
2013 | $ | $ | $ | $ | |||||||||||||||||
|
2012 | $ | $ | $ | $ | $ | ||||||||||||||||
Jeffrey Dawson |
2014 |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||
Chief Financial Officer |
2013 | $ | $ | $ | $ | |||||||||||||||||
|
2012 | $ | $ | $ | $ | $ | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
(1) Annual bonuses are discretionary. The determination of bonus amounts is based on a non-formulaic assessment of factors that vary from year to year. In determining individual annual bonus amounts, we consider a variety of factors regarding the Company's overall performance, such as growth in profitability or achievement of strategic objectives by the Company, an individual's performance and contribution to the Company, and general bonus expectations previously established between the Company and the executive. We do not quantify the weight given to any specific element or otherwise follow a formulaic calculation; however, Company performance tends to be the dominant driver of the ultimate bonus amount. For 2014 bonuses, we considered a variety of factors, including year-over-year revenue and Adjusted EBITDA growth, levels of cash flow generated from operations, and certain strategic accomplishments.
(2) Reflects the dollar value of IAC RSUs, calculated by multiplying the closing market price of IAC common stock on the grant date by the number of RSUs awarded.
(3) These amounts represent the grant date fair value of awards granted in the year indicated, computed in accordance with FASB ASC Topic 718, excluding the effect of estimated forfeitures. The grant date fair value of awards reflects an estimate as of the grant date and may not correspond to the actual value that will be recognized by the named executive officers. Option Awards granted in 2014 consist of options to purchase Match Group, Inc. common stock, or Match stock options, which were valued using a Black-Scholes option pricing model. The Black-Scholes model incorporates various assumptions, including expected volatility, expected term and risk-free interest rates. The expected stock price volatilities are estimated based on IAC's historical volatility. The risk-free interest rates are based on the U.S. Treasury yields for notes with comparable terms as the awards, in effect at the grant date. The expected term is based upon the mid-point of the first and last window for exercises. For option awards granted to the named executive officers during 2014, the Black-Scholes option pricing model assumptions were as follows:
| | | | | | | | | | | |
Name |
Grant date |
Expected term (years) |
Risk-free interest rate |
Expected volatility |
Assumed annual dividend yield |
||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | |
G. Blatt |
|||||||||||
S. Yagan |
|||||||||||
J. Dawson |
|||||||||||
| | | | | | | | | | | |
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(4) Additional information regarding all other compensation amounts for each named executive in 2014 is as follows:
| | | | | | | | | | |
|
Gregory R. Blatt |
Sam Yagan |
Jeffrey Dawson |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
Personal use of corporate aircraft(a) |
$ | |||||||||
Dividend credits(b) |
$ | $ | ||||||||
401(k) plan Company match |
$ | $ | $ | |||||||
| | | | | | | | | | |
Total |
$ | $ | $ | |||||||
| | | | | | | | | | |
(a) Reflects the incremental cost for personal use of aircraft in which IAC has purchased a fractional ownership interest. We calculate the incremental cost to us for personal use of our aircraft based on the average variable operating costs to us. The variable costs are calculated by multiplying the hours flown for personal use by the hourly flight and fuel charges, plus airport arrival or departure fees, if applicable, and does not include monthly management fees for such aircraft.
(b) Represents cash amounts paid upon the vesting of IAC RSUs in 2014 for dividends credited to unvested RSUs. The terms of IAC RSUs granted prior to January 1, 2012 provide that grantees are credited for ordinary cash dividends (in an amount equal to the number of unvested RSUs outstanding on the applicable dividend record date, multiplied by the applicable dividend rate). These amounts are paid in cash upon the vesting of the underlying IAC RSUs.
(4) Information for 2012 and 2013 reflects compensation received by Mr. Blatt in his capacity as Chief Executive Officer of IAC. Mr. Blatt was appointed as Chairman of The Match Group, a segment of IAC, in December 2013. In connection with this new role, in January 2014, an aggregate of 352,037 IAC stock options granted to Mr. Blatt in May 2013 were canceled and replaced with Match stock options, The Princeton Review stock appreciation rights and DailyBurn stock appreciation rights. The amount in the table reflects the incremental expense associated with this modification.
Outstanding equity awards at 2014 fiscal year-end
The table below provides information regarding IAC RSUs, IAC stock options and Match stock options held by our named executives on December 31, 2014. The market value of the IAC RSU award is based on the closing price of IAC common stock on December 31, 2014 ($60.79).
| | | | | | | | | | | | | | | | | | | |
|
Option awards | Stock awards | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name |
Number of securities underlying unexercised options (#)(1) |
Number of securities underlying unexercised options (#)(1) |
Option exercise price ($)(1) |
Option expiration date(1) |
Number of shares or units of stock that have not vested (#)(2) |
Market value of shares or units of stock that have not vested ($)(2) |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
(Exercisable) |
(Unexercisable) |
|
|
|
|
|||||||||||||
Gregory R. Blatt(3) |
|||||||||||||||||||
Match stock options |
|||||||||||||||||||
Match stock options |
|||||||||||||||||||
IAC RSUs |
|||||||||||||||||||
Sam Yagan |
|||||||||||||||||||
Match stock options |
|||||||||||||||||||
IAC stock options |
|||||||||||||||||||
Jeffrey Dawson |
|||||||||||||||||||
Match stock options |
|||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
(1) The number and exercise price of Match options have not yet been adjusted to reflect our post-offering capital structure.
(2) Mr. Blatt held 84,998 IAC RSUs on December 31, 2014 which were granted on May 3, 2013. One-half of the RSUs vested on May 3, 2015 and the other half will vest on May 3, 2016, subject to continued employment. No other named executive held any IAC RSUs on December 31, 2014.
(3) In connection with Mr. Blatt's employment arrangement for his role as Chairman of The Match Group, an aggregate of 352,037 IAC stock options granted to Mr. Blatt in May 2013 were canceled and replaced with Match stock options, The Princeton Review stock appreciation rights and DailyBurn stock appreciation rights, which awards have exercise prices equal to the fair market value on the grant date. The table above excludes The Princeton Review and DailyBurn stock appreciation rights. One-third of each of these awards vested on December 18, 2014, and another one-third will vest on each of December 18, 2015 and 2016, subject to continued employment. The Match Group, The Princeton Review and DailyBurn awards provide for (i) the acceleration of vesting upon the earlier of a change in control of the issuer of such award or
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a change in control of IAC at a time during which the issuer of the award is a controlled subsidiary of IAC, (ii) the acceleration of vesting of any awards that would have vested during the twelve months following the date of his involuntary termination of employment, and (iii) an 18-month period to exercise all vested options following the date of his involuntary termination of employment. Prior to the offering, the Match stock options and The Princeton Review and DailyBurn stock appreciation rights are settlable in shares of IAC common stock. Upon completion of the offering, the Match stock options will be exercisable for shares of our common stock, and The Princeton Review stock appreciation rights will be settlable, at IAC's election, in shares of IAC common stock or in shares of our common stock. See "Management's discussion and analysis of financial condition and results of operationsCritical accounting policiesStock-based compensation."
In connection with this offering, we expect to enter into new employment agreements with one or more of our named executive officers, which will replace existing arrangements in effect for fiscal 2014. The terms of those arrangements have not yet been determined. This prospectus will be updated to include a summary of those arrangements once their terms are finalized.
In connection with this offering, we expect to adopt a new incentive compensation plan, that will cover previously granted options to purchase shares of our common stock as well as new awards denominated in shares of our common stock, including stock options, stock appreciation rights, restricted stock, restricted stock units and cash awards. The terms of the new incentive compensation plan have not yet been determined fully. This prospectus will be updated to include a summary of that plan once its terms are finalized.
In connection with this offering, our board of directors has reviewed the potential risks associated with the structure and design of our various compensation plans, including a comprehensive review of the material compensation plans and programs for all employees. Our board of directors has concluded that our compensation plans and programs operate within our larger corporate governance and review structure that serves and support risk mitigation and discourages excessive or unnecessary risk-taking behavior.
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The following table sets forth information regarding the beneficial ownership of our common stock and Class B common stock immediately prior to and following the completion of this offering for:
Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. These rules generally provide that a person is the beneficial owner of securities if they have or share the power to vote or direct the voting thereof, or to dispose or direct the disposition thereof or have the right to acquire such powers within 60 days. Accordingly, the following table does not include options to purchase our common stock, which are not exercisable within the next 60 days nor any shares of common stock that our directors and executive officers may purchase in this offering, including through the directed share program described in "UnderwritingDirected share program."
The address of each director and executive officer shown in the table below is c/o Match Group, Inc., 8300 Douglas Avenue, Suite 800, Dallas, TX 75225.
| | | | | | | | | | | | | | | | | | | | | |
|
Beneficial ownership before this offering |
Beneficial ownership after this offering(1) |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares of common stock beneficially owned |
Shares of Class B common stock beneficially owned |
Total | Shares of common stock beneficially owned |
Shares of Class B common stock beneficially owned |
Total | |||||||||||||||
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Number |
Number |
Number |
% |
Number |
Number |
Number |
% |
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Greater than 5% stockholders |
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IAC/InterActiveCorp. |
100% | % | |||||||||||||||||||
Executive officers and directors |
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Gregory R. Blatt |
% | ||||||||||||||||||||
Sam Yagan |
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Gary Swidler |
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Jeff Dawson |
% | ||||||||||||||||||||
All directors and executive officers, as a group ( persons) |
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* Less than one percent.
(1) Assumes that the underwriters will not exercise their option to purchase additional shares of our common stock.
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The following is a summary of our capital stock and certain terms of our certificate of incorporation and our bylaws. This discussion summarizes some of the important rights of our stockholders but does not purport to be a complete description of these rights and may not contain all of the information regarding our capital stock that is important to you. The descriptions herein are qualified in their entirety by reference to our certificate of incorporation and bylaws, copies of which will be filed with the SEC as exhibits to the registration statement of which this prospectus is a part.
Upon the completion of this offering, our certificate of incorporation will authorize us to issue up to shares of common stock, $0.001 par value per share, shares of Class B common stock, $0.001 par value per share, shares of Class C common stock, $0.001 par value per share, and shares of preferred stock, $0.001 par value per share. Immediately following the completion of this offering, we will have shares of common stock outstanding and shares of Class B common stock outstanding. There will be no shares of Class C common stock or preferred stock outstanding immediately following this offering.
The following description summarizes the material terms of our securities. Because it is only a summary, it may not contain all the information that is important to you.
Common stock, Class B common stock and Class C common stock
The rights of holders of our common stock, Class B common stock and Class C common stock will be identical, except for the differences described below under the headings "Voting rights," "Dividend rights" and "Conversion rights." Any authorized but unissued shares of our common stock, Class B common stock and Class C common stock will be available for issuance by our board of directors without any further stockholder action.
Voting rights. Holders of common stock will be entitled to one vote per share on all matters to be voted upon by the stockholders. Holders of Class B common stock will be entitled to ten votes per share on all matter to be voted upon by stockholders. Holders of Class C common stock will not be entitled to any votes per share (except as, and then only to the extent, otherwise required by the laws of the State of Delaware, in which case holders of Class C common stock will be entitled to one-hundredth (1/100) of a vote per share). None of the holders of our common stock, Class B common stock or Class C common stock will have cumulative voting rights in the election of directors.
Dividend rights. Holders of common stock, Class B common stock and Class C common stock will be entitled to ratably receive dividends if, as and when declared from time to time by our board of directors at its own discretion out of funds legally available for that purpose, after payment of dividends required to be paid on outstanding preferred stock, if any. Under Delaware law, we can only pay dividends either out of "surplus" or out of the current or the immediately preceding year's net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation's assets can be measured in a number of ways and may not necessarily equal their book value.
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In a share distribution of our capital stock or the securities of another person or entity, we may choose to distribute: (i) identical securities, on an equal per share basis, to holders of our common stock, Class B common stock and Class C common stock or (ii) a class or series of securities to the holders of one class of our capital stock and a different class or series of securities to the holders of another class of our capital stock, in each case on an equal per share basis, provided that, in the case of clause (ii), the different classes or series to be distributed are not different in any respect other than their relative voting rights (and any related differences in designation, conversion and share distribution provisions, as applicable), with holders of shares of our Class B common stock receiving the securities having the higher voting rights.
Conversion rights. Shares of our Class B common stock will be convertible into shares of our common stock at the option of the holder thereof at any time on a share for share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of Match Group by means of a stock dividend on, or a stock split or combination of, our outstanding common stock or Class B common stock, or in the event of any merger, consolidation or other reorganization of Match Group with another corporation. Upon the conversion of a share of our Class B common stock into a share of our common stock, the applicable share of Class B common stock will be retired and will not be subject to reissue. Shares of common stock and Class C common stock will have no conversion rights.
Liquidation rights. Upon our liquidation, dissolution or winding up, holders of our common stock, Class B common stock and Class C common stock are entitled to receive ratably the assets available for distribution to the stockholders after payment of all liabilities and accrued but unpaid dividends and liquidation preferences on any outstanding preferred stock.
Other matters. Our common stock, Class B common stock and Class C common stock will have no preemptive rights pursuant to the terms of our certificate of incorporation and bylaws. There will be no redemption or sinking fund provisions applicable to our common stock, Class B common stock or Class C common stock. All outstanding shares of our Class B common stock will be fully paid and non-assessable, and the shares of our common stock offered in this offering, upon payment and delivery in accordance with the underwriting agreement, will be fully paid and non-assessable.
Preferred stock
Pursuant to our certificate of incorporation, shares of preferred stock will be issuable from time to time, in one or more series, with the designations of the series, the voting rights of the shares of the series (if any), the powers, preferences and relative, participation, optional or other special rights (if any), and any qualifications, limitations or restrictions thereof as our board of directors from time to time may adopt by resolution (and without further stockholder approval), subject to certain limitations. Each series will consist of that number of shares as will be stated and expressed in the certificate of designations providing for the issuance of the stock of the series.
Anti-takeover effects of certain provisions of Delaware law, our certificate of incorporation and bylaws
Certain provisions of Delaware law and certain provisions that will be included in our certificate of incorporation and bylaws summarized below may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover attempt that a stockholder might consider to be in its best interests, including attempts that might result in a premium being paid over the market price for the shares held by stockholders.
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Preferred stock
Under the DGCL, the certificate of incorporation of a corporation may give the board the right to issue new classes of preferred shares with voting, conversion, dividend distribution and other rights to be determined by the board at the time of issuance. Our certificate of incorporation gives our board this right.
Multi-class structure
As discussed above, our Class B common stock has ten votes per share, while our common stock, which is the class of stock we are selling in this offering and which will be the only class of stock which is publicly traded, has one vote per share. Our Class C common stock, of which no shares will be outstanding immediately following this offering, will not have any voting rights. Because of our multi-class structure, IAC will be able to control all matters submitted to our stockholders for approval even if it and owns significantly less than 50% of our total outstanding capital stock. This concentrated control could discourage others from initiating any potential merger, takeover or other change of control transaction that other stockholders may view as beneficial.
In addition, IAC is permitted to transfer its Class B common stock to third parties, including through a sale or a distribution of IAC's Class B common stock to IAC's stockholders. In a distribution, IAC may choose to distribute our Class B common stock only to holders of IAC's high-vote Class B common stock, and to distribute our common stock to holders of IAC's low-vote common stock. Any such transfer or distribution could result in persons other than IAC having a significant portion of the total voting power of our outstanding capital stock relative to their equity interest.
Classified board
The DGCL generally provides for a one-year term for directors, but permits directorships to be divided into up to three classes with up to three-year terms, with the years for each class expiring in different years, if permitted by the certificate of incorporation, an initial bylaw or a bylaw adopted by the stockholders. Our certificate of incorporation and bylaws will provide for one-year terms for directors.
Removal of directors
Under the DGCL, except in the case of a corporation with a classified board or with cumulative voting, any director or the entire board may be removed, with or without cause, by the holders of a majority of the shares entitled to vote at an election of directors. A director elected to serve a term on a "classified" board may not be removed by stockholders without cause.
Our bylaws will provide that any director or the entire board may at any time be removed with or without cause by the vote of a majority of the voting power of our shares of stock issued and outstanding.
Director vacancies
The DGCL provides that vacancies and newly created directorships may be filled by a majority of the directors then in office (even though less than a quorum) or by a sole remaining director unless (a) otherwise provided in the certificate of incorporation or bylaws of the corporation or (b) the certificate of incorporation directs that a particular class of stock is to elect such director, in which case a majority of the other directors elected by such class, or a sole remaining director elected by such class, will fill such vacancy.
Our bylaws will provide that vacancies may be filled by the vote of a majority of the remaining directors or a majority of the voting power of our shares stock issued and outstanding.
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No cumulative voting
Cumulative voting for elections of directors is not permitted unless the corporation's certificate of incorporation specifically provides for it. Our certificate of incorporation will not provide for cumulative voting.
Special meetings of stockholders
Under the DGCL, a special meeting of stockholders may be called by the board of directors or by such persons authorized in the certificate of incorporation or the bylaws.
Our bylaws will provide that special meetings of the stockholders may be called by the Chairman of our board of directors or by a majority of our board of directors.
Action by written consent
Under the DGCL, unless otherwise provided in the corporation's certificate of incorporation, any action required or permitted to be taken at any annual or special meeting of stockholders of a corporation may be taken without a meeting, without prior notice and without a vote, if one or more consents in writing, setting forth the action to be so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Our certificate of incorporation will not restrict the ability of stockholders to act by written consent, provided such consent is signed in writing by the holders of our outstanding capital stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
Amending our certificate of incorporation and bylaws
Under the DGCL, a certificate of incorporation may be amended if: (i) the board of directors adopts a resolution setting forth the proposed amendment, declares the advisability of the amendment and directs that it be submitted to a vote at a meeting of stockholders; provided that unless required by the certificate of incorporation, no meeting or vote is required to adopt an amendment for certain specified changes; and (ii) the holders of a majority of shares of stock entitled to vote on the matter approve the amendment, unless the certificate of incorporation requires the vote of a greater number of shares. If a class vote on the amendment is required by the DGCL, a majority of the outstanding stock of the class is required, unless a greater proportion is specified in the certificate of incorporation or by other provisions of the DGCL.
Under the DGCL, the board of directors may amend a corporation's bylaws if so authorized in the certificate of incorporation. The stockholders of a Delaware corporation also have the power to amend bylaws.
Our certificate of incorporation and our bylaws will allow our board of directors to amend our bylaws by the affirmative vote of a majority of all directors.
Authorized but unissued shares
Delaware companies are permitted to authorize shares but not issue such shares. Our unissued shares of common stock, Class B common stock, Class C common stock and preferred stock will be available for future issuances without stockholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. The existence
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of any authorized but unissued and unreserved common stock, Class B common stock, Class C common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Immediately following this offering, we will have authorized but unissued shares of our common stock, authorized but unissued shares of our Class B common stock and authorized but unissued shares of our Class C common stock.
Exclusive jurisdiction
Our certificate of incorporation will provide that the Delaware Court of Chancery shall be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a claim of breach of fiduciary duty, and any action asserting a claim pursuant to the DGCL, our certificate of incorporation, our bylaws or under the internal affairs doctrine.
Limitation on liability and indemnification of directors and officers
Under the DGCL, subject to specified limitations in the case of derivative suits brought by a corporation's stockholders in its name, a corporation may indemnify any person who is made a party to any action, suit or proceeding on account of being a director, officer, employee or agent of the corporation (or was serving at the request of the corporation in such capacity for another corporation, partnership, joint venture, trust or other enterprise) against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with the action, suit or proceeding, provided that there is a determination that: (i) the individual acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation; and (ii) in a criminal action or proceeding, the individual had no reasonable cause to believe his or her conduct was unlawful. Without court approval, however, no indemnification may be made in respect of any derivative action in which an individual is adjudged liable to the corporation, except to the extent the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity.
The DGCL requires indemnification of directors and officers for expenses (including attorneys' fees) actually and reasonably relating to a successful defense on the merits or otherwise of a derivative or third-party action.
Under the DGCL, a corporation may advance expenses relating to the defense of any proceeding to directors and officers upon the receipt of an undertaking by or on behalf of the individual to repay such amount if it shall ultimately be determined that such person is not entitled to be indemnified.
The DGCL permits the adoption of a provision in a corporation's certificate of incorporation limiting or eliminating the monetary liability of a director to a corporation or its stockholders by reason of a director's breach of the fiduciary duty of care. The DGCL does not permit any limitation of the liability of a director for: (i) breaching the duty of loyalty to the corporation or its stockholders; (ii) acts or omissions not in good faith; (iii) engaging in intentional misconduct or a known violation of law; (iv) obtaining an improper personal benefit from the corporation; or (v) paying a dividend or approving a stock repurchase that was illegal under applicable law.
Our certificate of incorporation and bylaws will provide for limitations on liability and the indemnification of our directors to the fullest extent permitted by the DGCL.
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Waiver of corporate opportunity for IAC and officers and directors of IAC
The DGCL permits the adoption of a provision in a corporation's certificate of incorporation renouncing any interests or expectancy of a corporation in, or in being offered an opportunity to participate in, specified business opportunities or specified classes or categories of business opportunities that are presented to the corporation or one or more of its officers, directors or stockholders.
Our certificate of incorporation will include a "corporate opportunity" provision that renounces any interests or expectancy in corporate opportunities which become known to (i) any of our directors or officers who are also officers, directors, employees or other affiliates of IAC or its affiliates (except that we and our subsidiaries shall not be deemed affiliates of IAC or its affiliates for the purposes of the foregoing) or (ii) IAC itself, and which relate to the business of IAC or may constitute a corporate opportunity for both IAC and us. The provision generally will provide that neither IAC nor our officers or directors who are also officers or directors of IAC will be liable to us or our stockholders for breach of any fiduciary duty by reason of the fact that any such person pursues or acquires any corporate opportunity for the account of IAC, directs or transfers such corporate opportunity to IAC, or does not communicate information regarding such corporate opportunity to us. This renunciation will not extend to corporate opportunities expressly offered to one of our officers or directors in writing, solely in his or her capacity as an officer or director of Match Group, Inc.
Our common stock is currently not listed on any securities exchange. We have applied to list our common stock on the NASDAQ Global Select Market under the symbol "MTCH."
Upon completion of the offering, the transfer agent and registrar for our common stock will be .
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Overview
On October 7, 2015, we entered into a credit agreement by and among ourselves, certain lenders and JPMorgan Chase Bank, N.A., as administrative agent (as amended, supplemented, or modified the "Credit Agreement").
The Credit Agreement provides for a five-year $500 million revolving credit facility (the "Revolving Credit Facility") that includes a $40 million sub-limit for letters of credit.
In addition, we have the right to add one or more incremental term loan or revolving facilities up to the greater of (x) $150 million and (y) such other amount, so long as on a pro forma basis our consolidated net leverage ratio is equal to or less than 4.50 to 1.00 and our consolidated secured net leverage ratio is equal to or less than 3.50 to 1.00 (or, under certain circumstances, 4.00 to 1.00).
The obligations under the Revolving Credit Facility are secured by the stock of certain of our subsidiaries and guaranteed by certain of our subsidiaries. Prior to the date on which we are designated as an "unrestricted subsidiary" under the Amended and Restated Credit Agreement dated as of October 7, 2015 among IAC, certain lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent (the "IAC Credit Agreement"), the indenture governing the outstanding 4.75% Senior Notes due 2022 issued by IAC (the "2022 IAC Notes") and the indenture governing the outstanding 4.875% Senior Notes due 2018 issued by IAC (the "2018 IAC Notes"), as applicable, the Revolving Credit Facility will also be guaranteed by each subsidiary of IAC that guarantees the IAC Credit Agreement, the 2022 IAC Notes and the 2018 IAC Notes. We expect to be designated as an unrestricted subsidiary by IAC prior to the closing of the offering.
Interest rate and fees
Borrowings under the Revolving Credit Facility bear interest, at our option, at either (a) a base rate or (b) LIBOR, in each case plus an applicable margin (the "Applicable Margin"). The Applicable Margin is a percentage (i) from 0.50% to 1.25% for loans bearing interest at the base rate and (ii) from 1.50% to 2.25% for LIBOR loans, with the Applicable Margin in each instance depending on our consolidated net leverage ratio.
We are required to pay a commitment fee to the lenders under the Revolving Credit Facility in respect of unutilized commitments thereunder. The commitment fee is a percentage from 0.25% to 0.40% depending on our consolidated net leverage ratio. In addition, we are required to pay customary fees in connection with the issuance of letters of credit.
Guarantees and security
All obligations under the Credit Agreement and any cash management or hedging arrangement undertaken by us or a Guarantor (as defined below) that is entered into with a lender or any of its affiliates under the Credit Agreement and designated by us as an obligation (the "Obligations") are guaranteed by each of our existing and future direct and indirect wholly-owned material domestic subsidiaries (collectively, the "Guarantors"). We and each of the Guarantors have granted the administrative agent and the lenders a valid and perfected (subject to customary exceptions) lien and security interest in all present and future shares of capital stock owned by us or such Guarantor of each of our present and future material domestic subsidiaries and 65% of each class of capital stock of any of our material first-tier foreign subsidiaries or the material first-tier foreign subsidiaries of any Guarantor (the "Collateral"). Prior to the date on which
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we are designated as an "unrestricted subsidiary" under the IAC Credit Agreement, the indenture governing the 2022 IAC Notes and the indenture governing the 2018 IAC Notes, as applicable, the Revolving Credit Facility is also guaranteed by each subsidiary of IAC that guarantees the IAC Credit Agreement, the 2022 IAC Notes and the 2018 IAC Notes.
Under certain circumstances, if we remain a "restricted subsidiary" under the IAC Credit Agreement, the indenture governing the 2022 IAC Notes and the indenture governing the 2018 IAC Notes, the obligations under the Credit Agreement and the obligations under the IAC Credit Agreement will become cross-collateralized.
Covenants
The Credit Agreement contains a number of covenants that restrict our and certain of our subsidiaries' ability to take specified actions, including, among other things and subject to certain significant exceptions: (i) creating liens; (ii) incurring indebtedness; (iii) making investments and acquisitions; (iv) engaging in mergers, dissolutions and other fundamental changes; (v) making dispositions; (vi) making restricted payments, including dividends and certain prepayments of junior debt; (vii) consummating transactions with affiliates; (viii) entering into sale-leaseback transactions; (ix) placing restrictions on distributions from subsidiaries; and (x) changing our fiscal year.
Under the Credit Agreement, we are required to maintain a maximum consolidated net leverage ratio of no greater than 5.00 to 1.00 and a minimum interest coverage ratio of no less than 2.50 to 1.00, in each case as of the end of each fiscal quarter.
Additionally, the Credit Agreement contains customary affirmative covenants and events of default. At October 16, 2015, there were no outstanding borrowings under the Revolving Credit Facility.
Guarantees of IAC indebtedness
In addition to the indebtedness described above, prior to the date on which we are designated as an "unrestricted subsidiary" under the IAC Credit Agreement, the indenture governing the 2022 IAC Notes and the indenture governing the 2018 IAC Notes, we and certain of our subsidiaries will continue to guarantee the obligations under the IAC Credit Agreement, the 2022 IAC Notes and the 2018 IAC Notes. On and after the date on which we are designated as an "unrestricted subsidiary" under the IAC Credit Agreement, the indenture governing the 2022 IAC Notes and the indenture governing the 2018 IAC Notes, which such date we expect will be prior to the closing of the offering, we and our subsidiaries will no longer be guarantors under the IAC Credit Agreement, the indenture governing the 2022 IAC Notes and the indenture governing the 2018 IAC Notes.
Anticipated term loan facility
We currently expect to enter a term loan facility under the Credit Agreement. The term loan facility is expected to be incurred as an incremental term loan facility under the Credit Agreement. The term loan facility may initially be incurred by an escrow borrower and may be governed by an escrow credit agreement until the obligations under the term loan facility are assumed by us. The term loan facility is expected to have covenants substantially the same as those applicable to the Revolving Credit Facility, except it is also expected to have an excess cash flow sweep, asset sale and event of loss prepayment requirements, 1.00% annual amortization, a seven year maturity and other customary terms for a term loan facility.
We currently expect to enter into an indenture in connection with the issuance of up to $500 million aggregate principal amount of senior notes. The indenture is expected to contain customary covenants and events of default. The notes are expected to be issued by us and are not expected to be guaranteed by any of our subsidiaries or affiliates.
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Shares eligible for future sale
Prior to this offering, there has been no public market for our common stock or Class B common stock. Future sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices. Furthermore, since only a limited number of shares will be available for sale shortly after the offering because of contractual and legal restrictions on resale described below, sales of substantial amounts of shares of common stock in the public market after the restrictions lapse could adversely affect the prevailing market price for shares of our common stock as well as our ability to raise equity capital in the future.
Upon completion of this offering, we will have shares of common stock issued and outstanding (or shares if the underwriters exercise in full their option to purchase additional shares of our common stock) and shares of Class B common stock issued and outstanding. No shares of our Class C common stock will be issued and outstanding upon consummation of this offering. shares of our common stock also will be issuable upon the exercise of outstanding stock options. In addition, pursuant to the investor rights agreement with IAC, IAC has the right to maintain its level of ownership in our Company to the extent we issue additional shares of our capital stock in the future and, pursuant to the employee matters agreement, IAC may receive payment for certain compensation expenses through receipt of additional shares of our stock. See "Certain relationships and related party transactions."
Of these shares, the shares of common stock sold in this offering (or shares, if the underwriters exercise in full their option to purchase additional shares of our common stock) will be freely tradable without further restriction or registration under the Securities Act, except that any shares purchased by our affiliates may generally only be sold in compliance with Rule 144, which is described below. The shares of Class B common stock will be deemed "restricted securities" under the Securities Act. Restricted securities may be sold in the public market only if they qualify for an exemption from registration under Rule 144 or any other applicable exemption.
IAC, who will hold all of our shares of Class B common stock following this offering, as well as certain of our executive officers and directors, will enter into lock-up agreements under which they will agree not to sell or otherwise transfer their shares for a period of 180 days after the completion of the offering. These lock-up restrictions may be extended in specified circumstances and are subject to certain exceptions. As a result of these contractual restrictions, shares of our common stock subject to lock-up agreements will not be eligible for sale until these agreements expire or the restrictions are waived by the representatives of the underwriters.
In addition, we will agree with the underwriters not to sell any shares of our common stock or securities convertible into or exchangeable for shares of our common stock for a period of 180 days after the date of this prospectus, except for sales in connection with the grant or exercise of stock based equity awards and for sales to IAC in order to comply with our obligations pursuant to the investor rights agreement and employee matters agreement to be entered with IAC. See "Certain relationships and related party transactions." Any such shares acquired by IAC would be subject to IAC's lock-up agreement described above. The representatives of the underwriters may, at any time, waive these restrictions.
See "Underwriting" for a more complete description of the lock-up agreements that we, IAC, and certain of our directors and executive officers will enter into with the representatives of the underwriters.
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Registration statement on Form S-8
We intend to file with the SEC a registration statement on Form S-8 covering the shares of common stock reserved for issuance under the Match Group, Inc. 2015 Equity Incentive Plan. That registration statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Upon effectiveness, the shares of common stock covered by that registration statement will be eligible for sale in the public market, subject to the lock-up agreements and Rule 144 restrictions described above.
All shares of our common stock held by our "affiliates," as that term is defined in Rule 144 under the Securities Act, generally may be sold in the public market only in compliance with Rule 144. Rule 144 defines an affiliate as any person who directly or indirectly controls, or is controlled by, or is under common control with, the issuer, which generally includes our directors, executive officers, 10% stockholders and certain other related persons.
Under Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is deemed to be an "affiliate" of ours would be entitled to sell within any three month period a number of shares of our common stock that does not exceed the greater of (i) 1% of the then outstanding shares of our common stock, which would be approximately shares immediately after this offering (assuming the underwriters do not elect to exercise their option to purchase additional shares of our common stock), or (ii) an amount equal to the average weekly trading volume of our common stock on the NASDAQ during the four calendar weeks preceding such sale. Sales under Rule 144 are also subject to a six-month holding period and requirements relating to manner of sale, notice and the availability of current public information about us.
Rule 144 also provides that a person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has for at least six months beneficially owned shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock without regard to the limitations described above, subject to our compliance with Exchange Act reporting obligations for at least 90 days prior to the sale, and provided that such sales comply with the current public information requirements of Rule 144. A person who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned for at least one year shares of our common stock that are restricted securities, will be entitled to freely sell such shares of our common stock under Rule 144 without regard to the current public information requirements of Rule 144, subject to our compliance with Exchange Act reporting obligations for at least 90 days prior to the sale.
In general, under Rule 701 under the Securities Act, an employee, consultant or advisor who purchases shares of our common stock from us in connection with a compensatory stock or option plan or other written agreement is eligible to resell those shares 90 days after the effective date of the registration statement of which this prospectus forms a part in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period restriction, contained in Rule 144.
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Prior to the consummation of this offering, we will enter into an investor rights agreement with IAC pursuant to which, among other things, we will grant IAC certain registration rights with respect to our common stock and our Class B common stock owned by them. For more information, see "Certain relationships and related party transactions." Pursuant to the lock-up arrangements described above, IAC and its affiliates will agree not to exercise those rights during the lock-up period without the prior written consent of J.P. Morgan Securities LLC and Allen & Company LLC.
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Certain relationships and related party transactions
We are currently a wholly-owned subsidiary of IAC. Upon completion of this offering, IAC will own all of the shares of our outstanding Class B common stock, representing approximately % of our total outstanding shares of capital stock and approximately % of the total voting power of our outstanding capital stock upon completion of this offering (or approximately % of our total outstanding shares of capital stock and approximately % of the total voting power of our outstanding capital stock, if the underwriters exercise in full their option to purchase additional shares of our common stock in this offering). IAC is not subject to any contractual obligation to retain its controlling interest in us, except that IAC is subject to the lock-up agreement described in the section "Shares eligible for future sale."
Pre-offering relationship with IAC
We have operated as a wholly-owned subsidiary of IAC since our incorporation. As a result, in the ordinary course of our business, IAC has provided us with various services, including accounting, treasury, legal, tax, risk management, corporate support and internal audit functions. Our combined statement of operations includes allocations of general and administrative costs, including stock-based compensation expense, related to these functions. For more information regarding these allocations, see Note 8 to our unaudited combined financial statements and Note 13 to our audited combined financial statements.
In connection with the financing of certain acquisitions in 2011 and 2014, we borrowed money from (and issued related notes to) certain IAC subsidiaries, which borrowings are classified as long-term debt on the combined balance sheet in our audited combined financial statements. For more information regarding this long-term debt, see Note 8 to our unaudited combined financial statements and Note 13 to our audited combined financial statements. At the time of the offering, all long-term debt which we owe to IAC subsidiaries will be repaid.
We and certain of our domestic subsidiaries currently unconditionally guarantee IAC's obligations under senior notes issued by IAC in 2012 and 2013. The indentures governing these notes contain restrictive covenants that limit the ability of IAC's subsidiaries to take certain actions generally and, in some cases, if IAC is not in compliance with the financial ratio set forth in the indentures. IAC's revolving credit facility is also currently unconditionally guaranteed by us and certain of our domestic subsidiaries and is also secured by our stock and the stock of certain of our domestic subsidiaries. Prior to the closing of the offering, we will no longer be a restricted subsidiary of IAC for purposes of its debt facilities, nor will we guarantee any debt of IAC nor will the stock of any of our subsidiaries be pledged to secure IAC's debt. For more information regarding these guarantees and pledges, see Note 8 to our unaudited combined financial statements and Note 13 to our audited combined financial statements.
We have entered into certain arrangements with IAC in the ordinary course of business, specifically: (i) the leasing of office space for certain of our businesses at properties owned by IAC, for which we paid IAC approximately $1,000,000 in 2014, and (ii) the subleasing of space in a data center from an IAC subsidiary, for which we paid such IAC subsidiary approximately $1,100,000 in 2014. These arrangements will be memorialized in the services agreement described below.
We also expect to enter into certain agreements with IAC relating to this offering and our relationship with IAC after this offering, which are described below.
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Post-offering relationship with IAC
We expect to enter into certain agreements with IAC relating to this offering and our relationship with IAC after this offering, specifically:
The material terms of each of these agreements are summarized below. The summary of each such agreement is qualified by reference in its entirety to the full text of the applicable agreement, which will be filed as an exhibit to the registration statement on Form S-1 of which this prospectus is a part. Other than these agreements, we do not currently expect to enter into any additional agreements or other transactions with IAC outside the ordinary course following this offering.
Master transaction agreement
The master transaction agreement will set forth the agreements between IAC and us regarding the principal transactions necessary to separate our business from IAC, as well as govern certain aspects of our relationship with IAC after the completion of this offering.
In the master transaction agreement, we will agree to indemnify, defend and hold harmless IAC and its current and former directors, officers and employees, from and against any losses arising out of any breach by us of the master transaction agreement or the other transaction-related agreements described in this section, any failure by us to assume and perform any of the liabilities allocated us in the master transaction agreement and certain liabilities relating to our filings made with the SEC, including this registration statement, and information provided by us to IAC for IAC's filings made with the SEC. IAC will agree to indemnify, defend and hold harmless us and each of our current and former directors, officers and employees, from and against losses arising out of any breach by IAC of the master transaction agreement or the other transaction-related agreements described in this section, any failure by IAC to perform its obligations under the master transaction agreement, and certain liabilities relating to information provided by IAC for our filings made with the SEC, including this registration statement.
In addition, the master transaction agreement will also govern other matters related to the consummation of this offering, the provision and retention of records, access to information and confidentiality, cooperation with respect to governmental filings and third party consents and access to property.
Investor rights agreement
We will enter into an investor rights agreement with IAC providing IAC: (i) specified registration and other rights relating to its shares of our common stock and (ii) anti-dilution rights.
Registration rights IAC will be entitled to request registrations under the Securities Act of all or any portion of our shares covered by the investor rights agreement, and we will be obligated to register such shares as requested by IAC, subject to certain limitations. After this offering, we will be required to use our reasonable best efforts to qualify to register the sale of our securities on Form S-3, and, after we are so qualified, IAC may request registration under the Securities Act on Form S-3, subject to certain limitations.
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If we at any time intend to file on our behalf or on behalf of any of our other security holders a registration statement in connection with a public offering of any of our securities on a form and in a manner that would permit the registration for offer and sale of our common stock held by IAC, IAC would have the right to include its shares of our common stock in that offering.
We will generally be responsible for the registration expenses in connection with the performance of our obligations under the registration rights provisions in the investor rights agreement.
The investor rights agreement will contain indemnification and contribution provisions by us for the benefit of IAC and its affiliates and representatives and, in limited situations, by IAC for the benefit of us and any underwriters with respect to written information furnished to us by IAC and stated by IAC to be specifically included in any registration statement, prospectus or related document.
IAC anti-dilution right In the event that we issue or propose to issue any shares of capital stock (with certain limited exceptions), including shares issued upon the exercise, conversion or exchange of options, warrants and convertible securities, IAC will generally have a purchase right that permits it to purchase for fair market value, as defined in the agreement, up to such number of shares of the same class as the issued shares as would enable IAC to maintain the same ownership interest in us that it had immediately prior to such issuance or proposed issuance.
Tax sharing agreement
In connection with this offering, we will enter into a tax sharing agreement with IAC that will govern our respective rights, responsibilities and obligations with respect to tax matters, including responsibility for taxes attributable to us and our subsidiaries, entitlement to refunds, allocation of tax attributes, preparation of tax returns, certain tax elections, control of tax contests, and other matters.
Under the tax sharing agreement, we generally will be responsible and will be required to indemnify IAC for: (i) all taxes imposed with respect to any consolidated, combined or unitary tax return of IAC or one of its subsidiaries that includes us or any of our subsidiaries to the extent attributable to us or any of our subsidiaries, as determined under the tax sharing agreement, and (ii) all taxes imposed with respect to any of our or our subsidiaries' consolidated, combined, unitary or separate tax returns.
Under the tax sharing agreement, IAC generally will have the right to control audits or other tax proceedings with respect to any consolidated, combined or unitary tax return that includes IAC or any of its subsidiaries and us or any of our subsidiaries, provided that we will have certain participation rights with respect to any such audit or tax proceeding that could result in additional taxes for which we are liable under the tax sharing agreement. We generally will have the right to control any audits or other tax proceedings with respect to any of our or our subsidiaries' consolidated, combined, unitary or separate tax returns.
As of the date of this prospectus, IAC has advised us that it does not have a present plan or intention to undertake a tax-free spin-off of its retained interest in us. Because IAC intends to retain the ability to engage in such a spin-off in the future, the tax sharing agreement also addresses the parties' respective rights, responsibilities and obligations with respect to such a transaction. Under the tax sharing agreement, each party generally will be responsible for any taxes and related amounts imposed on IAC or us that arise from the failure of a future spin-off of IAC's retained interest in us to qualify as a transaction that is generally tax-free, for U.S. federal income tax purposes, under Section 368(a)(1)(D) and/or Section 355 of the Code, to the extent that the failure to so qualify is attributable to: (i) a breach of the relevant representations and covenants made by that party in the tax sharing agreement or any representation
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letter provided in support of any tax opinion or ruling obtained by IAC with respect to the U.S. federal income tax treatment of such spin-off, or (ii) an acquisition of such party's equity securities. In addition, the tax sharing agreement will impose certain restrictions on us and our subsidiaries during the two-year period following a future spin-off that are designed to preserve the tax-free status thereof. Specifically, during such period, except in specific circumstances, we and our subsidiaries generally would be prohibited from: (A) ceasing to conduct our business, (B) entering into certain transactions pursuant to which all or a portion of the shares of our common stock or certain of our and our subsidiaries' assets would be acquired, (C) liquidating, merging or consolidating with any other person, (D) issuing equity securities beyond certain thresholds, (E) repurchasing our shares other than in certain open-market transactions, or (F) taking or failing to take any other action that would cause the spin-off to fail to qualify as a transaction that is generally tax-free for U.S. federal income tax purposes.
Services agreement
We will also enter into a services agreement, pursuant to which IAC and we currently expect that IAC will provide some combination of the following services, among others, to us following completion of the offering:
The charges for these services will be on a cost plus fixed percentage or hourly rate basis to be agreed upon prior to the completion of the offering. In general, the services to be provided by IAC will begin on the date of the completion of the offering and will continue for the periods specified in the agreement, subject to IAC's continued ownership of a majority of our capital stock and any subsequent extension or truncation agreed to by us and IAC. We may terminate the agreement with respect to one or more particular services being received upon such notice as will be provided for in the services agreement.
Employee matters agreement
The employee matters agreement will cover a wide range of compensation and benefit issues related to the offering. In general, under the employee matters agreement:
After the offering, we will continue to participate in IAC's U.S. health and welfare plans, 401(k) plan and flexible benefits plan and will reimburse IAC for the costs of such participation. In the event IAC no longer
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retains shares representing at least 80% of the aggregate voting power of shares entitled to vote in the election of our board of directors, including in the event of a subsequent spin-off of IAC's retained interest in us, we no longer will participate in IAC's employee benefit plans, but will have established our own employee benefit plans that will be substantially similar to the plans sponsored by IAC prior to the spin-off.
The employee matters agreement also will provide that we will reimburse IAC for the cost of any IAC equity awards held by our employees and former employees; payment of the associated cost to IAC will be made in shares of our common stock. The agreement further will provide that, with respect to equity awards in certain of our subsidiaries, IAC may elect to cause those awards to be settled in either shares of IAC common stock or in shares of our common stock; to the extent shares of IAC common stock are issued in settlement, we will reimburse IAC for the cost of those shares by issuing IAC additional shares of our common stock.
Under the employee matters agreement, the Compensation Committee of the IAC Board of Directors will have the exclusive authority to determine the treatment of outstanding IAC equity awards in the event of a subsequent spinoff of IAC's retained interest in us.
Policies and procedures regarding related party transactions
Prior to completion of the offering, our board of directors will adopt a written policy governing the approval of related party transactions that complies with all applicable requirements of the SEC and the Marketplace Rules concerning related party transactions. For purposes of this policy, consistent with the Marketplace Rules, the terms "related person" and "transaction" will be determined by reference to Item 404(a) of Regulation S-K under the Securities Act, or Item 404. Our management will be required to determine whether any proposed transaction, arrangement or relationship with a related person falls within the definition of "transaction" set forth in Item 404, and if so, review such transaction with the Audit Committee. In connection with such determinations, our management and the Audit Committee will consider: (i) the parties to the transaction and the nature of their affiliation with us and the related person, (ii) the dollar amount involved in the transaction, (iii) the material terms of the transaction, including whether the terms of the transaction are ordinary course and/or otherwise negotiated at arm's length, (iv) whether the transaction is material, on a quantitative and/or qualitative basis, to us and/or the related person and (v) any other facts and circumstances that our management or the Audit Committee deems appropriate.
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Certain material United States federal income tax considerations for non-U.S. holders
The following is a general discussion of material U.S. federal income tax considerations with respect to the ownership and disposition of our common stock applicable to non-U.S. holders who acquire such shares in this offering. This discussion is based on current provisions of the Code, U.S. Treasury regulations promulgated thereunder, and administrative rulings and court decisions in effect as of the date hereof, all of which are subject to change at any time, possibly with retroactive effect.
For purposes of this discussion, the term "non-U.S. holder" means a beneficial owner of our common stock that is not, for U.S. federal income tax purposes, a partnership or any of the following:
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds shares of our common stock, the tax treatment of a person treated as a partner generally will depend on the status of the partner and the activities of the partnership. Persons that for U.S. federal income tax purposes are treated as a partner in a partnership holding shares of our common stock should consult their tax advisors.
This discussion assumes that a non-U.S. holder holds shares of our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address all aspects of U.S. federal income taxation that may be important to a non-U.S. holder in light of that holder's particular circumstances or that may be applicable to holders subject to special treatment under U.S. federal income tax law (including, for example, financial institutions, dealers in securities, traders in securities that elect mark-to-market treatment, insurance companies, tax-exempt entities, holders who acquired our common stock pursuant to the exercise of employee stock options or otherwise as compensation, entities or arrangements treated as partnerships for U.S. federal income tax purposes, holders liable for the alternative minimum tax, certain former citizens or former long-term residents of the United States, holders who hold our common stock as part of a hedge, straddle, constructive sale or conversion transaction, and holders who own or have owned (directly, indirectly or constructively) 5% or more of our common stock (by vote or value)). In addition, this discussion does not address U.S. federal tax laws other than those pertaining to the U.S. federal income tax, nor does it address any aspects of the unearned income Medicare contribution tax pursuant to the Health Care and Education Reconciliation Act of 2010, or U.S. state, local or non-U.S. taxes. Accordingly, prospective investors should consult with their own tax advisors regarding the U.S. federal, state, local, non-U.S. income and other tax considerations of acquiring, holding and disposing of shares of our common stock.
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THIS SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK. WE RECOMMEND THAT PROSPECTIVE HOLDERS OF OUR COMMON STOCK CONSULT WITH THEIR TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM (INCLUDING THE APPLICATION AND EFFECT OF ANY STATE, LOCAL, NON-U.S. INCOME AND OTHER TAX LAWS) OF THE OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK.
In general, any distributions we make to a non-U.S. holder with respect to its shares of our common stock that constitute dividends for U.S. federal income tax purposes will be subject to U.S. withholding tax at a rate of 30% of the gross amount (or a reduced rate prescribed by an applicable income tax treaty), unless the dividends are effectively connected with a trade or business carried on by the non-U.S. holder within the United States (and, if an income tax treaty applies, are attributable to a permanent establishment of the non-U.S. holder within the United States). A distribution will constitute a dividend for U.S. federal income tax purposes to the extent of our current or accumulated earnings and profits as determined for U.S. federal income tax purposes. Any distribution not constituting a dividend will be treated as first reducing the adjusted basis in the non-U.S. holder's shares of our common stock and, to the extent it exceeds the adjusted basis in the non-U.S. holder's shares of our common stock, as gain from the sale or exchange of such shares.
Dividends effectively connected with a U.S. trade or business (and, if an income tax treaty applies, attributable to a U.S. permanent establishment) of a non-U.S. holder generally will not be subject to U.S. withholding tax if the non-U.S. holder complies with applicable certification and disclosure requirements. Instead, such dividends generally will be subject to U.S. federal income tax on a net income basis, in the same manner as if the non-U.S. holder were a resident of the United States. A non-U.S. holder that is a corporation may be subject to an additional "branch profits tax" at a rate of 30% (or such lower rate as may be specified by an applicable income tax treaty) on its "effectively connected earnings and profits," subject to certain adjustments.
Gain on sale or other disposition of our common stock
In general, a non-U.S. holder will not be subject to U.S. federal income or, subject to the discussion below under the heading "Information Reporting and Backup Withholding" and "Foreign Account Tax Compliance Act," withholding tax on any gain realized upon the sale or other disposition of our common stock unless:
Gain that is effectively connected with the conduct of a trade or business in the United States generally will be subject to U.S. federal income tax, net of certain deductions, at regular U.S. federal income tax rates. If the non-U.S. holder is a foreign corporation, the branch profits tax described above also may apply to such effectively connected gain. An individual non-U.S. holder who is subject to U.S. federal
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income tax because the non-U.S. holder was present in the United States for 183 days or more during the year of sale or other disposition of our common stock will be subject to a flat 30% tax on the gain derived from such sale or other disposition, which may be offset by U.S. source capital losses.
Information reporting and backup withholding
We must report annually to the Internal Revenue Service and to each non-U.S. holder the amount of dividends paid to, and the tax withheld with respect to, each non-U.S. holder. These reporting requirements apply regardless of whether withholding was reduced or eliminated by an applicable tax treaty. Copies of this information also may be made available under the provisions of a specific treaty or agreement with the tax authorities in the country in which the non-U.S. holder resides or is established.
U.S. backup withholding tax (currently, at a rate of 28%) is imposed on certain payments to persons that fail to furnish the information required under the U.S. information reporting rules. Dividends paid to a non-U.S. holder generally will be exempt from backup withholding if the non-U.S. holder provides a properly executed IRS Form W-8BEN, IRS Form W-8BEN-E, or otherwise establishes an exemption.
