<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
(X) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
( ) For the transition period from __________ to __________
Commission file number: 000-26865
INTERNET SPORTS NETWORK, INC.
(Exact name of small business issuer as specified in its charter)
FLORIDA 65-0704152
(State or other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
225 Richmond Street West, Suite 403, Toronto, Ontario, Canada, M5V 1W2
(Address of principal executive offices) (Zip Code)
(416) 599-8800 / (416) 599-8228
(Issuer's telephone/facsimile numbers, including area code)
Check whether the issuer: (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the issuer was required
to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No _____
The issuer had 20,200,000 shares of common stock outstanding as of
SEPTEMBER 30, 1999.
Transitional Small Business Disclosure Format (check one)
Yes _____ No __X__
<PAGE>
INTERNET SPORTS NETWORK, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Item 1. Financial Statements
Comparative Unaudited Consolidated Balance Sheets 3
as at September 30, 1999 and March 31, 1999
Comparative Unaudited Consolidated Statements of 4
Operations for the Three and Six Months Ended September
30, 1999 and the Three and Six Months Ended October 31,1998.
Comparative Unaudited Consolidated Statements of 6
Cash Flows for the Six Months Ended September 30,
1999 and the Six Months Ended October 31, 1998.
Notes to the Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 15
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 19
(b) Reports on Form 8-K 19
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1
INTERNET SPORTS NETWORK, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(unaudited) (unaudited)
September 30, March 31,
1999 1999
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 1,297,000 $ 2,928,000
Receivables 482,000 182,000
Prepaid expenses 55,000 29,000
--------------------------------------------------------------
1,834,000 3,139,000
Equipment, net (note 3) 434,000 84,000
Deferred charges (note 4) 1,125,000 -0-
Purchased intangibles, net (note 2) 13,127,000 9,637,000
Goodwill, net (note 2) 4,697,000 3,855,000
--------------------------------------------------------------
$ 21,217,000 $ 16,715,000
==============================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable $ 542,000 $ 171,000
Accrued liabilities 35,000 137,000
Purchase price liability (note 2) 500,000 -0-
Deferred revenue 401,000 -0-
Accrued prize commitments 275,000 31,000
Loan payable (Note 6) 250,000 -0-
--------------------------------------------------------------
2,003,000 339,000
Deferred income taxes (note 7) 4,697,000 3,855,000
--------------------------------------------------------------
6,700,000 4,194,000
--------------------------------------------------------------
Shareholders' equity (note 5)
Common stock and additional paid-in capital, $0.001 par
Value
50,000,000 shares authorized
20,200,000 outstanding (March 31, 1999 - 17,841,000) 38,204,000 17,127,000
Share subscription receivable for 475,000 shares (190,000) -0-
subscribed
Deferred compensation (10,699,000) (449,000)
Accumulated deficit (12,798,000) (4,157,000)
--------------------------------------------------------------
14,517,000 12,521,000
--------------------------------------------------------------
$ 21,217,000 $ 16,715,000
==============================================================
</TABLE>
<PAGE>
INTERNET SPORTS NETWORK, INC.
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
<TABLE>
<CAPTION>
(unaudited) (unaudited) (unaudited) (unaudited)
Six Months Six Months Three Months Three Months
Ending Ending Ending Ending
September 30, October 31, September 30, October 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
REVENUE $ 1,861,000 $ 69,000 $ 1,189,000 $ 61,000
-------------------------------------------------------------------------------
EXPENSES
Prize commitments and other direct costs 920,000 74,000 763,000 47,000
Salaries and benefits 921,000 135,000 535,000 85,000
Consulting fees 516,000 46,000 296,000 35,000
Advertising 228,000 303,000 140,000 282,000
General and administrative 1,096,000 207,000 611,000 156,000
Depreciation 65,000 7,000 60,000 3,000
Amortization of purchased intangibles 3,440,000 -0- 2,145,000 -0-
Amortization of goodwill 1,285,000 -0- 776,000 -0-
Options granted for services provided 1,145,000 -0- 1,145,000 -0-
Amortization of stock compensation 1,850,000 -0- 1,637,000 -0-
Amortization of deferred charges 225,000 -0- 225,000 -0-
Acquisition costs 96,000 -0- 45,000 -0-
-------------------------------------------------------------------------------
Total expenses 11,787,000 772,000 8,378,000 608,000
-------------------------------------------------------------------------------
Net loss before income taxes (9,926,000) (703,000) (7,189,000) (547,000)
Deferred income tax recovery (1,285,000) -0- (776,000) -0-
-------------------------------------------------------------------------------
Net loss and comprehensive loss (8,641,000) (703,000) (6,413,000) (547,000)
===============================================================================
NET LOSS PER SHARE $ (0.45) $ (0.11) $ (0.33) $ (0.08)
===============================================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 19,069,000 6,290,000 19,591,000 6,580,000
===============================================================================
</TABLE>
<PAGE>
INTERNET SPORTS NETWORK, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Common
Stock and
Additional
Number Paid in Deferred Accumulated
of Shares Capital Compensation Deficit Total
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1999 17,841,000 17,127,000 (449,000) (4,157,000) 12,521,000
Shares issued on acquisition of Ultimate Sports Publishing 125,000 750,000 -0- -0- 750,000
Shares issued in acquisition of Innovation Partners Inc. 616,000 4,066,000 -0- -0- 4,066,000
Shares issued for cash 943,000 1,526,000 -0- -0- 1,526,000
Deferred compensation related to stock options -0- 12,100,000 (12,100,000) -0- -0-
Shares issued in exchange for deferred charges 200,000 1,350,000 -0- -0- 1,350,000
Options granted for service -0- 1,145,000 -0- -0- 1,145,000
Shares issued for subscription receivable 475,000 190,000 -0- -0- 190,000
Amortization of deferred compensation related to stock
options -0- -0- 1,850,000 -0- 1,850,000
Share issuance costs -0- (50,000) -0- -0- (50,000)
Net loss -0- -0- -0- (8,641,000) (8,641,000)
-----------------------------------------------------------------------
Balance at September 31, 1999 20,200,000 38,204,000 (10,699,000) (12,798,000) 14,707,000
-----------------------------------------------------------------------
Less share subscription receivable (190,000)
----------
Total Shareholders' Equity at September 30, 1999 14,517,000
----------
</TABLE>
<PAGE>
INTERNET SPORTS NETWORK, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(unaudited) (unaudited)
Six Months Ended Six Months Ended
September 30, 1999 October 31, 1998
------------------ ----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (8,641,000) $ (703,000)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation 65,000 7,000
Amortization of stock compensation 1,850,000 -0-
Options granted for services provided 1,145,000 -0-
Amortization of deferred charges 225,000 -0-
Amortization of purchased intangibles 3,440,000 -0-
Amortization of goodwill 1,285,000 -0-
Deferred income tax recovery (1,285,000) -0-
Changes in other operating assets and liabilities:
Increase in receivables (276,000) (13,000)
Increase in prepaid expenses (26,000) (54,000)
Increase in accounts payable 21,000 28,000
Increase in accrued liabilities 142,000 51,000
Increase in deferred revenue 401,000 -0-
-------------------------------------------------
Net cash used in operating activities (1,654,000) (684,000)
--------------------------------------------------
INVESTING ACTIVITIES
Purchase of Ultimate Sports Publishing (860,000) -0-
Purchase of Sportsbuff (500,000) -0-
Cash acquired with Sportsbuff 36,000 -0-
Purchase of equipment (379,000) (10,000)
--------------------------------------------------
Net cash used in investing activities (1,703,000) (10,000)
--------------------------------------------------
FINANCING ACTIVITIES
Proceeds from sale of capital stock, net of share issuance costs
$ 50,000 (1998 - $ 4,000) 1,476,000 692,000
Proceeds from loan payable 250,000 -0-
--------------------------------------------------
Net cash provided by financing activities 1,726,000 692,000
--------------------------------------------------
Net decrease in cash and cash equivalents (1,631,000) (2,000)
Cash and cash equivalents:
Beginning of period 2,928,000 9,000
==================================================
End of period $ 1,297,000 $ 7,000
==================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
INVESTING ACTIVITIES
Net assets of Ultimate Sports Publishing acquired for shares $ (750,000) -0-
Net assets of Sportsbuff acquired for shares (4,066,000) -0-
FINANCING ACTIVITIES
Shares issued on acquisition of Ultimate Sports Publishing 750,000 -0-
Shares issued on acquisition of Sportsbuff 4,066,000 -0-
Shares issued on acquisition of exclusive rights 1,350,000 -0-
==================================================
Cash interest paid $ 7 -0-
==================================================
Cash taxes paid $ -0- -0-
</TABLE>
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The comparative figures shown in the consolidated statement of
operations and comprehensive loss and consolidated statement of
cash flows are for the periods ending October 31, 1998. The
comparative fiscal period started on May 1, 1998, while the
current fiscal year started on April 1, 1999, as a result of the
Company changing its year end from April 30 to March 31 as part of
the recapitalization in January of 1999. These comparative figures
are comparable to those that would be presented for the periods
ending September 30, 1998 as there is no significant seasonal
impact. The comparative results have not been recast to September
30, 1998 as it is not practical, and would not provide significant
additional information.
PURCHASED INTANGIBLES AND GOODWILL
Purchased intangibles consist primarily of software, licenses,
customer lists, trademarks and contest agreements. Purchased
intangibles of approximately $13,127,000 are stated net of total
accumulated amortization of $4,031,000 at September 30, 1999 in
the accompanying consolidated balance sheet. Purchased intangibles
are being amortized on a straight-line basis principally over two
years.
Goodwill of approximately $4,697,000 is stated net of total
accumulated amortization of $1,521,000 at September 30, 1999 in
the accompanying consolidated balance sheet. Goodwill is being
amortized on a straight-line basis principally over two years.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principles Board
["APB"] Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations, in accounting for its
employee stock options rather than the alternative fair
value accounting allowed by SFAS No. 123, "Accounting for
Stock-Based Compensation". APB No. 25 provides that the
compensation expense relative to the Company's employee stock
options is measured based on the intrinsic value of the stock
option. SFAS No. 123 requires companies that continue to follow
APB No. 25 to provide a pro forma disclosure of the impact of
applying the fair value method of SFAS No. 123.
FOREIGN CURRENCY TRANSLATION
The unit of measurement of the Company is the Canadian dollar
while its reporting currency is the United States dollar. The
assets and liabilities of the Canadian subsidiaries are translated
using the exchange rate in effect at period end, and revenues and
expenses are translated at the average rate during the period.
Exchange gains or losses on translation of the Company's net
equity investments in these subsidiaries are deferred as a
separate component of other comprehensive income. The translation
adjustment at September 30, 1999 is not significant.
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D....)
EQUIPMENT
Equipment is recorded at cost. Amortization is provided over the
estimated useful life of the asset using the declining balance
basis at the following rates:
Office equipment and furniture 20%
Computer equipment 30%
REVENUE RECOGNITION
The Company earns revenue from membership and other fees received
for Internet-based sports information and sports contest
organization services. Membership fees are received prior to the
beginning of a particular sport season or event and recorded as
deferred income until recognized in income ratably over the season
or upon completion of the event. Other fees received for
Internet-based sports information and sports contest organization
services are recognized in income ratably over the season or upon
completion of the event.
PRIZE AWARDS
Members, as well as non-members, are entitled to enter into
contests provided by the Company. Prizes are awarded upon
completion of the sports season or event and are paid by the
Company or the contest's sponsors. Prize awards are fixed in
amount and determinable prior to commencement of the season or
event and are expensed at the commencement of the season or event
to which they relate.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash and
cash equivalents, receivables, accounts payable, accrued
liabilities, accrued prize commitments, accrued purchase price
payable, and loans payable. It is management's opinion that the
Company is not exposed to significant interest, currency or credit
risks arising from these financial instruments. The carrying
amounts of these current assets and liabilities approximates their
fair values due to their immediate or short-term nature.
INCOME TAXES
Income taxes are accounted for utilizing the liability method.
Deferred income taxes are provided to represent the tax
consequence on future years for temporary differences between the
financial reporting and tax basis of assets and liabilities.
Deferred income taxes are measured utilizing enacted tax rates
expected to be in effect in the years in which the temporary
differences are expected to reverse. A valuation allowance has
been provided for the total amount of deferred tax assets that
would otherwise be recorded for income tax benefits primarily
relating to operating loss carryforwards, as realization cannot be
determined to be more likely than not.
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (CONT'D....)
LOSS PER SHARE
Basic loss per share excludes any dilutive effects of options and
convertible debentures. Basic loss per share is computed using the
weighted-average number of common shares outstanding during the
period and includes common shares issued subsequent to the period
end for which all consideration had been received prior to the
period end and which no other contingencies existed. Diluted loss
per share is equal to the basic loss per share as the effect of
the stock options and convertible debentures is anti-dilutive.
There are no dilutive common stock equivalent shares outstanding
during the period. Common stock equivalent shares are excluded
from the computation if their effect is anti-dilutive.
NOTE 2. BUSINESS COMBINATIONS
Effective June 22, 1999, the Company acquired certain assets of
National Publisher Services consisting of the Ultimate Sports
Publishing division.("Ultimate Sports"). Ultimate Sports publishes
annual sports magazines.
Effective June 30, 1999, the Company acquired 100% of the shares
of Innovation Partners Inc, (d/b/a Sportsbuff), ("Sportsbuff").
The business of Sportsbuff is to conduct and administer sports
contest services for its clients.
The transactions are summarized as follows:
<TABLE>
<CAPTION>
==========================================================================================================
As at As at
June 22, 1999, June 30, 1999,
Ultimate Sports Sportsbuff
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net assets acquired at fair values:
Working capital $ 0 $ (290,000)
Equipment 0 36,000
Purchased intangibles 1,610,000 5,320,000
Goodwill 0 2,128,000
Deferred income taxes 0 (2,128,000)
----------- ------------
$ 1,610,000 $ 5,066,000
----------- ------------
Funded by:
Cash $ 860,000 $ 1,000,000
Shares of common stock 750,000 4,066,000
----------- -----------
$ 1,610,000 $ 5,066,000
==========================================================================================================
</TABLE>
$500,000 of the cash component of the purchase price of Sportsbuff
was paid in July, 1999. The remaining $500,000 is due in October,
1999.
Purchased intangibles related to the acquisition of Sportsbuff
consists of developed contest software, licenses, participant
lists, customer lists, trademarks and domain names.
Purchased intangibles related to the acquisition of Ultimate
Sports consist of trademarks, customer contracts, client lists,
and domain names.
