<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DIGITAL ENTERTAINMENT NETWORK, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7812 65-06076396
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2230 BROADWAY,
SANTA MONICA, CALIFORNIA 90404
(310) 998-9200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
ALAN L. FRIEL
CHIEF ADMINISTRATIVE OFFICER AND GENERAL COUNSEL
2230 BROADWAY
SANTA MONICA, CALIFORNIA 90404
(310) 998-9200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C> <C>
GARY OLSON MARK A. CONLEY MARC ROSSELL
DAVID M. HERNAND SUSAN A. GRODE SHEARMAN & STERLING
LATHAM & WATKINS KATTEN MUCHIN & ZAVIS 599 LEXINGTON AVENUE,
633 WEST FIFTH STREET, 1999 AVENUE OF THE STARS, NEW YORK, NEW YORK 10022
SUITE 4000 SUITE 1400
LOS ANGELES, CALIFORNIA 90071 LOS ANGELES, CALIFORNIA 90067
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $.01 per share.................. $75,000,000 $20,850
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the underwriters have the option to purchase solely to
cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED SEPTEMBER 17, 1999
,000,000 Shares
[DIGITAL ENTERTAINMENT NETWORK, INC. LOGO]
DIGITAL ENTERTAINMENT NETWORK, INC.
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol "DENX".
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 10.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS DEN
------------- ------------- -------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about
, 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
CREDIT SUISSE FIRST BOSTON
LAZARD FRERES & CO. LLC
The date of this prospectus is , 1999.
<PAGE> 3
[INSIDE COVER -- GATE FOLD]
2
<PAGE> 4
------------------
TABLE OF CONTENTS
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<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY................. 4
RISK FACTORS....................... 10
USE OF PROCEEDS.................... 26
DIVIDEND POLICY.................... 26
FORWARD-LOOKING STATEMENTS......... 26
CAPITALIZATION..................... 27
DILUTION........................... 29
SELECTED FINANCIAL DATA............ 30
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........ 32
BUSINESS........................... 41
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MANAGEMENT......................... 66
PRINCIPAL STOCKHOLDERS............. 82
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS..................... 86
DESCRIPTION OF CAPITAL STOCK....... 90
SHARES ELIGIBLE FOR FUTURE
SALE............................. 95
UNDERWRITING....................... 97
NOTICE TO CANADIAN RESIDENTS....... 99
LEGAL MATTERS...................... 101
EXPERTS............................ 101
ADDITIONAL INFORMATION............. 101
INDEX TO FINANCIAL STATEMENTS...... F-1
</TABLE>
------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 1999, 25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING,
ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
DEN
DEN is pioneering the production and delivery of Internet-based digital
entertainment and information services to redefine the entertainment experience
for a new generation. We have created a digital media network to provide a
single online destination for youth between the ages of 14 and 24 to access
original, youth-oriented, interactive entertainment and music, participate in
building online communities and purchase consumer goods and services.
We seek to revolutionize youth entertainment by creating a rich hybrid
experience that combines the best aspects of television and the Internet. Our
network features a new format of original, interactive programming similar in
appearance to television, consisting of short-format, linear video content
surrounded by related interactive multimedia content and activities. We produce
our programming specifically for online distribution, which our users can access
at the widely used connection speed of 56.6 kbps (kilobits per second) as well
as at higher connection speeds. We intend to distinguish our brand by
integrating music, community features and electronic commerce specifically
targeted to our youth audience into our programming and across our network.
MARKET OPPORTUNITY
Our target audience forms the core of a demographic group commonly referred
to as "Generation Y," which consists of approximately 77 million people in the
United States between the ages of five and 24. We believe that the market for
Generation Y entertainment is currently underserved by both traditional and
online media, which are not tailored to the interests of today's culturally
diverse youth. While many traditional media companies have attempted to use the
Internet to supplement their content, most of their online content is static,
information-based and aimed at adults. We believe that we can create a brand
that addresses the needs of this market by combining high-quality, cutting-edge,
interactive content targeted at today's youth.
Generation Y has emerged as a critical consumer group for advertisers
because members of Generation Y wield significant purchasing power and influence
purchasing decisions made by members of other demographic groups. In addition,
advertisers have discovered that traditional methods of advertising do not
target Generation Y effectively. We believe that our network enables advertisers
to reach Generation Y more effectively through a format that combines the
interactive benefits of the Internet with audiovisual content.
THE DEN SOLUTION
We provide a unique entertainment solution for Generation Y:
- One-stop entertainment network. We have established a single destination
(located at www.DEN.net and www.DEN.com) for various sub-groups of
Generation Y to access original, youth-oriented video programming, games,
interactive content and music, and to participate in community features
and electronic commerce.
- Original interactive programming. Our original interactive programming
includes reality-based programs, music-related shows, comedies, dramas,
sports, news, talk shows and special events.
- Music. We integrate popular music into our network to enhance our
programming, promote music talent and produce, distribute and sell music
to our users. We also
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<PAGE> 6
have established >en. music group as our own record label and plan to use
the full capability of our network to promote its artists.
- Community. Our focused programming encourages our users to participate in
interest-specific online communities, which may feature related free
services such as chat rooms, games, personal home pages, interactive
forums, user submission areas and e-mail.
- Commerce. We intend to encourage purchases of products offered on our
network and integrated into our programming by making the electronic
shopping experience of users immersive, entertaining and relevant to
their interests.
We provide a unique solution for our advertisers to reach Generation Y:
- Access to a broad youth audience. We offer advertisers access to our
broad target audience by aggregating various sub-groups of Generation Y
on a single network. We believe that our interactive content and
community features will increase the amount of time that our users spend
on our network, enhancing the value of our user base to sponsors and
advertisers and maximizing electronic commerce opportunities.
- Innovative online advertising solutions. We offer new forms of
advertisement that are integrated into our programming, including
"Hypermercials," in which a user is prompted when an advertiser's product
appears or is referred to in one of our shows, allowing the user to
purchase the product online without having to leave our network.
- Sponsorships. We offer a limited number of "charter sponsorships" to
companies who wish to explore new methods of digital media advertising on
our network.
- Commerce. By combining our highly-targeted advertising with
contextualized electronic commerce opportunities, which are integrated
into our programming and across our network, we intend to convert user
interest in products viewed on our network to actual purchases.
We expect to generate revenues initially through the sale of sponsorships
and advertising and increasingly through electronic commerce, promotions and
sales of music, and license fees from Internet Service Providers and other
distributors of digital media that host our content on their networks. As of
September 1, 1999, we have entered into three sponsorship agreements providing
for an aggregate of $7.5 million in cash and barter advertising revenues through
December 2000. We use cost-effective methods to produce our programming and
deliver our content, and we have the ability to easily expand our programming
offerings to create new forums for advertisers to reach our target audience and
present them with new electronic commerce opportunities.
We began webcasting on May 10, 1999, and have since premiered 13 original
program series. To coincide with our formal launch and expanded marketing
campaign, we plan to premiere approximately seven additional series by the end
of October 1999. All of our shows are archived and available for viewing
on-demand, and we intend to release new episodes of most series on a weekly
basis.
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KEY RELATIONSHIPS
We have formed relationships with major advertisers, technology companies
and providers of capital to Internet and entertainment companies that we believe
will increase our brand awareness and assist us in attracting new advertisers,
content distributors, and entertainment and technology partners. Our charter
sponsors include Ford Motor Company, Microsoft Corporation and Pepsi-Cola, each
of which has agreed to pay us in cash and barter in exchange for promoting their
companies and products on our network during our first year of programming.
Microsoft also has agreed to provide us with royalty-free licenses for certain
software products and work with us to develop networking and technology
partnerships. Our investors include Cassandra Chase Entertainment Partners, LLC,
Chase Capital Partners, Dell Computer Corp., Microsoft, Exodus Communications,
Inc. and seven members of our senior management.
MANAGEMENT TEAM
We have assembled a management team comprised of individuals experienced in
television production and distribution, Internet infrastructure and technology,
the music industry, and advertising and marketing. The key members of our team
include the founders of Concentric Network Corporation, one of the first
national Internet Service Providers; two of the founders of Channel One Network,
a national in-school television network targeted at teenagers; the former
President of Walt Disney Network Television and Touchstone Television; the
former Chief Operating Officer and Chief Financial Officer of HBO Ole, Home Box
Office's Latin American venture; and a former Microsoft executive who guided its
streaming media initiatives. >en. music group is co-led by the former President
and Chief Executive Officer of Capitol Records and an established music manager
of such acts as Beastie Boys, Beck, Foo Fighters and Nirvana.
OUR OFFICES
We are a Delaware corporation that was incorporated in 1996. Our principal
executive offices are located at 2230 Broadway, Santa Monica, CA 90404, and our
telephone number is (310) 998-9200.
Information contained on our Web site does not constitute part of this
prospectus.
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THE OFFERING
Common stock offered by us..... shares
Common stock to be outstanding
after the offering........... shares
Use of proceeds................ We intend to use the net proceeds from the
offering for the following:
- production of original programming and
content;
- brand promotion;
- development of >en. music group's
operations;
- development of our Web site and network
infrastructure;
- development of new products and services;
and
- general corporate purposes and potential
acquisitions.
Proposed Nasdaq National Market
symbol....................... "DENX"
The information above is stated as of July 31, 1999. The aggregate number
of shares that will be outstanding after the offering does not include 1,917,987
shares subject to outstanding options and 655,906 shares subject to outstanding
warrants as of July 31, 1999. See "Capitalization."
CONVENTIONS THAT APPLY TO THIS PROSPECTUS
Unless we indicate otherwise, the information contained in this prospectus
reflects the following:
- a 1.5-for-1 split of our common stock to be effected immediately prior
to the closing of this offering;
- the automatic conversion of our outstanding preferred stock into
5,519,855 shares of common stock and the conversion of outstanding
convertible notes held by our founders into 6,253,593 shares of common
stock upon the closing of this offering; and
- no exercise by the underwriters' of their over-allotment option to
purchase up to shares of common stock.
Unless the context requires otherwise, references in this prospectus to
"we," "us," "our" and "DEN" refer to Digital Entertainment Network, Inc. and our
wholly-owned subsidiaries March Productions, Inc., Prompt Productions, Inc.,
>en.(3), DEN Administrative Services, Inc., DEN Marketing Services, Inc. and
>en. music group. DEN has applied for the following trademarks and service
marks: DEN, >en., den.net, den.com, >, The DEN, DEN(3), >en.(3), AdviceDEN,
DENmail, DENmercial, MailDEN, MyDEN, TalkDEN, tvDEN, YourDEN, FashionDEN,
LoveDEN, PsychicDEN, NewsDEN, SportsDEN, MusicDEN, KidsDEN, DormDEN, HelpDEN,
Alternet Productions, MarCh Productions, Prompt Productions, See What You Want
To See, Prompt Player, Aggronation, Fear of a Punk Planet, Frat Ratz, Chang
Gang, Cocktails With Cocksure, Exoticom, LimoZeno, Concrete, ConfiDENtial,
DEN-O-Matic, DENRadio, Soundtrax, Tales from the East Side, The Y-Files, True
Confessions, Virtual Rave, XYZ, >en. music, Digifeature, Direct Drive, En La
DEN, Hip Hop Massive, Liquid Soul, Rated DG, Redemption High, Royal Standard,
Cybermercial, Intermercial and Hypermercial. This prospectus also includes trade
dress, trade names and trademarks of other companies. Use or display by DEN of
other parties' trademarks, trade dress or products is not intended to and does
not imply a relationship with or endorsement or sponsorship of DEN by the
trademark or trade dress owners.
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SUMMARY FINANCIAL DATA
The following table sets forth our summary financial data. You should read
this information together with the financial statements and the notes to those
statements appearing elsewhere in this prospectus and the information under
"Selected Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The weighted average shares do not include any common stock equivalents
because such inclusion would have been anti-dilutive. See the financial
statements and related notes appearing elsewhere in this prospectus for the
determination of shares used in computing basic and diluted net loss per share.
The "pro forma" basic and diluted net loss per share data gives effect to:
- the conversion of outstanding shares of our preferred stock into 36,375
shares of common stock at December 31, 1998 and 1,871,563 shares of
common stock at June 30, 1999; and
- the conversion of outstanding convertible notes held by our founders into
984,594 shares of common stock at December 31, 1998 and 5,914,977 shares
of common stock at June 30, 1999.
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
JUNE 4, 1996 YEAR ENDED ENDED JUNE 30,
(INCEPTION) TO DECEMBER 31, (UNAUDITED)
DECEMBER 31, ----------------------- ------------------------
1996 1997 1998 1998 1999
--------------- ---------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................... $ -- $ -- $ -- $ -- $ --
Loss from operations....... (434) (222) (6,890) (698) (19,901)
Net loss................... (434) (222) (7,090) (698) (20,047)
Net loss per share:
Basic and diluted........ $ (0.54) $ (0.07) $ (0.99) $ (0.10) $ (2.68)
======== ========== ========== ========== ===========
Weighted average
shares................ 800,568 3,315,033 7,186,941 7,021,773 7,489,584
======== ========== ========== ========== ===========
Pro forma net loss per
share:
Basic and diluted........ $ (0.54) $ (0.07) $ (0.84) $ (0.10) $ (1.30)
======== ========== ========== ========== ===========
Weighted average
shares................ 800,568 3,315,033 8,207,910 7,021,773 15,276,124
======== ========== ========== ========== ===========
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For our balance sheet data as of June 30, 1999, the "pro forma" column
gives effect to:
- our issuance of 47,537 shares of Series C Convertible Preferred Stock in
a private offering in September 1999; and
- the conversion of outstanding shares of our preferred stock into
5,519,855 shares of common stock and the conversion of outstanding
convertible notes held by our founders into 6,253,593 shares of common
stock upon the closing of this offering.
The "pro forma as adjusted" column reflects the preceding "pro forma"
adjustments plus our receipt of the estimated net proceeds of $ million from
the sale of the common stock offered in this offering at an assumed initial
public offering price of $ per share after deducting the underwriting
discount and estimated offering expenses payable by us. See "Use of Proceeds"
and "Capitalization."
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
(UNAUDITED)
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents......................... $18,585 $26,904 $
Working capital................................... 6,888 15,207
Total assets...................................... 25,076 33,395
Convertible notes payable......................... 7,061 --
Total stockholders' equity........................ 12,153 27,584
</TABLE>
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RISK FACTORS
This offering involves a high degree of risk. You should carefully consider
the following risks relating to our business and our common stock, as well as
the other information in this prospectus, before you decide to buy any of our
common stock.
RISK FACTORS RELATED TO OUR OPERATIONS
WE ARE A DEVELOPMENT-STAGE COMPANY, AND WE EXPECT TO ENCOUNTER RISKS AND
DIFFICULTIES FACED BY DEVELOPMENT-STAGE COMPANIES IN NEW AND EVOLVING MARKETS.
We are a development-stage company and have a limited operating history. We
were incorporated in 1996 and tested distribution of our original entertainment
content over the Internet on a trial basis in April 1998. We began webcasting on
May 10, 1999. We have only recently begun our marketing efforts to drive traffic
to our network and do not yet have a significant user base. We face the risks,
expenses and difficulties that companies frequently encounter in their early
stage of development, particularly companies in new and rapidly-evolving
markets, such as the markets for online distribution of video programming,
retailing and distribution of music. These risks include our potential inability
to:
- create original programming and music that appeals to our target
audience;
- attract and retain sponsors and advertisers;
- respond to competitive developments;
- continue to attract, retain and motivate qualified people; and
- continue to upgrade our technologies.
We cannot assure you that we will be successful in addressing these risks.
WE HAVE A HISTORY OF LOSSES AND EXPECT CONTINUED LOSSES FOR THE FORESEEABLE
FUTURE.
As a development-stage company, we have generated no revenues and have
incurred losses since inception. We expect to continue to operate at a loss for
the foreseeable future as we fund operating and capital expenditures in areas
such as content development, brand promotion, sales and marketing and operating
infrastructure. As of June 30, 1999, we had an accumulated deficit of
approximately $27.8 million. We cannot assure you that we will become profitable
or that our cash flow will become positive at any time in the foreseeable
future, or at all. We have received a report from our independent auditors as of
September 17, 1999 containing an explanatory paragraph that describes
uncertainty as to our ability to continue as a going concern because we did not
have sufficient resources to meet our operating needs for at least the next
twelve months.
OUR LIMITED OPERATING HISTORY MAKES FORECASTING OUR REVENUES AND EXPENSES
DIFFICULT.
As a result of our limited operating history, it is difficult to forecast
our revenues accurately, and we have no meaningful historical financial data
upon which to base planned operating expenses. We base our current and future
expense levels on our operating plans and estimates of future revenues, and our
expenses are to a significant extent fixed. Operating results are difficult to
forecast because they depend in large part on the number and timing of
advertising agreements we enter into with our sponsors and advertisers and the
volume of our electronic commerce. As a result, we may be unable to adjust our
spending in a timely manner
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to compensate for any unexpected revenue shortfall. This inability could cause
our operating results in any given quarter to be lower than expected.
OUR QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY, WHICH MAY
MAKE IT DIFFICULT FOR INVESTORS TO PREDICT OUR FUTURE PERFORMANCE.
We expect that our operating results will fluctuate significantly from
quarter to quarter as a result of a variety of factors, many of which are
outside our control. Factors that may affect our quarterly operating results
include:
- our ability to attract and retain users of our network;
- our ability to introduce new services or products;
- the announcement or introduction of new Web sites, services or products
by our competitors;
- our ability to upgrade and develop our systems and infrastructure to
accommodate growth and changes in technology;
- our ability to attract and retain advertisers and sponsors, particularly
those willing to enter into long-term contracts;
- the growth of the Internet as an advertising medium;
- the timing, cost and availability of advertising in traditional media and
on other Web sites and online services;
- the seasonality of Internet usage, which generally decreases during
summer months;
- technical difficulties or service interruptions;
- the amount and timing of operating costs and capital expenditures
relating to expansion of our business, operations and infrastructure; and
- consumer trends and popularity of specific types of video and music
entertainment and information services.
Due to these factors, our quarterly revenues and operating results are
difficult to forecast. We believe that period-to-period comparisons of our
operating results are not meaningful and that you should not rely on them as an
indication of future performance. In addition, it is possible that in one or
more future quarters our operating results will fall below the expectations of
securities analysts and investors. In such event, the trading price of our
common stock would almost certainly be materially and adversely affected.
WE HAVE A LIMITED NUMBER OF SPONSORS AND LIMITED EXPERIENCE WITH OUR SPONSORSHIP
MODEL.
Our revenues currently depend on securing sponsorships that provide some of
our advertising sponsors with exclusivity within a product or service category
and product promotion that is embedded in our programming. We have limited
experience with this sponsorship model and, as of the date of this prospectus,
we have signed agreements with only three sponsors. The loss of one or more of
our sponsors that provide a material portion of our revenues would have a
material adverse effect on our business, results of operations and financial
condition. We anticipate that, for the foreseeable future, a limited number of
sponsors will account for a significant portion of our revenues. Prospective
sponsors may not be interested in entering into these sponsorships at the rates
we set, if at all. Our business will suffer if we are unable to maintain these
arrangements with our existing sponsors and secure additional sponsors. In
addition, the contracts with our sponsors contain provisions that require us to
provide additional
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advertising in the future at no cost to the sponsor, should our network not
achieve a minimum number of impressions, or times an advertisement is presented
to a viewer, over certain periods. If we fail to reach these targets and are
required to deliver additional viewer impressions beyond the periods paid for by
our sponsors, we will have a smaller inventory of impressions to deliver to
future sponsors and advertisers, and, consequently, our revenues may suffer.
In addition, some of the shows on our network contain, and will continue to
contain, content that could be construed as politically or culturally
controversial. This content may cause current and potential sponsors or
advertisers to refuse to do business with us because of potential negative
reactions to this content by some users, parents or parent groups, commentators
and the media.
OUR EXISTING SPONSORSHIP CONTRACTS PROVIDE FOR A SUBSTANTIAL AMOUNT OF OUR
SPONSORSHIP FEES TO BE PAID IN BARTER. IF WE ARE UNABLE TO GENERATE FURTHER CASH
REVENUES FROM OUR SPONSORS, OUR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED.