Under U.S. Treasury regulations, the payment of proceeds from the disposition of our common stock by a non-U.S. holder effected at a U.S. office of a broker generally will be subject to information reporting and backup withholding, unless the beneficial owner, under penalties of perjury, certifies, among other things, its status as a non-U.S. holder or otherwise establishes an exemption. The payment of proceeds from the disposition of our common stock by a non-U.S. holder effected at a non-U.S. office of a broker generally will not be subject to backup withholding and information reporting, except as noted below. In the case of proceeds from a disposition of our common stock by a non-U.S. holder effected at a non-U.S. office of a broker that is:
information reporting will apply unless the broker has documentary evidence in its files that the owner is a non-U.S. holder and certain other conditions are satisfied, or the beneficial owner otherwise establishes an exemption (and the broker has no knowledge or reason to know to the contrary). Backup withholding will apply if the sale is subject to information reporting and the broker has actual knowledge that you are a United States person.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules from a payment to a non-U.S. holder can be refunded or credited against the non-U.S. holder's U.S. federal income tax liability, if any, provided that the required information is furnished to the Internal Revenue Service in a timely manner.
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Foreign account tax compliance act
Under Sections 1471 through 1474 of the Code and the Treasury regulations promulgated thereunder, collectively, FATCA, a U.S. federal withholding tax of 30% generally will be imposed on certain payments made to a "foreign financial institution" (as specifically defined under these rules) unless such institution enters into an agreement with the U.S. tax authorities to withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or meets other exceptions. Under the legislation and administrative guidance, a U.S. federal withholding tax of 30% generally also will be imposed on certain payments made to a non-financial foreign entity unless such entity provides the withholding agent with a certification identifying its direct and indirect U.S. owners or meets other exceptions. Foreign entities located in jurisdictions that have an intergovernmental agreement with the United States governing these withholding and reporting requirements may be subject to different rules. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. These withholding taxes would be imposed on dividends paid with respect to our common stock to, and on gross proceeds from sales or other dispositions of our common stock after December 31, 2018 by, foreign financial institutions or non-financial entities (including in their capacity as agents or custodians for beneficial owners of our common stock) that fail to satisfy the above requirements. Prospective non-U.S. holders should consult with their tax advisors regarding the possible implications of FATCA on their investment in our common stock.
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We are offering the shares of common stock described in this prospectus through a number of underwriters. J.P. Morgan Securities LLC, Allen & Company LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated are acting as joint book-running managers of the offering and J.P. Morgan Securities LLC and Allen & Company LLC are acting as representatives of the underwriters. We will enter into an underwriting agreement with the underwriters. Subject to the terms and conditions of the underwriting agreement, we will severally agree to sell to the underwriters, and each underwriter will severally agree to purchase, at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
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Name |
Number of shares of common stock |
|||
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| | | | |
J.P. Morgan Securities LLC |
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Allen & Company LLC |
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Merrill Lynch, Pierce, Fenner & Smith |
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| | | | |
Total |
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| | | | |
The underwriters will be committed to purchase all the shares of common stock offered by us if they purchase any shares. The underwriting agreement will also provide that if an underwriter defaults, the purchase commitments of non-defaulting underwriters may also be increased or the offering may be terminated.
The underwriters propose to offer the shares of common stock directly to the public at the initial public offering price set forth on the cover page of this prospectus and to certain dealers at that price less a concession not in excess of $ per share. After the initial public offering of the shares, the offering price and other selling terms may be changed by the underwriters. Sales of shares made outside of the United States may be made by affiliates of the underwriters.
The underwriters will have an option to buy up to additional shares of common stock from us to cover sales of shares by the underwriters which exceed the number of shares specified in the table above. The underwriters will have 30 days from the date of this prospectus to exercise this option to purchase additional shares. If any shares are purchased with this option, the underwriters will purchase shares in approximately the same proportion as shown in the table above. If any additional shares of common stock are purchased, the underwriters will offer the additional shares on the same terms as those on which the shares of common stock are being offered hereby.
The underwriting discounts and commissions will be equal to the public offering price per share of common stock less the amount paid by the underwriters to us per share of common stock. The underwriting discounts and commissions are $ per share.
The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters assuming both no exercise and full exercise of the underwriters' option to purchase additional shares of common stock.
| | | | | | | |
|
No exercise |
Full exercise |
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| | | | | | | |
Per share |
$ | $ | |||||
Total |
$ | $ | |||||
| | | | | | | |
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We estimate that the total expenses of this offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding the underwriting discounts and commissions, will be approximately $ .
A prospectus in electronic format may be made available on the websites maintained by one or more underwriters, or selling group members, if any, participating in the offering. The underwriters may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the representative to underwriters and selling group members that may make internet distributions on the same basis as other allocations.
We, IAC, and certain of our directors and executive officers will agree, subject to certain exceptions, not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock or any securities convertible into or exchangeable or exercisable for any shares of our common stock (including, without limitation, common stock or such other securities which may be deemed to be beneficially owned by us, IAC or such directors and executive officers in accordance with the rules and regulations of the SEC and securities which may be issued upon exercise of a stock option or warrant), or publicly disclose the intention to make any offer, sale, pledge or disposition, (2) enter into any swap or other agreement that transfers, in whole or in part, any of the economic consequences of ownership of any shares of our common stock or any such other securities (whether any such transactions described in clause (1) or (2) above is to be settled by the delivery of shares of common stock or such other securities, in cash or otherwise) or (3) make any demand for or exercise any right with respect to the registration of any shares of our common stock or any security convertible into or exercisable or exchangeable for our common stock, in each case without the prior written consent of J.P. Morgan Securities LLC and Allen & Company LLC for a period of 180 days after the date of this prospectus.
We will agree to indemnify the underwriters and their controlling persons against certain liabilities, including liabilities under the Securities Act.
We have applied to list our shares of common stock on the NASDAQ Global Select Market under the symbol "MTCH."
In connection with this offering, the underwriters may engage in stabilizing transactions, which involves making bids for, purchasing and selling shares of common stock in the open market for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress. These stabilizing transactions may include making short sales of the common stock, which involves the sale by the underwriters of a greater number of shares of common stock than they are required to purchase in this offering, and purchasing shares of common stock on the open market to cover positions created by short sales. Short sales may be "covered" shorts, which are short positions in an amount not greater than the underwriters' option to purchase additional shares referred to above, or may be "naked" shorts, which are short positions in excess of that amount. The underwriters may close out any covered short position either by exercising their option to purchase additional shares, in whole or in part, or by purchasing shares in the open market. In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in the open market compared to the price at which the underwriters may purchase shares through the over-allotment option. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that could adversely affect investors who purchase in this offering. To the extent that the underwriters create a naked short position, they will purchase shares in the open market to cover the position.
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The underwriters have advised us that, pursuant to Regulation M of the Securities Act, they may also engage in other activities that stabilize, maintain or otherwise affect the price of the common stock, including the imposition of penalty bids. This means that if the representative of the underwriters purchases common stock in the open market in stabilizing transactions or to cover short sales, the representative can require the underwriters that sold those shares as part of this offering to repay the underwriting discount received by them.
These activities may have the effect of raising or maintaining the market price of the common stock or preventing or retarding a decline in the market price of the common stock, and, as a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If the underwriters commence these activities, they may discontinue them at any time. The underwriters may carry out these transactions on the NASDAQ Global Select Market, in the over-the-counter market or otherwise.
Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between us and the representative of the underwriters. In determining the initial public offering price, we and the representative of the underwriters expect to consider a number of factors including:
Neither we nor the underwriters can assure investors that an active trading market will develop for our common stock, or that the shares will trade in the public market at or above the initial public offering price.
At our request, the underwriters have reserved for sale, at the initial public offering price, up to % of the shares of common stock offered by this prospectus for sale to our employees and directors and those of IAC. These sales will be made by an affiliate of , an underwriter of this offering, through a directed share program. If these persons purchase reserved shares it will reduce the number of shares of common stock available for sale to the general public. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same terms as the other shares of common stock offered by this prospectus.
Relationships with underwriters
The underwriters and their respective affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing, and brokerage
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activities. Certain of the underwriters and their affiliates have provided in the past to us and our affiliates and may provide from time to time in the future certain commercial banking, financial advisory, investment banking and other services for us and such affiliates in the ordinary course of their business, for which they have received and may continue to receive customary fees and commissions. In connection with the Credit Agreement, an affiliate of J.P. Morgan Securities LLC will act as administrative agent and an affiliate of Merrill Lynch, Pierce, Fenner & Smith Incorporated will act as syndication agent. In addition, from time to time, certain of the underwriters and their affiliates may effect transactions for their own account or the account of customers, and hold on behalf of themselves or their customers, long or short positions in our debt or equity securities or loans.
Selling restrictions outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The shares of common stock offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Notice to prospective investors in the United Kingdom
This document is only being distributed to and is only directed at (i) persons who are outside the United Kingdom or (ii) to investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, referred to as the Order, or (iii) high net worth entities, and other persons to whom it may lawfully be communicated, falling with Article 49(2)(a) to (d) of the Order, all such persons together being referred to as relevant persons. The shares of common stock are only available to, and any invitation, offer or agreement to subscribe, purchase or otherwise acquire such securities will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
Notice to prospective investors in the European Economic Area
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive, each referred to as a Relevant Member State, an offer to the public of the securities described in this prospectus may not be made in that Relevant Member State, except than an offer to the public in that Relevant Member State of the securities may be made at any time under the following exemptions under the Prospectus Directive:
provided that no such offer of securities described in this prospectus shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the EU Prospectus Directive.
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For the purposes of this provision, the expression an "offer to the public" in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the securities to be offered so as to enable an investor to decide to purchase or subscribe to the securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression "Prospectus Directive" means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU) and includes any relevant implementing measure in the Relevant Member State.
Notice to prospective investors in Switzerland
The shares may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange, or the SIX, or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the shares or the offering may be publicly distributed or otherwise made publicly available in Switzerland. Neither this prospectus nor any other offering or marketing material relating to the offering, the Company, the shares have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of shares will not be supervised by, the Swiss Financial Market Supervisory Authority FINMA, and the offer of shares has not been and will not be authorized under the Swiss Federal Act on Collective Investment Schemes, or the CISA. The investor protection afforded to acquirers of interests in collective investment schemes under the CISA does not extend to acquirers of shares.
Notice to prospective investors in Hong Kong
The shares may not be offered or sold by means of any document other than (i) in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), or (ii) to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap.571, Laws of Hong Kong) and any rules made thereunder, or (iii) in other circumstances which do not result in the document being a "prospectus" within the meaning of the Companies Ordinance (Cap.32, Laws of Hong Kong), and no advertisement, invitation or document relating to the shares may be issued or may be in the possession of any person for the purpose of issue (in each case whether in Hong Kong or elsewhere), which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" within the meaning of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and any rules made thereunder.
Notice to prospective investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or the SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
134
Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (1) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (2) where no consideration is given for the transfer; or (3) by operation of law.
Notice to prospective investors in Japan
The securities have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (the Financial Instruments and Exchange Law) and each underwriter will agree that it will not offer or sell any securities, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
Notice to prospective investors in Canada
The securities may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser's province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser's province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 (or, in the case of securities issued or guaranteed by the government of a non-Canadian jurisdiction, section 3A.4) of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
135
The validity of the securities offered in this offering and certain legal matters in connection with this offering will be passed upon for us by Wachtell, Lipton, Rosen & Katz. Certain legal matters in connection with this offering will be passed upon for the underwriters by Skadden, Arps, Slate, Meagher & Flom LLP.
The combined financial statements of Match Group, Inc. and Subsidiaries at December 31, 2013 and 2014, and for each of the years in the three-year period ended December 31, 2014, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of Plentyoffish Media Inc. and Subsidiaries at December 31, 2013 and 2014, and for the years then ended, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
Where you can find more information
This prospectus, which constitutes a part of a Registration Statement on Form S-1 filed with the SEC, does not contain all of the information set forth in the Registration Statement and the related exhibits and schedules. Some items are omitted in accordance with the rules and regulations of the SEC. Accordingly, we refer you to the complete Registration Statement, including its exhibits and schedules, for further information about us and the shares of common stock to be sold in this offering. Statements or summaries in this prospectus as to the contents of any contract or other document referred to in this prospectus are not necessarily complete and, where that contract or document is filed as an exhibit to the Registration Statement, each statement or summary is qualified in all respects by reference to the exhibit to which the reference relates. You may read and copy the Registration Statement, including the exhibits and schedules to the Registration Statement, at the SEC's Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Information about the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Our filings with the SEC, including the Registration Statement, are also available to you for free on the SEC's internet website at www.sec.gov.
Upon completion of the offering, we will become subject to the informational and reporting requirements of the Exchange Act and, in accordance with those requirements, will file reports and proxy and information statements with the SEC. You will be able to inspect and copy these reports and proxy and information statements and other information at the addresses set forth above. We intend to furnish to our stockholders our annual reports containing our audited consolidated financial statements certified by an independent public accounting firm.
We also maintain an internet website at . Information on or accessible through our website is not part of this prospectus.
136
Index to the financial statements
F-1
Match Group, Inc. and Subsidiaries
Combined balance sheet
(Unaudited)
|
|
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
|
December 31, 2014 |
June 30, 2015 |
Pro forma June 30, 2015 |
|||||||
| | | | | | | | | | |
|
(In thousands, except share data) |
|||||||||
ASSETS |
||||||||||
Cash and cash equivalents |
$ | 127,630 | $ | 136,373 | $ | |||||
Accounts receivable, net of allowance and reserves of $1,133 and $1,153, respectively |
33,735 | 49,462 | ||||||||
Other current assets |
33,737 | 40,276 | ||||||||
| | | | | | | | | | |
Total current assets |
195,102 | 226,111 | ||||||||
Property and equipment, net of accumulated depreciation and amortization of $58,159 and $67,634, respectively |
42,997 | 38,470 | ||||||||
Goodwill |
793,763 | 815,718 | ||||||||
Intangible assets, net of accumulated amortization of $17,824 and $20,278, respectively |
207,613 | 204,624 | ||||||||
Long-term investments |
62,979 | 66,957 | ||||||||
Other non-current assets |
5,580 | 6,550 | ||||||||
| | | | | | | | | | |
TOTAL ASSETS |
$ | 1,308,034 | $ | 1,358,430 | $ | |||||
| | | | | | | | | | |
LIABILITIES AND SHAREHOLDER EQUITY |
||||||||||
LIABILITIES: |
||||||||||
Accounts payable |
$ | 11,797 | $ | 16,031 | $ | |||||
Deferred revenue |
134,790 | 154,384 | ||||||||
Accrued expenses and other current liabilities |
94,719 | 104,337 | ||||||||
| | | | | | | | | | |
Total current liabilities |
241,306 | 274,752 | ||||||||
Long-term debtrelated party |
190,586 | 185,302 | ||||||||
Income taxes payable |
11,442 | 10,696 | ||||||||
Deferred income taxes |
47,800 | 49,853 | ||||||||
Other long-term liabilities |
13,446 | 35,899 | ||||||||
Redeemable noncontrolling interests |
3,678 |
5,830 |
||||||||
Commitments and contingencies |
||||||||||
SHAREHOLDER EQUITY: |
||||||||||
Common stock; $0.001 par value; authorized shares; issued shares and outstanding shares, as of June 30, 2015 on a pro forma basis |
| | ||||||||
Class B common stock; $0.001 par value; authorized shares; issued shares and outstanding shares, as of June 30, 2015 on a pro forma basis |
| | ||||||||
Class C common stock; $0.001 par value; authorized shares; issued shares and no outstanding shares, as of June 30, 2015 on a pro forma basis |
| | ||||||||
Additional paid-in capital |
| | ||||||||
Invested capital |
877,635 | 912,170 | ||||||||
Accumulated other comprehensive loss |
(78,048 | ) | (116,072 | ) | ||||||
| | | | | | | | | | |
Total Match Group, Inc. shareholder equity |
799,587 | 796,098 | ||||||||
Noncontrolling interests |
189 | | ||||||||
| | | | | | | | | | |
Total shareholder equity |
799,776 | 796,098 | ||||||||
| | | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDER EQUITY |
$ | 1,308,034 | $ | 1,358,430 | $ | |||||
| | | | | | | | | | |
Note: We currently intend to pay $ of our net proceeds from this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and intend to use the remainder of our net proceeds from this offering for general corporate purposes. The unaudited pro forma share data reflects the number of additional shares that would have been required to be issued to generate sufficient proceeds to fund these payments based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus).
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-2
Match Group, Inc. and Subsidiaries
Combined statement of operations
(Unaudited)
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands, except per share data) |
||||||
Revenue |
$ | 421,691 | $ | 483,886 | |||
Operating costs and expenses: |
|||||||
Cost of revenue (exclusive of depreciation shown separately below) |
48,632 | 83,482 | |||||
Selling and marketing expense |
184,591 | 200,146 | |||||
General and administrative expense |
51,327 | 75,322 | |||||
Product development expense |
24,112 | 33,929 | |||||
Depreciation |
11,348 | 13,667 | |||||
Amortization of intangibles |
3,520 | 9,778 | |||||
| | | | | | | |
Total operating costs and expenses |
323,530 | 416,324 | |||||
| | | | | | | |
Operating income |
98,161 | 67,562 | |||||
Interest expenserelated party |
(20,870 | ) | (4,561 | ) | |||
Other (expense) income, net |
(490 | ) | 6,806 | ||||
| | | | | | | |
Earnings before income taxes |
76,801 | 69,807 | |||||
Income tax provision |
(27,851 | ) | (20,496 | ) | |||
| | | | | | | |
Net earnings |
48,950 | 49,311 | |||||
Net (earnings) loss attributable to noncontrolling interests |
(307 | ) | 220 | ||||
| | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 48,643 | $ | 49,531 | |||
| | | | | | | |
Unaudited pro forma net earnings per share attributable to Match Group, Inc.'s shareholder: |
|||||||
Basic |
$ | | |||||
Diluted |
$ | | |||||
Unaudited pro forma weighted average shares outstanding: |
|||||||
Basic |
| ||||||
Diluted |
| ||||||
Stock-based compensation expense by function: |
|||||||
Cost of revenue |
$ | 174 | $ | 209 | |||
Selling and marketing expense |
142 | 3,361 | |||||
General and administrative expense |
8,901 | 11,980 | |||||
Product development expense |
1,589 | 2,375 | |||||
| | | | | | | |
Total stock-based compensation expense |
$ | 10,806 | $ | 17,925 | |||
| | | | | | | |
Note: We currently intend to pay $ million of our net proceeds from this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and intend to use the remainder of our net proceeds from this offering for general corporate purposes. The unaudited pro forma share data reflects the number of additional shares that would have been required to be issued to generate sufficient proceeds to fund these payments based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus).
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-3
Match Group, Inc. and Subsidiaries
Combined statement of comprehensive income
(Unaudited)
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
Six months ended June 30, | ||||||
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Net earnings |
$ | 48,950 | $ | 49,311 | |||
Other comprehensive income (loss), net of tax: |
|||||||
Change in foreign currency translation adjustment |
5,307 | (42,203 | ) | ||||
Change in fair value of available-for-sale security |
156 | 3,978 | |||||
| | | | | | | |
Total other comprehensive income (loss) |
5,463 | (38,225 | ) | ||||
| | | | | | | |
Comprehensive income |
54,413 | 11,086 | |||||
Comprehensive (income) loss attributable to noncontrolling interests |
(426 | ) | 421 | ||||
| | | | | | | |
Comprehensive income attributable to Match Group, Inc.'s shareholder |
$ | 53,987 | $ | 11,507 | |||
| | | | | | | |
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-4
Match Group, Inc. and Subsidiaries
Combined statement of shareholder equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
Match Group, Inc. shareholder equity | |
|
||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Common Stock $0.001 Par Value |
Class B Common Stock $0.001 Par Value |
Class C Common Stock $0.001 Par Value |
|
|
|
|
|
|
||||||||||||||||||||
|
Redeemable noncontrolling interests |
|
Additional paid-in capital |
|
Accumulated other comprehensive |
Total Match Group, Inc. shareholder |
|
|
|||||||||||||||||||||||
|
|
|
|
Total shareholder |
|||||||||||||||||||||||||||
|
|
$ |
Shares |
$ |
Shares |
$ |
Shares |
Invested |
Noncontrolling |
||||||||||||||||||||||
|
|
|
(Pro forma) |
(Pro forma) |
(Pro forma) |
(Pro forma) |
capital |
loss |
equity |
interests |
equity |
||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
(In thousands) |
||||||||||||||||||||||
Balance as of December 31, 2014 |
$3,678 | $ | | $ | | $ | | $ | $ | 877,635 | $ (78,048 | ) | $799,587 | $ 189 | $ | 799,776 | |||||||||||||||
Net earnings (loss) for the six months ended June 30, 2015 |
(220 | ) | | | | | | | | 49,531 | | 49,531 | | 49,531 | |||||||||||||||||
Other comprehensive loss, net of tax |
(201 | ) | | | | | | | | | (38,024 | ) | (38,024 | ) | | (38,024 | ) | ||||||||||||||
Stock-based compensation expense |
2,669 | | | | | | | | 12,093 | 12,093 | 12,093 | ||||||||||||||||||||
Purchase of redeemable noncontrolling interests |
(308 | ) | | | | | | | | | | | | | |||||||||||||||||
Net decrease in IAC/InterActiveCorp's investment in Match Group, Inc. |
| | | | | | | | (27,066 | ) | | (27,066 | ) | | (27,066 | ) | |||||||||||||||
Transfer from noncontrolling interests to redeemable noncontrolling interests |
189 | | | | | | | | | | | (189 | ) | (189 | ) | ||||||||||||||||
Other |
23 | | | | | | | | (23 | ) | | (23 | ) | | (23 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2015 |
$5,830 | $ | | $ | | $ | | $ | $ | 912,170 | $(116,072 | ) | $ 796,098 | $ | $ | 796,098 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock from initial public offering, net of underwriters' and issuance costs (pro forma) |
| | | | | | | | | | | | | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2015, pro forma |
$ | $ | | $ | | $ | | $ | $ | | $ | $ | $ | $ | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-5
Match Group, Inc. and Subsidiaries
Combined statement of cash flows
(Unaudited)
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ | 48,950 | $ | 49,311 | |||
Adjustments to reconcile earnings to net cash provided by operating activities: |
|||||||
Stock-based compensation expense |
10,806 | 17,925 | |||||
Depreciation |
11,348 | 13,667 | |||||
Amortization of intangibles |
3,520 | 9,778 | |||||
Excess tax benefits from stock-based awards |
(5,372 | ) | (17,401 | ) | |||
Deferred income taxes |
3,396 | 202 | |||||
Acquisition-related contingent consideration fair value adjustments |
701 | (12,234 | ) | ||||
Other adjustments, net |
(2,277 | ) | (9,049 | ) | |||
Changes in assets and liabilities, net of effects of acquisitions: |
|||||||
Accounts receivable |
(950 | ) | (14,834 | ) | |||
Other current assets |
(4,586 | ) | (6,412 | ) | |||
Accounts payable and accrued expenses and other current liabilities |
23 | 25,026 | |||||
Income taxes payable |
906 | 15,328 | |||||
Deferred revenue |
5,606 | 22,176 | |||||
| | | | | | | |
Net cash provided by operating activities |
72,071 | 93,483 | |||||
| | | | | | | |
Cash flows from investing activities: |
|||||||
Acquisitions, net of cash acquired |
(1,000 | ) | (40,712 | ) | |||
Capital expenditures |
(9,574 | ) | (10,022 | ) | |||
Purchases of long-term investments |
(4,536 | ) | | ||||
Other, net |
180 | (1,135 | ) | ||||
| | | | | | | |
Net cash used in investing activities |
(14,930 | ) | (51,869 | ) | |||
| | | | | | | |
Cash flows from financing activities: |
|||||||
Funds returned from escrow related to Meetic tender offer |
12,354 | | |||||
Purchase of noncontrolling interests |
(30,000 | ) | (308 | ) | |||
Transfers to IAC/InterActiveCorp |
(144,324 | ) | (43,718 | ) | |||
Proceeds from the issuance of related party debt |
119,101 | | |||||
Acquisition-related contingent consideration payments |
(7,373 | ) | (5,510 | ) | |||
Excess tax benefits from stock-based awards |
5,372 | 17,401 | |||||
| | | | | | | |
Net cash used in financing activities |
(44,870 | ) | (32,135 | ) | |||
| | | | | | | |
Effect of exchange rate changes on cash and cash equivalents |
4,342 | (736 | ) | ||||
| | | | | | | |
Net increase in cash and cash equivalents |
16,613 | 8,743 | |||||
Cash and cash equivalents at beginning of period |
125,226 | 127,630 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 141,839 | $ | 136,373 | |||
| | | | | | | |
The accompanying Notes to Combined Financial Statements are an integral part of these statements
F-6
Match Group, Inc. and Subsidiaries
Notes to combined financial statements
(Unaudited)
Note 1The company and summary of significant accounting policies
Nature of operations
Match Group, Inc. consists of our North America dating business (which includes brands such as Match, OkCupid, Tinder, OurTime, BlackPeopleMeet and other dating brands operating within the United States and Canada), our International dating business (which includes Meetic, Tinder's international operations, Twoo, FriendScout24 and all other dating brands operating outside of the United States and Canada) and our non-dating business, The Princeton Review.
Through the brands within our dating business, we are a leading provider of membership-based and ad-supported dating products servicing North America, Western Europe and other select countries around the world. We provide these services through websites and applications that we own and operate.
The non-dating business consists of The Princeton Review, which provides a variety of educational test preparation, academic tutoring and college counseling services.
On June 25, 2015, IAC/InterActive Corp ("IAC") announced that its Board of Directors approved the pursuit of an initial public offering (IPO) of newly-issued shares of common stock of Match Group, Inc.
All references to the "Company," "we," "our" or "us" in this report are to Match Group, Inc.
Basis of presentation
The Company prepares its combined financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
Basis of combination
These historical combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of IAC. The combined financial statements reflect the historical financial position, results of operations and cash flows of the Match Group, Inc. businesses since their respective dates of acquisition by IAC and the allocation to Match Group, Inc. of certain IAC corporate expenses relating to Match Group Inc. based on the historical financial statements and accounting records of IAC. For the purpose of these financial statements, income taxes have been computed for Match Group, Inc. on an as if stand-alone, separate tax return basis.
All intercompany transactions and balances between and among the Company, its subsidiaries and the entities comprising Match Group, Inc. have been eliminated. All intercompany transactions between Match Group, Inc. and IAC and its subsidiaries, with the exception of notes payable due to IAC subsidiaries, are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the combined balance sheet as "Invested capital." The notes payable due to IAC subsidiaries are included in "Long-term debtrelated party" in the accompanying combined balance sheet.
In the opinion of Match Group, Inc.'s management, the assumptions underlying the historical combined financial statements of Match Group, Inc., including the basis on which the expenses have been allocated
F-7
from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, stand-alone company for the periods presented.
The accompanying unaudited combined financial statements have been prepared in accordance with GAAP for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited combined financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited combined financial statements should be read in conjunction with the combined annual financial statements and notes thereto for the year ended December 31, 2014.
Accounting estimates
The preparation of combined financial statements in accordance with GAAP requires management to make certain estimates, judgments and assumptions that impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from these estimates.
On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recoverability of definite-lived intangible assets and property and equipment; the fair value of long-term investments; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts and revenue reserves; the fair value of acquisition-related contingent consideration; the liabilities for uncertain tax positions; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Recent accounting pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. In July 2015, the FASB decided to defer the effective date for annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning on the original effective date of December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its combined financial statements or the method and timing of adoption.
Match Group, Inc. is a member of IAC's consolidated federal and state income tax returns. In all periods presented, current income tax provision and deferred income tax benefit have been computed for Match Group, Inc. on an as if stand-alone, separate return basis. Match Group, Inc.'s payments to IAC for its share of IAC's consolidated federal and state income tax return liabilities have been reflected within cash flows from operating activities in the accompanying combined statements of cash flows.
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be
F-8
separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, projections of the proportion of income (and/or loss) earned and taxed in foreign jurisdictions, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the six months ended June 30, 2014, the Company recorded an income tax provision of $27.9 million, which represents an effective income tax rate of 36%. The effective rate for the six months ended June 30, 2014 is higher than the statutory rate of 35% due primarily to state taxes. For the six months ended June 30, 2015, the Company recorded an income tax provision of $20.5 million, which represents an effective income tax rate of 29%. The effective rate for the six months ended June 30, 2015 is lower than the statutory rate of 35% due principally to the non-taxable gain on contingent consideration fair value adjustments in the current year.
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At both December 31, 2014 and June 30, 2015, the Company has accrued $1.2 million for the payment of interest. At December 31, 2014 and June 30, 2015, the Company has accrued $2.4 million and $1.9 million, respectively, for penalties.
Match Group, Inc. is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC's federal income tax returns for the years ended December 31, 2010 through 2012, which includes the operations of Match Group, Inc. Various other jurisdictions are open to examination for various tax years beginning with 2009. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon the resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
At December 31, 2014 and June 30, 2015, unrecognized tax benefits, including interest and penalties, are $12.1 million and $11.4 million, respectively. Included in unrecognized tax benefits at both December 31, 2014 and June 30, 2015, is approximately $0.7 million for tax positions included in IAC's consolidated tax return filings. Unrecognized tax benefits, including interest, for the six months ended June 30, 2015 decreased by $0.8 million due principally to changes in foreign exchange rates. If unrecognized tax benefits at June 30, 2015 are subsequently recognized, $11.0 million, net of related deferred tax assets and interest, would reduce income tax provision. The comparable amount as of December 31, 2014 is $11.8 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by approximately $1.6 million within twelve months of June 30, 2015.
F-9
Note 3Fair value measurements and financial instruments
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | |
|
December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Quoted market prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total fair value measurements |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Assets: |
|||||||||||||
Cash equivalents: |
|||||||||||||
Money market funds |
$ | 57,057 | $ | | $ | | $ | 57,057 | |||||
Time deposits |
| 13,405 | | 13,405 | |||||||||
Long-term investments: |
|||||||||||||
Marketable equity security |
7,410 | | | 7,410 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 64,467 | $ | 13,405 | $ | | $ | 77,872 | |||||
| | | | | | | | | | | | | |
Liabilities: |
|||||||||||||
Contingent consideration arrangements |
$ | | $ | | $ | (20,615 | ) | $ | (20,615 | ) | |||
| | | | | | | | | | | | | |
F-10
| | | | | | | | | | | | | |
|
June 30, 2015 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Quoted market prices in active markets for identical assets (Level 1) |
Significant other observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total fair value measurements |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Assets: |
|||||||||||||
Cash equivalents: |
|||||||||||||
Money market funds |
$ | 57,569 | $ | | $ | | $ | 57,569 | |||||
Time deposits |
| 8,953 | | 8,953 | |||||||||
Long-term investments: |
|||||||||||||
Marketable equity security |
11,388 | | | 11,388 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 68,957 | $ | 8,953 | $ | | $ | 77,910 | |||||
| | | | | | | | | | | | | |
Liabilities: |
|||||||||||||
Contingent consideration arrangements |
$ | | $ | | $ | (27,240 | ) | $ | (27,240 | ) | |||
| | | | | | | | | | | | | |
The following table presents the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | |
|
Six months ended June 30, | ||||||
---|---|---|---|---|---|---|---|
|
2014 | 2015 | |||||
|
Contingent consideration arrangements |
Contingent consideration arrangements |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Balance at January 1 |
$ | (43,625 | ) | $ | (20,615 | ) | |
Total net (losses) gains: |
|||||||
Included in earnings: |
|||||||
Fair value adjustments |
(701 | ) | 12,234 | ||||
Foreign currency exchange gains |
| 626 | |||||
Included in other comprehensive loss |
137 | 2,117 | |||||
Fair value at date of acquisition |
| (27,112 | ) | ||||
Settlements |
7,373 | 5,510 | |||||
| | | | | | | |
Balance at June 30 |
$ | (36,816 | ) | $ | (27,240 | ) | |
| | | | | | | |
Contingent consideration arrangements
As of June 30, 2015, there are five contingent consideration arrangements related to business acquisitions. The maximum contingent payments related to these arrangements is $168.2 million and the fair value of these arrangements at June 30, 2015 is $27.2 million. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics such as monthly active users. The Company typically determines the fair value of the contingent consideration arrangements by using a probability-weighted analysis to determine the amount of the gross liability, and, if the arrangement is long-term in nature, applying a discount rate that captures the risks associated with the obligation. The number of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared
F-11
for longer duration and more complex arrangements. The contingent consideration arrangements' fair values at June 30, 2015 reflect discount rates ranging from 12%-15%.
The fair values of the contingent consideration arrangements are sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangements each reporting period, and changes are recognized in "General and administrative expense" in the accompanying combined statement of operations. The contingent consideration arrangement liability at June 30, 2015 is non-current and included in "Other long-term liabilities" in the accompanying combined balance sheet.
Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Cost method investments
At both December 31, 2014 and June 30, 2015, the carrying value of the Company's investments accounted for under the cost method totaled $55.6 million; these investments are included in "Long-term investments" in the accompanying combined balance sheet. The Company evaluates each cost method investment for impairment on a quarterly basis and recognizes an impairment loss if a decline in value is determined to be other-than-temporary. If the Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost method investment, then the fair value of such cost method investment is not estimated, as it is impracticable to do so.
Long-term marketable equity security
The cost basis of the Company's long-term marketable equity security at December 31, 2014 and June 30, 2015 is $8.7 million, with a gross unrealized loss and gain of $1.2 million and $2.7 million at December 31, 2014 and June 30, 2015, respectively. The gross unrealized loss at December 31, 2014 and the gross unrealized gain at June 30, 2015 are included in "Accumulated other comprehensive loss" in the accompanying combined balance sheet.
F-12
Note 4Accumulated other comprehensive loss
The following tables present the components of accumulated other comprehensive loss. There have been no amounts reclassified out of accumulated other comprehensive loss into earnings for the six months ended June 30, 2014 and 2015.
| | | | | | | | | | |
|
Six months ended June 30, 2014 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Foreign currency translation adjustment |
Unrealized gain on available-for- sale security |
Accumulated other comprehensive (loss) income |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Balance as of December 31 |
$ | (17,090 | ) | $ | 702 | $ | (16,388 | ) | ||
Other comprehensive income |
5,187 | 156 | 5,343 | |||||||
| | | | | | | | | | |
Balance as of June 30 |
$ | (11,903 | ) | $ | 858 | $ | (11,045 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
|
Six months ended June 30, 2015 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Foreign currency translation adjustment |
Unrealized (loss) gain on available-for- sale security |
Accumulated other comprehensive loss |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Balance as of December 31 |
$ | (76,800 | ) | $ | (1,248 | ) | $ | (78,048 | ) | |
Other comprehensive (loss) income |
(42,002 | ) | 3,978 | (38,024 | ) | |||||
| | | | | | | | | | |
Balance as of June 30 |
$ | (118,802 | ) | $ | 2,730 | $ | (116,072 | ) | ||
| | | | | | | | | | |
At June 30, 2014 and 2015, there was no tax benefit or provision on the accumulated other comprehensive loss.
F-13
Note 5Pro forma earnings per share
The following table sets forth the computation of pro forma basic and diluted earnings per share attributable to Match Group, Inc. shareholders.
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
Six months ended June 30, 2015 | ||||||
|
Basic |
Diluted |
|||||
| | | | | | | |
|
(In thousands, except per share data) |
||||||
Numerator: |
|||||||
Net earnings |
$ | 49,311 | $ | 49,311 | |||
Net loss attributable to noncontrolling interests |
220 | 220 | |||||
| | | | | | | |
Net earnings attributable to Match Group, Inc. shareholders |
$ | 49,531 | $ | 49,531 | |||
| | | | | | | |
Denominator (Pro forma)(a): |
|||||||
Weighted average basic shares outstanding |
| | |||||
Add: Pro forma adjustment to reflect assumed shares issued pursuant to the initial public offering(a) |
| | |||||
| | | | | | | |
Pro forma weighted average basic shares outstanding |
| | |||||
Dilutive securities including stock options and other securities |
| | |||||
| | | | | | | |
Pro forma denominator for earnings per shareweighted average shares |
| | |||||
| | | | | | | |
Pro forma earnings per share attributable to Match Group, Inc. shareholders(a) |
$ | | $ | | |||
| | | | | | | |
(a) The unaudited pro forma basic and diluted earnings per share available to common shareholders for the six months ended June 30, 2015 reflect the number of additional shares that would have been required to be issued to generate sufficient proceeds to fund repayment of indebtedness owed to IAC and/or payment of dividend to IAC based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). The remainder of the proceeds from this offering shall be used for general corporate purposes.
The Company has two operating segments, Dating and Non-dating, which are also the Company's two reportable segments. Each segment manager reports to the Company's Chairman. The Company's Chairman, who is the chief operating decision maker, allocates resources and assesses the performance at the segment level. Our Dating segment provides dating products and the Company's Non-dating segment
F-14
provides a variety of education services including test preparation, academic tutoring and college counseling services.
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Revenue: |
|||||||
Dating |
$ | 412,600 | $ | 433,097 | |||
Non-dating |
9,091 | 50,789 | |||||
| | | | | | | |
Total |
$ | 421,691 | $ | 483,886 | |||
| | | | | | | |
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Operating Income (Loss): |
|||||||
Dating |
$ | 103,418 | $ | 83,826 | |||
Non-dating |
(5,257 | ) | (16,264 | ) | |||
| | | | | | | |
Total |
$ | 98,161 | $ | 67,562 | |||
| | | | | | | |
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Adjusted EBITDA: |
|||||||
Dating |
$ | 128,072 | $ | 104,740 | |||
Non-dating |
(3,536 | ) | (8,042 | ) | |||
| | | | | | | |
Total |
$ | 124,536 | $ | 96,698 | |||
| | | | | | | |
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Revenue: |
|||||||
United States |
$ | 269,488 | $ | 333,856 | |||
All other countries |
152,203 | 150,030 | |||||
| | | | | | | |
Total |
$ | 421,691 | $ | 483,886 | |||
| | | | | | | |
F-15
The United States is the only country whose revenue is greater than 10 percent of total revenue for the six months ended June 30, 2014 and 2015.
| | | | | | | |
|
December 31, 2014 |
June 30, 2015 |
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
(In thousands) |
||||||
Long-lived assets (excluding goodwill and intangible assets): |
|||||||
United States |
$ | 25,436 | $ | 22,452 | |||
All other countries |
17,561 | 16,018 | |||||
| | | | | | | |
Total |
$ | 42,997 | $ | 38,470 | |||
| | | | | | | |
The only country, other than the United States, with greater than 10 percent of total long-lived assets (excluding goodwill and intangible assets), is France with $14.5 million and $13.7 million as of December 31, 2014 and June 30, 2015, respectively.
The Company's primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to Match Group, Inc.'s statement of operations of certain expenses.
The following tables reconcile Adjusted EBITDA to operating income (loss) for our reportable segments and to total net earnings attributable to Match Group, Inc.'s shareholder for the six months ended June 30, 2014 and 2015:
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|
|
|
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|
|||||||||||||
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| | | | | | | | | | | | | | | | | | | |
|
Six months ended June 30, 2014 | ||||||||||||||||||
|
Adjusted EBITDA |
Stock-based compensation expense |
Depreciation |
Amortization of intangibles |
Acquisition- related contingent consideration fair value arrangements |
Operating income (loss) |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||||||||
Dating |
$ | 128,072 | $ | (10,149 | ) | $ | (11,227 | ) | $ | (2,577 | ) | $ | (701 | ) | $ | 103,418 | |||
Non-dating |
(3,536 | ) | (657 | ) | (121 | ) | (943 | ) | | (5,257 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 124,536 | $ | (10,806 | ) | $ | (11,348 | ) | $ | (3,520 | ) | $ | (701 | ) | 98,161 | ||||
| | | | | | | | | | | | | | | | | | | |
Interest expenserelated party |
(20,870 | ) | |||||||||||||||||
Other expense, net |
(490 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Earnings before income taxes |
76,801 | ||||||||||||||||||
Income tax provision |
(27,851 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net earnings |
48,950 | ||||||||||||||||||
Net earnings attributable to noncontrolling interests |
(307 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 48,643 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
F-16
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|
|
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|
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | |
|
Six months ended June 30, 2015 | ||||||||||||||||||
|
Adjusted EBITDA |
Stock-based compensation expense |
Depreciation |
Amortization of intangibles |
Acquisition- related contingent consideration fair Value arrangements |
Operating income (loss) |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||||||||
Dating |
$ | 104,740 | $ | (17,401 | ) | $ | (9,301 | ) | $ | (6,446 | ) | $ | 12,234 | $ | 83,826 | ||||
Non-dating |
(8,042 | ) | (524 | ) | (4,366 | ) | (3,332 | ) | | (16,264 | ) | ||||||||
| | | | | | | | | | | | | | | | | | | |
Total |
$ | 96,698 | $ | (17,925 | ) | $ | (13,667 | ) | $ | (9,778 | ) | $ | 12,234 | 67,562 | |||||
| | | | | | | | | | | | | | | | | | | |
Interest expenserelated party |
(4,561 | ) | |||||||||||||||||
Other income, net |
6,806 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Earnings before income taxes |
69,807 | ||||||||||||||||||
Income tax provision |
(20,496 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net earnings |
49,311 | ||||||||||||||||||
Net loss attributable to noncontrolling interests |
220 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 49,531 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | |
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where we believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against us, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See Note 2 for additional information related to income tax contingencies.
Note 8Related party transactions
Relationship with IAC prior to the initial public offering
Match Group, Inc.'s combined statement of operations includes allocations of general and administrative costs, including stock-based compensation expense, related to IAC's accounting, treasury, legal, tax, corporate support and internal audit functions. These allocations were based on Match Group, Inc.'s revenue as a percentage of IAC's total revenue. Allocated costs, inclusive of stock-based compensation expense, were $3.3 million and $3.5 million for the six months ended June 30, 2014 and 2015, respectively, and are included in "General and administrative expense," in the accompanying combined statement of operations. It is not practicable to determine the actual expenses that would have been incurred for these services had Match Group, Inc. operated as a stand-alone entity. Management considers the allocation method to be reasonable. We have entered into certain arrangements with IAC in the ordinary course of
F-17
business for: (i) the leasing of office space for certain of our businesses at properties owned by IAC, for which we paid IAC approximately $0.5 million and $0.7 million for the six months ended June 30, 2014 and 2015, respectively; and (ii) the subleasing of space in a data center from an IAC subsidiary, for which we paid such IAC subsidiary approximately $0.6 million for both the six months ended June 30, 2014 and 2015.
The following table summarizes the components of the net decrease in IAC's investment in Match Group, Inc. for the six months ended June 30, 2015:
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|
|||
---|---|---|---|---|
| | | | |
|
June 30, 2015 |
|||
| | | | |
|
(In thousands) |
|||
Cash transfers to IAC related to its centrally managed U.S. treasury management function |
$ | 47,192 | ||
Taxes |
(16,596 | ) | ||
Allocation of general and administrative expense |
(3,530 | ) | ||
| | | | |
Net decrease in IAC's investment in Match Group, Inc. |
$ | 27,066 | ||
| | | | |
Long-term debtrelated party
Long-term debt consists of:
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|
|
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---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
|
December 31, 2014 | June 30, 2015 | |||||||||||
|
Carrying value |
Fair value |
Carrying value |
Fair value |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
3.57% Notes; interest payable September 1, which commenced September 1, 2012 |
$ | 79,000 | $ | 67,848 | $ | 79,000 | $ | 67,183 | |||||
5.00% Note; interest payable December 15, which commenced December 15, 2014 |
64,586 | 69,101 | 59,302 | 62,491 | |||||||||
5.90% Note; interest payable December 15, which commenced December 15, 2014 |
47,000 | $ | 48,476 | $ | 47,000 | $ | 48,316 | ||||||
| | | | | | | | | | | | | |
Total Long-term debtrelated party |
$ | 190,586 | $ | 185,425 | $ | 185,302 | $ | 177,990 | |||||
| | | | | | | | | | | | | |
On September 28, 2011, the Company, through a foreign subsidiary, Match.com Europe Limited, issued $94 million aggregate principal amount of 3.57% Notes. The notes were issued to three IAC foreign subsidiaries in connection with the financing of the acquisition of a controlling interest in Meetic in September 2011. In December 2011, the Company repaid $15 million leaving an outstanding balance of $79 million. The remaining notes are guaranteed by Match.com Pegasus Limited, a subsidiary of Match Group, Inc. The notes are payable in three installments of $26.3 million that are each due on September 1, 2021, 2023 and 2026.
On April 8, 2014, Match.com Europe Limited and Match.com France Limited issued a €53 million ($59.3 million at June 30, 2015) 5.00% Note and a $47 million 5.90% Note, respectively. The 5.00% euro denominated note was issued to an IAC foreign subsidiary in connection with the financing of the purchase of the remaining publicly-traded shares of Meetic that took place in the first quarter of 2014. The note is due on December 15, 2021. The 5.90% Note was issued to an IAC foreign subsidiary with the proceeds being used to repay certain indebtedness that had been created in order to partially fund the acquisition of shares in Meetic. The note is due on December 15, 2021.
F-18
The fair value of the Company's long-term debt is estimated by discounting the future cash flows based on current market conditions.
Interest expense related to the long-term debt is included in "Interest expenserelated party" in the accompanying combined statement of operations.
Long-term debt maturities are as follows:
| | | | |
|
(In thousands) |
|||
---|---|---|---|---|
| | | | |
2021 |
$ | 132,636 | ||
2023 |
26,333 | |||
2026 |
26,333 | |||
| | | | |
|
$ | 185,302 | ||
| | | | |
Guarantee of IAC Senior Notes and revolving credit facility
On November 15, 2013 and December 21, 2012, IAC issued $500 million aggregate principal amount of 4.875% Senior Notes due November 30, 2018 ("2013 Senior Notes") and $500 million aggregate principal amount of 4.75% Senior Notes due December 15, 2022 ("2012 Senior Notes"), respectively. The 2013 and 2012 Senior Notes are unconditionally guaranteed by Match Group, Inc. and certain of its domestic subsidiaries.
The indentures governing the 2013 and 2012 Senior Notes contain covenants that limit the ability of IAC's restricted subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event IAC is not in compliance with the financial ratio set forth in the indenture, and (ii) incur liens, enter into agreements restricting our subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of IAC's assets. At June 30, 2015, IAC was in compliance with the financial ratio set forth in the indenture.
On December 21, 2012, IAC entered into a $300 million revolving credit facility, which expires on December 21, 2017. At June 30, 2015 and December 31, 2014, there are no outstanding borrowings under IAC's revolving credit facility. The revolving credit facility is unconditionally guaranteed by the same domestic subsidiaries that guarantee the 2013 and 2012 Senior Notes and is also secured by the stock of Match Group, Inc. and certain of its domestic and foreign subsidiaries.
The Company has not recorded a liability pursuant to this guarantor obligation because we have not agreed to pay a specific amount through an arrangement with our co-obligors and we do not expect to pay any amount as a result of our guarantee of IAC's Senior Notes and revolving credit facility. Prior to the closing of the offering, we will no longer be a restricted subsidiary of IAC for purposes of its debt facilities, nor will we guarantee any debt of IAC nor will the stock of any of our subsidiaries be pledged to secure IAC's debt.
Relationship with IAC following the initial public offering
We expect to enter into certain agreements with IAC relating to this offering and our relationship with IAC after this offering to govern the relationship between the Company and IAC. These agreements will include: a master transaction agreement; an investor rights agreement; a tax sharing agreement; a services agreement; and an employee matters agreement.
F-19
Note 9Streamlining of technology systems and consolidation of European operations
The Company is currently in the process of rebuilding its underlying Dating technology infrastructure that supports both its mobile and desktop platforms, as well as consolidating its European operations from seven principal locations down to three. During the first half of 2015 the Company incurred $12.3 million in costs related to this project. A summary of the costs incurred, payments made and the related accruals is presented below.
|
|
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
|
Six months ended June 30, 2015 | |||||||||
|
Severance |
Professional fees and other |
Total |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Accrual as of January 1 |
$ | 795 | $ | 933 | $ | 1,728 | ||||
Charges incurred |
7,979 | 4,286 | 12,265 | |||||||
Payments made |
(2,087 | ) | (4,480 | ) | (6,567 | ) | ||||
| | | | | | | | | | |
Accrual as of June 30 |
$ | 6,687 | $ | 739 | $ | 7,426 | ||||
| | | | | | | | | | |
The costs are allocated as follows in the statement of operations:
|
|
|||
---|---|---|---|---|
| | | | |
|
Six months ended June 30, 2015 |
|||
| | | | |
|
(In thousands) |
|||
Cost of revenue |
$ | 2,300 | ||
Selling and marketing expense |
1,541 | |||
General and administrative expense |
5,026 | |||
Product development expense |
3,398 | |||
| | | | |
Total |
$ | 12,265 | ||
| | | | |
On July 14, 2015, the Company announced that it had entered into a definitive agreement to purchase PlentyOfFish for $575 million in cash. The acquisition is expected to close in the fourth quarter of 2015.
In preparing these combined financial statements, management evaluated subsequent events through September 24, 2015 on which date the combined financial statements were available for issue.