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 3. EQUIPMENT
Equipment consists of the following:
<TABLE>
<CAPTION>
================================================================================
SEPTEMBER 30,
1999
- --------------------------------------------------------------------------------
<S> <C>
Computer equipment $ 418,000
Office equipment and furniture 112,000
--------------
530,000
Less accumulated depreciation (96,000)
---------------
Equipment, net $ 434,000
================================================================================
</TABLE>
NOTE 4. DEFERRED CHARGES
On August 1, 1999, the Company entered into a five year agreement
to be the exclusive contest provider for Beer.com. In exchange for
this exclusive agreement, the Company is granting Beer.com
1,000,000 common shares over the five year term. All 1,000,000
shares have been placed in escrow. 200,000 shares are owing at the
start of each year of the contract, and distributed to Beer.com on
each anniversary date of the contract. The minimum share
obligation under this agreement (200,000 shares) have been
recorded at the market value of the shares as at August 1, 1999
($6.75 per share) as a deferred charge, and is being amortized
over a one year period.
NOTE 5. SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK COMMON
NUMBER STOCK AND
OF SHARES PAID-IN CAPITAL
(`000's) ($000's)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE MARCH 31, 1999 17,841 17,127
Shares issued for cash 943 1,526
Shares issued for subscription receivable 475 190
Shares issued on acquisition of Sportsbuff 616 4,066
- ------------------------------------------------------------------------------------------------------------------------------------
Shares issued on acquisition of Ultimate Sports 125 750
Shares issued in exchange for exclusive rights 200 1,350
Deferred compensation related to stock options -- 12,100
Options granted for services -- 1,145
Share issuance costs -- (50)
BALANCE SEPTEMBER 30, 1999 20,200 38,204
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
STOCK OPTIONS
Generally, options are granted by the Company's Board of Directors
at an exercise price of not less than the fair market value of the
Company's common stock at the date of grant. Options are generally
granted with a term of five years from the date of issuance.
Option vesting is varied ranging from the date of issuance to 3
years.
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 5. SHAREHOLDERS' EQUITY (CONT'D...)
STOCK OPTION ACTIVITY
The following table summarizes the Company's stock option
activity:
<TABLE>
<CAPTION>
===========================================================================================================
NUMBER OF WEIGHTED AVERAGE
SHARES (000'S) EXERCISE PRICE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at March 31, 1999 3,365 $ 1.52
Options granted and assumed 3,104 2.05
Options cancelled (10) 1.75
Options exercised (575) 0.40
------ ----------
September 30, 1999 5,884 $ 1.91
===========================================================================================================
</TABLE>
The following table summarizes information about options outstanding and
options exercisable at September 30, 1999:
<TABLE>
<CAPTION>
===========================================================================================================
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ---------------------------------
WEIGHTED AVERAGE
OPTIONS REMAINING CONTRACTUAL OPTIONS WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING LIFE EXERCISABLE EXERCISE PRICE
-------------- ----------- --------------------- ----------- --------------
<S> <C> <C> <C> <C>
$ 0.40 1,850 4.7 years 0 $ 0.40
1.75 2,815 4.1 years 2,380 1.75
4.28 200 4.6 years 0 4.28
4.54 150 4.5 years 0 4.54
5.00 50 2.5 years 25 5.00
6.00 304 4.8 years 54 6.00
7.00 25 2.8 YEARS 25 7.00
- ----------------------------------------------------------------------------------------------------------
$ 0.40 - 7.00 5,884 4.5 years 2,870 $ 1.67
==========================================================================================================
</TABLE>
DEFERRED COMPENSATION
The Company recorded aggregate deferred compensation of $12,100
during the six months ended September 30, 1999. The amount
recorded represents the difference between the grant price and the
fair value of the Company's common stock for shares subject to
options granted during the period. Options granted below fair
market value and the associated weighted average exercise price
per share were 2,300 and $1.15 during the period. The amortization
of deferred compensation is charged to operations over the vesting
period of the options, which ranges from 15 months to 3 years.
Total amortization recognized in the six months ending September
30, 1999 was $1,850,000
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 5. SHAREHOLDERS' EQUITY (CONT'D...)
PRO FORMA DISCLOSURE
The Company follows the intrinsic value method in accounting for
its stock options. Had compensation cost been recognized based on
the fair value at the date of grant, the pro forma amounts of the
Company's net loss and net loss per share for the six months ended
September 30, 1999 would have been as follows:
<TABLE>
<S> <C>
Net loss as reported $(8,641)
Net loss - pro forma $(8,910)
Basic and diluted loss per share as reported $ (0.45)
Basic and diluted loss per share - pro forma $ (0.47)
</TABLE>
The fair value for each option granted was estimated at the date
of grant using a Black-Scholes option pricing model, assuming no
expected dividends and the following weighted average assumptions:
<TABLE>
<S> <C>
Average risk-free interest rates 5.0%
Average expected life (in years) 5.0
Volatility factor 98.5%
</TABLE>
The weighted average fair value of options granted during the six
month period was $5.35.
NOTE 6. LOAN PAYABLE
The loan payable is for a principal amount of $250,000 with
interest calculated at 9% per annum. The loan in unsecured, and is
due on December 31, 1999.
NOTE 7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes.
A reconciliation of the combined federal and state income tax
expense to the Company's income tax expense is as follows:
<TABLE>
<CAPTION>
========================================================================================================
SEPTEMBER 30,
1999
- --------------------------------------------------------------------------------------------------------
<S> <C>
Tax recovery at combined federal and state rates $ (3,166,000)
Higher effective rate attributable to income taxes of other countries $ (1,022,000)
Tax effect of expenses that are not deductible for income tax purposes 3,353,000
Valuation allowance 835,000
-------------
$ -
========================================================================================================
</TABLE>
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 7. INCOME TAXES (CONT'D...)
At September 30, 1999, the Company had net operating loss
carryforwards of approximately $4,477,000. Substantially all of
these carryforwards relate to the Canadian subsidiaries and will
begin to expire at various times starting in 2004.
Significant components of the Company's deferred income tax assets
are approximately as follows:
<TABLE>
<CAPTION>
======================================================================================================
SEPTEMBER 30,
1999
- ------------------------------------------------------------------------------------------------------
<S> <C>
Net operating loss carryforwards $ 4,477,000
============
Total deferred income tax assets $ 1,958,000
Valuation allowance for deferred income tax assets (1,958,000)
------------
Net deferred income tax assets $ -
======================================================================================================
</TABLE>
A continuity of the valuation allowance is as follows:
<TABLE>
<CAPTION>
======================================================================================================
SEPTEMBER 30,
1999
- ------------------------------------------------------------------------------------------------------
<S> <C>
Balance at March 31, 1999 $ 1,123,000
Valuation allowance on deferred income tax asset 835,000
-------------
Closing balance $ 1,958,000
======================================================================================================
</TABLE>
Deferred income tax credits at September 30, 1999 reflect the
differences between the financial reporting and tax values of the
purchased intangibles. The deferred tax recovery in the
consolidated statement of operations and comprehensive loss
relates to the amortization of the deferred income tax liability
which resulted from the Company's acquisitions of Sportsmark,
Pickem and Sportsbuff.
NOTE 8. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1999, the Company paid or
accrued approximately $46,000 of consulting fees for financial
services provided by one of the Company's directors. Also, $16,000
of wages and $60,000 termination payment was paid to the Company's
former Chief Executive Officer and former director. Approximately
$30,000 of wages were paid to the Company's Chief Operating
Officer, who is also a director of the Company.
<PAGE>
INTERNET SPORTS NETWORK, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the six months ended September 30, 1999
================================================================================
NOTE 9. COMMITMENTS
The Company leases premises and office equipment under the terms
of operating leases. The leases provide for future minimum annual
lease payments as follows:
<TABLE>
<S> <C>
2000 $ 187
2001 73
2002 18
2003 5
2004 and thereafter -
---------------
$ 283
===============
</TABLE>
NOTE 10. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in two operating segments across domestic and
international markets, contest management and publishing.
International sales, including export sales from the United States
to Canada, represented approximately 14% of net sales for the six
months ended September 30, 1999. No other foreign country or
geographic area accounted for more than 10% of net sales in any of
the periods presented. There were no transfers between geographic
areas during the period ended September 30, 1999. Capital assets
and purchased intangibles in the United States equal approximately
$17,000. The remaining capital assets and purchased intangibles
are in Canada.
The Company entered into the publishing segment through its
acquisition of Ultimate Sports Publishing in June, 1999 (Note 2).
There have been no material changes in assets relating to the
publishing segment since that time.
<TABLE>
<CAPTION>
Contest
Management Publishing Total
---------- ---------- -----
<S> <C> <C> <C>
Revenue 901,000 960,000 1,861,000
Amortization of purchased intangibles 3,222,000 218,000 3,440,000
Amortization of Goodwill 1,285,000 0 1,285,000
Expenses 1,528,000 646,000 2,174,000
----------- -------- -----------
(5,134,000) 96,000 (5,038,000)
----------- --------
Corporate Expenses 4,888,000
-----------
Net loss before tax (9,926,000)
===========
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
Internet Sports Network, Inc. ("ISN") was originally incorporated on
April 28, 1997 in Nevada for the purpose of providing interactive, computer
sports entertainment through the Internet. The Company has a limited
operating history on which to evaluate its prospects. The risks, expense, and
difficulties encountered by start up companies must be considered when
evaluating ISN's prospects.
The operating expenses of ISN cannot be predicted with certainty.
They will depend on several factors, including the amount of marketing
expenses, the acceptance of the Company's services in the market, competition
for such services, and the acquisition activities of the Company. Management
may be able to control the timing of such expenses in part by speeding up or
slowing down marketing development and distribution activities and
acquisition strategies.
From its inception in April 1997 to date, ISN has incurred costs
associated with the development of its internet sports entertainment
products, probable markets and business. ISN incurred costs for conducting
test marketing for its products and received revenues as a result. The test
marketing consisted of advertising, processing membership applications and
analysis of responses. During the period, ISN purchased computer and
telecommunication equipment as necessary to conduct its operations.
ISN financed its expenditures primarily through the sale of its
common stock. Since inception through September 30, 1999, the company issued
approximately 11,199,000 common shares for net cash consideration of
approximately $10,654,000.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are for operating activities
and acquisition activities. Cash used in operating activities for the 6 month
period ending September 30, 1999 is $1,654,000 (as compared to $684,000 for
the 6 month period ending October 31, 1998) related primarily to
infrastructure costs required to manage the continued growth of the Company.
The increase in cash used in operating activities is due to the staffing of
the operation with a view to growing the business. Total headcount as at
October 31, 1998 was 8 as compared 39 as at September 30, 1999. Cash used in
acquisition activities for the 6 month period ending September 30, 1999 is
$1,360,000 with a further $500,000 payment required in October, 1999. Since
inception, the Company has funded its capital requirements by financing
activities, primarily through the sale of its equity securities.
Capital expenditures during the 6 months ended September 30, 1999
was $379,000 as compared to $10,000 for the 6 months ended October 31, 1998.
Capital expenditues were primarily for computer technology to manage the
contest management strategy. From inception to September 30, 1999 the Company
has spent $454,000. ISN has no significant commitments to acquire equipment
in the future. Overall, capital expenditures, including those anticipated as
a result of acquisition activity, during the year ending March 31, 2000 are
anticipated to approximate $1,000,000.
The Company is in an extremely competitive industry and it will
require substantial capital from outside sources in order to complete its
business plan. The Company anticipates that it will continue to generate
financial losses for the foreseeable future. In the event the Company is
unsuccessful in securing outside capital, it may be required to curtail or
cease operations altogether. As a result, substantial doubt exists regarding
the ability of the Company to continue as a going concern.
<PAGE>
The Company's management believes that an additional $3,000,000 in funds
combined with the funds already raised in private offerings and the revenues
generated by its operations will be sufficient to fund its operations for the
next twelve months under the current plan of operations. Additional funding
will be required for further acquisition activity, depending on the cash
component of the purchase price of any contemplated acquisitions. It is
expected that such funds will be obtained by the sale of additional capital
stock of the Company, although there can be no assurance that ISN will be
able to obtain such funds.
Beyond the next twelve month period, the Company will require working capital
to fund operations during the off peak months (June to August). Excluding
acquisition activity, the funds required would be approximately $2 million.
Any additional capital requirements would be due to acquisition activities,
or modifications to the current growth plans.
During the three month period ending September 30, 1999 the Company received
$250,000 for a promissory note which is due December 31, 1999. The note earns
interest at a rate of 9% per annum, and is unsecured.
RESULTS OF OPERATIONS
AMORTIZATION
The purchased intangibles and goodwill related to the acquisitions of
Sportsmark Group, Pickem Sports, Ultimate Sports Publishing and SportsBuff
totaled $23,377,000. Amortization for the six months ending September 30,
1999, was $4,725,000. The purchased intangibles and goodwill related to the
acquisition of Ultimate Sports Publishing and SportsBuff during the six
months ending September 30, 1999 totaled $9,058,000. The Company is
amortizing purchased intangibles and goodwill over 24 months. These
intangibles include trademarks, software licenses and intellectual properties.
The Company expects to continue to acquire companies and assets that can
benefit its business and subscriber base. Currently, ISN is reviewing
potential acquisition targets that could provide complementary games and
contests and as well as new customers for the Company's existing games.
SIX MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AS COMPARED TO THE SIX MONTHS
ENDED OCTOBER 31, 1998 (UNAUDITED).
REVENUE. The Company generated revenue of $1,861,000 for the period ending
September 30, 1999 as compared to revenues of approximately $69,000 for the
period ending October 31, 1998. The increase in revenues was primarily
attributable to the inclusion of the operating results of Sportsmark,
Ultimate Sports Publishing, Sportsbuff and Pickem in 1999.
OPERATING EXPENSES. Total operating expenses were $3,746,000 as compared to
approximately $772,000 in the period ended October 31, 1998, for an increase
of $2,974,000. Approximately $1,932,000 of this increase was attributable to
the acquisitions of Sportsmark, Pickem Sports, Ultimate Sports Publishing and
SportsBuff. The overall increase is described in more detail below:
PRIZES AND OTHER DIRECT COSTS. Expenses associated with providing prizes for
contests and other direct costs increased to $920,000 from approximately
$74,000 in the period ended October 31, 1998. Approximately $560,000 of the
increased costs in 1999 were the result of publishing costs associated with
the magazine publications. The remaining increase is the result of the costs
associated with the direct operating costs of the contests, and ISN prizing
commitments for the 1999-2000 National Football League season contests. Prize
commitments increased approximately $200,000 over the prior period, primarily
for the SportsBuff national contest.
GENERAL AND ADMINISTRATIVE. Salaries and benefits increased $786,000 to $920,000
from $135,000 in the six month period in 1998, while consulting fees increased
by $470,000 to $516,000 from $46,000 in the prior year period. These increases
were the result of additional personnel and staff, mainly from the acquisitions
of Sportsmark, Pickem Sports, Ultimate Sports Publishing and SportsBuff, and
consultants hired for game development, web design and for other services.