Our sponsors provide us with products and services which aid in the
promotion of our brand as partial compensation for placing their advertisements
on our network. For example, a sponsor might assign to us a portion of its
advertising time in other media, provide a link to our network on its own Web
site, subsidize certain production costs or provide its products for use in our
promotional give-aways. In our first twelve months of operations, we expect
revenues from these "barter" transactions to account for over two-thirds of our
total revenues. Barter revenues likely will continue to represent a significant
portion of our total revenues in 2000 and in future periods. These transactions
do not generate any cash revenues but enable us to promote our brand without any
expenditure of our cash resources. To the extent our revenues continue to
include substantial barter revenues, we may not be able to pay all of our
expenses, and our results of operations would be adversely affected.
OUR PROGRAMMING MAY NOT INITIALLY APPEAL TO OUR TARGET AUDIENCE OR MAY NOT BE
ABLE TO SUSTAIN THE INTEREST OF OUR TARGET AUDIENCE OVER TIME.
We expect to derive a substantial portion of our future revenues from sales
of advertising which will be incorporated into our entertainment programming.
Our future revenues will therefore depend upon continued demand for the
entertainment that we provide. A key element of our programming strategy is to
tailor individual programs to appeal to specific interests of individual
sub-groups of our target audience. Because of the difficulty in gauging the
tastes and preferences of each of these sub-groups, some of our programs may
find a dedicated niche audience more readily than others. In addition, the
popularity of certain categories of programs among consumers may vary over time
due to subjective values and societal and consumer trends in general. These
trends may cause significant fluctuations in our operating results from one
quarter to the next. If we are unable to create and maintain consumer demand for
our programs, our business would be materially and adversely affected.
IF WE CANNOT BUILD STRONG BRAND LOYALTY, OUR BUSINESS MAY SUFFER.
We expect that the development of our brand in the short-term will be
largely attributable to a strategy of word-of-mouth and street-level advertising
and promotional campaigns targeted at the opinion leaders and trendsetters of
Generation Y. However, we believe strengthening our brand through other means is
critical to our widespread acceptance, particularly in light of the competitive
nature of our market. Successfully promoting and positioning our brand will
depend largely on our marketing efforts and ability to provide high-quality
products and services. In order to maximize the promotion of our brand, we will
need to increase our marketing budget and otherwise increase our financial
commitment to creating and maintaining brand loyalty
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among users. We cannot guarantee that brand promotion activities will yield
increased revenues or that any such revenues will offset the expenses we incur
in building our brand. Further, we cannot guarantee that any new users attracted
to our network will continue to watch our programming on a regular basis.
Failure to promote and maintain our brand cost-effectively or the failure of our
existing or future strategic relationships to promote our brand or increase
brand awareness would materially and adversely affect our business, results of
operations and financial condition.
OUR PROGRAMMING MAY NOT ATTRACT USERS WITH DEMOGRAPHIC CHARACTERISTICS VALUABLE
TO OUR SPONSORS AND ADVERTISERS.
Our future success depends upon our ability to deliver compelling
entertainment programming and information services over the Internet that will
attract users with demographic characteristics valuable to our sponsors and
advertisers. Much of our original programming is targeted at specific niche
audiences within our target audience, some of which may not prove valuable to
our sponsors and advertisers. If we are unable to develop programming that
attracts a loyal user base possessing demographic characteristics attractive to
sponsors and advertisers, our results of operations would be adversely affected.
WE HAVE LIMITED EXPERIENCE DEVELOPING AND DISTRIBUTING A COMPREHENSIVE
PROGRAMMING LINEUP.
We have limited experience in developing entertainment content and
information services for the Internet. The diversity of our target audience
requires us to produce a wide array of original programs. Initially, this will
require us to produce many of our programs on concurrent schedules. We have not
yet begun producing all of our planned shows and may lack the resources to
produce them with the frequency our production schedule requires. Our business
will suffer if we are unable to develop and distribute a comprehensive
programming schedule.
OUR BUSINESS VENTURES TO PROMOTE, PRODUCE AND DISTRIBUTE MUSIC ARE HIGHLY
SPECULATIVE, AND WE MAY NOT SUCCEED IN ATTRACTING MUSICAL TALENT THAT APPEALS TO
OUR USERS OR CONSUMERS GENERALLY.
We have formed our music services division to promote and sell music on our
network. We intend to promote artists by integrating their work and image into
our programming. Therefore, the success of our promotional efforts depends in
part on the ability of our programming to draw traffic to our network. If we are
unsuccessful in creating a significant audience for our programming, we will not
be able to provide the promotional opportunities necessary to attract artists
and their record labels, which could have a material adverse effect on the
results of operations of our music services division.
We have also formed >en. music group to establish a music label and
publishing company that will sign new artists and songwriters and distribute
their music through our network and traditional music retail channels. This is a
highly speculative venture to which we have committed $20 million dollars over
the next three years. Although we have hired experienced music industry
management to lead >en. music group and expect to attract new talent by offering
more favorable economic terms and other benefits than traditional music
companies, starting a new music business of any type involves significant risk.
To establish its business, >en. music group must attract and sign music artists
to recording contracts, sign songwriters to publishing contracts, produce and
publish music and establish systems to distribute music to consumers. We cannot
assure you that we will succeed in attracting musical talent that will appeal to
our users and consumers generally, that we will be able to distribute and sell
music through our network and other distribution channels, or that >en. music
group will become profitable.
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OUR LONG-TERM ABILITY TO EXPAND OUR REVENUE BASE DEPENDS IN PART UPON THE GROWTH
OF THE ELECTRONIC COMMERCE MARKET.
Part of our strategy is to offer our users electronic commerce
opportunities on our network that tie in with our programming and the DEN brand.
If electronic commerce does not grow, or grows more slowly than expected, we may
not succeed in expanding our revenue base to include significant electronic
commerce revenues. As a result, our long-term success depends in part on
widespread market acceptance of electronic commerce. A number of factors could
prevent such acceptance, including the following:
- electronic commerce is at an early stage, and buyers may be unwilling to
shift their purchasing from traditional vendors to online vendors;
- increased government regulation or taxation may adversely affect the
viability of electronic commerce; and
- adverse publicity and consumer concern about the security of electronic
commerce transactions could discourage its acceptance and growth.
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO ATTRACT, TRAIN AND RETAIN
ADDITIONAL HIGHLY QUALIFIED MARKETING, MANAGERIAL, CREATIVE AND TECHNICAL
PERSONNEL, OUR BUSINESS MAY SUFFER.
Our future success significantly depends on the continued services and
performance of our senior management and other key personnel. We have assembled
a senior management team comprised of key creative, financial, managerial,
marketing and technical talent. The loss of the services of any of our senior
management or other key employees could negatively impact our ability to carry
out our business plan. The loss of Gary Gersh and John Silva in particular could
have a significant adverse effect on our record label's ability to attract and
retain top musical talent. Our new employees include a number of key managerial,
technical and creative personnel who have not yet been fully integrated into our
operations, and our future success depends upon their ability to work together
effectively.
Our future success also depends on our ability to identify, attract, hire,
train, retain and motivate additional highly-skilled managerial, technical,
creative and other personnel. Competition for such personnel is intense, and we
cannot guarantee that we will be able to attract, assimilate or retain
sufficiently qualified personnel. Our failure to attract, integrate and retain
the necessary managerial, technical, creative and other personnel could have a
material adverse effect on our business.
IF OUR NETWORK IS NOT RELIABLE, OUR OPERATIONS MAY BE ADVERSELY AFFECTED.
Our ability to generate a large number of users of our network's Web site
is essential to our business strategy. Accordingly, the satisfactory
performance, reliability and availability of our network's Web site, processing
systems and infrastructure are critical to our reputation and our ability to
attract and retain both a large audience for our entertainment content and
information services and advertisers to sponsor that programming. We currently
host our network at hosting facilities managed by Exodus Communications, Inc. We
also have a network arrangement with INTERVU, Inc. to serve our video content
through its nationwide network of data centers. Although our network is not
reliant upon any single service provider and has contingency and redundancy
capabilities, our network is nonetheless vulnerable to interruption by damage
from fire, earthquake, flood, power loss, telecommunications failure, break-ins
and other events beyond our control. Any system interruptions that result in a
decline in the use of our network or availability of our service could
negatively impact the sales of our advertising, which we expect will constitute
a substantial portion of our revenues. Interruptions of service also may
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diminish the attractiveness of our programming and services and inhibit
electronic commerce opportunities.
Significant increases in the volume of traffic on our network or in the
number of our programs being visited by users will require us to expand and
upgrade our technology, processing systems and network infrastructure. In
addition, we may add additional features and functionality to our services that
would result in the need to develop and further upgrade our existing technology
or network infrastructure. We cannot guarantee that we will be able to project
accurately the rate or timing of increases, if any, in the use or number of our
services or expand and upgrade our systems and infrastructure to accommodate
such increases or additions in a timely manner. Failure to take these or other
actions may cause unanticipated system disruptions, slower response times and
impaired quality of the user's experience on our network, any of which could
have a material adverse effect on our business, results of operations and
financial condition.
We are also dependent upon Web browsers, Internet Service Providers and
online service providers to provide Internet users with access to our network.
Users may experience difficulties accessing or using our network due to system
failures or delays unrelated to our systems. These difficulties may negatively
affect the audio and video quality of our content or result in intermittent
interruption in our programming. Any such sustained failure or delay could
reduce the attractiveness of our network to users and advertisers and adversely
affect our business, results of operations and financial condition.
OUR SUCCESS DEPENDS ON THE DEVELOPMENT AND CONTINUED AVAILABILITY OF THE
INTERNET AND OTHER DIGITAL DELIVERY SYSTEMS AT AFFORDABLE PRICES.
Our business requires that we transmit large amounts of data over the
Internet and other digital delivery systems to users accessing our network. Like
all Internet content providers, we pay fees to access the delivery systems and
transmit our media content to users. We have entered into agreements with third
parties to maintain data centers to store our content and transmit our
programming to our users. Although these third parties currently have sufficient
network capacity to satisfy our needs at prices that we consider reasonable, we
cannot guarantee that they will be able to provide us sufficient capacity if our
need for capacity grows significantly or that such increased capacity will be
available at an acceptable price.
We intend to pursue a strategy of partnering with network affiliates to
store a portion of our media content on their network servers and transmit such
content to other subscribers directly over local networks, avoiding use of
public and private Internet connections. If we do not succeed with this strategy
we will continue to incur significant costs for transmitting our current
programming over the Internet. Moreover, if we do not succeed with our network
affiliate strategy and a significant portion of our users move to higher-speed
connections to access our programming, our costs of transmitting content over
the Internet could increase significantly over current levels, which would have
a material adverse effect on our business, results of operations and financial
condition.
IF WE ARE UNABLE TO KEEP PACE WITH ADVANCES IN TECHNOLOGY, CONSUMERS MAY STOP
USING OUR SERVICES AND REVENUES WILL DECREASE.
The Internet, the entertainment industry and the electronic commerce
industry continue to encounter rapid technological change, changes in user
requirements and preferences, new products and services embodying new
technologies, and changes in new industry standards and
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practices. These factors could render our technology and systems obsolete. Our
performance will depend in part on our ability to:
- continue to enhance our existing services;
- develop new technology that addresses the increasingly sophisticated
needs of our users, sponsors and advertisers; and
- license leading technologies and respond to technological advances and
emerging industry standards and practices on a timely and cost-effective
basis.
We may not be successful in using new technologies effectively or adapting
our network to user requirements or to emerging entertainment or electronic
commerce industry standards. If we are unable to adapt to these developments,
our business, financial condition and results of operations would be materially
and adversely affected.
Although we believe the original nature of our content will draw users to
our network initially, our long-term ability to maintain interest in our
programming may depend on our ability to improve the audio and visual quality of
our content. The clarity, smooth transmission and overall quality of our images
and sounds are directly related to how quickly digital information can reach our
users' computers. Therefore, our long-term success may depend on the increasing
availability of high-speed Internet connection technologies at prices affordable
to our users. Such technologies currently have a limited availability
nationally, and their cost is prohibitive for many Internet users. If high-speed
connection services do not become more widely available to the public, or if
such services are too costly for most of our target audience to afford, growth
in the use of our services may fall short of expectations, and our results of
operations may be materially and adversely affected.
OUR PROGRAM PRODUCTION COSTS ARE UNCERTAIN AND COULD BE HIGHER THAN WE
ANTICIPATE, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS.
Our business plan assumes that, through the use of technical advances in
digital production technology and new strategies for cost savings in the
traditional areas of video entertainment production, we can produce programming
at a cost significantly less than that of comparable network television
programming. Our ability to attract writers, directors or performers at rates
significantly lower than those for television productions could be adversely
affected by unions representing these employee groups or by the loss of our
ability to attract and retain such employees at such lower rates. Our
development of successful program production is subject to all of the risks
inherent in producing audiovisual content, and we are not certain that our cost-
saving strategies will yield programming of acceptable quality within the
budgets we currently contemplate. If we are not able to operate at our projected
production cost levels, our business, financial condition and results of
operations would be adversely affected.
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THE HOME ENTERTAINMENT, MUSIC, ADVERTISING AND ELECTRONIC COMMERCE MARKETS ARE
FIERCELY COMPETITIVE, WHICH COULD LIMIT OUR MARKET SHARE AND ADVERSELY AFFECT
OUR RESULTS OF OPERATIONS.
VIDEO AND ONLINE ENTERTAINMENT
The video and online entertainment market is intensely competitive, and we
expect that competition will increase. Consumers in this market currently spend
time viewing broadcast television, cable television, satellite television and
home videos and playing video games, where content is provided by numerous
well-established companies. In addition, numerous companies offer online
entertainment, with an increasing number offering video, graphic or animation
content. These companies include:
- publishers and distributors of traditional video media, such as
television and film, including the broadcast networks, cable networks,
film studios and their Internet affiliates such as Disney's Go.com and
Viacom's MTV Online Networks;
- online services or Web sites that offer or intend to offer video
entertainment over the Internet or broadband, such as Broadcast.com,
Pseudo.com, AFI, Wirebreak Entertainment, Shockwave.com, CRAPtv,
AtomFilms, Mediatainment, Streamland, Tranz-send Broadcasting Network,
Moviehead.com, Brilliant Digital Entertainment, Honkworm.com, Sync.com,
Intertainer and Warner Brothers' Entertaindom;
- online services providing content or community activities such as America
Online, GeoCities, PeopleLink, Animalhouse.com, The Palace and TalkCity;
- online video-gaming sites which allow for multiple users to play
video-games against each other over the Internet such as mplayer.com,
Uproar, Electronic Arts/Ultima Online, IGN.com, Blizzard Entertainment,
Sony Online Entertainment and Nintendo.com;
- Generation Y-targeted Internet sites such as Peelworld.com, Sputnik7.com,
SlackerTV, Slywire.com, Bolt, Alloy Online and iturf;
- Web retrieval and other Web "portal" companies, including Yahoo, Lycos,
Excite@Home, and Infoseek; and
- telecommunications companies with access to a large base of end users,
including regional "Bell" companies, long distance service providers such
as AT&T and Sprint and digital subscriber line providers such as Bell
Atlantic and US West.
Many of these companies have substantially greater financial, technical,
personnel and other resources than DEN, and many have established reputations
for success in the creation of entertainment programs.
MUSIC
Our music services division and our record label, >en. music group, face
competition from traditional recording companies and other companies that
promote, produce, distribute and/or sell music through traditional or online
methods, often with greater financial, technical, personnel and other resources
than we or >en. music group have. These companies include:
- Internet music information sites, such as SonicNet, Ultimate Band List
and iMusic, and sites such as Launch.com and MP3.com, which provide
online promotion and distribution for established or developing musical
talent;
- traditional record companies, particularly those such as Universal Music
and Sony Music, which intend to begin offering their catalogs of popular
music in a downloadable format on the Internet;
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- Music promotion companies in cable and broadcast television, such as MTV
or VH-1; and
- online retail compact disc outlets, such as Amazon.com, CDNow and CD
Universe.
We depend upon the unique nature of our business model to provide us and
>en. music group with a competitive advantage. However, these business models
are untested and may not compete effectively with existing methods of music
promotion development and distribution.
ADVERTISING
We compete with traditional media, such as television, radio and print, for
a share of advertisers' total advertising budgets. Many of our competitors in
the traditional media have larger and more established sales organizations than
ours and have greater name recognition and more established relationships with
advertisers and advertising agencies than we do. These competitors may be able
to undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and devote substantially more resources to attract users and
advertisers than we can. In addition, several of these traditional media
companies have formed alliances with other Internet companies, which may result
in them favoring these other Internet companies' Web sites.
There is intense competition for the sale of advertising on high-traffic
Web sites, which has resulted in a wide range of rates quoted by different
vendors for a variety of advertising services, making it difficult to project
the level of Internet advertising revenue that will be realized generally or by
any specific company. In addition, the available inventory of advertising space
on the Internet and elsewhere has recently increased substantially. Accordingly,
we may face increased pricing pressure for the sale of advertisements. A
reduction in our advertising revenues would have a material adverse effect on
our business, results of operations and financial condition.
ELECTRONIC COMMERCE
The electronic commerce market is new, rapidly evolving and very
competitive. We expect competition to intensify in the future, as we will be
competing with online retailers offering consumer goods to Generation Y, such as
iTurf and Alloy Online, as well as traditional retailers which have or plan to
have online electronic commerce stores, such as The Gap and Wal-Mart. Increased
competition is likely to result in price reductions and reduced gross margins,
either of which could seriously harm the prospects for our electronic commerce
operations. We expect to compete with other online retailers of youth-oriented
goods, as well as traditional retailers, many of which have longer operating
histories, larger customer bases and greater retail brand recognition than we
have.
WE DEPEND ON THE AVAILABILITY OF STREAMING-MEDIA TECHNOLOGY AT AFFORDABLE
PRICES.
We rely on online video player software products such as Microsoft's Media
Player, Apple Computer's Quicktime and RealNetworks' Real Player to provide our
users with the ability to view our programming. In order to receive video
content over the Internet adequately, users generally must have multimedia
personal computers with certain microprocessor requirements, Internet access of
at least 56.6 kbps and video player software. Users typically electronically
download such software and install it on their computers. Such installation may
require technical expertise that some users do not possess. In addition, older
versions of certain Web browsers may need to be reconfigured in order to receive
streaming media from our network.
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Currently, we license or sub-license these streaming-media software
products for production and distribution of our content. Internet users can
download electronically copies of Microsoft's Media Player, Apple's Quicktime
software and RealNetwork's RealPlayer (basic version) free of charge. If these
or other providers of content-viewing software substantially increase license
fees charged to us for the use of their products, refuse to license these
products to us or begin charging users for copies of their player software, such
actions could have a material adverse effect on our business, results of
operations and financial condition.
MISAPPROPRIATION OF OUR INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS COULD
IMPAIR OUR COMPETITIVE POSITION.
We regard our content and certain of our technology as proprietary and rely
primarily on a combination of trademark, copyright, patent and trade secret laws
and employee and third-party nondisclosure agreements to protect our proprietary
rights. We cannot assure you that these steps will be adequate, that we will be
able to secure trademark or patent registrations for all of our marks or patents
based on patent applications in the United States or other countries, that
employees and/or third parties will not breach non-disclosure agreements or
infringe upon or misappropriate our copyrights, pending patent applications,
trademarks, service marks and similar proprietary rights. In addition, effective
copyright, patent and trademark protection may be unavailable or limited in
certain countries, and the global nature of the Internet makes it impossible to
control the ultimate destination of our content. In the future, litigation may
be necessary to enforce and protect our pending patents, trade secrets,
copyrights, trademarks and other intellectual property rights. In the past we
have pursued third parties that have infringed upon our rights, and intend to
vigorously monitor and enforce our intellectual property rights. Any such
litigation or threatened litigation could be costly and could result in a
diversion of management's attention, which could have a material adverse effect
on our business, operating results and financial condition.
We currently hold various Web domain names relating to our brand. Because
the regulation of domain names in the United States and abroad is subject to
change, there can be no assurance that we will be able to maintain our domain
names or prevent third-parties from acquiring domain names that are similar to,
or infringe upon our proprietary rights.
INTELLECTUAL PROPERTY CLAIMS AGAINST US COULD BE COSTLY AND COULD RESULT IN THE
LOSS OF SIGNIFICANT RIGHTS.