F-20
Report of independent registered public accounting firm
The Board of Directors and Shareholders of IAC/InterActiveCorp
We have audited the accompanying combined balance sheets of Match Group, Inc. and Subsidiaries (the Company) as of December 31, 2013 and 2014, and the related combined statements of operations, comprehensive income, shareholder equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed on page F-58. These financial statements and financial schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Match Group, Inc. and Subsidiaries at December 31, 2013 and 2014, and the combined results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic combined financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New
York, New York
August 11, 2015
F-21
Match Group, Inc. and Subsidiaries
Combined balance sheet
|
|
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
|
December 31, | Pro forma December 31, 2014 (unaudited) |
||||||||
|
2013 |
2014 |
||||||||
| | | | | | | | | | |
|
(In thousands, except share data) |
|||||||||
ASSETS |
||||||||||
Cash and cash equivalents |
$ | 125,226 | $ | 127,630 | $ | |||||
Accounts receivable, net of allowance and reserves of $856 and $1,133, respectively |
32,366 | 33,735 | ||||||||
Other current assets |
17,374 | 33,737 | ||||||||
| | | | | | | | | | |
Total current assets |
174,966 | 195,102 | ||||||||
Property and equipment, net |
35,090 | 42,997 | ||||||||
Goodwill |
767,746 | 793,763 | ||||||||
Intangible assets, net |
179,362 | 207,613 | ||||||||
Long-term investments |
60,393 | 62,979 | ||||||||
Other non-current assets |
74,565 | 5,580 | ||||||||
| | | | | | | | | | |
TOTAL ASSETS |
$ | 1,292,122 | $ | 1,308,034 | $ | |||||
| | | | | | | | | | |
LIABILITIES AND SHAREHOLDER EQUITY |
||||||||||
LIABILITIES: |
||||||||||
Accounts payable |
$ | 14,194 | $ | 11,797 | $ | |||||
Deferred revenue |
119,971 | 134,790 | ||||||||
Accrued expenses and other current liabilities |
80,146 | 94,719 | ||||||||
| | | | | | | | | | |
Total current liabilities |
214,311 | 241,306 | ||||||||
Long-term debtrelated party |
79,000 | 190,586 | ||||||||
Income taxes payable |
11,851 | 11,442 | ||||||||
Deferred income taxes |
49,162 | 47,800 | ||||||||
Other long-term liabilities |
36,524 | 13,446 | ||||||||
Redeemable noncontrolling interests |
24,248 |
3,678 |
||||||||
Commitments and contingencies |
||||||||||
SHAREHOLDER EQUITY: |
||||||||||
Common stock; $0.001 par value; authorized shares; issued shares and outstanding shares, as of December 31, 2014 on a pro forma basis |
| | ||||||||
Class B common stock; $0.001 par value; authorized shares; issued shares and outstanding shares, as of December 31, 2014 on a pro forma basis |
| | ||||||||
Class C common stock; $0.001 par value; authorized shares; issued shares and no outstanding shares, as of December 31, 2014 on a pro forma basis |
| | ||||||||
Additional paid-in capital |
| | ||||||||
Invested capital |
851,749 | 877,635 | ||||||||
Accumulated other comprehensive loss |
(16,388 | ) | (78,048 | ) | ||||||
| | | | | | | | | | |
Total Match Group, Inc. shareholder equity |
835,361 | 799,587 | ||||||||
Noncontrolling interests |
41,665 | 189 | ||||||||
| | | | | | | | | | |
Total shareholder equity |
877,026 | 799,776 | ||||||||
| | | | | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDER EQUITY |
$ | 1,292,122 | $ | 1,308,034 | $ | |||||
| | | | | | | | | | |
Note: The authorized, issued and outstanding shares have been arrived at after giving effect to the stock split.
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-22
Match Group, Inc. and Subsidiaries
Combined statement of operations
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands, except per share data) |
|||||||||
Revenue |
$ | 713,449 | $ | 803,089 | $ | 888,268 | ||||
Operating costs and expenses: |
||||||||||
Cost of revenue (exclusive of depreciation shown separately below) |
72,794 | 85,945 | 120,024 | |||||||
Selling and marketing expense |
304,597 | 321,870 | 335,107 | |||||||
General and administrative expense |
76,711 | 93,641 | 117,890 | |||||||
Product development expense |
38,921 | 42,973 | 49,738 | |||||||
Depreciation |
16,341 | 20,202 | 25,547 | |||||||
Amortization of intangibles |
17,455 | 17,125 | 11,395 | |||||||
| | | | | | | | | | |
Total operating costs and expenses |
526,819 | 581,756 | 659,701 | |||||||
| | | | | | | | | | |
Operating income |
186,630 | 221,333 | 228,567 | |||||||
Interest expenserelated party |
(29,489 | ) | (34,307 | ) | (25,541 | ) | ||||
Other (expense) income, net |
(7,428 | ) | 217 | 12,610 | ||||||
| | | | | | | | | | |
Earnings before income taxes |
149,713 | 187,243 | 215,636 | |||||||
Income tax provision |
(59,432 | ) | (60,616 | ) | (67,277 | ) | ||||
| | | | | | | | | | |
Net earnings |
90,281 | 126,627 | 148,359 | |||||||
Net earnings attributable to noncontrolling interests |
(4,606 | ) | (1,624 | ) | (595 | ) | ||||
| | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 85,675 | $ | 125,003 | $ | 147,764 | ||||
| | | | | | | | | | |
Unaudited pro forma net earnings per share attributable to Match Group, Inc.'s shareholder: |
||||||||||
Basic |
$ | | ||||||||
Diluted |
$ | | ||||||||
Unaudited pro forma weighted average shares outstanding: |
||||||||||
Basic |
| |||||||||
Diluted |
| |||||||||
Stock-based compensation expense by function: |
||||||||||
Cost of revenue |
$ | 1,975 | $ | 1,012 | $ | 396 | ||||
Selling and marketing expense |
823 | 562 | 194 | |||||||
General and administrative expense |
10,368 | 8,520 | 17,326 | |||||||
Product development expense |
2,898 | 2,134 | 2,935 | |||||||
| | | | | | | | | | |
Total stock-based compensation expense |
$ | 16,064 | $ | 12,228 | $ | 20,851 | ||||
| | | | | | | | | | |
Note: We currently intend to pay $ million of our net proceeds from this offering to IAC immediately upon completion of the offering as repayment of indebtedness owed to IAC and/or as a dividend to IAC declared prior to the completion of this offering and intend to use the remainder of our net proceeds from this offering for general corporate purposes. The unaudited pro forma share data reflects the number of additional shares that would have been required to be issued to generate sufficient proceeds to fund these payments based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus).
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-23
Match Group, Inc. and Subsidiaries
Combined statement of comprehensive income
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Net earnings |
$ | 90,281 | $ | 126,627 | $ | 148,359 | ||||
Other comprehensive income (loss): |
||||||||||
Change in foreign currency translation adjustment |
| 6,152 | (60,101 | ) | ||||||
Change in fair value of available-for-sale security |
8,233 | 702 | (1,950 | ) | ||||||
| | | | | | | | | | |
Total other comprehensive income (loss) |
8,233 | 6,854 | (62,051 | ) | ||||||
| | | | | | | | | | |
Comprehensive income |
98,514 | 133,481 | 86,308 | |||||||
Comprehensive income attributable to noncontrolling interests |
(5,275 | ) | (3,918 | ) | (204 | ) | ||||
| | | | | | | | | | |
Comprehensive income attributable to Match Group, Inc.'s shareholder |
$ | 93,239 | $ | 129,563 | $ | 86,104 | ||||
| | | | | | | | | | |
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-24
Match Group, Inc. and Subsidiaries
Combined statement of shareholder equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
Match Group, Inc. shareholder equity | |
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
Common Stock $0.001 Par Value |
Class B Common Stock $0.001 Par Value |
Class C Common Stock $0.001 Par Value |
|
|
|
|
|
|
||||||||||||||||||
|
Redeemable noncontrolling interests |
|
Additional paid-in capital |
|
Accumulated other comprehensive |
Total Match Group, Inc. shareholder |
|
|
|||||||||||||||||||||
|
|
|
|
Total shareholder |
|||||||||||||||||||||||||
|
|
$ |
Shares |
$ |
Shares |
$ |
Shares |
Invested |
Noncontrolling |
||||||||||||||||||||
|
|
|
(Pro forma) |
(Pro forma) |
(Pro forma) |
(Pro forma) |
capital |
(loss) income |
equity |
interests |
equity |
||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|||||||||||||||||||
Balance as of December 31, 2011 |
$ 31,092 | $ | | $ | | $ | | $ | $658,406 | $(28,512 | ) | $629,894 | $ 55,024 | $684,918 | |||||||||||||||
Net earnings for the year ended December 31, 2012 |
1,896 | | | | | | | | 85,675 | | 85,675 | 2,710 | 88,385 | ||||||||||||||||
Other comprehensive income, net of tax |
265 | | | | | | | | | 7,564 | 7,564 | 404 | 7,968 | ||||||||||||||||
Purchase of redeemable noncontrolling interests |
(2,955 | ) | | | | | | | | | | | | | |||||||||||||||
Transfer from noncontrolling interests to redeemable noncontrolling interests |
10,049 | | | | | | | | | | | (10,049 | ) | (10,049 | ) | ||||||||||||||
Net decrease in IAC/InterActiveCorp's investment in Match Group, Inc. |
| | | | | | | | (26,731 | ) | | (26,731 | ) | | (26,731 | ) | |||||||||||||
Other |
611 | | | | | | | | | | | 2,818 | 2,818 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2012 |
$ 40,958 | $ | | $ | | $ | | $ | $717,350 | $(20,948 | ) | $696,402 | $ 50,907 | $747,309 | |||||||||||||||
Net earnings for the year ended December 31, 2013 |
417 | | | | | | | | 125,003 | | 125,003 | 1,207 | 126,210 | ||||||||||||||||
Other comprehensive income, net of tax |
927 | | | | | | | | | 4,560 | 4,560 | 1,367 | 5,927 | ||||||||||||||||
Purchase of redeemable noncontrolling interests |
(40,182 | ) | | | | | | | | | | | | | |||||||||||||||
Purchase of noncontrolling interests |
| | | | | | | | | | | (12,371 | ) | (12,371 | ) | ||||||||||||||
Adjustment of redeemable noncontrolling interests and noncontrolling interests to fair value |
19,254 | | | | | | | | (21,563 | ) | | (21,563 | ) | 2,309 | (19,254 | ) | |||||||||||||
Transfer from noncontrolling interests to redeemable noncontrolling interests |
2,874 | | | | | | | | | | | (2,874 | ) | (2,874 | ) | ||||||||||||||
Net increase in IAC/InterActiveCorp's investment in Match Group, Inc. |
| | | | | | | | 30,959 | | 30,959 | | 30,959 | ||||||||||||||||
Other |
| | | | | | | | | | | 1,120 | 1,120 | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2013 |
$ 24,248 | $ | | $ | | $ | | $ | $851,749 | $(16,388 | ) | $ 835,361 | $ 41,665 | $877,026 | |||||||||||||||
Net earnings for the year ended December 31, 2014 |
595 | | | | | | | | 147,764 | | 147,764 | | 147,764 | ||||||||||||||||
Other comprehensive (loss) income, net of tax |
(494 | ) | | | | | | | | | (61,660 | ) | (61,660 | ) | 103 | (61,557 | ) | ||||||||||||
Purchase of redeemable noncontrolling interests |
(41,743 | ) | | | | | | | | | | | | | |||||||||||||||
Purchase of noncontrolling interests |
| | | | | | | | | | | (50,662 | ) | (50,662 | ) | ||||||||||||||
Adjustment of redeemable noncontrolling interests and noncontrolling interests to fair value |
21,072 | | | | | | | | (30,441 | ) | | (30,441 | ) | 9,369 | (21,072 | ) | |||||||||||||
Net decrease in IAC/InterActiveCorp's investment in Match Group, Inc. |
| | | | | | | | (91,437 | ) | | (91,437 | ) | | (91,437 | ) | |||||||||||||
Other |
| | | | | | | | | | | (286 | ) | (286 | ) | ||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2014 |
$ 3,678 | $ | | $ | | $ | | $ | $877,635 | $(78,048 | ) | $799,587 | $ 189 | $799,776 | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Issuance of common stock from initial public offering, net of underwriters' and issuance costs (pro forma) |
| | | | | | | | | | | | | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2014, pro forma |
$ | $ | | $ | | $ | | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-25
Match Group, Inc. and Subsidiaries
Combined statement of cash flows
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Cash flows from operating activities: |
||||||||||
Net earnings |
$ | 90,281 | $ | 126,627 | $ | 148,359 | ||||
Adjustments to reconcile earnings to net cash provided by operating activities: |
||||||||||
Stock-based compensation expense |
16,064 | 12,228 | 20,851 | |||||||
Depreciation |
16,341 | 20,202 | 25,547 | |||||||
Amortization of intangibles |
17,455 | 17,125 | 11,395 | |||||||
Impairment of long-term investments |
8,685 | | | |||||||
Excess tax benefits from stock-based awards |
(8,368 | ) | (10,763 | ) | (5,319 | ) | ||||
Deferred income taxes |
(3,290 | ) | (3,651 | ) | (5,904 | ) | ||||
Acquisition-related contingent consideration fair value adjustments |
| 343 | (12,912 | ) | ||||||
Changes in assets and liabilities, net of effects of acquisitions: |
||||||||||
Accounts receivable |
2,848 | (3,651 | ) | 2,399 | ||||||
Other current assets |
4,552 | (155 | ) | (10,551 | ) | |||||
Accounts payable and accrued expenses and other current liabilities |
(4,709 | ) | (972 | ) | (7,980 | ) | ||||
Income taxes payable |
15,105 | 4,808 | 8,103 | |||||||
Deferred revenue |
8,659 | 12,401 | 8,643 | |||||||
Other, net |
748 | 255 | (9,016 | ) | ||||||
| | | | | | | | | | |
Net cash provided by operating activities |
164,371 | 174,797 | 173,615 | |||||||
| | | | | | | | | | |
Cash flows from investing activities: |
||||||||||
Acquisitions, net of cash acquired |
(59,484 | ) | (32,145 | ) | (114,051 | ) | ||||
Capital expenditures |
(19,853 | ) | (19,807 | ) | (21,793 | ) | ||||
Purchases of long-term investments |
(24 | ) | | (4,536 | ) | |||||
Other, net |
6 | (2,034 | ) | 180 | ||||||
| | | | | | | | | | |
Net cash used in investing activities |
(79,355 | ) | (53,986 | ) | (140,200 | ) | ||||
| | | | | | | | | | |
Cash flows from financing activities: |
||||||||||
Funds (transferred to) returned from escrow for Meetic tender offer |
| (71,512 | ) | 12,354 | ||||||
Purchase of noncontrolling interests |
(2,955 | ) | (52,552 | ) | (33,165 | ) | ||||
Transfers (to) from IAC/InterActiveCorp |
(53,381 | ) | 9,653 | (108,723 | ) | |||||
Proceeds from the issuance of related party debt |
| | 111,586 | |||||||
Acquisition-related contingent consideration payment |
| | (7,373 | ) | ||||||
Excess tax benefits from stock-based awards |
8,368 | 10,763 | 5,319 | |||||||
Other, net |
| (1,614 | ) | (56 | ) | |||||
| | | | | | | | | | |
Net cash used in financing activities |
(47,968 | ) | (105,262 | ) | (20,058 | ) | ||||
| | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents |
1,814 | 2,513 | (10,953 | ) | ||||||
| | | | | | | | | | |
Net increase in cash and cash equivalents |
38,862 | 18,062 | 2,404 | |||||||
Cash and cash equivalents at beginning of period |
68,302 | 107,164 | 125,226 | |||||||
| | | | | | | | | | |
Cash and cash equivalents at end of period |
$ | 107,164 | $ | 125,226 | $ | 127,630 | ||||
| | | | | | | | | | |
The accompanying Notes to Combined Financial Statements are an integral part of these statements.
F-26
Match Group, Inc. and Subsidiaries
Notes to combined financial statements
Note 1Organization and basis of presentation
Basis of presentation and combination
These historical combined financial statements have been prepared on a stand-alone basis and are derived from the consolidated financial statements and accounting records of IAC/InterActiveCorp ("IAC"). The combined financial statements reflect the historical financial position, results of operations and cash flows of the Match Group, Inc. businesses since their respective dates of acquisition by IAC and the allocation to Match Group, Inc. of certain IAC corporate expenses relating to Match Group, Inc. based on the historical financial statements and accounting records of IAC. For the purpose of these financial statements, income taxes have been computed for Match Group, Inc. on an as if stand-alone, separate tax return basis.
All references to the "Company," "we," "our" or "us" in this report are to Match Group, Inc.
The Company prepares its combined financial statements in accordance with U.S. generally accepted accounting principles ("GAAP").
All intercompany transactions and balances between and among the Company, its subsidiaries and the entities comprising Match Group, Inc. have been eliminated. All intercompany transactions between Match Group, Inc. and IAC and its subsidiaries, with the exception of notes payable due to IAC subsidiaries, are considered to be effectively settled for cash at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the combined balance sheet as "Invested capital." The notes payable due to IAC subsidiaries are included in "Long-term debtrelated party" in the accompanying combined balance sheet.
In the opinion of Match Group, Inc.'s management, the assumptions underlying the historical combined financial statements of Match Group, Inc., including the basis on which the expenses have been allocated from IAC, are reasonable. However, the allocations may not reflect the expenses that we may have incurred as an independent, stand-alone company for the periods presented.
Company overview
Match Group, Inc. consists of our North America dating business (which includes brands such as Match, OkCupid, Tinder, OurTime, BlackPeopleMeet and other dating brands operating within the United States and Canada), our International dating business (which includes Meetic, Tinder's international operations, Twoo, FriendScout24 and all other dating brands operating outside of the United States and Canada) and our non-dating business, The Princeton Review.
Through the brands within our dating business, we are a leading provider of membership-based and ad-supported dating products servicing North America, Western Europe and other select countries around the world. We provide these services through websites and applications that we own and operate.
The non-dating business consists of The Princeton Review, which provides a variety of educational test preparation, academic tutoring and college counseling services.
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Note 2Summary of significant accounting policies
Accounting for investments
Investments in the common stock or in-substance common stock of entities in which the Company does not have the ability to exercise significant influence over the operating and financial matters of the investee are accounted for using the cost method. Investments in companies that the Company does not control, which are not in the form of common stock or in-substance common stock, are also accounted for using the cost method. The Company evaluates each cost method investment for impairment on a quarterly basis and recognizes an impairment loss if a decline in value is determined to be other-than-temporary. Such impairment evaluations include, but are not limited to: the current business environment, including competition; going concern considerations such as financial condition and the rate at which the investee utilizes cash and the investee's ability to obtain additional financing to achieve its business plan; the need for changes to the investee's existing business model due to changing business and regulatory environments and its ability to successfully implement necessary changes; and comparable valuations. If the Company has not identified events or changes in circumstances that may have a significant adverse effect on the fair value of a cost method investment, then the fair value of such cost method investment is not estimated, as it is impracticable to do so.
Accounting estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its combined financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the recoverability of goodwill and indefinite-lived intangible assets; the useful lives and recovery of definite-lived intangible assets and property and equipment; the fair value of long-term investments; the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts and revenue reserves; the fair value of acquisition-related contingent consideration; the liabilities for uncertain tax positions; the valuation allowance for deferred income tax assets; and the fair value of and forfeiture rates for stock-based awards, among others. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Revenue recognition
Substantially all of the Company's Dating revenue is derived directly from users in the form of recurring membership fees.
Membership revenue is presented net of credits and credit card chargebacks. Revenue recognition occurs ratably over the terms of the applicable membership, which primarily range from one to six months, beginning when there is persuasive evidence of an arrangement, delivery has occurred (access has been granted), the fees are fixed or determinable, and collection is reasonably assured. Members pay in advance, primarily by using a credit card, and, subject to certain conditions identified in our terms and conditions, all purchases are final and nonrefundable. Fees collected in advance for memberships are deferred and recognized as revenue using the straight-line method over the terms of the applicable membership period. Deferred revenue at the dating business is $116.5 million and $117.9 million at December 31, 2013 and 2014, respectively. The Company also earns revenue from online advertising, the purchase of à la carte features and offline events. Online advertising revenue is recognized every time an
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ad is displayed. Revenue from the purchase of à la carte features is recognized based on usage. Revenue and the related expenses associated with offline events are recognized when each event occurs.
Non-dating revenue consists primarily of fees received for in-person and online test preparation classes, access to online test preparation materials and individual tutoring services. Fees from classes and access to online materials are recognized over the period of the course and the period of the online access, respectively. Tutoring fees are generally collected in the form of membership fees that entitle the member to a certain number of tutoring sessions over a certain period of time. These fees are recognized over the term of the membership based on usage. Deferred revenue at the non-dating business is $3.5 million and $18.0 million at December 31, 2013 and 2014, respectively.
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase. Internationally, cash equivalents primarily consist of AAA rated money market funds and time deposits.
Accounts receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts and revenue reserves. Accounts receivable outstanding longer than the contractual payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the specific customer's ability to pay its obligation to the Company and the condition of the general economy and the customer's industry. The Company writes off accounts receivable when they become uncollectible. The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amounts of these reserves are based, in part, on historical experience.
Property and equipment
Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
| | |
Asset category |
Estimated useful lives |
|
---|---|---|
| | |
Computer equipment and capitalized software |
2 to 3 years | |
Furniture and other equipment |
5 years | |
Leasehold improvements |
6 to 7 years | |
| | |
The Company capitalizes certain internal use software costs including external direct costs utilized in developing or obtaining the software and compensation for personnel directly associated with the development of the software. Capitalization of such costs begins when the preliminary project stage is complete and ceases when the project is substantially complete and ready for its intended purpose. The net book value of capitalized internal use software is $16.2 million and $20.9 million at December 31, 2013 and 2014, respectively.
Business combinations
The purchase price of each acquisition is attributed to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets that either arise from a contractual or legal right or are separable from goodwill. The fair value of these intangible assets is based
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on detailed valuations that use information and assumptions provided by management. The excess purchase price over the net tangible and identifiable intangible assets is recorded as goodwill.
In connection with some business combinations, the Company has entered into contingent consideration arrangements that are determined to be part of the purchase price. Each of these arrangements is initially recorded at its fair value at the time of the acquisition and reflected at current fair value for each subsequent reporting period thereafter until settled. The contingent consideration arrangements are generally based upon earnings performance and/or operating metrics. The Company generally determines the fair value of contingent consideration using probability-weighted analyses over the period in which the obligation is expected to be settled, and, to the extent the arrangement is long-term in nature, applies a discount rate that appropriately captures the risk associated with the obligation. Significant changes in forecasted earnings or operating metrics would result in a significantly higher or lower fair value measurement. Determining fair value is inherently difficult and subjective and can have a material impact on our combined financial statements. The changes in the remeasured fair value of the contingent consideration arrangements each reporting period are recognized in "General and administrative expense" in the accompanying combined statement of operations. See Note 6 for a discussion of contingent consideration arrangements.
Goodwill and indefinite-lived intangible assets
Goodwill acquired in business combinations is assigned to the reporting unit(s) that is expected to benefit from the combination as of the acquisition date. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually as of October 1, or more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit or the fair value of an indefinite-lived intangible asset below its carrying value. At October 1, 2014 the Company had two reporting units: Dating and Non-dating.
The Company has the option to qualitatively assess whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If the Company elects to perform a qualitative assessment and concludes it is not more likely than not that the fair value of the reporting unit is less than its carrying value, no further assessment of that reporting unit's goodwill is necessary; otherwise, the fair value of the reporting unit has to be determined and if the carrying value of a reporting unit's goodwill exceeds its implied fair value, an impairment loss equal to the excess is recorded. When the Company evaluates the potential for goodwill impairment using a qualitative assessment it considers factors including, but not limited to, the fair values of recent valuations, changes in the reporting unit's financial performance, forecasts, key personnel, and strategy, as well as changes in the industry conditions, including competition and demand for the reporting unit's services, and macroeconomic conditions.
The Company determines the fair value of its reporting units using both an income approach based on discounted cash flows ("DCF") and a market approach based on a multiple of earnings. Determining fair value requires the exercise of significant judgment with respect to several items, including the amount and timing of expected future cash flows and appropriate discount rates. The expected cash flows used in the DCF analyses are based on the Company's most recent budget and, for years beyond the budget, the Company's estimates, which are based, in part, on forecasted growth rates. The discount rates used in the DCF analyses reflects the risk inherent in the expected future cash flows of the respective reporting units. Assumptions used in the DCF analyses, including the discount rate, are assessed annually based on each of the reporting unit's current results and forecast, as well as macroeconomic and industry specific factors.
For the Company's annual goodwill test at October 1, 2014, a qualitative assessment of the Non-dating reporting unit's goodwill was performed. It was determined it was not more likely than not that the fair
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value was less than the carrying value based primarily on valuations of the reporting unit that were prepared immediately prior to October 1, 2014, in August and September 2014. For the Dating reporting unit, the Company elected to forgo the option to qualitatively assess goodwill and determined the fair value as of October 1, 2014. This valuation reflected a discount rate of 16%.
The Company determines the fair values of its indefinite-lived intangible assets using avoided royalty DCF analyses. Significant judgments inherent in these analyses include the selection of appropriate royalty and discount rates and estimating the amount and timing of expected future cash flows. The discount rates used in the DCF analyses reflect the risks inherent in the expected future cash flows generated by the respective intangible assets. The royalty rates used in the DCF analyses are based upon an estimate of the royalty rates that a market participant would pay to license the Company's trade names and trademarks. Assumptions used in the avoided royalty DCF analyses, including the discount rate and royalty rate, are assessed annually based on the actual and projected cash flows related to the asset, as well as macroeconomic and industry specific factors. The discount rates used in the Company's annual indefinite-lived impairment assessment ranged from 10% to 18% in 2013 and 10% to 20% in 2014, and the royalty rates used ranged from 3% to 7% in both 2013 and 2014.
There were no material impairment charges recorded in the three year period ended December 31, 2014.
Long-lived assets and intangible assets with definite lives
Long-lived assets, which consist of property and equipment and intangible assets with definite lives, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value. Amortization of definite-lived intangible assets is computed either on a straight-line basis or based on the pattern in which the economic benefits of the asset will be realized.
Fair value measurements
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
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The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Advertising costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines, offline marketing, which is primarily television advertising and partner-related payments to those who direct traffic to our websites. Advertising expense is $287.0 million, $297.5 million and $309.4 million for the years ended December 31, 2012, 2013 and 2014, respectively.
Legal costs
Legal costs are expensed as incurred.
Income taxes
Match Group, Inc. is a member of IAC's consolidated federal and state income tax returns. In all periods presented, current and deferred income tax expense has been computed for Match Group, Inc. on an as if stand-alone, separate return basis.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement.
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, on potential income tax contingencies as a component of income tax expense.
Foreign currency translation and transaction gains and losses
The financial position and operating results of foreign entities whose primary economic environment is based on their local currency are combined using the local currency as the functional currency. These local currency assets and liabilities are translated at the rates of exchange as of the balance sheet date, and local currency revenue and expenses of these operations are translated at average rates of exchange during the period. Translation gains and losses are included in accumulated other comprehensive income as a component of shareholders' equity. Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the combined statement of operations as a component of other income (expense), net.
Stock-based compensation
Stock-based compensation is measured at the grant date based on the fair value of the award and is generally expensed over the requisite service period. See Note 8 for a discussion of stock-based compensation plans.
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Redeemable noncontrolling interests
Noncontrolling interests in the combined subsidiaries of the Company should ordinarily be reported on the combined balance sheet within shareholder equity, separately from the Company's equity. However, securities that are redeemable at the option of the holder and not solely within the control of the issuer must be classified outside of shareholder equity. Accordingly, if redemption of the noncontrolling interests is outside the control of the Company, the interests are included outside of shareholder equity in the accompanying combined balance sheet.
In connection with the acquisition of certain subsidiaries, current and former senior management of these businesses has retained an ownership interest. The Company is party to fair value put and call arrangements with respect to these interests. These put and call arrangements allow management of these businesses to require the Company to purchase these interests or allow the Company to acquire such interests at fair value, respectively. The put arrangements do not meet the definition of a derivative instrument as the put agreements do not provide for net settlement. No put and call arrangements were exercised during 2012 and 2014. During 2013, one of these arrangements was exercised. These put arrangements are exercisable by the counter-party outside the control of the Company. Accordingly, to the extent that the fair value of these interests exceeds the value determined by normal noncontrolling interest accounting, the value of such interests is adjusted to fair value with a corresponding adjustment to invested capital. During 2012, there were no fair value adjustments recorded. During the years ended December 31, 2013 and 2014, the Company recorded adjustments of $19.3 million and $21.1 million, respectively, to increase these interests to fair value. Fair value determinations require high levels of judgment and are based on various valuation techniques, including market comparables and discounted cash flow projections.
Certain risks and concentrations
The Company's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents. Cash and cash equivalents are principally maintained with international financial institutions that are not covered by deposit insurance.
Recent accounting pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. In July 2015, the FASB decided to defer the effective date for annual reporting periods beginning after December 15, 2017. Early adoption is permitted beginning on the original effective date of December 15, 2016. Upon adoption, ASU No. 2014-09 may either be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its combined financial statements or the method and timing of adoption.
Match Group, Inc. is a member of IAC's consolidated federal and state income tax returns. In all periods presented, current income tax provision and deferred income tax benefit have been computed for Match Group, Inc. on an as if stand-alone, separate return basis. Match Group, Inc.'s payments to IAC for its share
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of IAC's consolidated federal and state tax return liabilities have been reflected within cash flows from operating activities in the accompanying combined statements of cash flows.
U.S. and foreign earnings before income taxes and noncontrolling interests are as follows:
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
U.S. |
$ | 128,746 | $ | 152,645 | $ | 147,210 | ||||
Foreign |
20,967 | 34,598 | 68,426 | |||||||
| | | | | | | | | | |
Total |
$ | 149,713 | $ | 187,243 | $ | 215,636 | ||||
| | | | | | | | | | |
The components of the provision for income taxes are as follows:
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Current income tax provision: |
||||||||||
Federal |
$ | 44,651 | $ | 49,140 | $ | 53,579 | ||||
State |
3,718 | 3,856 | 6,045 | |||||||
Foreign |
14,353 | 11,271 | 13,557 | |||||||
| | | | | | | | | | |
Current income tax provision |
62,722 | 64,267 | 73,181 | |||||||
| | | | | | | | | | |
Deferred income tax provision (benefit): |
||||||||||
Federal |
3,550 | 722 | (4,188 | ) | ||||||
State |
158 | 197 | (159 | ) | ||||||
Foreign |
(6,998 | ) | (4,570 | ) | (1,557 | ) | ||||
| | | | | | | | | | |
Deferred income tax benefit |
(3,290 | ) | (3,651 | ) | (5,904 | ) | ||||
| | | | | | | | | | |
Income tax provision |
$ | 59,432 | $ | 60,616 | $ | 67,277 | ||||
| | | | | | | | | | |
The current income tax payable was reduced by $8.4 million, $10.8 million and $5.3 million for the years ended December 31, 2012, 2013 and 2014, respectively, for excess tax deductions attributable to stock-based compensation. The related income tax benefits are recorded as increases to invested capital.
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The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below. The valuation allowance is primarily related to deferred tax assets for net operating losses.
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Deferred tax assets: |
|||||||
Accrued expenses |
$ | 5,772 | $ | 6,936 | |||
Net operating loss carryforwards |
31,985 | 32,147 | |||||
Stock-based compensation |
7,524 | 13,142 | |||||
Fair value investments |
2,936 | 3,708 | |||||
Other |
4,450 | 3,172 | |||||
| | | | | | | |
Total deferred tax assets |
52,667 | 59,105 | |||||
Less valuation allowance |
(23,202 | ) | (24,805 | ) | |||
| | | | | | | |
Net deferred tax assets |
29,465 | 34,300 | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Intangible and other assets |
(67,554 | ) | (69,131 | ) | |||
Other |
(4,682 | ) | (6,028 | ) | |||
| | | | | | | |
Total deferred tax liabilities |
(72,236 | ) | (75,159 | ) | |||
| | | | | | | |
Net deferred tax liabilities |
$ | (42,771 | ) | $ | (40,859 | ) | |
| | | | | | | |
At December 31, 2014, the Company has federal and state net operating losses ("NOLs") of $24.4 million and $8.3 million, respectively. If not utilized, the federal NOLs will expire at various times between 2031 and 2034, and the state NOLs will expire at various times between 2015 and 2034. Utilization of federal and state NOLs will be subject to limitations under Section 382 of the Internal Revenue Code, and applicable state law. At December 31, 2014, the Company has foreign NOLs of $78.3 million available to offset future income. Of these foreign NOLs, $75.4 million can be carried forward indefinitely and $2.9 million will expire at various times between 2015 and 2034. During 2014, the Company recognized tax benefits related to NOLs of $0.8 million.
During 2014, the Company's valuation allowance increased by $1.6 million primarily due to an increase in federal NOLs. At December 31, 2014, the Company has a valuation allowance of $24.8 million related to the portion of NOLs and other items for which it is more likely than not that the tax benefit will not be realized.
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A reconciliation of the income tax provision to the amounts computed by applying the statutory federal income tax rate to earnings before income taxes is shown as follows:
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Income tax provision at the federal statutory rate of 35% |
$ | 52,400 | $ | 65,535 | $ | 75,472 | ||||
Change in tax reserves, net |
1,970 | (4,524 | ) | (283 | ) | |||||
State income taxes, net of effect of federal tax benefit |
2,433 | 2,814 | 3,826 | |||||||
Foreign income taxed at a different statutory rate |
(205 | ) | (976 | ) | (975 | ) | ||||
Non-taxable contingent consideration fair value adjustments |
| | (4,439 | ) | ||||||
Non-taxable foreign currency exchange gains |
| | (4,107 | ) | ||||||
Non-deductible impairment of long-term marketable security |
3,040 | | | |||||||
Other, net |
(206 | ) | (2,233 | ) | (2,217 | ) | ||||
| | | | | | | | | | |
Income tax provision |
$ | 59,432 | $ | 60,616 | $ | 67,277 | ||||
| | | | | | | | | | |
No income taxes have been provided on indefinitely reinvested earnings of certain foreign subsidiaries aggregating $360.8 million at December 31, 2014. The estimated amount of the unrecognized deferred income tax liability with respect to such earnings would be $66.0 million.
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows:
| | | | | | | | | | |
|
December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Balance at January 1 |
$ | 12,833 | $ | 16,788 | $ | 11,215 | ||||
Additions based on tax positions related to the current year |
1,780 | 1,188 | 201 | |||||||
Additions for tax positions of prior years |
2,517 | 665 | 490 | |||||||
Reductions for tax positions of prior years |
(14 | ) | (12 | ) | (60 | ) | ||||
Settlements |
(328 | ) | (4,724 | ) | | |||||
Expiration of applicable statute of limitations |
| (2,690 | ) | (911 | ) | |||||
| | | | | | | | | | |
Balance at December 31 |
$ | 16,788 | $ | 11,215 | $ | 10,935 | ||||
| | | | | | | | | | |
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At both December 31, 2013 and 2014, the Company has accrued $1.2 million, respectively, for the payment of interest. At December 31, 2013 and 2014, the Company has accrued $2.3 million and $2.4 million, respectively, for penalties.
Match Group, Inc. is routinely under audit by federal, state, local and foreign authorities in the area of income tax as a result of previously filed separate company and consolidated tax returns with IAC. These audits include questioning the timing and the amount of income and deductions and the allocation of income and deductions among various tax jurisdictions. The Internal Revenue Service is currently auditing IAC's federal income tax returns for the years ended December 31, 2010 through 2012, which includes the operations of Match Group, Inc. Various other jurisdictions are open to examination for various tax years beginning with 2006. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and
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differences between amounts paid, if any, upon the resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
At December 31, 2013 and 2014, unrecognized tax benefits, including interest, are $12.4 million and $12.1 million, respectively. Included in unrecognized tax benefits at December 31, 2013 and 2014, is approximately $0.5 million and $0.7 million, respectively, for tax positions included in IAC's consolidated tax return filings. Unrecognized tax benefits, including interest, for the year ended December 31, 2014 decreased by $0.3 million due principally to foreign statute expirations. If unrecognized tax benefits at December 31, 2014 are subsequently recognized, $11.8 million, net of related deferred tax assets and interest, would reduce income tax expense. The comparable amount as of December 31, 2013 is $12.0 million. The Company believes that it is reasonably possible that its unrecognized tax benefits could decrease by approximately $1.2 million by December 31, 2015, primarily due to expirations of statutes of limitations.
Note 4Goodwill and intangible assets
Goodwill and intangible assets, net are as follows:
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Goodwill |
$ | 767,746 | $ | 793,763 | |||
Intangible assets with indefinite lives |
167,543 | 180,558 | |||||
Intangible assets with definite lives, net |
11,819 | 27,055 | |||||
| | | | | | | |
Total goodwill and intangible assets, net |
$ | 947,108 | $ | 1,001,376 | |||
| | | | | | | |
The following table presents the balance of goodwill, including the changes in the carrying value of goodwill, for the year ended December 31, 2013:
| | | | | | | | | | | | | | | | |
|
Balance at December 31, 2012 |
Additions |
(Deductions) |
Foreign exchange translation |
Balance at December 31, 2013 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | |
|
(In thousands) |
|||||||||||||||
Dating |
$ | 683,708 | $ | 62,419 | $ | | $ | 4,878 | $ | 751,005 | ||||||
Non-dating |
27,535 | 45 | (10,839 | ) | | 16,741 | ||||||||||
| | | | | | | | | | | | | | | | |
Match Group, Inc. |
$ | 711,243 | $ | 62,464 | $ | (10,839 | ) | $ | 4,878 | $ | 767,746 | |||||
| | | | | | | | | | | | | | | | |
Additions primarily relate to the acquisition of Twoo. Deductions primarily relate to the establishment of a deferred tax asset related to Tutor.com's pre-acquisition net operating losses.
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The following table presents the balance of goodwill, including the changes in the carrying value of goodwill, for the year ended December 31, 2014:
| | | | | | | | | | | | | | | | |
|
Balance at December 31, 2013 |
Additions |
(Deductions) |
Foreign exchange translation |
Balance at December 31, 2014 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | |
|
(In thousands) |
|||||||||||||||
Dating |
$ | 751,005 | $ | 12,371 | $ | (350 | ) | $ | (44,897 | ) | $ | 718,129 | ||||
Non-dating |
16,741 | 60,462 | (1,581 | ) | 12 | 75,634 | ||||||||||
| | | | | | | | | | | | | | | | |
Match Group, Inc. |
$ | 767,746 | $ | 72,833 | $ | (1,931 | ) | $ | (44,885 | ) | $ | 793,763 | ||||
| | | | | | | | | | | | | | | | |
Additions primarily relate to the acquisition of The Princeton Review.
Intangible assets with indefinite lives are trade names and trademarks acquired in various acquisitions. At December 31, 2013, intangible assets with definite lives are as follows:
| | | | | | | | | | | | | |
|
Gross carrying amount |
Accumulated amortization |
Net |
Weighted-average useful life (years) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
|
(dollars in thousands) |
||||||||||||
Customer lists |
$ | 15,068 | $ | (7,037 | ) | $ | 8,031 | 3.2 | |||||
Technology |
4,679 | (2,326 | ) | 2,353 | 3.0 | ||||||||
Trade names |
2,679 | (1,244 | ) | 1,435 | 2.4 | ||||||||
| | | | | | | | | | | | | |
Total |
$ | 22,426 | $ | (10,607 | ) | $ | 11,819 | 3.0 | |||||
| | | | | | | | | | | | | |
At December 31, 2014, intangible assets with definite lives are as follows:
| | | | | | | | | | | | | |
|
Gross carrying amount |
Accumulated amortization |
Net |
Weighted-average useful life (years) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
|
(dollars in thousands) |
||||||||||||
Customer lists |
$ | 19,060 | $ | (10,797 | ) | $ | 8,263 | 2.9 | |||||
Content |
9,802 | (1,024 | ) | 8,778 | 4.0 | ||||||||
Trade names |
8,627 | (3,001 | ) | 5,626 | 2.8 | ||||||||
Technology |
5,390 | (2,744 | ) | 2,646 | 2.5 | ||||||||
Franchise rights and other |
2,000 | (258 | ) | 1,742 | 4.8 | ||||||||
| | | | | | | | | | | | | |
Total |
$ | 44,879 | $ | (17,824 | ) | $ | 27,055 | 3.1 | |||||
| | | | | | | | | | | | | |
F-38
At December 31, 2014, amortization of intangible assets with definite lives for each of the next five years is estimated to be as follows:
| | | | |
Years ending December 31, |
(In thousands) |
|||
---|---|---|---|---|
| | | | |
2015 |
$ | 12,312 | ||
2016 |
6,981 | |||
2017 |
5,504 | |||
2018 |
1,931 | |||
2019 |
327 | |||
| | | | |
Total |
$ | 27,055 | ||
| | | | |
Long-term investments consist of:
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Cost method investments |
$ | 51,033 | $ | 55,569 | |||
Long-term marketable equity security |
9,360 | 7,410 | |||||
| | | | | | | |
Total long-term investments |
$ | 60,393 | $ | 62,979 | |||
| | | | | | | |
Investment in Zhenai, Inc.
The Company has a 20% interest in the voting common stock of Zhenai Inc. ("Zhenai"), a leading provider of online dating and matchmaking services in China. Our voting power is limited by a shareholders agreement. In light of this limitation and the significance of our interest relative to other shareholders, we do not have the ability to exercise significant influence over the operating and financial matters of Zhenai and this investment is accounted for as a cost method investment.
Long-term marketable equity security
The cost basis of the Company's long-term marketable equity security at December 31, 2013 and 2014 is $8.7 million, with a gross unrealized gain of $0.7 million and a gross unrealized loss of $1.2 million at December 31, 2013 and 2014, respectively, which are included in "Accumulated other comprehensive loss" in the accompanying combined balance sheet. The Company evaluated the near-term prospects of the issuer in relation to the severity and duration of the unrealized loss. Based on the duration, less than two months, of the unrealized loss and the Company's ability and intent to hold this security for a reasonable period of time sufficient for an expected recovery of fair value, the Company does not consider the security to be other-than-temporarily impaired at December 31, 2014. In 2012, the Company recorded an $8.7 million other-than-temporary impairment charge related to its security that was in a continuous unrealized loss position for more than one year, based on the Company's evaluation of the near-term prospects of the issuer in relation to the severity (fair value was 50 percent less than cost) and duration of the unrealized loss. The impairment charge is included in "Other (expense) income, net" in the accompanying combined statement of operations.
F-39
Note 6Fair value measurements and financial instruments
The following tables present the Company's financial instruments that are measured at fair value on a recurring basis:
| | | | | | | | | | | | | |
|
December 31, 2013 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Quoted market prices in active markets for identical assets (level 1) |
Significant other observable inputs (level 2) |
Significant unobservable inputs (level 3) |
Total fair value measurements |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Assets: |
|||||||||||||
Cash equivalents: |
|||||||||||||
Money market funds |
$ | 70,290 | $ | | $ | | $ | 70,290 | |||||
Time deposits |
| 171 | | 171 | |||||||||
Long-term investments: |
|||||||||||||
Marketable equity security |
9,360 | | | 9,360 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 79,650 | $ | 171 | $ | | $ | 79,821 | |||||
| | | | | | | | | | | | | |
Liabilities: |
|||||||||||||
Contingent consideration arrangement |
$ | | $ | | $ | (43,625 | ) | $ | (43,625 | ) | |||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Quoted market prices in active markets for identical assets (level 1) |
Significant other observable inputs (level 2) |
Significant unobservable inputs (level 3) |
Total fair value measurements |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Assets: |
|||||||||||||
Cash equivalents: |
|||||||||||||
Money market funds |
$ | 57,057 | $ | | $ | | $ | 57,057 | |||||
Time deposits |
| 13,405 | | 13,405 | |||||||||
Long-term investments: |
|||||||||||||
Marketable equity security |
7,410 | | | 7,410 | |||||||||
| | | | | | | | | | | | | |
Total |
$ | 64,467 | $ | 13,405 | $ | | $ | 77,872 | |||||
| | | | | | | | | | | | | |
Liabilities: |
|||||||||||||
Contingent consideration arrangements |
$ | | $ | | $ | (20,615 | ) | $ | (20,615 | ) | |||
| | | | | | | | | | | | | |
F-40
The following table presents the changes in the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3):
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 | 2014 | |||||
|
Contingent consideration arrangement |
Contingent consideration arrangements |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Balance at January 1 |
$ | | $ | (43,625 | ) | ||
Total net (losses) gains: |
|||||||
Included in earnings |
(343 | ) | 13,962 | ||||
Included in foreign currency translation adjustment |
(2,445 | ) | 1,975 | ||||
Fair value at date of acquisition |
(40,837 | ) | (300 | ) | |||
Settlements |
| 7,373 | |||||
| | | | | | | |
Balance at December 31 |
$ | (43,625 | ) | $ | (20,615 | ) | |
| | | | | | | |
There are no gains or losses included in earnings for the year ended December 31, 2012, relating to the Company's financial instruments that are measured at fair value on a recurring basis using significant unobservable inputs.
Contingent consideration arrangements
As of December 31, 2014, there are two contingent consideration arrangements related to business acquisitions. The maximum contingent payments related to these arrangements is $124.4 million and the fair value of these two arrangements at December 31, 2014 is $20.6 million. The contingent consideration arrangements are based upon earnings performance and/or operating metrics. The Company primarily uses probability-weighted analyses to determine the amount of the gross liability, and, to the extent the arrangement is long-term in nature, applies a discount rate, which captures the risks associated with the obligation. The number of scenarios in the probability-weighted analyses can vary; generally, more scenarios are prepared for longer duration and more complex arrangements.
The more significant of the two contingent consideration arrangements relates to the acquisition, on January 4, 2013, of Massive Media NV, which operates Twoo.com, a social discovery website that allows its users to meet new people. The Twoo.com contingent consideration arrangement is payable in three annual installments, which began in 2014. Payments are based upon EBITDA and number of monthly active users. The 2014 installment of $7.4 million was paid in the second quarter of 2014. The remaining aggregate amount of the 2015 and 2016 installment payments cannot exceed €77.9 million ($94.9 million at December 31, 2014). The estimate of the fair value for the Twoo.com remaining payments was determined using a probability weighted analysis that forecasted EBITDA and monthly active users based primarily on management's internal projections and strategic plans. The fair value of this arrangement is determined using a discount rate of 15%.
The fair values of the contingent consideration arrangements are sensitive to changes in the forecasts of earnings and/or the relevant operating metrics and changes in discount rates. The Company remeasures the fair value of the contingent consideration arrangements each reporting period, and changes are recognized in "General and administrative expense" in the accompanying combined statement of operations. The contingent consideration arrangement liability at December 31, 2014 includes a current portion of $10.3 million and non-current portion of $10.3 million, which are included in "Accrued expenses
F-41
and other current liabilities" and "Other long-term liabilities," respectively, in the accompanying combined balance sheet.
Assets measured at fair value on a nonrecurring basis
The Company's non-financial assets, such as goodwill, intangible assets and property and equipment, as well as cost method investments, are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Note 7Accumulated other comprehensive loss
The following tables present the components of accumulated other comprehensive loss:
| | | | | | | | | | |
|
Year ended December 31, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Foreign currency translation adjustment |
Unrealized gain on available- for-sale security |
Accumulated other comprehensive (loss) income |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Balance at January 1 |
$ | (20,948 | ) | $ | | $ | (20,948 | ) | ||
Other comprehensive income |
3,858 | 702 | 4,560 | |||||||
| | | | | | | | | | |
Balance at December 31 |
$ | (17,090 | ) | $ | 702 | $ | (16,388 | ) | ||
| | | | | | | | | | |
| | | | | | | | | | |
|
Year ended December 31, 2014 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
Foreign currency translation adjustment |
Unrealized gain (loss) on available-for- sale security |
Accumulated other comprehensive loss |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Balance at January 1 |
$ | (17,090 | ) | $ | 702 | $ | (16,388 | ) | ||
Other comprehensive loss |
(59,710 | ) | (1,950 | ) | (61,660 | ) | ||||
| | | | | | | | | | |
Balance at December 31 |
$ | (76,800 | ) | $ | (1,248 | ) | $ | (78,048 | ) | |
| | | | | | | | | | |
During the year ended December 31, 2012, $8.7 million in unrealized loss was reclassified out of accumulated other comprehensive loss into other income (expense). There were no unrealized gains and losses reclassified out of accumulated other comprehensive loss into earnings for the years ended December 31, 2013 and 2014. At December 31, 2013 and 2014, there was no tax benefit or provision on the accumulated other comprehensive loss.
Note 8Stock-based compensation
Match Group, Inc. currently has two active plans under which awards have been granted. These plans provide for the grant of non-qualified stock options to acquire shares of Match Group, Inc. common stock, and stock appreciation rights. These plans authorize the Company to grant awards to its employees, officers, directors and consultants. At December 31, 2014, there are 1.8 million shares available for grant under the Company's stock-based compensation plans.
Prior to the offering, the options to acquire shares of Match Group, Inc. common stock are settlable for shares of IAC common stock having a value equal to the difference between the option exercise price and the fair market value of a share of Match Group, Inc. common stock. Upon completion of the offering, the options to acquire shares of Match Group, Inc. common stock will be adjusted in accordance with their terms to provide that the awards are exercisable for shares of Match Group, Inc. common stock.
F-42
The plans were adopted in 2009 and 2014, have a stated term of ten years, and provide that the exercise price of stock options granted will not be less than the fair value of the Company's common stock on the grant date. The plans do not specify grant dates or vesting schedules of awards as those determinations have been delegated to the Compensation and Human Resources Committee of IAC's Board of Directors (the "Committee"). Each grant agreement reflects the vesting schedule for that particular grant as determined by the Committee. Broad-based stock option awards issued to date have generally vested in two equal annual installments over a three-year period.
The amount of stock-based compensation expense recognized in the combined statement of operations is reduced by estimated forfeitures, as the expense recorded is based on awards that are ultimately expected to vest. The forfeiture rate is estimated at the grant date based on historical experience and revised, if necessary, in subsequent periods if actual forfeitures differ from the estimated rate. At December 31, 2014, there is $32.0 million of unrecognized compensation cost, net of estimated forfeitures, related to all equity-based awards, which is expected to be recognized over a weighted average period of approximately 2 years.
The total income tax benefit recognized in the accompanying combined statement of operations for the years ended December 31, 2012, 2013 and 2014 related to stock-based compensation is $4.9 million, $4.1 million and $7.9 million, respectively.