Salaries and benefits for the six months ended September 30, 1999 also includes
$110,000 in severance costs associated with the closing of ISN's
<PAGE>
Vancouver offices. Advertising expenses decreased $75,000 to $228,000 from
$303,000 in the prior year period. This decrease is mainly due to a
significant initial promotion run by the Company in September-October 1998.
Other general and administrative costs increased by $889,000, the majority of
which resulted from travel and other expenses which increased $215,000 to
$256,000 as a result of an increase in sales staff, increased sales efforts
and financing activities. Occupancy, telephone and legal and accounting costs
at September 30, 1999 were $305,000. The majority of legal and accounting
fees relate to costs associated with preparing regulatory filings.. Interest
expense and bank charges equaled $7,000. Other general and administrative
costs were $207,000 for the six months ending October 31, 1998. Depreciation
was $65,000 in the six months ended September 30, 1999 as compared to $7,000
for the prior year. This increase is due to equipment acquisition throughout
the period.
AMORTIZATION OF PURCHASED INTANGIBLES, GOODWILL AND OTHER. Amortization of
purchased intangibles was $3,440,000 and amortization of goodwill was
$1,285,000 for the six months ended September 30, 1999 compared to no
amortization of such amounts in the prior year period. The amortization was
related to the purchases of Sportsmark, Pickem Sports, Ultimate Sports
Publishing and SportBuff. The Company is amortizing the cost of these
acquisitions over 24 months.
The Company amortized $1,850,000 of costs related to stock based compensation
resulting from stock options granted to officers, employees and directors.
The compensation expense was calculated as the difference between the option
exercise price and the share price as reported by the OTC/BB of the Company's
common stock at the date of issuance. The options may be exercised at prices
between $0.40 to $6.00 and vest over periods ranging from 17 to 36 months.
The Company is amortizing the expense relating to the options over their
vesting periods. Also, the Company expensed $96,000 of acquisition costs
related to the purchase of SportsBuff and Ultimate Sports Publishing, as well
as due diligence costs associated with potential transactions that were not
completed.
The Company is recognizing a $1,145,000 expense for 600,000 stock options
granted to consultants in lieu of compensation for services provided to the
Company. This amount was calculated using the Black-Scholes options pricing
model. The options may be exercised between $4.00 and $4.08 per share.
NET LOSS FROM OPERATIONS. The Company experienced a loss of $8,641,000 after
the benefit of deferred taxes of $1,285,000 for the period ended September
30, 1999 as compared to a loss of $703,000 for the period ended October 31,
1998. Loss per share in the period ended September 30, 1999 was $ (.45)
compared to $ (.11) in the prior year period.
THREE MONTHS ENDED SEPTEMBER 30, 1999 (UNAUDITED) AS COMPARED TO THE THREE
MONTHS ENDED OCTOBER 31, 1998 (UNAUDITED).
REVENUE. The Company generated revenue of $1,189,000 for the three month
period ending September 30, 1999 as compared to revenues of approximately
$61,000 for the three month period ending October 31, 1998. The increase in
revenues was primarily attributable to the inclusion of the operating results
of Sportsmark, Ultimate Sports Publishing, Sportsbuff and Pickem in 1999.
OPERATING EXPENSES. Total operating expenses were $2,405,000 as compared to
approximately $608,000 in the period ended October 31, 1998, for an increase
of $1,797,000. Approximately $1,304,000 of this increase was attributable to
the acquisitions of Sportsmark, Pickem Sports, Ultimate Sports Publishing and
SportsBuff. The overall increase is described in more detail below:
PRIZES AND OTHER DIRECT COSTS. Expenses associated with providing prizes for
contests and other direct costs increased to $763,000 from $47,000 in the
period ended October 31, 1998. Approximately $360,000 of the increased costs
in 1999 were the result of publishing costs associated with the magazine
publications. The remaining increase is the result of the costs associated
with the direct operating costs of the contests, and ISN prizing commitments
for the 1999-2000 National Football League season contests. Prize commitments
increased approximately $200,000 over the prior period, primarily for the
SportsBuff national contest.
<PAGE>
GENERAL AND ADMINISTRATIVE. Salaries and benefits increased $450,000 to $535,000
from $85,000 in the three month period in 1998, while consulting fees increased
by $261,000 to $296,000 from $35,000 in the prior year period. These increases
were the result of additional personnel and staff, mainly from the acquisitions
of Sportsmark, Pickem Sports, Ultimate Sports Publishing and SportsBuff, and
consultants hired for game development, web design and for other services.
Salaries and benefits for the three months ended September 30, 1999 also
includes $110,000 in severance costs associated with the closing of ISN's
Vancouver offices. Advertising expenses decreased $142,000 to $140,000 from
$282,000 in the prior year period. This decrease is mainly due to a significant
initial promotion run by the Company in September-October 1998 as well as a move
from direct to consumer advertising to a business to business approach. Other
general and administrative costs increased by $445,000, the majority of which
resulted from travel and other expenses which increased $38,000 to $76,000 as a
result of an increase in sales staff, increased sales efforts and financing
activities. Occupancy, telephone and legal and accounting costs for the three
months ending September 30, 1999 were $234,000. The majority of legal and
accounting fees relate to costs associated with preparing regulatory filings.
Interest expense and bank charges equaled $3,000. Other general and
administrative costs were $156,000 for the three months ending October 31, 1998.
Depreciation was $60,000 in the three months ended September 30, 1999 as
compared to $3,000 for the prior year. This increase is due to equipment
acquisition throughout the year.
AMORTIZATION OF PURCHASED INTANGIBLES, GOODWILL AND OTHER. Amortization of
purchased intangibles was $2,145,000 and amortization of goodwill was
$776,000 for the three months ended September 30, 1999 compared to no
amortization of such amounts in the prior year period. The amortization was
related to the purchases of Sportsmark, Pickem Sports, Ultimate Sports
Publishing and SportBuff. The Company is amortizing the cost of these
acquisitions over 24 months.
The Company amortized $1,637,000 of costs related to stock based compensation
resulting from stock options granted to officers, employees and directors.
The compensation expense was calculated as the difference between the option
exercise price and the share price as reported by the OTC/BB of the Company's
common stock at the date of issuance. The options may be exercised at prices
between $0.40 to $6.00 and vest over periods ranging from 17 to 36 months.
The Company is amortizing the expense relating to the options over their
vesting periods. Also, the Company expensed $45,000 of acquisition costs
related to the purchase of SportsBuff, as well as due diligence costs
associated with potential transactions that were not completed.
The Company is recognizing a $1,145,000 expense for 600,000 stock options
granted to consultants in lieu of compensation for services provided to the
Company. This amount was calculated using the Black-Scholes options pricing
model. The options may be exercised between $4.00 and $4.08 per share.
NET LOSS FROM OPERATIONS. The Company experienced a loss of $6,413,000 after
the benefit of deferred taxes of $776,000 for the period ended September 30,
1999 as compared to a loss of $547,000 for the period ended October 31, 1998.
Loss per share in the period ended September 30, 1999 was $ (.33) compared to
$ (.08) in the prior year period.
TOTAL ASSETS. The total assets of ISN as of September 30, 1999 totaled
$21,217,000 compared to $16,715,000 at March 31, 1999. The increase in total
assets was attributable to the net increase in purchased intangibles and
goodwill of $9,058,000 resulting from the acquisition of SportsBuff and
Ultimate Sports Publishing. Further increase in assets of $2,600,000 is from
the funds raised from the sale of common stock not spent to date. These
increases are offset by operating losses and amortization costs during the
period.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
To the knowledge of management, there is no material litigation
pending or threatened against the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
RECENT SALES OF UNREGISTERED SECURITIES.
In September, 1999, stock options representing 100,000 shares were
exercised at their exercise price of $0.40 for total cash consideration
of $40,000
In September, 1999, stock options representing 475,000 shares were
exercised at their exercise price of $0.40 for subscription receivable
of $190,000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
10. Material Contracts:
<TABLE>
<S> <C>
10.1 Site Development Service Agreement and Escrow
Agreement between the Company and Labatt Brewing
Company Limited, dated August 1, 1999
10.2 Online Contests Services Agreement between
the Company and Playboy Enterprises International,
Inc., dated July 15, 1999
</TABLE>
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K:
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
INTERNET SPORTS NETWORK, INC.
(Registrant)
Date: November 12, 1999 /s/ Ken Crema
-----------------------------------------
KEN CREMA
Chief Executive Officer and Director
<PAGE>
EXHIBIT 10.1
Site Development Service Agreement
AND ESCROW AGREEMENT
between the Company and Labatt Brewing Company Limited,
dated August 1, 1999
<PAGE>
SITE DEVELOPMENT SERVICES AGREEMENT
THIS SITE DEVELOPMENT SERVICES AGREEMENT ("Agreement"), is entered
into effective August 1, 1999 by and between INTERNET SPORTS NETWORK, INC., a
Florida corporation ("Developer"), and LABATT BREWING COMPANY LIMITED, or any
affiliate thereof ("LBCL" or "Customer") (Collectively referred to herein as
the "Parties".)
RECITALS
A. Developer has certain expertise and know-how enabling it to
provide sports content and contest web site development and services to
Customer;
B. Developer and Customer wish to enter into this Agreement whereby
Developer shall provide certain contests and informational content and web
site development and services to Customer upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. SCOPE OF WORK.
a. SITE DEVELOPMENT. In accordance with the "Description of Work"
attached hereto as EXHIBIT "A" and incorporated herein by this reference,
Developer shall develop, design, implement, install, promote, operate,
maintain and test a contest and informational content web site for the use of
Customer on its Beer.com web site (the "Contest Site".) Developer shall be
the exclusive developer, designer, implementer, installer, provider, operator
and tester of the Contest Site (the "Work") as defined in EXHIBIT "A".
Provided, however, that Developer may utilize, with the prior written consent
of Customer, the services of such third parties as is necessary to provide
the services stated herein with Customer's prior approval. Such use does not
eliminate Developer's exclusive agreement with Customer.
b. MAINTENANCE SERVICES. As more fully described in EXHIBIT "A",
Developer shall provide on-going maintenance of the Contest Site to Customer.
c. EXCLUSIVE AGREEMENT. As stated above, Developer shall be the
exclusive provider of fantasy league and other certain sports or non-sports
related contests (the "Contests") as further defined in EXHIBIT "A" and Work
to Customer. This exclusivity does not apply to any contests that are
unrelated to Developer's core business. In exchange for this exclusivity, and
the compensation indicated in EXHIBIT "A", Developer will not provide
Contests and Work to other companies in the markets in which Customer has a
leadership position. The market for purposes of this section is defined as
the brewery or beer market. Leadership position for purposes of this
agreement is a number one or two market share in the country in question.
These countries currently consist of Canada, Belgium, Montenegro, China,
United Kingdom, Croatia, Bulgaria, Romania, Russian, Mexico, South Korea,
Hungary and the Netherlands.
d. MERCHANDISING. Developer will co-manage and share in the revenue
from sports merchandising and memorabilia on the Contest Site in the manner
set forth in Exhibit "A" to the Agreement.
<PAGE>
e. LICENSING. Developer will use its best efforts to acquire any and
all licenses required from the various sports' player's associations for use
in merchandising or in other uses for the Contests, Work and Contest Site.
Royalties payable pursuant to any licenses required for the Contest Site
shall be paid equally by Developer and Customer, if no revenues are
generated. If revenues are generated, royalties payable and shall be deducted
from the revenues payable to Customer or Developer, in an amount equal to
each of their pro rata share pursuant to the Revenue Sharing Schedule in
EXHIBIT "A" hereof.
f. CUSTOMER'S OBLIGATIONS. Customer shall:
i. Display Developer's logo and provide a hyperlink to
Developer's website and the Contest Site from Beer.com. Provided, however,
the hyperlink shall not be activated for the first 60 days from the launch of
the Contest Site.
ii. Prepare, in conjunction with the Developer, a full
press and media proposal for the announcement of this Agreement and the
equity interest outlined in EXHIBIT "A". No release of such information shall
occur except with the prior approval of both Developer and Customer.
iii. Pay the compensation set forth in EXHIBIT "A".
iv. Nominate and cause Rocco Rossi, or any other LBCL
representative, designated in writing by the Customer to serve as a member of
Developer's board of directors effective on the launch date subject to the
approval of Developer's shareholders as necessary under corporate law and
Developer's bylaws.
v. In connection with the investment referred to in EXHIBIT
"A" in Developer, Customer hereby represents and warrants:
a. Customer acknowledges that the Shares are
restricted securities" (as such term is defined under the Securities Act of
1933), that the certificates representing this Shares will include a
restrictive legend, and, except as otherwise set forth in this Agreement,
that the Shares cannot be sold unless registered with the United States
Securities and Exchange Commission ("SEC") and qualified by appropriate state
securities regulators, or unless Customer obtains written consent from Buyer
and otherwise complies with an exemption from such registration and
qualification.
b. Customer has adequate means of providing for
current needs and contingencies, has no need for liquidity in the Shares, and
is able to bear the economic risk of an investment in the Shares of the size
contemplated. Customer represents that Customer is able to bear the economic
risk of the investment and at the present time could afford a complete loss
of such investment. Customer has had a full opportunity to inspect the books
and records of the Developer and to make any and all inquiries of Developer's
officers and directors regarding Developer as Customer has deemed appropriate.
c. Customer is an "Accredited Investor" as that
term is defined in Regulation D of the Act or Customer, either alone or with
Customer's professional advisers who are unaffiliated with, have no equity
interest in and are not compensated
<PAGE>
by Developer or any affiliate or selling agent of Developer, directly or
indirectly, has sufficient knowledge and experience in financial and business
matters that Customer is capable of evaluating the merits and risks of an
investment in the Shares and of making an informed investment decision with
respect thereto and have the capacity to protect Customer's interests in
connection with Customer's proposed investment in the Shares.
d. Customer is acquiring the Shares solely for
Customer's own account as principal, for investment purposes only and not
with a view to the resale or distribution thereof, in whole or in part, and
no other person or entity has a direct or indirect beneficial interest in
such Shares.
e. Customer will not sell or otherwise transfer
the Shares without registration under the Act or an exemption therefrom and
fully understands and agrees that Customers must bear the economic risk of
the investment in the Shares for an indefinite period of time because, among
other reasons, the Shares have not been registered under the Act or under the
securities laws of any state and, therefore, cannot be resold, pledged,
assigned or otherwise disposed of unless they are subsequently registered
under the Act and under the applicable securities laws of such states or
unless an exemption from such registration is available.
f. Customer understands that Developer is under no
obligation to register the Shares on Customer's behalf or to assist Customer
in complying with any exemption from registration under the Act, except as
set forth herein.
g. Customer understands it is acquiring the Shares
without being furnished any offering literature or prospectus other than any
specific information which Customer may have requested that Developer provide
Customer.