Other parties may assert intellectual property infringement or unfair
competition claims against us. Although we carry media insurance, we cannot
assure you that this coverage is sufficient to cover all potential claims or
that affordable coverage will continue to be available in the future. We cannot
predict whether third parties will assert such claims against us, or whether
those claims will harm our business. If we are forced to defend against claims
of intellectual property infringement or unfair competition, whether they are
with or without merit or are determined in our favor, we may face costly
litigation and diversion of management's attention. As a result of such
disputes, we may have to develop non-infringing technology or enter into royalty
or licensing agreements. These agreements, if necessary, may be unavailable on
terms acceptable to us, or at all. If there is a successful claim of product
infringement against us and we are unable to develop non-infringing technology
or license the infringed or similar technology or content on a timely basis, it
would harm our business, results of operations or financial condition.
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FAILURE OF COMPUTER SYSTEMS AND SOFTWARE PRODUCTS TO BE YEAR 2000 COMPLIANT
COULD HAVE A MATERIAL ADVERSE IMPACT ON OUR ABILITY TO DELIVER OUR PROGRAMMING.
There are issues associated with the programming code in existing computer
systems as the year 2000 approaches. The "year 2000 problem" is pervasive and
complex, as virtually every computer operation will be affected in some way by
the rollover of the two-digit year value to 00. These issues relate to whether
computer systems will properly recognize date-sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. We do not anticipate
that we will incur significant operating expenses or be required to invest
heavily in computer systems improvements to be year 2000 compliant. However,
significant uncertainty exists concerning the potential costs and effects
associated with any year 2000 compliance. If either we or our users, vendors or
advertisers encounter a year 2000 problem, such a problem could have a material
adverse effect on our business, results of operations and financial condition.
In addition, although most of our vendors have made assurances that their
systems are year 2000 compliant, we cannot assure you that all of them will
successfully avoid disruption in their businesses from a year 2000 problem. Any
disruption of our vendors' services could materially harm our business.
RISK FACTORS RELATED TO THE INTERNET INDUSTRY
THE LONG-TERM SUCCESS OF OUR BUSINESS DEPENDS ON THE CONTINUED GROWTH AND
RELIABILITY OF DIGITAL DELIVERY SYSTEMS SUCH AS THE INTERNET AND HIGH-SPEED
DIGITAL DELIVERY SYSTEMS, COMMONLY REFERRED TO AS "BROADBAND." IF MAINSTREAM USE
OF THE INTERNET OR BROADBAND AS A COMMERCIAL AND ENTERTAINMENT MEDIUM DOES NOT
CONTINUE TO EXPAND, OUR BUSINESS COULD BE MATERIALLY ADVERSELY AFFECTED.
The market for digital media is new and rapidly evolving. Although we
produce and deliver programming designed for the widely-used 56.6 kbps
connection speed, our business would be adversely affected if usage of the
Internet does not continue to grow, particularly usage by young people. A number
of factors may inhibit usage of the Internet, including:
- inadequate network infrastructure;
- security concerns;
- inconsistent quality of service; and
- lack of availability of cost-effective, high-speed service.
As high-speed digital delivery systems, commonly referred to as
"broadband," become more affordable and available to consumers, such systems may
not be able to support the demands placed on them by this growth and the
performance and reliability may be impacted. In addition, Web sites have
experienced interruptions in their service as a result of outages and other
delays occurring throughout the Internet network infrastructure. If these
outages or delays frequently occur in the future, usage of our service could
grow more slowly than anticipated or decline.
The emergence of broadband technologies to transmit large amounts of data
should facilitate more reliable and better quality distribution of our
entertainment content and information services. However, we cannot assure you
that broadband technologies will be widely available and used for the
foreseeable future or that, if widely available, such technologies will lead to
increased reliability of network infrastructure.
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IF THE INTERNET DOES NOT GAIN WIDE ACCEPTANCE AS AN ADVERTISING MEDIUM, OUR
RESULTS OF OPERATIONS COULD BE ADVERSELY AFFECTED.
Our future is highly dependent on increased use of the Internet as an
advertising medium. We expect to derive a substantial portion of our revenues
from sponsorships and advertising for the foreseeable future. The Internet
advertising market is new and rapidly evolving, and, as a result, demand for and
market acceptance of Internet advertising are uncertain. Our sponsors and
advertisers may find Internet advertising to be less effective for promoting
their products and services than traditional advertising media.
In addition, no standards have been widely accepted to measure the
effectiveness of Internet advertising. If such standards do not develop,
existing advertisers may not continue their current levels of Internet
advertising and advertisers who are not currently advertising on the Internet
may be reluctant to do so.
Various pricing structures are used to sell advertising on the Internet. It
is difficult to predict which, if any, will emerge as the industry standard,
making it difficult to project our future advertising rates and revenues. Our
sponsorships and advertising revenues could be materially adversely affected if
we are unable to adapt to new forms of Internet advertising. Moreover, "filter"
software programs are available that limit or prevent advertising from being
delivered to an Internet user's computer. Widespread adoption of this software
could adversely affect the commercial viability of Internet advertising. Due to
the unique nature of many of the advertisements we offer, we do not expect this
filter software, in its current form, to affect our ability to deliver
advertisements to users of our Web site. Changes in the filter software designed
to address the types of advertisements we use could negatively impact the
effectiveness and commercial viability of our advertising.
We cannot assure you that the market for Internet advertising will continue
to emerge or be sustainable. If the market for Internet advertising fails to
develop or develops more slowly than we expect, our business, results of
operations and financial condition would be materially and adversely affected.
INTERNET CONTENT AND COMMERCE HAVE YET TO ATTRACT SIGNIFICANT REGULATION.
PROPOSALS FOR NEW GOVERNMENT REGULATION, IF IMPLEMENTED, MAY RESULT IN
ADMINISTRATIVE MONETARY FINES, PENALTIES, TAXES OR LICENSING FEES THAT MAY
REDUCE OUR FUTURE EARNINGS.
We are not currently subject to direct regulation by any governmental
agency, other than regulations applicable to businesses generally and laws and
regulations directly applicable to access to or commerce on the Internet.
However, a number of legislative and regulatory proposals under consideration by
federal, state, local and foreign governmental organizations may lead to laws or
regulations concerning various aspects of the Internet, including, but not
limited to, online content, user privacy, taxation, access charges, liability
for third-party activities and jurisdiction. Additionally, it is uncertain how
existing laws governing issues such as property ownership, copyright, trade
secret, libel and personal privacy will be applied to the Internet. Further,
given the global nature of the Internet, it is uncertain whether foreign
governmental agencies will attempt to claim jurisdiction over our activities and
impose regulation upon us. The adoption of new laws or the broader application
of existing laws may expose us to significant liabilities and decrease the
growth in the use of the Internet, which could in turn decrease the demand for
our services, increase our cost of doing business, or otherwise have a material
adverse effect on our business, results of operations and financial condition.
See "Business -- Government Regulation and Law."
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WE COULD FACE LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE
INTERNET.
The Internet services that we provide allow materials to be downloaded and
distributed to others, and therefore claims may potentially be made against us
for defamation, negligence, copyright or trademark infringement or other grounds
based on the nature, content, publication and distribution of such materials.
Such claims have been successfully brought against online services in the past.
We could also be exposed to liability with respect to third-party
information that may be accessible through our network, or through content that
may be posted in chat rooms or on bulletin boards offered by us. Such claims
might be based on theories of contributory copyright or trademark infringement
or other wrongful actions by third parties. Even to the extent such claims do
not result in liability to us, we could incur significant costs in investigating
and defending against such claims. While our terms of use prohibit users from
engaging in such unlawful activities and provide that we will be indemnified
against such liabilities, we cannot guarantee that such indemnification, if
available, will either be enforceable on a viable basis or will be adequate to
fully compensate us for such liabilities.
In the future, we also may enter into agreements with electronic commerce
partners and sponsors under which we would be entitled to receive a share of any
revenue from the purchase of goods and services by users of our services through
our network. Such arrangements may expose us to additional legal risks and
uncertainties, including potential liabilities to consumers of such products and
services, even if we do not ourselves provide those products or services. While
we expect agreements with these parties often will provide that we will be
indemnified against such liabilities, we cannot guarantee that such
indemnification, if available, will either be enforceable on a viable basis or
will be adequate to fully compensate us for such liabilities.
CONCERNS REGARDING SECURITY OF TRANSACTIONS AND TRANSMISSION OF CONFIDENTIAL
INFORMATION OVER THE INTERNET MAY NEGATIVELY IMPACT OUR PLANNED ELECTRONIC
COMMERCE BUSINESS.
We expect that we will offer for sale on our network some of the products
of our sponsors and advertisers, as well as other products and services.
Possible inadequacies in the security of transmission of confidential
information over public networks are seen by many as a significant barrier to
such online commerce. In the future, a number of our users may authorize us to
bill their credit card accounts directly for all transaction fees charged by us.
We will rely on encryption and authentication technology licensed from third
parties to effect secure transmission of confidential information, including
customer credit card numbers. We cannot guarantee that advances in computer
capabilities, new discoveries in encryption technologies, or other events or
developments will prevent a compromise or breach of the technology we will use
to protect customer transaction data. If any such compromise of our security
were to occur, it could have a material adverse effect on our reputation and,
therefore, on our business, results of operations and financial condition.
Concerns over the security of transactions conducted on the Internet and other
online services and the privacy of users may also inhibit the growth of the
Internet and other online services, especially as a means of conducting
commercial transactions.
Furthermore, a party who is able to circumvent our security measures could
misappropriate proprietary information or cause interruptions in our operations.
We employ network security services, firewalls and intrusion detection services
to deter outside parties from gaining access to our systems. However, we may
need to expend further capital and other resources to protect against such
security breaches or to alleviate problems caused by compromises of our systems'
security. To the extent that our activities involve the storage and transmission
of proprietary information, such as credit card numbers, security breaches could
damage our reputation and expose us to a risk of loss or litigation and possible
liability.
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<PAGE> 24
RISK FACTORS RELATED TO THIS OFFERING
MARC COLLINS-RECTOR OWNS AND CONTROLS A MAJORITY OF OUR COMMON STOCK, AND HE
THEREFORE HAS THE ABILITY TO MAKE DECISIONS THAT COULD MATERIALLY AND ADVERSELY
AFFECT OUR STOCK PRICE.
Upon completion of this offering, Marc Collins-Rector, our Chairman of the
Board and a director, will own approximately % of our outstanding shares of
common stock, and Chad Shackley, an Executive Vice-President and director, will
own approximately % of our outstanding shares of common stock. See
"Principal Stockholders." In addition, Messrs. Collins-Rector and Shackley are
parties to a Stockholders' Agreement under which Mr. Shackley granted to Mr.
Collins-Rector the right to vote all of the shares of our common stock owned by
Mr. Shackley and his transferees until January 1, 2008. Pursuant to this
agreement, Mr. Collins-Rector currently has voting control over the shares of
four other stockholders (in addition to Mr. Shackley), which will represent
% of our common stock upon completion of this offering. Upon completion of
this offering, the Stockholders' Agreement will terminate as to any shares
transferred by a party to such agreement to any unaffiliated third party.
Accordingly, Mr. Collins-Rector may be able to control DEN through his ability
to determine the outcome of elections of directors and the results of other
matters submitted to any vote of stockholders. This concentration of ownership
may have the effect of preventing a change in control of our company or limiting
the price that some investors may be willing to pay for shares of our common
stock.
OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND DELAWARE LAW CONTAIN PROVISIONS
THAT COULD DISCOURAGE A THIRD PARTY FROM ACQUIRING US OR LIMIT THE PRICE THIRD
PARTIES ARE WILLING TO PAY FOR OUR STOCK.
Provisions in our restated certificate of incorporation and bylaws relating
to our corporate governance could make it difficult for a third party to acquire
us and therefore discourage third parties from attempting to acquire control of
DEN. These provisions, which will be effective upon the closing of this
offering, provide that the board of directors will be divided into three
classes, which may have the effect of delaying or preventing changes in control
or changes in our management because less than a majority of the board of
directors can be elected at each annual meeting. In addition, these provisions
impose various procedural and other requirements which could delay or prevent
stockholders from effecting corporate actions such as a merger, asset sale or
other change of control of our company. Such charter provisions also could limit
the price that some investors would be willing to pay in the future for shares
of our common stock.
Upon completion of this offering, we will be subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law. In general,
the statute prohibits a publicly-held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
For purposes of Section 203, a "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder, and an "interested stockholder" is a person who, together with
affiliates and associates, owns or did own 15% or more of the corporation's
voting stock.
OUR MANAGEMENT HAS BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING
AND MAY ALLOCATE PROCEEDS TO USES THAT COULD MATERIALLY ADVERSELY AFFECT THE
VALUE OF OUR COMMON STOCK.
We estimate that net proceeds from the sale of the shares of common stock
offered by us in this prospectus at an assumed initial public offering price of
$ per share will be
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<PAGE> 25
approximately $ after deducting the underwriting discount and estimated
offering expenses of approximately $ million. The primary purposes of
this offering are to obtain additional capital, create a public market for our
common stock and facilitate future access to public markets. We have committed
to use approximately $17 million of the net proceeds of the offering to develop
>en. music group's operations over the next three years. The remainder of the
proceeds will be used for general corporate purposes, including the production
of original programming and content, advertising and marketing programs designed
to increase awareness of the DEN brand name, the development of our network and
network infrastructure and the development of new products and services,
including the expansion of electronic commerce capabilities. We also may use a
portion of the net proceeds for possible acquisitions of or investments in
businesses and the introduction of products or technologies that expand,
complement or otherwise relate to our current or planned services. Accordingly,
our management will retain broad discretion over the allocation of the proceeds
of this offering. The failure of management to apply such funds effectively
could have a material adverse effect on our business, results of operations and
financial condition. See "Use of Proceeds."
19,263,031 SHARES OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED FROM IMMEDIATE
RESALE, BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF OUR BUSINESS IS
DOING WELL.
Sales of a substantial number of shares of our common stock in the public
market after this offering could adversely affect the market price of our common
stock by introducing a large number of sellers to the market. Given the
volatility that will likely exist for our shares, such sales could cause the
market price of our common stock to decline.
Upon completion of this offering, we will have outstanding
shares of common stock, and we will have reserved an additional 2,573,894 shares
of common stock for issuance pursuant to outstanding stock options and warrants
outstanding as July 31, 1999. All of the shares of common stock to be sold in
this offering will be freely tradable without restriction on further
registration under the federal securities laws unless purchased by one of our
"affiliates," as that term is defined in Rule 144 under the Securities Act of
1933. The remaining shares of outstanding common stock, representing % of
our outstanding common stock upon completion of this offering will be
"restricted securities" under the Securities Act subject to restrictions on the
timing, manner and volume of sales of such shares.
Our directors, executive officers and stockholders that own 1% or more of
our outstanding common stock on a fully-diluted basis have agreed not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock without the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus. Subject
to the lock-up agreements, holders of 5,487,035 shares of common stock will have
the right to request the registration of their shares under the Securities Act
beginning 180 days after the date of this prospectus. Upon the effectiveness of
any such registration, all shares covered by such registration statement will be
freely transferable.
Following the consummation of this offering, we also intend to file a
registration statement on Form S-8 under the Securities Act covering 5,717,765
shares of common stock reserved for issuance under our stock option plans and
other outstanding stock options and warrants, or as restricted stock. Such
registration statement will become effective automatically upon filing. As of
July 31, 1999, options to purchase 617,040 shares were vested. In addition,
options to purchase 178,752 shares of our common stock held by some of our
executives will vest upon consummation of this offering. See
"Management -- Employment Agreements." However,
24
<PAGE> 26
substantially all of the options, warrants and restricted stock covered by such
registration statement will be subject to the lock-up agreements described above
and, as a consequence, may not be sold until 180 days after the offering.
Subject to the exercise of such options and warrants, shares registered under
such registration statement will be available for sale in the open market
immediately after the 180-day lock-up period expires.
We cannot predict whether future sales of our common stock, or the
availability of a large number of shares of our common stock for sale, will
adversely affect the market price for our common stock or our ability to raise
capital by offering equity securities.
OUR STOCK PRICE IS LIKELY TO BE VOLATILE.
The market for Internet-related and technology companies has experienced
extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of such companies. The trading
price of our common stock is likely to be highly volatile and could be subject
to wide fluctuations in response to the following factors:
- actual or anticipated variations in our quarterly operating results;
- announcements of our or competitors' technological innovations;
- changes in our financial estimates by securities analysts;
- conditions or trends in the Internet and entertainment industries;
- changes in the market valuations of other Internet or online service
companies;
- announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
- additions to or departures of our key personnel;
- sales of our common stock or other securities in the open market; and
- other events or factors, many of which are beyond our control.
The trading prices of many technology companies' securities are at or near
historical highs that may not be sustained. These broad market and industry
factors may materially and adversely affect the market price of our common stock
regardless of our actual performance. Moreover, in the past, companies
experiencing periods of volatility in the market price of their securities have
been vulnerable to securities class-action litigation. If such litigation is
instituted against us, it could result in substantial costs and a diversion of
management's attention and resources, which would materially and adversely
affect our business, financial condition and operating results.
AN INVESTMENT IN OUR COMMON STOCK FACES IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price for shares of common stock offered by
this prospectus is substantially higher than the net tangible book value per
outstanding share of our common stock. If you invest in our common stock, you
will suffer immediate and substantial dilution of $ per share in the net
tangible book value of the common stock from the assumed initial public offering
price of $ per share. To the extent that outstanding options and warrants to
purchase our common stock are exercised, there will be further dilution. See
"Dilution."
25
<PAGE> 27
USE OF PROCEEDS
We estimate that the net proceeds from our sale of the shares of
common stock offered in this offering at an assumed initial public offering
price of $ per share will be approximately $ million, after
deducting underwriting discounts and estimated offering expenses. We will
receive $ from the sale of an additional shares of
common stock if the underwriters exercise their over-allotment option in full.
We intend to use the net proceeds from this offering to fund continued
production of original content, expansion of advertising and marketing programs
designed to increase awareness of the DEN brand name, development of our Web
site and network infrastructure, development of new products and services,
including the expansion of electronic commerce capabilities, and other general
corporate purposes. We have committed to use approximately $17 million of the
net proceeds from this offering to develop >en. music group's operations over
the next three years.
We also may use a portion of the proceeds from this offering for possible
acquisitions of or investments in businesses and the introduction of products or
technologies that expand, complement or are otherwise related to our current or
planned services. We have no current plans, agreements or commitments with
respect to any such transaction, and we are not currently engaged in any
negotiations with respect to any such transaction.
Pending such uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities and U.S. government
obligations such as Treasury bills.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
intend to retain all of our future earnings, if any, for use in our business,
and therefore we do not expect to pay any cash dividends on our common stock in
the foreseeable future.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that address, among
other things, programming and marketing strategy, development and production of
content, development and commercial success of >en. music group, development of
services, use of proceeds, projected capital expenditures, liquidity,
development of additional revenue sources, development of relationships with
advertisers, acquisition and expansion strategy, market acceptance of the
Internet as an entertainment, advertising and commercial medium, technological
advancement and ability to develop brand identification. These statements may be
found in the sections of this prospectus entitled "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and in this prospectus
generally. Our actual results could differ materially from those anticipated in
these forward-looking statements as a result of various factors, including all
the risks discussed in "Risk Factors" and elsewhere in this prospectus.
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<PAGE> 28
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999 on an
actual, pro forma and pro forma as adjusted basis. The "actual" column reflects
our capitalization as of June 30, 1999 on a historical basis, without any
adjustments to reflect subsequent or anticipated events. The "pro forma" column
reflects our capitalization as of June 30, 1999 with adjustments for the
following:
- a 1.5-for-1 stock split of our common stock;
- the issuance of 47,537 shares of our Series C Convertible Preferred Stock
in a private placement in September 1999;
- the automatic conversion of all outstanding shares of our Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock into 5,519,855 shares of common
stock upon the closing of this offering; and
- the conversion of four convertible notes held by our founders, with an
aggregate outstanding principal amount of approximately $7.1 million, as
of June 30, 1999, plus accrued interest as if the notes were converted on
December 31, 1999, into 6,253,593 shares of common stock upon the closing
of this offering.
The "pro forma as adjusted" column reflects our capitalization as of June
30, 1999 with the preceding "pro forma" adjustments plus our receipt of the
estimated net proceeds from the sale of shares of common stock at an
assumed initial public offering price of $ per share, after deducting the
underwriting discount and estimated offering expenses payable by us.