Stock options
Stock options outstanding at December 31, 2014 and changes during the year ended December 31, 2014 is as follows:
| | | | | | | | | | | | | |
|
December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Shares |
Weighted average exercise price |
Weighted average remaining contractual term |
Aggregate intrinsic value |
|||||||||
| | | | | | | | | | | | | |
|
(Shares and intrinsic value in thousands) |
||||||||||||
Outstanding at January 1, 2014 |
287 | $ | 190.00 | ||||||||||
Granted |
351 | 325.06 | |||||||||||
Exercised |
(51 | ) | 111.24 | ||||||||||
Forfeited |
(2 | ) | 319.76 | ||||||||||
| | | | | | | | | | | | | |
Outstanding at December 31, 2014 |
585 | $ | 277.62 | 7.3 | $ | 68,010 | |||||||
| | | | | | | | | | | | | |
Options exercisable |
224 | $ | 233.30 | 5.3 | $ | 38,187 | |||||||
| | | | | | | | | | | | | |
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the per share price of Match Group, Inc. at the last date of grant and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2014. This amount changes based on the fair value of Match Group, Inc. common stock. The total intrinsic value of stock options exercised during the years ended December 31, 2012, 2013 and 2014 is $23.9 million, $34.7 million and $10.7 million, respectively.
F-43
The following table summarizes the information about stock options outstanding and exercisable at December 31, 2014:
| | | | | | | | | | | | | | | | | | | |
|
Options outstanding | Options exercisable | |||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Range of exercise prices |
Outstanding at December 31, 2014 |
Weighted- average remaining contractual life in years |
Weighted- average exercise price |
Exercisable at December 31, 2014 |
Weighted- average remaining contractual life in years |
Weighted- average exercise price |
|||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
(Shares in thousands) |
||||||||||||||||||
$50.01 to $150.00 |
32 | 5.1 | $ | 118.56 | 32 | 5.1 | $ | 118.56 | |||||||||||
$150.01 to $250.00 |
203 | 4.4 | 221.09 | 144 | 4.1 | 214.28 | |||||||||||||
$250.01 to $350.00 |
325 | 9.1 | 319.76 | 48 | 9.1 | 319.76 | |||||||||||||
$350.01 to $450.00 |
25 | 9.8 | 393.90 | | | | |||||||||||||
| | | | | | | | | | | | | | | | | | | |
|
585 | 7.3 | $ | 277.62 | 224 | 5.3 | $ | 223.30 | |||||||||||
| | | | | | | | | | | | | | | | | | | |
The fair value of each stock option award is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model incorporates various assumptions, including expected volatility and expected term. Prior to 2014, expected stock price volatilities were estimated based on historical stock price volatilities of peer companies that were chosen on the basis of their similarity to the Company in terms of consumer use, monetization model, margin and growth characteristics and brand strength. At the beginning of 2014 the Company concluded that the most relevant reference point for determining volatility was IAC's historical volatility as a result of the Company representing a large percentage of the overall value of IAC. The risk-free interest rates are based on U.S. Treasuries with comparable terms as the awards, in effect at the grant date. Expected term is based upon the mid-point of the first and last windows for exercise. No dividends have been assumed. The following are the weighted average assumptions used in the Black-Scholes option pricing model:
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
Expected volatility |
47% | 41% | 29% | |||||||
Risk-free interest rate |
0.5% | 0.8% | 1.3% | |||||||
Expected term |
3.7 years | 4.2 years | 4.2 years | |||||||
Dividend yield |
% | % | % | |||||||
| | | | | | | | | | |
Approximately 0.2 million, less than 0.1 million and 0.4 million stock options were granted by the Company during the years ended December 31, 2012, 2013 and 2014, respectively. The weighted average fair value of stock options granted during the years ended December 31, 2012, 2013 and 2014 with exercise prices equal to the fair value of Match Group, Inc. common stock on the date of grant are $79.73, $79.57 and $83.24, respectively. There are no stock options issued during the years ended December 31, 2012, 2013 and 2014 with exercise prices greater than the fair value of Match Group, Inc. common stock on the date of grant.
There was no cash received from stock option exercises as the stock options were net settled in IAC's common stock.
Equity instruments denominated in the shares of certain subsidiaries
IAC has granted stock options in certain subsidiaries within Match Group, Inc. to certain employees. These equity awards vest over a period of years, which is typically four years. The value of the stock options is
F-44
tied to the value of the common stock of the entity, with the equity awards management receives as a whole generally representing a small minority of the total common stock outstanding. Accordingly, these interests only have value to the extent the fair value of the relevant business appreciates in value above the initial fair value utilized to determine the exercise price. These stock options can have significant value in the event of significant appreciation. The interests are ultimately settled in IAC common stock at various dates through 2021. The expense associated with these equity awards is initially measured at fair value at the grant date and is expensed as stock-based compensation over the vesting term. The fair value of each stock option award is estimated on the grant date using the Black-Scholes option-pricing model. The aggregate number of IAC common shares that would be required to settle these interests at current estimated fair values, including vested and unvested interests, at December 31, 2014 is 3.8 million shares; of this amount 1.5 million shares relate to vested awards and 2.2 million shares relate to unvested awards. The comparable amount at December 31, 2013 is 0.8 million shares; of this amount less than 0.1 million shares relate to vested awards and 0.7 million shares relate to unvested awards.
IAC denominated stock options
Approximately 0.6 million and 0.1 million IAC stock options were granted by IAC to employees of Match Group, Inc. during the years ended December 31, 2012 and 2013, respectively. There were no IAC stock options granted by IAC to employees of Match Group, Inc. for the year ended December 31, 2014. The fair value of each stock option award is estimated on the grant date using the Black-Scholes option-pricing model. IAC stock options are granted with exercise prices at least equal to the fair value on the date of grant, vest ratably in annual installments over a four year period and expire ten years from the date of grant.
In December 2013, IAC's former Chief Executive Officer (the "Executive") became Chairman of Match Group LLC; in connection with the Executive's compensation arrangement, the Executive exercised 0.5 million IAC stock options, which were settled by IAC for $9.2 million in cash. In January 2014, a portion of the Executive's outstanding IAC stock options were canceled and replaced with equity denominated in Match Group, Inc. and equity denominated in certain subsidiaries within Match Group, Inc. and Match Group LLC. The incremental expense associated with this modification is $7.4 million.
IAC denominated restricted stock units ("RSUs")
Approximately less than 0.1 million and 0.1 million IAC RSUs were granted by IAC to employees of Match Group, Inc. during the years ended December 31, 2012 and 2013, respectively. There were no IAC RSUs granted by IAC to employees of Match Group, Inc. for the year ended December 31, 2014. RSUs are awards in the form of phantom shares, denominated in a hypothetical equivalent number of shares of IAC common stock and with the value of each RSU equal to the fair value of IAC common stock at the date of grant. RSUs may be settled in cash, stock or both, as determined by the Committee at the time of grant. Each RSU grant is subject to service-based vesting, where a specific period of continued employment must pass before an award vests.
F-45
The Company has two operating segments, Dating and Non-dating, which are also the Company's two reportable segments. Each segment manager reports to the Company's Chairman. The Company's Chairman, who is the chief operating decision maker, allocates resources and assesses performance at the segment level. Our Dating segment provides dating products and the Company's Non-dating segment provides a variety of education services including test preparation, academic tutoring and college counseling services.
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Revenue: |
||||||||||
Dating |
$ | 713,449 | $ | 788,197 | $ | 836,458 | ||||
Non-dating |
| 14,892 | 51,810 | |||||||
| | | | | | | | | | |
Total |
$ | 713,449 | $ | 803,089 | $ | 888,268 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Operating Income (Loss): |
||||||||||
Dating |
$ | 187,106 | $ | 230,273 | $ | 253,725 | ||||
Non-dating |
(476 | ) | (8,940 | ) | (25,158 | ) | ||||
| | | | | | | | | | |
Total |
$ | 186,630 | $ | 221,333 | $ | 228,567 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Adjusted EBITDA:(a) |
||||||||||
Dating |
$ | 236,939 | $ | 277,463 | $ | 289,287 | ||||
Non-dating |
(449 | ) | (6,232 | ) | (15,839 | ) | ||||
| | | | | | | | | | |
Total |
$ | 236,490 | $ | 271,231 | $ | 273,448 | ||||
| | | | | | | | | | |
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Segment Assets:(b) |
|||||||
Dating |
$ | 337,591 | $ | 277,260 | |||
Non-dating |
7,423 | 29,398 | |||||
| | | | | | | |
Total |
$ | 345,014 | $ | 306,658 | |||
| | | | | | | |
F-46
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Capital expenditures: |
||||||||||
Dating |
$ | 19,853 | $ | 19,587 | $ | 19,734 | ||||
Non-dating |
| 220 | 2,059 | |||||||
| | | | | | | | | | |
Total |
$ | 19,853 | $ | 19,807 | $ | 21,793 | ||||
| | | | | | | | | | |
(a) The Company's primary financial measure is Adjusted EBITDA, which is defined as operating income excluding: (1) stock-based compensation expense; (2) depreciation; and (3) acquisition-related items consisting of (i) amortization of intangible assets and impairments of goodwill and intangible assets and (ii) gains and losses recognized on changes in the fair value of contingent consideration arrangements. The Company believes this measure is useful for analysts and investors as this measure allows a more meaningful comparison between our performance and that of our competitors. Moreover, our management uses this measure internally to evaluate the performance of our business as a whole. The above items are excluded from our Adjusted EBITDA measure because these items are non-cash in nature, and we believe that by excluding these items, Adjusted EBITDA corresponds more closely to the cash operating income generated from our business, from which capital investments are made and debt is serviced. Adjusted EBITDA has certain limitations in that it does not take into account the impact to Match Group, Inc.'s statement of operations of certain expenses.
(b) Consistent with the Company's primary metric (described in (a) above), the Company excludes, if applicable, goodwill and intangible assets from the measure of segment assets presented above.
Revenue by geography is based on where the customer is located. Geographic information about revenue and long-lived assets is presented below:
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Revenue |
||||||||||
United States |
$ | 460,321 | $ | 516,589 | $ | 578,139 | ||||
All other countries |
253,128 | 286,500 | 310,129 | |||||||
| | | | | | | | | | |
Total |
$ | 713,449 | $ | 803,089 | $ | 888,268 | ||||
| | | | | | | | | | |
The only country, other than the United States, with greater than 10 percent of total revenue for the years ended December 31, 2012 and 2013, is France with $75.6 million and $81.4 million, respectively. The United States is the only country whose revenue is greater than 10 percent of total revenue for the year ended December 31, 2014.
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Long-lived assets (excluding goodwill and intangible assets) |
|||||||
United States |
$ | 16,249 | $ | 25,436 | |||
All other countries |
18,841 | 17,561 | |||||
| | | | | | | |
Total |
$ | 35,090 | $ | 42,997 | |||
| | | | | | | |
The only country, other than the United States, with greater than 10 percent of total long-lived assets (excluding goodwill and intangible assets), is France with $16.3 million and $14.5 million as of December 31, 2013 and 2014, respectively.
F-47
The following tables reconcile Adjusted EBITDA to operating income (loss) for the Company's reportable segments and to total net earnings attributable to Match Group, Inc.'s shareholder for the years ended December 31, 2012, 2013 and 2014:
| | | | | | | | | | | | | |
|
Year ended December 31, 2012 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Adjusted EBITDA |
Stock-based compensation |
Depreciation |
Amortization of intangibles |
Operating income (loss) |
||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Dating |
$ | 236,939 | $(16,037) | $(16,341) | $(17,455) | $ | 187,106 | ||||||
Non-dating |
(449 | ) | (27) | | | (476 | ) | ||||||
| | | | | | | | | | | | | |
Total |
$ | 236,490 | $(16,064) | $(16,341) | $(17,455) | 186,630 | |||||||
| | | | | | | | | | | | | |
Interest expenserelated party |
(29,489 | ) | |||||||||||
Other expense, net |
(7,428 | ) | |||||||||||
| | | | | | | | | | | | | |
Earnings before income taxes |
149,713 | ||||||||||||
Income tax provision |
(59,432 | ) | |||||||||||
| | | | | | | | | | | | | |
Net earnings |
90,281 | ||||||||||||
Net earnings attributable to noncontrolling interests |
(4,606 | ) | |||||||||||
| | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 85,675 | |||||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
|
Year ended December 31, 2013 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Adjusted EBITDA |
Stock-based compensation |
Depreciation |
Amortization of intangibles |
Acquisition- related contingent consideration fair value adjustments |
Operating income (loss) |
|||||||||
| | | | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||||
Dating |
$ | 277,463 | $(11,718) | $(19,991) | $(15,138) | $(343) | $ | 230,273 | |||||||
Non-dating |
(6,232 | ) | (510) | (211) | (1,987) | | (8,940 | ) | |||||||
| | | | | | | | | | | | | | | |
Total |
$ | 271,231 | $(12,228) | $(20,202) | $(17,125) | $(343) | 221,333 | ||||||||
| | | | | | | | | | | | | | | |
Interest expenserelated party |
(34,307 | ) | |||||||||||||
Other income, net |
217 | ||||||||||||||
| | | | | | | | | | | | | | | |
Earnings before income taxes |
187,243 | ||||||||||||||
Income tax provision |
(60,616 | ) | |||||||||||||
| | | | | | | | | | | | | | | |
Net earnings |
126,627 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
(1,624 | ) | |||||||||||||
| | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 125,003 | |||||||||||||
| | | | | | | | | | | | | | | |
F-48
| | | | | | | | | | | | | | | |
|
Year ended December 31, 2014 | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Adjusted EBITDA |
Stock-based compensation |
Depreciation |
Amortization of intangibles |
Acquisition- related contingent consideration fair value adjustments |
Operating income (loss) |
|||||||||
| | | | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||||
Dating |
$ | 289,287 | $(19,543) | $(21,502) | $(7,429) | $12,912 | $ | 253,725 | |||||||
Non-dating |
(15,839 | ) | (1,308) | (4,045) | (3,966) | | (25,158 | ) | |||||||
| | | | | | | | | | | | | | | |
Total |
$ | 273,448 | $(20,851) | $(25,547) | $(11,395) | $12,912 | 228,567 | ||||||||
| | | | | | | | | | | | | | | |
Interest expenserelated party |
(25,541 | ) | |||||||||||||
Other income, net |
12,610 | ||||||||||||||
| | | | | | | | | | | | | | | |
Earnings before income taxes |
215,636 | ||||||||||||||
Income tax provision |
(67,277 | ) | |||||||||||||
| | | | | | | | | | | | | | | |
Net earnings |
148,359 | ||||||||||||||
Net earnings attributable to noncontrolling interests |
(595 | ) | |||||||||||||
| | | | | | | | | | | | | | | |
Net earnings attributable to Match Group, Inc.'s shareholder |
$ | 147,764 | |||||||||||||
| | | | | | | | | | | | | | | |
The following tables reconcile segment assets to total assets:
| | | | | | | | | | | | | |
|
December 31, 2013 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Segment assets |
Goodwill |
Indefinite-lived intangible assets |
Definite-lived intangible assets |
Total assets |
||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Dating |
$337,591 | $ | 751,005 | $162,344 | 5,405 | $ | 1,256,345 | ||||||
Non-dating |
7,423 | 16,741 | 5,199 | 6,414 | 35,777 | ||||||||
| | | | | | | | | | | | | |
Total |
$345,014 | $ | 767,746 | $167,543 | $11,819 | $ | 1,292,122 | ||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
December 31, 2014 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Segment assets |
Goodwill |
Indefinite-lived intangible assets |
Definite-lived intangible assets |
Total assets |
||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Dating |
$277,260 | $ | 718,129 | $156,658 | $6,706 | $ | 1,158,753 | ||||||
Non-dating |
29,398 | 75,634 | 23,900 | 20,349 | 149,281 | ||||||||
| | | | | | | | | | | | | |
Total |
$306,658 | $ | 793,763 | $180,558 | $27,055 | $ | 1,308,034 | ||||||
| | | | | | | | | | | | | |
F-49
The Company leases office space, data center facilities and equipment used in connection with its operations under various operating leases, many of which contain escalation clauses. In addition, future minimum lease payments include Match Group, Inc.'s allocable share of an IAC data center lease.
Future minimum payments under operating lease agreements are as follows:
| | |
Years ending December 31, |
(In thousands) |
|
---|---|---|
| | |
2015 |
$12,376 | |
2016 |
11,195 | |
2017 |
7,586 | |
2018 |
6,417 | |
2019 |
4,676 | |
Thereafter |
6,393 | |
| | |
Total |
$48,643 | |
| | |
Expenses charged to operations under these agreements are $8.3 million, $10.9 million and $14.7 million for the years ended December 31, 2012, 2013 and 2014, respectively. In addition, rent expense charged to Match Group, Inc. by IAC, for which no minimum payments are required, totaled $0.3 million, $0.5 million and $0.9 million in the years ended December 31, 2012, 2013 and 2014, respectively.
The Company also has funding commitments that could potentially require its performance in the event of demands by third parties or contingent events as follows:
| | |
|
Amount of commitment expiration per period |
|
---|---|---|
|
Less than 1 Year |
|
| | |
|
(In thousands) |
|
Purchase obligations |
$8,647 | |
Surety bonds |
245 | |
| | |
Total commercial commitments |
$8,892 | |
| | |
The purchase obligations primarily include advertising commitments, which commitments are reducible or terminable such that these commitments can never exceed associated revenue by a meaningful amount.
Amounts due under the contingent consideration arrangements described in Note 6 are excluded from the commercial commitments table above.
In the ordinary course of business, the Company is a party to various lawsuits. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. Management has also identified certain other legal matters where we believe an unfavorable outcome is not probable and, therefore, no reserve is established. Although management currently believes that resolving claims against us, including claims where an unfavorable outcome is reasonably possible, will not have a material impact on the liquidity, results of
F-50
operations, or financial condition of the Company, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. It is possible that an unfavorable outcome of one or more of these lawsuits or other contingencies could have a material impact on the liquidity, results of operations, or financial condition of the Company. See Note 3 for additional information related to income tax contingencies.
Note 12Supplemental cash flow information
Supplemental disclosure of non-cash transactions for 2013
The consideration for the acquisition of Twoo on January 4, 2013 includes a contingent consideration arrangement, which is described in Note 6.
Supplemental disclosure of cash flow information:
|
|
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Cash paid (received) during the year for: |
||||||||||
Interest |
$ | 2,609 | $ | 2,928 | $ | 7,017 | ||||
Income tax payments, including amounts paid to IAC for Match Group, Inc.'s share of IAC's consolidated tax liability |
48,989 | 60,107 | 68,905 | |||||||
Income tax refunds |
(1,372 | ) | (647 | ) | (3,826 | ) | ||||
| | | | | | | | | | |
Note 13Related party transactions
Relationship with IAC prior to the initial public offering
Match Group, Inc.'s combined statement of operations includes allocations of general and administrative costs, including stock-based compensation expense, related to IAC's accounting, treasury, legal, tax, corporate support and internal audit functions. These allocations were based on Match Group, Inc.'s revenue as a percentage of IAC's total revenue. Allocated general and administrative costs, inclusive of stock-based compensation expense, were $6.3 million, $6.2 million and $6.6 million, in 2012, 2013 and 2014, respectively, and are included in "General and administrative expense" in the accompanying combined statement of operations. It is not practicable to determine the actual expenses that would have been incurred for these services had Match Group, Inc. operated as a stand-alone entity. Management considers the allocation method to be reasonable. We have entered into certain arrangements with IAC in the ordinary course of business for: (i) the leasing of office space for certain of our businesses at properties owned by IAC, for which we paid IAC approximately $0.3 million, $0.5 million and $1.0 million in the years ended December 31, 2012, 2013 and 2014, respectively; and (ii) the subleasing of space in a data center from an IAC subsidiary, for which we paid such IAC subsidiary approximately $1.2 million in each of the three years ended December 31, 2012, 2013 and 2014.
The portion of interest income reflected in the combined statements of operations that is intercompany in nature, was $1.3 million, $1.2 million and $2.1 million for the years ended December 31, 2012, 2013 and 2014, respectively, and is included in "Interest expense, net" in the table below.
F-51
The following table summarizes the components of the net decrease (increase) in IAC/InterActiveCorp's investment in Match Group, Inc. for the year ended December 31, 2012, 2013 and 2014:
|
|
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
|
December 31, | |||||||||
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Cash transfers to IAC related to its centrally managed U.S. treasury management function, acquisitions and cash expenses paid by IAC on behalf of Match Group, Inc., net |
$ | 104,904 | $ | 59,216 | $ | 165,782 | ||||
Taxes |
(48,413 | ) | (54,228 | ) | (54,761 | ) | ||||
Interest expense, net(a) |
(23,422 | ) | (29,737 | ) | (12,936 | ) | ||||
Allocation of general and administrative expense |
(6,338 | ) | (6,210 | ) | (6,648 | ) | ||||
| | | | | | | | | | |
Net decrease (increase) in IAC/InterActiveCorp's investment in Match Group, Inc. |
$ | 26,731 | $ | (30,959 | ) | $ | 91,437 | |||
| | | | | | | | | | |
(a) Interest expense on long-term debtrelated party is not included.
Long-term debtrelated party
Long-term debtrelated party consists of:
|
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
|
December 31, 2013 | December 31, 2014 | |||||||||||
|
Carrying value |
Fair value |
Carrying value |
Fair value |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
3.57% Notes; interest payable September 1, which commenced September 1, 2012 |
$ | 79,000 | $ | 66,078 | $ | 79,000 | $ | 67,848 | |||||
5.00% Note; interest payable December 15, which commenced December 15, 2014 |
| | 64,586 | 69,101 | |||||||||
5.90% Note; interest payable December 15, which commenced December 15, 2014 |
| | 47,000 | 48,476 | |||||||||
| | | | | | | | | | | | | |
Total long-term debtrelated party |
$ | 79,000 | $ | 66,078 | $ | 190,586 | $ | 185,425 | |||||
| | | | | | | | | | | | | |
On September 28, 2011, the Company, through a foreign subsidiary, Match.com Europe Limited, issued $94 million aggregate principal amount of 3.57% Notes. The notes were issued to three IAC foreign subsidiaries in connection with the financing of the acquisition of a controlling interest in Meetic in September 2011. In December 2011, the Company repaid $15 million leaving an outstanding balance of $79 million. The remaining notes are guaranteed by Match.com Pegasus Limited, a subsidiary of Match Group, Inc. The notes are payable in three installments of $26.3 million that are each due on September 1, 2021, 2023 and 2026.
On April 8, 2014, Match.com Europe Limited and Match.com France Limited issued a €53 million ($64.6 million at December 31, 2014) 5.00% Note and a $47 million 5.90% Note, respectively. The 5.00% euro denominated note was issued to an IAC foreign subsidiary in connection with the financing of the purchase of the remaining publicly-traded shares of Meetic that took place in the first quarter of 2014. The note is due on December 15, 2021. The 5.90% Note was issued to an IAC foreign subsidiary with the proceeds being used to repay certain indebtedness that had been created in order to partially fund the acquisition of shares in Meetic. The note is due on December 15, 2021.
F-52
The fair value of the Company's long-term debt is estimated by discounting the future cash flows based on current market conditions.
Interest expense related to the long-term debt is included in "Interest expenserelated party" in the accompanying combined statement of operations.
Long-term debt maturities are as follows:
|
|
|||
---|---|---|---|---|
| | | | |
|
(In thousands) |
|||
| | | | |
2021 |
$ | 137,920 | ||
2023 |
26,333 | |||
2026 |
26,333 | |||
| | | | |
|
$ | 190,586 | ||
| | | | |
Guarantee of IAC Senior Notes and revolving credit facility
On November 15, 2013 and December 21, 2012, IAC issued $500 million aggregate principal amount of 4.875% Senior Notes due November 30, 2018 ("2013 Senior Notes") and $500 million aggregate principal amount of 4.75% Senior Notes due December 15, 2022 ("2012 Senior Notes"), respectively. The 2013 and 2012 Senior Notes are unconditionally guaranteed by Match Group, Inc. and certain of its domestic subsidiaries.
The indentures governing the 2013 and 2012 Senior Notes contain covenants that limit the ability of IAC's restricted subsidiaries to, among other things, (i) incur indebtedness, make investments, or sell assets in the event IAC is not in compliance with the financial ratio set forth in the indenture, and (ii) incur liens, enter into agreements restricting our subsidiaries' ability to pay dividends, enter into transactions with affiliates and consolidate, merge or sell all or substantially all of IAC's assets. At December 31, 2014, IAC was in compliance with the financial ratio set forth in the indenture.
On December 21, 2012, IAC entered into a $300 million revolving credit facility, which expires on December 21, 2017. At December 31, 2014 and 2013, there are no outstanding borrowings under IAC's revolving credit facility. The revolving credit facility is unconditionally guaranteed by the same domestic subsidiaries that guarantee the 2013 and 2012 Senior Notes and is also secured by the stock of Match Group, Inc. and certain of its domestic and foreign subsidiaries.
The Company has not recorded a liability pursuant to this guarantor obligation because we have not agreed to pay a specific amount through an arrangement with our co-obligors and we do not expect to pay any amount as a result of our guarantee of IAC's Senior Notes and revolving credit facility. Prior to the closing of the offering, we will no longer be a restricted subsidiary of IAC for the purposes of its debt facilities, nor will we guarantee any debt of IAC nor will the stock of any of our subsidiaries be pledged to secure IAC's debt.
Relationship with IAC following the initial public offering
We expect to enter into certain agreements with IAC relating to this offering and our relationship with IAC after this offering to govern the relationship between the Company and IAC. These agreements will include: a master transaction agreement; an investor rights agreement; a tax sharing agreement; a services agreement; and an employee matters agreement.
F-53
During the three-year period ended December 31, 2014, employees of Match Group, Inc. were eligible to participate in a retirement savings plan sponsored by IAC or plan(s) sponsored by its subsidiaries in the United States that qualified under Section 401(k) of the Internal Revenue Code. Under the IAC Plan, participating employees may contribute up to 50% of their pre-tax earnings, but not more than statutory limits. The employer match under the IAC Plan is fifty cents for each dollar a participant contributes in this plan, with a maximum contribution of 3% of a participant's eligible earnings. Matching contributions for these plans for the years ended December 31, 2012, 2013 and 2014 are $1.1 million, $1.2 million and $1.6 million, respectively. Matching contributions are invested in the same manner as each participant's voluntary contributions in the investment options provided under the plan. An investment option in the plan is IAC common stock, but neither participant nor matching contributions are required to be invested in IAC common stock.
Match Group, Inc. also has or participates in various benefit plans, principally defined contribution plans, for its international employees. Match Group, Inc.'s contributions for these plans for the years ended December 31, 2012, 2013 and 2014 are $1.9 million, $2.3 million and $2.1 million, respectively.
Note 15Combined financial statement details
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
December 31, | ||||||
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Other current assets: |
|||||||
Prepaid expenses |
$ | 9,282 | $ | 19,203 | |||
Deferred income taxes |
6,457 | 5,925 | |||||
Other |
1,635 | 8,609 | |||||
| | | | | | | |
Other current assets |
$ | 17,374 | $ | 33,737 | |||
| | | | | | | |
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
December 31, | ||||||
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Property and equipment, net: |
|||||||
Computer equipment and capitalized software |
$ | 66,952 | $ | 86,716 | |||
Leasehold improvements |
9,134 | 9,624 | |||||
Furniture and other equipment |
1,903 | 3,441 | |||||
Projects in progress |
| 1,375 | |||||
| | | | | | | |
|
77,989 | 101,156 | |||||
Accumulated depreciation and amortization |
(42,899 | ) | (58,159 | ) | |||
| | | | | | | |
Property and equipment, net |
$ | 35,090 | $ | 42,997 | |||
| | | | | | | |
F-54
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
December 31, | ||||||
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Other non-current assets: |
|||||||
Restricted cashfunds held in escrow for Meetic tender offer |
$ | 71,512 | $ | | |||
Deferred income taxes |
50 | 1,017 | |||||
Other |
3,003 | 4,563 | |||||
| | | | | | | |
Other non-current assets |
$ | 74,565 | $ | 5,580 | |||
| | | | | | | |
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
December 31, | ||||||
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Accrued expenses and other current liabilities: |
|||||||
Accrued employee compensation and benefits |
$ | 24,041 | $ | 28,791 | |||
Accrued advertising expense |
18,900 | 18,187 | |||||
Contingent consideration arrangements |
7,082 | 10,321 | |||||
Income taxes payable |
972 | 2,738 | |||||
Other |
29,151 | 34,682 | |||||
| | | | | | | |
Accrued expenses and other current liabilities |
$ | 80,146 | $ | 94,719 | |||
| | | | | | | |
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
December 31, | ||||||
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands) |
||||||
Other long-term liabilities: |
|||||||
Contingent consideration arrangements |
$ | 36,524 | $ | 10,294 | |||
Other |
| 3,152 | |||||
| | | | | | | |
Other long-term liabilities |
$ | 36,524 | $ | 13,446 | |||
| | | | | | | |
|
|
|
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | |
|
Years ended December 31, | |||||||||
|
2012 |
2013 |
2014 |
|||||||
| | | | | | | | | | |
|
(In thousands) |
|||||||||
Other income (expense), net: |
||||||||||
Foreign currency exchange gain related to Euro denominated long-term debtrelated party |
$ | | $ | | $ | 8,307 | ||||
Interest income |
2,230 | 1,943 | 2,898 | |||||||
Foreign currency exchange (losses) gains, net |
(973 | ) | (1,737 | ) | 2,583 | |||||
Other-than-temporary loss on marketable security |
(8,685 | ) | | | ||||||
Other |
| 11 | (1,178 | ) | ||||||
| | | | | | | | | | |
Other (expense) income, net |
$ | (7,428 | ) | $ | 217 | $ | 12,610 | |||
| | | | | | | | | | |
F-55
Note 16Quarterly results (unaudited)
|
|
|
|
|
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | |
|
Quarter ended March 31 |
Quarter ended June 30 |
Quarter ended September 30 |
Quarter ended December 31 |
|||||||||
| | | | | | | | | | | | | |
|
(In thousands) |
||||||||||||
Year Ended December 31, 2013 |
|||||||||||||
Revenue |
$ | 192,555 | $ | 197,468 | $ | 204,521 | $ | 208,545 | |||||
Cost of revenue |
20,164 | 20,827 | 21,700 | 23,254 | |||||||||
Operating income |
33,564 | 53,951 | 58,900 | 74,918 | |||||||||
Net earnings |
16,628 | 28,480 | 34,590 | 46,929 | |||||||||
Net earnings attributable to Match Group, Inc.'s shareholder |
17,512 | 28,011 | 34,009 | 45,471 | |||||||||
Year Ended December 31, 2014 |
|||||||||||||
Revenue |
$ | 209,785 | $ | 211,906 | $ | 227,581 | $ | 238,996 | |||||
Cost of revenue |
24,145 | 24,487 | 33,447 | 37,945 | |||||||||
Operating income |
40,696 | 57,465 | 62,868 | 67,538 | |||||||||
Net earnings |
19,848 | 29,102 | 51,059 | 48,350 | |||||||||
Net earnings attributable to Match Group, Inc.'s shareholder |
19,718 | 28,925 | 50,844 | 48,277 | |||||||||
| | | | | | | | | | | | | |
Note 17Pro forma earnings per share (unaudited)
The following table sets forth the computation of pro forma basic and diluted earnings per share attributable to Match Group, Inc. shareholders.
|
|
|
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
Year ended December 31, 2014 | ||||||
|
Basic |
Diluted |
|||||
| | | | | | | |
|
(In thousands, except per share data) |
||||||
Numerator: |
|||||||
Net earnings |
$ | 148,359 | $ | 148,359 | |||
Net earnings attributable to noncontrolling interests |
(595 | ) | (595 | ) | |||
| | | | | | | |
Net earnings attributable to Match Group, Inc. shareholders |
$ | 147,764 | $ | 147,764 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Denominator (Pro forma)(a): |
|||||||
Weighted average basic shares outstanding |
| | |||||
Add: Pro forma adjustment to reflect assumed shares issued pursuant to the initial public offering(a) |
| | |||||
| | | | | | | |
Pro forma weighted average basic shares outstanding |
| | |||||
Dilutive securities including stock options and other securities |
| | |||||
| | | | | | | |
Pro forma denominator for earnings per shareweighted average shares |
| | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Pro forma earnings per share attributable to Match Group, Inc. shareholders(a) |
$ | | $ | | |||
| | | | | | | |
(a) The unaudited pro forma basic and diluted earnings per share available to common shareholders for the year ended December 31, 2014 reflect the number of additional shares that would have been required to be issued to generate sufficient proceeds to fund repayment of indebtedness owed to IAC and/or payment of dividend to IAC based on an assumed offering price of $ per share (the midpoint of the price range set forth on the cover page of this prospectus). The remainder of the proceeds from this offering shall be used for general corporate purposes.
F-56
Note 18Pro forma shareholders' equity (unaudited)
Common stock, Class B common stock and Class C common stock
The rights of holders of our common stock, Class B common stock and Class C common stock will be identical, except as discussed below. Any authorized but unissued shares of our common stock, Class B common stock and Class C common stock will be available for issuance by our board of directors without any further stockholder action.
Voting rights. On all matters voted upon by our stockholders, holders of our common stock will be entitled to one vote per share, holders of Class B common stock will be entitled to ten votes per share, and holders of Class C common stock will not be entitled to any votes per share (except as otherwise required by the laws of the State of Delaware, in which case holders of Class C common stock will be entitled to one-hundredth (1/100) of a vote per share).
Dividend rights. Holders of all classes of common stock will be entitled to ratably receive dividends if, as and when declared by our board of directors. In a share distribution of our capital stock or the securities of another entity, we may choose to distribute: (i) identical securities, on an equal per share basis, to holders of our common stock, Class B common stock and Class C common stock or (ii) a class or series of securities to the holders of one class of our capital stock and a different class or series of securities to the holders of another class of our capital stock, in each case on an equal per share basis, provided that, in the case of clause (ii), the different classes or series to be distributed are not different in any respect other than their relative voting rights (and any related differences in designation, conversion and share distribution provisions, as applicable), with holders of shares of our Class B common stock receiving the securities having the higher voting rights.
Conversion rights. Shares of our Class B common stock will be convertible into shares of our common stock at the option of the holder thereof at any time on a share for share basis. Such conversion ratio will in all events be equitably preserved in the event of any recapitalization of Match by means of a stock dividend on, or a stock split or combination of, our outstanding common stock or Class B common stock, or in the event of any merger, consolidation or other reorganization of Match with another corporation. Upon the conversion of a share of our Class B common stock into a share of our common stock, the applicable share of Class B common stock will be retired and will not be subject to reissue. Shares of common stock and Class C common stock will have no conversion rights.
On July 14, 2015, the Company announced that it had entered into a definitive agreement to purchase PlentyOfFish for $575 million in cash. The acquisition is expected to close in the fourth quarter of 2015.
On June 25, 2015, IAC announced that its Board of Directors approved the pursuit of an initial public offering (IPO) of newly-issued shares of common stock of Match Group, Inc.
In preparing these combined financial statements, management evaluated subsequent events through August 11, 2015 on which date the combined financial statements were available for issue.
F-57
Match Group, Inc. and Subsidiaries
Valuation and qualifying accounts
| | | | | | | | | | | | | | | | |
Description |
Balance at beginning of period |
Charges to earnings |
Charges to other accounts |
Deductions |
Balance at end of period |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | |
|
(In thousands) |
|||||||||||||||
2012 |
||||||||||||||||
Allowance for doubtful accounts and revenue reserves |
$ | 119 | $ | 159 | (1) | $ | 2 | $ | (40 | )(4) | $ | 240 | ||||
Deferred tax valuation allowance |
8,945 | 18,460 | (2) | (3,030) | (3) | | 24,375 | |||||||||
Other reserves |
2,095 | 1,901 | ||||||||||||||
2013 |
||||||||||||||||
Allowance for doubtful accounts and revenue reserves |
$ | 240 | $ | 86 | (1) | $ | 533 | $ | (3) | (4) | $ | 856 | ||||
Deferred tax valuation allowance |
24,375 | (915) | (2) | (258) | (3) | | 23,202 | |||||||||
Other reserves |
1,901 | 2,203 | ||||||||||||||
2014 |
||||||||||||||||
Allowance for doubtful accounts and revenue reserves |
$ | 856 | $ | 114 | (1) | $ | 384 | $ | (221) | (4) | $ | 1,133 | ||||
Deferred tax valuation allowance |
23,202 | 879 | (5) | 724 | (6) | | 24,805 | |||||||||
Other reserves |
2,203 | 2,098 | ||||||||||||||
| | | | | | | | | | | | | | | | |
(1) Additions to the allowance for doubtful accounts are charged to expense. Additions to the revenue reserves are charged against revenue.
(2) Amount is primarily related to foreign net operating losses.
(3) Amount is related to the decrease in unbenefited unrealized losses on a long-term marketable equity security included in accumulated other comprehensive loss.
(4) Write-off of fully reserved accounts receivable.
(5) Amount is primarily related to federal net operating losses.
(6) Amount is related to the increase in unbenefited unrealized losses on a long-term marketable equity security included in accumulated other comprehensive loss.
F-58
Plentyoffish Media Inc. and Subsidiaries
Consolidated balance sheet
(Unaudited)
| | | | | | | |
|
December 31, 2014 |
June 30, 2015 |
|||||
---|---|---|---|---|---|---|---|
| | | | | | | |
|
(In thousands of CAD, except share data) |
||||||
ASSETS |
|||||||
Cash and cash equivalents |
$ | 19,935 | $ | 26,279 | |||
Time deposits |
10,250 | 250 | |||||
Accounts receivable, net of allowance and reserves of $522 and $719, respectively |
4,839 | 5,086 | |||||
Prepaid and other current assets |
1,544 | 3,329 | |||||
| | | | | | | |
Total current assets |
36,568 | 34,944 | |||||
Property and equipment, net of accumulated depreciation and amortization of $7,967 and $9,328, respectively |
5,562 | 4,602 | |||||
Receivables from related parties |
202 | 27,803 | |||||
Other non-current assets |
1,424 | 1,424 | |||||
| | | | | | | |
TOTAL ASSETS |
$ | 43,756 | $ | 68,773 | |||
| | | | | | | |
LIABILITIES AND SHAREHOLDER EQUITY |
|||||||
LIABILITIES: |
|||||||
Accounts payable |
$ | 1,396 | $ | 1,366 | |||
Deferred revenue |
11,387 | 16,054 | |||||
Income taxes payable |
2,469 | 2,998 | |||||
Accrued expenses and other current liabilities |
1,037 | 532 | |||||
| | | | | | | |
Total current liabilities |
16,289 | 20,950 | |||||
Income taxes payable |
647 |
647 |
|||||
Redeemable preferred stock, $0.01 par value; no maximum shares authorized; 10,000 shares issued and outstanding as of December 31, 2014 and June 30, 2015 |
9,300 |
9,300 |
|||||
Class F redeemable preferred stock, no par value, no maximum shares authorized; 4,881,610 shares issued and outstanding as of June 30, 2015 |
|
4,882 |
|||||
Commitments and contingencies |
|||||||
SHAREHOLDER EQUITY: |
|||||||
Common stock |
|||||||
Class A, no par value, 10,000 shares authorized; 100 shares issued and outstanding as of December 31, 2014 and no maximum shares authorized; no shares issued or outstanding as of June 30, 2015 |
| | |||||
Class B, no par value, 10,000 shares authorized; no shares issued or outstanding as of December 31, 2014 and no maximum shares authorized; no shares issued or outstanding as of June 30, 2015 |
| | |||||
Class C, no par value, 10,000 shares authorized; no shares issued or outstanding as of December 31, 2014 and no maximum shares authorized; no shares issued or outstanding as of June 30, 2015 |
| | |||||
Class D, no par value, no maximum shares authorized; no shares issued or outstanding as of June 30, 2015 |
| | |||||
Class E, no par value, no maximum shares authorized; 1,000,000 shares issued and outstanding as of June 30, 2015 |
| | |||||
Additional paid-in capital |
1,749 |
1,749 |
|||||
Retained earnings |
15,771 | 31,245 | |||||
| | | | | | | |
Total shareholder equity |
17,520 | 32,994 | |||||
| | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDER EQUITY |
$ | 43,756 | $ | 68,773 | |||
| | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-59
Plentyoffish Media Inc. and Subsidiaries
Consolidated statement of income
(Unaudited)
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Subscription revenue |
$ | 13,852 | $ | 36,953 | |||
Advertising revenue |
13,383 | 12,522 | |||||
| | | | | | | |
Total revenue |
27,235 | 49,475 | |||||
Operating costs and expenses: |
|||||||
Cost of revenue (exclusive of depreciation and amortization shown separately below) |
2,019 | 4,724 | |||||
Selling and marketing expense |
3,816 | 10,109 | |||||
General and administrative expense |
4,438 | 4,639 | |||||
Product development expense |
510 | 703 | |||||
Depreciation and amortization |
840 | 1,333 | |||||
| | | | | | | |
Total operating costs and expenses |
11,623 | 21,508 | |||||
| | | | | | | |
Operating income |
15,612 | 27,967 | |||||
Other income (expense), net |
302 | (351 | ) | ||||
| | | | | | | |
Earnings before income taxes |
15,914 | 27,616 | |||||
Income tax provision |
(4,138 | ) | (7,180 | ) | |||
| | | | | | | |
Net earnings |
$ | 11,776 | $ | 20,436 | |||
| | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-60
Plentyoffish Media Inc. and Subsidiaries
Consolidated statement of shareholder equity
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
Preferred stock $0.01 par value |
Class F preferred stock no par value |
|
Class A common stock no par value |
Class E common stock no par value |
|
|
|
||||||||||||||||||||||||||||
|
Additional paid-in capital |
|
Total shareholder equity |
|||||||||||||||||||||||||||||||||
|
Retained earnings |
|||||||||||||||||||||||||||||||||||
|
$ |
Shares |
$ |
Shares |
|
$ |
Shares |
$ |
Shares |
|||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
(In thousands of CAD, except share data) |
||||||||||||||||||||||||||
Balance as of December 31, 2014 |
$ | 9,300 | 10,000 | $ | | | $ | | 100 | $ | | | $ | 1,749 | $ | 15,771 | $ | 17,520 | ||||||||||||||||||
Net earnings for the six-month ended June 30, 2015 |
| | | | | | | | | 20,436 | 20,436 | |||||||||||||||||||||||||
Exchange of stock |
| | 4,882 | 4,881,610 | | (100 | ) | | 1,000,000 | | (4,882 | ) | (4,882 | ) | ||||||||||||||||||||||
Dividends |
| | | | | | | | | (80 | ) | (80 | ) | |||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of June 30, 2015 |
$ | 9,300 | 10,000 | $ | 4,882 | 4,881,610 | $ | | 0 | $ | | 1,000,000 | $ | 1,749 | $ | 31,245 | $ | 32,994 | ||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-61
Plentyoffish Media Inc. and Subsidiaries
Consolidated statement of cash flows
(Unaudited)
| | | | | | | |
|
Six months ended June 30, |
||||||
---|---|---|---|---|---|---|---|
|
2014 |
2015 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ | 11,776 | $ | 20,436 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
840 | 1,333 | |||||
Bad debt expense |
(11 | ) | 197 | ||||
Changes in assets and liabilities: |
|||||||
Accounts receivable |
254 | (445 | ) | ||||
Prepaid and other current assets |
249 | (1,785 | ) | ||||
Accounts payable and accrued expenses and other current liabilities |
(835 | ) | (535 | ) | |||
Income taxes payable |
(907 | ) | 529 | ||||
Deferred revenue |
1,145 | 4,667 | |||||
| | | | | | | |
Net cash provided by operating activities |
12,511 | 24,397 | |||||
| | | | | | | |
Cash flows from investing activities: |
|||||||
Capital expenditures |
(778 | ) | (372 | ) | |||
Purchases of time deposits |
(10,000 | ) | | ||||
Proceeds from redemption of time deposits |
| 10,000 | |||||
Transfers to related parties |
(2,073 | ) | (27,601 | ) | |||
Transfers from related parties |
64 | | |||||
Other, net |
(21 | ) | | ||||
| | | | | | | |
Net cash used in investing activities |
(12,808 | ) | (17,973 | ) | |||
| | | | | | | |
Cash flows from financing activities: |
|||||||
Dividends |
| (80 | ) | ||||
| | | | | | | |
Net cash used in financing activities |
| (80 | ) | ||||
| | | | | | | |
Net (decrease) increase in cash and cash equivalents |
(297 | ) | 6,344 | ||||
Cash and cash equivalents at beginning of period |
32,281 | 19,935 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 31,984 | $ | 26,279 | |||
| | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statement
F-62
Plentyoffish Media Inc. and Subsidiaries
Notes to consolidated financial statements
(Unaudited)
Note 1Company overview and summary of significant accounting policies
Nature of operations
Plentyoffish Media Inc. ("POF") was founded in 2004 in Vancouver, Canada and is a leading provider of subscription-based and ad-supported online personals servicing North America, Europe, Latin America and Australia. Services are provided through websites and mobile applications that POF owns and operates.
All references to "POF," the "Company," "we," "our" or "us" in this report are to Plentyoffish Media Inc.
Basis of presentation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company's unaudited consolidated interim financial statements are expressed in Canadian dollars ("CAD").
Basis of consolidation
The consolidated financial statements include the accounts of the Company, and all entities that are wholly-owned by the Company. All intercompany transactions and balances have been eliminated.
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. Interim results are not necessarily indicative of the results that may be expected for the full year. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated annual financial statements and notes thereto for the year ended December 31, 2014.
Accounting estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts and revenue reserves; the useful lives and recovery of property and equipment; and the liabilities for uncertain tax positions. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
F-63
Fair value measurement and financial instruments
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company's financial instruments consist of cash and cash equivalents, time deposits, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities. The carrying values of these financial instruments approximate their fair values due to the immediate or short-term maturity of these instruments.
Cash and cash equivalents are valued based on Level 1 inputs and time deposits are valued based on Level 2 inputs. There are no assets or liabilities that are measured at fair value on a recurring basis using Level 3 inputs.
The Company's non-financial assets, such as property and equipment are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Recent accounting pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. The new guidance is effective for reporting periods beginning after December 15, 2017. Entities have the option of using either a full retrospective or cumulative effect approach to adopt ASU No. 2014-09. In July 2015, the FASB decided to defer the effective date by one year, with early adoption on the original effective date permitted. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its consolidated financial statements or the method and timing of adoption.
At the end of each interim period, the Company makes its best estimate of the annual expected effective income tax rate and applies that rate to its ordinary year-to-date earnings or loss. The income tax provision or benefit related to significant, unusual, or extraordinary items, if applicable, that will be separately reported or reported net of their related tax effects are individually computed and recognized in the interim period in which they occur. In addition, the effect of changes in enacted tax laws or rates, tax
F-64
status, judgment on the realizability of a beginning-of-the-year deferred tax asset in future years or income tax contingencies is recognized in the interim period in which the change occurs.
The computation of the annual expected effective income tax rate at each interim period requires certain estimates and assumptions including, but not limited to, the expected pre-tax income (or loss) for the year, permanent and temporary differences, and the likelihood of the realizability of deferred tax assets generated in the current year. The accounting estimates used to compute the provision or benefit for income taxes may change as new events occur, more experience is acquired, additional information is obtained or our tax environment changes. To the extent that the expected annual effective income tax rate changes during a quarter, the effect of the change on prior quarters is included in income tax provision in the quarter in which the change occurs.
For the six months ended June 30, 2014, the Company recorded an income tax provision of $4.1 million, which represents an effective income tax rate of 26%. For the six months ended June 30, 2015, the Company recorded an income tax provision of $7.2 million, which represents an effective income tax rate of 26%. The effective income tax rates are higher than the Canadian federal statutory rate of 15% due primarily to provincial taxes.
Various jurisdictions are open to examination for various tax years beginning with 2011. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Changes to reserves from period to period and differences between amounts paid, if any, upon the resolution of audits and amounts previously provided may be material. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
On June 29, 2015, the Company amended and restated its articles of incorporation to issue two new classes of common stock, Class D and Class E. In connection with the new classes of common stock and redeemable preferred stock, as described below, the holder of the Class A common shares exchanged his outstanding shares for 1.0 million shares of Class E common stock and 4.9 million shares of Class F redeemable preferred stock. The holder of the Company's Class E common stock has one vote for each share of common stock and is entitled to receive dividends out of funds that are legally available if declared by the board of directors. The Company's Class D common stock is identical to the Class E common stock except that there are two votes for each share of common stock. As of June 30, 2015, there were no Class A, Class B, Class C or Class D shares issued or outstanding.
Note 4Redeemable preferred stock
On June 29, 2015, the Company amended and restated its articles of incorporation to issue a new class of redeemable preferred stock, Class F; no par value, no maximum shares authorized. These shares have a redemption value of $4.9 million. The holder of the Class F preferred stock has the right to require the Company to redeem each of its shares within 30 days after the receipt of a written request. Accordingly, the Company has recorded its preferred stock outside of permanent equity.
Except with the written consent of the holder of the Class F preferred stock, the Company will not, while any Class F preferred stock is outstanding, declare or pay any dividends on any shares other than Class F preferred stock; redeem or acquire any shares other than Class F preferred stock; or reduce its capital otherwise than by way of a redemption or acquisition of any common shares. The holder of Class F
F-65
preferred stock shall not have any right to receive notice of or attend or vote at any general meeting of the Company while any other shares of the Company are outstanding. In the event of any liquidation, dissolution, or winding-up of the Company, or other distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, each holder of Class F preferred stock shall be entitled to be paid and in preference to and priority over any distribution or payment on any other share, the amount that would have been the redemption price for such share if the date of payment had been the date for redemption, and after such payment each such holder will not be entitled to participate in any further distribution of property or assets of the Company.
From time to time, the Company is party to litigation in the ordinary course of business. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. Management currently believes that resolving claims against us will not have a material impact on the liquidity, results of operations, or financial condition of the Company, however, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. See Note 2 for additional information related to income tax contingencies.