2. COMPENSATION. Subject to the terms hereof, Customer shall pay Developer
such revenue splits as set forth in EXHIBIT "A", according to the due dates
set forth therein. All fees shall be net of applicable withholding tax.
3. TERM. The initial term of this Agreement shall be five years commencing
August 1, 1999 and ending on July 31, 2004 (the "Initial Term"). This
Agreement may be renewed for an additional one year terms, on terms and
conditions as are determined by the parties hereto by execution of an
intention to renew by both parties at least sixty (60) days prior to the end
of the term. This Agreement shall be subject to review and renegotiation
after the first 14 months of the Agreement (the "review date") if the Contest
Site has not achieved at least 80,000 Customer generated registered users by
the review date.
4. DEVELOPMENT OF THE CONTEST SITE.
a. CONTENT. Developer shall develop the design specifications and
develop, install and test the Contest Site in accordance with EXHIBIT "A".
Except for the Customer content to be provided by Customer in accordance with
EXHIBIT "A", Developer shall provide or obtain all necessary programming and
other production services and materials in order to implement the Contest
Site. Developer shall consult with Customer throughout the development of the
Contest Site.
<PAGE>
b. APPROVAL. Customer and Developer shall mutually approve all
elements and content of the Contest Site.
c. ALTERATIONS. If Customer wishes to alter the Description of Work,
Customer will describe the proposed alteration to Developer. Should Customer
and Developer agree that the alteration is reasonable and necessary,
Developer will make the proposed alterations as soon as reasonably
practicable.
5. DELIVERY SCHEDULE.
a. DELIVERY. Developer shall deliver all Deliverables on the dates
specified in the Delivery Schedule set forth in EXHIBIT "A". The customer
shall accept all deliverables that have been pre-approved by the Customer or
that fall within guidelines agreed to by Developer and Customer.
b. CONFORMITY. Deliverables shall conform to the Design
Specifications and/or any modifications thereto pursuant to EXHIBIT "A".
6. PROJECT LIAISONS. Unless and until otherwise designated in writing
by Developer or Customer, as the case may be, the project liaisons for the
parties are listed on EXHIBIT "A". All discussions involving the Description
of Work shall be conducted by these persons, or their designees, and any
agreement on the Design Specifications and changes thereto shall be in
writing and signed by the project liaisons.
7. CONTINUING OBLIGATIONS. If requested by Customer or recommended by
Developer, Developer shall, from time to time make such revisions,
corrections, updates and enhancements to the Contest Site as deemed necessary
by Developer.
8. PROPRIETARY RIGHTS.
a. INTELLECTUAL PROPERTY LICENSE. The Contest Site is produced,
specially ordered at Customer's request and direction. Customer, its
successors and assigns, shall have and is granted a license to use the
Contest Site during the term of this Agreement for the purposes outlined
herein.
b. AUTHORSHIP. Developer shall be deemed the creator and author of
the Contest Site, the Contests and all Work Product and Intellectual Property
Rights. Customer hereby grants Developer the right to place and maintain, on
the Contest Site, the credit "developed and designed by Internet Sports
Network, Inc." Developer acknowledges and agrees that, as between Developer
and Customer, Customer owns all right, title and interest in all Customer
Content. Customer and Developer shall have equal rights to utilize the
database of Contest participants.
c. DEVELOPER RIGHTS. Notwithstanding anything to the contrary
herein, Developer shall retain all rights, title and interest in any
Intellectual Property, Work Product, and Utilities created by Developer prior
to or during the term of this Agreement including those which are used in the
Contest Site or the development thereof.
<PAGE>
d. FURTHER ACTS. Developer and Customer shall execute any and all
documents and do such other acts requested at any time by Developer and
Customer as may be required to evidence, and/or further effect the rights
granted to either party hereunder.
e. COPYRIGHT AND TRADEMARK NOTICES. Customer shall provide Developer
with copyright, trademark or other proprietary rights notices in Customer's
name for inclusion on the Contest Site as Customer shall direct.
f. REFERENCES. Subject to the prior written approval of the
Customer, such approval to not be unreasonably withheld, the Developer may
refer to the Contest Site as an example of its work and to list Customer in
its list of references and marketing materials.
9. CONFIDENTIAL INFORMATION.
a. CONFIDENTIAL INFORMATION DEFINED. The parties may, during the
performance of its services hereunder, have access to and acquire knowledge
from material, electronic images data, systems and other information
concerning the operation, business financial affairs, products, customers,
Intellectual Property Rights or other aspects of the other party that may not
be known to the general public ("Confidential Information"). Notwithstanding
the foregoing, "Confidential Information" also includes (a) the Contest Site
and the Customer and Developer Content; (b) the terms of this Agreement, and
(c) any information or materials that the other party obtains from any third
party that the disclosing party treats as proprietary or designates as
Confidential Information, whether or not owned by the disclosing party.
"Confidential Information" does not include information that the
non-disclosing party can document in reasonable detail to the disclosing
party's satisfaction: (i) is known by the other party at the time of receipt
from the disclosing party and is not subject to any other non-disclosure
agreement between the parties; (ii) is now, or hereafter becomes, generally
known to the industry or public through no fault of the non-disclosing party;
or, (iii) is otherwise lawfully and independently developed by the
non-disclosing party, or lawfully acquired from a third party without any
obligation of confidentiality.
b. NON-DISCLOSURE. Neither party shall use, publish or divulge any
Confidential Information to any third party without the other's prior,
express, written approval, which the other party may withhold in its sole
discretion. Both Parties shall cause its employees, agents and every other
party it employs in connection with this Agreement, to protect the
Confidential Information from unauthorized use or disclosure with the same
degree of care, but no less reasonable care, as the party uses to protect its
own confidential information of like nature. Either party shall notify the
other in writing in the event of any misuse or misappropriation of the
Confidential Information that comes to its attention. In the event that
either party is directed to disclose any portion of the Confidential
Information in conjunction with a judicial proceeding or arbitration, the
party required to disclose shall immediately notify the other thereof in
writing. Upon the termination of this Agreement, each party shall immediately
return all Confidential Information to the other party.
<PAGE>
c. EXCEPTED USE. The parties agree that notwithstanding section
9(b), any database of names and information regarding participants in the
contests and the Contest Site shall be the equal property of Developer.
Developer hereby grants Customer the right to use the database for its
purposes during the term of this Agreement.
d. CONTEST SITE CONFIDENTIAL. Developer shall provide password
protected access to the "test pages" for the Contest Site posted to the
Internet for Customer's review.
e. PUBLIC ANNOUNCEMENTS. The Parties intend to issue a press release
concerning their relationship under this Agreement on the launch to the
public of the Contest Site (the "Initial Press Release") . The parties shall
mutually agree upon content and timing of the Initial Press Release. After
the Initial Press Release, neither party will make any public announcement
concerning the proposed transaction or related discussions without the other
Party's prior approval, except as may be required by law. Where such an
announcement is required by law, the party required to make the announcement
will inform the other party of the contents of the announcement proposed to
be made and will use its reasonable efforts to obtain the other's approval
for the announcement, which approval may to be unreasonably withheld.
f. INJUNCTIVE RELIEF. The Parties acknowledge that the other party
will be irreparably harmed if the obligations under this section are not
specifically enforced and that the aggrieved party would not have a remedy at
law in the event of potential or certain violations by the other party of its
obligations under this Agreement. Therefore, the parties agree that the
aggrieved party will be entitled to an injunction or any appropriate degree
of specific performance for any actual or threatened violations or breaches
by the other party, its employees or agents, without the necessity of the
aggrieved party showing actual damages or that monetary damage does not
afford an adequate remedy. Therefore, upon an actual or impending violation
of this Agreement, the other party consents to issuance by the Superior Court
of Orange County, California or, or any other court of competent
jurisdiction, of a restraining order, preliminary and special or permanent
injunction, without bond, restraining or enjoining such potential or certain
violation by the other party or any entity or person acting in concert with
the other party. The parties understand that such orders are additional to,
and do not limit the availability to the aggrieved party of any other remedy.
10. REPRESENTATIONS, WARRANTIES, LIMITATIONS AND INDEMNIFICATION
a. POWER TO CONTRACT. Each party represents and warrants that it has
the right, power and authority to enter into this Agreement and to fully
perform its obligations hereunder and that the making of this Agreement does
not violate the any agreement existing between it and any other party.
b. CONTEST SITE OPERATION. Developer warrants that the Contest Site,
as delivered by Developer shall operate substantially in accordance with the
Design Specifications and shall be free of any willfully introduced computer
virus or other similar harmful, malicious or hidden program or data including
without limitation, any hardware or software device or code which shall
prevent Customer from accessing or using the Contest Site or any portion
thereof.
<PAGE>
c. INDEMNIFICATION. Customer and Developer each agree to, and shall,
indemnify, defend and hold the other, and its respective directors,
shareholders, officers, agents, employees, successors and assigns from and
against any and all claims, demands, suits, actions, judgements, damages,
costs, losses, expenses (including attorneys' fees and expenses) and other
liabilities arising from, in connection with or related in any way to,
directly or indirectly, the other party's performance of this Agreement; any
breach or alleged breach of any of the representations, warranties or
agreements made by the other parties under this Agreement; the other party's
activities hereunder, including without limitation, any unauthorized use by
it or any of its subcontractors of any portion of the Confidential
Information; and any act or omission of the other party, its directors,
officers, agents, employees or subcontractors constituting a breach or
alleged breach of any of the representations and warranties set forth herein.
Each party shall promptly notify the other of any such claim, and the other
party shall bear full responsibility for the cost of defense of such claim
(including the cost of any settlement of such claim.) Developer agrees to
indemnify and defend Customer from any actual or alleged violation of
intellectual property rights of a third person in the operation of the
Contest Site.
d. DEVELOPER INTELLECTUAL PROPERTY REPRESENTATIONS AND WARRANTIES.
The Developer represents and warrants to the Customer as follows: (i) the
Developer has not received notice of any default, and is not in default,
under any contract related to the Site, including all licenses, sublicenses,
waivers and permissions relating to the intellectual property used for the
purposes of the Site (ii) the Developer is either the owner of, or is or
shall be licensed to use, all relevant intellectual property for all the
purposes of the Contest Site; (iii) to the best of Developer's knowledge the
operation of the Site by the Developer will not infringe or otherwise violate
the intellectual property rights in any country of any other Person or
violate any confidentiality or other obligation or duty under contract,
common law, statute or otherwise; (iv) the Developer is the owner or
licensees of all the software and related systems used in or in connection
with the Site, and the software may be used by the Developer for or the
benefit of the Customer without any location, site, equipment, disclosure or
other restriction; and (v) to the Company's knowledge no portion of the
software contains or shall contain any protection feature designed to prevent
its use including, without limitation, any computer virus, disabling
mechanism, worm, software lock, drop dead device, Trojan-horse routine, trap
door, time bomb or any other codes or instructions that my be used to access,
modify, delete, damage or disable the software, or any other software or
system with which the software may be integrated, or any other database,
computer hardware, software, system or network.
e. DEVELOPER'S REPRESENTATIONS AND WARRANTIES AS TO SHARES ISSUED.
Developer represents and warrants that the shares issued hereunder have been
duly authorized and validly issued under the laws of the state of Florida.
11. TERMINATION
a TERMINATION FOR CAUSE. At any time during the term of this
Agreement, the parties hereto may terminate this Agreement for cause. For
these purposes, "cause" means: (1) a material breach or material default by a
party under this Agreement; or (2) a party's insolvency, bankruptcy,
dissolution, or liquidation. Such termination may be effected upon written
notice from such party, as of the termination date stated therein.
Notwithstanding the foregoing, if any material default or material breach is
reasonably susceptible to cure, the defaulting party shall be entitled to a
grace period of thirty (30) days following the non-defaulting party's
delivery of
<PAGE>
written notice of such default or breach in which to cure such default or
breach. Upon a termination hereunder, the parties may exercise any and all of
their respective rights and remedies under this Agreement, at law or in
equity.
b. CONTINUING OBLIGATIONS. Termination of this Agreement by either
party shall not affect the parties' respective obligations under this
Agreement with respect to any obligations of confidentiality or the
obligation to pay for all services performed prior to the effective date of
termination. The parties agree that all provisions of this Agreement which
operate to protect the rights of the individual parties, will remain in force
without regard to the termination of this Agreement by either party.
12. WARRANTIES; LIMITATIONS ON LIABILITY.
A. DEVELOPER MAKES NO WARRANTY, REPRESENTATION OR PROMISE NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH HEREIN THE CONTEST SITE IS PROVIDED "AS IS". DEVELOPER DISCLAIMS AND
EXCLUDES ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY, TITLE AND FITNESS
OF THE SOFTWARE FOR A PARTICULAR PURPOSE. DEVELOPER DOES NOT WARRANT THAT THE
CONTEST SITE OR RELATED MATERIALS WILL SATISFY CUSTOMER'S REQUIREMENTS OR
THOSE OF CUSTOMER'S END USERS OR THAT THE WEB SITE AND RELATED MATERIALS ARE
WITHOUT DEFECT OR ERROR OR THAT THE OPERATION OF THE WEB SITE WILL BE
UNINTERRUPTED.
b. In no event will Developer be liable for lost or damaged data,
loss of business, or anticipatory profits, or any other consequential or
incidental damages resulting from the use or operation of the Contest Site or
the maintenance thereof.
13. NOTIFICATION.
a. All notices to the parties hereto shall be in writing and shall
be sent: (1) by certified or registered mail, return receipt requested,
postage prepaid; (2) by air mail if mailed to an address outside of the
continental United States; (3) by courier service; or (4) by electronic mail
or facsimile transmission, and will be addressed or delivered as provided in
attached EXHIBIT "A".
14. ARBITRATION. If a dispute or claim shall arise with respect to any
of the terms or provisions of this Agreement, then either party may, by
notice as herein provided, require that the dispute be submitted under the
Commercial Arbitration Rules of the American Arbitration Association to an
arbitrator in good standing with the American Arbitration Association within
fifteen (15) days after such notice is given. Any such arbitrator so selected
is to be mutually acceptable to both parties. If both parties are unable to
agree upon a single arbitrator, each party shall appoint one (1) arbitrator.
If either party does not appoint an arbitrator within five (5) days after the
other party has given notice of the name of its arbitrator, the single
arbitrator appointed by the party giving notice shall be the sole arbitrator
and such arbitrator's decision shall be binding upon both parties. If two (2)
arbitrators are appointed, these two (2) arbitrators shall appoint a third
arbitrator who shall proceed to resolve the question. The written decision of
the single arbitrator ultimately appointed by or for both parties shall be
binding and conclusive on the parties. Judgment may be entered on such
written decision by the single arbitrator in any court having jurisdiction
and the parties consent to the jurisdiction of Orange County, California for
this purpose. Any arbitration undertaken pursuant to the terms of this
section shall occur in Orange County, California. Notwithstanding the above,
any award or judgment provided under these provisions shall be limited to the
direct damages suffered by the aggrieved party. Neither
<PAGE>
party shall be responsible for indirect, consequential or punitive damages
arising out of this Agreement.