None of the columns set forth below reflects the following:
- the 1,614,453 shares of common stock issuable upon exercise of
outstanding stock options under our 1998 Amended and Restated Incentive
Compensation Plan and our 1999 Incentive Compensation Plan at a weighted
average exercise price of $5.54 per share;
- an additional 2,565,330 shares of common stock reserved for future grants
under our 1999 Incentive Compensation Plan;
- an additional 200,000 shares reserved for future grants under our 1999
Non-Employee Directors' Stock Option Plan;
- the 261,858 shares of common stock issuable upon exercise of additional
stock options not issued under any of our stock option plans held by our
executive officers at a weighted average exercise price of $5.06 per
share; and
- the 655,906 shares of common stock issuable upon exercise of warrants
held by our executive officers at a weighted average exercise price of
$2.90 per share.
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<PAGE> 29
You should read the information set forth below together with our financial
statements and the notes to those statements appearing elsewhere in this
prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
(UNAUDITED)
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS EXCEPT SHARE DATA)
<S> <C> <C> <C>
Cash and cash equivalents....................... $ 18,585 $ 26,904
======== ========
Convertible notes payable (including accrued
interest)..................................... 7,061 -- --
Stockholders' equity:
Series A Convertible Preferred Stock, $.01 par
value; authorized 250,000 shares; issued
and outstanding 70,453 shares (actual); no
shares issued and outstanding (pro forma
and pro forma as adjusted)................. 1 -- --
Series B Convertible Preferred Stock, $.01 par
value; authorized 260,000 shares; issued
and outstanding 250,000.3 shares (actual);
no shares issued and outstanding (pro forma
and pro forma as adjusted)................. 3 -- --
Series C Convertible Preferred Stock, $.01 par
value; authorized 300,000 shares; no shares
issued and outstanding (actual, pro forma
and pro forma as adjusted).................
Common Stock, $.01 par value; authorized
120,000,000 shares; issued and outstanding
7,489,584 shares (actual); issued and
outstanding 19,263,031 shares (pro forma);
issued and outstanding shares
(pro forma as adjusted).................... 75 193 --
Additional paid-in capital.................... 39,867 55,184
Accumulated deficit........................... (27,793) (27,793)
Total stockholders' equity................. 12,153 27,584
-------- -------- -------
Total capitalization..................... $ 19,214 $ 27,584 $
======== ======== =======
</TABLE>
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<PAGE> 30
DILUTION
Our pro forma net tangible book value as of June 30, 1999 was approximately
$27.6 million, or $1.43 per share. Pro forma net tangible book value per share
is equal to our total tangible assets less our total liabilities, divided by the
number of shares of our common stock outstanding on a pro forma basis after
giving effect to the conversion of all outstanding shares of our preferred stock
into 5,519,855 shares of common stock and conversion of the outstanding
convertible notes into 6,253,593 shares of common stock upon the closing of the
offering. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common stock
immediately after completing this offering. After giving effect to the sale of
common stock offered by us in this offering at an assumed initial public
offering price of $ per share and our receipt of the estimated net proceeds
from such sale, after deducting the underwriting discount and estimated offering
expenses, our pro forma net tangible book value at June 30, 1999 would have been
approximately $ million, or $ per share. This represents an immediate
increase in net tangible book value of $ per share to existing stockholders
and an immediate dilution in net tangible book value of $ per share to new
investors. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of June 30, 1999..... $ 1.62
Adjustment for conversion of preferred stock and
convertible notes payable.............................. (0.19)
------
Pro forma net tangible book value per share as of June 30,
1999................................................... 1.43
Increase per share attributable to new public investors...
------
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new public investors.................. $
=====
</TABLE>
The following table summarizes, as of June 30, 1999, the number of shares
of common stock we have sold, the total cash consideration paid to us and the
average price per share paid by existing stockholders and by investors
purchasing shares of common stock in this offering, after giving effect to (1) a
1.5-for-1 stock split of our common stock, (2) the issuance of Series C
Convertible Preferred Stock in September 1999, and (3) the conversion of all
outstanding shares of our preferred stock and all outstanding convertible notes
and accrued interest into shares of common stock, before deduction of the
underwriting discount and other estimated expenses of the offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
----------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing 18,549,977 % $49,001,387 % $2.64
stockholders........
New public % %
investors...........
----------- --- -----------
Total............ 100% 100%
=========== === =========== ===
</TABLE>
The preceding table assumes no exercise of any stock options or warrants
outstanding at June 30, 1999. At June 30, 1999, there were outstanding stock
options to purchase a total of 1,876,311 shares of common stock at a weighted
average exercise price of $5.47 per share and warrants to purchase a total of
655,906 shares of common stock at a weighted average exercise price of $2.90 per
share. To the extent that such options and warrants are exercised, there will be
further dilution to new investors.
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<PAGE> 31
SELECTED FINANCIAL DATA
You should read the following selected financial data in conjunction with
our financial statements and related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing elsewhere
in this prospectus.
The statement of operations data for the period from June 4, 1996
(inception) to December 31, 1996 and for the years ended December 31, 1997 and
1998, and the balance sheet data as of December 31, 1997 and 1998 are derived
from our financial statements which have been audited by KPMG LLP, independent
accountants, and are included elsewhere in this prospectus. The balance sheet
data as of December 31, 1996 are derived from our audited financial statements
not included in this prospectus. The statement of operations data for the six
months ended June 30, 1998 and 1999 and the balance sheet data as of June 30,
1999 are derived from our unaudited financial statements included elsewhere in
this prospectus.
The unaudited financial statements have been prepared on substantially the
same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the results of operations for such periods.
Historical results are not necessarily indicative of the results to be expected
in the future, and results of interim periods are not necessarily indicative of
results for the entire year.
The weighted average shares do not include any common stock equivalents
because such inclusion would have been anti-dilutive. See the financial
statements and related notes appearing elsewhere in this prospectus for the
determination of shares used in computing basic and diluted net loss per share.
We have calculated pro forma basic and diluted net loss per share assuming
the conversion of all outstanding shares of our preferred stock and the
outstanding convertible notes into common stock on the date such preferred stock
and convertible notes were issued.
30
<PAGE> 32
<TABLE>
<CAPTION>
PERIOD FROM SIX MONTHS
JUNE 4, 1996 YEAR ENDED ENDED JUNE 30,
(INCEPTION) TO DECEMBER 31, (UNAUDITED)
DECEMBER 31, --------------------- ----------------------
1996 1997 1998 1998 1999
-------------- --------- --------- --------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues.................. $ -- $ -- $ -- $ -- $ --
Operating expenses:
Programming............. -- -- 2,272 459 12,470
Sales and marketing..... -- -- 387 101 1,316
Network operations...... -- -- 325 -- 1,499
General and
administrative....... 434 222 3,906 138 4,616
---------- --------- --------- --------- ----------
Total operating
expenses........... 434 222 6,890 698 19,901
---------- --------- --------- --------- ----------
Loss from operations...... (434) (222) (6,890) (698) (19,901)
Interest expense, net..... -- -- 200 -- 146
---------- --------- --------- --------- ----------
Net loss.................. $ (434) $ (222) $ (7,090) $ (698) $ (20,047)
========== ========= ========= ========= ==========
Net loss per share:
Basic and diluted....... $ (0.54) $ (0.07) $ (0.99) $ (0.10) $ (2.68)
========== ========= ========= ========= ==========
Weighted average
shares............... 800,568 3,315,033 7,186,941 7,021,773 7,489,584
========== ========= ========= ========= ==========
Pro forma net loss per
share:
Basic and diluted....... $ (0.54) $ (0.07) $ (0.84) $ (.10) $ (1.30)
========== ========= ========= ========= ==========
Weighted average
shares............... 800,568 3,315,033 8,207,910 7,021,773 15,276,124
========== ========= ========= ========= ==========
</TABLE>
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, JUNE 30,
------------------------ 1999
1996 1997 1998 (UNAUDITED)
---- ----- ------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ -- $ -- $ 5,879 $18,585
Working capital (deficit)............... (434) (656) (1,228) 6,888
Total assets............................ -- -- 7,284 25,076
Convertible notes payable............... 434 653 5,405 7,061
Total stockholders' equity (deficit).... (434) (656) 129 12,153
</TABLE>
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<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of
operations should be read in conjunction with the financial statements and the
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks and uncertainties. When used in
this prospectus, the words "intend," "anticipate," "believe," "estimate," "plan"
and "expect" and similar expressions as they relate to us are included to
identify forward-looking statements. Our actual results could differ materially
from the results discussed in the forward-looking statements for the reasons
described under "Risk Factors" above.
OVERVIEW
We develop, produce and distribute original entertainment content and
information services over the Internet targeted at youth between the ages of 14
and 24. We have established an online network to deliver original digital video
programming similar in appearance to television, consisting of short-format,
linear video content surrounded by related, interactive multimedia content. In
addition, our online network will offer music, community features and electronic
commerce tailored to our target audience. From our inception in 1996 through
September 1999, our operating activities primarily have focused on conducting
market research, recruiting employees, producing content, developing technology,
creating our network, engaging in discussions with potential charter sponsors
and engaging in sales and other marketing activities. We have not earned any
revenues to date. We incurred losses of $7,090,000 in 1998 and $20,047,000 for
the six months ended June 30, 1999, and had an accumulated deficit since
inception of $27,793,000 as of June 30, 1999. Due to the planned expansion of
our original programming, music business and electronic commerce platform, we
expect to incur significant operating losses for the foreseeable future.
We initially expect to derive our revenues principally from the sale of
various forms of advertising, including sponsorships, endorsements, commercial
advertising spots and product placement. We also expect to generate additional
revenues in the future from electronic commerce linked to our programming, music
promotional fees, and license fees from Internet Service Providers and other
distributors of digital media that host our content on their networks. We expect
that >en. music group will generate revenues from sales of its artists' records
and merchandise and music publishing royalties.
We expect our advertisers to be comprised of three categories: charter
sponsors, sponsors and advertisers. Charter sponsors are a select group of
global youth-targeted consumer products companies that have committed to fund
development of our original content and the creation of unique forms of
commercial advertising. Charter sponsors typically have the exclusive right to
be the sole sponsor of a product category across our network. In addition,
charter sponsors have the opportunity to embed their products in our
productions, obtain site branding and gain access to DEN's development projects.
Non-charter sponsors will include other targeted consumer product companies and
Internet and technology companies that desire to have a significant advertising
presence on our network. These non-charter sponsors will enjoy many of the same
benefits as our charter sponsors, but generally will pay lower sponsorship fees
than our charter sponsors and will not have product-category exclusivity across
our network. Our advertisers will include companies that purchase individual or
multiple advertising spots based on an advertising rate card similar to that
used for other traditional media.
As of September 1, 1999, we had entered into charter sponsorship agreements
with Ford, Microsoft and Pepsi-Cola. Our agreements with Ford and Pepsi cover
our first year
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<PAGE> 34
of programming beginning in July 1999, while our agreement with Microsoft covers
calendar years 1999 and 2000. At the end of the terms of these agreements, we
expect that we will offer to renew our relationships with our charter sponsors.
Each of Ford and Pepsi has a right in its sponsorship agreement to negotiate and
offer to extend the term of that agreement for two additional one-year periods.
See "Business -- The DEN Business Model -- Sponsorship and Advertising
Revenues."
REVENUE RECOGNITION
We generally expect to recognize advertising revenues in the period in
which advertisements are displayed. Revenues from our sponsors will be
recognized over the contract term. We will defer recognition of revenues for any
period within the contract term in circumstances in which we have guaranteed a
minimum number of "impressions" or times that an advertisement appears in pages
viewed by the users of our network and such impressions are not delivered during
such period. Such revenues will be recognized in the period when the guaranteed
impression levels are achieved. We expect to begin recognizing revenues under
our first three charter sponsorship agreements in the fourth quarter of 1999,
coinciding with the formal launch of our network and the commencement of our
expanded marketing campaign.
Advertisers typically purchase their advertising package with cash, but may
also pay us with barter in the form of advertising inventory, products or
services that in some cases they have purchased from various sources. We accept
advertising inventory as payment in lieu of cash only when the advertising
venues are highly desirable or expensive or difficult for us to obtain on our
own. For example, this summer, DEN was featured in Pepsi's 60-second
advertisements that were exhibited in approximately 40% of movie theaters in the
United States. We intend to record revenues from barter transactions at the
estimated fair value of the advertisements, goods or services received or the
estimated fair value of the advertisements given, based on recent realized
advertising rates, whichever is a more clearly evident measure of the fair value
of the transaction. We will recognize revenue from barter transactions as income
when advertisements are delivered on our network. We will recognize the
associated barter expense in the period in which our advertisements are
displayed on third-party outlets or when we utilize bartered products and
services received.
We expect to recognize revenues from electronic commerce transactions when
the products or services purchased by our users are delivered or performed.
Revenues recognized from fees paid by other record companies for the promotion
and distribution of their artists' music on our network, sales of music and
related products and cross-promotional sponsorship fees will be recognized
ratably over the term of the agreement with each record label or artist.
Revenues received in the form of license fees from a network affiliate will be
recognized ratably over the life of the contract governing such affiliate
relationship. >en. music group revenues will be generated primarily through the
sales of its artists' records and related merchandise and will be recognized at
the time of sale of such products.
Our management has established our revenue recognition policies based on
generally accepted accounting principles and similar policies used by
traditional film and television production companies and Internet companies.
Given the emerging and evolving nature of businesses on the Internet and the
uniqueness of our business model, we intend to continue to evaluate our revenue
recognition policies and may change such policies in the future.
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OPERATING EXPENSES
Our expenses include programming costs, sales and marketing expenses,
general and administrative expenses, network and related technology expenses and
depreciation.
Our programming costs include production costs, salaries and benefits for
full-time employees involved with programming and license fees. Our production
costs include third-party production costs for equipment and facilities rentals,
salaries and related costs of performers, writers, directors and freelance
personnel, travel expenses, marketing, permits, post-production and other
interactive content-development costs. We capitalize these show-specific
production expenses when first incurred and then amortize such expenses during
the period in which the relevant show is first distributed. Salaries and
benefits for full-time employees involved with programming are charged to
expenses each month as incurred. At the end of 1998, we had not completed
production on any of our current programs, and consequently we had not yet begun
amortizing any production costs. We began to amortize our capitalized production
costs when our programs first debuted in May 1999. We regularly review and
evaluate the future benefits of programs and write off any programs which we
believe will have no expected benefit.
In the future, >en. music group's programming costs will include artist
royalties and expenses related to producing its artists' music.
Sales and marketing expenses include advertising, promotion and publicity
expenses, market research expenses and salary and benefit costs of personnel
performing these functions. In the future, sales and marketing expenses also
will include the costs of distributing >en. music group products.
Network operations expenses include costs of hosting our programming on
network services, related computer and network infrastructure equipment leases
and telecommunication charges from network service providers, network operating
software licenses and management information systems expenses. All costs are
expensed as incurred, except network operating software licenses which we will
amortize over the lesser of the term of the license or three years.
General and administrative expenses include office leases and related
expenses for utilities, insurance, maintenance and security, professional fees
(such as legal, accounting, advisory and recruiting fees) and senior management
salary and benefits.
We anticipate that our expenses will increase in absolute dollars in the
future as we hire additional personnel, increase our promotional expenses and
incur additional costs related to being a public company.
We have a limited operating history upon which to base an evaluation of us
and our business and prospects. Our business and prospects must be considered in
light of the risks, expenses and difficulties encountered by companies in an
early stage of development, particularly companies in new and rapidly evolving
markets such as the Internet. See "Risk Factors."
RESULTS OF OPERATIONS
The following discussion compares our results of operations during the
first six months of 1998 and 1999 and during 1996, 1997 and 1998. In view of the
rapidly changing nature of our business and our limited operating history, we
believe that period-to-period comparisons of our operating results are not
necessarily meaningful. You should not rely on this information as an indication
of future performance.
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SIX MONTHS ENDED JUNE 30, 1998 AND 1999
Programming. Production activities in the first six months of 1998 related
to the development of our first pilot entitled "Chad's World." We capitalized
these costs in the first quarter and expensed such costs in the following
quarter when the programming was distributed on our network. Our programming
costs of approximately $12,470,000 in the first six months of 1999 primarily
represent salaries and benefits for full-time employees involved with
programming. Included in this number was a salary advance to executives of
$2,000,000, as well as a non-cash compensation charge of $5,546,000 related to a
grant of stock to executives. We have recorded compensation expense because such
advances will be deemed fully earned in the event of termination and the
stock-based award was fully vested at the date of grant. Production costs
incurred during the first six months of 1999 related to seven projects which
were available for release beginning in May 1999 and five projects which were
released in June 1999. These costs were capitalized and are amortized when the
programs are distributed.
Sales and Marketing. Sales and marketing expenses were approximately
$101,000 for the six months ended June 30, 1998 and $1,316,000 for the six
months ended June 30, 1999. These costs consist primarily of staff-related
expenses for salaries and benefits.
Network Operations. We had no network operations expenses in the first six
months of 1998. Network operations expenses in the first six months of 1999 were
approximately $1,499,000 and primarily represent expenses associated with the
initial development of our Web network and staff-related costs for salaries and
benefits.
General and Administrative. General and administrative costs in the first
six months of 1998 were approximately $138,000 and primarily represent expenses
for office space, professional fees and staff-related costs for salaries and
benefits. The costs in the first six months of 1999 were $4,616,000, reflecting
the initial stage of our operations, and primarily include office space,
supplies and equipment rentals and related costs, insurance, professional fees
for employee recruiting, accounting and legal services and administrative
staff-related expenses including salaries and benefits.
Interest Expense. We had no interest expense or income in the first six
months of 1998. Interest expense of $246,000 that was incurred in the first six
months of 1999 relates to our financing obligations for convertible notes issued
to our founders. This amount is offset by $100,000 of interest income earned
from short-term investments. See "-- Liquidity and Capital Resources."
PERIOD FROM JUNE 4, 1996 TO DECEMBER 31, 1996 AND YEARS ENDED DECEMBER 31,
1997 AND 1998
Our operations from inception in June 1996 through June 1998 were limited
principally to market research and analysis, technology and production research
and development and programming development and testing. In April 1998 we
produced and distributed over the Internet our first pilot entitled "Chad's
World." From June 1998 through December 1998, we began developing our
programming and interactive content strategy, our business model and our
advertising sales and marketing and promotion plan. In 1999, we commenced
development and production of pilot programs and began active discussions with
potential charter sponsors and advertisers prior to our commencement of
webcasting on May 10, 1999.
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In June 1998, we began hiring members of the senior management team and
recruiting other employees. We had approximately 30 employees at December 31,
1998 and 146 employees at June 30, 1999.
Programming. We had no programming activities in 1996 and 1997. Programming
expenses of $2,272,000 in 1998 primarily relate to the costs of recruiting our
key production personnel, developing our production model and producing our
first pilot entitled "Chad's World," which was distributed over the Internet in
April 1998.
Sales and Marketing. We had no sales and marketing activities in 1996 and
1997. Our sales and marketing expenses in 1998 were $387,000 and primarily
relate to the marketing and publicity of our first pilot entitled "Chad's World"
and salary-related costs.
Network Operations. We had no network operations expenses in 1996 and 1997.
Our network operations expenses in 1998 were $325,000 and primarily relate to
the initial development of network and salary-related costs.
General and Administrative. Our general and administrative costs in 1996
were $434,000 and primarily relate to market studies, consulting fees and
start-up legal expenses incurred in connection with forming our company. Our
costs in 1997 were $222,000 and primarily relate to continued research and
development, consulting fees and costs associated with raising capital. Our
general and administrative costs in 1998 of $3,906,000 primarily relate to the
initial stages of our operations and include office space, supplies and
equipment rentals and related costs, insurance, professional fees for employee
recruiting, accounting and legal, and administrative departments staff related
expenses including salaries and benefits.
Interest Expense. We incurred no interest expense in 1996 or 1997 and
$200,000 in 1998. The interest expense that we incurred in 1998 primarily
relates to our financing obligations for convertible notes issued to our
founders. See "-- Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations primarily through
funding provided by our founders and private placements of preferred stock.
Through June 30, 1999, the borrowings under convertible notes issued to our
founders totaled approximately $7.1 million and the aggregate net proceeds from
sales of our capital stock totaled approximately $33.5 million. At June 30,
1999, we had approximately $18,585,000 in cash and cash equivalents. Since June
30, 1999, we have raised approximately $8.3 million in proceeds from the sale of
additional shares of preferred stock. We also have issued restricted stock,
warrants and stock options to attract and retain certain key vendors, employees
and business partners and to obtain certain financing arrangements.