Note 6Related party transactions
The Company's shareholders are Mr. Markus Frind, Chief Executive Officer of the Company, and entities affiliated with him. From time to time, the Company has transferred cash to entities controlled by Mr. Frind and/or his affiliates. In addition, the Company has paid certain operating expenses on behalf of one of these entities. During the first six months of 2014 and 2015, cash transfers from the Company to related parties were $2.1 million and $27.6 million, respectively, and cash transfers back to the Company from related parties were $0.1 million and nil, respectively. The amounts due from Mr. Frind and his affiliates totaled $0.2 million and $27.8 million as of December 31, 2014 and June 30, 2015, respectively. These receivables are included in "Receivables from related parties" in the accompanying consolidated balance sheet.
In connection with the proposed acquisition of the Company by Match Group, Inc. (See note 7Subsequent events) the outstanding receivables from related parties balance will be settled prior to the close.
On July 14, 2015, the Company announced that it had entered into a definitive agreement to be acquired by Match Group, Inc. for USD $575 million in cash. The acquisition is expected to close in the fourth quarter of 2015.
In preparing these consolidated financial statements, management evaluated subsequent events through October 5, 2015 on which date the consolidated financial statements were available for issuance.
F-66
Report of independent auditors
Shareholder of Plentyoffish Media Inc.
We have audited the accompanying consolidated financial statements of Plentyoffish Media Inc. and Subsidiaries, which comprise the consolidated balance sheets as of December 31, 2013 and 2014, and the related consolidated statement of income, changes in shareholder equity and cash flows for the years then ended, and the related notes to the consolidated financial statements.
Management's responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in conformity with U.S. generally accepted accounting principles; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free of material misstatement, whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Plentyoffish Media Inc. and Subsidiaries at December 31, 2013 and 2014, and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
October 5, 2015
F-67
Plentyoffish Media Inc. and Subsidiaries
Consolidated balance sheet
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD, except share data) |
||||||
ASSETS |
|||||||
Cash and cash equivalents |
$ | 32,281 | $ | 19,935 | |||
Time deposits |
250 | 10,250 | |||||
Accounts receivable, net of allowance and reserves of $14 and $522, respectively |
3,407 | 4,839 | |||||
Prepaid and other current assets |
1,317 | 1,544 | |||||
| | | | | | | |
Total current assets |
37,255 | 36,568 | |||||
Property and equipment, net |
4,283 | 5,562 | |||||
Other non-current assets |
3,318 | 1,626 | |||||
| | | | | | | |
TOTAL ASSETS |
$ | 44,856 | $ | 43,756 | |||
| | | | | | | |
LIABILITIES AND SHAREHOLDER EQUITY |
|||||||
LIABILITIES: |
|||||||
Accounts payable |
$ | 374 | $ | 1,396 | |||
Deferred revenue |
5,683 | 11,387 | |||||
Income taxes payable |
1,863 | 2,469 | |||||
Accrued expenses and other current liabilities |
1,610 | 1,037 | |||||
| | | | | | | |
Total current liabilities |
9,530 | 16,289 | |||||
Income taxes payable |
314 |
647 |
|||||
Redeemable preferred stock, $0.01 par value; no maximum shares authorized; 10,000 shares issued and outstanding |
9,300 |
9,300 |
|||||
Commitments and contingencies |
|||||||
SHAREHOLDER EQUITY: |
|||||||
Common stock |
|||||||
Class A, no par value, 10,000 shares authorized; 100 shares issued and outstanding |
| | |||||
Class B, no par value, 10,000 shares authorized; no shares issued or outstanding |
| | |||||
Class C, no par value, 10,000 shares authorized; no shares issued or outstanding |
| | |||||
Additional paid-in capital |
1,749 | 1,749 | |||||
Retained earnings |
23,963 | 15,771 | |||||
| | | | | | | |
Total shareholder equity |
25,712 | 17,520 | |||||
| | | | | | | |
TOTAL LIABILITIES AND SHAREHOLDER EQUITY |
$ | 44,856 | $ | 43,756 | |||
| | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-68
Plentyoffish Media Inc. and Subsidiaries
Consolidated statement of income
| | | | | | | |
|
Years ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Subscription revenue |
$ | 20,586 | $ | 33,393 | |||
Advertising revenue |
27,806 | 26,283 | |||||
| | | | | | | |
Total revenue |
48,392 | 59,676 | |||||
Operating costs and expenses: |
|||||||
Cost of revenue (exclusive of depreciation and amortization shown separately below) |
2,850 | 5,020 | |||||
Selling and marketing expense |
9,864 | 8,254 | |||||
General and administrative expense |
6,389 | 9,350 | |||||
Product development expense |
941 | 1,135 | |||||
Depreciation and amortization |
2,073 | 2,216 | |||||
| | | | | | | |
Total operating costs and expenses |
22,117 | 25,975 | |||||
| | | | | | | |
Operating income |
26,275 | 33,701 | |||||
Other (expense) income, net |
(202 | ) | 1,064 | ||||
| | | | | | | |
Earnings before income taxes |
26,073 | 34,765 | |||||
Income tax provision |
(6,781 | ) | (9,107 | ) | |||
| | | | | | | |
Net earnings |
$ | 19,292 | $ | 25,658 | |||
| | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-69
Plentyoffish Media Inc. and Subsidiaries
Consolidated statement of shareholder equity
|
|
|
|
|
|
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | | | | | | | | | | | | | | | | | | | |
|
Preferred stock $0.01 par value |
|
Class A common stock no par value |
|
|
|
||||||||||||||||||
|
Additional paid-in capital |
|
Total shareholder equity |
|||||||||||||||||||||
|
Retained earnings |
|||||||||||||||||||||||
|
$ |
Shares |
|
$ |
Shares |
|||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
|
|
|
|
|
|
(In thousands of CAD, except share data) |
||||||||||||||||||
Balance as of January 1, 2013 |
$ | 9,300 | 10,000 | $ | | 100 | $ | 1,749 | $ | 14,471 | $ | 16,220 | ||||||||||||
Net earnings for the year ended December 31, 2013 |
| | | | | 19,292 | 19,292 | |||||||||||||||||
Dividends |
| | | | | (9,800 | ) | (9,800 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2013 |
$ | 9,300 | 10,000 | $ | | 100 | $ | 1,749 | $ | 23,963 | $ | 25,712 | ||||||||||||
Net earnings for the year ended December 31, 2014 |
| | | | | 25,658 | 25,658 | |||||||||||||||||
Dividends |
| | | | | (33,850 | ) | (33,850 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance as of December 31, 2014 |
$ | 9,300 | 10,000 | $ | | 100 | $ | 1,749 | $ | 15,771 | $ | 17,520 | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-70
Plentyoffish Media Inc. and subsidiaries
Consolidated statement of cash flows
| | | | | | | |
|
Years ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Cash flows from operating activities: |
|||||||
Net earnings |
$ | 19,292 | $ | 25,658 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|||||||
Depreciation and amortization |
2,073 | 2,216 | |||||
Bad debt expense |
13 | 508 | |||||
Deferred income taxes |
(5 | ) | 6 | ||||
Changes in assets and liabilities: |
|||||||
Accounts receivable |
(1,455 | ) | (1,940 | ) | |||
Prepaid and other current assets |
(556 | ) | (227 | ) | |||
Accounts payable and accrued expenses and other current liabilities |
777 | 449 | |||||
Income taxes payable |
(501 | ) | 634 | ||||
Deferred revenue |
2,140 | 5,704 | |||||
Other, net |
(184 | ) | 168 | ||||
| | | | | | | |
Net cash provided by operating activities |
21,594 | 33,176 | |||||
| | | | | | | |
Cash flows from investing activities: |
|||||||
Capital expenditures |
(2,099 | ) | (3,496 | ) | |||
Purchases of time deposits |
| (10,000 | ) | ||||
Transfers to related parties |
(1,402 | ) | (5,196 | ) | |||
Transfers from related parties |
1,039 | 6,998 | |||||
Other, net |
(44 | ) | 22 | ||||
| | | | | | | |
Net cash used in investing activities |
(2,506 | ) | (11,672 | ) | |||
| | | | | | | |
Cash flows from financing activities: |
|||||||
Dividends |
(9,800 | ) | (33,850 | ) | |||
| | | | | | | |
Net cash used in financing activities |
(9,800 | ) | (33,850 | ) | |||
| | | | | | | |
Net increase (decrease) in cash and cash equivalents |
9,288 | (12,346 | ) | ||||
Cash and cash equivalents at beginning of period |
22,993 | 32,281 | |||||
| | | | | | | |
Cash and cash equivalents at end of period |
$ | 32,281 | $ | 19,935 | |||
| | | | | | | |
The accompanying notes to consolidated financial statements are an integral part of these statements.
F-71
Plentyoffish Media Inc. and Subsidiaries
Notes to consolidated financial statements
Note 1Company overview and basis of presentation
Company overview
Plentyoffish Media Inc. ("POF") was founded in 2004 in Vancouver, Canada and is a leading provider of subscription-based and ad-supported online personals servicing North America, Europe, Latin America and Australia. Services are provided through websites and mobile applications that POF owns and operates.
All references to "POF," the "Company," "we," "our" or "us" in this report are to Plentyoffish Media Inc.
Basis of presentation
The Company prepares its consolidated financial statements in accordance with U.S. generally accepted accounting principles ("GAAP"). The Company's consolidated financial statements are expressed in Canadian dollars ("CAD").
Basis of consolidation
The consolidated financial statements include the accounts of the Company and all entities that are wholly-owned by the Company. All intercompany transactions and balances have been eliminated.
Note 2Summary of significant accounting policies
Accounting estimates
Management of the Company is required to make certain estimates, judgments and assumptions during the preparation of its consolidated financial statements in accordance with GAAP. These estimates, judgments and assumptions impact the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
On an ongoing basis, the Company evaluates its estimates and judgments including those related to: the carrying value of accounts receivable, including the determination of the allowance for doubtful accounts and revenue reserves; the useful lives and recovery of property and equipment; and the liabilities for uncertain tax positions. The Company bases its estimates and judgments on historical experience, its forecasts and budgets and other factors that the Company considers relevant.
Revenue recognition
The Company's revenue is derived both from subscription fees and on-line advertising revenue.
Subscription fees are generated from customers for our subscription-based online personals and related services. Revenue is presented net of credits and credit card chargebacks. Revenue recognition occurs ratably over the terms of the applicable subscriptions, which primarily range from one to twelve months, beginning when there is persuasive evidence of an arrangement, delivery has occurred (access has been granted), the fees are fixed or determinable, and collection is reasonably assured. Subscribers pay in advance, primarily by using a credit card, and, subject to certain conditions identified in our terms and conditions, all purchases are final and nonrefundable. Fees collected in advance for subscriptions are deferred and recognized as revenue using the straight-line method over the term of the applicable subscription period. POF also earns revenue from online advertising which is recognized every time an ad
F-72
is displayed. Deferred revenue is $5.7 million and $11.4 million at December 31, 2013 and 2014, respectively.
Cash and cash equivalents
Cash and cash equivalents include cash and short-term investments, with maturities of less than 91 days from the date of purchase.
Time deposits
The Company has guaranteed investment certificates, which are classified as time deposits on the balance sheet. Time deposits have original maturities exceeding three months, and have remaining maturities within twelve months. Time deposits accrue interest daily based on a fixed interest rate for the term. The carrying value of these financial instruments is recorded at cost plus accrued interest, which approximates their fair value.
Fair value measurements and financial instruments
The Company categorizes its financial instruments measured at fair value into a fair value hierarchy that prioritizes the inputs used in pricing the asset or liability. The three levels of the fair value hierarchy are:
Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.
The Company's financial instruments consist of cash and cash equivalents, time deposits, accounts receivable, prepaid and other current assets, accounts payable, and accrued expenses and other current liabilities. The carrying values of these financial instruments approximate their fair values due to the immediate or short-term maturity of these instruments.
Cash and cash equivalents are valued based on Level 1 inputs and time deposits are valued based on Level 2 inputs. There are no assets or liabilities that are measured at fair value on a recurring basis using Level 3 inputs.
The Company's non-financial assets, such as property and equipment are adjusted to fair value only when an impairment charge is recognized. Such fair value measurements are based predominantly on Level 3 inputs.
Accounts receivable
Accounts receivable are stated at amounts due from customers, net of an allowance for doubtful accounts and revenue reserves. Accounts receivable outstanding longer than the contractual payment terms are
F-73
considered past due. The Company determines its allowance by considering a number of factors, including the length of time accounts receivable are past due, the Company's previous loss history, the specific customer's ability to pay its obligation to the Company and the condition of the general economy and the customer's industry. The Company writes off accounts receivable when they become uncollectible. The Company also maintains allowances to reserve for potential credits issued to customers or other revenue adjustments. The amounts of these reserves are based, in part, on historical experience.
Property and equipment
Property and equipment, including significant improvements, are recorded at cost. Repairs and maintenance costs are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets.
| | |
|
Estimated useful lives |
|
---|---|---|
| | |
Asset category: | ||
Computer hardware and software | 3 years | |
Furniture and other equipment | 5 years | |
Leasehold improvements | 7 years | |
| | |
For the years ended December 31, 2013 and 2014, the Company did not capitalize any website or internally developed software costs due to the Company's rapid development cycle and frequency of releases. The Company has charged such costs to product development expense in the period incurred.
Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. The carrying value of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If the carrying value is deemed not to be recoverable, an impairment loss is recorded equal to the amount by which the carrying value of the long-lived asset exceeds its fair value.
Advertising costs
Advertising costs are expensed in the period incurred (when the advertisement first runs for production costs that are initially capitalized) and represent online marketing, including fees paid to search engines and offline marketing, which is primarily television advertising. Advertising expense is $8.7 million and $6.8 million for the years ended December 31, 2013 and 2014, respectively.
Legal costs
Legal costs are expensed as incurred.
Income taxes
The Company accounts for income taxes under the liability method, and deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. A valuation allowance is provided on deferred tax assets if it is determined that it is more likely than not that the deferred tax asset will not be realized. The Company records interest, net of any applicable related income tax benefit, on potential income tax contingencies as a component of income tax expense.
The Company recognizes liabilities for uncertain tax positions based on a two-step process. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount which is more than 50% likely of being realized upon ultimate settlement.
F-74
Comprehensive income
The Company has no items of other comprehensive income. Our comprehensive income is equivalent to our net earnings for all periods presented, and as such, no statement of other comprehensive income is presented.
Foreign currency transaction gains and losses
Transaction gains and losses resulting from assets and liabilities denominated in a currency other than the functional currency are included in the consolidated statement of operations as a component of other (expense) income, net.
Certain risks and concentrations
The Company's business is subject to certain risks and concentrations including dependence on third-party technology providers, exposure to risks associated with online commerce security and credit card fraud.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of cash and cash equivalents and time deposits. Some of the cash and cash equivalents are maintained with international financial institutions that are not covered by deposit insurance.
Recent accounting pronouncement
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and develops a common standard for all industries. The new guidance is effective for reporting periods beginning after December 15, 2017. Entities have the option of using either a full retrospective or cumulative effect approach to adopt ASU No. 2014-09. In July 2015, the FASB decided to defer the effective date by one year, with early adoption on the original effective date permitted. The Company is currently evaluating the new guidance and has not yet determined whether the adoption of the new standard will have a material impact on its consolidated financial statements or the method and timing of adoption.
The components of the provision for income taxes are as follows:
| | | | | | | |
|
Years ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Current income tax provision: |
|||||||
Canadian federal |
$ | 3,658 | $ | 5,024 | |||
Provincial |
2,814 | 3,843 | |||||
Foreign |
314 | 234 | |||||
| | | | | | | |
Current income tax provision |
6,786 | 9,101 | |||||
| | | | | | | |
Deferred income tax (benefit) provision: |
|||||||
Canadian federal |
(5 | ) | 3 | ||||
Provincial |
| 3 | |||||
| | | | | | | |
Deferred income tax (benefit) provision |
(5 | ) | 6 | ||||
| | | | | | | |
Income tax provision |
$ | 6,781 | $ | 9,107 | |||
| | | | | | | |
F-75
The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below.
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Deferred tax assets: |
|||||||
Losses carryforward |
$ | 486 | $ | 508 | |||
| | | | | | | |
Total deferred tax assets |
486 | 508 | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Property and equipment |
(316 | ) | (324 | ) | |||
| | | | | | | |
Total deferred tax liabilities |
(316 | ) | (324 | ) | |||
| | | | | | | |
Net deferred tax assets |
$ | 170 | $ | 184 | |||
| | | | | | | |
At December 31, 2014, the Company has $1.9 million of non-capital losses for income tax purposes which can be carried forward to be applied against future taxable income. These losses will expire at various times between 2031 and 2034.
A reconciliation of the income tax provision to the amounts computed by applying the Canadian statutory federal income tax rate to earnings before income taxes is shown as follows:
| | | | | | | |
|
Years ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Income tax provision at the Canadian federal statutory rate of 15% |
$ | 3,911 | $ | 5,215 | |||
Provincial taxes |
2,810 | 3,840 | |||||
Non-deductible expense |
9 | 21 | |||||
Other, net |
51 | 31 | |||||
| | | | | | | |
Income tax provision |
$ | 6,781 | $ | 9,107 | |||
| | | | | | | |
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows:
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Balance at January 1 |
$ | | $ | 296 | |||
Additions based on tax positions related to the current year |
296 | 322 | |||||
| | | | | | | |
Balance at December 31 |
$ | 296 | $ | 618 | |||
| | | | | | | |
The Company recognizes interest and, if applicable, penalties related to unrecognized tax benefits in the income tax provision. At December 31, 2013 and 2014, the Company has accrued less than $0.1 million, respectively, for the payment of interest.
F-76
At December 31, 2013 and 2014, unrecognized tax benefits, including interest and penalties, are $0.3 million and $0.6 million, respectively. If unrecognized tax benefits at December 31, 2014 are subsequently recognized, $0.1 million, net of related receivables and interest, would reduce income tax expense. The comparable amount as of December 31, 2013 is $0.1 million.
Various jurisdictions are open to examination for various tax years beginning with 2011. Income taxes payable include reserves considered sufficient to pay assessments that may result from examination of prior year tax returns. Differences between the reserves for income tax contingencies and the amounts owed by the Company are recorded in the period they become known.
Note 4Redeemable preferred stock
The Company has 10,000 shares of redeemable preferred stock, $0.01 par value, outstanding as of December 31, 2013 and 2014. There is no maximum number of authorized shares. These shares were issued on September 30, 2009 with a redemption value of $9.3 million. The holder of the redeemable preferred stock is not entitled to any dividends or otherwise participate in the profits of the Company.
The holder of the preferred stock has the right to require the Company to redeem each of its shares within 60 days after the receipt of a written request; accordingly, the Company recorded the preferred stock outside of permanent equity.
The Company will not, while any preferred stock is outstanding, declare or pay any dividends; redeem or acquire any shares other than preferred stock; or reduce its capital otherwise than by way of a redemption or acquisition of any common shares unless the board of directors determine that the fair value of the preferred stock, immediately thereafter, is not less than its redemption value. In connection with the cash dividends paid on the outstanding Class A common stock the director of the Company determined that the fair value of the preferred stock was not less than its redemption value. The holder of preferred stock shall not have any right to receive notice of or attend at or vote at any general meeting of the shareholders of the Company.
In the event of any liquidation, dissolution, or winding-up of the Company, or other distribution of the assets of the Company among its shareholders for the purpose of winding-up its affairs, each holder of preferred stock shall be entitled to be paid and in preference to and priority over any distribution or payment on any other share, the amount that would have been the redemption price for such share if the date of payment had been the date for redemption, and after such payment each such holder will not be entitled to participate in any further distribution of property or assets of the Company.
The Company's amended and restated certificate of incorporation authorizes the Company to issue 30,000 shares of common stock (10,000 Class A shares, 10,000 Class B shares and 10,000 Class C shares) no par value. As of December 31, 2013 and 2014, there was 100 Class A shares issued and outstanding and no Class B or Class C shares issued or outstanding. Class B common stock has identical rights to Class A common stock. Class C common stock has no voting rights for the election of directors or any other purpose and shall not be entitled to receive notice of or to attend any annual or special meeting of the shareholders of the Company.
The holder of the Company's Class A common stock has one vote for each share of common stock and is entitled to receive dividends out of funds that are legally available if declared by the board of directors.
F-77
For the years ended December 31, 2013 and 2014, $9.8 million and $33.9 million in cash dividends had been declared and paid.
The Company leases office space used in connection with its operations under various operating leases, some of which contain escalation clauses.
Future minimum payments under operating lease agreements are as follows:
| | | | |
Years ending December 31, |
(In thousands of CAD) |
|||
---|---|---|---|---|
| | | | |
2015 |
$ | 516 | ||
2016 |
523 | |||
2017 |
394 | |||
| | | | |
Total |
$ | 1,433 | ||
| | | | |
Expenses charged to operations under these agreements are $0.8 million for both years ended December 31, 2013 and 2014.
From time to time, the Company is party to litigation in the ordinary course of business. The Company establishes reserves for specific legal matters when it determines that the likelihood of an unfavorable outcome is probable and the loss is reasonably estimable. The Company also evaluates other contingent matters, including income and non-income tax contingencies, to assess the likelihood of an unfavorable outcome and estimated extent of potential loss. Management currently believes that resolving claims against us will not have a material impact on the liquidity, results of operations, or financial condition of the Company, however, these matters are subject to inherent uncertainties and management's view of these matters may change in the future. See Note 3 for additional information related to income tax contingencies.
Note 8Supplemental cash flow information
| | | | | | | |
|
Years ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Cash paid during the year for: |
|||||||
Interest |
$ | 5 | $ | 2 | |||
Income tax payments |
7,289 | 8,648 | |||||
| | | | | | | |
Note 9Related party transactions
The Company's shareholders are Mr. Markus Frind, Chief Executive Officer of the Company, and entities affiliated with him. From time to time, the Company has transferred cash to entities controlled by Mr. Frind and/or his affiliates. In addition, the Company has paid certain operating expenses on behalf of one of these entities. During 2013 and 2014, cash transfers from the Company to Mr. Frind and his affiliates were $1.4 million and $5.2 million, respectively, and cash transfers to the Company from
F-78
Mr. Frind and his affiliates were $1.0 million and $7.0 million, respectively. The amounts due from Mr. Frind and his affiliates totaled $2.0 million and $0.2 million as of December 31, 2013 and 2014, respectively. These receivables are included in "Other non-current assets" in the accompanying consolidated balance sheet.
The Company offers a defined contribution plan for its employees. The Company's contributions to this plan for both years ended December 31, 2013 and 2014 is $0.1 million.
Note 11Consolidated financial statement details
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands CAD) |
||||||
Property and equipment, net: |
|||||||
Computer hardware and software |
$ | 8,804 | $ | 11,967 | |||
Leasehold improvements |
943 | 1,115 | |||||
Furniture and other equipment |
381 | 447 | |||||
| | | | | | | |
|
10,128 | 13,529 | |||||
Accumulated depreciation and amortization |
(5,845 | ) | (7,967 | ) | |||
| | | | | | | |
Property and equipment, net |
$ | 4,283 | $ | 5,562 | |||
| | | | | | | |
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Other non-current assets: |
|||||||
Receivables from related parties |
$ | 2,004 | $ | 202 | |||
Income taxes receivable |
247 | 532 | |||||
Deferred income taxes |
170 | 184 | |||||
Other |
897 | 708 | |||||
| | | | | | | |
Other non-current assets |
$ | 3,318 | $ | 1,626 | |||
| | | | | | | |
| | | | | | | |
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Accrued expenses and other current liabilities: |
|||||||
Value-added taxes payable |
$ | 1,427 | $ | | |||
Accrued license fees |
| 771 | |||||
Other |
183 | 266 | |||||
| | | | | | | |
Accrued expenses and other current liabilities |
$ | 1,610 | $ | 1,037 | |||
| | | | | | | |
F-79
| | | | | | | |
|
Years ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2013 |
2014 |
|||||
| | | | | | | |
|
(In thousands of CAD) |
||||||
Other (expense) income, net: |
|||||||
Interest income, net |
$ | 273 | $ | 443 | |||
Foreign currency exchange (losses) gains, net |
(475 | ) | 1,060 | ||||
Other |
| (439 | ) | ||||
| | | | | | | |
Other (expense) income, net |
$ | (202 | ) | $ | 1,064 | ||
| | | | | | | |
On June 29, 2015, the Company amended and restated its articles of incorporation to issue two new classes of common stock, Class D and Class E, and a new class of redeemable preferred stock, Class F. In connection with the new classes of common stock and redeemable preferred stock the holder of the Class A common shares exchanged his outstanding shares for 1.0 million shares of Class E common stock and 4.9 million shares of Class F redeemable preferred stock. There was no issuance of Class D common stock.
On July 14, 2015, the Company announced that it had entered into a definitive agreement to be acquired by Match Group, Inc. for USD $575 million in cash. The acquisition is expected to close in the fourth quarter of 2015.
In preparing these consolidated financial statements, management evaluated subsequent events through October 5, 2015 on which date the consolidated financial statements were available for issuance.
F-80
shares
Common stock
Preliminary Prospectus
J.P. Morgan |
Allen & Company LLC | BofA Merrill Lynch |
, 2015
You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, our common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to permit a public offering of the common stock or possession or distribution of this prospectus in that jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus applicable to that jurisdiction.
Until , 2015, all dealers that buy, sell or trade in our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
Information not required in prospectus
Item 13. Other expenses of issuance and distribution.
Estimated expenses, other than underwriting discounts and commissions, of the sale of our common stock, are as follows:
| | | | |
SEC registration fee |
$ | * | ||
FINRA filing fee |
$ | * | ||
Listing fees and expenses |
$ | * | ||
Transfer agent and registrar fees and expenses |
$ | * | ||
Printing fees and expenses |
$ | * | ||
Legal fees and expenses |
$ | * | ||
Accounting expenses |
$ | * | ||
Miscellaneous expenses |
$ | * | ||
| | | | |
* To be furnished by amendment.
Item 14. Indemnification of directors and officers.
Limitation of personal liability of directors and indemnification
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (1) for any breach of the director's duty of loyalty to the corporation or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL (regarding, among other things, the payment of unlawful dividends or unlawful stock purchases or redemptions), or (4) for any transaction from which the director derived an improper personal benefit. Our certificate of incorporation will provide for such limitation of liability.
Section 145(a) of the DGCL empowers a corporation to indemnify any director, officer, employee or agent, or former director, officer, employee or agent, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of such person's service as a director, officer, employee or agent of the corporation, or such person's service, at the corporation's request, as a director, officer, employee or agent of another corporation or enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding; provided that such director or officer acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation; and, with respect to any criminal action or proceeding, provided that such director or officer had no reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another enterprise, against expenses (including attorneys' fees) actually and reasonably incurred in connection with the defense or settlement of such
II-1
action or suit; provided that such director or officer acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, except that no indemnification may be made in respect of any claim, issue or matter as to which such director or officer shall have been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such director or officer is fairly and reasonably entitled to indemnity for such expenses that the court shall deem proper. Notwithstanding the preceding sentence, except as otherwise provided in our bylaws, we shall be required to indemnify any such person in connection with a proceeding (or part thereof) commenced by such person only if the commencement of such proceeding (or part thereof) by any such person was authorized by the board of directors.
In addition, our certificate of incorporation will provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly required to advance certain expenses to our directors and officers and carry directors' and officers' insurance providing indemnification for our directors and officers for some liabilities. We believe that these indemnification provisions and the directors' and officers' insurance are useful to attract and retain qualified directors and executive officers.
The proposed form of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of directors and officers of the Registrant by the underwriters against certain liabilities.
Item 15. Recent sales of unregistered securities.
During the prior three years and the six month period ended June 30, 2015, we granted certain of our directors, officers and employees the following options relating to shares of our common stock pursuant to equity incentive plans then in effect:
Prior to this offering, these options were and are settlable in shares of common stock of IAC/InterActiveCorp. The number of options and exercise price for these options reflects information before giving effect to the adjustments to be made in connection with the recapitalization of our equity that will occur prior to the completion of this offering and the distribution of a portion of the net proceeds from this offering to IAC/InterActiveCorp.
None of these transactions involved any underwriters or any public offerings and we believe that each of these transactions was exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2), Regulation D or Rule 701 of the Securities Act or as transactions not involving the sale of securities.
II-2
Item 16. Exhibits and financial statement schedules.
(a) Exhibits: The list of exhibits set forth under "Exhibit Index" at the end of this Registration Statement is incorporated herein by reference.
The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
II-3
Signatures and powers of attorney
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on October 16, 2015.
Match Group, Inc. | ||||
By: |
/s/ GREGORY R. BLATT Gregory R. Blatt, Chairman |
Each of the undersigned officers and directors of Match Group, Inc. hereby severally constitutes and appoints Gregg J. Winiarski, Joanne Hawkins and Tanya Stanich, and each of them acting alone, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and other documents in connection therewith, with the SEC and any applicable securities exchange or securities self-regulatory body, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them individually, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
---|---|---|---|---|
/s/ GREGORY R. BLATT Gregory R. Blatt |
Chairman (Principal Executive Officer) |
October 16, 2015 | ||
/s/ GARY SWIDLER Gary Swidler |
Chief Financial Officer (Principal Financial Officer) |
October 16, 2015 |
||
/s/ MICHAEL H. SCHWERDTMAN Michael H. Schwerdtman |
Vice President (Principal Accounting Officer) |
October 16, 2015 |
||
/s/ GREGORY R. BLATT Gregory R. Blatt |
Director |
October 16, 2015 |
II-4
Signature
|
Title
|
Date
|
||
---|---|---|---|---|
/s/ GREGG J. WINIARSKI Gregg J. Winiarski |
Director | October 16, 2015 | ||
/s/ JOSEPH M. LEVIN Joseph M. Levin |
Director |
October 16, 2015 |
II-5
Number | Description | ||
---|---|---|---|
1.1 | * | Form of Underwriting Agreement | |
2.1 |
Stock Purchase Agreement, dated as of July 13, 2015, by and among Match.com, Inc. (now "Match Group, Inc."), Plentyoffish Media Inc., Markus Frind, Markus Frind Family Trust No. 2, and Frind Enterprises Ltd. |
||
2.2 |
List of Exhibits and Schedules omitted from the Stock Purchase Agreement |
||
3.1 |
* |
Form of Amended and Restated Certificate of Incorporation of Match Group, Inc. |
|
3.2 |
* |
Form of Amended and Restated By-laws of Match Group, Inc. |
|
4.1 |
* |
Form of Common Stock Certificate of Match Group, Inc. |
|
4.2 |
* |
Form of Class B Common Stock Certificate of Match Group, Inc. |
|
4.3 |
* |
Form of Class C Common Stock Certificate of Match Group, Inc. |
|
5.1 |
* |
Opinion of Wachtell, Lipton, Rosen & Katz |
|
10.1 |
* |
Form of Master Transaction Agreement |
|
10.2 |
* |
Form of Employee Benefits Agreement |
|
10.4 |
* |
Form of Investor Rights Agreement |
|
10.6 |
* |
Form of Tax Sharing Agreement |
|
10.8 |
* |
Form of Services Agreement |
|
10.25 |
* |
2015 Equity Incentive Award Plan |
|
21.1 |
* |
Subsidiaries of Match Group, Inc. |
|
23.1 |
Consent of Ernst & Young LLP |
||
23.2 |
Consent of Ernst & Young LLP |
||
23.3 |
* |
Consent of Wachtell, Lipton, Rosen & Katz (contained in Exhibit 5.1) |
|
24.1 |
* |
Powers of Attorney |
|
99.1 |
* |
Consent of Director Nominee |
* To be filed by amendment.
Indicates a management contract or compensatory plan.
II-6
Exhibit 2.1
STOCK PURCHASE AGREEMENT
by and among
PLENTYOFFISH MEDIA INC.
MARKUS FRIND,
FRIND ENTERPRISES LTD. AND MARKUS
FRIND FAMILY TRUST NO. 2,
AS THE SHAREHOLDERS
OF PLENTYOFFISH MEDIA INC.
and
MATCH.COM, INC.
Dated as of July 13, 2015
TABLE OF CONTENTS
|
|
Page |
|
|
|
ARTICLE I PURCHASE AND SALE OF SHARES |
1 | |
|
|
|
1.1 |
Sale and Purchase of Shares; Closing |
1 |
1.2 |
Closing Deliverables |
2 |
1.3 |
Purchase Price |
3 |
1.4 |
Closing Statement |
5 |
1.5 |
Adjusted Closing Payment |
6 |
1.6 |
Withholding |
6 |
1.7 |
Foreign Exchange |
7 |
|
|
|
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDER |
7 | |
|
|
|
2.1 |
Organization |
7 |
2.2 |
Qualification to do Business |
7 |
2.3 |
Enforceability; Due Authorization |
8 |
2.4 |
Capitalization; Ownership of Shares |
8 |
2.5 |
Corporate Books and Records |
9 |
2.6 |
Subsidiaries and Affiliates |
9 |
2.7 |
No Approvals; No Conflicts |
9 |
2.8 |
Financial Statements; No Undisclosed Liabilities |
10 |
2.9 |
Absence of Certain Changes or Events |
10 |
2.10 |
Taxes |
10 |
2.11 |
Property |
13 |
2.12 |
Contracts |
14 |
2.13 |
Compliance With Laws |
16 |
2.14 |
Claims and Legal Proceedings; Government Orders |
17 |
2.15 |
Employees Matters |
18 |
2.16 |
Intellectual Property |
20 |
2.17 |
Software; Systems |
22 |
2.18 |
Privacy; Data Protection |
24 |
2.19 |
Licenses, Permits, Authorizations, etc. |
25 |
2.20 |
Insurance |
25 |
2.21 |
Advertisers |
25 |
2.22 |
Metrics |
26 |
2.23 |
Related Party Transactions |
26 |
2.24 |
Bank Accounts |
26 |
2.25 |
Sufficiency of Assets |
26 |
2.26 |
Brokers or Finders |
27 |
2.27 |
Competition Act (Canada) |
27 |
2.28 |
No Other Representations or Warranties |
27 |
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BUYER |
27 | |
|
|
|
3.1 |
Organization |
27 |
3.2 |
Enforceability |
27 |
3.3 |
No Approvals or Notices Required; No Conflicts With Instruments |
27 |
3.4 |
Brokers or Finders |
28 |
3.5 |
Claims and Legal Proceedings |
28 |
3.6 |
Sufficient Funds |
28 |
3.7 |
No Other Representations or Warranties |
28 |
|
|
|
ARTICLE IV COVENANTS |
28 | |
|
|
|
4.1 |
Further Assurances |
28 |
4.2 |
Operation of the Business |
30 |
4.3 |
Access |
34 |
4.4 |
Notice of Developments |
34 |
4.5 |
Exclusivity |
34 |
4.6 |
Litigation Support |
35 |
4.7 |
Press Releases and Announcements |
35 |
4.8 |
Confidentiality |
35 |
4.9 |
Audit of Financial Statements |
37 |
4.10 |
Tax Matters |
37 |
4.11 |
Supplemental Disclosure |
40 |
4.12 |
Pre-Closing Reorganization |
40 |
4.13 |
Termination of Related Party and Intercompany Arrangements |
41 |
4.14 |
Restrictive Covenants |
41 |
4.15 |
Dividend Tax Elections and Designations |
41 |
4.16 |
Tax Elections |
41 |
4.17 |
Post-Closing Employment |
42 |
|
|
|
ARTICLE V CLOSING CONDITIONS |
42 | |
|
|
|
5.1 |
Mutual Conditions to the Obligations of the Parties |
42 |
5.2 |
Conditions to Buyers Obligations |
42 |
5.3 |
Conditions to Shareholders and the Companys Obligations |
43 |
|
|
|
ARTICLE VI TERMINATION |
43 | |
|
|
|
6.1 |
Termination Events |
43 |
6.2 |
Effect of Termination |
44 |
|
|
|
ARTICLE VII SURVIVAL AND INDEMNIFICATION |
44 | |
|
|
|
7.1 |
Survival |
44 |
7.2 |
Indemnification by Shareholder |
45 |
7.3 |
Indemnification by Buyer |
45 |
7.4 |
Limitations |
45 |
7.5 |
Procedure for Indemnification |
48 |
7.6 |
Duty to Mitigate |
50 |
7.7 |
Remedies; Non-Recourse |
50 |
7.8 |
Tax Treatment of Indemnification Payments |
50 |
|
|
|
ARTICLE VIII GENERAL |
50 | |
|
|
|
8.1 |
Expenses |
50 |
8.2 |
Notices |
51 |
8.3 |
Severability |
53 |
8.4 |
Entire Agreement |
53 |
8.5 |
Amendments; Assignment; Waivers |
53 |
8.6 |
Parties in Interest |
53 |
8.7 |
Governing Law; Submission to Jurisdiction; WAIVER OF JURY TRIAL |
54 |
8.8 |
Headings; Construction |
54 |
8.9 |
Counterparts |
55 |
8.10 |
Specific Performance |
55 |
8.11 |
Advisors |
55 |
|
|
|
ARTICLE IX DEFINITIONS |
56 |
Company Disclosure Schedule
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this Agreement) is made and entered into as of July 13, 2015 (the Effective Date), by and among Match.com, Inc., a corporation incorporated under the laws of the State of Delaware (Buyer), Plentyoffish Media Inc., a corporation incorporated under the laws of British Columbia (the Company), and Markus Frind, a natural person, Frind Enterprises Ltd., a corporation incorporated under the laws of British Columbia, and Markus Frind Family Trust No. 2, a discretionary trust, and together the shareholders of the Company (collectively, Shareholder) (each, a Party and together, the Parties).
WHEREAS, as of the Effective Date, Markus Frind and Markus Frind Family Trust No. 2 own 100% of the equity interests of the Company, comprised of 1,000,000 Class E common shares, with no par value), 4,881,610 Class F preferred shares and 10,000 preferred shares, par value CND $0.01 per share;
WHEREAS, prior to the Closing (as defined herein), the Shareholder and the Company will effect the Post-Signing/Pre-Closing steps set forth in Section 4.12 of the Company Disclosure Schedule, and at the Closing Markus Frind, Markus Frind Family Trust No. 2 and Frind Enterprises Ltd. will own 100% of the issued and outstanding shares in the capital of the Company (collectively, the Shares),
WHEREAS, Buyer desires to purchase from Shareholder, and Shareholder desires to sell, assign, transfer, convey and deliver to Buyer, free and clear of all Liens, all of its right, title and interest in and to the Shares on the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, all rights and obligations of Shareholder pursuant to this Agreement and the Transaction Documents, and all representations, warranties and covenants made or to be performed by Shareholder, shall be joint and several rights, obligations, representations, warranties and covenants of Markus Frind, Markus Frind Family Trust No. 2 and Frind Enterprises Ltd.
NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, and intending to be legally bound, the Parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Sale and Purchase of Shares; Closing.
(a) At the Closing, (i) Shareholder agrees to sell and deliver to Buyer, and Buyer agrees to purchase from Shareholder, all of the Shares, free and clear of any Liens, for the consideration specified below (the Sale and Purchase) and (ii) Buyer agrees to fund the Company sufficiently to enable it to repay the Promissory Note in full, and agrees to cause the Company, and to take all actions and do all things required, to so repay all principal and interest accrued on the Promissory Note (the Promissory Note Payment Amount).
(b) Subject to the satisfaction of the conditions set forth in Article V (or the waiver thereof by the Party entitled to waive any such condition), the Parties hereto will be required to complete the closing of the sale and purchase (the Closing) at the offices of Wachtell, Lipton, Rosen & Katz, 51 West 52nd Street, New York, New York 10019, or as otherwise agreed by the parties, as soon as practicable, and no later than the second (2nd) Business Day after satisfaction or waiver of each condition to the Closing set forth in Article V (other than those conditions that by their terms are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions), or at such other place and time as may be agreed by Buyer and Shareholder. The Closing will be deemed effective as of 3:05 a.m. Eastern time (the Closing Time) on the Closing Date for all other purposes, including determining the Estimated Closing Payment and Adjusted Closing Payment.
1.2 Closing Deliverables.
(a) At the Closing, Shareholder shall deliver, or cause to be delivered, to Buyer, the following:
(i) certificates representing all of the outstanding Shares, accompanied by duly executed instruments of transfer, in form and substance reasonably satisfactory to Buyer, for transfer to Buyer;
(ii) the corporate record books of the Company;
(iii) written resignations of all directors of the Company including positions of such directors as officers of the Company;
(iv) releases, executed by the Company in favor of the resigning persons set out in Section 1.2(a)(iii), in form and substance satisfactory to such resigning persons and Buyer, pursuant to which the Company releases such resigning persons from all liabilities, obligations and claims relating to any event, occurrence or circumstance in connection with their service to the Company occurring prior to the Closing, except with respect to any fraud, bad faith or willful misconduct by any such resigning person;
(v) releases, executed by the resigning persons set out in Section 1.2(a)(iii) in favor of the Company post-Closing, in form and substance satisfactory to such resigning persons and Buyer, pursuant to which each such resigning person, on behalf of itself and its heirs, personal representatives, successors and assigns, releases the Company from all liabilities, obligations and claims relating to any event, occurrence or circumstance occurring prior to the Closing, except with respect to any fraud, bad faith or willful misconduct by the Company or its Subsidiaries;
(vi) an escrow agreement in a form as may be mutually agreed by Shareholder and Buyer (the Escrow Agreement), executed by Shareholder;
(vii) a certificate of the Chief Executive Officer of the Company, in a form as may be mutually agreed by Shareholder and Buyer, as to the authenticity and effectiveness of the actions of the sole Shareholder of the Company authorizing the transactions contemplated by each Transaction Document to which the Company or
Shareholder is a party, to which certified copies of the Companys Governing Documents, further certified by the Chief Operating Officer of the Company, are attached;
(viii) a duly executed certificate from the Company, dated as of the Closing Date, to the effect that the Company is not, and has not been during the relevant period specified in Section 897(c)(1)(A)(ii) of the Code, a United States real property holding corporation within the meaning of 897(c) of the Code, which certificate shall be in compliance with the requirements set forth in Treasury Regulation Section 1.1445-2(c)(3)(i), along with the notifications required under Treasury Regulation Section 1.897-2(h)(2);
(ix) the certificate to be delivered pursuant to Section 5.2(c); and
(x) all other documents, instruments or writings required to be delivered to Buyer at or prior to the Closing pursuant to this Agreement and such other certificates of authority and similar instruments as Buyer reasonably requests.
(b) At the Closing, Buyer shall deliver, or cause to be delivered, to Shareholder (or, as applicable, to third parties), the following;
(i) a certificate of the Secretary of Buyer, in a form as may be mutually agreed by Shareholder and Buyer, as to the authenticity and effectiveness of the actions of the board of directors of Buyer authorizing the transactions contemplated by each Transaction Document to which Buyer is a party, to which certified copies of Buyers certificate of incorporation and bylaws, further certified by the Secretary of Buyer, are attached;
(ii) releases, executed by the Buyer, in favor of the resigning persons set out in Section 1.2(a)(iii), in form and substance satisfactory to such officers and directors and Buyer, pursuant to which the Buyer releases such resigning persons from all liabilities, obligations and claims relating to any event, occurrence or circumstance occurring prior to the Closing, except with respect to any fraud, bad faith or willful misconduct by the Company or its Subsidiaries;
(iii) the Escrow Agreement, executed by Buyer and the Escrow Agent;
(iv) the payments set forth in Section 1.3(d);
(v) the certificate to be delivered pursuant to Section 5.3(c); and
(vi) all other documents, instruments or writings required to be delivered to Shareholder at or prior to the Closing pursuant to this Agreement and such other certificates of authority and similar instruments as Shareholder reasonably requests.
1.3 Purchase Price.
(a) The purchase price for the Shares (the Purchase Price) is $575,000,000
(the Base Amount), as may be adjusted pursuant to Sections 1.3(c) and 1.5.
(b) Not later than two (2) Business Days prior to the anticipated Closing Date, Shareholder shall deliver to Buyer good faith, written estimates of the Cash (the Estimated Cash), the Indebtedness of the Company (the Estimated Indebtedness), the Working Capital (the Estimated Working Capital), and the Company Transaction Expenses (Estimated Company Transaction Expenses), each as calculated in accordance with the Transaction Accounting Principles.
(c) The estimated closing payment (the Estimated Closing Payment) will be an amount equal to the Base Amount:
(i) plus, the amount of the Estimated Cash;
(ii) minus, the amount of the Estimated Indebtedness;
(iii) plus, if the Estimated Working Capital exceeds the Working Capital Target, the amount of such excess;
(iv) minus, if the Estimated Working Capital is less than the Working Capital Target, the amount of such deficit;
(v) minus, the amount of the Estimated Company Transaction Expenses; and
(vi) minus, the amount of the Promissory Note Payment Amount.
(d) At Closing, Buyer will pay (or cause to be paid):
(i) an amount equal to seventy-one million eight hundred seventy-five thousand United States Dollars ($71,875,000) (the Escrow Amount), to be paid in Canadian Dollars determined at the Transaction Exchange Rate, which represents payment of a portion of the Purchase Price, to the Escrow Agent by wire transfer of immediately available funds to a single bank account designated by the Escrow Agent with such funds to be invested as Buyer, Shareholder and the Escrow Agent mutually agree, to be held pursuant to the terms of the Escrow Agreement;
(ii) an amount equal to the Estimated Closing Payment, less the Escrow Amount, to Shareholder, by wire transfer of immediately available funds to such bank account or accounts as designated by Shareholder at least three (3) Business Days prior to the anticipated Closing Date;
(iii) an amount equal to the Promissory Note Payment Amount, to be paid by the Company to the holder of the Promissory Note, Frind Enterprises Ltd.; and
(iv) an amount equal to the amount included in Company Transaction Expenses for employee bonuses, to be paid by the Company to those employees, net of any applicable withholding determined in accordance with Section 1.6, and in such
allocations, as set forth in Section 1.3(d)(iv) of the Company Disclosure Schedule, subject to adjustment prior to Closing to reflect any such employees who are no longer employed by the Company.
1.4 Closing Statement.
(a) After the Closing, Buyer will prepare a closing statement (the Closing Statement) showing its calculations of the Cash, Indebtedness, Working Capital and Company Transaction Expenses (collectively, the PP Components), in each case as of the Closing Time, and the Adjusted Closing Payment. The PP Components will be calculated in accordance with the Transaction Accounting Principles. As promptly as practicable, and in any event, within one hundred twenty (120) days after the Closing Date, Buyer will deliver to Shareholder the Closing Statement, together with supporting documentation reasonably sufficient to confirm and support Buyers calculation of the PP Components and the Adjusted Closing Payment.
(b) Shareholder and its accounting and legal representatives will be entitled to reasonable access to the work papers related to the preparation of the Closing Statement and the relevant books and records of the Company, and the Buyer will use reasonable best efforts to ensure that it and its employees, advisors and representatives who were involved in preparing the PP Components or the Closing Statement are available to discuss, on reasonable advance notice but as soon as reasonably practicable, the preparation of the Closing Statement with Shareholder.
(c) If Shareholder agrees with Buyers calculation of the Adjusted Closing Payment, the Closing Statement (including Buyers calculation of the Adjusted Closing Payment) shall be deemed final and binding upon the Parties, absent fraud or manifest error. If Shareholder disagrees with Buyers calculation of the Adjusted Closing Payment, Shareholder must deliver to Buyer, within forty-five (45) days after the date Buyer delivered the Closing Statement and supporting documentation to Shareholder as required by Section 1.4(a), a written description of such disagreement (a Notice of Disagreement). If Shareholder fails to provide a Notice of Disagreement within such forty-five (45)-day period, the Closing Statement (including Buyers calculation of the Adjusted Closing Payment) shall be deemed final and binding upon the Parties, absent fraud or manifest error. Buyer and Shareholder will negotiate in good faith to resolve any disagreement described in the Notice of Disagreement. If, after a period of forty-five (45) days following the date on which the Notice of Disagreement is delivered, Buyer and Shareholder have not resolved each such disagreement by jointly in writing agreeing to the Closing Statement or any revisions thereto, then either Buyer or Shareholder will be entitled to submit such disagreements to the Resolution Accountants, with prior written notice regarding such submission to the nonsubmitting Party.
(d) Within ten (10) Business Days after receipt of such written notice, Buyer and Shareholder will each deliver to the Resolution Accountants a written settlement offer setting forth its calculations of the PP Components calculated in accordance with the Transaction Accounting Principles and the Adjusted Closing Payment (each, a Settlement Offer); provided, however, that neither Buyer nor Shareholder may submit a Settlement Offer that contains a proposal as to any PP Component that, in the case of a proposal by Buyer, is more adverse to Shareholder as compared to the Closing Statement, or, in the case of a proposal by Shareholder, is more adverse to Buyer as compared to the position set forth in the Notice of Disagreement, but
in each case absent fraud or manifest error. The Resolution Accountants shall, acting as an expert and not as an arbitrator, determine, on the basis of the standards expressly set forth in this Agreement and the Transaction Accounting Principles, which Partys Settlement Offer most accurately reflects the Resolution Accountants determination of the PP Components calculated in accordance with the Transaction Accounting Principles and the Adjusted Closing Payment contemplated hereby. Buyer will cause the Company to grant to the Resolution Accountants reasonable access to the Company books and records relating to the calculation of the PP Components. As set out above, the Resolution Accountants will select one of the Settlement Offers within thirty (30) days after the date on which the Resolution Accountants are engaged or as soon thereafter as possible, and, absent fraud or manifest error, the selection by the Resolution Accountants will be binding upon the Parties. The fees, costs and expenses of the Resolution Accountants shall be borne by the party whose Settlement Offer was not selected.
1.5 Adjusted Closing Payment.
(a) The adjusted closing payment (the Adjusted Closing Payment) will be an amount equal to the Base Amount:
(i) plus, the amount of the Cash;
(ii) minus, the amount of the Indebtedness of the Company;
(iii) plus, if the Working Capital exceeds the Working Capital Target, the amount of such excess;
(iv) minus, if the Working Capital is less than the Working Capital Target, the amount of such deficit;
(v) minus, the Company Transaction Expenses; and
(vi) minus, the amount of the Promissory Note Payment Amount.