15. ATTORNEYS' FEES. In the event of any legal, equitable or
administrative action or proceeding brought by any party against another
party under this Agreement, the prevailing party shall be entitled to recover
the reasonable fees of its attorneys and any costs incurred in such action or
proceeding including costs of appeal, if any, in such amount that the court
or administrative body having jurisdiction over such action may award.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such
counterpart.
17. SEVERABILITY. If any provisions(s) of this Agreement shall be held
to be invalid, illegal, or unenforceable by a court or other tribunal of
competent jurisdiction, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
18. NO IMPLIED WAIVERS. No failure or delay by a party in enforcing any
right or remedy under this Agreement shall be construed as a waiver of any
future or other exercise of such right or remedy such party.
19. GOVERNING LAW. This Agreement will be construed and enforced in
accordance with, and governed by, the laws of the State of California without
giving effect to any conflict of laws principles. The parties hereby consent
to the personal jurisdiction of the courts of the County of Orange,
California and waive any rights to change venue.
20. FORCE MAJEURE. Neither party shall be in default if failure to
perform any obligation hereunder is caused solely by supervening conditions
beyond that party's control, including acts of God, civil commotion, strikes,
labor disputes, and governmental demands or requirements.
21. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement and the schedules
and exhibits attached hereto, which are incorporated by reference, constitute
the entire agreement of the parties as to the matters set forth herein and
supersede any previous negotiations, agreements, understandings, and
arrangements between the parties relating hereto. Except as otherwise
expressly provided herein, any amendments to this Agreement must be in
writing and must be signed by a duly authorized representative of each party.
22. MISCELLANEOUS. Definitions of undefined capitalized terms are set
forth in EXHIBIT "B" hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on the day and year first above written.
"DEVELOPER" "CUSTOMER"
INTERNET SPORTS NETWORK, INC. LABATT BREWING COMPANY LIMITED
a Florida corporation
By: /S/ KEN CREMA By: /S/ ROCCO ROSSI
------------------------------- -------------------------------
Ken Crema Rocco Rossi
<PAGE>
Its: Chief Executive Officer Its: Vice President
By: /S/ ANDREW DEFRANCESCO
-------------------------------
Andrew DeFrancesco
Its: President
<PAGE>
EXHIBIT "A"
DESCRIPTION OF WORK
1. CONTEST SITE DEVELOPMENT SERVICES:
Developer shall design, develop, implement, install and test and be
the exclusive provider and operator of free and pay for play sports pools and
related sports, fantasy and trivia contests (the "Contests") for Customer on
the Contest Site for the following specific sports: football, baseball,
basketball, hockey, auto racing, soccer and golf the functionality of which
shall be discussed and mutually approved by Customer and Developer. Developer
will create all code necessary to build the Contest site including HTML and
CGI scripts for the purpose of creating text pages, graphic layouts, Email
generators and linkage between pages.
2. CONTEST SITE MAINTENANCE SERVICES:
Developer will thoroughly review and test each Contest Site page and
feature. Errors in function, navigation, spelling, grammar and punctuation
will be scrutinized throughout the process as well as during the allocated
test period. Developer shall provide a service level agreement ("SLA") to
Customer's satisfaction.
3. CUSTOMER CONTENT
Customer agrees to use its best efforts to advertise and promote the
Beer.com Site and the Contest Site throughout the term of this Agreement.
Customer anticipates that it will spend approximately $30 to $35 million in
advertising promotions in North America and $2-3 million in direct
advertising spending on Beer.com during the initial 14 months of this
Agreement. Customer anticipates that it will spend approximately $15-20
million 12 to 18 months from the launch of Beer.com for advertising and
promotion of the Beer.com web site in Europe, South America and Asia.
Customer anticipates that its Beer.com site shall receive 15-20 million page
views a month within one year of its launch and 500,000 unique users and
160,000,000 pages views per month and 4,000,000 unique users by the end of 5
years from its launch. Customer's efforts are designed to generate by
Customer at least 80,000 unique users of the Contest Site by the end of the
initial 14 months of the Agreement and achieve 5 million page views per month
or 1,000,000 registered users of the Contest Site by the end of the term of
this Agreement (the "Performance Standards".) Should Customer fail to
generate at least 80,000 registered users by the end of the first 14 months
of this Agreement, Customer and Developer agree to review and renegotiate
this Agreement, at the initiation of Developer.
Customer shall provide all prizes for contests.
4. SCHEDULE OF DELIVERABLES
PHASE 1 - PLAN, DESIGN AND DEVELOPMENT (AUGUST 1 TO SEPTEMBER 15, 1999)
Developer and Customer personnel will work together to create a mutually
acceptable `template' for the initial Contest Site. This template will be
designed to complement Customer's current look and image and will be flexible
enough to handle Customer's future plans for the Contest Site. The Contest
Site will be designed to allow for the easy addition of new contests as each
Game begins ( ie. football in Aug., hockey in Sept., basketball in October
and baseball in March). The Contest Site will also be designed with the
flexibility to easily add new features and
<PAGE>
functionality as they are developed. A team of Developer's web developers
will create the initial Contest Site based on these design specifications.
Cost: no charge to Customer
PHASE 2 - LAUNCH OF THE CONTEST SITE (SEPTEMBER 15 TO DECEMBER 31, 1999)
The Initial site will be mainly a contest site with at least one contest
available by September 15 (most likely a Fantasy Hockey and a Game day or
Trivia game) with several other contests added during the fall. This first
set of contests will be simple, fun and free or inexpensive (best method to
build a following). Developer recommends waiting until next year to add more
complex, pay-to-play contests.
Cost: no charge to Customer
PHASE 3 - ADD NEW FEATURES AND FUNCTION (SEPTEMBER 15, 1999 TO APRIL 30,
2000)
The initial Contest Site will be designed with the flexibility to add new
features and functions (as described in the Road Map which is attached hereto
as Exhibit A-1 and incorporated herein by this reference), when Customer is
ready. During the next 6 months Customer and Developer will implement some,
(or all) of the following features as described in the Road Map: sports
content, polls, advertising/sponsorship, e-commerce, chat areas, TV
programming, e-mail, etc. Developer will host the initial Contest Site on
Developer servers until Customer has the infrastructure (equipment and
resources) to take it over.
Cost: No charge to Customer.
PHASE 4 - MIGRATION TO BEER.COM SYSTEM (BY SEPTEMBER 2001)
Developer will migrate the Contest Site to new servers at the Customer
offices once Customer is ready to host and operate the Contest Site.
Developer will oversee the installation and setup of new hardware and
training of Customer personnel to take over the operations of the Contest
Site. Customer will provide hardware and personnel to take over the
operations of the Contest Site. Should the system not be migrated by
September 15, 2001, then Customer agrees to pay Developer a service fee to be
negotiated based on the then current market price.
PHASE 5 - REVENUE SHARING FOR CONTESTS AND SPONSORSHIP/ADVERTISING
(SEPTEMBER 15 AND ONGOING)
Developer will be available to help with new and additional contests, excluded
from the definition of Contests in this exhibit, Contest Site development and
maintenance as consultants on an hourly basis ($125/hr plus expenses). Developer
will also continue to design, maintain and operate the Contests for Customer at
no charge for the term of this Agreement. Revenue generated (fees paid by
contestants and sponsorship/advertisers will be shared as outlined below:
<TABLE>
<CAPTION>
Revenue Sharing Schedule
Customer Developer
<S> <C> <C>
Contestant generated game revenue 10% 90%
Game Page Sponsorship/Advertising 90% 10%
generated revenue introduced by Customer
<PAGE>
Game Page Sponsorship/Advertising 10% 90%
generated revenue introduced by Developer
and approved by Customer
</TABLE>
Revenue shall be payable on a quarterly basis by Developer to Customer.
Developer shall provide a summary of revenue generated for the prior quarter
plus payment to Customer of Customer's share to Customer by no later than the
fifteenth day of the month following the quarter being reported. Revenue
generation fees will be due to Customer beginning upon the launch of the
Contest Site and shall continue during the life of this Agreement. Customer
shall have the right to audit, at any time upon 5 days prior notice,
Developer's books and records if Customer believes that the reports do not
accurately reflect the revenue generated. The cost of any audit shall only be
paid by Developer if the audit reveals a discrepancy in revenues reported
and/or paid of 3% of the reported or paid revenues. Developer and Customer
acknowledge that after the Contest Site is migrated to Customer, Customer
shall be responsible for making the reports and the payments indicated above.
The audit rights shall thereafter be those of the Developer.
PHASE 6 - REVENUE SHARING FOR SPORTS MEMORABILIA (SEPTEMBER 15 AND ONGOING)
Revenue generated by the sale of sports memorabilia on the Contest Site shall
be shared amongst Customer and Developer. Revenue, for purposes of this Phase
6, shall be defined as the list price of the memorabilia on the Contest Site
less any membership discounts and any costs associated with shipping,
handling, taxes and international premiums, including but not limited to
duties or levies.
<TABLE>
<CAPTION>
Revenue Sharing Schedule
Customer Developer
<S> <C> <C>
Developer Unique Sports Memorabilia 13% 87%
All other Sports Memorabilia 50% 50%
</TABLE>
Revenue shall be payable on every 45 days by Developer to Customer. Developer
shall provide a summary of revenue generated for the prior 45 day period plus
payment to Customer of Customer's share to Customer by no later than the
fifteenth day of the month following the 45 day period being reported.
Revenue generation fees will be due to Customer beginning upon the launch of
the Contest Site and shall continue during the life of this Agreement.
Customer shall have the right to audit, at any time upon 5 days prior notice,
Developer's books and records if Customer believes that the reports do not
accurately reflect the revenue generated. The cost of any audit shall only be
paid by Developer if the audit reveals a discrepancy in revenues reported
and/or paid of 3% of the reported or paid revenues. Customer and Developer
agree that the terms of any revenue sharing generated by any sports
merchandising other than Sports Memorabilia shall be subject to an agreement
to be negotiated by and between the parties. Developer and Customer
acknowledge that after the Contest Site is migrated to Customer, Customer
shall be responsible for making the reports and the payments indicated above.
The audit rights shall thereafter be those of the Developer.
<PAGE>
5. PROJECT LIAISONS
Developer:
__________________
__________________
__________________
Tel:______________
Fax:______________
Customer:
__________________
__________________
__________________
Tel:______________
Fax:______________
6. EXCLUSIVITY FEE
In exchange for the exclusive right to develop, design and maintain
the Contest Site and its related contests, Developer hereby agrees to provide
Customer with a 5% equity interest or 1,000,000 shares of common stock of
Developer (the "Shares"). The Shares will be issued immediately upon the
execution of this Agreement and held in escrow at the offices of Developer's
counsel subject to an escrow agreement attached hereto as EXHIBIT "A-2". The
Shares shall be divided into 5 equal share certificates of 200,000 shares
each. One share certificate shall be released on each anniversary of the
Agreement beginning August 1,2000. However, as described in the Escrow
Agreement, all shares will be released prior to the expiration of the term
if, over the first year of the Agreement, Developer is the net beneficiary of
5 million page views per month or 1 million registered users generated by
Beer.com over the same period. It shall be determined whether this early
release condition has been met at the end of the first year of the term. The
Parties agree that should this Agreement be terminated Customer with cause
and without cure by Developer all shares will be immediately released from
escrow. Also, should the Agreement be terminated with cause by Developer
prior to the end of the term, Customer shall only be entitled to the shares
entitled to be released as of that date. If the termination occurs within an
annual period, Customer shall be entitled to the release of the full amount
of the Shares to be released at the end of that annual period.
<PAGE>
EXHIBIT "B"
DEFINITIONS
1. CORRECTION: means the "debugging" or elimination of errors that cause the
Contest Site to fail to work strictly in accordance with the Design
Specifications or introduce results that atypical user would believe are
unintended.
2. DELIVERABLE: means any item to be delivered by Developer to Customer in
accordance with the Delivery Schedule set forth in Exhibit "A".
3. DESIGN SPECIFICATION: means the detailed written description of the
Contest Site's functional and aesthetic aspects including without limitation,
the design, operating features, interfaces and technical requirements for the
Contest Site as set forth in Exhibit "A" or an attachment hereto.. The Design
Specifications shall be initialed by the parties and thereafter be deemed
attached hereto and incorporated herein.
4. CUSTOMER CONTENT: means any audio and audiovisual material, photographs,
artwork, text and other materials provided to Developer by Customer,
including without limitation all copyrighted or trademarked materials.
5. INTELLECTUAL PROPERTY RIGHTS: means any and all (by whatever term known or
designated) tangible and intangible, now known or hereafter existing (a)
rights associated with works of authorship throughout the universe, including
but not limited to all exclusive exploitation rights, copyrights, neighboring
rights, and moral rights; (b) trademark and trade name rights and similar
rights; (c) trade secret rights; (d) patents, designs, algorithms and other
industrial property rights; (e) all other proprietary rights of every kind
and nature throughout the universe, however designated (including without
limitation, logos, character rights, "rental" rights and rights to
remuneration), whether arising by operation of law, contract, license or
otherwise; and (f) all registrations, applications, renewals, extensions,
continuations, divisions or reissues thereof now or hereafter in force
throughout the universe.
6. CONTEST SITE: means the site on the World Wide Web to be developed by
Developer hereunder and all portions thereof, including without limitation,
all HTML, Java and other formatted text files, all graphics, animation and
data files, and all computer software and other script or program files
required to exploit such materials and that collective control the display of
and user interaction with the Contest Site and have the features and
capabilities described in the Design Specifications.
7. DESCRIPTION OF WORK: means a written description of the work to be
performed by Developer hereunder.
8. UTILITIES: means all source code and object code for development tools or
other technology embodied in or used in connection with the development of
the Contest Site.
9. WORK PRODUCT: means all results or proceeds of the services of Developer
and of all persons and entities rendering services, in connection with the
Contest Site, including all physical embodiments thereof, whether or not
incorporated into a Deliverable.
<PAGE>
ESCROW AGREEMENT
THIS ESCROW AGREEMENT ("Agreement") is effective the 1st day of August
1999, by and between INTERNET SPORTS NETWORK, INC., a Florida corporation
("ISN") and LABATT BREWING COMPANY LIMITED, or any affiliate thereof ("LBCL")
and HORWITZ & BEAM, INC., a California corporation ("Escrow Agent").