Net cash used in operating activities totaled approximately $140,000 for
the six months ended June 30, 1998, $8.7 million for the six months ended June
30, 1999, $434,000 for the period from June 4, 1996 (inception) through December
31, 1996, $219,000 for the year ended December 31, 1997 and $5.0 million for the
year ended December 31, 1998. We have experienced significant negative cash
flows from operating activities in each fiscal and quarterly period to date
because we are still in the development stage and have not earned any revenues.
Net cash used in operating activities resulted from our net operating losses
adjusted for certain non-cash items. For the six months ended June 30, 1999, the
increase in net cash used in operating activities, as compared to
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the previous comparable period, consisted primarily of our net operating loss of
$20.0 million.
Net cash used in investing activities was approximately $459,000 for the
six months ended June 30, 1998, $6.0 million for the six months ended June 30,
1999, and $1.2 million for the year ended December 31, 1998. For the six months
ended June 30, 1999, net cash used in investing activities consisted primarily
of capitalized production costs of $3.0 million and capital expenditures related
to purchases of equipment of $3.0 million.
Net cash provided by financing activities was $628,000 for the six months
ended June 30, 1998 compared with net cash provided by financing activities of
$27,400,000 for the six months ended June 30, 1999. Net cash provided by
financing activities was $434,000 for the period from June 4, 1996 (inception)
through December 31, 1996, $219,000 for the year ended December 31, 1997 and
$12.1 million for the year ended December 31, 1998. Net cash provided by
financing activities of $434,000 in 1996 and $219,000 in 1997 was related to
borrowings under convertible notes payable to our founders. Net cash provided by
financing activities in 1998 consisted primarily of net proceeds from the sale
of preferred stock of $6.8 million and borrowings under convertible notes
payable to our founders totaling $4.8 million.
No provision for federal income taxes has been recorded except for minimum
state taxes because we have incurred net operating losses for the six months
ended June 30, 1999 and for each of the three fiscal periods ending December 31,
1998. For tax purposes, we have capitalized a substantial portion of our
expenses. As a result, we do not have any significant net operating loss
carryforwards as of December 31, 1998 and June 30, 1999. We expect to begin to
amortize such capitalized costs for tax purposes over sixty months when we
commence earning revenues. Accordingly, we will either utilize the amortization
expense for the relevant period or include such amortization in our net
operating loss carryforwards for such period.
Our capital requirements depend on numerous factors, including market
acceptance of our programming, the amount of resources we devote to building our
brand and our programming library and other factors. We expect that additional
significant investments in content development and marketing in particular are
required to remain competitive, and therefore believe that programming, sales
and marketing, network operations and general and administrative expenses will
continue to increase for the foreseeable future. In addition, we are obligated
to fund $20 million for the start-up and initial operations of >en. music group,
of which $3 million was provided from proceeds of our sale of preferred stock in
May 1999 and $17 million will be funded with proceeds from this offering. We
believe that the net proceeds from this offering, combined with current cash and
cash equivalent balances will be sufficient to fund our operating requirements
for working capital and capital expenditures, including funding for >en. music
group, for at least the next 12 months.
We are a development stage enterprise, we have earned no revenues to date,
we have incurred substantial operating losses, and due to our substantial
growth, we have experienced increased capital needs. We have received a report
from our independent auditors as of September 17, 1999 containing an explanatory
paragraph that describes uncertainty as to our ability to continue as a going
concern because we did not have sufficient resources to meet our operating needs
for at least the next twelve months. To the extent that our capital requirements
are greater than we anticipate, we may need to raise additional funds sooner, in
which case we may sell additional shares of
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common stock or issue other securities. We cannot assure you that additional
financing will be available on terms favorable to us, or at all. If adequate
funds are not available or are not available on acceptable terms, our ability to
fund our operations, take advantage of unanticipated opportunities, develop or
enhance content, features or services, or otherwise respond to competitive
pressures would be significantly limited. Our business, results of operations
and financial condition could be materially adversely affected by any such
limitation.
YEAR 2000 COMPLIANCE
We are heavily dependent upon complex computer software and systems for our
operations, including, to a significant extent, our vendors' and network
affiliates' computer systems. Many existing computer programs and systems use
only two digits to identify a year in the date field. These programs and systems
were designed and developed without considering the impact of the upcoming
change in the century. If not corrected, many computer applications could fail
or create erroneous results by or at the year 2000.
STATE OF READINESS
Most of our material operating software and our information technology
systems and other systems, including telecommunications and warehouse systems,
were developed by and are supported by third party vendors. Most of the third
party vendors of our mission-critical operating software have provided written
warranties or assurances to us that such software will not be affected by the
change in the century. The majority of the third party vendors of our other
material operating software and systems have also provided warranties or
assurances that such software and systems will be compliant by December 31,
1999. We have prepared a year 2000 compliance program, which involves:
- identifying the material operating software and systems on which we
depend, whether used by us or by our service providers;
- obtaining written warranties or assurances from third party software and
systems vendors and service providers;
- monitoring the compliance efforts of such vendors and service providers;
and
- testing our material operating software and systems.
We began performing official tests in the third quarter of fiscal 1999 of
all of our material operating software and systems to verify the assurances
given by these third party vendors and ensure year 2000 compliance. We have
already begun testing systems, applications and documents important to our
operations, and we have acquired statements and warranties from most of our
third party systems and service providers that their software and services are
year 2000 compliant. We have not yet identified any major problems that will
affect our business operations. We have also begun to perform official tests on
our own software and systems. As a result, we have not identified any material
software or systems as requiring remediation or replacement. However, we believe
that all of our material operation software and systems will be year 2000
compliant.
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In addition to the operating systems and software we use directly, our
operations are also dependent upon the performance of operating software and
systems used by our significant service providers, including providers of
financial, telecommunications and parcel delivery services. We have contacted
our significant service providers and are attempting to verify written
assurances from the majority of such providers that the providers' relevant
operating software and systems are in year 2000 compliance or will be by
December 31, 1999. We are monitoring the status of all our significant service
providers' year 2000 compliance efforts to minimize the risk of any material
adverse effect on our operations resulting from compliance failures. However, we
cannot assure you that our service providers have, or will have, operating
software and systems that are year 2000 compliant.
RISKS
The failure of our software or systems to be year 2000 compliant could
prevent us from being able to distribute our products and services, could cause
users of our network to consider alternative Web community and content
providers, or could disrupt our financial and management controls and reporting
systems. Any such worst-case scenario, if not quickly remedied, would have a
material adverse effect on us. Therefore, we are developing contingency plans
with respect to our management controls, reporting systems, content distribution
and related software. We expect our contingency plans to be completed by the end
of October 1999.
In addition, a significant portion of purchases of merchandise from us will
be made with credit cards, and our operations may be materially adversely
affected to the extent our customers are unable to use their credit cards due to
year 2000 issues that are not rectified by the customers' credit card vendors.
We have not identified significant exposure to year 2000 problems outside
of the information technology issues identified above.
COSTS
To date, we have spent less than $10,000 on year 2000 compliance. We expect
our incremental costs of addressing year 2000 issues in 1999 and beyond to be
approximately $60,000. We believe that amounts currently budgeted for investment
in technology infrastructure and maintenance will be sufficient to fund our year
2000 compliance program and contingency plan. However, given our dependence on
third party software and system vendors and service providers, there can be no
assurance to that effect.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position 98-1, "Accounting for the Cost of
Computer Software or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 is
effective for financial statements for years beginning after December 15, 1998.
SOP 98-1 provides guidance for accounting for computer software developed or
obtained for internal use including the requirement to capitalize specified
costs and amortization of such costs. We do not expect the adoption of this
standard to have a material effect on our capitalization policy.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-up Activities" ("SOP 98-5"). SOP 98-5, which is effective for
fiscal years beginning after December 15, 1998, provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up activities and organization costs to be expensed as incurred. As we
have expensed these costs historically, the adoption of this
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standard is not expected to have a significant impact on our results of
operations, financial position or cash flows.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In June 1999 SFAS No. 137, deferred the
effective date to fiscal years beginning after June 15, 2000. SFAS No. 133
requires us to recognize all derivatives on the balance sheet at fair value. We
have determined that the adoption of this new standard is not applicable to our
operations.
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BUSINESS
OVERVIEW
DEN is pioneering the production and delivery of Internet-based digital
entertainment and information services to redefine the entertainment experience
for a new generation. We have created a digital media network, located at
www.DEN.net and www.DEN.com, which targets youth between the ages of 14 and 24,
the older and more sophisticated segment of the generation commonly referred to
as "Generation Y." We believe that traditional and online media currently
underserve the market for Generation Y entertainment and that we are uniquely
positioned to create a brand that addresses the needs of this market.
We have established our entertainment network to provide a single
destination for our targeted audience to access original, youth-oriented video
programming, games, interactive content and music, and to engage in community
features and electronic commerce. Our network features a new format of original
interactive digital video programming similar in appearance to television,
consisting of short-format, linear video content surrounded by related,
interactive multimedia content. We produce our programming specifically for
online distribution which our users can access at the widely-used connection
speed of 56.6 kbps (kilobits per second) as well as at higher connection speeds.
We believe our focused programming encourages our users to participate in
interest-specific online communities, which may feature related free services
such as chat rooms, games, personal home pages, interactive forums, user
submission areas and e-mail. We also believe that the depth and breadth of our
proprietary content and community features increase the amount of time that
users will spend on our online network, enhancing the value of our user base to
sponsors and advertisers and maximizing our electronic commerce opportunities.
We also have established a music services division to integrate music and
artists into our programming. In doing so, we expect to enhance the quality of
our programming and to provide a vehicle to promote new musical talent. We will
give artists signed to >en. music group, our record label, and other record
labels broad exposure on our network, generating revenues from advertising and
promotional fees, sales of music and related merchandise through our electronic
commerce platform and cross-promotional sponsorship fees.
We offer advertisers and sponsors a unique opportunity to enhance their
brand image with members of Generation Y, a critical consumer group that
advertisers have failed to reach effectively using traditional advertising
techniques. We have developed innovative and proprietary advertising techniques
to fully exploit the capabilities of our network, and the Internet generally. By
providing advertisers the ability to integrate their product messages into our
programming and other interactive content in a manner that is both relevant and
non-obtrusive, we believe our advertisers can capture the attention of our
target audience more effectively than traditional offline and existing online
advertising. Moreover, we believe we can combine this highly-targeted
advertising with our electronic commerce capabilities to more effectively
convert user interest in products viewed on our network to actual purchases.
We expect to generate the majority of our revenues initially through the
sale of sponsorships and advertisements and increasingly from electronic
commerce, promotional services provided to music companies and license fees
received from network affiliates. We currently offer our charter sponsors, Ford,
Microsoft and Pepsi-Cola, broad sponsorship relationships and advertising
development assistance in exchange for annual sponsorship fees. We intend to use
our electronic commerce platform to sell a variety of products and
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services, including music featured in our shows, >en. music group products,
products of our sponsors and advertisers, DEN-branded products and other
products and services targeted to Generation Y.
We began webcasting on our network on May 10, 1999, and have since
premiered 13 program series featuring original video and multimedia programming.
To coincide with the formal launch of our network and commencement of our
expanded marketing campaign, we intend to introduce approximately seven
additional shows by the end of October 1999.
INDUSTRY BACKGROUND
GROWTH OF THE INTERNET AND DIGITAL MEDIA
The Internet has emerged as a global platform that allows millions of
people to share information, communicate and conduct business. According to
International Data Corporation, there were 62.8 million Internet users in the
United States and 142 million users worldwide in 1998. International Data
Corporation estimates that by the end of 2003 there will be 177 million Internet
users in the United States and 502 million users worldwide. Significant growth
in the use of the Internet and other interactive networks has created
unprecedented opportunities for digital media. Increasing use of the Internet to
deliver interactive video, audio and multimedia content has enhanced users'
online experiences. The Internet has evolved from a compilation of static,
text-oriented Web pages and e-mail services to a much richer multimedia
environment. For example, streaming media products enable the simultaneous
transmission and playback of continuous real-time "streams" of video and audio
content over the Internet. In addition, video can also be downloaded and played
back from a user's hard drive. These methods of distribution, which are freely
available to today's Internet users, deliver digital video and audio over
standard, widely-available modems. As higher-speed Internet access becomes more
widely available, more Internet users will be able to access higher-quality
digital video and audio products. Kinetic Strategies reports that high-speed
Internet access through cable modems is now available to 32 million North
American households, or one-third of all cable subscribers, and expects this
figure to increase to half of all cable TV subscribers in the next six to 12
months.
The growth of the Internet has attracted significant advertiser interest
because the Internet represents a fast-evolving medium for them to establish an
interface with consumers. Forrester Research estimates that the amount of
advertising dollars spent in the United States on the Internet will reach $2.3
billion in 1999 and $22 billion in 2004. We believe advertisers will be
particularly attracted to rich-media advertising on the Internet, which
incorporates interactive graphics, audio and video components and opportunities
for electronic commerce. A 1999 study by Wired Digital and Millward Brown
Interactive found that rich-media Internet advertising increased brand
perceptions 31%, boosted intent to purchase 25% and increased user response, as
measured by click-through rates, by 340% when compared to traditional banner
advertising.
Merchants can now reach consumers and complete business transactions over
the Internet and other digital delivery systems with less dependency on store
fronts and shelf space and other costs incurred by traditional retailers.
Forrester Research estimates that North American online retail spending will
increase from $8.0 billion in 1998 to $115.8 billion by 2003, while
International Data Corporation projects worldwide electronic commerce revenues
to reach $1.3 trillion by 2003.
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GENERATION Y AS A CRITICAL CONSUMER GROUP
Generation Y has emerged as a critical consumer group for advertisers and
distributors of entertainment programming. Generation Y refers to a demographic
group broadly defined to include approximately 77 million people in the United
States between the ages of five and 24. Of this group, approximately 41 million
people are between the ages of 14 and 24, representing our target audience.
Generation Y is the largest generation since the "baby boom" generation and is
nearly twice the size of the demographic group commonly referred to as
"Generation X."
Members of Generation Y grew up in the digital information age and have
embraced the Internet as a source of information and entertainment and as a
means of communication. Jupiter Communications estimates that 17.0 million
people in the United States between the ages of five and 18 were online in 1998,
and that this number will increase to 38.5 million by 2002. According to Roper
Reports' Global Consumers 2000 Study, Internet penetration within the United
States is strongest among teenagers, at 41%. Jupiter reports that 90% of college
students in the United States have free high-speed access to the Internet and
that they spend an average of 22 hours per week online.
Generation Y has significant buying power and purchasing influence.
According to Teen Research Unlimited, United States teenagers aged 12 to 19
spent approximately $122 billion in 1997 and $141 billion in 1998. Furthermore,
the portion of that spending which is done online is also growing. Jupiter
Communications forecasts that in 2002, electronic commerce revenues will be $1.2
billion from teenagers and $3.9 billion from college students. Jupiter also
estimates that 67% of teenagers using the Internet already have researched or
bought products online and that by 2003, 95% of university age students will
have online access and will spend in excess of $4 billion per year online. In
addition, Teen Research Unlimited has found that Generation Y influences major
family purchases of items such as computers, home entertainment systems and
cars. Further, we believe that Generation Y members typically adopt products
earlier than other demographic groups and consequently have a significant role
in establishing consumer trends. Accordingly, Generation Y can be a foundation
upon which advertisers build long-lasting and widely-accepted brands.
Given the size, buying power and influence of Generation Y as a consumer
group, we believe that advertisers place critical importance on establishing
brand loyalties among its members. Peterson Youth Group reports that brand
loyalties begin to be established as early as age ten. The Rand Youth Poll found
that 70% of females aged ten to 19 agreed that brand names were important to
them. We believe that members of Generation Y who adopt brands during this
formative period in their lives will continue to be loyal to those brands as
they mature and their buying power increases.
LIMITATIONS OF CURRENT ENTERTAINMENT
We believe that traditional media companies have been slow to adapt to the
changing entertainment and information needs and preferences of today's
culturally-diverse youth, a development illustrated by declining television
viewership. According to Nielsen Media Research, daytime and prime-time
television viewership decreased 6.8% and 4.2%, respectively, among the 12 to 24
age group in 1998. We believe that the Internet is better-suited to meet youth's
demand for entertainment, information and communication, with Audience Research
& Development reporting that 30% of people watching less television are browsing
the Internet instead.
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We view the diversity of Generation Y, which is the most ethnically and
racially diverse generation in U.S. history, as a contributing factor in this
decline in television viewership. To successfully appeal to this group, we
believe entertainment content must account for its diversity by targeting
specific sub-groups of Generation Y while also including broader themes that
appeal to the entire generation. Traditional media companies have generally had
difficulty producing such highly-targeted programming profitably because of
limitations imposed by their established, capital-intensive production processes
and distribution methods and the need to appeal primarily to mass audiences.
Members of Generation Y have grown up with video games, VCRs and the
Internet and, as a result, have become accustomed to controlling when and how
they choose to be entertained. Research conducted by Saatchi & Saatchi in 1999
suggests that Generation Y prefers interactive activities that integrate
community with content. Traditional media, such as television, print and film,
do not lend themselves easily to this type of interaction. We therefore believe
that Generation Y prefers to access its entertainment on demand, select from a
large variety of choices, interact with other people with similar interests, and
customize the manner in which their entertainment is presented.
While many traditional media companies have attempted to use the Internet
to supplement their content, most online content is static, information-based
and aimed at adults. Additionally, we believe that most video programming
currently available on the Internet does not utilize the full interactive
capabilities of today's Internet environment and is rarely professionally
produced to meet the unique technical requirements which optimize the
distribution of video on the Internet.
LIMITATIONS OF CURRENT ADVERTISING SOLUTIONS
Advertisers have discovered that traditional methods of advertising are not
often effective when used to target Generation Y. A number of marketers believe
that Generation Y has grown up in a media-saturated, brand-conscious era, are
more sophisticated in their tastes and, consequently, purchase more selectively.
In addition, we believe that years of intense marketing efforts through
traditional media have made members of Generation Y distrustful and cynical of
companies directing traditional advertising "pitches" at them. Marketers have
found that campaigns using slogans and aspirational images to saturate the mass
media were successful with the parents of Generation Y, but are not as effective
in reaching or influencing Generation Y. Instead, marketing campaigns that are
more effective in reaching Generation Y make greater use of humor, irony,
subtlety and realism to deflect the focus away from the "pitch." Additionally,
we believe that members of Generation Y prefer to encounter advertising in
non-traditional places, such as the Internet and at events where members of
Generation Y gather.
THE DEN SOLUTION
We have created an online digital media network for the purpose of building
the leading youth-culture brand. We have established a single destination for
the various sub-groups of Generation Y to access original, youth-oriented video
programming, games, interactive content and music, and engage in community
features and electronic commerce. By aggregating sub-groups of Generation Y, we
help advertisers reach Generation Y and deliver their messages and products
using the interactive benefits of our content-rich online environment in a
manner that is more relevant and pervasive than traditional media.
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BENEFITS TO OUR TARGET AUDIENCE
We believe that today's youth seek on-demand, interactive programming that
integrates participatory elements such as games, electronic commerce, chat
rooms, viewer-submitted content areas, e-mail, instant messaging and other
community features. We seek to revolutionize youth entertainment by creating a
rich hybrid experience which caters to youth by combining the best aspects of
television and the Internet. Our digital network offers a variety of
reality-based programs, music-related shows, dramas, comedies, talk shows, news
and other special interest programming. Our shows are designed to entertain and
to provoke thought, interaction and discussion, as well as to inform or offer
advice to our target audience. Additionally, our shows and related interactive
content present topics and issues that we believe matter to various sub-groups
of our target audience or our target audience as a whole.
We use our targeted programming as a foundation for virtual communities for
youth who share similar interests. Each of our program-specific Web pages has
features such as associated chat rooms and interactive forums where users can
discuss story and character development, share related personal experiences and
otherwise build a sense of community. Each show's Web page features access to
in-depth information about the subject matter of the show, the characters and
the production process. We will also link our programs to broader,
interest-specific communities, which we plan to develop out of our show-specific
communities. We also will provide our users the opportunity to purchase products
featured in our shows and advertisements, and other products and services we
believe are of interest to our target audience and which are consistent with our
brand image. We encourage user input regarding our content and implement
suggestions. We believe that these community aspects will foster user loyalty
and increase the amount of time a user spends on our network during each visit.
We believe that popular music is a vital element of youth entertainment and
culture. We intend to use popular music extensively on our network to satisfy
the interest of our users and give them the opportunity to purchase the music
they hear.