(b) Within ten (10) Business Days after the final determination of the Adjusted Closing Payment in accordance with Section 1.4:
(i) if the Adjusted Closing Payment exceeds the Estimated Closing Payment, Buyer will pay to Shareholder, by wire transfer of immediately available funds to the bank account or accounts designated by Shareholder pursuant to Section 1.3(d), the amount of such excess; or
(ii) if the Adjusted Closing Payment is less than the Estimated Closing Payment, Shareholder and Buyer will deliver joint written instructions to the Escrow Agent to deliver such deficit to Buyer from the available balance of the Escrow Amount and if the balance of the Escrow Amount is insufficient to cover such payment, then Shareholder will pay to Buyer, by wire transfer of immediately available funds to the bank account designated by Buyer, the amount of any such shortfall.
1.6 Withholding. Notwithstanding anything to the contrary in this Agreement,
to the extent required by the Code or applicable Law, Buyer shall be permitted to deduct and withhold from any amounts payable hereunder any amounts so required to be deducted and withheld. Any amounts that are so deducted or withheld and timely paid to the appropriate Governmental Body shall be treated for all purposes of this Agreement as having been paid to Shareholder. The Parties acknowledge that, except with respect to the employee bonus payments to be paid by the Company in connection with the Closing, no withholding is required from the Estimated Closing Payment or the Adjusted Closing Payment under current applicable law, assuming the accuracy of the representation contained in Section 2.10(y) and delivery of the certificate described in Section 1.2(a)(viii).
1.7 Foreign Exchange. Except as may be specifically provided herein, all amounts to be paid hereunder shall be paid in United States Dollars. To the extent any calculations of amounts to be paid (a) include amounts denominated in Canadian Dollars or (b) are denominated in United States Dollars and require conversion to Canadian Dollars, such amounts shall be converted using the Daily Noon Exchange Rate as at the close of business on the third Business Day immediately prior to the Closing Date as quoted on the website of the Bank of Canada (http://www.bankofcanada.ca/rates/exchange/10-year-lookup/) as of such date (the Transaction Exchange Rate).
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SHAREHOLDER
Except as is otherwise disclosed in the disclosure schedule delivered by the Company to Buyer immediately prior to the execution of this Agreement, and as supplemented after execution of this Agreement as provided herein (the Company Disclosure Schedule) (provided that disclosure in any section of such Company Disclosure Schedule shall be deemed to be disclosed and incorporated by reference in the corresponding section of this Agreement and such other sections of this Agreement where it is reasonably apparent on the face of such disclosure that such disclosure applies to another representation or warranty hereof), the Company and Shareholder represent and warrant to Buyer as follows:
2.1 Organization. The Company is a corporation duly organized, validly existing and in good standing under the Laws of British Columbia. The Company has all requisite corporate power and authority to own, operate and lease its properties and assets, to carry on its business as now conducted and to enter into and perform its obligations under each Transaction Document to which the Company is a party, and to consummate the transactions contemplated thereby.
2.2 Qualification to do Business. The Company is duly qualified and licensed as a foreign corporation to do business and is in good standing in each of the jurisdictions in which the nature of the business conducted by the Company makes such qualification or licensing necessary under applicable Law, except where the failure to be so qualified or licensed would not, individually or in the aggregate, reasonably be expected to be material to the Company.
2.3 Enforceability; Due Authorization.
(a) All corporate or shareholder action on the part of the Company necessary for the authorization, execution, delivery and performance of each Transaction Document to which the Company is a party, the consummation of the transactions contemplated by each Transaction Document to which the Company is a party, and the performance of all the Companys obligations under each Transaction Document to which the Company is a party have been taken. This Agreement has been, and at the Closing each of the Transaction Documents to which the Company is a party will be, duly executed and delivered by the Company, and constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms except as may be limited by: (i) applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws from time to time in effect that affect creditors rights generally and (ii) legal and equitable limitations on the availability of specific remedies, injunctive relief, statutory limitation periods or other equitable remedies (clauses (i) and (ii) collectively, the Enforceability Exceptions).
(b) All action on the part of Shareholder necessary for the authorization, execution, delivery and performance of each Transaction Document to which Shareholder is a party, the consummation of the transactions contemplated by each Transaction Document to which Shareholder is a party, and the performance of all Shareholders obligations under each Transaction Document to which Shareholder is a party have been taken. This Agreement has been, and at Closing each of the remaining Transaction Documents to which Shareholder is a party will be, duly executed and delivered by Shareholder, and constitute the legal, valid and binding obligation of Shareholder, enforceable against Shareholder in accordance with its terms except as may be limited by the Enforceability Exceptions.
2.4 Capitalization; Ownership of Shares.
(a) The outstanding shares of the Company (excluding, for purposes of this sentence and Section 2.4(c) only, any subsidiary of the Company) consist solely of the Shares held by Shareholder. Such Shares were duly authorized for issuance and are validly issued, fully paid and non-assessable, and were not issued in violation of any Stock Purchase Rights or any similar rights and have been issued in compliance in all material respects with all applicable Laws. Other than is set forth on Section 4.12 of the Company Disclosure Schedule, the Company has no debt securities or loans outstanding.
(b) Other than as contemplated by this Agreement and as is set forth on Section 4.12 of the Company Disclosure Schedule, there are no outstanding rights of first refusal or offer, preemptive rights, options, warrants, conversion rights, other rights or other agreements, either directly or indirectly, for the purchase or acquisition from the Company or Shareholder by any other Person of any securities or any other interest in the Company or any debt or equity securities or instruments convertible into or exchangeable for securities or any other interests in the Company (collectively, Stock Purchase Rights).
(c) Shareholder owns beneficially and of record 100% of the issued and outstanding Shares of the Company free and clear of any and all Liens. Shareholder has the power and authority to sell, transfer, assign and deliver such Shares as provided in this
Agreement, and such delivery will convey to Buyer legal and beneficial ownership of such Shares, free and clear of any and all Liens. There is no agreement or understanding between or among Shareholder and any other Person(s) that relates to the voting or giving of written consents with respect to any securities of the Company.
2.5 Corporate Books and Records. The Company has furnished to Buyer or its representatives for their examination true and complete copies of the Governing Documents and materially complete copies of the corporate record books of the Company. Such minutes reflect all meetings of Shareholder and the sole director since the Companys inception.
2.6 Subsidiaries and Affiliates. Other than as set forth on Section 2.6 of the Company Disclosure Schedule, the Company does not own, beneficially or of record, directly or indirectly, any subsidiary or any shares of capital stock or any debt or equity securities of any other company or entity, including but not limited to, any interest in any partnership, joint venture or other enterprise.
2.7 No Approvals; No Conflicts.
(a) Other than as set forth on Section 2.7 of the Company Disclosure Schedule, the execution and delivery by the Company and Shareholder of each Transaction Document does not and the consummation of the transactions contemplated by the Transaction Documents and compliance with the provisions hereof will not (i) result in any loss, or suspension, limitation or impairment of any right of the Company to own or use any assets required for the conduct of its business or result in any violation of or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation, first offer, first refusal, modification or acceleration of any obligation or to the loss of a benefit under any loan, guarantee of indebtedness or credit agreement, note, bond, mortgage, indenture, lease, agreement, Contract, instrument, permit, concession, franchise, right or license binding upon the Company or the Shareholder (for the benefit of the Company with respect to the operation of the Companys business) by which or to which any of its properties, rights or assets are bound or subject, or result in the creation of any Liens other than Permitted Liens, in each case, upon any properties or assets of the Company, (ii) conflict with or result in any violation of any provision of the Governing Documents of the Company or Shareholder, or (iii) conflict with or violate any applicable Laws to which the Company or Shareholder is subject, except, in the case of clauses (i) and (iii), as would not, individually or in the aggregate, reasonably be expected to be material to the Company or prevent or materially impede, interfere with, hinder or delay the consummation of the transactions contemplated by the Transaction Documents.
(b) The execution, delivery and performance by the Company or Shareholder of each Transaction Document to which the Company or Shareholder is a party and the consummation of the transactions contemplated thereby, do not and will not require any consent, approval, authorization or permit of, action by, filing by the Company or Shareholder with or notification by the Company or Shareholder to, any Governmental Body, except for (i) the Investment Canada Approval and (ii) any such consent, approval, authorization, permit, action, filing or notification the failure of which to make or obtain would not, individually or in the aggregate, reasonably be expected to be material to the Company or prevent or materially impede, interfere with, hinder or delay the consummation of the transactions contemplated by the
Transaction Documents.
2.8 Financial Statements; No Undisclosed Liabilities.
(a) The Company has delivered to Buyer an unaudited balance sheet of the Company as of December 31, for each of the years 2014 and 2013 and the related statement of operations and retained earnings for the twelve (12) months ended December 31 for each of the years 2014 and 2013. The Company has also delivered to Buyer the monthly unaudited balance sheets for the five (5) months ended May 31, 2015 and the related monthly statement of operations and retained earnings. All the financial statements referenced above are herein referred to as the Financial Statements and are attached to Section 2.8 of the Company Disclosure Schedule. The Financial Statements (x) fairly present in all material respects the financial position and results of operations of the Company as of the dates and for the periods indicated, in accordance with the applicable Historical Accounting Principles, applied on a consistent basis during such periods and (y) the Financial Statements have been prepared from, and are in accordance with, the books and records of the Company. The Company is not party to any off-balance sheet Contract or other off balance sheet arrangements (as defined in Item 303(a) of Regulation S-K under the Securities Exchange Act of 1934, as amended), where the intended effect of such Contract is to avoid disclosure of any material transaction involving, or material Liabilities of, the Company.
(b) The Company has no Liabilities of any nature whatsoever (whether accrued, absolute, determined, contingent or otherwise and whether due or to become due), except (i) Liabilities reflected or reserved against in the balance sheet of the Company as of December 31, 2014 included in the Financial Statements, (ii) Liabilities incurred after December 31, 2014 in the Ordinary Course of Business, (iii) Liabilities incurred in connection with this Agreement including amounts to be included in Company Transaction Expenses for employee bonuses to be paid by the Company, (iv) Liabilities arising out of the Promissory Note and (v) Liabilities that have not been and would not reasonably be expected to be, material to the Company.
2.9 Absence of Certain Changes or Events.
(a) Except for the transactions specifically contemplated in this Agreement and the Pre-Closing Reorganization, since December 31, 2014, the business of the Company has been conducted in all material respects in the Ordinary Course of Business and neither the Company nor Shareholder has undertaken any action that if taken after the date of this Agreement, would require Buyers consent pursuant to Section 4.2.
(b) Since December 31, 2014, there has not been any fact, change, circumstance, event occurrence or development that has had or could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.
2.10 Taxes. Other than as set forth in Section 2.10 of the Company Disclosure Schedule,
(a) The Company (i) has timely filed with each appropriate Governmental Body all Tax Returns required to be filed by or with respect to it, and (ii) has fully and timely
paid all Taxes due and owing by it (whether or not such Taxes have been reflected on any Tax Return). All such Tax Returns are true, correct and complete in all material respects and no such Tax Return has been amended. All Taxes that the Company has been required by Law to withhold or to collect for payment have been duly withheld and collected, and have been paid over to the appropriate Governmental Body or are being held by the Company for such payment in compliance with all applicable legal requirements.
(b) (i) There are no pending Claims by any Governmental Body that has provided written notice thereof to the Company with respect to Taxes relating to the Company; (ii) no extension or waiver of the limitation period applicable to any Tax Return of the Company (including, without limitation, any such period to file any such Tax Return or for the assessment, collection or payment of any Taxes) has been requested, granted or is in effect; (iii) no Tax Return of the Company is currently under audit by any Governmental Body; and (iv) the Company has not received any written notice of adjustment from any Governmental Body with respect to Taxes of the Company.
(c) The Company has no liability for the Taxes of any Person under any provision of state, local or foreign law, as a transferee or successor by contract, or otherwise, or has ever been a party to, or bound by, any Tax indemnity agreement, Tax sharing agreement, Tax allocation agreement or similar contract.
(d) There are no Tax liens on any assets of the Company, other than Permitted Liens.
(e) The Company is not doing business in or engaged in a trade or business in any jurisdiction in which it has not filed all required Tax Returns, and no notice or inquiry has been received by the Company from any Governmental Body with which Tax Returns have not been filed by the Company to the effect that the filing of Tax Returns may be required. The Company is not required to file any Tax Returns in any jurisdiction outside Canada.
(f) The Company has not been at any time a member of any partnership or joint venture or the holder of a beneficial interest in any trust for any period for which the statute of limitations for any Tax has not expired.
(g) The Company has not agreed to, and is not required to, make any adjustment to income or expenses resulting in an adjustment in future years pursuant to any provision of any state, local or foreign law, including as a result of any change in method of accounting.
(h) The Company is not subject to, and has not requested, any ruling or notice of determination of, or agreement with, any Taxing Authority.
(i) The Company has not engaged in any reportable transactions within the meaning of Treasury Regulations Section 1.6011-4(b) or Section 237.3 of the Tax Act.
(j) The Company has not acquired assets from another corporation in a transaction in which the Companys Tax basis for the acquired assets was determined, in whole or in part, by reference to the Tax basis of the acquired assets (or any other property) in the hands
of the transferor.
(k) The Company will not be required to include any material item of income in, or exclude any material item of deduction from, taxable income for any taxable period (or portion thereof) that begins after the Closing Date as a result of (i) any change in method of accounting adopted before the Closing, (ii) any installment sale or open transaction disposition, intercompany transaction or intercompany account made or existing on or before the Closing, (iii) prepaid amount received on or prior to the Closing, (iv) closing agreement made before the Closing with any Governmental Body pursuant to any provision of state, local or foreign law, (v) a reserve, deduction, advance payment, election or tax credit established, made or received (as the case may be) before the Closing, except in all cases, any such item to the extent taken into account in the final Closing Statement.
(l) The Company is not and has never been a (i) passive foreign investment company within the meaning of Section 1297 of the Code and the Treasury Regulations thereunder or (ii) a controlled foreign corporation within the meaning of Section 957 of the Code and the Treasury Regulations thereunder. The Company has not made an election pursuant to Section 897(i) of the Code.
(m) No entity classification election has been made pursuant to Treasury Regulation Section 301.7701-3 with respect to the Company.
(n) The Company has made available to Buyer complete and correct copies of all Tax Returns of the Company that have been filed for the years 2012, 2013 and 2014 as of the date hereof (except Tax Returns for periods in respect of which the applicable statutory period of limitations has expired) and copies of all its correspondence with Governmental Bodies related to Taxes.
(o) No amount in respect of any outlay or expense that is deductible in computing the income of the Company for the purposes of the Tax Act has been owing by the Company for longer than two (2) years to a Person with whom it was not dealing at arms length (for the purposes of the Tax Act) at the time the outlay or expense was made or incurred.
(p) The Company has not claimed a deduction with respect to an outlay or expense that may be considered unreasonable under the circumstances.
(q) Except pursuant to this Agreement or as specifically disclosed in writing to the Buyer, for purposes of the Tax Act or any other Law, there has never been a change or acquisition of control of the Company.
(r) The Company has not, directly or indirectly, transferred property to or supplied services to, or acquired property or services from, any Person with whom it was not dealing at arms length (for the purposes of the Tax Act) for consideration other than consideration equal to the fair market value of the property or services at the time of the transfer, supply or acquisition of such property or services.
(s) For all transactions between the Company and any non-resident Person with whom the Company was not dealing at arms length during a taxation year commencing
after 1998 and ending on or before the Closing, the Company has made or obtained records or documents that meet the requirements of paragraphs 247(4)(a) to (c) of the Tax Act.
(t) There are no circumstances which exist and would result in, or which have existed and resulted in, the application of any of sections 78, 80, 80.01, 80.02, 80.03 or 80.04 of the Tax Act, or any equivalent provision of the taxation legislation of any province or any other jurisdiction, to the Company at any time up to and including the Closing Date in respect of any transaction entered into.
(u) All Taxes incurred or losses sustained by the Company prior to the Closing Date have arisen in the Ordinary Course of Business, except for Taxes or losses, if any, arising from the transactions contemplated by this Agreement or the Pre-Closing Reorganization.
(v) The Company has not made an excessive eligible dividend designation as defined in subsection 89(1) of the Tax Act and, since January 1, 2006, the Company has not paid any dividend which it did not designate as an eligible dividend pursuant to subsection 89(14) of the Tax Act in circumstances where such designation would not have resulted in an excessive eligible dividend designation (as defined in subsection 89(1) of the Tax Act) having been made by the Company, as the case may be, and will not make or be required to make an excessive eligible dividend designation under the Pre-Closing Reorganization except in circumstances where the Company is able to make a corresponding election to avoid Part III.1 tax under the Tax Act as referenced in Section 4.15.
(w) The Company is a registrant for the purposes of the GST Legislation having the registration number 856739107 RT0001. The Company is not and has never been a financial institution within the meaning of the GST Legislation or a financial institution or specified financial institution within the meaning of the Tax Act.
(x) The Company has maintained and, for the period required by applicable Law, continues to maintain at its place of business in Canada all books and records required to be maintained under the Tax Act, the GST Legislation, or any comparable Law of any province or territory of Canada (including any municipality or state thereof), including Laws relating to sales or use Taxes.
(y) The Company is not a non-resident of Canada for the purposes of the Tax Act. The Shareholder is not a non-resident of Canada, nor a partnership other than a Canadian partnership, for the purposes of the Tax Act.
2.11 Property.
(a) Real Property. The Company does not own any real property. Section 2.11(a) of the Company Disclosure Schedule lists all of the Contracts relating to real property and interests therein leased, subleased or otherwise occupied or used by the Company or the Shareholder (for the benefit of the Company with respect to the operation of the Companys business) and all amendments thereto (each, a Lease) (such underlying property interests, with all easements and other rights appurtenant to such property, the Leased Real Property). With respect to each item of Leased Real Property, the leasehold interest of the Company or the Shareholder is free and clear of any Liens, except Permitted Liens. Neither the Company nor
the Shareholder is a sublessor of, and neither has assigned any lease covering, any item of Leased Real Property. The Leased Real Property constitutes all interests in real property currently used by the Company in connection with the Companys business. To the Knowledge of the Company, the Leased Real Property is not subject to any rights of way, building use restrictions, title exceptions, variances, reservations or limitations of any kind or nature, except as set forth in the Lease relating to such item or those required by Law. To the Knowledge of the Company, the Leased Real Property complies in all material respects with all Laws, including zoning requirements. The Company is not a party to or bound by any Contract (including any option) for the purchase or sale of any real estate interest or any Contract for the lease to or from the Company of any real estate interest not currently in possession of the Company.
(b) Tangible Personal Property. The Tangible Personal Property is free and clear of all Liens other than Permitted Liens. The Company has good and marketable title or leasehold title (as applicable) to all of the items of Tangible Personal Property currently used in the business of the Company and no other Person owns any Tangible Personal Property used in the business of the Company. All such items of Tangible Personal Property which, individually or in the aggregate, are material to the operation of the business of the Company are in good condition and in a state of good maintenance and repair (ordinary wear and tear excepted).
2.12 Contracts.
(a) Section 2.12 of the Company Disclosure Schedule contains a complete and accurate list of all the following material contracts and agreements, oral or written, to which the Company is currently a party or by which the Company or its assets or properties are bound:
(i) Contracts providing for payments by or to the Company in each case in amounts in excess of $250,000 on an annual basis;
(ii) Contracts evidencing the incurrence, assumption or guarantee of any Indebtedness, or imposing a Lien on any of the assets, of the Company;
(iii) Contracts for the employment of any individual on a full-time, part-time or consulting or other basis, whether express or implied, or other Contract for services, including, without limitation, any agreements for any persons hired in an individual capacity as independent contractors whether directly as a sole proprietorship or indirectly through a corporate entity of which they are the principal, that provides for payments by the Company in excess of $75,000 per annum;
(iv) Contracts constituting a noncompetition agreement or other arrangement that would prevent the Company from carrying on its business anywhere in any geographical area, or a nonsolicitation agreement that would prevent the Company from soliciting or hiring any person, for greater certainty excluding Contracts for the license of Intellectual Property that would not otherwise require disclosure hereunder but for being limited by territory or scope (where the Company does not currently carry on its business in a manner that would exceed such licensed territory or scope), or that are export controlled (where the Company currently does not export to such territory in a manner that would be prohibited by such export control);
(v) Contracts constituting an exclusive license agreement as licensor or licensee;
(vi) Contracts constituting a joint venture agreement or arrangement, strategic alliance, partnership, co-marketing or affiliate arrangement, or other Contract that involves a sharing of profits or revenue or proprietary information with other Persons (provided that this clause (vi) shall not require disclosure of any Contract because it is, or solely because it has provisions dealing with, non-disclosure, confidentiality or similar obligations);
(vii) Contracts with any current or former officer, director, stockholder or Affiliate of the Company or Shareholder;
(viii) Contracts for which the Company or any other Person has any continuing obligation or liability for the sale of any of the assets of the Company other than in the Ordinary Course of Business or for the grant to any Person of any preferential rights to purchase any of its assets;
(ix) Contracts for which the Company or Shareholder has any continuing obligation or liability relating to the acquisition or sale (by merger, purchase of stock or assets or otherwise) by the Company of any operating business or material assets or the capital stock of any other Person, other than pursuant to the steps set forth in Section 4.12 of the Company Disclosure Schedule;
(x) Contracts under which the Company has made any outstanding advances or loans to any other Person, excluding trade receivables in the Ordinary Course of Business;
(xi) Contracts providing for severance, retention, change in control or other similar payments above Companys standard notice or pay-in-lieu entitlements pursuant to the form of employment contract disclosed in Section 2.14(a) of the Company Disclosure Schedule;
(xii) Contracts containing material guaranty or similar obligations, direct or indirect, by the Company, or outstanding Contracts where the primary purpose thereunder is for the Company to provide indemnification or similar obligations to a third party;
(xiii) Contracts (or group of related contracts), in each case providing for payments in excess of $100,000 on an annual basis, that require performance by any party more than one (1) year from the date hereof or which cannot be terminated by the Company at any time upon less than ninety (90) days prior notice;
(xiv) Contracts that contain a requirement to deal exclusively with or grant exclusive rights or rights of first refusal to any customer, vendor, supplier, distributor, contractor or other Person;
(xv) any power of attorney or other similar contract or grant of agency;
(xvi) material personal property leases;
(xvii) Contracts under which the Company or the Shareholder (for the benefit of the Company with respect to the operation of the Companys business) is a licensor of Intellectual Property (other than licenses included with the Companys products in the Ordinary Course of Business), or provider of, or agrees to encumber, not assert, transfer or sell rights in or with respect to, any Intellectual Property or to provide source code to any third party;
(xviii) Contracts pursuant to which a license, covenant not to assert, or other right under Intellectual Property is granted by or to the Company or the Shareholder (for the benefit of the Company with respect to the operation of the Companys business) (excluding licenses included with the Companys products in the Ordinary Course of Business and Contracts pursuant to which the Company or Shareholder non-exclusively licenses off-the-shelf software commercially available on standard terms, with the exception of off-the shelf software that is linked to or is included in the Company Software);
(xix) Contracts with each Material Advertiser of the Company (including, for the avoidance of doubt, the Material Advertisers referenced in Section 2.21); or
(xx) Contracts relating to the publishing, platform licensing, distribution or marketing of the Companys Facebook application, Windows Phone application, iOS application and Android application, except Contracts for off-the-shelf, shrink-wrap, click through or pre-installed software, hardware or databases licensed to the Company (clauses (i) through (xx) collectively, the Material Contracts).
(b) All Material Contracts are valid, binding obligations of the Company, or, as applicable, the Shareholder and enforceable in accordance with their terms against the Company or, as applicable, the Shareholder, except as may be limited by the Enforceability Exceptions, and are in full force and effect. The Company or, as applicable, the Shareholder, has performed in all material respects the obligations imposed on it thereunder accruing prior to the date hereof, except where the failure to do so would not reasonably be expected to be material to the Company, and neither the Company nor the Shareholder nor, to the Knowledge of the Company, any other party thereto is in material default or breach thereunder, except where such default or breach would not reasonably be expected to be material to the Company, and, to the Knowledge of the Company, no event has occurred that with the lapse of time or the giving of notice or both would constitute a breach or default on the Company or, as applicable, the Shareholder or any other party thereunder. The Company has not received any written notice of any partys intention to terminate any of the Material Contracts or written notice of any dispute with respect to any Material Contract. The Company has delivered true and complete copies of each such written Material Contract (or written summaries of the terms of any such oral Material Contract), together with all amendments, modifications or supplements thereto, to Buyer.
2.13 Compliance With Laws. The Company is, and at all times in the past two (2) years has been, in compliance in all material respects with all Laws, judgments, decrees and
orders applicable to it and its employees. Other than as set forth in Section 2.13 of the Company Disclosure Schedule, in the two (2) years prior to the date of this Agreement, the Company has not, nor has Shareholder (as it relates to the Company), received written notification of or been charged with the violation of any Laws, judgments, decrees, orders or rules or regulations of any self-regulatory body to which the Company is a member, nor does there exist, any asserted present or past unremedied failure by the Company or Shareholder to comply with any of such Laws, judgments, decrees, orders, rules or regulations. The Company can provide substantiation for all marketing claims made by the Company in the last two (2) years on the website of the Company, in the Companys television advertisements, or to the Knowledge of the Company, in any online display advertising in the United States or Canada distributed by the Company, but specifically excluding, without limitation, any marketing claims made by any Person other than the Company or the Shareholder on social media (including Facebook and Twitter) or otherwise. To the Knowledge of the Company, all third party affiliates or marketing partners have performed their marketing, promotional or advertising activities for the Company in compliance with all Laws applicable thereto.
2.14 Claims and Legal Proceedings; Government Orders.
(a) There are no, and at no time during the past three (3) years have there been any, material Claims pending or, to the Knowledge of the Company, threatened against the Company or, as it relates to the Shares, Shareholder, to which the Company is a party that (i) would challenge, or seek to prevent, make illegal or enjoin, alter, delay or otherwise interfere with any of the transactions contemplated by the Transaction Documents, or (ii) would challenge, or seek to prevent, make illegal or enjoin, alter, delay or otherwise interfere with any of the transactions contemplated by the Transaction Documents.
(b) There are no, and at no time during the past three (3) years have there been any, material Claims pending or threatened against any of the officers or, to the Knowledge of the Company, employees of the Company relating to business of the Company. There are no outstanding or unsatisfied judgments, orders, decrees or stipulations to which the Company is a party, and the Company and Shareholder, as it relates to the Company, has at no point during the past three (3) years been subject to any judgment, order, decree or stipulation. Any written claims or communications received by the Company from any Governmental Body relating to anti-fraud measures with respect to users of the Companys websites are listed on Section 2.14(b) of the Company Disclosure Schedule.
(c) There is no Claim of any nature pending, or to the knowledge of Shareholder, threatened, against Shareholder, nor is there any order binding on Shareholder or to which Shareholder is subject, arising out of or relating to (i) Shareholders beneficial ownership of Shares, (ii) Shareholders capacity as a shareholder of the Company, (iii) any transfer or contribution of assets (tangible and intangible) or properties by Shareholder to the Company, or (iv) to the extent that it would be reasonably expected to challenge, or seek to prevent, make illegal or enjoin, alter, delay or otherwise interfere with any of the transactions contemplated by the Transaction Documents, any other Contract to which Shareholder is a party. There is no Claim of any nature pending, nor is there any judgment or order binding on Shareholder or to which Shareholder is subject, arising out of or relating to the Transaction Documents or the transactions contemplated thereby, which Claim, judgment or order would adversely affect
Shareholders ability to consummate the transactions contemplated hereby. There is no Claim pending or, to the knowledge of Shareholder, threatened, against Shareholder or any of its Affiliates with respect to which Shareholder or any of its Affiliates has a contractual right or a right pursuant to applicable Law to indemnification from the Company related to facts and circumstances existing prior to the date of this Agreement, nor, to the knowledge of Shareholder, are there any currently existing facts or circumstances that would reasonably be expected to give rise to such a Claim.
2.15 Employees Matters.
(a) Section 2.15(a) of the Company Disclosure Schedule includes a complete list of all Employee Benefit Plans. With respect to each Employee Benefit Plan, the Company has delivered or made available to Buyer a true, correct and complete copy of each writing constituting a part of such Employee Benefit Plan, including without limitation all plan documents, trust agreements, and insurance contracts and other funding vehicles. Except as specifically provided in the foregoing documents delivered or made available to Buyer, there are no amendments to any Employee Benefit Plan that have been adopted or approved nor has the Company undertaken to make any such amendments or to adopt or approve any new Employee Benefit Plan.
(b) No Employee Benefit Plan is intended to be a qualified plan within the meaning of Section 401(a) of the Code (or similar concept under Canadian Law).
(c) All contributions required to be made to any Employee Benefit Plan by applicable Law or by any plan document or other contractual undertaking, and all premiums due or payable with respect to insurance policies funding any Employee Benefit Plan, for any period through the date hereof have been timely made or paid in full or, to the extent not required to be made or paid on or before the date hereof, have been fully reflected on the Financial Statements.
(d) With respect to each Employee Benefit Plan, the Company has complied, and are now in compliance, in all material respects with all provisions all Laws applicable to such Employee Benefit Plans and each Employee Benefit Plan has been registered (where required), established, administered and funded in all material respects in accordance with its terms.
(e) Neither the Company nor any Affiliate has now or at any time within the previous six (6) years contributed to, sponsored or maintained (or has been required to contribute to, sponsor or maintain) a defined benefit pension plan or a multiemployer plan.
(f) The Company has no liability for life, health, medical or other welfare benefits or any other obligations to former employees or independent contractors or beneficiaries or dependents thereof.
(g) Neither the execution and delivery of this Agreement nor the consummation of the transactions contemplated hereby (either alone or in conjunction with any other event) will (i) result in any payment (including, without limitation, bonuses (other than bonuses included in Company Transaction Expenses or paid before Closing out of available Cash)), golden parachute, retirement, retiring allowance, severance, unemployment
compensation, excess parachute payment (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any current or former director, officer, employee or independent contractor of the Company under any Employee Benefit Plan or otherwise; (ii) increase any compensation or benefits otherwise payable to any current or former director, officer or employee of the Company, including without limitation, under any Employee Benefit Plan; (iii) result in any acceleration of the time of payment or vesting of any such benefits; (iv) require the funding of any trust or other funding vehicle; (v) limit or prohibit the ability to amend, merge, terminate or receive a reversion of assets from any Employee Benefit Plan or related trust; or (vi) entitle any employee of the Company to any job security or similar entitlement (except as may be required pursuant to the Investment Canada Approval or any other approvals under Anti-Trust Laws).
(h) There are no pending or threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted, or to Companys knowledge, no set of circumstances exists which may reasonably give rise to a claim or lawsuit, against the Employee Benefit Plans, any fiduciaries thereof with respect to their duties to the Employee Benefit Plans or the assets of any of the trusts under any of the Employee Benefit Plans which could reasonably be expected to result in any material liability of the Company.
(i) Section 2.15(i) of the Company Disclosure Schedule sets forth a true and complete list of all current employees and independent contractors engaged by the Company, including each employees and independent contractors title, location of employment, date of hire, compensation (including salary, bonus, commission and other remuneration), and aggregated, anonymized information providing details to the extent any employees are on short-term or long-term disability, maternity or parental leave, temporary lay-off, workers compensation or other approved leave of absence, and whether such individual is employed or engaged pursuant to a written contract.
(j) The Company is in compliance with all applicable Laws respecting labor, employment, immigration, fair employment practices, terms and conditions of employment, workers compensation, employment insurance, occupational health and safety, employer health tax, pay equity, plant closings, mass layoffs, worker classification, exempt and non-exempt status, compensation and benefits, wages and hours and there are no pending or threatened claims before any Governmental Body with respect to any of the foregoing. The Company has properly characterized retained individuals as either employees or independent contractors for purposes of Tax and applicable Laws.
(k) All liabilities to or arising in connection with the employees of the Company (including without limitation all compensation, Taxes, and all payments, contributions or premiums required to be remitted or paid in respect of each of the Employee Benefit Plans) and in respect of employment insurance, employer health tax, Canada Pension Plan, accrued wages, commissions and other compensation have been paid in a timely manner and to the extent due or payable on or prior to the Closing Date, shall have been paid as of the Closing Date. No vacation pay, bonuses, commissions and other remuneration for employees of the Company have been accrued in the Financial Statements other than as described in the Historical Accounting Principles.
(l) The Company is not a party to a collective bargaining agreement, and to the Knowledge of the Company, no labor union, employee association or other similar entity has any bargaining rights acquired by certification, voluntary recognition or otherwise to represent any employee of the Company or has applied to represent or is attempting to organize so as to represent such employees.
(m) (i) there is no pending or, to the Knowledge of the Company, threatened work stoppage, lock-out, slowdown, labor strike or other labor difficulty against or affecting the Company, and (ii) there is no unfair labor practice, labor dispute (other than routine individual grievances) or labor arbitration proceeding pending, or to the Knowledge of the Company, threatened against the Company.
2.16 Intellectual Property.
(a) Section 2.16(a) of the Company Disclosure Schedule sets forth a complete and accurate list of all Company Intellectual Property including that which has been issued by, or registered by, or are the subject of an application filed with, as applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office, the Canadian Intellectual Property Office or any similar office or agency anywhere in the world (Scheduled IP), identifying for each item, (i) the application/registration number and application/registration date and relevant jurisdiction, (ii) the name or title, and (iii) the owner of record and, if different, the beneficial owner;
(b) Except as set forth on Schedule 2.16(b) of the Company Disclosure Schedule:
(i) all Scheduled IP (including, as applicable, payment of filing, examination and maintenance fees, inventor declarations, proofs of working or use, timely post-registration filing of affidavits of use and incontestability, and renewal applications) is (A) in material compliance with formal requirements of applicable Law; and (B) valid, enforceable and subsisting;
(ii) the Company is the exclusive owner of all right, title and interest in and to, or otherwise has a valid and continuing license to use, in each case, free and clear of any and all Liens (other than Permitted Liens), all Intellectual Property, Software and other Technology that is used in the conduct and operation of its business of the Company as presently conducted (including any products or services of the Company), all of which is valid and enforceable;
(iii) except for rights in know-how (whether or not reduced to practice), acknowledged by Shareholder to be subject to Section 4.8 hereof, neither Shareholder nor any of its Affiliates (other than the Company) own any right, title or interest in or to any Intellectual Property, Software or other Technology used in the operation or conduct of the business of the Company as presently conducted (including any products or services of the Company);
(iv) the conduct and operation of the business by the Company (including its products and services, Software and other Technology), and the designing, development, manufacturing, reproduction, use, marketing, sale, distribution,
maintenance and modification of any of the foregoing as presently performed, and the use by the Company of the Company Intellectual Property have not and do not, to the Knowledge of the Company, infringe, dilute, misappropriate, or otherwise violate any Intellectual Property rights or personal information of any third Person or constitute unfair competition or trade practices under any applicable Law;
(v) no (i) product, technology, service or publication of the Company, (ii) except for user-generated content or third party advertisements for which the advertisers are responsible, material published or distributed by the Company or (iii) except for the act of publishing or making available user-generated content or third party advertisements for which the advertisers are responsible, conduct or statement of the Company, in each case, constitutes obscenity (in the reasonable opinion of the Company), defames any Person, constitutes false advertising, violates applicable consumer fraud Laws, violates the Companys Privacy Policies or terms of use of the Company website otherwise violates any applicable Law in any material respect;
(vi) there are no pending or, to the Knowledge of the Company, threatened material Claims against the Company, nor have there at any time in the past three (3) years been any such material Claims, alleging (A) that any products, services, conduct or operation of the business of the Company infringes, dilutes, or violates (or in the past constituted an infringement, dilution or violation of) the rights of others in or to any Intellectual Property or constitutes a misappropriation of (or in the past constituted a misappropriation of) any Intellectual Property of any Person or (B) that any of the Company Intellectual Property is not owned by the Company, or is invalid or unenforceable;
(vii) all employees, consultants and other Persons who contributed to the discovery or development of any of the Company Intellectual Property that is or at any time was used in the business of the Company
(A) did so either (i) within the scope of his or her employment such that, subject to and in accordance with applicable Laws, all Intellectual Property rights (other than moral rights) arising therefrom became the exclusive property of the Company, or (ii) pursuant to valid and enforceable written agreements assigning, subject to applicable Laws, all Intellectual Property rights arising therefrom to the Company, and
(B) have waived their moral rights in and to such Company Intellectual Property;
(viii) to the Knowledge of the Company, (i) there is no, nor has there ever been any, infringement, misappropriation or violation by any Person of any of the Company Intellectual Property or the Companys rights therein or thereto and (ii) there is no, nor has there been any, misappropriation by any Person of any of the Company Intellectual Property or the subject matter thereof;
(ix) the Company has taken commercially reasonable best efforts to
protect its rights in the Company Intellectual Property used by the Company and to maintain the confidentiality of all of the material trade secrets of the Company, including, without limitation, by entering into valid and enforceable written confidentiality agreements restricting the use and disclosure of any material trade secrets of the Company by any Persons to whom such trade secrets have been or may be disclosed, including employees, consultants and other Persons who contributed to the discovery or development of any of the Company Intellectual Property, and, to the Knowledge of the Company, there have not been any breaches of such confidentiality agreements; and
(x) neither the execution of this Agreement, the consummation of the transactions contemplated by this Agreement, nor the conduct of the business and operations of the Company as presently conducted will result in: (A) the Company granting to any third party any right to any Technology or Intellectual Property owned by, or licensed to, the Company, or (B) the Company being bound by, or subject to, any non-compete or other restriction on the operation or scope of its business. Immediately after the Closing, the Company will have the right to exercise all of its current rights under agreements granting rights to the Company with respect to Intellectual Property, Software and other Technology of a third party to the same extent and in the same manner it would have been able to had the Closing not occurred, and without the payment of any additional consideration as a result of such transaction and without the necessity of any third party consent as a result of such transaction
2.17 Software; Systems.
(a) Other than as set forth on Schedule 2.17(a) of the Company Disclosure Schedule:
(i) Except for user generated content, all of which is licensed to the Company in the Ordinary Course of Business, the Company is the sole and exclusive owner of all right, title and interest in and to the Company Software, free and clear of all Liens (other than Permitted Liens), and no Company Software has been licensed to another Person other than end use in the Ordinary Course of Business;
(ii) the Company Software, together with any Software licensed and disclosed pursuant to Section 2.12(a) of the Company Disclosure Schedule and all off-the-shelf Software commercially available on standard terms non-exclusively licensed by the Company, represents the entire codebase and all customized/proprietary code (both preproduction code and current in production code) necessary to operate and maintain the Companys business as presently conducted;
(iii) other than code that, for its function, must be disclosed (such as HTML mark-up, CSS, XML, scripts, or similar code where the disclosure and use thereof would not have a Material Adverse Effect), no source code of the Company Software has been licensed, provided or otherwise disclosed to a Person other than Shareholder and the employees, consultants and other Persons who contribute to the discovery or development of any of the Company Intellectual Property under the terms of confidentiality and ownership contemplated by Sections 2.16(b)(vii), 2.16(b)(viii) and
2.16(b)(ix) hereof, and the Company has used commercially reasonable best efforts to safeguard and protect all such source code as trade secrets of the Company, and to the knowledge of the Company, there has not been any unauthorized disclosure thereof;
(iv) immediately following the Closing, to the Knowledge of the Company, no Person (other than the Company) shall possess a copy of the Company Software (or any portion thereof);
(v) to the Knowledge of the Company, the Company Software is substantially free of any material defects, bugs and errors, and does not contain or make available any disabling codes or instructions, spyware, Trojan horses, worms, viruses or other software routines that permit or cause unauthorized access to, or disruption, impairment, disablement, or destruction of, Software, data or other materials (Contaminants);
(vi) no Software governed by a license commonly referred to as an open source, free software, copy left or community source code license (such software, Open Source Software), is used in or incorporated into (A) any products of the Company, (B) the website(s) owned by the Company or (C) any other Company Software, in each case, in the Companys business as currently conducted, in a manner that would obligate the Company to (i) distribute or disclose any Company Software combined, distributed or otherwise made commercially available with such Open Source Software in source code form or (ii) license or otherwise make available any Company Software (or any associated Intellectual Property) combined, distributed or otherwise made commercially available with such Open Source Software on a royalty free basis;
(vii) neither Shareholder, the Company, nor any of their Affiliates have ever engaged in hidden or invisible text, cloaking, Google bowling, spamdexing, scraping, keyword stuffing, doorway pages, paying for links back to the Companys website(s), or any other tactics, in each case that, to the Knowledge of the Company, do not comply with the rules and regulations of Search Engines, nor has any Search Engine removed, penalized or otherwise asserted any Claim against the Company or the Companys website(s) alleging that Shareholder, the Company, or any of their Affiliates have engaged in any such tactics. Search Engine shall mean a search engine operated under the Google, Bing, Ask or Yahoo! brands.
(viii) the information technology and data processing systems, facilities and services used by the Company, including all Software, technology, hardware, networks, communications facilities, platforms and related systems and services (collectively, the Systems), are adequate for the operation of the Companys business and the Company has taken commercially reasonable steps and implemented commercially reasonable safeguards to ensure that the Systems are substantially free from Contaminants; and
(ix) in the two (2) year period prior to the date hereof, there has been no failure, breakdown or continued substandard performance of any Systems that has caused a material disruption or interruption in or to any use of the Systems or the conduct
of the Companys business and the Company has implemented business continuity, back-up and disaster recovery policies, procedures and systems that are consistent with generally accepted industry standards and sufficient to maintain the operation of the Companys business in all material respects.
2.18 Privacy; Data Protection. Other than as set forth in Section 2.18 of the Company Disclosure Schedule:
(a) The Company has complied, and is in compliance, in all material aspects with the Companys (i) terms of service and / or user agreements (Terms of Service) and (ii) published privacy policies in effect at all applicable times (the Privacy Policies). True, correct and complete copies of such Terms of Service and Privacy Policies have been provided to Buyer prior to the date hereof.
(b) The Company is (and has been) in compliance in all material respects, with all applicable Laws that relate to or govern (i) the collection, compilation, use, storage, security, disclosure and transfer of User Data, (ii) sending or causing or permitting to be sent to an electronic address a commercial electronic message, and (iii) installing or causing to be installed a computer program on any other Persons computer system. The Company has the requisite third-party consents to use all User Data in accordance with the Terms of Service and Privacy Policies and to engage and to have engaged in the aforementioned activities.
(c) The Company has taken reasonable administrative, technical and physical measures to protect its rights in any User Data and to ensure that all User Data is protected against loss, damage, and unauthorized access, use, modification or other misuse. To the Knowledge of the Company, there has been no loss, damage, or unauthorized access, use, modification, or other misuse of any User Data maintained by or on behalf of the Company in the past three (3) years. No Person or Governmental Body has made any material written complaint or Claim or commenced any Claim or proceeding with respect to Loss, damage, or unauthorized access, use, modification, or other misuse of any such information; and, to the Knowledge of the Company, there is no reasonable basis for any such Claim.
(d) The consummation of the transactions contemplated by this Agreement will not (i) violate the Companys Terms of Service or Privacy Policies, (ii) require the Company to provide any notice to, or seek any consent from, any user, employee, customer, supplier, service provider or other third party thereunder as it relates to User Data, (iii) under applicable Laws and the Privacy Policies, restrict the ability of the Company to use User Data after the Closing. Except for restrictions set forth in applicable Laws or the Privacy Policies, there shall be no restriction on the use by Company of User Data collected by the Company prior to the date of this Agreement. The manner in which User Data has been obtained by the Company, in connection with the transactions contemplated by this Agreement, comply in all material respects with all applicable Laws and with the obligations, commitments, notices and policies noted in paragraph (b) above. For purposes hereof, User Data means (i) all data and analytics collected or generated by, or provided to, the Company (whether generated or stored by the Company directly or a third party on behalf of the Company) resulting from any action or activity of users of the Companys websites, including user identification and associated activities at a website as well as pings and activity related to closed loop reporting and all other data associated with a
users behavior on the Internet, (ii) all data collected and stored by or on behalf of the Company and all data provided to the Company by (or pertaining to) a user, including all personally identifying information.
2.19 Licenses, Permits, Authorizations, etc. Other than as set forth in Section 2.19 of the Company Disclosure Schedule, no material governmental approvals, authorizations, consents, licenses, orders, registrations and permits of any Governmental Body are necessary for the conduct of the Companys business as currently conducted.
2.20 Insurance. Section 2.20 of the Company Disclosure Schedule contains a list of all insurance policies currently in full force and effect to which the Company is a party or by which it is bound and all such policies will remain in full force and effect up to and including the date of this Agreement, whether such insurance policies may be terminated upon consummation of the Transaction Documents. Coverage under such insurance policies is commercially reasonable for all requirements (and meets all minimums) of applicable Law. Each such insurance policy is valid and binding and all premiums due thereof have been paid as of the date of this Agreement. Neither the Company nor Shareholder has received any notice of cancellation or termination in respect of any such insurance policy nor is the Company currently in default in any material respect under any such insurance policy. There is no Claim by the Company pending under any of the Companys insurance policies as to which the Company has been notified in writing that coverage has been questioned, denied or disputed.
2.21 Advertisers.
(a) Section 2.21(a) of the Company Disclosure Schedule contains a true, correct and complete list of the Companys twenty (20) largest advertisers based on revenues for the twelve (12) month-period ending on April 30, 2015 (each such Person listed is a Material Advertiser). The term Material Advertiser includes any third party email or display affiliate program.
(b) To the Knowledge of the Company, no material disagreement exists between the Company and any Material Advertiser. Except in the Ordinary Course of Business, since December 31, 2014, no Material Advertiser of the Company has canceled or otherwise terminated, or to the Knowledge of the Company threatened to cancel or otherwise terminate, its relationship with the Company or has materially decreased, limited or otherwise modified, or to the Knowledge of the Company threatened to materially decrease, limit or otherwise modify, the amount of business that any such Material Advertiser engages in or conducts with the Company. To the Knowledge of the Company, the transactions contemplated by this Agreement will not adversely affect the relationship of the Company with any such Material Advertiser or materially decrease, limit or otherwise modify the amount of business that any such Material Advertiser engages in or conducts with the Company. Any notice or communication received by the Company involving it or any advertiser alleging a violation of the Law known as Canadas Anti-Spam Law (S.C. 2010, c.23), the US CAN-SPAM Act of 2003, Section 17529 of the California Business and Professions Code, and any similar Laws governing email marketing, are described on Schedule 2.21(b) of the Company Disclosure Schedule.
(c) Except as set forth on Schedule 2.21(c) of the Company Disclosure
Schedule, each Material Advertiser has made all payments required to be made by it in accordance with the terms of its respective Contract with the Company.
2.22 Metrics.
(a) The key performance metrics and related information provided in writing by the Company to the Buyer in the Companys virtual data room is true and correct in all material respects to the Knowledge of the Company, for greater certainty except to the extent that that third party systems and metrics derived from them or internal systems that utilize log-files and other base files experience downtime, defects (other than defects Known to the Company) or interruptions leading to delays and/or inaccuracies in reports. The Company does not use any automated devices or applications in conjunction with its websites or any third party platform sites that are designed to obfuscate or manipulate key usage metrics and to the Knowledge of the Company there is no design or implementation element that has obfuscated or manipulated usage data.
(b) The methodology to calculate both registrations (also known as signups in the Company metrics) and account deletions (POF total deletions in the Company metrics) has been applied consistently across all platforms since at least January 2013 through May 2015 and counts any user_ID that has been deleted 48 hours since being created. For the avoidance of doubt, registrations include user_IDs that can be generated from email addresses that have previously been used to generate prior user_IDs, but only if the accounts associated with these prior user_IDs have been deleted before registering again. The Companys current methodology to calculate both registrations and account deletions on any given platform and across platforms has been consistently applied to present such metrics to Buyer as it relates to this period (January 2013 through May 2015).
2.23 Related Party Transactions. Except as set forth on Section 2.23 of the Company Disclosure Schedule, no employee, officer, director, Shareholder, or Affiliate (other than a wholly owned subsidiary of the Company) of the Company, or any member of his or her immediate family or any of their respective Affiliates (Related Person) (a) owes any amount to the Company nor does the Company owe any amount to, or has the Company committed to make any loan or extend or guarantee credit to or for the benefit of, any Related Person, (b) with respect to officers, senior employees, directors, Shareholder, Affiliate, or to the Knowledge of the Company, with respect to other employees, is involved in any business arrangement or other relationship (other than the relationship described above qualifying them to be a Related Person) with the Company (whether written or oral), (c) owns any material tangible property or right that is used by the Company, or (d) to the Knowledge of the Company, has any Claim or cause of action against the Company.
2.24 Bank Accounts. Schedule 2.24 of the Company Disclosure Schedule lists the account numbers, names and locations of each bank, broker, or other depository institution at which the Company or any other Person for the benefit of the Company maintains a depository account and the names of all persons authorized to have access to, sign on and/or withdraw funds from each such account.
2.25 Sufficiency of Assets. The Contracts, Company Intellectual Property,
Tangible Personal Property and all other assets and rights owned or licensed to the Company to be sold, transferred, conveyed, assigned and delivered by Shareholder to Buyer indirectly through Buyers purchaser of the Shares together with all rights attributable therefrom, pursuant to this Agreement or any other Transaction Document, include all of the assets and rights used, held by or necessary for the ownership or operation of the Companys business as currently conducted.
2.26 Brokers or Finders. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Shareholder and/or the Company in connection with the transactions contemplated by this Agreement and neither Shareholder nor the Company have incurred, or will incur, directly or indirectly, as a result of any action taken by or on behalf of the Company, any liability for brokerage, finders fees, agents commissions or financial advisor fees or any similar charges in connection with this Agreement or any transactions contemplated hereby.