R E C I T A L S
A. ISN and LBCL have entered into a Site Development Services Agreement
dated effective August 1, 1999, (the "Agreement") wherein ISN agrees to
transfer to LBCL up to 1,000,000 shares of common stock of ISN to LBCL (the
"Stock"). Also according to the Agreement, ISN and LBCL have agreed that the
Escrowed Property, as hereinafter defined, shall be released only upon the
conditions stated in the Agreement and as more fully defined herein. For the
purposes of this Agreement "Escrowed Property" means the Stock and all cash,
securities and/or property in any way distributed in respect of the Stock or
any Escrowed Property and any cash, securities or property resulting from or
received in respect of any securities or property resulting from or received
in respect of any subdivision, consolidation or other change in the Stock or
Escrowed Property or any consolidation, merger or other transaction involving
ISN.
B. ISN, Escrow Agent and LBCL desire to enter into this Agreement
pursuant to which Escrow Agent will provide escrow services for ISN and LBCL
in connection with the Escrowed Property.
A G R E E M E N T
1. APPOINTMENT OF ESCROW AGENT. ISN and LBCL hereby appoint Escrow Agent,
and Escrow Agent hereby accepts the appointment, as escrow agent to receive,
hold, and release pursuant to the terms hereof, the Stock.
2. TERMS OF ESCROW. Escrow Agent covenants and agrees as follows:
1. RETENTION. Escrow Agent shall hold all Stock deposited
herewith until the terms permitting its release pursuant to the Agreement
have been met.
2. RELEASE. The Stock shall be released to LBCL according to the
following schedule, unless earlier released as set forth below:
i. On August 1, 2000 a certificate representing 200,000 shares and
all other Escrowed Property shall be released.
ii. On August 1, 2000 a certificate representing 200,000 shares
and all other Escrowed Property shall be released
<PAGE>
iii. On August 1, 2002 a certificate representing 200,000 shares
and all other Escrowed Property shall be released
iv. On August 1, 2003 a certificate representing 200,000 shares
and all other Escrowed Property shall be released
v. On August 1, 2004 a certificate representing 200,000 shares and
all other Escrowed Property shall be released
c. EARLY RELEASE. The Escrowed Property may be released earlier
then the above schedule, but no sooner than August 1, 2000, upon the
following conditions:
i. Escrow Agent receives written notice from ISN or LBCL that
there has been 5 million page views in any month or 1 million registered
users in any year at any time prior to the end of the term and that ISN or
LBCL requests that Escrow Agent release all of the Escrowed Property; or
ii. Escrow Agent receives written notice from ISN or LBCL that
a greater than 50% interest in ISN , or all or substantially all of ISN's
assets, will be sold or transferred within the sixty (60) days following the
date of the written notice, and that ISN or LBCL requests that Escrow Agent
release all of the Escrowed Property.
iii. Escrow Agent receives notice from either ISN or LBCL that
the other party has terminated the Agreement with cause, as is defined
therein. Upon receipt of such notice, Escrow Agent shall provide notice to
the non-terminating party of the termination notice. Should the
non-terminating party not respond to the Escrow Agent's notice within ten
(10) days of the date Escrow Agent sends notice to the non-terminating party,
the Escrowed Property shall be released: if LBCL is the terminating party all
Escrowed Property held hereunder shall be released to LBCL; if ISN is the
terminating party, LBCL shall receive the Escrowed Property entitled to be
released as of the date the notice of termination is received by Escrow
Agent, provided that if the termination by ISN occurs within an annual
period, LBCL shall be entitled to the release of the full amount of the
Escrowed Property to be released on the next otherwise scheduled release date
Should the non-terminating party provide written notice that the termination
has been cured or is invalid within the 10 day notice period set forth above,
Escrow Agent shall immediately inform the terminating party of the
non-terminating party's response. Should the termination notice not be
retracted within 5 days of Escrow Agent's notification of the non-terminating
party's notice, the Escrow Agent shall consider this a disagreement between
the parties and shall treat the Ecrowed Property according to section 4
herein.
3. CONDITIONS PRECEDENT TO RELEASE. Escrow Agent shall not undertake to
release any of the Escrowed Property to Purchaser until the appropriate dates
indicated in section 2 above.
<PAGE>
4. DISAGREEMENTS. In the event of any disagreement between ISN and LBCL, or
any of them or any other person or persons whether or not named in this
Agreement, and adverse claims or demands are made in connection with or for
any of the Escrowed Property, Escrow Agent shall be entitled at its option to
refuse to comply with any such claim or demand so long as such disagreement
shall continue, and in so doing, Escrow Agent shall not be or become liable
for damages or interest to the foregoing, or any of them, or to any other
person or persons for Escrow Agent's failure or refusal to comply with such
conflicting or adverse claims or demands. Escrow Agent shall be entitled to
continue so to refrain and refuse so to act until:
a. the rights of the adverse claimants have been fully adjudicated
in a court assuming and having a jurisdiction of the claimants and the
Escrowed Property; or
b. all differences shall have been adjusted by agreement, and Escrow
Agent shall have been notified thereof in writing by all persons deemed by
Escrow Agent, in its sole discretion, to have an interest therein.
In addition, Escrow Agent, in its sole discretion, may file a suit in
interpleader for the purpose of having the respective rights of all claimants
adjudicated, and may deposit with the court all of the Escrowed Property; and
the parties each agree to pay one-half of all costs and counsel fees incurred
by Escrow Agent in such action, said costs and fees to be included in the
judgment in any such action.
5. COURT ORDERS. Escrow Agent is hereby authorized, in its exclusive
discretion, to obey and comply with all writs, orders, judgments or decrees
issued by any court or administrative agency affecting any money, documents
or things held by Escrow Agent, Escrow Agent shall not be liable to any of
the parties hereto, their successors, heirs, or personal representatives by
reason of Escrow Agent's compliance with such writs, orders, judgments or
decrees, notwithstanding such writ, order, judgment or decree is later
reversed, modified, set aside or vacated.
6. TERMINATION. Notwithstanding anything in this Agreement to the contrary,
Escrow Agent may, in its sole discretion, upon twenty (20) days written
notice to ISN and LBCL, resign as Escrow Agent and shall be entitled to
reimbursement for those costs and expenses incurred to the date of such
resignation. In the event the parties fail to appoint a successor escrow
agent and notify the Escrow Agent in writing of such appointment within such
20-day period, the Escrow Agent shall be deemed to be solely a custodian of
the Escrowed Property without further duties hereunder, and shall be entitled
to petition a court of competent jurisdiction to appoint a successor escrow
agent. Upon the appointment of a successor escrow agent by the parties
hereunder or by such court, the Escrow Agent's duties and liabilities under
this Agreement shall terminate.
7. LIMITATION ON LIABILITY. Escrow Agent may rely on and shall suffer no
liability as a result of acting in accordance with any written notice,
instruction or request furnished to Escrow Agent hereunder which is
reasonably believed by Escrow Agent to be
<PAGE>
genuine and to have been signed or presented by a person reasonably believed
by Escrow Agent to be authorized to act on behalf of ISN or LBCL, as the case
may be. Escrow Agent shall not be liable for any action taken by it in good
faith and believed by it to be authorized or within the rights or powers
conferred upon it by this Agreement. Escrow Agent may consult with counsel of
its own choice, and shall have full and complete authorization and protection
for any action taken or suffered by it hereunder in good faith and in
accordance with the opinion of such counsel.
8. MISCELLANEOUS.
a. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding of the parties hereto with respect to the transactions
contemplated hereby, and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof.
b. RIGHTS AS STOCKHOLDER. The parties acknowledge and agree that despite
the existence of this escrow agreement, LBCL shall be treated equally with
all other ISN shareholders. In the event of a stock split, merger,
reorganization or other change in the rights or shareholdings of ISN's common
stock, LBCL shall be treated in a like manner with the other shareholders of
ISN.
c. RIGHTS OFFERING BY ISN. If ISN or any successor corporation
undertakes any rights offering pursuant to which the holder of shares of the
same class as the Stock will be offered the right to obtain additional shares
of such class or another class, the rights under such offering attributable
to the Stock shall be the same as the rights under such offering attributable
to other shares of the same class as the Stock. To the extent that rights
under an offering are attributable to the Stock, the Escrow Agent may sell or
exercise such rights only on the written direction of LBCL and may provide
the Escrow Agent with all funds necessary for the Escrow Agent to sell or
exercise such rights. To the extent that such rights are exercised by the
Escrow Agent on the direction of LBCL, the Escrow Agent shall release from
escrow, and is hereby irrevocably directed to deliver to LBCL the Escrowed
Property, issuable on the exercise of such rights. If the Escrow Agent is
directed to sell such rights, the Escrow Agent shall do so on a best efforts
basis and shall not be liable for not selling such rights at any particular
price or time or at all. To the extent that such rights are sold by the
Escrow Agent on the direction of LBCL, the proceeds therefrom shall form part
of the Escrowed Property
d. VOTING. The parties agree that the Stock will be voted LBCL as it may
direct from time to time.
e. NOTICES. Any notice, request, instruction, or other document required
by the terms of this Agreement, or deemed by any of the parties hereto to be
desirable, to be given to any other party hereto shall be in writing and
shall be given by facsimile, personal delivery, overnight delivery, or mailed
by registered or certified mail, postage prepaid, with return receipt
requested, to the following addresses:
<PAGE>
If to Escrow Agent: Horwitz & Beam
Two Venture Plaza, Suite 350
Irvine, CA 92618
Fax: 949/453-9416
Attention: Lawrence W. Horwitz, Esq.
If to ISN: Internet Sports Network, Inc.
225 Richmond Street West, Suite 403
Toronto, Ontario
Canada M5V 1W2
Fax: (416) 599-8228
Attention: Andrew DeFrancesco, Chairman
If to LBCL: Labatt Brewing Company Limited
181 Bay Street Suite 200
Toronto Ontario
Canada M5R 2T3
Fax: (416) 361-5200
Attention: Rocco Rossi, Vice-President
Interactive Media
The persons and addresses set forth above may be changed from time to
time by a notice sent as aforesaid. If notice is given by facsimile, personal
delivery, or overnight delivery in accordance with the provisions of this
Section, said notice shall be conclusively deemed given at the time of such
delivery. If notice is given by mail in accordance with the provisions of
this Section, such notice shall be conclusively deemed given seven days after
deposit thereof in the United States mail.
f. AMENDMENTS AND WAIVERS. Any term, provision, covenant,
representation, warranty or condition of this Agreement may be waived, but
only by a written instrument signed by the party entitled to the benefits
thereof. The failure or delay of any party at any time or times to require
performance of any provision hereof or to exercise its rights with respect to
any provision hereof shall in no manner operate as a waiver of or affect such
party's right at a later time to enforce the same. No waiver by any party of
any condition, or of the breach of any term, provision, covenant,
representation or warranty contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a further or continuing
waiver of any such condition or breach or waiver of any other condition or of
the breach of any other term, provision, covenant, representation or warranty.
g. ATTORNEYS' FEES. In the event either party hereto shall commence
legal proceedings against the other to enforce the terms hereof, or to
declare rights hereunder, as the result of a breach of any covenant or
condition of this Agreement, the prevailing party in any such proceeding
shall be entitled to recover from the losing party its costs of suit,
including reasonable attorneys' fees, as may be fixed by the court.
h. EXECUTION OF ADDITIONAL DOCUMENTS. Each party hereto shall make,
execute, acknowledge and deliver such other instruments and documents, and
take all such other actions as may be reasonably required in order to
effectuate the purposes of this Agreement and to consummate the transactions
contemplated hereby.
<PAGE>
i. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of such state without giving effect to any
principles of conflict of laws. The parties hereby irrevocably consent to the
jurisdiction of the courts of the State of California.
j. BINDING EFFECT AND ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, administrators, legal representatives and assigns. Notwithstanding
the foregoing, neither this Agreement, nor any rights, liabilities or
obligations hereunder may be assigned by Escrow Agent without the prior
written consent of ISN and LBCL, such consent not to be unreasonably withheld
or delayed.
k. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In making proof of this Agreement, it shall not
be necessary to produce or account for more than one such counterpart.
IN WITNESS WHEREOF, the parties have caused this Agreement to be entered
into as of the date first written above.
ISN LBCL
INTERNET SPORTS NETWORK LABATT BREWING COMPANY LIMITED
a Florida corporation
By: /s/ Andrew DeFrancesco By: /s/ Rocco Rossi
------------------------ ------------------------------
Andrew DeFrancesco, Chairman
Its:
-----------------------------
ESCROW AGENT
HORWITZ & BEAM, INC.
a California corporation
By: /s/ Lawrence W. Horwitz
------------------------
Lawrence W. Horwitz, Vice President
<PAGE>
EXHIBIT 10.2
ONLINE CONTESTS SERVICES Agreement
between the Company and PLAYBOY ENTERPRISES INTERNATIONAL, INC.
dated july 15, 1999
<PAGE>
ONLINE CONTESTS SERVICES AGREEMENT
THIS ONLINE CONTESTS SERVICES AGREEMENT ("Agreement"), is entered
into effective July 15, 1999 by and between INTERNET SPORTS NETWORK, INC., a
Florida corporation ("Operator"), and PLAYBOY ENTERPRISES INTERNATIONAL,
INC., a Delaware corporation ("Customer") (collectively referred to herein as
the "Parties".)
RECITALS
A. Operator has certain expertise and know-how enabling it to
provide sports content and services to Customer;
B. Operator and Customer wish to enter into this Agreement whereby
Operator shall be the exclusive provider of certain online contests and
services to Customer (as defined herein the "Contests") upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
AGREEMENT
1. SCOPE OF WORK.
a. CONTEST DEVELOPMENT AND OPERATION. In accordance with the
"Description of Work" attached hereto as EXHIBIT "A" and incorporated herein
by this reference, Operator shall design, develop, customize, implement, and
operate the Contests indicated on EXHIBIT "A" for the use of Customer on a
website (as defined herein the "Site") linked to Customer's free Playboy
Online web site. Operator shall be the exclusive developer, provider,
designer, customizer, implementer, installer, tester and operator for the
Site provided, however, that Operator may utilize the services of such third
parties as is necessary to provide the services stated herein. Such use does
not eliminate Operator's exclusive agreement with Customer.
b. MAINTENANCE SERVICES. As more fully described in EXHIBIT "A",
Operator shall provide on-going maintenance of the Contests to Customer.
2. COMPENSATION. Subject to the terms hereof, Customer and Operator shall
share in the revenues generated as set forth in EXHIBIT "A". Operator's share
of revenues will constitute its compensation in full for all services
provided by it hereunder.
3. TERM. The initial term of this Agreement shall be two years commencing on
the execution date of this Agreement and ending two years thereafter (the
"Initial Term"). This Agreement may be renewed for an additional one year
term, on the same terms and conditions as contained herein by execution of an
intention to renew by both parties at least thirty (30) days prior to the end
of the term.