BENEFITS TO ADVERTISERS
We believe that we enable advertisers to more effectively impact Generation
Y by reaching specific sub-groups of Generation Y who are attracted to our
highly-targeted programming. We offer advertisers access to our broad target
audience by providing a wide variety of programming and virtual communities
appealing to various sub-groups of Generation Y on a single network. Our
advertisers' messages and products are integrated into our programming in
innovative ways. For example, we have developed contextually-driven, rich-media
advertisements, for which we have applied for patent protection, that are
triggered by product placements or references in our shows and which can be
demographically targeted based on characteristics of the user. We are also able
to collect information on our users' viewing, purchasing and clicking habits as
well as their demographic characteristics, which enables us to direct
advertisements at users who are most likely to respond to them and to build a
valuable information database.
We offer category-exclusivity to a number of our sponsors, giving them an
advantage in reaching Generation Y. We believe that the caliber of our charter
sponsors, Ford, Microsoft and Pepsi, each of which has made a significant
investment in our network, demonstrates the attractiveness of our innovative
advertising techniques to marketers.
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THE DEN STRATEGY
DEN's goal is to become the leading provider of youth-culture content to
Generation Y. Our strategy to achieve this goal includes the following elements:
CREATE AND BUILD A LEADING YOUTH-ORIENTED MEDIA BRAND
Our core marketing strategy is to build a strong brand identity that
establishes DEN as the destination of choice for cutting-edge, high-quality,
youth-oriented, interactive entertainment, music, information services and
electronic commerce. We believe that we are uniquely placed to take advantage of
the Internet as a new digital entertainment advertising medium, much as MTV took
advantage of cable television in the 1980's. Establishing our brand identity
began with choosing our name, "DEN" or ">en.", to connote a virtual living room
or home environment for today's youth. To build upon our name, we are employing
targeted, street-level marketing techniques to enable trend-setters within
Generation Y to "discover" our new brand. Once we have established the DEN brand
with these trend-setters, we expect that other, more mainstream members of
Generation Y will adopt the DEN brand from word-of-mouth and from observing the
growth in popularity of the DEN brand among the opinion leaders. Beginning in
early fall 1999, we plan to further expand our brand development by utilizing
more traditional and online marketing and advertising, including billboards,
radio, movie trailers, magazines, placements in select high school and college
publications, concert and music tour sponsorship and on Web sites and portals
that we believe appeal to our target audience.
CREATE A COMPLETE GENERATION Y COMMUNITY THAT INTEGRATES SUPERIOR CONTENT
AND COMMERCE
We intend to create a single source for digital video and music
entertainment, interactive community features and electronic commerce tailored
to the interests and demands of Generation Y. To form the core of our network,
we have developed a new format of original, interactive digital video
programming similar in appearance to television, with short-format, linear video
content surrounded by subject-related, interactive multi-media content. We
intend to position our programs within a network of virtual communities that
incorporate music, interactive multimedia and community features and electronic
commerce offerings. We plan to continue to produce and introduce new program
series and related electronic commerce offerings to track the evolving interests
of Generation Y and its various segments. We plan to regularly evaluate the
performance of our current shows by soliciting viewer comments and monitoring
viewership data. We believe that the combination of these real-time results and
our flexible production model will enable us to make rapid adjustments to our
content offerings when required.
PROVIDE A BROAD RANGE OF ADVERTISING SOLUTIONS
A key component of our strategy is to define new standards for digital
advertising that will attract advertisers and sponsors to our network. In
addition to providing a desirable audience to our advertisers, we have created a
platform for delivering forms of advertising on our network that are more
interactive and effective than traditional media and typical Internet banner
advertising. For example, we offer our advertisers the opportunity to integrate
interactive product placements and advertisements into our video programming,
create interactive multimedia advertising in surrounding content, and deliver
targeted advertising based on user viewing, purchasing and clicking habits,
tracked in real time by software designed for that purpose. Our programming and
network format are constantly evolving, which gives us flexibility to act as an
incubator for our sponsors to develop and
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test new forms of digital advertising. We intend to collaborate with our
sponsors to identify the most effective means of marketing to Generation Y.
DELIVER SUPERIOR ENTERTAINMENT FOR THE INTERNET OF TODAY
An essential part of our strategy is to deliver a compelling, interactive
audiovisual experience over the Internet using the most commonly used technology
currently available. We have configured a network infrastructure that delivers
our content over the Internet of today, and which can expand to meet the
performance standards of the foreseeable future. Users can access our
programming via our network at the widely-used 56.6 kpbs transmission speed or
at faster speeds of up to 300 kpbs which provide a richer viewing experience. We
make our programming available in all the leading audio and video software
formats, including Microsoft's Media Player, Apple's Quicktime and RealNetwork's
Real Player. We are also pursuing strategic alliances with other potential
distributors of digital media to develop faster, more cost-effective means to
deliver our content to our users.
CAPITALIZE ON OUR BUSINESS MODEL
Our strategy is to capitalize on our targeted audience base, proprietary
content and electronic commerce opportunities to generate multiple revenue
streams. We intend to generate revenue through advertising, music promotion and
advertising, related >en. music product sales, electronic commerce and license
fees from third-parties, or "network affiliates," who distribute or host our
content. We expect to maximize profitability by using cost-efficient methods to
produce programming and to deliver our content. Our production model is free of
many of the costs that are incurred by traditional media companies in the
production of their content. We believe our low-cost and efficient digital
production techniques should allow us to profitably produce a large number of
different shows, build new virtual communities and react quickly to the
requirements of our advertisers and sponsors as well as our users. We also plan
to pursue a strategy of affiliating with Internet Service Providers and other
distributors of digital media to lower the costs of distributing our content,
which will become increasingly important as more users access our content using
faster connection speeds. We believe we have the ability to easily expand our
programming offerings to create new forums for advertisers to target additional
sub-groups of Generation Y and present new electronic commerce opportunities at
little incremental cost.
UTILIZE THE SKILLS AND EXPERIENCE OF OUR INDUSTRY-LEADING MANAGEMENT TEAM
We have assembled a senior management team of individuals experienced in
television production and distribution, Internet infrastructure and technology,
the music industry, and advertising and marketing. The key members of our team
include the founders of Concentric Network Corporation, one of the first
national Internet Service Providers; two of the co-founders of the Channel One
Network, a national in-school television network targeted at teenagers; the
former President of Walt Disney Network Television and Touchstone Television;
the former Chief Operating Officer and Chief Financial Officer of HBO Ole, Home
Box Office's Latin American venture, and a former Microsoft executive who guided
its streaming media initiatives. >en. music group is co-led by the former
President and Chief Executive Officer of Capitol Records and an established
music manager of such acts as Beastie Boys, Beck, Foo Fighters and Nirvana.
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THE DEN BUSINESS MODEL
Our business model leverages our diverse Generation Y audience, youthful
brand and original programming to generate revenues from advertisers, electronic
commerce and other sources. We expect that most of our revenues in the near term
will be derived from advertising and electronic commerce. We also expect to
generate additional revenues in the future from our music business, record
label, and network affiliations.
SPONSORSHIP AND ADVERTISING REVENUES
Our advertising and sponsorship model is designed to offer advertisers and
sponsors an opportunity to enhance their brand image by taking advantage of the
new possibilities for brand exposure associated with online digital media. Our
first or "charter" sponsors are Ford, Microsoft and Pepsi, who each share a
desire to pioneer more effective means to position and advertise their brands on
the Internet and communicate with Generation Y. We are already working closely
with our charter sponsors to create and test innovative advertising techniques
to exploit the advertising and electronic commerce capabilities of our network
and the Internet generally.
Our charter sponsorship agreements with Ford and Pepsi provide for each of
them to serve as product category-exclusive sponsors for a 12-month period
ending June 30, 2000, and each has agreed to pay $2.5 million in sponsorship
fees over that period. Microsoft has agreed to pay $2.5 million for a
non-category-exclusive sponsorship for the period ending December 31, 2000.
These sponsors have the right to pay up to $4.1 million of these sponsorship
fees in mutually agreed-upon barter, which will include advertising inventory,
products and services that we can use in promoting the DEN brand and
programming. During the summer of 1999, a portion of Pepsi's sponsorship fees
were paid in marketing services, in the form of promoting the DEN brand and
programming in Pepsi's inventory of 60-second on-screen advertisements in
approximately 40% of movie theaters across the United States and on Pepsi's Web
site, Pepsiworld.com.
Our charter sponsorship agreements typically require us to guarantee a
minimum number of times that each sponsor's advertisements will be presented to
our users and to compensate for any shortfall for any particular sponsor by
providing additional advertising in subsequent programming periods and/or
partially reimbursing such sponsorship in cash.
Our goal is to add new charter sponsors during our first year of
programming and continue our relationships with all or a significant portion of
them in our second and third years of programming. We anticipate that our
sponsors will continue to pay a significant portion of their sponsorship fees in
barter, but we plan to accept only bartered goods and services that we would
otherwise be willing to purchase for similar or greater value.
In addition to charter sponsorship relationships, we plan to pursue
advertising relationships with other companies interested in targeting
Generation Y and utilizing our unique advertising features on a non-exclusive
basis, especially in categories such as fashion and entertainment. We expect
these arrangements to be narrower in scope and possibly shorter in term than our
charter sponsor agreements. Ultimately, we expect that we will be able to sell
individual or multiple advertising spots based on an advertising rate card
similar to that used by other traditional media.
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Our unique advertising options are the key to our sponsorship model. Unlike
Web sites that offer only flat banner advertisements, we offer our sponsors and
advertisers a wide range of innovative, rich-media advertising and electronic
commerce options. Many of these options take advantage of our unique programming
and production expertise. Examples of the types of advertising and electronic
commerce options that we offer include:
- Cybermercials(TM). We offer advertisers the opportunity to run streaming
video commercials, called "cybermercials," prior to the beginning of
selected programs. These cybermercials can run for a maximum of 15
seconds for six-minute shows, or up to 30 seconds for eight-minute
features.
- Hypermercials(TM). We have developed a unique form of
contextually-driven, interactive, multimedia commercial, or
"Hypermercial," for which we are seeking patent protection. In a
Hypermercial, a user is prompted when a product appears or is referred to
in one of our shows, and the user can then visit multiple layered windows
of increasingly detailed information related to that product, often
culminating in an opportunity to purchase it online without having to
leave our network.
- Product Placement. Unlike companies that webcast existing "repurposed"
video content, we offer advertisers the opportunity to embed their
products in our programming during the production process. In addition,
when characters in a show use a product, we can cause a banner or
Hypermercial advertisement to appear in a window below the main screen,
enabling a viewer to purchase the product. We believe we are not
currently subject to the stringent limitations on product placement
imposed by the Federal Communications Commission, which are applicable to
television.
- Promotions and Give-aways. We create promotions or product give-aways
that are incorporated into our programming. By clicking on certain areas
of content, users are able to discover these promotions or give-aways. We
believe these types of promotions add an element of excitement and
interactivity to the show and keep a user engaged.
- Sponsor Billboards. We offer advertisers the opportunity to sponsor our
programs. As a video stream is loaded on a user's video player, a
billboard with an advertiser's logo and name can appear along with text
indicating that the show is sponsored by that advertiser.
- Celebrity or Character Endorsement. We provide advertisers with celebrity
or character endorsements of their products. These endorsements can run
either before a show or can actually be incorporated into a show.
Alternatively, the producers of a show can briefly interrupt the story
line to have one of the characters turn to the camera and promote a
product to the audience.
- Watermarks. We offer advertisers the opportunity to place background
images of our advertisers' products or logos as the "wallpaper" over
which a show's Web page is displayed.
In addition, we utilize customized software systems to track the viewing
and purchasing habits and preferences of each user. These programs can process
and interpret the data collected to deliver advertisements to those users most
likely to be interested in the advertised product. This will further enable us
to build a valuable consumer database
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which we can use both to attract new sponsors and advertisers and to effectively
target advertisements to our individual users.
ELECTRONIC COMMERCE
We anticipate generating significant revenue from electronic commerce. We
have developed our content and engineered our network's Web site to integrate
electronic commerce opportunities into our programming. Initially, we plan to
offer our users the opportunity to purchase products associated with our
sponsors and advertisers, as well as DEN-branded merchandise and music forming
the show's soundtrack. In the future, we expect to offer other products and
services related to specific shows as well as products directed at our target
audience generally.
Our electronic commerce platform will permit users to purchase products
from a customized storefront related to the specific show in which the products
are promoted, generally without leaving our network. For example, when one of
our users watches the video portion of our programming, he or she may click on a
graphic depicting a product featured in the video, at which time the product is
displayed with further information about available sizes and colors, as well as
the price of the item. The user can then add the item to a virtual "shopping
basket" to avoid interruption of the viewing experience, or immediately instruct
our system to retrieve payment and shipping information, and complete the
purchase of the item. In addition, users will be able to choose products from a
master catalog containing all the products offered across all shows.
Vendors will be responsible for fulfilling all orders, but we will use a
third party to inventory, store and otherwise aid national or global
distribution, if individual vendors are not themselves equipped for these tasks.
Vendors will also have the ability to view sales figures and inventory status,
track merchandise in transit, and acquire profile statistics on items purchased
and items selected but not purchased.
We intend to make the electronic shopping experience of our users as
immersive, entertaining and integral to our programming as possible to inform
consumers about products we offer and to encourage purchases. We believe that
the integration of electronic commerce opportunities into our programming will
improve the overall experience of our users.
REVENUES FROM MUSIC-RELATED VENTURES
We expect to generate revenues from a variety of music-related sources,
including fees paid by other record companies for the promotion and distribution
of their artists' music on our network, sales of music and related products and
cross-promotional sponsorship fees.
We believe our network is ideally suited to promote popular music. We
expect to enter into arrangements with major record labels under which we will
collect fees for integrating their artists into our shows and their music into
our shows' soundtracks, placing their music on virtual listening posts, and
advertising their products. We will include these artists' music and merchandise
in our electronic commerce catalog and will receive a portion of any resulting
sales revenues. In addition, we expect to generate revenues by collecting
demographic information about our users and their musical preferences and
selling this information to music companies, subject to all legal and regulatory
constraints.
We also intend to increase the popularity of our shows and generate
additional revenue by producing and distributing compilation and soundtrack
albums. In addition, we expect that our record label, >en. music group, will
eventually generate revenues from its
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artists, groups and songwriters through record sales in both downloadable and
hard copy formats, music publishing and merchandising.
We also intend to generate additional sponsorship revenues by capitalizing
on the marketing synergies between our network and >en. music group. For
example, if a certain sponsor or advertiser becomes associated with a show
featuring one >en. music group artist, >en. music group will offer that sponsor
or advertiser the opportunity to sponsor that artist's tour or album.
PAYMENTS FROM NETWORK AFFILIATES
We expect future revenues to include payments from domestic and
international network affiliates. Our network affiliate model contemplates that
we will place our content on affiliates' network servers, allowing affiliates to
avoid the cost of accessing our content from the Internet and to deliver the
content to their subscribers faster and at a higher quality. We also believe
this model allows us to sell advertising targeted at the demographic or
geographic segment of our audience that a particular network affiliate serves.
In exchange for providing an affiliate with our content for placement on its
servers, we expect that the affiliate will pay us a recurring "affiliate fee."
We are currently exploring an international expansion program and are discussing
affiliate relationships with potential partners in several foreign territories.
EFFICIENT OPERATING AND COST STRUCTURE
We have developed an efficient operating structure that we believe will
permit us to rapidly expand our network.
Production. We produce original content at a fraction, on a per-minute
basis, of the cost incurred by major television production companies and, in
most instances, at or below the cost of cable programmers. We employ producers
who are experienced in producing high-quality, low-cost programming. In some
cases, we sub-contract our production to independent production companies with
proven track records in high-quality, low-cost productions. Filming is done on
location whenever cost-effective, and filming and editing are done in
cost-efficient digital formats whenever practical. In addition, our production
facilities are located in the Los Angeles area, which offers a large supply of
talented actors, directors, producers and film crews who are willing to work for
compensation within our budget and who bring a fresh and youthful approach.
Scalability. We are developing our operating infrastructure around several
virtual communities with discrete profit centers that will collectively perform
all functions relating to the production and distribution of our proprietary
content, the maintenance and development of DEN's community features and the
management of our relationship with our sponsors, our advertisers, and our
electronic commerce activities. The low cost of our digital production
techniques allows us to roll out additional programming-related communities and
special programming events. We have developed a cost model whereby overhead
costs will be attributed to virtual communities on a service-fee basis. We
believe that this cost structure will not only provide economies of scale as our
programming base expands but that it will also facilitate efficient integration
of new communities, regardless of whether gained through internal growth, joint
venture or acquisition.
Distribution. In order to capitalize on the availability of high-speed
Internet access and broadband opportunities, we are pursuing a network affiliate
strategy with Internet Service Providers and other digital media distributors.
Under these arrangements, an affiliate would use a portion of its network
capacity to store and transmit the video portion
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of our video content to its subscribers directly over its local networks,
avoiding use of the public and private Internet connections. This will reduce
the cost to us and to Internet Service Providers of delivering programming and
increase transmission speeds. We also are pursuing strategic alliances with
other potential distributors of digital media to develop faster, more
cost-effective means to deliver our content to our users. This strategy will
become increasingly important to our business as the growth in broadband
transmission raises the costs associated with conventional transmission of data
over the Internet.
PROGRAMMING
Our innovative content is designed to appeal to youth between the ages of
14 and 24 and particularly to distinct sub-segments within that target audience
likely to form virtual communities, such as video-gaming enthusiasts, extreme
sports enthusiasts, college students, Hispanic youth and rave, hip hop and punk
music fans. The programs we offer or have in development include a broad
spectrum of reality-based programs, music-related shows, comedies, dramas,
sports, news, talk shows and special events. In determining what programming to
produce, we generally utilize quantitative youth-market segmentation studies to
identify potential audiences and develop specific programming based on the
following criteria:
- the attractiveness of a particular segment of our target audience to
advertisers;
- the size of a particular audience;
- the availability of Internet access to a particular audience;
- the lack of current programming that directly addresses a particular
audience's interests; and
- ongoing audience feedback.
Our programming is designed to be edgy, hip, smart and fun. We believe that
its look and feel is more compelling than existing Internet-based streaming
video, and more cutting-edge than broadcast and cable television as a result of
its interactivity, dialogue, casts, soundtracks and production values. An
episode of DEN programming typically consists of approximately six minutes of
video content plus additional subject-related interactive multimedia content and
associated community features which may be accessed at any time during the show
on its surrounding program-specific Web page. The interactive multimedia portion
of an episode enhances the linear video portion by allowing users to access
related video and audio content, music, text and still images and to engage in
associated community features. Each episode will contain multiple forms of
advertising, which may include interactive commercial spots, product placements,
endorsements, sponsorships and banner advertisements, as well as electronic
commerce opportunities.
We use the targeted nature of our programming as the basis for creating a
network of virtual communities built around our programs. Each show has its own
area on our network's Web site that serves as a community where users gather to
share thoughts in interactive forums and correspond with show personnel to
suggest ideas for future plot lines, characters or new shows. Further, through
our existing communities, we are fostering additional on-line communities with
broader appeal. We expect our initial interest-specific communities to be
developed around college students and fashion, with a full complement of
information, communication, entertainment, news and electronic commerce
services. For instance, the community component of our fraternity-based comedy
"Frat Ratz" relates to the show and its topics while we intend the broader
"College Community" to provide features related to a variety of topics of
interest to college students. We expect that
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additional interest-specific communities will be created from the broadening of
program-specific communities and, where appropriate, program-specific and
interest-specific communities will cross-link to each other.
Our program-specific Web pages also will include contests, merchandising
opportunities and interactive games. We believe that the interactivity and
community features we provide allow our users to develop a sense of personal
ownership in our network and increase the amount of time our users spend on it.
Unlike traditional broadcast television and cable programming, our
programming is not constrained by scheduling limitations. By using the Internet
and other digital delivery networks to distribute our content, our users can
access our programs at any time and also are able to access and view archived
episodes on demand. Additionally, because we are free of scheduling
requirements, we have the flexibility to produce our programs to the appropriate
length for the relevant subject matter. This flexibility allows us to tailor
each episode according to both creative demands and audience appeal.
Our network infrastructure and tracking software allows us to quickly
evaluate a show's popularity, its ability to retain users and the volume of
electronic commerce it generates. In addition, we solicit viewer assessment and
commentary at the time an episode is viewed. As a result of our network delivery
system and ability to quickly assess viewer response, we can alter programming
faster and in a more cost-effective manner than traditional broadcast and cable
television companies.