2.27 Competition Act (Canada). The aggregate value of the assets in Canada of the Company and its subsidiaries, and the gross revenues from sales in or from Canada generated from the assets in Canada of the Company and its subsidiaries, all as determined in accordance with Part IX of the Competition Act (Canada) and the Notifiable Transactions Regulations thereunder, do not exceed CND $86 million.
2.28 No Other Representations or Warranties. Except for the representations and warranties set forth in this Article II, neither the Company nor Shareholder makes, and both the Company and Shareholder expressly disclaim, any other express or implied condition, representation or warranty on behalf of itself or any of its properties or businesses, whether arising by law, in equity or otherwise.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Shareholder as follows in this Article III:
3.1 Organization. Buyer is a corporation duly organized, validly existing and in good standing under the Canadian Business Corporation Act.
3.2 Enforceability. Buyer has full corporate power and authority to execute, deliver and perform its obligations under each Transaction Document to which it is a party. All corporate action on the part of Buyer and its officers, directors and stockholders necessary for the authorization, execution, delivery and performance of each Transaction Document to which Buyer is a party, the consummation of the transactions contemplated by and the performance of all its obligations under each Transaction Document to which Buyer is a party have been duly authorized, approved and taken. This Agreement has been, and at the Closing each Transaction Document to which Buyer is a party will be, duly executed and delivered by Buyer and constitute the legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except as may be limited by the Enforceability Exceptions.
3.3 No Approvals or Notices Required; No Conflicts With Instruments. The execution, delivery and performance by Buyer of each Transaction Document to which Buyer is
a party and the consummation of the transactions contemplated thereby will not (a) conflict with or violate any applicable Laws to which Buyer is subject; (b) require any consent, approval or authorization of, declaration, filing or registration with, or notice to, any Person except the Investment Canada Approval; or (c) conflict with or result in any violation of any provision of the certificate of incorporation or bylaws of Buyer, except, in the case of clauses (a) and (b), as would not, individually or in the aggregate, reasonably be expected to be material to Buyer or prevent or materially impede, interfere with, hinder or delay the consummation of the transactions contemplated by the Transaction Documents.
3.4 Brokers or Finders. No Person has acted, directly or indirectly, as a broker, finder or financial advisor for Buyer in connection with the transactions contemplated by this Agreement and Buyer has not incurred, and will not incur, directly or indirectly, as a result of any action taken by or on behalf of Buyer, any liability for brokerage or finders fees or agents commissions or financial advisor fees or any similar charges in connection with this Agreement or any transaction contemplated hereby that would result in a Claim against the Company or Shareholder.
3.5 Claims and Legal Proceedings. There are no Claims pending or, to the Knowledge of Buyer, threatened against Buyer to which Buyer is a party, or that challenge, or seek to prevent, make illegal or enjoin, alter, delay or otherwise interfere with any of the transactions contemplated by the Transaction Documents or that would challenge, or seek to prevent, make illegal or enjoin, alter, delay or otherwise interfere with any of the transactions contemplated by the Transaction Documents.
3.6 Sufficient Funds. At Closing, the Buyer shall have, or shall have unrestricted access to (including, without limitation, pursuant to commitments under existing credit facilities), all of the funds that are necessary to consummate the transactions contemplated by this Agreement.
3.7 No Other Representations or Warranties. Except for the representations and warranties set forth in this Article III, Buyer does not make, and expressly disclaims any other express or implied conditions, representation or warranty, whether arising by law, in equity or otherwise.
ARTICLE IV
COVENANTS
4.1 Further Assurances.
(a) Upon the terms and subject to the conditions of this Agreement (and subject to Section 4.1(e)), each of the Parties shall use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, and cooperate with each other in order to do, all things necessary, proper or advisable under applicable Law (including under any Antitrust Law and the Investment Canada Act) to consummate the transactions contemplated by this Agreement at the earliest practicable date, including: (i) causing the preparation and filing of all necessary, proper or advisable filings, notices, forms, applications and registrations to consummate the transactions contemplated by the Transaction Documents and the taking of such
actions as are necessary to obtain such consents from any Governmental Body that are necessary, proper or advisable to consummate the transactions contemplated by the Transaction Documents including under the Investment Canada Act, (ii) using reasonable best efforts to resolve any objection asserted with respect to the transactions contemplated by the Transaction Documents under any Antitrust Law raised by any Governmental Body and to prevent the entry of any court order, and to have vacated, lifted, reversed or overturned any injunction, decree, ruling, order or other action of any Governmental Body that would prevent, prohibit, restrict or delay the consummation of the transactions contemplated by the Transaction Documents, (iii) taking all acts necessary to cause the conditions to the consummation of this Agreement to be satisfied as promptly as practicable, (iv) obtaining of all necessary consents, approvals or waivers from third parties and (v) executing and delivering any additional instruments necessary to consummate the transactions contemplated by, and to fully carry out the purposes of, this Agreement; provided that in no event shall the Company be required to pay, prior to the Closing Date, any fee (except for customary fees to Governmental Bodies), penalty or other consideration to any Person for any consent or approval required for the consummation of the transactions contemplated by this Agreement. If any proceeding is instituted (or threatened to be instituted) by any Governmental Body challenging any of the transactions contemplated by the Transaction Documents under any Antitrust Law or the Investment Canada Act, Buyer shall use reasonable best efforts to resolve (and to avoid the institution of) any such proceeding. If, notwithstanding such reasonable best efforts, any proceeding is instituted by any Governmental Body, Buyer shall further use reasonable best efforts to contest such proceeding until each such proceeding is resolved pursuant to a settlement or a final non-appealable court order. Without limiting and in addition to the foregoing, Buyer agrees to take all such further action as may be necessary to obtain any clearance relating to the transactions contemplated by this Agreement relating to the Investment Canada Act.
(b) In furtherance and not in limitation of the provisions of Section 4.1(a), each of the Parties, as applicable, agrees to prepare and file as promptly as practicable, and in any event by no later than fifteen (15) Business Days from the date of this Agreement, an application for review pursuant to Part IV of the Investment Canada Act.
(c) Subject to applicable law and as required by any Governmental Body, the Parties shall keep each other apprised of the status of matters relating to the completion of the transactions contemplated by the Transaction Documents and work cooperatively in connection with obtaining the approvals of or clearances from and responding to any investigation of each applicable Governmental Body, including:
(i) cooperating with each other in connection with filings required, proper or advisable to be made by any Party under any Antitrust Law and the Investment Canada Act and with any investigation by a Governmental Body into the transactions contemplated by the Transaction Documents;
(ii) liaising with each other in relation to each step of the procedure before the relevant Governmental Bodies and as to the contents of all communications with such Governmental Bodies. In particular, no Party will make any notification in relation to the transactions contemplated hereunder without first providing the other Party with a copy of such notification in draft form and giving such other Party a reasonable
opportunity to discuss its content before it is filed with the relevant Governmental Bodies, and such first Party shall consider and take account of all reasonable comments timely made by the other Party in this respect;
(iii) furnishing to the other Party all information within its possession that is required, proper or advisable for any application, filing, or other request by a Governmental Body to be made by the other Party pursuant to the applicable Law in connection with the transactions contemplated by the Transaction Documents;
(iv) promptly notifying each other of any communications from or with any Governmental Body with respect to the transactions contemplated by the Transaction Documents and ensuring to the extent permitted by Law or Governmental Body that each of the parties is entitled to attend any meetings with or other appearances before any Governmental Body with respect to the transactions contemplated by the Transaction Documents;
(v) consulting and cooperating with one another in connection with all analyses, appearances, presentations, memoranda, briefs, arguments, opinions and proposals made or submitted by or on behalf of any Party hereto in connection with proceedings under or relating to the Antitrust Laws; and
(vi) without prejudice to any rights of the parties hereunder, consulting and cooperating in all respects with the other in defending all lawsuits and other proceedings by or before any Governmental Body challenging this Agreement or the consummation of the transactions contemplated by the Transaction Documents.
(e) Notwithstanding the foregoing or anything else to the contrary in this Agreement, nothing shall be deemed to require Buyer to (i) undertake or agree to, or proffer to, divest, license, hold separate or subject to any other Contract or arrangement any material business, business line, segment or assets of the Buyer or of its Affiliates; or (ii) undertake or agree to take any action that, after consummation of the transactions contemplated by the Agreement, places any limitation on Buyers ownership or operation of one or more of the business, or the assets, of the Company, that would, or would be reasonably likely to in the reasonable opinion of the Buyer, materially impair the benefits sought to be derived by the Buyer from the transactions contemplated by this Agreement.
(f) Filing fees and all other fees and expenses required under the Antitrust Laws and the Investment Canada Act shall be borne solely by Buyer. The parties shall take reasonable efforts to share information protected from disclosure under the attorney-client privilege, work product doctrine, joint defense privilege or any other privilege in a manner so as to preserve any applicable privilege. Notwithstanding anything contrary in this Agreement, commercially and/or competitively sensitive information and materials of a Party will be provided to the other Party on an outside legal counsel-only basis while, to the extent feasible, making a version in which the commercial and/or competitively sensitive information has been redacted available to the other Party.
4.2 Operation of the Business. From the date of this Agreement until the
earlier of the Closing or the termination of this Agreement, except as otherwise contemplated by this Agreement, required by Law, as set forth in Section 4.2 of the Company Disclosure Schedule or as consented to by Buyer in writing (which consent shall not be unreasonably withheld, conditioned or delayed), Shareholder will cause the Company to:
(a) conduct the business of the Company in the Ordinary Course of Business;
(b) use its commercially reasonable efforts to maintain the properties, physical facilities and operations of the Company in the same condition as they were on the date of this Agreement (subject to reasonable wear and tear), preserve intact the current business organization of the Company, keep available the services of the current officers and key employees of the Company, and maintain the relations and goodwill with suppliers, customers, lenders and others having material business relationships with the Company in the Ordinary Course of Business;
(c) manage payables, receivables and working capital in the Ordinary Course of Business;
(d) unless replaced or renewed on commercially reasonable terms with substantially similar or better coverage in the Ordinary Course of Business, continue in full force and effect without modification all insurance policies listed in Section 2.20 of the Company Disclosure Schedule;
(e) comply in all material respects with all applicable Laws;
(f) maintain its books and records in accordance with past practice;
(g) not adopt a new plan or agreement of complete or partial liquidation, dissolution, restructuring, consolidation, recapitalization or other reorganization or like change in the Companys capitalization other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(h) not waive in writing any material right of the Company, including any material write-off or compromise of accounts receivable;
(i) not enter into, amend in any material respect or terminate, release, waive any rights under, or assign any rights under, any Material Contract (or Contract that, if in existence on the date of this Agreement, would constitute a Material Contract), except in the Ordinary Course of Business or as set forth on Section 4.12 of the Company Disclosure Schedule;
(j) not enter into or make any capital expenditures, except capital expenditures made consistent with past practices;
(k) not acquire the equity securities, or substantially all of the assets, of any entity other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(l) not settle or agree to settle any legal proceeding or settle any litigation or
similar claim against or involving the Company with a value in excess of $250,000 or where the terms of such settlement contain any material restriction on the operation of the business of the Company following the Closing;
(m) except as required under the terms of any Employee Benefit Plan existing as of the date hereof, the Company will not (i) increase in any manner the compensation or benefits of any of the current or former directors, officers, employees, consultants, independent contractors or other service providers of Company (collectively, Company Resources), (ii) pay any amounts or increase any amounts payable to Company Resources not required by any current plan or agreement (other than payment of base compensation in the Ordinary Course of Business) to any Company Resource, (iii) become a party to, establish, amend, commence participation in, terminate or commit itself to the adoption of any stock option plan or other stock-based compensation plan, compensation (including any Company Resource co-investment fund), severance, pension, retirement, profit-sharing, welfare benefit, or other employee benefit plan or agreement or employment agreement with or for the benefit of any Company Resource (or newly hired employees), (iv) accelerate the vesting of or lapsing of restrictions with respect to any stock-based compensation or other long-term incentive compensation under any Employee Benefit Plans, (v) (x) except to the extent required pursuant to any Investment Canada Approval, hire or promote employees in the position of manager or above or (y) other than for just cause or in order to prevent a breach of this Agreement, terminate the employment of any employee in the position of manager or above, (vi) cause the funding of any rabbi trust or similar arrangement or take any action to fund or in any other way secure the payment of compensation or benefits under any Employee Benefit Plan, or (vii) materially change any actuarial or other assumptions used to calculate funding obligations with respect to any Employee Benefit Plan or change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by Transaction Accounting Principles or applicable Law; provided, however, the Company may pay or commit to pay bonuses in connection with the transaction contemplated hereunder to the extent such bonuses are included in Company Transaction Expenses or paid before Closing out of available Cash;
(n) not fail to promptly pay and discharge current Liabilities when due, except where disputed in good faith by appropriate proceedings;
(o) not forgive, cancel or defer any Indebtedness owing to the Company or waive any claims or rights of the Company other than in the Ordinary Course of Business;
(p) other than the license agreement entered into in connection with the Pre-Closing Reorganization described in Section 4.12 of the Company Disclosure Schedule, not grant any license, sublicense, covenant not to sue, or other rights under or with respect to the Company Intellectual Property except in the Ordinary Course of Business;
(q) not borrow or agree to borrow any funds, whether directly or by way of assumption or guarantee or otherwise, or otherwise become liable or responsible with respect to (whether directly, contingently, or otherwise) any Indebtedness other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(r) not allow any of its property or assets (real, personal or mixed, tangible or
intangible) to be subjected to any Lien other than a Permitted Lien (for greater certainty, excepting those Liens in the Ordinary Course of Business for leased tangible personal property);
(s) not purchase or sell, transfer, license or otherwise dispose of any properties or assets (real, personal or mixed, tangible or intangible), except in the Ordinary Course of Business or other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(t) not make or approve any write-off or write-down, or make or approve any determination to write-off or write-down any, of the assets or properties of the Company with respect to any individual write-off or write-down in excess of $100,000 individually or $250,000 in the aggregate;
(u) not issue any shares or Stock Purchase Rights, or approve, declare, pay or set aside for payment any dividend or other distribution in respect of shares, or redeem, purchase or otherwise acquire, directly or indirectly, any shares or Stock Purchase Rights or other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(v) not pay, loan or advance any amount to, or sell, transfer or lease any properties or assets (real, personal or mixed, tangible or intangible) to, any of the Companys current or former shareholders, officers, directors, or consultants or any Affiliate of any of the Companys current or former shareholders, officers, directors, or consultants, except compensation paid to officers and consultants in the Ordinary Course of Business, and except for advances for travel and other business-related expenses;
(w) not amend its Governing Documents other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(x) not enter into any Contract with an Affiliate other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(y) not make any loans, advances, capital contributions or material commitments or investments other than investments made for cash management purposes and trade receivables in the Ordinary Course of Business or other than as set forth on Section 4.12 of the Company Disclosure Schedule;
(z) not implement or adopt any material change in its methods of financial accounting (except to the extent required to comply with Section 4.9 hereof) or Tax accounting, enter into any closing agreement relating to any material amount of Tax, enter into any installment sale or open transaction disposition, intercompany transaction or intercompany account other than pursuant to the Pre-Closing Reorganization or to the extent required to comply with the Transaction Documents, surrender any right to claim a material Tax refund; consent to any extension or waiver of the limitations period applicable to any material Tax claim or assessment; settle or compromise any material Tax liability; file or amend any income or other material Tax Return (with the exception of claims in respect of scientific research and experimental development and expenditures); or make any material election with respect to Taxes (other than any tax elections with respect to the Pre-Closing Reorganization to the extent set forth in Section 4.12 of the Company Disclosure Schedule); and
(aa) not agree or commit to do any of the actions prohibited by this Section 4.2.
4.3 Access.
(a) From the date of this Agreement until the earlier of the Closing or the termination of this Agreement, Shareholder will, and will cause the Company and its Representatives to, (i) permit Buyer and its Representatives to have access during normal business hours, upon reasonable prior notice, at Buyers expense, to premises, properties, senior management personnel (including the opportunity to discuss the affairs of the Company with such senior management personnel), books, records, Contracts, documents and data of or pertaining to each Company and (ii) furnish Buyer and its Representatives with copies of all such books, records, Contracts, documents and data as Buyer may reasonably request; provided, however, that notwithstanding anything herein to the contrary, none of Shareholder nor the Company shall be required to provide access to or to disclose information where such access or disclosure would reasonably be expected to (A) contravene any Law or (B) jeopardize any attorney-client or other privilege or other immunity or protection from disclosure of Shareholder or the Company.
(b) The Company shall only disclose, transfer or otherwise provide to the Buyer information about identifiable individuals (Personal Information) that is necessary to determine whether to proceed with the transaction contemplated by this Agreement and to complete it. The Buyer shall use and disclose such Personal Information solely for purposes related to the transaction contemplated by this Agreement. The Buyer shall protect the Personal Information by security safeguards appropriate to the sensitivity of the information. If the Closing does not occur, the Buyer shall, at the Companys request, return the Personal Information to the Company or permanently and irrevocably destroy the Personal Information. After Closing, the Buyer shall not use or disclose the Personal Information except in accordance with applicable Law.
4.4 Notice of Developments. From the date of this Agreement until the Closing, a Party will notify the other Parties as promptly as practicable in writing of any fact or condition developing after the date of this Agreement, which, if existing, occurring or known as of the date of this Agreement, would have been required to be disclosed by Shareholder to Buyer hereunder, or vice versa, and would constitute a breach of any covenant, representation or warranty of any Party in this Agreement (for greater certainty, regardless of which Party had the obligation to disclose or which party would be in breach). No such notification shall be deemed to have cured any inaccuracy in or breach of any representation or warranty contained in this Agreement for the purposes of the termination rights contained in this Agreement or of determining whether or not the conditions set forth in Article V have been satisfied. However, to the extent that, prior to Closing, the Company delivers one or more supplements to the Company Disclosure Schedule, each such supplement will be deemed to amend the Company Disclosure Schedule for the purposes of determining whether the condition set forth in Section 5.2(a) has been satisfied. Buyer may reasonably request, and Shareholder and the Company will promptly provide, a consolidated Company Disclosure Schedule incorporating all such amendments.
4.5 Exclusivity. Shareholder agrees that it will not, and will cause its Representatives, the Company, and the Companys Representatives not to, directly or indirectly:
(a) solicit, initiate or encourage any inquiry, proposal, offer or contact from any Person (other than Buyer and its Affiliates and Representatives) relating to any transaction involving the sale of any equity interest or assets of the Company or any acquisition, divestiture, merger, share exchange, consolidation, business combination, recapitalization, redemption, financing or similar transaction involving the Company (in each case, an Acquisition Proposal); or (b) participate in any discussion or negotiation regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any Acquisition Proposal. If any Person makes an Acquisition Proposal, Shareholder will notify Buyer as promptly as practicable of such Acquisition Proposal in reasonable detail.
4.6 Litigation Support. Following the Closing, if any Party is evaluating, pursuing, contesting or defending against any proceeding in connection with (a) the transactions contemplated by the Transaction Documents or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction on or prior to the Closing Date involving the Company, then upon the request of such Party each other Party will reasonably cooperate with the requesting Party and its counsel in the evaluation, pursuit, contest or defense, make reasonably available its personnel, and provide such testimony and access to its books and records as may be reasonably necessary in connection therewith. The requesting Party will reimburse each other Party for its out-of-pocket expenses related to such cooperation, unless the requesting Party is entitled to indemnification therefor under Article VII.
4.7 Press Releases and Announcements. Unless otherwise permitted by this Agreement, none of the Parties nor any of their respective Affiliates shall issue any press release or otherwise make any public statement or make any other public (or non-confidential) disclosure (whether or not in response to an inquiry) regarding the terms of this Agreement and the transactions contemplated hereby without the prior written consent of the other Party, except as may be required by applicable Law, or by the rules and regulations of, or pursuant to any agreement with, the NASDAQ Stock Market. If a Party determines that it is required by applicable Law or the rules and regulations of, or pursuant to agreement with, any such exchange or market to publicly disclose this Agreement or any of the transactions contemplated hereby, such Party shall, within a reasonable time before making any such public disclosure, if practicable, consult with the other Party regarding such public disclosure and seek confidential treatment for such information to be so disclosed, as may be reasonably requested by any other Party. Notwithstanding the foregoing, Buyer will prepare and will consult with Shareholder before issuing, and give Shareholder a reasonable opportunity to review and comment upon, the press release or any public statement announcing the execution and delivery of this Agreement.
4.8 Confidentiality.
(a) The terms of the Confidentiality Agreement are incorporated into this Agreement by reference and shall continue in full force and effect until the Closing, at which time the Confidentiality Agreement shall terminate, and Section 4.8(b) shall govern the confidentiality obligations of the parties thereafter. If, for any reason, the Closing is not consummated and this Agreement is terminated, the Confidentiality Agreement shall remain in full force and effect in accordance with its terms. Section 4.8(b) is intended to be in addition to, and not replace, that Confidentiality Agreement with respect to the period from the Effective Date through the date on which this Agreement is terminated, and to the extent of any
inconsistency between the Confidentiality Agreement and Section 4.8(b) during such time period, the terms most protective of each partys Confidential Information shall prevail. Upon the Closing, Shareholder acknowledges and agrees that all Confidential Information of the Company shall be treated as Confidential Information of Buyer for the purposes of Section 4.8(b); provided that for all purposes hereunder, prior to and following the Closing, any information related to the Pre-Closing Reorganization shall be treated as Confidential Information of the Shareholder.
(b) From and after the date of this Agreement until the fifth (5th) anniversary thereof, Shareholder, on the one hand, and the Buyer, on the other hand (in such context, Receiving Party) agrees that it shall, and shall cause his or its Affiliates to, keep confidential and not use, disclose, reveal, or divulge the Confidential Information (as defined below) of, respectively, the Buyer, on the one hand, and Shareholder, on the other hand (in such context, Disclosing Party), to any Person for any purpose other than in connection with the consummation of this Agreement and the transactions contemplated hereby. Receiving Party further agrees that it shall not use, disclose, reveal, or divulge and shall cause his or its Affiliates, in each case directly, or indirectly, to use, disclose, reveal or divulge any such Confidential Information to any Person except as required by Law or any Governmental Body; provided, however, that in the event disclosure is required by applicable Law or any Governmental Body, Receiving Party shall, to the extent reasonably possible, provide Disclosing Party with prompt notice of such requirement prior to making any disclosure so that Disclosing Party may seek an appropriate protective order. Receiving Party shall inform its Affiliates and Representatives of the confidential nature of such information and the obligation to keep such information confidential, and shall take such other actions as shall be reasonably required to cause such information to be kept confidential. For purposes of this Agreement, Confidential Information means (a) the terms of this Agreement and each other Transaction Document, the documents and materials related to the Pre-Closing Reorganization and the transactions contemplated hereby and thereby, (b) the discussions among the Parties and their Affiliates and representatives regarding the transactions contemplated by the Transaction Documents and the documents and materials related to the Pre-Closing Reorganization, and (c) any information with respect to Disclosing Party or its Affiliates, whether obtained by Receiving Party obliged hereby prior to, at or after the date of this Agreement and whether or not in accordance with, or in connection with performing obligations under, any Transaction Documents or the documents and materials related to the Pre-Closing Reorganization, including methods of operation, customers, customer lists, products, prices, fees, costs, Technology, Intellectual Property, inventions, trade secrets, know-how, Software, marketing methods, plans, personnel, suppliers, competitors, markets or other specialized information or proprietary matters, in each case that is either (1) marked confidential or proprietary or with a similar designation or (2) of a nature that a reasonable person would consider such information to be confidential given the circumstances of its disclosure; provided, however, for the avoidance of doubt, that Buyer and its Affiliates shall have the right
to disclose materials related to the Pre-Closing Reorganization to its Representatives and in connection with any investigation, claim or proceeding by a Governmental Body, including U.S. and Canadian tax authorities, after providing five (5) Business Days prior written notice of any such disclosure to the Company and the Shareholder so that the Company or the Shareholder may have time to seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement; and provided, further, that for the avoidance of doubt, the Buyer and its Affiliates shall have the right to disclose, in connection with the initial public offering of the Match Group, (i) this Agreement (excluding the Company Disclosure Schedule) and any summary descriptions of the terms and conditions contained herein, (ii) a description of the Company, its operations and performance, and (iii) the information contained in the Financial Statements as such information may be audited pursuant to Section 4.9 (or pro forma financials based on the information contained in the Financial Statements as such information may be audited pursuant to Section 4.9), provided that in each case, Buyer shall consult with Shareholder and give Shareholder a reasonable opportunity to review and comment on any such disclosure. Confidential Information does not include, and Receiving Party shall not have an obligation hereunder with respect to Disclosing Partys Confidential Information, that (i) is generally available to the public on the date of this Agreement (ii) becomes generally available to the public other than as a result of a disclosure not otherwise permissible hereunder or (iii) becomes available to Receiving Party on a non-confidential basis from a source (other than from the Disclosing Party or any of its Affiliates) which is not known to Receiving Party to be prohibited from disclosing such information pursuant to a legal, contractual or fiduciary obligation to Disclosing Party or its Affiliates, or information which is developed by Receiving Party from such information. Any breach by an Affiliate or Representative of Receiving Party of this Section 4.8 shall be deemed a breach by Receiving Party of this Section 4.8. Notwithstanding the foregoing, in no event will this Section 4.8 or the Confidentiality Agreement limit or otherwise restrict the right of a Receiving Party to disclose such Confidential Information (x) to its and its Affiliates respective directors, officers, employees, agents and advisors to the extent reasonably required to facilitate the negotiation, execution, delivery or performance of the SPA and the Transaction Documents, (y) to any Governmental Body or arbitrator to the extent reasonably required in connection with any Claim relating to the enforcement of the SPA or any Transaction Document and (z) in connection with its indemnification obligations under the SPA, including the defense of any Third Party Claim.
4.9 Audit of Financial Statements. Shareholder agrees to cooperate, and shall cause the Company and Shareholders other Affiliates and their respective Representatives to cooperate, in any audit of the Companys financial statements undertaken by accountants selected by Buyer, including but not limited to complying with Section 4.3. Buyer shall be responsible for the costs and expenses of any accountants selected to perform any audit of the Companys financial statements. For the avoidance of doubt, any audited financial statements of the Company will not have any authority in connection with the calculation of the PP Components, which shall be handled in accordance the Transaction Accounting Principles as contemplated by Sections 1.4 and 1.5
4.10 Tax Matters.
(a) Preparation and Filing of Tax Returns.
(i) Shareholder shall timely prepare or shall cause to be timely prepared any income Tax Returns of the Company for any taxable period that ends before or on the Closing Date in a manner consistent with past practice, except to the extent otherwise required by applicable Law. Shareholder shall deliver to Buyer for its review, comment and approval (which approval shall not be unreasonably withheld) a copy of each such Tax Return at least 30 days prior to the due date thereof (taking into account extensions). Shareholder shall consider such comments in good faith to the extent such
comments would affect any items that would carry over to tax periods after the Closing Date. Shareholder shall not amend or revoke any such Tax Returns unless required by Law or as a result of an audit. Shareholder shall timely file or cause to be timely filed any such Tax Returns required to be filed on or prior to the Closing Date (taking into account extensions), and Buyer shall timely file or cause to be timely filed any Tax Returns prepared by Shareholder in accordance with this Section 4.10(a)(i) that are required to be filed after the Closing Date (taking into account extensions); provided that Buyer shall not be required to file any such Tax Return unless, with respect to each item reflected on such Tax Return, there is at least a more likely than not position for prevailing on the merits. In the event Shareholder and Buyer disagree regarding the treatment of any item reflected on such Tax Return, Buyer shall file such Tax Return if Shareholder provides Buyer with a written opinion of McMillan LLP, Ernst & Young LLP or another nationally recognized firm, in form and substance reasonably acceptable to Buyer, confirming that there is at least a more likely than not position for prevailing on the merits with respect to such item.
(ii) Buyer shall, except to the extent that such Tax Returns are the responsibility of Shareholder under Section 4.10(a)(i), have the right to prepare and file all Tax Returns with respect to the Company.
(iii) For any Straddle Period income Tax Return of the Company that is the responsibility of Buyer under Section 4.10(a)(ii), Buyer shall deliver to Shareholder for its review and comment a copy of such proposed Tax Return, prepared consistent with past practice of the Company, except to the extent otherwise required by applicable Law, at least twenty (20) Business Days prior to the due date (giving effect to any validly obtained extension thereof), and Buyer shall consider in good faith any such comments provided that Buyer shall reflect any such comments received from Shareholder regarding the reporting of (x) the Pre-Closing Reorganization or (y) any other item affecting the Tax liability of the Company for the portion of such Straddle Period that is a Pre-Closing Tax Period, in each case, if there is at least a more likely than not position for prevailing on the merits (and any disagreement with respect thereto shall be resolved in the manner set forth in the last sentence of Section 4.10(a)(i)).
(b) Tax Contests.
(i) If any Governmental Body asserts a Claim in respect of Taxes, then the party hereto first receiving notice of such Claim promptly shall provide written notice thereof to the other party or parties hereto; provided, however, (A) in the case of such a notice first received by Buyer or the Company following the Closing, written notice to Shareholder shall only be required if such notice relates to Taxes for which Shareholder could be responsible under this Agreement and (B) that the failure of such party to give such prompt notice shall not relieve the other party of any of its obligations under Article V, except to the extent that the other party is actually prejudiced thereby.
(ii) Shareholder shall have the right to control, at its own expense, any audit, examination, contest, litigation or other proceeding by or against any Governmental Body (a Tax Proceeding) in respect of the Company for any taxable
period that ends on or before the Closing Date; provided, however, that (A) Shareholder shall provide Buyer with a timely and reasonably detailed account of each stage of such Tax Proceeding, (B) Shareholder shall consult with Buyer and offer Buyer an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding and Shareholder shall consider any such comments in good faith, (C) Shareholder shall defend such Tax Proceeding diligently and in good faith as if it were the only party in interest in connection with such Tax Proceeding, (D) Buyer shall be entitled to participate, at its own expense, in such Tax Proceeding and receive copies of any written materials relating to such Tax Proceeding received from the relevant Taxing Authority, and (E) Shareholder shall not settle, compromise or abandon any such Tax Proceeding without the prior written consent of Buyer, which consent shall not be unreasonably withheld, conditioned or delayed, to the extent such settlements, compromises or abandonments could affect any Taxes for any Post-Closing Tax Period or otherwise adversely impact Buyer.
(iii) Buyer shall have the right to control, at its own expense, any Tax Proceeding for a Straddle Period of the Company; provided, however, that (i) Buyer shall provide Shareholder with a timely and reasonably detailed account of each stage of such Tax Proceeding, (ii) Buyer shall consult with Shareholder and offer Shareholder an opportunity to comment before submitting any written materials prepared or furnished in connection with such Tax Proceeding, (iii) Shareholder shall be entitled to participate in such Tax Proceeding, at its own expense, if such Tax Proceeding could have an adverse impact on Shareholder, and (v) Buyer shall not settle, compromise or abandon any such Tax Proceeding without obtaining the prior written consent of Shareholder, which consent shall not be unreasonably withheld, conditioned or delayed, if such settlement, compromise or abandonment could reasonably be expected to have an adverse impact on Shareholder.
(iv) Buyer shall have the exclusive right to control (A) any Tax Proceeding involving the Company (except to the extent otherwise set forth in Section 4.10(b)(ii) or (iii)) and (B) any Tax Proceeding described in Section 4.10(b)(ii) if Shareholder fails to, or elects not to, defend diligently such Tax Proceeding.
(c) Cooperation. Each Party hereto shall, and shall cause its Affiliates to, provide to the other Party hereto such cooperation, documentation and information as either of them reasonably may request in (i) filing any Tax Return, amended Tax Return or claim for refund, (ii) determining a liability for Taxes or an indemnity obligation for Taxes under Article V, and (iii) conducting any Tax Proceeding. Such cooperation and information shall include providing copies of all relevant portions of relevant Tax Returns, together with all relevant portions of relevant accompanying schedules and relevant work papers, relevant documents relating to rulings or other determinations by Governmental Body. Each Party will retain all Tax Returns, schedules and work papers, and all material records and other documents relating to Tax matters, of the relevant entities for their respective Tax periods ending on or prior to the Closing Date until the later of (x) the expiration of the statute of limitations for the Tax periods to which the Tax Returns and other documents relate or (y) ten (10) years following the due date (without extension) for such Tax Returns. Thereafter, the Party holding such Tax Returns or other documents may dispose of them after offering the other Party reasonable notice and opportunity
to take possession of such Tax Returns and other documents at such other Partys own expense. Each Party shall make its employees reasonably available on a mutually convenient basis at its cost to provide explanation of any documents or information so provided.
(d) Transfer Taxes. Shareholder and Buyer shall each be responsible for and shall pay 50% of all Transfer Taxes imposed on or as a result of the Sale and Purchase, together with any and all penalties, interest and additions to tax with respect thereto, and Shareholder and Buyer shall cooperate in timely making all filings, returns, reports and forms as may be required to comply with the provisions of such Tax Laws.
(e) Coordination. The control of Tax Proceedings shall be governed by Section 4.10(b) and not by the provisions of Section 7.5.
4.11 Supplemental Disclosure. The Buyer agrees that the Company and Shareholder shall have the right at any time and from time to time prior to the Closing to supplement and/or amend the Sections corresponding to the representations and warranties contained in Article II contained in the Company Disclosure Schedule in order to add information with respect to events occurring after the Effective Date. No such supplement shall be evidence that the representations and warranties in this Agreement are no longer true and correct. Any such supplemental disclosure shall be (a) disregarded for purposes of Article VII, and (b) deemed to have cured any breach of any representation or warranty made by the Company or Shareholder in this Agreement or in any other document delivered or to be delivered by Company or Shareholder pursuant to this Agreement for purposes of determining whether the condition in Section 5.2(a)(ii) has been satisfied; provided, however, that any such supplemental disclosure shall be disregarded in determining whether the condition set forth in Section 5.2(d) has been satisfied. All references to any Section of the Company Disclosure Schedule that is supplemented or amended as provided in this Section 4.11 will, for purposes of determining whether the condition in Section 5.2(a)(ii) has been satisfied, be deemed to be a reference to such Section as so supplemented or amended.
4.12 Pre-Closing Reorganization. The Company, Shareholder and, after the Closing, the Buyer shall cooperate and use their commercially reasonable efforts to (i) complete the Pre-Closing Reorganization prior to the Closing Date, (ii) subject to Section 4.10(a)(i) hereof, take all filing positions and do all such acts and things and file all such available elections, designations, forms, returns and other things as may be reflected in the reorganization plan referenced in Section 4.12 of the Company Disclosure Schedule or otherwise required to give effect to the tax treatment specified in Section 4.12 of the Company Disclosure Schedule (provided that Buyer shall not be required to take any such action unless such action is requested in writing by Shareholder with reasonable specificity and reasonably in advance of the date for taking such action), (iii) without restricting the generality of the foregoing, with respect to the elections to be filed under Subsection 83(2), 85, Part III or Part III.1 of the Tax Act, take all necessary steps to file all applicable elections and returns in a timely manner, and (iv) if any election is to be filed under Section 156 of the Excise Tax Act (Canada) in accordance with Schedule 4.12, take all necessary steps to file such election, provided that Buyer and its Affiliates (including, after the Closing, the Company) shall not be required to incur any unreimbursed expenses in connection with any action described in clauses (ii) through (iv) hereof.
4.13 Termination of Related Party and Intercompany Arrangements. At or prior to the Closing, the Shareholder and the Company shall, and shall cause the counterparties thereto to, terminate all related party and intercompany arrangements, as identified on Section 4.13 of the Company Disclosure Schedule but excluding any arrangements contemplated in Section 4.12 of the Company Disclosure Schedule.
4.14 Restrictive Covenants. The parties agree that the restrictive covenants referenced in this Agreement or any relevant restrictive covenant agreements executed in connection with the transactions contemplated hereunder are intended to help preserve the value of the Shares, and that no consideration is allocable for the granting of such restrictive covenants, for income tax purposes. If, however, any portion of the Purchase Price is deemed by a relevant taxation authority to be in respect of a restrictive covenant as that term is defined for purposes of the Tax Act, and such determination by the relevant taxation authority is not successfully disputed by the Shareholder at its option, then the parties agree that, upon request of the Shareholder, such portion shall be treated for purposes of the Tax Act and applicable Canadian provincial law in such a way so as to benefit from any relief under section 56.4 of the Tax Act and will file the necessary joint elections, provided that in no circumstances shall Buyer be obligated to pay any additional consideration to the Shareholder for such covenants other than as expressly set forth in this Agreement or in the relevant restrictive covenant agreement.
4.15 Dividend Tax Elections and Designations. The parties hereto acknowledge that the Shareholder will have complete discretion to determine the amount of any capital dividend paid or deemed to be paid by the Company, and eligible or ineligible dividends paid or deemed to be paid by the Company as the case may be, as part of the Pre-Closing Reorganization. In the event that the amount or amounts so determined by the Shareholder to be capital dividends exceeds the Companys capital dividend account immediately before the relevant time or times, or the amounts determined in respect of eligible dividends would give rise to an excessive eligible dividend designation for purposes of subsection 89(1) of the Tax Act as the case may be, or the Canada Revenue Agency asserts that the amounts determined by the Shareholder parties exceeds the Companys capital dividend account immediately before the relevant time or gives rise to an excessive eligible dividend designation as the case may be (and the Shareholder does not dispute the assertion, or the assertion is disputed but resolved on the basis that the amount determined so exceeds the capital dividend account), then the Company shall, in respect of such capital dividends, file an election under subsection 184(3) of the Tax Act to treat such excess as a taxable dividend to avoid tax under Part III of the Tax Act and, in respect of eligible or ineligible dividends as the case may be, shall file an election under subsection 185.1(2) as appropriate to avoid tax under Part III.1 of the Tax Act, and the relevant Shareholder party that received the deemed or actual dividend hereby concurs in the filing of any such election without any further act or formality. In the event that the Company does file any such election under the Tax Act, then the Company may require the relevant Shareholder party to, and such Shareholder party shall, provide to the Canada Revenue Agency reasonable evidence of the relevant Shareholder partys concurrence with the election.
4.16 Tax Elections. The parties agree that the Company will elect (and Buyer will ensure that the Company does so elect), timely in accordance with subsection 256(9) of the Tax Act, not to have the provisions of subsection 256(9) apply in respect of the acquisition of control of the Company arising on the Closing Date.
4.17 Post-Closing Employment. Markus Frind shall provide services to the Company pursuant to the employment contract, by and among Markus Frind, the Company and the Buyer, dated as of the date hereof and effective as of the Closing Date (the Employment Contract) for at least six months following the Closing Date.
ARTICLE V
CLOSING CONDITIONS
5.1 Mutual Conditions to the Obligations of the Parties. The respective obligations of each Party to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment (or waiver in writing by Shareholder and Buyer, to the extent permissible under applicable Law) on or prior to the Closing Date of the following conditions:
(a) The Investment Canada Act Approval must have been received.
(b) There shall be no proceeding, order, injunction issued or pending before any Governmental Body in which it restraints or prohibits or is sought to restrain or prohibit, the consummation of the transactions contemplated by this Agreement, and to the knowledge of Buyer or Seller, there shall be no threatened proceeding, order, or injunction, which Buyer or Seller, in good faith reasonable believes could restrain or prohibit the consummation of the transactions contemplated by this Agreement.
(c) Each Party shall have duly executed and delivered to the other Party the Transaction Documents.
5.2 Conditions to Buyers Obligations. Buyers obligation to perform the transactions contemplated by this Agreement shall be subject to the fulfillment (or waiver in writing by Buyer, to the extent permissible under applicable Law) on or prior to the Closing Date of the following conditions:
(a) (i) All of the Fundamental Representations regarding the Company shall be true and correct in all respects both as of the date of this Agreement and as if made on the Closing Date and (ii) all of the other representations and warranties regarding the Company shall be true and correct in all respects (without giving effect to any materiality or similar qualification) both as of the date of this Agreement and as if made on the Closing Date except, in the case of this clause (ii), where any failure of any such representations and warranties to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect provided, however, that representations and warranties that are made as of a particular date or period need be true and correct (in the manner set forth in clauses (i) and (ii)) only as of such date or period.
(b) Each of Shareholder and the Company shall have performed and complied in all material respects with all of its covenants and agreements in this Agreement to be performed prior to or at the Closing.
(c) Shareholder shall have delivered to Buyer at the Closing a certificate, in form and substance reasonably satisfactory to Buyer, confirming satisfaction of the conditions in Sections 5.2(a), and (b) above.
(d) A Material Adverse Effect shall not have occurred since the date of this Agreement and be continuing.
5.3 Conditions to Shareholders and the Companys Obligations. Shareholders and the Companys obligation to perform the transactions contemplated by this Agreement shall be subject to the fulfillment (or waiver in writing by Shareholder, to the extent permissible under applicable Law) on or prior to the Closing Date of the following conditions:
(a) All of the representations and warranties of Buyer shall be true and correct in all respects (without giving effect to any materiality or similar qualification) both as of the Closing Date and as if made on the Closing Date (except those representations and warranties that address matters only as of a specified date, the accuracy of which shall be determined as of that specified date), except where any failures of any such representations and warranties to be true and correct would not reasonably be expected, individually or in the aggregate, to prevent or materially delay the consummation of the transactions contemplated by this Agreement.
(b) Buyer shall have performed and complied in all material respects with all of its covenants and agreements in this Agreement to be performed prior to or at the Closing.
(c) Buyer shall have delivered to Shareholder at the Closing a certificate, in form and substance reasonably satisfactory to Shareholder, confirming satisfaction of the conditions in Section 5.3(a) and (b) above.
ARTICLE VI
TERMINATION
6.1 Termination Events. This Agreement may, by written notice given to the non-terminating Party prior to the Closing, be terminated:
(a) by mutual written consent of Buyer and Shareholder;
(b) by either Buyer or Shareholder if the Closing shall not have occurred on or before the date that is six (6) months after the signing date, January 13, 2016 (the Outside Date); provided, however, that if on the Outside Date the conditions to Closing set forth in Section 5.1(a), (b) or (to the extent any such injunction or order is in respect of an Antitrust Law) (c) shall not have been fulfilled, but all other conditions to Closing set forth in Article V shall be or shall be capable of being fulfilled, then Shareholder, by written notice delivered to Buyer, or Buyer, by written notice to Shareholder, may extend the Outside Date to no later than the close of business on the date that is twelve (12) months after the signing date, July 13, 2016; provided, further, that the right to extend or terminate this Agreement pursuant to this Section 6.1(b) shall not be available to any Party whose action or failure to fulfill any obligation under this Agreement proximately caused any of conditions set forth in Article V to fail to be satisfied and such action or failure to act constitutes a material breach of this Agreement;
(c) by either Buyer or Shareholder if an injunction or order issued by any Governmental Body of competent authority permanently restrains or prohibits any of the transactions contemplated by this Agreement and such injunction or order becomes final and nonappealable; provided, however, that the right to terminate this Agreement under this Section
6.1(c) shall not be available to a Party if such order (or such order becoming final and nonappealable) was due to the material breach by such Party of any covenant or other agreement of such Party set forth in this Agreement; provided, further that the right to terminate this Agreement pursuant to this Section 6.1(c) shall be available only if the Party seeking to terminate this Agreement shall have complied with its obligations under Section 4.1 to resist, resolve or lift, as applicable, such order before asserting the right to terminate under this Section 6.1(c); or
(d) by (i) Buyer, upon prior written notice to Shareholder, if there has been a material breach or failure to perform by Shareholder or the Company of any covenant, representation or warranty contained in this Agreement which has prevented the satisfaction of any condition to the obligations of Buyer at the Closing and such breach or failure to perform has not been waived by Buyer or cured by Shareholder or the Company, as applicable within thirty (30) days after written notice thereof from Buyer or (ii) Shareholder, upon prior written notice to Buyer, if there has been a material breach or failure to perform by Buyer of any covenant, representation or warranty contained in this Agreement which would prevent the satisfaction of any condition to the obligations of Shareholder at the Closing and such breach or failure to perform has not been waived by Shareholder or cured by Buyer within thirty (30) days after written notice thereof from Shareholder; provided, however, that the right to terminate this Agreement under this Section 6.1(d) shall not be available to any Party if such Party shall have breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements contained in this Agreement, and such breach or failure to perform would give rise to a failure of a condition in Article V to the obligations of the other Party at the Closing.
(e) The Party desiring to terminate this Agreement pursuant to any of clause (b), (c) or (d) of this Section 6.1 shall give written notice of such termination to the other Party in accordance with Section 8.2 specifying the provision or provisions hereof pursuant to which such termination is effected.
6.2 Effect of Termination. If this Agreement is validly terminated pursuant to Section 6.1, all further obligations of the Parties under this Agreement will terminate and there shall be no liability on the part of any Party to one another, except for fraud or willful breaches of this Agreement prior to the time of such termination; provided, however, that the Parties obligations under the Confidentiality Agreement, Section 4.7 (Press Releases and Announcements), Section 4.8 (Confidentiality), this Section 6.2 and Article VIII (General) will survive the termination.
ARTICLE VII
SURVIVAL AND INDEMNIFICATION
7.1 Survival. The representations and warranties and covenants contained in any Transaction Document or in any certificate delivered pursuant thereto shall survive as follows: (a) representations and warranties (other than Fundamental Representations and the representations and warranties set forth in Section 2.10 (Taxes)), until eighteen (18) months after the date of this Agreement, (b) Fundamental Representations, until sixty (60) days after the expiration of the applicable statute of limitations, (c) representations and warranties set forth in Section 2.10 (Taxes), until sixty (60) days following the expiration of the applicable statute of
limitations, (d) covenants, until twelve (12) months after the date of this Agreement, or if a covenant contemplated performance after the Closing, pursuant to its terms, and (e) matters contemplated by Section 4.10 and Section 7.2(c), until sixty (60) days after the expiration of the applicable statute of limitations (collectively, the Survival Period). For the avoidance of doubt, the Parties hereby agree and acknowledge that the foregoing survival periods are a contractual statute of limitations and any claim brought by any Indemnified Party pursuant to this Article VII must be brought or filed prior to the expiration of such survival period, provided that any indemnity claim made by a Party prior to the end of such survival period shall survive until such claim is fully paid or finally and completely adjudicated or settled in accordance with this Agreement.
7.2 Indemnification by Shareholder. Subject to the limitations set forth in this Article VII, Shareholder, jointly and severally, shall indemnify and hold Buyer and its officers, directors, employees, agents and Affiliates (each, a Buyer Indemnified Party and together, the Buyer Indemnified Parties) harmless from and against, and shall reimburse Buyer Indemnified Parties for all losses, damages, deficiencies, liabilities, Taxes, assessments, fines, penalties, judgments, actions, claims, costs, disbursements, fees, expenses or settlements of any kind or nature, including legal, accounting and other professional fees and expenses, and diminution in value and/or lost profits or revenues (collectively, Losses) arising directly out of or relating to:
(a) any breach or inaccuracy of any representation or warranty made by or on behalf of the Company or Shareholder in any Transaction Document as of the date hereof or as of the Closing Date;
(b) any breach by the Company or Shareholder of any covenant or obligation in any Transaction Document; and
(c) Indemnified Taxes.
7.3 Indemnification by Buyer. Subject to the limitations set forth in this Article VII, Buyer shall indemnify and hold Shareholder and his agents and Affiliates (each, a Shareholder Indemnified Party and together, the Shareholder Indemnified Parties) harmless from and against, and shall reimburse Shareholder Indemnified Parties for all Losses arising out of or relating to:
(a) any breach or inaccuracy of any representation or warranty made by or on behalf of Buyer in any Transaction Document as of the date hereof or as of the Closing Date; and
(b) any breach by Buyer of any covenant or obligation in any Transaction Document.
7.4 Limitations.
(a) Except (1) for any breach of a Fundamental Representation, (2) for any breach of a representation or warranty set forth in Section 2.10 (Taxes) or (3) fraud (including intentional misrepresentation, but excluding negligent misrepresentation), neither the Buyer Indemnified Parties nor Shareholder Indemnified Parties shall be entitled to receive any indemnification payment with respect to Indemnification Claims made under Section 7.2(a) or
Section 7.3(a), as the case may be, unless:
(i) any such individual claim for Losses exceeds fifty-seven thousand five hundred United States Dollars ($57,500); and
(ii) the aggregate amount of all claims (including claims that do not exceed the dollar threshold in Section 7.4(a)(ii)) exceeds four million three hundred twelve thousand five hundred United States Dollars ($4,312,500) (at which point Shareholder will be only obligated to indemnify the Buyer Indemnified Parties from and against the amount of Losses that exceed such amount).
(b) Any Person against whom an Indemnification Claim is being asserted (an Indemnifying Party) shall not be obligated to defend and hold harmless any Person claiming indemnification under this Article VII (an Indemnified Party), or otherwise be liable to such Indemnified Party, with respect to any Indemnification Claim made by the Indemnified Party after the expiration of the Survival Period, except that indemnity may be sought after the expiration of the Survival Period if an Indemnification Claim has been delivered to the Indemnified Party prior to the expiration of the Survival Period.
(c) The aggregate liability of Shareholder under Section 7.2 for any Indemnification Claim and all Indemnification Claims shall be limited to seventy-one million eight hundred seventy-five thousand United States Dollars ($71,875,000) (the Cap); provided that liability of Shareholder may exceed the Cap, but shall not exceed one hundred percent (100%) of the Purchase Price if, such Indemnification Claim arises from (i) any breach of any of the Fundamental Representations, (ii) any breach of a representation or warranty set forth in Section 2.10 (Taxes), (iii) any matter contemplated by Section 7.2(c) and provided further that liability of Shareholder for fraud (including intentional misrepresentation, but excluding negligent misrepresentation) shall be unlimited.