4. DEVELOPMENT OF THE CONTESTS.
a. CONTENT. Operator shall develop the design the contest design
specifications for each contest (hereinafter referred to as "Contest
Mechanics") and install and test the contests in accordance with EXHIBIT "A".
Except for the Customer content to be provided by Customer in accordance with
EXHIBIT "A", Operator shall provide or obtain all necessary Content,
<PAGE>
programming and other production services and materials, and shall use its
best efforts to negotiate the necessary licensing, rights and consents
required for the operation of the Site and the use of the Content thereof,
including licensing from baseball, hockey, football and other player's
associations and all such other licenses, rights and consents necessary to
operate the Contests on the Site, all as further outlined in EXHIBIT "A".
Operator and Customer shall consult with each other regarding the Content to
be placed throughout the development of the Contests.
b. APPROVAL. Customer and Operator shall mutually approve all
elements of the Contests on the Site and all Content on the Site and no
Content or Contests shall be placed on the Site except as so mutually
approved..
c. ALTERATIONS. If Customer wishes to alter the Description of Work,
Customer will describe the proposed alteration to Operator. Operator will
then submit a written change order to Customer within five (5) days of the
proposed alteration for Customer approval which will include a statement of
any additional charges and any schedule adjustments resulting from the
proposed alteration. Customer will indicate its approval or disapproval of
the change order as soon as reasonably practicable but no later than within
five (5) days of receipt thereof from Operator. On acceptance of the proposal
in writing by Customer, the Description of Work will be deemed to be amended
to incorporate such change order.
d. OPERATION. Operator shall operate the Site and the Contests
during the term of this Agreement as set forth in EXHIBIT "A" and as
otherwise reasonably required to fulfill the purposes of this Agreement.
5. DELIVERY SCHEDULE.
a. DELIVERY. Operator shall deliver all Deliverables on the dates
specified in the Delivery Schedule set forth in EXHIBIT "A". Definitions of
capitalized terms are set forth in EXHIBIT "B" hereto and incorporated herein
by this reference.
b. CONFORMITY. Deliverables shall conform to the Contest Mechanics,
Description of Work and/or any modifications thereto pursuant to EXHIBIT "A".
6. PROJECT LIAISONS. Unless and until otherwise designated in writing by
Operator or Customer, as the case may be, the project liaisons for the
parties are listed on EXHIBIT "A". All discussions involving the Description
of Work shall be conducted by these persons, or their designees, and any
agreement on the Design Specifications and changes thereto shall be in
writing and signed by the project liaisons.
7. CONTINUING OBLIGATIONS Operator shall, from time to time, if requested by
Customer, make such revisions and corrections to the Site and Contests as
Customer shall request, subject to Operator's approval, which will not be
unreasonably withheld and will not be withheld as to changes that are
necessary for compliance with the terms of this Agreement.
8. PROPRIETARY RIGHTS.
a. INTELLECTUAL PROPERTY LICENSE. The Site and Contests are produced
and specially ordered at Customer's request and direction. Customer, its
successors and assigns, shall have and is granted a license to use the Site
and Contests, for the term of this Agreement and in all languages, embodied
in or pertaining to the Site and Contests and Operator hereby licenses for
the term of this Agreement, to Customer (a) all such Intellectual Property
Rights necessary for the operation of the Contests and Site; (b) all
contracts, agreements, assignments, documents and/or
<PAGE>
instruments to which Operator may have heretofore acquired pertaining to the
Intellectual Property Rights necessary for the operation of the Contests and
Site; and (c) all releases, warranties, indemnities and undertakings acquired
by Operator in connection with Operator's services hereunder in respect to
the Site and Contests.
b. AUTHORSHIP. Operator shall be deemed the creator and author of
the Site and Contests. Customer hereby grants Operator the right to place and
maintain, on the Site, the credit "developed and designed by Internet Sports
Network, Inc.". Operator acknowledges and agrees that, as between Operator
and Customer, Customer owns all right, title and interest in all Customer
Content. Customer may utilize, distribute and otherwise exploit in any manner
the Customer Content without any obligation to Operator except as stated
herein. In addition, Customer shall own all right, title and interest in and
to the look and feel and other unique visual copyrights in the Site.
c. RIGHTS IN INDEPENDENTLY OWNED PROPERTY. Notwithstanding anything
to the contrary herein, Operator shall retain all rights, title and interest
in any Intellectual Property, Contests, and Utilities created by Operator
prior to or during the term of this Agreement including those which are used
in the Site or Contests and the development thereof. Customer shall retain
all rights, title and interest in Customer's intellectual property which is
unrelated to the Site or this Agreement.
d. FURTHER ACTS. Operator and Customer shall execute any and all
documents and do such other acts requested at any time by Operator and
Customer as may be required to evidence, and/or further effect the rights
granted to either party hereunder.
e. COPYRIGHT AND TRADEMARK NOTICES. Customer shall provide Operator
with copyright, trademark or other proprietary rights notices in Customer's
name for inclusion on the Site contests as Customer shall direct.
f. TRADEMARKS. Operator shall not use any trademarks, service marks,
logos or other marks or names of Customer except in connection with the Site
and the operation of the Contests. Each such use from the Site and the
Contests will be subject to approval by Customer in each specific instance
and will comply with all rules and guidelines that may be provided by
Customer to Operator from time to time.
g. REFERENCES. Customer grants Operator the right to refer to the
Site and Contests as an example of its work and to list Customer in its list
of references and marketing materials provided that the specific references
to Customer must be approved by customer in its reasonable discretion.
9. CONTROL OF ADVERTISING AND TRANSACTIONS. All advertising, advertising
inventory shall be controlled by Customer, which will provide tags to
Operator for the use of the Site so that the Site can be serviced by
Customer's ad servers.
10. CONFIDENTIAL INFORMATION.
a. CONFIDENTIAL INFORMATION DEFINED. The parties may, during the
performance of its services hereunder, have access to and acquire knowledge
from material, data, systems and other information concerning the operation,
business financial affairs, products, customers, Intellectual Property Rights
or other aspects of the other party that may not be known to the general
public ("Confidential Information"). "Confidential Information" also includes
(a) the Contests and the Customer and Operator Content; (b) the terms of this
Agreement, and (c) any information or materials that the other party obtains
from any third party that the disclosing party treats as
<PAGE>
proprietary or designates as Confidential Information, whether or not owned
by the disclosing party. "Confidential Information" does not include
information that the non-disclosing party can document in reasonable detail
to the disclosing party's satisfaction: (i) is known by the other party at
the time of receipt from the disclosing party and is not subject to any other
non-disclosure agreement between the parties; (ii) is now, or hereafter
becomes, generally known to the industry through no fault of the
non-disclosing party; or, (iii) is otherwise lawfully and independently
developed by the non-disclosing party, or lawfully acquired from a third
party without any obligation of confidentiality.
b. NON-DISCLOSURE. Neither party shall use, publish or divulge any
Confidential Information to any third party without the other's prior,
express, written approval, which the other party may withhold in its sole
discretion. Both Parties shall cause its employees, agents and every other
party it employs in connection with this Agreement, to protect the
Confidential Information from unauthorized use or disclosure with the same
degree of care, but no less reasonable care, as the party uses to protect its
own confidential information of like nature. In the event that either party
is directed to disclose any portion of the Confidential Information in
conjunction with a judicial proceeding or arbitration, the party required to
disclose shall immediately notify the other thereof in writing. Upon the
termination of this Agreement, each party shall immediately return all
Confidential Information to the other party.
c. EXCEPTED USE. The parties agree that notwithstanding section
9(b), visitors to the Site will be informed that information may be obtained
from such visitors through use of the Site and participation in the Contests
("Visitor Information"); such visitors will be provided with the option of
making Visitor Information available to Customer and Operator as set forth in
the "Terms of Use" of the Site (provided that, unless the parties otherwise
agree, the use of aggregated data about visitors that do not reveal nay
individual information about the visitor will automatically be permitted).
The parties will mutually crate the Terms of Use of the Site, including the
terms for the use of any Visitor Information; provided that such Terms of Use
shall generally be consistent with terms of use of Customer's own free web
site, including provisions requiring protection of the privacy rights of
visitors. Each party will use information so obtained only as permitted by
such Terms of Service and visitor consents. Subject to the foregoing, all
Visitor Information, including the database of names and information
regarding participants in the Contests and users of the Site shall be the
equal property of Operator and Customer (and neither party will be required
to account to the other for any revenues from the use thereof.) Operator and
Customer hereby acknowledge the right of the other party to use the Visitor
Information subject to the terms of this Section; provided that, during the
term of this Agreement and for a period of two years thereafter, neither
party will use Visitor Information for any purposes which may conflict with
the use of the other party; the parties will set forth in writing within
thirty (30) days of the date hereof what uses may be deemed to be in conflict
with each other's uses. In addition, each party will comply with the privacy
rights of all visitors to the Site. d. SITE CONFIDENTIAL. Customer
will own all traffic information relating to the Site, which will be deemed a
Customer owned site for all reporting and other purposes. Operator will
provide Customer on a daily, electronic as is (real time if practicable) with
all logs and other traffic information and all Visitor Information. Without
limiting the foregoing, Operator shall provide password protected access to
the "traffic pages" for the Contests posted to the Internet for Customer's
review.
e. INJUNCTIVE RELIEF. The Parties acknowledge that the other party
will be irreparably harmed if the obligations under this section is not
specifically enforced and that the aggrieved party would not have a remedy at
law in the event of potential or certain violations by the other party of its
obligations under this Agreement. Therefore,
<PAGE>
the parties agree that the aggrieved party will be entitled to an injunction
or any appropriate degree of specific performance for any actual or
threatened violations or breaches by the other party, its employees or
agents, without the necessity of the aggrieved party showing actual damages
or that monetary damage does not afford an adequate remedy. Therefore, upon
an actual or impending violation of this Agreement, the other party consents
to issuance by a court of competent jurisdiction of a restraining order,
preliminary and special or permanent injunction, without bond, restraining or
enjoining such potential or certain violation by the other party or any
entity or person acting in concert with the other party. The parties
understand that such orders are additional to, and do not limit the
availability to the aggrieved party of any other remedy.
11. REPRESENTATIONS, WARRANTIES, LIMITATIONS
a. POWER TO CONTRACT. Each party represents and warrants that it has
the right, power and authority to enter into this Agreement and to fully
perform its obligations hereunder and that the making of this Agreement does
not violate the any agreement existing between it and any other party.
b. CONTESTS OPERATION. Operator warrants that the Contests, as
delivered by Operator shall operate substantially in accordance with the
Design Specifications and shall be free of any computer virus or other
similar harmful, malicious or hidden program or data which is intentionally
or grossly negligently introduced or maintained on the Site, including
without limitation, any hardware or software device or code which shall
prevent Customer from accessing or using the Contests or any portion thereof.
Operator further warrants that ll Contest will be designed, maintained,
operated and otherwise exploited in accordance with all applicable laws,
rules and regulations. Finally, Operator further warrant that it will have
all right, title and interest in or to the Contests and any Content on the
Site to conduct the Contest and use such Content without intentional
violation or misappropriation of the Intellectual Property Rights of any
third party.
12. TERMINATION
a TERMINATION FOR CAUSE. At any time during the term of this
Agreement, the parties hereto may terminate this Agreement for cause. For
these purposes, "cause" means: (1) a material breach or material default by a
party under this Agreement; or (2) a party's insolvency, bankruptcy,
dissolution, or liquidation. Such termination may be effected upon written
notice from such party, as of the termination date stated therein.
Notwithstanding the foregoing, if any material default or material breach is
reasonably susceptible to cure, the defaulting party shall be entitled to a
grace period of thirty (30) days following the non-defaulting party's
delivery of written notice of such default or breach in which to cure such
default or breach. Upon a termination hereunder, the parties may exercise any
and all of their respective rights and remedies under this Agreement, at law
or in equity.
b. TERMINATION IF CONTESTS UNSUCCESSFUL. If Customer determines that
the Contest are being operated at an overall loss to Customer for any three
(3) month period during the term, based on Customer's accounting (which must
be in accordance with generally accepted accounting principals), Customer may
terminate this Agreement upon sixty (60) days advance written notice to
Operator demonstrating by providing financial proof thereof, that the
Contests have been an overall loss to Customer during the preceding three (3)
month period. Provided, however, Operator may, during the sixty (60) day
written notice period demonstrate to customer
<PAGE>
that the Contests are not operating at an overall loss. Should the Operator
show that this is case, the termination shall be canceled.
c. TERMINATION IF OPERATIONS DO NOT MEET STANDARDS. If Customer and
Operator are not able to agree upon the Contest Mechanics and the SLA within
thirty (30) days after the date hereof, then Customer may terminate this
Agreement upon written notice to Operator.
d. CONTINUING OBLIGATIONS. Termination of this Agreement by either
party shall not affect the parties' respective obligations under this
Agreement with respect to any obligations of confidentiality or the
obligation to pay for all services performed prior to the effective date of
termination. The parties agree that all provisions of this Agreement which
operate to protect the rights of the individual parties, will remain in force
without regard to the termination of this Agreement by either party.
13. WARRANTIES; LIMITATIONS ON LIABILITY.
a. OPERATOR MAKES NO WARRANTY, REPRESENTATION OR PROMISE NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT. EXCEPT AS OTHERWISE EXPRESSLY SET
FORTH HEREIN THE WEB SITE AND CONTESTS ARE PROVIDED "AS IS". OPERATOR
DISCLAIMS AND EXCLUDES ANY AND ALL IMPLIED WARRANTIES OF MERCHANTABILITY,
TITLE AND FITNESS OF THE SOFTWARE FOR A PARTICULAR PURPOSE. OPERATOR DOES NOT
WARRANT THAT THE WEB SITE OR CONTESTS OR RELATED MATERIALS WILL SATISFY
CUSTOMER'S REQUIREMENTS OR THOSE OF CUSTOMER'S END USERS OR THAT THE WEB SITE
AND CONTESTS AND RELATED MATERIALS ARE WITHOUT DEFECT OR ERROR OR THAT THE
OPERATION OF THE WEB SITE AND CONTESTS WILL BE UNINTERRUPTED.
b. In no event will either party be liable for lost or damaged data,
loss of business, or anticipatory profits, or any other consequential or
incidental damages resulting from the use or operation of the Contests or the
maintenance thereof or from a breach of this Agreement, provided that the
foregoing will not apply to any breach of Section 10 or any misuse or
misappropriation by any one party of the Intellectual Property Rights of the
other party.
14. NOTIFICATION.
a. All notices to the parties hereto shall be in writing and shall
be sent: (1) by certified or registered mail, return receipt requested,
postage prepaid; (2) by air mail if mailed to an address outside of the
continental United States; (3) by courier service; or (4) by electronic mail
or facsimile transmission, and will be addressed or delivered as provided in
attached EXHIBIT "A".