As of September 16, 1999, the DEN network offered the following thirteen
series:
<TABLE>
<CAPTION>
SHOW DESCRIPTION
---- -----------
<S> <C>
Aggronation A reality-based extreme sports show that goes beyond
competitions to focus on the real lives of aggressive
athletes as they skate, snowboard, surf and engage in
other activities to extreme limits.
ConfiDENtial A series of documentaries covering serious topics that
affect the lives of today's teenagers such as anorexia,
bulimia, drug abuse, depression and AIDS.
Direct Drive An electronic music/deejay culture show that focuses on
the international electronic music scene and rave
events.
Exoticom An interactive video travel guide to off-beat locations
and events at exotic places.
Fear of a Punk Planet A music-integrated drama following the lives of four
young punk rock fans as they come of age in the punk
subculture. The show features cameos and performances by
punk bands.
Frat Ratz A comedic look at contemporary college fraternity life.
Hip Hop Massive A show focused on the "Hip-Hop" musical genre and its
surrounding culture.
Limozeno A DEN interview show set in a 1969 Lincoln limousine
which features interviews with Generation Y celebrities
as they run everyday errands and attend events and
parties.
NewsDEN A mix of breaking news and current feature stories
directed at Generation Y. NewsDEN will also solicit
participation in newsgathering and presentation from our
audience.
Rated DG A hosted movie review program with interactive links
allowing users to look at movie trailers, peer reviews
and, in the future, check local listings.
Redemption High A Christian teen drama addressing issues such as faith,
love, relationships and God.
Royal Standard A science-fiction series about mythical superheroes from
around the world who unite to fight the travails of
modern society.
</TABLE>
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<TABLE>
<CAPTION>
SHOW DESCRIPTION
---- -----------
<S> <C>
Tales from the Eastside A drama series focusing on the lives of inner city
Hispanic youth as they navigate their culture and the
streets of East Los Angeles webcast in Spanish and
English.
</TABLE>
We intend to add a new episode of most series on approximately a weekly
basis in October 1999. In addition to webcasting new episodes of our current
shows, we expect to roll out up to approximately seven additional series by the
end of October 1999, which may include the following:
<TABLE>
<CAPTION>
SHOW DESCRIPTION
---- -----------
<S> <C>
BackstageDEN Home video journals from the road of popular bands as
they tour, record new albums and shoot music videos.
DENterns An entertainment magazine show that follows the
true-life adventures of interns in a Hollywood
production company.
FashionDEN A fashion show that will provide expert makeovers,
fashion news and designer interviews.
FreakDEN A series highlighting unusual people and strange events.
Includes audience submissions of video and photographs.
TalkDEN A studio-based talk show originating from "The DEN" with
opinionated hosts, unusual guests and conversation
geared to Generation Y.
TechDEN An informational expose of new hi-tech products and
services that are creating a new way of life for
Generation Y.
Today at DEN A daily magazine show that features topical news and
features targeted to Generation Y and selected
highlights and previews of other DEN programming.
</TABLE>
To enhance and promote DEN as a leading youth-culture content provider, we
also plan to use our network to webcast special events, such as live concerts,
parties and celebrity performances. We intend to continue producing the majority
of our programming and exploring strategic relationships with other content
providers to produce new programming.
MUSIC-RELATED VENTURES
We have established a record label, >en. music group, and a music services
division to further our objective of becoming the leading youth-culture brand
and content provider. We believe that the nature of our entertainment content
and the interactive nature of the Internet generally will enable us and our
subsidiary, >en. music group, to become participants in the music promotion and
distribution business. In addition, we expect our music-related ventures to
produce significant additional revenue. Both our music services division and our
record label are led by Gary M. Gersh, the former CEO and President of Capitol
Records, and John P. Silva, an established music manager of such acts as Beastie
Boys, Beck, Foo Fighters and Nirvana.
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Our network is well-suited to serve as a platform for the promotion of new
and existing recording artists and their music in several ways. We intend to
enable artists to develop their visual image by integrating them into our shows,
building new shows around their vision or simply inserting their music into the
soundtrack of a show. In addition, we believe the interactive features of our
programming will permit users to communicate directly with their favorite
artists, allowing the user to feel a sense of connection with them while
providing the artists with a source of feedback on their music and image. Using
the same software we use to track the demographic characteristics of our
audience, we can collect valuable data about a particular artist's fan base. We
are also preparing to offer promotional tools engineered for the Internet, such
as online "radio station" audio programming, virtual "listening stations" on
which users can hear and purchase featured tracks, and our innovative forms of
advertisement. We can also offer features such as video artist profiles, artist
interviews and live chat with artists. Our electronic commerce platform will
permit users to purchase the music they hear immediately, before the initial
interest in a new song or artist wanes.
We will employ these promotional tools for artists >en. music group signs.
We believe artists will want to sign with >en. music group because of these
tools and the favorable deal terms our label offers. For example, we intend to
split revenues with >en. music group artists on terms more favorable than the
industry standard. Additionally, >en. music group offers our artists greater
career flexibility than traditional labels by committing them to shorter-term
contracts and giving them a co-ownership interest in their master recordings.
>en. music group expects to realize significant cost savings on the
development of its artists by lowering the risks associated with such
development. The interactive nature of our network allows >en. music group to
test-market certain artists or songs in ways traditional record labels cannot.
For example, while a traditional label must spend significant amounts of money
in promoting and marketing a single to radio stations around the country, >en.
music group can place a single on our network at virtually no cost and solicit
feedback from our users to determine whether the song deserves wider
distribution. In addition, we will realize cost savings by distributing >en.
music group artists' music over our network.
MARKETING AND PROMOTION
We intend to build traffic and brand recognition by aggressively marketing
the DEN brand as one which celebrates creativity, individuality,
self-actualization and cutting-edge content.
SOFT LAUNCH
In addition to premiering our first 13 series, we have also implemented an
initial "viral" marketing campaign that focuses on creating a "buzz" at street
level via word of mouth. Our goal is to generate interest in our network among
trendsetters, celebrities and opinion leaders within Generation Y.
This street presence has been established among our target audience by
distributing and displaying DEN-branded marketing materials such as posters,
banners and stickers at a major college music convention, concerts, "extreme
sports" events, deejay tours, record shops, cafes and clubs. For example, we are
sponsoring a multimedia exhibition booth and targeted promotional campaign at
CMJ's Music Marathon, MusicFest and FilmFest, at
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which a >en. music group artist will perform. Our online marketing efforts have
included banner advertising on sites targeted at Generation Y such as Tunes.com,
ChickClick.com, The Source.com, Gamespot.com, Alloy.com, Mplayer.com, and
Windowmedia.com. We have also painted murals in major urban areas where members
of Generation Y congregate, and have purchased coordinated media placements in
key publications such as Details, Paper and Ray Gun. In addition, major
publications such as the Los Angeles Times, the New York Times, USA Today, HITS,
and the Boston Globe have all published feature stories on our company.
FORMAL LAUNCH
We plan to undertake a more extensive marketing campaign to support the
formal launch of our network with a full complement of initial programming in
October 1999. Our phased marketing plan includes launch parties in New York and
Los Angeles and a multi-million dollar image campaign, in which we intend to
work with an agency and media planner to execute a consumer and trade campaign
via magazines, outdoor billboards, cable TV, radio, Internet, colleges and high
schools, buses, and train stations. We intend to amplify our direct online
marketing campaign using e-mail and electronic postcard mailings to members of
Generation Y with Internet addresses we obtain through our own database as well
as third-party strategic alliances. We will also continue to engage in viral
street marketing and sponsor special events, concerts and contests. In addition,
we are recruiting a national panel of 14 to 24 year-old Internet users to assist
us in the ongoing development of programming, promotions and advertiser
feedback.
We are planning additional events to enhance our image, drive traffic to
our network, and build brand awareness, including:
- exclusive Internet sponsorship of recognized musical artists' U.S. tours
and promotion of the DEN brand at venues and in marketing materials
related to tours;
- sponsoring hip-hop and dance music and extreme sports events;
- joining with our sponsors to develop a college campus tour; and
- marketing our brand at college conventions.
PROMOTIONS/CONTESTS
We are developing unique promotions and contests to build consumer loyalty,
distinguish our network from competing Web sites and programming, and provide
added value to our sponsors. These efforts may include:
- working with the >en. music group to develop promotions based around the
release of albums by >en. music group artists;
- designing and manufacturing DEN-branded and show-specific merchandise for
giveaways at promotions and events; and
- engaging in direct electronic marketing using e-mail and electronic
postcard mailings.
PRODUCTION
We have developed filming, production, set development, editing and video
compression techniques that optimize the viewing experience for video over the
Internet. Because our content is produced specifically for the majority of
today's Internet users, who
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generally use 56.6 kbps modems, our video is generally superior in quality to
most other video distributed over the Internet which is produced primarily for
other media. In addition, we also offer 100 kbps versions and 300 kbps versions
for people who have access to high-bandwidth connections. Most of our
programming is produced to comply with television broadcast quality guidelines
so that our content will have a library value and will be capable of
reproduction in other and future media.
PRODUCTION PROCESS
The production process of a DEN show involves selection of an idea,
translation of the idea to script or shooting treatment, filming or taping, and
editing and conversion of audiovisual content into formats suitable for
webcasting. The creative process takes place within our overall production
guidelines to promote cost-effective production.
Pre-production. Pre-production begins when we develop a concept internally
or purchase a concept from third-parties. We then approve and hire a production
staff that works together to execute all creative elements of the show.
Shooting. The show is then shot using digital or conventional cameras on a
sound stage or on location. We shoot footage according to a set of proprietary
guidelines and techniques designed to enhance transmission of video over the
Internet. We believe that such techniques improve the quality of the viewing
experience for our users, the majority of which do not yet have high-speed
Internet connections.
Editing and Clearance. Once the project is in digital form, it is edited
and presented to the appropriate management personnel and our legal department
for review, comment and clearance. We then edit the video and add music to
create a second cut. The cut is sent to our interactive team, which designs a
Web page for the show using various multimedia development tools and integrates
video, textual and other interactive content into it. After further editing, the
finished product is then sent to our legal department for final review and to
our compression department for formatting and compression into a streaming video
format.
Compression. The compression department conditions and cleans the video and
then converts it into multiple formats. The video is then sent through video
compression processes to produce Microsoft's Media Player and RealNetworks
streams, and Apple Quicktime files. Final effects and audio enhancement are
completed using a variety of the latest software-based tools. Finally, all of
the content is then stored on a database. Templates of the Web pages are then
layered over the video content and the finished content is then checked for
quality and technical integrity.
DISTRIBUTION
THE DEN NETWORK INFRASTRUCTURE
We have designed our network to utilize a configuration of hardware and
software with multiple connections to various Internet Services Providers in
order to distribute content to our users. In addition, our network can be easily
expanded to meet increased performance and availability demands as our audience
grows or demands more bandwidth.
We have entered into an agreement with Exodus Communications under which
Exodus houses our servers and networking equipment at data centers located in
Santa Clara, California and Sterling, Virginia. Traffic sent to our network will
be balanced between these two data centers using intelligent load balancing
algorithms and routing protocols. Our agreement with Exodus provides that, to
the fullest extent possible, our
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Internet traffic carried on the Exodus network will be delivered to our users
over private network exchange points rather than over slower public Internet
exchange points. Exodus also provides comprehensive facilities management
services including human and automated security and performance monitoring of
DEN's delivery network of servers 24 hours per day, seven days per week.
We believe that our agreement with Exodus will provide network capacity
sufficient to meet our current requirements. Should unexpectedly heavy traffic
to our network overtax the capacity of our Exodus data centers, we have entered
into an agreement with INTERVU under which we may relieve the overload by
placing our content on their geographically-dispersed servers. To ensure and
maintain the integrity of our INTERVU network, we run a portion of our traffic
over the INTERVU network even if our Exodus network has sufficient capacity.
All of DEN's production data is copied to backup tapes and stored at an
off-site storage facility. DEN keeps all of its production servers behind
firewalls for security purposes and does not allow access at the operating
systems level except via secure channels.
We have entered into an agreement with Microsoft Corporation to provide us
royalty-free licenses of server and work station software and operating system
software for audio and video streaming applications. In addition, Microsoft has
agreed to negotiate the terms of a DEN network affiliate relationship with
Microsoft Network for Internet distribution, and Microsoft Network Internet
Access for broadband distribution of our content. We are also involved in
ongoing discussions to explore a strategic alliance with Microsoft to co-
develop new technologies.
THE DEN AFFILIATE NETWORK
We are pursuing a strategy of entering into arrangements with Internet
Service Providers, Internet backbone providers, broadband providers and other
digital media distributors, both domestically and internationally, to host our
programming on their network servers. Our network affiliate model provides for
the network affiliates to pay us a recurring "affiliate fee" in exchange for
providing an affiliate with our content for placement on their own servers. By
doing so, an affiliate will not need to obtain our content through the Internet.
We believe this approach will be highly desirable to potential affiliates
because, rather than requiring our content to be pulled to the affiliate, our
content will be available to the affiliates and the subscribers at a higher
quality of transmission and lower cost to the affiliate and its subscribers.
COMPETITION
VIDEO AND ONLINE ENTERTAINMENT
The video and online entertainment market is marked by intense competition,
and we expect that competition will continue to intensify. Consumers in this
market currently spend time viewing broadcast television, cable television,
satellite television and home videos and playing video games, where content is
provided by numerous well-established companies. In addition, numerous companies
offer online entertainment with an increasing number offering video, graphic or
animation content. These companies include:
- publishers and distributors of traditional video media, such as
television and film, including the broadcast networks, cable networks,
film studios and their Internet affiliates such as Disney's Go.com and
Viacom's MTV Online Networks;
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- online services or Web sites that offer or intend to offer video
entertainment over the Internet or broadband, such as Broadcast.com,
Pseudo.com, AFI, Wirebreak Entertainment, Shockwave.com, CRAPtv,
AtomFilms, Mediatainment, Streamland, Tranz-send Broadcasting Network,
Moviehead.com, Brilliant Digital Entertainment, Honkworm.com, Sync.com,
Intertainer and Warner Brothers' Entertaindom;
- online services providing content or community activities such as America
Online, GeoCities, PeopleLink, Animalhouse.com, The Palace and TalkCity;
- online video-gaming sites which allow for multiple users to play
video-games against each other over the Internet such as mplayer.com,
Uproar, Electronic Arts/Ultima Online, IGN.com, Blizzard Entertainment,
Sony Online Entertainment and Nintendo.com;
- Generation Y-targeted Internet sites such as Peelworld.com, Sputnik7.com,
SlackerTV, Slywire.com, Bolt, Alloy Online and iturf;
- Web retrieval and other Web "portal" companies, including Yahoo, Lycos,
Excite @Home, and Infoseek; and
- telecommunications companies with access to a large base of end users,
including regional "Bell" companies, long distance service providers such
as AT&T and Sprint and digital subscriber line providers such as Bell
Atlantic and US West.
Many of these companies have substantially greater financial, technical,
personnel and other resources than DEN. However, we believe that our strategy of
providing original, professionally-produced entertainment programming with
associated informational services, community features and e-commerce through the
Internet to specific segments of Generation Y is unique.
MUSIC
Our music promotion and record label businesses face substantial
competition from traditional recording companies and other companies who
promote, produce, distribute or sell music through traditional or online
methods, often with greater financial, technical, personnel and other resources
than us or >en. music group. These companies include:
- Internet music information sites, such as SonicNet, Ultimate Band List
and iMusic, and sites such as Launch.com and MP3.com, which provide
online promotion and distribution for established or developing musical
talent;
- traditional record companies, particularly those such as Universal Music
and Sony Music, which intend to begin offering their catalogs of popular
music in a downloadable format on the Internet;
- music promotion companies in cable and broadcast television, such as MTV
or VH-1; and
- online retail compact disc outlets, such as Amazon.com, CDNow and CD
Universe.
Most of the traditional music companies have significantly greater
financial, marketing and distribution, personnel and other resources than us,
and we depend upon the unique nature of our business model to provide us with a
competitive advantage. However, these business models are untested and may not
compete effectively with existing methods of music promotion, development and
distribution.
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ADVERTISING
We compete with traditional media such as television, radio and print for a
share of advertisers' total advertising budgets. Many of our competitors in the
traditional media have larger and more established sales organizations than ours
and have greater name recognition and more established relationships with
advertisers and advertising agencies than we do. Those competitors may be able
to undertake more extensive marketing campaigns, adopt more aggressive pricing
policies and devote substantially more resources to attract users and
advertisers than we can.
However, the growth of the Internet has resulted in the diversion of
advertising dollars to online companies. We are also competing for advertising
dollars within the Internet industry. We believe that the primary competitive
factors for attracting advertisers within the Internet industry include:
- the number of users accessing a Web site's programming and the amount of
time they spend on a Web site;
- the demographics of a Web site's users;
- the ability to create content compelling to a Web site's users; and
- the overall cost-effectiveness and value of a Web site's advertising.
There is intense competition for the sale of advertising on high-traffic
Web sites, which has resulted in a wide range of rates quoted by different
vendors for a variety of advertising services. This competition complicates our
ability to forecast the amount of revenue that we and our competitors will
realize from Internet advertising. In addition, the available inventory of
advertising space on the Internet and elsewhere has recently increased
substantially. Accordingly, we may face increased pricing pressure for the sale
of advertising. Reduction in our advertising revenues would have a material
adverse effect on our business.
ELECTRONIC COMMERCE
The electronic commerce market is new, rapidly evolving and highly
competitive. We compete with other online retailers who are offering consumer
goods to Generation Y, such as iTurf and Alloy Online, as well as traditional
retailers which have or plan to have electronic commerce stores such as The Gap
and Wal-Mart, and we expect competition to intensify in the future. This is
likely to result in price reductions and reduced gross margins, which could harm
our prospects for success in the electronic commerce arena. We expect to compete
with other online retailers of youth-oriented goods, as well as traditional
retailers, all of which have longer operating histories, larger customer bases
and greater retail brand recognition than we have. We also expect that some
retailers will attempt to create virtual communities as a marketing strategy. We
believe the following are the principal competitive factors in our electronic
commerce market:
- price;
- brand recognition;
- convenience;
- speed and accessibility;
- customer service;
- quality of site content; and
- reliability and speed of order shipment.
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Our online competitors are particularly able to use the Internet as a
marketing medium to reach significant numbers of potential customers. The
introduction of new technologies and the expansion of existing technologies,
such as price comparison programs, may also increase competition.
INTELLECTUAL PROPERTY
We regard our copyrights, service marks, trademarks, pending patent
applications, trade dress, trade secrets and similar intellectual property as
critical elements to our success, and rely on patent, trademark and copyright
law, trade secret protection and confidentiality and/or non-disclosure and
license agreements to protect our proprietary rights. We have pursued copyright
registration for each episode of each series we have produced or acquired. We
expect to continue such a registration program in connection with all future
series and programs we produce or acquire.
We currently pursue the registration of our primary trademarks and service
marks in the United States, European Union nations, countries where English is a
language of significant use and other countries expected to be significant
markets. Effective trademark, service mark, copyright and trade secret
protection may not be available in every country in which our products and
services are made available online.
We presently have pending applications in the United States for the
trademarks or service marks DEN, >en., den.net, den.com, >, The DEN, DEN(3),
>en.(3), SportsDEN, MusicDEN, KidsDEN, AdviceDEN, DENmail, DENmercial, MailDEN,
MyDEN, TalkDEN, tvDEN, YourDEN, FashionDEN, LoveDEN, PsychicDEN, NewsDEN,
DormDEN, HelpDEN, Alternet Productions, MarCh Productions, Prompt Productions,
See What You Want To See, Prompt Player, Aggronation, Fear Of A Punk Planet,
Frat Ratz, Chang Gang, Cocktails With Cocksure, Exoticom, Limozeno, Concrete,
ConfiDENtial, DEN-O-Matic, DENRadio, Soundtrax, Tales from the East Side, The
Y-Files, True Confessions, Virtual Rave, XYZ, >en. music, digifeature, Direct
Drive, En La DEN, Hip Hop Massive, Liquid Soul, Rated DG, Redemption High, Royal
Standard, Cybermercial, Intermercial and Hypermercial, and are investigating the
availability of numerous other trademarks and service marks that are, or may be
used in connection with our programming, services and merchandise. We cannot
assure you that the trademarks or service marks that we have applied for will be
granted.