(d) Any payment an Indemnifying Party is obligated to make to any Indemnified Parties pursuant to this Article VII shall be satisfied, in cash, first, to the extent there are sufficient Escrow Funds, from the escrow account in accordance with the terms of the Escrow Agreement and, second, to the extent the Escrow Funds are insufficient to pay any remaining sums due and owing, then Shareholder shall be required to pay all of such additional sums due and owing to the Buyer Indemnified Parties by wire transfer of immediately available funds within ten (10) Business Days after the date of such Indemnification Claim unless such Indemnifying Party delivers a Dispute Notice in accordance with the terms of Section 7.5(b). On the Escrow Release Date, Shareholder and Buyer shall deliver to the Escrow Agent joint instructions instructing the Escrow Agent to distribute the Escrow Funds, together with any and all interest and income accrued thereon, on the Escrow Release Date to Shareholder, by wire transfer of immediately available funds to a bank account designated by Shareholder; provided that the joint instruction shall not require the Escrow Agent to distribute any amounts subject to claims for which Buyer delivered a written notice to an Indemnifying Party in accordance with Section 7.4(b) and that remain pending and unresolved on the Escrow Release Date, until such claims are finally resolved or judicially determined (at which time any remaining Escrow Funds in respect of such claims, to the extent not payable to Buyer, shall be released to Shareholder, together with any and all interest and income accrued thereon, per joint instructions to the
Escrow Agent).
(e) Subject to the limitations set forth in this Article VII, the amount of any Losses otherwise recoverable under this Article VII with respect to a particular claim shall be:
(i) reduced by the amounts that are recoverable by an Indemnified Party as proceeds of insurance or from third parties in respect of such Losses minus the costs and expenses incurred by an Indemnifying Party in recovering such insurance, and
(ii) reduced to take into account any net Tax benefit actually realized by an Indemnified Party or an Affiliate thereof at any time following the Closing Date up to and including the time of payment of the related indemnified amount, which Tax benefit arises from the payment of any such indemnified amount or the Losses giving rise to such payment (excluding any Tax benefit arising from the Pre-Closing Reorganization).
(iii) In the event any amounts recoverable under insurance policies are not received before any Indemnification Claim is paid pursuant to this Article VII, then the Buyer Indemnified Parties shall use commercially reasonable efforts to pursue any insurance policies maintained by the Company prior to the Closing to the extent available, and, in the event the Buyer Indemnified Parties receive any recovery, the amount of such recovery shall be applied first, to reimburse the Buyer Indemnified Parties for their out-of-pocket expenses (including reasonable attorneys fees and expenses and all reasonable and documented costs of collections, deductibles, expenses of recoveries or premiums incurred directly in connection therewith) expended in pursuing such recovery, second, to compensate the Buyer Indemnified Parties for any Losses for which Shareholder Indemnifying Parties did not provide indemnification, third, to refund any payments made by Buyer or Indemnifying Parties which would not have been so paid had such recovery been obtained prior to such payment, and fourth, any excess to Shareholder Indemnifying Parties.
(f) The Parties sole and exclusive remedy after the Closing with respect to any and all claims (other than injunctions or other equitable remedies pursuant to Section 8.10, or claims of, or causes of action arising from, fraud (including intentional misrepresentation, but excluding negligent misrepresentation)) relating to this Agreement, and the transactions contemplated hereby shall be pursuant to the indemnification provisions set forth in this Article VII.
(g) Except to the extent included in the definition of Losses, and except to the extent otherwise expressly set forth herein, none of the Indemnified Parties shall be entitled to be indemnified by the Indemnifying Parties pursuant to the terms of this Agreement for any indirect, incidental, special, exemplary or punitive damages, unless (i) such damages are foreseeable or the damaged Party has advised the other Party of the possibility of such damages, and (ii) such damages are awarded to a Person in an indemnifiable Third Party Claim.
(h) No Indemnified Party hereunder shall be entitled to double recovery for any Losses, as applicable, even though such Losses may have resulted from the breach of more
than one of the representations, warranties, agreements, and covenants in this Agreement.
(i) If the Buyer or any Buyer Indemnified Party is indemnified for any Losses pursuant to this Agreement with respect to any Third Party Claim, then the Indemnifying Party will be subrogated to all rights and remedies of the Buyer or the Buyer Indemnified Party against such third party, and the Buyer will, and will cause each of the Buyer Indemnified Parties to, reasonably cooperate with and assist the Indemnifying Party in asserting all such rights and remedies against such third party.
7.5 Procedure for Indemnification.
(a) An Indemnified Party seeking indemnification hereunder, within the relevant limitation period provided for in Section 7.1 above, shall give written notice (the Claim Notice) of any Indemnification Claim (i) in the case of an Indemnification Claim against Buyer, to Buyer and (ii) in the case of an Indemnification Claim against Shareholder, to Shareholder, reasonably promptly, but in any event (A) prior to expiration of the Survival Period and (B) if such Indemnification Claim relates to the assertion against an Indemnified Party of any Claim by a third party (a Third Party Claim), within fifteen (15) days after receipt by the Indemnified Party of written notice of a legal process relating to such Third Party Claim; provided, however, that the failure or delay to so notify the Indemnifying Party shall not relieve the Indemnifying Party of any obligation or liability that the Indemnifying Party may have to the Indemnified Party, unless, and then only to the extent that, the Indemnifying Party demonstrates that the Indemnifying Partys ability to defend or resolve such Indemnification Claim is prejudiced thereby. Any such Claim Notice shall describe in reasonable detail the facts and circumstances on which the asserted Indemnification Claim is based and specify the amount of such Indemnification Claim if then ascertainable. Any Claim Notice relating to a Third Party Claim shall be accompanied by copies of all relevant documentation with respect to such Third Party Claim, including any summons, complaint or other pleading which may have been served, any written demand or any other document or instrument.
(b) The Indemnifying Party shall have thirty (30) days after receipt of any such Indemnification Claim pursuant hereto to give notice to the Indemnified Party disputing such Indemnification Claim or the claimed amount set forth therein (a Dispute Notice). Absent delivery of a Dispute Notice or affirmative indication of agreement during such thirty (30) day period, the Indemnifying Party shall automatically be deemed to have agreed to the amount or method of determination set forth in the Indemnification Claim. All disputed Indemnification Claims shall be resolved by Buyer and Shareholder, in accordance with either (i) a mutual agreement among Buyer and Shareholder, which shall be memorialized in writing, or (ii) the final determination of a final non-appealable order of a court of competent jurisdiction.
(c) Upon receipt of a Claim Notice for indemnity from an Indemnified Party pursuant to Section 7.4 in respect of a Third Party Claim the Indemnifying Party shall have the right, upon written notice given to the Indemnified Party delivered within thirty (30) days after receipt of a Claim Notice relating to a Third Party Claim, to assume the defense or handling of such Third Party Claim at the Indemnifying Partys sole expense, but shall allow the Indemnified Party a reasonable opportunity to participate in the defense of such Third Party Claim with its own counsel and at its own expense; provided that the Indemnifying Party shall not be entitled to
assume control of such defense (which shall be controlled by the Indemnified Party) and shall pay the fees and expenses of counsel retained by the Indemnified Party if (i) in the reasonable opinion of the Indemnified Partys outside counsel, a conflict, or potential conflict, of interests exists between the Indemnified Party and the Indemnifying Party in connection with such Third Party Claim, or (ii) the Indemnification Claim relates to or arises in connection with any criminal proceeding, action, indictment, allegation or investigation, or the Indemnification Claim seeks an injunction or similar equitable relief against the Indemnified Party or any its Affiliates.
(d) If the Indemnifying Party chooses to defend any Third Party Claim, the parties hereto shall reasonably cooperate in the defense of such Third Party Claim. The Indemnifying Party shall select counsel (and local counsel, as necessary) to conduct the defense or handling of such Third Party Claim reasonably satisfactory to the Indemnified Party. The Indemnifying Party shall defend or handle such Third Party Claim in such manner as is reasonable under the circumstances and shall keep the Indemnified Party reasonably apprised of the status of such Third Party Claim. The Indemnifying Party shall not, without the prior express written consent of the Indemnified Party, (A) consent to a settlement of, compromise or discharge of, or consent to the entry of any judgment with respect to, any Third Party Claim, unless such settlement, compromise, discharge or entry of judgment does not involve any finding or admission of any violation of Law or admission of any wrongdoing by the Indemnified Party and the Indemnifying Party shall pay or cause to be paid all amounts arising out of such settlement or judgment concurrently with the effectiveness of such settlement or judgment (except as otherwise provided in such judgment). The Indemnified Party shall make available all information and assistance reasonably available and necessary for the defense of the Third Party Claim as the Indemnifying Party may reasonably request and shall cooperate with the Indemnifying Party in such defense. Notwithstanding anything to the contrary in this Section 7.5(d), the Indemnified Party shall not, without the prior written consent of the Indemnifying Party (which consent may not be unreasonably withheld, conditional or delayed), agree to a settlement of any Third Party Claim that is being defended and handled by the Indemnifying Party.
(e) If the Indemnifying Party does not give written notice to the Indemnified Party within ten (10) Business Days after receipt of the Claim Notice from the Indemnified Party of a Third Party Claim that the Indemnifying Party has elected to assume the defense or handling of such Third Party Claim, the Indemnified Party may, at the Indemnifying Partys expense, select counsel reasonably satisfactory to the Indemnifying Party to defend or handle such Third Party Claim in consultation with the Indemnifying Party and in a manner that is reasonable under the circumstances; provided, however, that the Indemnified Party shall keep the Indemnifying Party timely apprised of the status of such Third Party Claim. The Indemnified Party shall not agree to a settlement of, or consent to the entry of any judgment to any Third Party Claim or demand for which it is seeking indemnification from the Indemnifying Party or admit to any liability with respect to such claim or demand without the prior express written consent of the Indemnifying Party, which consent may be granted or denied in the Indemnifying Partys sole discretion. If the Indemnified Party defends or handles such Third Party Claim, the Indemnifying Party shall cooperate with the Indemnified Party and shall be entitled to participate in but not control the defense of such Third Party Claim with its own counsel and at its own expense.
(f) Notwithstanding anything in this Agreement to the contrary, for the purposes of determining the failure of any representations or warranties to be true and correct or the breach of any covenants and agreements, and calculating Losses or a partys indemnification obligation hereunder, any materiality or similar qualifications in the representations, warranties, covenants and agreements shall be disregarded.
7.6 Duty to Mitigate. Each Indemnified Party shall use, and shall cause all other Indemnified Parties to use, commercially reasonable efforts to mitigate or otherwise reduce the amount of Losses that it incurs in connection with any matter with respect to which it is entitled to be held harmless, indemnified, compensated or reimbursed pursuant to this Article VII upon and after becoming aware of any such matter that would reasonably be expected to give rise to Losses, including taking commercially reasonable measures to attempt to recover from any third parties alleged to be responsible for such Losses and any insurance proceeds available to offset such Losses under insurance policies maintained by the Indemnified Party; provided, however, it being understood that the reasonable costs and expenses incurred by an Indemnifying Party in complying with this Section 7.6 shall be included within the definition of Losses.
7.7 Remedies; Non-Recourse. Except as expressly set forth in this Article VII and Section 8.10, no Party shall have recourse whatsoever under the Transaction Documents against any officers, directors, Affiliates or agents of the other Parties (including for such purposes, the officers, directors, Affiliates or agents of any Affiliate of a Party). Without limiting the generality of the foregoing, except as expressly set forth in this Article VII, Section 8.10, Section 6(b) of that certain Selling Shareholders Confidentiality, Non-Competition and Non-Solicitation Agreement, by and among Markus Frind, the Company and the Buyer, dated as of the date hereof and effective as of the Closing Date (the Confidentiality, Non-Competition and Non-Solicitation Agreement), and Section 14 of the Employment Contract, Buyer, on behalf of itself and its Affiliates, and Shareholder, on behalf of himself and his Affiliates, each hereby fully and irrevocably waives any right, claim or entitlement whatsoever against such officers, directors, Affiliates or agents relating to any and all Losses suffered or incurred by any of them arising from, based upon, related to, or associated with the Transaction Documents the transactions contemplated thereby (including any breach, termination or failure to consummate such transactions) in each case whether based on contract, tort, strict liability other laws or otherwise and whether by piercing of the corporate veil, by claim on behalf of or by a Party hereto or other Person or otherwise.
7.8 Tax Treatment of Indemnification Payments. The Parties hereto agree to treat for all income Tax purposes all indemnification payments made pursuant to this Article VII hereunder as adjustments to the Purchase Price payable under this Agreement, and to take no position contrary thereto in any Tax Return or audit or examination by, or proceeding before, any Taxing Authority, except as otherwise required by a change in Law or a determination as defined in Section 1313(a) of the Code and the Treasury Regulations thereunder.
ARTICLE VIII
GENERAL
8.1 Expenses. Except as otherwise provided in this Agreement (including with respect to Transaction Expenses), regardless of whether the transactions contemplated by
this Agreement are consummated, Shareholder and Buyer shall each bear its own fees and expenses incurred in connection with the negotiation, preparation and execution of each Transaction Document, and the consummation of the transactions contemplated hereby and thereby. Notwithstanding the foregoing, any fees or expenses related to the negotiation, preparation and execution of any Transaction Document on behalf of Shareholder or the Company shall be considered expenses of Shareholder.
8.2 Notices. All notices and other communications hereunder shall be in writing and will be deemed to have been duly given only if delivered personally, by courier or by facsimile or (with respect to notices to Shareholder) electronic mail transmission, to the Party to be notified at the addresses, facsimile numbers or (with respect to notices to Shareholder) e-mail address in this Section 8.2 (or to such other address as any Party shall specify by written notice so given) and such will be deemed given upon the actual day of delivery if personally delivered, couriered or sent by facsimile by a Party; provided that if such delivery occurs after 5:00 p.m. Eastern time or on a day other than a Business Day, then it shall be deemed given on the next following Business Day.
TO BUYER OR (after Closing) THE COMPANY:
IAC/InteractiveCorp
555 West 18th Street
New York, NY 10011
Fax: (212) 314-7497
Attention: General Counsel
with a copy (not constituting notice) to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Fax: (212) 403-2000
Attention: Andrew J. Nussbaum
Ante Vucic
Goodmans LLP
Suite 3400, Bay Adelaide Centre
333 Bay Street
Toronto, ON M5H 2S7
Fax: (416) 979-1234
Attention: Allan Goodman
TO SHAREHOLDER (prior to Closing) OR THE COMPANY:
Plentyoffish Media Inc.
2500-555 W Hastings Street
Vancouver, BC V6B 4N6
Canada
Fax: (604) 676-2319
Attention: Markus Frind
with copies (not constituting notice) to:
McMillan LLP
1500 1055 West Georgia Street
Vancouver, BC V6E 4N7
Fax: (604) 893-2370
Attention: Tom Theodorakis and Ryan Black
and
Venable LLP
Rockefeller Center
1270 Avenue of the Americas
Twenty-Fourth Floor
New York, NY 10020
Fax: (212) 307-5598
Attention: Philip von Mehren and Michele Maney
TO SHAREHOLDER (after Closing):
Markus Frind
Vancouver, BC
Canada
with copies (not constituting notice) to:
McMillan LLP
1500 1055 West Georgia Street,
Vancouver, BC V6E 4N7
Canada
Fax: (604) 893-2370
Attention: Tom Theodorakis and Ryan Black
and
Venable LLP
Rockefeller Center
1270 Avenue of the Americas
Twenty-Fourth Floor
New York, NY 10020
Fax: (212) 307-5598
Attention: Philip von Mehren and Michele Maney
8.3 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any Party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.
8.4 Entire Agreement. The Transaction Documents, Company Disclosure Schedule, and Confidentiality Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof and thereof and supersede all prior agreements, understandings, negotiations and undertakings, both written and oral, among the Parties, including that certain non-binding letter of intent dated June 10, 2015, by and between IAC/InterActiveCorp and the Company.
8.5 Amendments; Assignment; Waivers. Any provision of this Agreement may be amended, modified, supplemented or waived only by an instrument in writing duly executed by Buyer, the Company and Shareholder. Any such amendment, modification, supplement or waiver shall be for such period and subject to such conditions as shall be specified in the instrument effecting the same and shall be binding upon the Parties, and any such waiver shall be effective only in the specific instance and for the purposes for which given. This Agreement shall not be assigned by operation of Law or otherwise without the prior written consent of Buyer or Shareholder, as applicable; provided, however, Buyer may assign any or all of its rights or interests, or delegate any or all of its obligations, in this Agreement to (a) any successor to Buyer, any successor to the Company, or any acquirer of a material portion of the businesses or assets of Buyer or the Company, in each case after the Closing; (b) one or more of Buyers Affiliates, or (c) any bona fide lender to Buyer, the Company or any of their Affiliates as security for obligations to such lender; provided, however, that no such assignment or grant of security interest will relieve or release Buyer from any of its Liabilities or obligations under this Agreement. No failure on the part of any Party to exercise and no delay in exercising, and no course of dealing with respect to, any right, remedy, power or privilege under this Agreement shall operate as a waiver of such right, remedy, power or privilege, nor shall any single or partial exercise of any right, remedy, power or privilege under this Agreement preclude any other or further exercise of any such right, remedy, power or privilege or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges provided in this Agreement are cumulative and not exclusive of any rights, remedies, powers and privileges provided by applicable Law.
8.6 Parties in Interest. Except as set forth in Article VII, this Agreement shall be binding on and inure solely to the benefit of the Parties hereto and their respective successors, heirs, legal representatives and permitted assigns, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person not a party to this Agreement any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.
8.7 Governing Law; Submission to Jurisdiction; WAIVER OF JURY TRIAL.
(a) This Agreement shall be governed by, and construed in accordance with, the Laws of the State of New York applicable to contracts executed in and to be performed in that state. In any action among or between any of the Parties arising out of or relating to this Agreement, each of the Parties irrevocably and unconditionally consents and submits to the exclusive jurisdiction and venue of federal and state courts in the State of New York and each of the parties hereto (x) irrevocably submits with regard to any such proceeding for itself and in respect to its property, generally and unconditionally, to the exclusive subject matter and exclusive personal jurisdiction of the aforesaid courts in the event any dispute arises out of this Agreement or any transaction contemplated hereby, (y) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court and (z) agrees that it will not bring any Claim relating to this Agreement or any transaction contemplated hereby in any court other than the aforesaid courts. Each of the Parties hereto hereby irrevocably waives, and agrees not to assert, by way of motion, as a defense, counterclaim or otherwise, in any proceeding with respect to this Agreement, (a) the defense of sovereign immunity, (b) any Claim that it is not personally subject to the jurisdiction of the above-named courts for any reason other than the failure to serve process in accordance with this Section 8.7, (c) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (d) to the fullest extent permitted by applicable Law that (i) the proceeding in any such court is brought in an inconvenient forum, (ii) the venue of such proceeding is improper and (iii) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.
(b) EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (1) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (2) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
8.8 Headings; Construction. Headings of the Articles and Sections of this Agreement are for convenience of the Parties only and shall be given no substantive or interpretive effect whatsoever. The table of contents to this Agreement is for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. For purposes of this Agreement, (a) the terms including and include shall be deemed to be followed by the terms without limitation, (b) the terms herein, hereof, hereby, hereto or hereunder refer to this Agreement as a whole and (c) references to $ refer to United States Dollars and references to CND$ refer to Canadian Dollars. Except as otherwise expressly set forth in this Agreement, all references in Article II and Article III to any Law shall be deemed to refer to such Law as enacted prior to the Effective Date; however, for each supplemental Company Disclosure Schedule delivered, the deemed date for such Law in Article II will be the
date of such supplement. When calculating the period of time before which, within which or following which any act is required to be done pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and, if the last day of such period is not a Business Day, the period in question shall end on the next succeeding Business Day. Unless the context otherwise requires, references in this Agreement (i) to Articles, Sections, exhibits and schedules mean the Articles and Sections of, and the exhibits and schedules attached to or accompanying, this Agreement and (ii) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof. The schedules and exhibits referred to in this Agreement shall be construed with and as an integral part of this Agreement. Capitalized terms used but not otherwise defined in the schedules and exhibits referred to in this Agreement shall have the meanings set forth in this Agreement. Titles to Articles and headings of Sections are inserted for convenience of reference only and shall not be deemed a part of or to affect the meaning or interpretation of this Agreement. Notwithstanding the fact that this Agreement has been drafted or prepared by one of the Parties, each Party confirms that both it and its counsel have reviewed, negotiated and adopted this Agreement as the joint agreement and understanding of the Parties. The language used in this Agreement shall be deemed to be the language chosen by the Parties to express their mutual intent, and no rule of strict construction shall be applied against either Party. Any reference to any federal, state or provincial, local or foreign Law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The Parties intend that each representation, warranty, and covenant contained herein shall have independent significance.
8.9 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different Parties hereto in separate counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. To expedite the process of entering into this Agreement, the Parties acknowledge that Transmitted Copies of this Agreement will be equivalent to original documents until such time as original documents are completely executed and delivered. Transmitted Copies will mean copies that are reproduced or transmitted via email, photocopy, facsimile, electronic communications by portable document format (.pdf) or other process of complete and accurate reproduction and transmission, each of which shall be deemed an original.
8.10 Specific Performance. The Parties hereto agree that if any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached, irreparable damage would occur, no adequate remedy at Law would exist and damages would be difficult to determine, and accordingly, (a) the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to specific performance of the terms hereof, this being in addition to any other remedy to which they are entitled at Law or in equity, (b) the parties waive any requirement for the securing or posting of any bond in connection with the obtaining of any specific performance or injunctive relief and (c) the parties will waive, in any action for specific performance, the defense of adequacy of a remedy at Law.
8.11 Advisors.
(a) Buyer (i) waives and will not assert, and will cause each of its subsidiaries
(including, after the Closing, the Company and its subsidiaries) to waive and not assert, any conflict of interest relating to Advisors representation after the Closing of the Shareholder or any of their affiliates in any matter involving the transactions contemplated by this Agreement (including any litigation, arbitration, mediation, or other proceeding), and (ii) consents to, and will cause each of its subsidiaries (including, after the Closing, Company and its subsidiaries) to consent to, any such representation, even though in each case (x) the interests of the Shareholder or any subsidiary may be directly adverse to Buyer, the Company, or any of their respective subsidiaries, (y) Advisors may have represented the Company or its subsidiary in a substantially related matter, or (z) Advisors may be handling other ongoing matters for Buyer, the Company, or any of their respective subsidiaries. Notwithstanding the foregoing, if a dispute arises between Buyer, the Company or any of its subsidiaries and a third party (other than Shareholder or any of their Affiliates) after the Closing, then the Company or its subsidiary, to the extent applicable, may assert the attorney-client privilege to prevent disclosure to such third party of confidential communications by the Advisors.
(b) Buyer agrees, on its own behalf and on behalf of its subsidiaries (including, after Closing, the Company and its subsidiaries), that from and after Closing (a) the attorney-client privilege, all other evidentiary privileges, and the expectation of client confidence as to all Attorney-Client Communications belong to Shareholder and will not pass to or be claimed by Buyer, the Company, or any of their subsidiaries, and (b) Shareholder will have the exclusive right to control, assert, or waive the attorney-client privilege, any other evidentiary privilege, and the expectation of client confidence with respect to such Attorney-Client Communications.
ARTICLE IX
DEFINITIONS
As used in this Agreement, the following defined terms shall have the meanings indicated below:
Acquisition Proposal is defined in Section 4.5.
Adjusted Closing Payment is defined in Section 1.5(a).
Advisors means Ernst & Young LLP, McMillan LLP, Polsinelli PC, Sedgwick LLP, Seed Intellectual Property Law Group PLLC, Smythe Ratcliffe LLP and Venable LLP.
Affiliate means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such first Person, and the term control (including the terms controlled by and under common control with) means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through ownership of voting securities, by contract or otherwise.
Agreement is defined in the first paragraph of this Agreement.
Antitrust Law means the Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade Commission Act, as amended, and all other Laws that are designed or intended to
govern competition, trade regulation, foreign investment or to prohibit, restrict or regulate actions having the purpose or effect of monopolization or restraint of trade or lessening of competition through merger or acquisition.
Attorney-Client Communication means any communication occurring on or prior to the Closing between each of McMillan LLP, Polsinelli PC, Sedgwick LLP, Seed Intellectual Property Law Group PLLC, and/or Venable LLP on the one hand and Shareholder, the Company, any of their respective subsidiaries, or any of their respective affiliates on the other hand that relates to the transactions contemplated by this Agreement, including any representation, warranty, or covenant of any party under this Agreement or any related agreement.
Base Amount is defined in Section 1.3(a).
Business Day means a day other than a Saturday, Sunday, or any statutory holiday in the province of British Columbia, or a day on which banks located in the State of New York are authorized or obligated to close.
Buyer is defined in the first paragraph of this Agreement.
Buyer Indemnified Party and Buyer Indemnified Parties are defined in Section 7.2.
Cap is defined in Section 7.4(c).
Cash means all cash, certificates of deposit, bank deposits, negotiable instruments, marketable securities and other cash equivalents of the Company as of the Closing Time, net of all cut but uncashed checks issued by the Company that are outstanding as of the Closing Time. Cash shall not include cash or cash equivalents to the extent subject to restrictions or limitations imposed by Law, Contract or otherwise on the usability thereof, including fees, costs or withholding or other Taxes which would apply to the distribution of cash from the Company to Buyer.
Claim means any judicial, administrative or arbitral claim (including counterclaims), demand, cause of action, suit, proceeding, mediation, arbitration, audit, hearing, investigation or inquiry (whether formal or informal) by or before a Governmental Body.
Claim Notice is defined in Section 7.5(a).
Closing is defined in Section 1.1(b).
Closing Date means date on which the Closing occurs.
Closing Statement is defined in Section 1.4(a).
Closing Time is defined in Section 1.1(b).
Code means the Internal Revenue Code of 1986, as amended.
Company is defined in the first paragraph of this Agreement, provided that references to the Company shall include any subsidiary thereof unless the context otherwise requires.
Company Disclosure Schedule is defined in Article II.
Company Intellectual Property means all Intellectual Property owned (or purported to be owned) by the Company.
Company Resources is defined in Section 4.2(m).
Company Software means (a) All Software that is used in the Companys business and is not licensed to the Company pursuant to a written license agreement; and (b) all Company User Data.
Company Transaction Expenses means, in each case to the extent not paid in full prior to the Closing Date: (i) fees and expenses incurred by the Company, including those fees and expenses of Shareholder to the extent paid by the Company in connection with the drafting, negotiation, execution, and delivery of the Transaction Documents and the consummation of the transactions contemplated herein or therein (or otherwise relating to the sale or potential sale of the Company), including the fees and expenses of the accountants, brokers, finders, consultants, investment bankers, lawyers, and other advisors of the Company, (ii) any amounts paid, or required to be paid, by or on behalf of the Company to any current or former employee, stockholder, officer, director, or other Person in connection with the consummation of the transactions contemplated by the Transaction Documents pursuant to any employment, consulting, change of control, severance, termination, special bonus or other similar agreement or arrangement and (iii) the Employee Bonuses. Notwithstanding the foregoing, Company Transaction Expenses do not include any items included as a Liability in Working Capital.
Confidential Information is defined in Section 4.8(b).
Confidentiality Agreement means the Mutual Non-Disclosure Agreement, dated April 2, 2015, between IAC/InterActiveCorp and the Company.
Confidentiality, Non-Competition and Non-Solicitation Agreement is defined in Section 7.7.
Contaminants is defined in Section 2.17(a)(v).
Contracts means any contract, agreement, indenture, note, bond, mortgage, loan, instrument, lease, license, commitment or other arrangement, understanding, undertaking, commitment or obligation, whether written or oral.
Disclosing Party is defined in Section 4.8(b).
Dispute Notice is defined in Section 7.5(b).
Effective Date is defined in the first paragraph of this Agreement.
Employee Benefit Plan means any employee benefit plan, program, policy, practices, or other arrangement providing benefits to any current or former employee, officer, director or independent contractor of the Company or any beneficiary or dependent thereof that is sponsored or maintained by the Company or to which the Company contributes or is obligated to contribute, whether or not written, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA (whether or not such plan is subject to ERISA and including those or similar plans subject to Canadian Law), any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA and including those or similar plans subject to Canadian Law) and any bonus, incentive, deferred compensation, vacation, stock purchase, stock option, severance, employment, change of control, fringe or other benefit plan, program or agreement and any related trusts or other funding vehicles.
Employee Bonuses means those certain bonuses to be paid to employees by the Buyer as Company Transaction Expenses in the amounts set forth in Section 1.3(d)(iv) of the Company Disclosure Schedule, subject to adjustment prior to Closing to reflect any such employees who are no longer employed by the Company.
Employment Contract is defined in Section 4.17.
Enforceability Exceptions is defined in Section 2.3.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
Escrow Agent means Fifth Third Bank N.A., or as otherwise mutually agreed by the Parties hereto.
Escrow Agreement means the escrow agreement, dated as of the date of this Agreement, by and among Shareholder, the Escrow Agent and Buyer.
Escrow Amount is defined in Section 1.3(d)(i).
Escrow Funds means the remaining portion of funds that were part of the Escrow Amount as of any date of determination.
Escrow Release Date means the date that is the eighteen (18) months following the Closing Date.
Estimated Cash is defined in Section 1.3(b).
Estimated Closing Payment is defined in Section 1.3(c).
Estimated Company Transaction Expenses is defined in Section 1.3(b).
Estimated Indebtedness is defined in Section 1.3(b).
Estimated Working Capital is defined in Section 1.3(b).
Financial Statements is defined in Section 2.8(a).
Fundamental Representations means (i) with respect to the Company and Shareholder, the representations set forth in Sections 2.1, 2.3, 2.4 and 2.26, and (ii) with respect to Buyer, the representations and warranties set forth in Sections 3.1 and 3.2.
GAAP means generally accepted accounting principles in the United States which are in effect as of the relevant date of determination.
Governing Documents means with respect to the Company, the Articles of Association.
Governmental Body means any supranational, national, federal, state, provincial, county, municipal, local or foreign government, agency, bureau, board, commission, court, department, official, political subdivision, tribunal or other instrumentality of any government, and any entity exercising executive, legislative, judicial, regulatory, taxing, administrative, prosecutorial or arbitral functions of or pertaining to government, and self-regulatory organizations.
GST Legislation means Part IX of the Excise Tax Act (Canada).
Historical Accounting Principles means the accounting principles, methodologies and practices set forth in Section 2.8(a) of the Company Disclosure Schedule.
Indebtedness means as to any Person at any time, based on face value: (a) obligations of such Person for borrowed money; (b) obligations of such Person evidenced by bonds, notes, debentures or other similar instruments; (c) obligations of such Person to pay the deferred purchase price of property or services (including earnouts and similar arrangements), except trade accounts payable of such Person arising in the Ordinary Course of Business that are not past due by more than 120 days and for which adequate reserves have been established on the financial statements of such Person; (d) obligations arising under capitalized leases, conditional sales Contracts or other similar title retention instruments; (e) reimbursement obligations of such Person relating to amounts drawn and outstanding under letters of credit, bankers acceptances, surety or other bonds or similar instruments; (f) Liabilities of such Person relating to unfunded, vested benefits under any Employee Plan (excluding (i) vacation pay and sick pay that is accrued on the Persons books in the Ordinary Course of Business, in each case to the extent accrued in Working Capital and (ii) obligations of Shareholder to deliver stock of Shareholder pursuant to stock options or stock ownership plans); (g) net payment obligations incurred by such Person pursuant to any hedging agreement; (h) Liabilities of such Person under any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement or other similar agreement designed to protect such Person against fluctuations in interest rates; (i) any guarantees of the foregoing items in clauses (a) through (i) for the benefit of another Person; and (j) all interest, fees, penalties, breakage costs and other expenses owed with respect to the items described in the foregoing clauses (a) through (i) or the repayment thereof. As used in Article I, Indebtedness means Indebtedness of the Company as of the Closing Time. Notwithstanding the foregoing, Indebtedness as used in Article I does not include any items included (x) as a Liability in Working Capital, (y) in Company Transaction Expenses or (z) with respect to the Promissory Note.
Indemnification Claim(s) means any claim(s) for indemnification under Article VII.
Indemnified Party is defined in Section 7.4(b).
Indemnified Taxes means any Liability for (i) Taxes of the Company for any Pre-Closing Tax Period, (ii) Taxes of Shareholder for any period, (iii) Taxes of any Person for which the Company may be liable under Treasury Regulation Section 1.1502-6(a) or any similar provision of state, local or foreign law, as a transferee or successor, by contract, or otherwise, (iv) any Taxes imposed as a result of the Sale and Purchase or any transaction occurring at or prior to the Closing (in each case, whether imposed by withholding or otherwise and whether calculated by reference to transfer price, net gain or otherwise, other than any Transfer Taxes), (v) any Taxes resulting from or arising out of the Pre-Closing Reorganization, (vi) any Transfer Taxes for which Shareholder is responsible pursuant to Section 4.10(d), and (vii) Taxes of the Company for any Straddle Period for which Shareholder is responsible, in each case, together with any costs and expenses, including reasonable legal fees and expenses attributable thereto. For purposes of calculating such Liability for any Straddle Period, the portion of any Tax that is allocable to the portion of the Straddle Period ending on the Closing Date shall be deemed to equal: (a) in the case of Taxes based upon or related to income or receipts, the amount that would be payable if the Straddle Period had ended on the Closing Date and the books of the Company closed as of the close of such date; (b) in the case of Taxes imposed on specific transactions or events, Taxes imposed on specific transactions or events occurring on or before the Closing Date; and (c) in the case of Taxes imposed on a periodic basis, or in the case of any other Taxes not covered by clause (a) or clause (b), the amount of such Taxes for the entire Straddle Period multiplied by a fraction (a) the numerator of which is the number of calendar days in the period ending on the Closing Date and (b) the denominator of which is the number of calendar days in the entire Straddle Period. Notwithstanding the foregoing, (i) Indemnified Taxes do not include any items to the extent included as a Liability in Working Capital, and (ii) Indemnified Taxes shall include the excess, if any, of (A) any Tax asset reflected in Working Capital over (B) the actual reduction in Taxes payable of the Company with respect to the item(s) taken into account in determining such Tax asset.
Indemnifying Party is defined in Section 7.4(b).
Intellectual Property means any rights available arising from, associated with or under (a) patents and patent applications of any kind including continuation, divisional, continuation-in-part, reexamination and reissue patent applications and any patents issuing therefrom, and utility models or industrial designs registered with a Governmental Body and all related patent rights; (b) registered and unregistered trademarks, service marks, trade names, trade dress, logos, packaging design, slogans and other indicia of source, and all goodwill associated therewith and all registrations and applications for registration of any of the foregoing and renewals thereof; (c) Internet domain names and other Internet addresses (d) copyrights in both published and unpublished works (including all Software) and all copyright registrations and applications therefor; (e) rights in know-how (whether or not reduced to practice), trade secrets and other confidential or proprietary information; (f) rights arising with respect to Technology and (g) moral rights, publicity rights, rights of privacy, and any and all other intellectual property rights, proprietary rights or any other similar statutory provision or common law doctrine in the
United States, Canada or any other territory, and which shall also include any embodiments of any of the foregoing.
Investment Canada Act means the Investment Canada Act, as amended, and the regulations promulgated thereunder.
Investment Canada Act Approval means the responsible Minister under the Investment Canada Act (the Minister) having sent a notice pursuant to Subsection 21(1) of the Investment Canada Act to the Buyer stating that the Minister is satisfied that the transactions contemplated by the Agreement are likely to be of net benefit to Canada, or alternatively, the time period provided for such notice under Subsection 21(1) of the Investment Canada Act shall have expired such that the Minister shall be deemed, pursuant to Subsection 21(9) of the Investment Canada Act, to be satisfied that the transactions contemplated by the Agreement are likely to be of net benefit to Canada.
Knowledge of Buyer means the actual and constructive knowledge of the Chief Executive Officer, Chief Financial Officer or General Counsel or equivalent legal officer where constructive knowledge means (a) such facts or matters that a prudent individual, acting within the scope of the duties and responsibilities associated with the office or position of such person with the Buyer would be expected to discover or otherwise become aware of in the course of discharging such responsibilities and obligations, or (b) actual receipt of information by such person that clearly conveys the specific matter in respect of which knowledge is pertinent.
Knowledge of the Company means the actual and constructive knowledge of Markus Frind, Andrew Oh, Kim Kaplan, Owen Morley, Chris Simpson and Kate Manolis where constructive knowledge means (a) such facts or matters that a prudent individual, acting within the scope of the duties and responsibilities associated with the office or position of such person with the Company would be expected to discover or otherwise become aware of in the course of discharging such responsibilities and obligations, or (b) actual receipt of information by such person that clearly conveys the specific matter in respect of which knowledge is pertinent.
Law means any applicable foreign, federal, national, regional, state, provincial, municipal or local law, statute, treaty, rule, regulation, ordinance, order, code, judgment, decree, directive, injunction, writ or similar action or decision duly implementing any of the foregoing by any Governmental Body.
Lease is defined in Section 2.11(a).
Leased Real Property is defined in Section 2.11(a).
Liability means any debt, Loss, damage, adverse claim, fines, penalties, liability or obligation (whether direct or indirect, known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, matured or unmatured, determined or determinable, liquidated or unliquidated, or due or to become due, and whether in contract, tort, strict liability or otherwise), and including all costs and expenses relating thereto including all fees, disbursements and expenses of legal counsel, experts, engineers and consultants and costs of investigation).
Liens means any pledges, claims, liens, charges, encumbrances, mortgages, deeds of trust options and security interests.
Losses is defined in Section 7.2.
Material Adverse Effect means any fact, change, circumstance, event occurrence or development that results or would reasonably be expected to result in a material adverse effect upon the financial condition, business, liabilities or results of operations of the Company, taken as a whole; provided, however, that any change, event or effect arising from or related to the following shall not be taken into account in determining whether a Material Adverse Effect has occurred: (i) conditions affecting the United States or foreign economies generally, (ii) any national or international political or social conditions, including the engagement by the United States hostilities, whether or not pursuant to the declaration of a national emergency or war, or the occurrence of any military or terrorist attack upon the United States or any of their respective territories, possessions, or diplomatic or consular offices or upon any military installation, equipment or personnel of the United States, (iii) changes in financial, banking or securities markets (including any disruption thereof, any decline in the price of any security or any market index, or any adverse change therein), (iv) changes in GAAP, (v) changes in any Laws, rules, regulations, orders, or other binding directives issued by any Governmental Body, (vi) changes that are generally applicable to the industry in which the Company operates; (vii) the execution or performance of or the public announcement of this Agreement and the transactions contemplated thereby, the identity of Buyer and its Affiliates or the compliance by any Person with any term of any Transaction Documents (including, in each case, the impact thereof on relationships, contractual or otherwise, with customers, suppliers, vendors, distributed, partners, employees or Governmental Bodies); or (viii) the taking of any action approved by Buyer in writing under this Agreement; provided, however, that, in the case of clauses (i) through (vi), only to the extent any such change, event or condition does not substantially disproportionately affect the Company compared to other participants in the industries in which the Company conducts its business.
Material Advertiser is defined in Section 2.21(a).
Material Contracts is defined in Section 2.12(a)(xx).
Notice of Disagreement is defined in Section 1.4(c).
Open Source Software is defined in Section 2.17(a)(vi).
Ordinary Course of Business means an action taken by the Company will be deemed to have been taken in the Ordinary Course of Business if such action is consistent with the past practices of the Company and is taken in the ordinary course of the normal day-to-day operations of the Company.
Outside Date is defined in Section 6.1(b).
Party and Parties are defined in the first paragraph of this Agreement.
Permitted Liens means (a) statutory Liens for current Taxes not yet due and payable, (b) such encumbrances and imperfections of title, if any, as do not materially detract from the value of the properties and do not materially interfere with the present or proposed use of such properties or otherwise materially impair such operations, (c) Liens imposed or promulgated by Laws with respect to real property and improvements, including zoning regulations, (d) mechanics, carriers, workmens, repairmens and similar Liens incurred in the Ordinary Course of Business, (e) any Lien properly reflected in the Financial Statements, (f) all matters of record, that do not, in the aggregate, materially detract from the value of the affected property; (g) the terms and conditions of the Contracts; (h) pledges and deposits made in the Ordinary Course of Business in compliance with workers compensation, unemployment insurance and other social security applicable Laws; and (i) any purchase money Lien arising in the Ordinary Course of Business.
Person means any individual, corporation, partnership, trust, joint venture, limited liability company, association, organization, other entity or Governmental Body or regulatory authority.
Personal Information is defined in Section 4.3(b).
Post-Closing Tax Period means any taxable period (or portion thereof) beginning after the Closing Date.
PP Components is defined in Section 1.4(a).
Pre-Closing Agreements means those agreements set forth in Section 4.12 of the Company Disclosure Schedule.
Pre-Closing Reorganization means the reorganization of the Company and Shareholders interests in the Company as set forth on Section 4.12 of the Company Disclosure Schedule under the heading Pre-Closing Reorganization.
Pre-Closing Tax Period means any taxable period (or portion thereof) ending on or prior to the Closing Date.
Privacy Policies is defined in Section 2.18(a).
Promissory Note means that certain promissory note #1 issued by the Company to Frind Enterprises Ltd. Prior to the Closing in an amount not to exceed $300,000,000 denominated in Canadian Dollars.
Promissory Note Payment Amount is defined in Section 1.1(a).
Purchase Price is defined in Section 1.3(a).
Receiving Party is defined in Section 4.8(b).
Related Person is defined in Section 2.23.
Representative means with respect to a particular Person, any director, officer, employee, agent, consultant, advisor or other representative of such Person, including legal counsel, accountants and financial advisors.
Resolution Accountants means the New York City office of KPMG subject to it certifying to the Parties that it is an independent firm without any material relationship (current or prior) with any Party; provided, however, that if such firm is unwilling or unable to serve in such capacity, the Parties shall mutually agree upon a substitute accounting firm and such substitute accounting firm shall likewise certify its independence to the Parties.
Sale and Purchase is defined in Section1.1(a).
Scheduled IP is defined in Section 2.16(a).
Search Engine is defined in Section 2.17(a)(vii).
Settlement Offer is defined in Section 1.4(d).
Shareholder is defined in the first paragraph of this Agreement.
Shareholder Indemnified Party and Shareholder Indemnified Parties are defined in Section 7.3.
Shares is defined in the recitals of this Agreement.
Software means any and all (i) computer programs, including any and all software implementations of algorithms, models and methodologies, program files, program and system logic, program modules, routines, and subroutines, whether in source code, object code or other form; (ii) descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, including any and all program architecture, interfaces, screens, design concepts, system design, development tools, templates, menus, buttons, icons, program structure, sequence and organization, screen displays and report layouts; (iii) databases and compilations, including any and all data and collections of data, descriptions, field and data definitions and relationships, data definition specifications, data models, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, whether machine readable or otherwise; and (iv) documentation and other materials related any of the foregoing, including user manuals and training materials.
Stock Purchase Rights is defined in Section 2.4(b).
Straddle Period means any taxable period beginning prior to and ending on or after the Closing Date.
Survival Period is defined in Section 7.1.
Systems is defined in Section 2.17(a)(viii).
Tangible Personal Property means all moveable personal property owned, leased or rented by the Company.
Tax means any and all (a) domestic or foreign federal, state, provincial or local taxes, duties, imposts, governmental charges or assessments, of any kind whatsoever (including, without limitation, any income, receipts, windfall profit, severance, property, production, sales, use, business and occupation, license, excise, registration, franchise, employment, employment insurance, health insurance and Canada, Quebec and other government pension plan premiums, workers compensation levies, required retirement contributions, payroll, withholding, alternative or add-on minimum, intangibles, ad valorem, transfer, gains, stamp, estimated, transaction, title, capital, paid-up capital, profits, premium, value-added, recording, property, inventory and merchandise, land transfer, business privilege, federal highway use, commercial rent, fringe benefits, or environmental tax, stamp transaction or registration duty, and any liability under escheat, unclaimed property or similar Laws, all surtaxes, all custom duties and import and export taxes, employment insurance), (b) interest, penalties, fines, additions to tax or additional amounts imposed by any Taxing Authority in connection with (i) any item described in clause (a) or (ii) the failure to comply with any requirement imposed with respect to any Tax Returns, and (c) liability in respect of any items described in clause (a) and/or (b) payable by reason of contract, assumption, successor or transferee liability (including as a result of being a transferee (within the meaning of section 160 of the Tax Act or any other Laws) of another taxpayer or entity or a member of a related, non-arms length, affiliated or combined group), operation of Law, Treasury Regulation Section 1.1502-6(a) (or any predecessor or successor thereof or any analogous or similar provision under Law) or otherwise.
Tax Act means the Income Tax Act (Canada).
Tax Proceeding is defined in Section 4.10(b)(ii).
Taxing Authority means any Governmental Body responsible for the administration, collection or imposition of any Tax.
Tax Returns means any report, return, information return, declaration, statement, claim for refund or other supplied or written information, relating to Taxes, including any schedules or attachments thereto and any amendment thereof, filed or required to be filed or supplied with any Governmental Authority.
Technology means collectively, designs, formulae, algorithms, procedures, methods, techniques, ideas, know-how, results of research and development, Software, tools, data, inventions, apparatus, creations, improvements, works of authorship and other similar materials, and all recordings, graphs, drawings, reports, analyses, and other writings, and any other embodiments of the above, in any form whether or not specifically listed herein, and all related technology, that are used, incorporated or embodied in or displayed by any of the foregoing or used in the design, development, reproduction, sale, marketing, maintenance or modification of any of the foregoing.
Terms of Service is defined in Section 2.18(a).
Third Party Claim is defined in Section 7.5(a).
Transaction Accounting Principles means GAAP excluding liabilities for deferred Taxes and unearned or deferred revenue and as may be specifically provided in the definition of any PP Component with respect to that PP Component only.
Transaction Documents means this Agreement and each agreement or certificate executed and delivered in connection with this Agreement, including the Escrow Agreement, the Confidentiality, Non-Competition and Non-Solicitation Agreement, the Employment Contract, and the Guarantee, dated as of the date hereof, between IAC/Interactivecorp in favor of Shareholder and the Company.
Transaction Exchange Rate is defined in Section 1.7.
Transfer Tax means transfer, excise, sales, use, value added, registration, stamp, recording, property and similar Taxes or fees.
Transmitted Copies is defined in Section 8.9.
User Data is defined in Section 2.18(d).
Working Capital means (a) current assets minus (b) current liabilities calculated (i) as of the Closing Time (but without giving effect to the Closing other than with respect to the availability of a Tax deduction for the Employee Bonuses), and (ii) in a manner consistent with the Transaction Accounting Principles. For the avoidance of doubt, Working Capital shall not include Cash, Indebtedness, the Promissory Note Payment Amount or the Company Transaction Expenses. For greater certainty, Working Capital will include an accrual for any current Tax assets and current Tax liabilities of the Company for any Pre-Closing Tax Period, any Straddle Period for which the Shareholder is responsible (including the amount of the Tax benefit arising in a Pre-Closing Tax Period in connection with the deduction available from the Employee Bonuses) and the amount of any Tax Liability resulting from or arising out of the Pre-Closing Reorganization). A sample Closing Statement is set forth on Section 1.3(b) of the Company Disclosure Schedule.
Working Capital Target is CND$4.7 million.
The Parties hereto have entered into and signed this Agreement as of the date first above written.
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PLENTYOFFISH MEDIA INC. | |
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By: |
/s/ Markus Frind |
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Name: Markus Frind | |
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Title: CEO | |
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MARKUS FRIND | |
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By: |
/s/ Markus Frind |
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Name: Markus Frind | |
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FRIND ENTERPRISES LTD. | |
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By: |
/s/ Markus Frind |
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Name: Markus Frind | |
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Title: Director | |
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MARKUS FRIND FAMILY TRUST NO. 2 | |
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By: |
/s/ Markus Frind |
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Name: Markus Frind | |
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Title: Trustee | |
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MATCH.COM, INC. | |
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By: |
/s/ Stuart Cawthorn |
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Name: Stuart Cawthorn | |
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Title:VP, Assistant Secretary |
Exhibit 2.2
List of Exhibits and Schedules Omitted from the Stock Purchase Agreement Referenced in Exhibit 2.1 Above
Pursuant to Regulation S-K, Item 601(b)(2), the Schedules to the Stock Purchase Agreement referenced in Exhibit 2.1 above, as listed below, have not been filed. The Registrant agrees to furnish supplementally a copy of any omitted Schedule to the Securities and Exchange Commission upon request; provided, however, that the Registrant may request confidential treatment of omitted items. There were no Exhibits to the Stock Purchase Agreement.
Schedules
Schedule 1.03 Purchase Price
Schedule 1.04 Sample Closing Statement
Schedule 2.04 Capitalization; Ownership of Shares
Schedule 2.06 Subsidiaries and Affiliates
Schedule 2.07 No Approvals; No Conflicts
Schedule 2.08 Financial Statements; No Undisclosed Liabilities
Schedule 2.09 Absence of Certain Changes or Events
Schedule 2.10 Taxes
Schedule 2.11 Property
Schedule 2.12 Contracts
Schedule 2.13 Compliance with Laws
Schedule 2.14 Claims and Legal Proceedings; Government Orders
Schedule 2.15 Employees Matters
Schedule 2.16 Intellectual Property
Schedule 2.17 Software; Systems
Schedule 2.18 Privacy; Data Protection
Schedule 2.19 Licenses, Permits, Authorizations, etc.
Schedule 2.20 Insurance
Schedule 2.21 Advertisers
Schedule 2.23 Related Party Transactions
Schedule 2.24 Bank Accounts
Schedule 4.02 Operation of the Business
Schedule 4.12 Pre-Closing Reorganization
Schedule 4.13 Termination of Related Party and Intercompany Arrangements
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 11, 2015, in the Registration Statement (Form S-1) and related Prospectus of Match Group, Inc. for the registration of shares of its common stock.
/s/ Ernst & Young LLP
New
York, New York
October 16, 2015
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated October 5, 2015, with respect to the consolidated financial statements of Plentyoffish Media Inc. included in the Registration Statement (Form S-1) and related Prospectus of Match Group, Inc. for the registration of its common stock.
/s/ Ernst & Young LLP
New
York, New York
October 16, 2015