15. ARBITRATION. If a dispute or claim shall arise with respect to any
of the terms or provisions of this Agreement, then either party may, by
notice as herein provided, require that the dispute be submitted under the
Commercial Arbitration Rules of the American Arbitration Association to an
arbitrator in good standing with the American Arbitration Association within
fifteen (15) days after such notice is given. Any such arbitrator so selected
is to be mutually acceptable to both parties. If both parties are unable to
agree upon a single arbitrator, each party shall appoint one (1) arbitrator.
If either party does not appoint an arbitrator within five (5) days after the
other party has given notice of the name of its arbitrator, the single
arbitrator appointed by the party giving notice shall be the sole arbitrator
and such arbitrator's decision shall be binding upon both parties. If two (2)
arbitrators are appointed, these two (2) arbitrators shall appoint a third
arbitrator who shall proceed to resolve the question. The written decision of
the
<PAGE>
single arbitrator ultimately appointed by or for both parties shall be
binding and conclusive on the parties. Judgment may be entered on such
written decision by the single arbitrator in any court having jurisdiction
and the parties consent to the jurisdiction of Orange County, California for
this purpose. Any arbitration undertaken pursuant to the terms of this
section shall occur in Orange County, California.
16. ATTORNEYS' FEES. In the event of any legal, equitable or administrative
action or proceeding brought by any party against another party under this
Agreement, the prevailing party shall be entitled to recover the reasonable
fees of its attorneys and any costs incurred in such action or proceeding
including costs of appeal, if any, in such amount that the court or
administrative body having jurisdiction over such action may award.
17. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. In making proof of this Agreement, it shall not
be necessary to produce or account for more than one such counterpart.
18. SEVERABILITY. If any provisions(s) of this Agreement shall be held to be
invalid, illegal, or unenforceable by a court or other tribunal of competent
jurisdiction, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
19. NO IMPLIED WAIVERS. No failure or delay by a party in enforcing any right
or remedy under this Agreement shall be construed as a waiver of any future
or other exercise of such right or remedy such party.
20. GOVERNING LAW. This Agreement will be construed and enforced in
accordance with, and governed by, the laws of the State of California without
giving effect to any conflict of laws principles. The parties hereby consent
to the personal jurisdiction of the courts of the County of Orange,
California and waive any rights to change venue.
21. FORCE MAJEURE. Neither party shall be in default if failure to perform
any obligation hereunder is caused solely by supervening conditions beyond
that party's control, including acts of God, civil commotion, strikes, labor
disputes, and governmental demands or requirements.
22. PRESS RELEASES. The parties intend to issue a press release concerning
their relationship under this Agreement on or before August 15, 1999 (the
"Initial Press Release"). The parties shall mutually agree upon the content
and time of the Initial Press Release. After the Initial Press Release,
Operator will only issue press release that have been approved by Customer as
to timing and content, which approval will not unreasonable be withheld or
delayed. Nothing herein shall restrict Customer from issuing press releases
concerning the Contests of the Site, subject to the confidentiality
obligations hereunder regarding the terms of the Agreement and Customer
obligation to obtain Operator's consent to any use of Operator's name, which
consent will not be unreasonably withheld or delayed
23. ENTIRE AGREEMENT AND AMENDMENTS. This Agreement and the schedules and
exhibits attached hereto, which are incorporated by reference, constitute the
entire agreement of the parties as to the matters set forth herein and
supersede any previous negotiations, agreements, understandings, and
arrangements between the parties relating hereto. Except as otherwise
expressly provided herein, any amendments to this Agreement must be in
writing and must be signed by a duly authorized representative of each party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
"OPERATOR" "CUSTOMER"
INTERNET SPORTS NETWORK, INC. PLAYBOY ENTERPRISES INTERNATIONAL,
a Florida corporation INC., a Delaware corporation
By: /S/ KEN CREMA By: /s/ PAUL KALLIS
---------------------------- --------------------------------
Ken Crema
Its: Chief Executive Officer
By: /S/ ANDREW DEFRANCESCO
----------------------------
Andrew DeFrancesco
Its: Chairman
<PAGE>
EXHIBIT "A"
DESCRIPTION OF WORK
1. CONTEST DEVELOPMENT SERVICES:
Operator shall design, develop, customize and be the exclusive
provider for Customer on the Site for on-line fantasy leagues, sports pools
and sports contests for MLB baseball and playoffs, NBA basketball and
playoffs, NFL football and playoffs, NHL hockey and playoffs (the "Major
Contests"). Operator will also design, develop and customize all other games
and contests specifically requested by Customer, including March madness,
auto racing, tennis, golf, cricket, soccer, NCAA football and basketball and
all games specifically requested by Customer (all, including Major Contests
collectively referred to as the "Contests"). Customer must approve all
contests and Customer will set the prices for participation therein. Operator
will create all code necessary to build and customize the Contests including
HTML and CGI scripts for the purpose of creating text pages, graphic layouts,
Email generators and linkage between pages. Operator will negotiate the
necessary licensing, rights and consents from all relevant parties, including
sports player's associations, and all other suppliers of Content. It is
intended that Operator will provide a license fee of no more than 8% of gross
revenues to the sports' player's associations. However, customer and Operator
acknowledge that the fee requested by the additions may exceed this amount or
may be subject to certain approvals and/or restrictions. Both Customer and
Operator agree to discuss any licensing that exceed the 8% fee and requires
unique or different approvals and/or restriction and to modify this agreement
in accordance with such restrictions if necessary. Operation will provide
Customer's marketing representatives with sales material and support to help
them sell the Contests to potential sponsors or advertisers. Except as
expressly provided herein, Operator shall bear all costs of providing its
services and the Contests and the Site as provided herein.
2. CONTESTS MAINTENANCE SERVICES:
Operator will thoroughly review and test each Contest. Errors in
function, navigation, spelling, grammar and punctuation will be scrutinized
throughout the process as well as during the allocated test period. Operator
shall provide a service level agreement ("SLA") to Customer's satisfaction.
Operator will provide a complete contestant database within two (2) weeks
after the deadline for entry for each contest.
3. CONTESTS OPERATIONAL SERVICES:
Operator will be responsible for all aspects of operation of the
Contests, including providing all Content therefor, hosting of the Site on
Operator's servers and connectivity to Customer's sites, and all
implementation and management of the Contests, from entry to judging to
payment of prizes (subject to Customer's obligation to provide the prizes).
Without limiting the foregoing, Operator will (a) create a registration and
payment procedure for contestants who wish to play the Contests and take
advantage of on-line services; (b) handle the `free' online entry procedure
for contestants who wish to play for free; (c) provide contestants with the
ability to play in leagues with their friends, (d) set up private chat rooms,
(e) get e-mail notification and updates, (f) trade players and inquire into
team standings each week by logging onto the Site and (g) provide support to
participants and other visitors to the Site. Operator will also update the
contestant records and points each week with official league statistic;
provide an e-mail address for support and respond to all requests by
contestants within 7 days via e-mail. Operator will notify customer of prize
winners an contest leaders each week.
<PAGE>
4. CUSTOMER ADVERTISING AND PROMOTION
Customer shall provide advertising and promotion of at least three
Major Contests per year. Based on availability, Customer will place a teaser
ad (minimum of 1/3 page) in at least one issue of Playboy magazine regarding
the Major Contest that is being sold the month before each Major Contest
deadline; e-mail contest details to site contestants at least two weeks
before contest deadline; place the contest logo and a contest advertisement
on the site with link to Operator's site; provide prizes for all contests
including but not limited to weekly and Contest ending prizes. Prizes must
have a value of $50,000 for the Major Contests and $25,000 for the other
Contests (1/2 in cash the other 1/2 in items or services); provide, if
possible, direct mail advertising and T.V. support during the Contest entry
period; and, provide all sports informational content.
5. SCHEDULE OF DELIVERABLES
PHASE 1 - PLAN, DESIGN AND DEVELOPMENT (JULY 1 - AUG 15)
Operator and Customer personnel will work together to create a mutually
acceptable "Contests Mechanics template" for the initial Contest. This
template will be designed to complement Customer's current look and image and
will be flexible enough to handle Customer's future plans for the site. The
template will be designed to allow for the easy addition of new Contests as
each new sport season begins (football in August, hockey in September,
basketball in October and baseball in March). The template will also be
designed with the flexibility to easily add new features and functionality as
they are developed. A team of Operator's web designers will create the
initial Fantasy Football Contest based on the approved Contest Mechanics
Template.
Cost: Major Contests will be provided at no charge to customer; all other
Contests will be subject to a set-up fee of no more than $10,000 per contest.
The actual setup fee will depend upon the customization required and the
overall potential of the Contests.
PHASE 2 - LAUNCH OF CONTESTS. (AUGUST 15 - OCT 15)
The Initial Contest will be a Fantasy Football contest available August 15
with several other contests added during the fall and winter. This first set
of Contests will be relative inexpensive to the participant in order to build
a following.
Cost: Per Phase 1 for non-Major Contests; Revenue Sharing per below.
REVENUE SHARING FROM CONTESTS (FROM INCEPTION OF AGREEMENT AND ONGOING)
Revenue generated from the Contests (fees paid by contestants and
sponsorship/advertisers will be shared as will be shared as outlined below:
<PAGE>
<TABLE>
<CAPTION>
Revenue Sharing Schedule
Customer Operator
<S> <C> <C>
Contestant generated revenue 50% 50%
Sponsorship/Advertising generated revenue 80% 20%
</TABLE>
Revenue from Contests shall be payable on a quarterly basis by Operator to
Customer. Prior to any division of contestant generated revenues, such
revenues will be used to pay any licensing fees to any sports player's
association (or to reimburse a party that has paid such fee), and the
remaining revenue will be divided 50-50. Revenue from sponsorship/advertising
shall be payable on a monthly basis by Customer to Operator. Revenues shall
be based on amounts actually collected during the applicable period. The
payor shall provide a summary of revenue generated for the prior quarter plus
payment to the payee by no later than the tenth day of the month day of the
month following the quarter being reported. Revenue generation fees will be
due to beginning upon the launch of the Site and shall continue as to
revenues arising with respect to this Agreement during the life of this
Agreement. Operator and Consultant shall have the right to audit, at any time
upon 5 days prior notice, the other's books and records if it believes that
the reports do not accurately reflect the revenue generated. The cost of any
audit shall be paid by the party requesting the audit. Such audits may only
be made once in any six (6) month period. All information obtained from the
audited party shall be deemed Confidential Information of the audited party.
Except as expressly provided herein, there shall be no sharing of revenues,
including any other form of revenues.
6. PROJECT LIAISONS
Operator: Geoff Ford
Internet Sports Network, Inc.
[email protected]
Tel: (800) 361-8000
Fax: (800) 232-9990
Customer: Paul Kallis
Playboy Enterprises International, Inc.
680 N. Lake Shore Drive
Chicago, IL 60611
[email protected]
Tel: (312) 373-2060
Fax: (312) 751-2818
<PAGE>
EXHIBIT "B"
DEFINITIONS
1. CORRECTION: means the "debugging" or elimination of errors that
cause the Site to fail to work strictly in accordance with the Design
Specifications or introduce results that atypical user would believe are
unintended.
2. CONTENT. Means any audio video and/or audiovisual materials,
photographs, artwork, text or other materials, including without limitation
all copyrights or trademarked materials.
3. DELIVERABLE: means any item to be delivered by Operator to Customer
in accordance with the Delivery Schedule set forth in Exhibit "A".
4. CONTEST MECHANICS: means the detailed written description of the
Contests' functional and aesthetic aspects including without limitation, the
design, operating features, interfaces and technical requirements for the
Site as set forth in Exhibit "A" or an attachment hereto. The Contest
Mechanics and/or the SLA, as applicable shall include appropriate performance
standards for the Site, including response time, acceptable downtime,
schedules for downtime and other similar performance requirements. The
Contest Mechanics shall be initialed by the parties and thereafter be deemed
attached hereto and incorporated herein. The Site shall use encryption
security satisfactory to Customer.
5. CUSTOMER CONTENT: means any Content provided to Operator by Customer
for use on the Site.
6. INTELLECTUAL PROPERTY RIGHTS: means any and all (by whatever term
known or designated) tangible and intangible, now known or hereafter existing
(a) rights associated with works of authorship throughout the universe,
including but not limited to all exclusive exploitation rights, copyrights,
neighboring rights, and moral rights; (b) trademark and trade name rights and
similar rights; (c) trade secret rights; (d) patents, designs, algorithms and
other industrial property rights; (e) all other proprietary rights of every
kind and nature throughout the universe, however designated (including
without limitation, logos, character rights, "rental" rights and rights to
remuneration), whether arising by operation of law, contract, license or
otherwise; and (f) all registrations, applications, renewals, extensions,
continuations, divisions or reissues thereof now or hereafter in force
throughout the universe.
7. SITE: means the site on the World Wide Web which will host the
Contests to be developed by Operator hereunder and all portions thereof,
including without limitation, all HTML, Java and other formatted text files,
all graphics, animation and data files, and all computer software and other
script or program files required to exploit such materials and that
collective control the display of and user interaction with the Site and have
the features and capabilities described in the Contests Mechanics.
8. DESCRIPTION OF WORK: means a written description of the work to be
performed by Operator hereunder.
9. UTILITIES: means all source code and object code for development
tools or other technology embodied in or used in connection with the
development of the Site.
<PAGE>
10. WORK PRODUCT: means all results or proceeds of the services of
Operator and of all persons and entities rendering services, in connection
with the Site, including all physical embodiments thereof, whether or not
incorporated into a Deliverable.
11. TRAFFIC PAGES: means the web pages which display the traffic counts
and visits to various pages within the Site. Operator will supply Customer
with a password for access to these pages which will be accessible by
Customer with a password.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,297,000
<SECURITIES> 0
<RECEIVABLES> 482,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,824,000
<PP&E> 530,000
<DEPRECIATION> (96,000)
<TOTAL-ASSETS> 21,217,000
<CURRENT-LIABILITIES> 2,003,000
<BONDS> 0
38,204,000
0
<COMMON> 0
<OTHER-SE> (23,687,000)
<TOTAL-LIABILITY-AND-EQUITY> 21,217,000
<SALES> 1,861,000
<TOTAL-REVENUES> 1,861,000
<CGS> 920,000
<TOTAL-COSTS> 920,000
<OTHER-EXPENSES> 10,860,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,000
<INCOME-PRETAX> (9,926,000)
<INCOME-TAX> (1,285,000)
<INCOME-CONTINUING> (8,641,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,641,000)
<EPS-BASIC> (.45)
<EPS-DILUTED> 0
</TABLE>