We have registered the Internet domain names "DEN.com" and "DEN.net" and
numerous other domain names related to our network and programming. Domain names
are generally regulated by Internet regulatory bodies. The relationship between
regulations governing domain names and laws protecting trademarks and similar
proprietary rights is evolving. Therefore, we may be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of our trademarks and other proprietary rights.
It is our policy to pursue infringers of our trademarks and service marks
and, where appropriate, will attempt to purchase or otherwise acquire marks or
domain names which may potentially infringe our marks or impede the full
enjoyment of our rights in our marks.
An existing Internet company has filed an application for trademark
protection on a mark which is similar to our corporate name and has demanded
that we stop using the name "Digital Entertainment Network." The Patent and
Trademark Office has issued a final rejection of this company's trademark
application, which the applicant may choose to
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appeal. We do not believe that this company has a valid basis for objecting to
our use of our corporate name. We do not believe that the resolution of this
matter will materially affect our business. We are also pursuing several other
parties which are using domain names which we believe violate our trademarks or
proprietary marks.
We have filed for patent protection on some of the interactive advertising
techniques and other trade practices that we have pioneered. For example, we are
seeking patent protection on a method of delivering advertising that allows
users to click on a button representing an object depicted in the show, which
then opens a window to obtain more information about the selected object,
allowing them to make a purchase decision. We are also considering seeking
patent protection on compression technology that we have developed or
co-developed. We cannot assure you that any patents that we have applied for or
subsequently seek will be issued.
We may license some of our proprietary rights, such as patented technology
or techniques and trademarks or copyrighted material to third parties. Although
our trademark licenses will allow us to monitor the quality of the goods and
services offered by our licensees in order to ensure that quality of our brand
is maintained, there can be no assurance that such licensees will not take
actions that might materially adversely affect the value our proprietary rights
or reputation. There can be no assurance that these steps will be adequate, that
we will be able to secure exclusive rights to all of our marks or patents
covering all of our technology in the United States or other countries, or that
third parties will not infringe upon or misappropriate our copyrights, patents
issued pursuant to pending applications, trademarks, service marks and similar
proprietary rights. In addition, effective copyright, patent and trademark
protection may be unavailable or limited in certain countries, and the global
nature of the Internet makes it impossible to control the ultimate destination
of our content. In the future, litigation may be necessary to enforce and
protect our patents, trade secrets, copyrights, trademarks and other
intellectual property rights. We have pursued, and continue to pursue, third
parties that have potentially infringed our rights, and intend to vigorously
monitor and enforce our intellectual property rights. Any such litigation or
threatened litigation could be costly and could result in a diversion of
management's attention, which could have a material adverse effect on our
business, operating results and financial condition. In addition, there can be
no assurance that other parties will not assert infringement claims against us.
EMPLOYEES
We currently have approximately 220 full-time employees. Depending on our
production schedule, we will hire other personnel or engage independent
contractors on an as-needed basis. We anticipate that, as to any given program,
staffing will increase during the production phase and significantly decrease
during the pre-production and post-production phases. While our staffing may
contract or expand, we will need to employ a core group of producers and other
supervisory personnel on a full-time basis.
FACILITIES
We lease office space in three adjacent buildings containing a total of
approximately 25,524 square feet in Santa Monica, California to house our
operations. The design of the adjacent buildings allows multiple uses, including
offices, filming and editing of programs and design and maintenance of our Web
site. In addition, we lease a sound stage and production facility containing
approximately 10,000 square feet in Venice, California, as well as another
facility containing 15,400 square feet in Los Angeles, California, both of
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which will be used for various DEN productions. In addition, we maintain a
marketing office in Knoxville, Tennessee for conducting marketing efforts on the
East Coast.
GOVERNMENT REGULATION AND LAW
There is an increasing number of laws and regulations relating to the
Internet. In addition, a number of legislative and regulatory proposals
regarding the Internet are under consideration by federal, state, local and
foreign governments and agencies.
ONLINE CONTENT
Several state, federal and foreign statutes and regulations prohibit or
limit the transmission of indecent, obscene or offensive information and
content, including sexually explicit information and content, over the Internet.
The enforcement of these statutes and regulations, and any future enforcement
activities, statutes and regulations, may result in limitations on the type of
content and advertisements available to DEN. Legislation and regulations
relating to online content could slow the growth in the use of the Internet
generally and decrease the acceptance of the Internet as an advertising and
electronic commerce medium, which could have a material adverse effect on our
business.
LIABILITY FOR INFORMATION RETRIEVED FROM OR TRANSMITTED OVER THE INTERNET
Materials may be downloaded and publicly distributed over the Internet by
the Internet services operated or facilitated by us or by the Internet access
providers with which we have relationships. These activities could result in
potential claims against us for defamation, negligence, copyright or trademark
infringement or other claims based on the nature and content of such materials.
Future legislation, regulations or court decisions may hold us liable for
listings accessible through our Web site or through content and materials posted
in our chat rooms or bulletin boards. Such liability might arise from claims
alleging that, by directly or indirectly providing links to Web sites operated
by third-parties or allowing the posting of third-party content, we are liable
for copyright or trademark infringement or other wrongful actions by such third
parties. If any third-party material on our Web site contains informational
errors, we may be sued for losses incurred in reliance on such information.
While we attempt to reduce our exposure to such potential liability through
provisions in user agreements, disclaimers and other means, the enforceability
and effectiveness of such measures are uncertain. Further, we cannot assure you
that the media liability insurance we carry will be sufficient to cover any or
all such claims.
INTERNET PRIVACY
The Child Online Privacy Protection Act of 1998 requires the Federal Trade
Commission to adopt regulations regarding the collection and use of personal
information obtained from children under the age of 13 when accessing Web sites.
Under the Act's regulations, Web sites catering to children will be required to:
- provide parents of children under the age of 13 with notice of what
information is being collected, how the site uses the information and the
Web site's practices regarding disclosures of information;
- obtain verifiable parental consent regarding the collection and use of
their children's information and allow parents to terminate their consent
at any time;
- provide parents an account of the information collected from their
children; and
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- limit the types of information collected from children in order for them
to participate in a game or contest.
In addition, the Federal Trade Commission may in the future adopt
regulations in this area applicable to all persons regardless of their age.
Although our target audience is 14 to 24 years old, we have implemented
policies and programs designed to conform to current laws and regulations
regarding the privacy of our users, including children. However, our current
programs may not conform with regulations adopted in the future by the Federal
Trade Commission or other governmental entities. Moreover, even in the absence
of such regulations, the Federal Trade Commission has begun investigating the
privacy practices of companies that collect information on the Internet. One
such investigation of an Internet company alleged to have failed to follow its
own published privacy policies has resulted in a consent decree under which the
Internet company agreed to establish programs to implement specific privacy
protections. We may become subject to such an investigation, or the Federal
Trade Commission's regulatory and enforcement efforts may adversely affect the
ability to collect personal information from users, which could have an adverse
effect on our ability to provide highly targeted opportunities for advertisers
and electronic commerce marketers. Any such developments could have a material
adverse effect on the our business.
It is also possible that "cookies," information that is stored on a user's
hard drive and used to track users' behavior and preferences and to target
advertising, may become subject to laws limiting or prohibiting their use.
Currently available Internet browsers allow users to modify their browser
settings to remove cookies at any time or prevent cookies from being stored on
their hard drives. In addition, a number of Internet commentators, advocates and
governmental bodies in the United States and other countries have urged the
passage of laws limiting or preventing the use of cookies. Limitations on or
prevention of our use of cookies could limit the effectiveness of our targeting
of advertisements, which could have a material adverse effect on our business.
The European Union has adopted a directive that imposes restrictions on the
collection and use of personal data. Under the directive, European Union
citizens are guaranteed the right of access to their data, the right to know
where the data originated, the right to have inaccurate data corrected, the
right to recourse in the event of unlawful processing of information and the
right to withhold permission to use their data for direct marketing. The
directive could affect U.S. companies that collect information over the Internet
from individuals in European Union member countries and may impose restrictions
that are more stringent than current Internet privacy standards in the United
States. The directive does not, however, define what standards of privacy are
adequate. As a result, there can be no assurance that the directive will not
adversely affect the activities of entities, including DEN, that engage in data
collection from users in European Union member countries.
We collect personal information about our users. However, if unauthorized
persons were able to penetrate our network security and gain access to, or
otherwise misappropriate, our users' personal information, we could be subject
to liability. Such liability could include claims for misuses of personal
information, such as for unauthorized marketing purposes or unauthorized use of
credit cards. These claims could result in litigation which could require us to
expend significant financial resources and divert management's attention from
operations.
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DATA PROTECTION
Legislative proposals have been made by the federal government that would
afford broader protection to owners of databases of information. Such protection
already exists in the European Union. If enacted, this legislation could result
in an increase in the price of services that provide data to Web sites. In
addition, such legislation could create potential liability for unauthorized use
of such data.
INTERNET TAXATION
A number of legislative proposals have been made by federal, state, local
and foreign governments that would impose additional taxes on the sale of goods
and services over the Internet, and some states have taken measures to tax
Internet-related activities. Although in October 1998 Congress placed a
three-year moratorium on state and local taxes on Internet access or on
discriminatory taxes on electronic commerce, existing state or local laws were
excluded from this moratorium. Further, once this moratorium is lifted, some
type of federal or state taxes may be imposed upon Internet commerce. Such
legislation or other attempts at regulating commerce over the Internet may
substantially impair the growth of commerce on the Internet and, as a result,
adversely affect our opportunity to benefit financially from such activities.
DOMAIN NAMES
Our domain names are our Internet "addresses." Domain names have been the
subject of significant trademark litigation in the United States. We have
registered the domain names "DEN.com" and "DEN.net," and numerous other domain
names related to our network and programming. There can be no assurance that
third parties will not bring claims for infringement against us for the use of
these domain names. Moreover, because domain names derive value from the
individual's ability to remember such names, it is possible that our domain
names could lose their value if, for example, users begin to rely on mechanisms
other than domain names to access online resources.
The current system for registering, allocating and managing domain names
has been the subject of litigation and of proposed regulatory reform. There can
be no assurance that our domain names will not lose their value, or that we will
not have to obtain entirely new domain names in addition to or instead of our
current domain names if such litigation or reform efforts result in a
restructuring of the current system.
JURISDICTION
Due to the global reach of the Internet, it is possible that the
governments of other states and foreign countries might attempt to regulate our
activities or prosecute us for violations of their laws. This could have a
material adverse effect on our business, results of operations and financial
condition.
LEGAL PROCEEDINGS
We currently are not a party to any material legal proceedings. From time
to time, we may become parties to litigation arising in the ordinary course of
our business.
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MANAGEMENT
The following table sets forth the executive officers and directors of DEN,
their ages and the positions held by them with DEN as of September 17, 1999.
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS AND DIRECTORS AGE POSITION
- -------------------------------- ------ --------
<C> <S> <C> <C>
Marc Collins-Rector............. 39 Chairman of the Board and
Director (Co-Founder)
H. James Ritts III.............. 46 Chief Executive Officer and
Director
David A. Neuman................. 39 President and Director
Edward H. Winter, Jr............ 50 Chief Marketing Officer
Bruce J. Gamache................ 47 Chief Financial Officer and
Chief Operating Officer
Chad M. Shackley................ 24 Executive Vice President and
Director (Co-Founder)
Brock Pierce.................... 18 Executive Vice
President -- Office of the
Chairman and Director (Co-
Founder)
Alan L. Friel................... 33 Chief Administrative Officer,
General Counsel and Secretary
Gregory Carpenter............... 37 Chief Technology Officer
Gary M. Gersh................... 43 Co-President of >en. music group
and Director
John P. Silva................... 38 Co-President of >en. music group
Mitchell J. Blutt............... 42 Director
*+ Robert W. Doede................. 59 Director
+ Gilbert B. Friesen.............. 62 Director
Marc B. Nathanson............... 54 Director
* Murray Neidorf.................. 72 Director
+ Jeffrey A. Sachs................ 47 Director
</TABLE>
- -------------------------
* Member of the Audit Committee
+ Member of the Compensation Committee
Marc Collins-Rector is one of our co-founders who has served as a member of
our board of directors since our founding in 1996 and as Chairman of the Board
since 1997. In 1991, Mr. Collins-Rector, together with Mr. Shackley, co-founded
Concentric Network Corporation, a national Internet Service Provider whose stock
is now publicly traded (NASDAQ: CNCX). Between 1991 and 1995, Mr. Collins-Rector
served as the Chairman of the Board and Chief Executive Officer of Concentric
Network Corporation. Prior to the formation of Concentric Network Corporation,
Mr. Collins-Rector founded WorldComNet, an online reservation system for
full-service package tours and travel reservations.
H. James Ritts III has served as our Chief Executive Officer since March
1999. Mr. Ritts was the commissioner of the Ladies' Professional Golf
Association (LPGA) from 1995 to 1999, and was a co-founder and President of
Network Affairs of the Channel
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One Network, a division of the Primedia Corporation, launched by Whittle
Communications in 1989 as a national, in-school news network. He was recently
named to the Northwestern University Medill School of Journalism's Hall of
Achievement and to the Advisory Council to the School of Communication at the
University of Texas.
David A. Neuman has served as our President since July 1998 and as a member
of our board of directors since September 1998. Mr. Neuman is a Peabody
Award-winning producer and senior television programming executive whose
programs have won over 100 national awards for writing, production, direction,
production design and public service. Mr. Neuman was President of Programming
for the Channel One Network from 1992 to 1996, and was President of Walt Disney
Network Television and Touchstone Television from 1996 to 1998. From 1984 to
1989, he was an executive at NBC, where he held several posts, including Vice
President of Current Comedy Programs and Vice President of Comedy Development.
Edward H. Winter, Jr. has served as our Chief Marketing Officer since
January 1999 and directs our marketing and sales to advertisers. Mr. Winter
served as a member of our board of directors from September 1998 to September
1999. In April 1997, Mr. Winter founded and became Chairman of U30 Group LLC, a
youth marketing and programming development resource for advertisers. From 1989
to 1996, Mr. Winter was the Chief Executive Officer of the Channel One Network,
which he co-founded and where he was responsible for developing Channel One's
sales strategy and for booking $200 million in long-term sponsor contracts
during Channel One's first six months of operation. Mr. Winter also has helped
launch and run several of Whittle Communications' larger media properties,
including Moviegoer Magazine, Johnson & Johnson Health Network, Connections and
Big Picture Wall Media Publications.
Bruce J. Gamache has served as our Chief Operating Officer and Chief
Financial Officer since May 1999. Mr. Gamache served as a member of our board of
directors from May 1999 to September 1999. Mr. Gamache was employed by Time
Warner and its affiliated companies from 1986 to 1998. He was the Chief
Operating Officer and Chief Financial Officer of HBO Ole, the leading producer
and distributor of cable programming channels in Latin America, from 1996 to
1998. From 1994 to 1996, he was Senior Vice President International Channels at
Warner Bros. and helped launch WBTV-The Warner Channel in Latin America. From
1992 to 1994, Mr. Gamache was employed by Home Box Office as Senior Vice
President HBO International responsible for international channel development
and as Vice President Finance and Analysis from 1986 to 1992.
Chad M. Shackley is one of our co-founders, has served as a member of our
board of directors since our founding in 1996, has served as our Executive Vice
President since August 1999 and served as our Chief Technology Officer from May
1997 until August 1999. Mr. Shackley, a co-founder of Concentric Network
Corporation, served as one of its directors and as its Executive Vice President
from 1991 to 1995.
Brock Pierce has served as a senior executive and a member of our board of
directors since September 1998. Together with co-founders Marc Collins-Rector
and Chad Shackley, Mr. Pierce helped develop the concepts, techniques and
procedures upon which our business is based. For the past five years, Mr. Pierce
has been an actor and a producer.
Alan L. Friel has served as our General Counsel and Executive Vice
President of Operations since August 1998 and as our Secretary since January
1999. In April 1999, Mr. Friel was promoted to Chief Administrative Officer.
From 1997 to 1998, Mr. Friel was associated with the entertainment department of
the national law firm Katten Muchin &
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Zavis, where he represented institutional clients such as studios, production
companies, distributors, new media companies and companies exploiting ancillary
rights. From 1994 to 1997, he was associated with the law firm Kaye, Scholer,
Fierman, Hays & Handler LLP. Prior to 1994, Mr. Friel was an attorney at the
American Civil Liberties Union of Southern California. Mr. Friel is also an
adjunct professor at UCLA's graduate school of Theater, Film & Television.
Gregory Carpenter has served as our Chief Technology Officer since August
1999. Mr. Carpenter began working at Microsoft in 1993 as a developer of imaging
and graphic software, and became Director of Microsoft's Streaming Media
division in 1998. Since 1988, Mr. Carpenter has also served as President and
Chief Executive Officer of Devices, Inc., a software company.
Gary M. Gersh has served as a member of our board of directors since May
1999 and has been Co-President of >en. music group since May 1999. In January
1999, Mr. Gersh co-founded G.A.S. Entertainment Co., LLC, a music management
company, and has served as its Co-President since inception. From 1993 to
December 1998, Mr. Gersh was the President and Chief Executive Officer of
Capitol Records, and from 1985 to 1993 was the Senior Vice President, A&R at
Geffen Records.
John P. Silva served as a member of our board of directors from May 1999 to
September 1999 and has been Co-President of >en. music group since May 1999. In
January 1999, Mr. Silva co-founded G.A.S. Entertainment Co., and has served as
its Co-President since inception. From 1989 to December 1998, Mr. Silva was
Co-President of Gold Mountain Entertainment, a music management company, where
he represented and helped develop acts such as Beastie Boys, Beck, Foo Fighters
and Nirvana.
Mitchell J. Blutt M.D. has served as a member of our board of directors
since May 1999. Dr. Blutt is the Executive Partner of Chase Capital Partners,
the $8.0 billion investment fund of Chase Manhattan Corporation. He currently
serves on the boards of directors of several organizations, including Hanger
Orthopedic Group, a medical products company, Senior Psychology Services
Corporation, American Imaging Management, Fisher Scientific Corp., a provider of
products and services in various industries, La Petite Academy Corp., IBC
Healthcare Asia, the IMG/Chase Sports Fund and Cassandra/Chase Entertainment
Partners. He formerly served on the board of Cardinal Health Corp., General
Medical Corp., and many other private corporations. Dr. Blutt is a member of the
Board of Trustees of the University of Pennsylvania and of the Board of
Overseers of the University of Pennsylvania's School of Arts and Sciences and
currently serves on that institutions Undergraduate Financial Aid Committee. He
is also an Adjunct Professor of Medicine at the New York Hospital/Cornell
Medical Center.
Robert W. Doede, Ph.D. has served as a member of our board of directors
since April 1999. Since 1991, Dr. Doede has served as the Chairman of Centurion
Capital Group Inc., and from 1984 to 1985, as the President of Centurion Capital
Corp. Currently, Dr. Doede is the Executive Director of Centurion Capital
Management Group.
Gilbert B. Friesen has served as a member of our board of directors since
May 1999. Mr. Friesen was a founding partner of Classic Sports Cable Network and
its Co-Chairman of the Board from 1994 until the network was sold to ESPN in
1997. He served as the President of A&M records from 1979 to 1990, and is
currently a director of Hard Rock Hotel & Casino. Mr. Friesen also serves as the
President of the Board of Trustees of the Los Angeles Museum of Contemporary
Art.
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Marc B. Nathanson has served as a member of our board of directors since
September 1999. Mr. Nathanson has been the Chairman of the Board and Chief
Executive Officer of Falcon Cable TV and its predecessors since 1975, and prior
to September 19, 1995, also served as its President. Mr. Nathanson is currently
a director of the National Cable Television Association and chaired its 1999
National Convention. Mr. Nathanson has served as Chairman of the Board, Chief
Executive Officer and President of Enstar Communications Corporation since
October 1988. Mr. Nathanson is an Advisory Board member of TVA, (Brasil) and
also Chairman of the Board and Chief Executive Officer of Falcon International
Communications, LLC. Mr. Nathanson is a trustee of the Annenburg School of
Communications at the University of Southern California and a member of the
Board of Visitors of the Anderson School of Management at UCLA. In addition, Mr.
Nathanson serves on the Board of the UCLA Foundation and the UCLA Center for
Communications Policy.
Murray Neidorf has served as a member of our board of directors since May
1999. Mr. Neidorf is a Certified Public Accountant and has been a senior partner
in the accounting firm of Perry & Neidorf since 1954. Mr. Neidorf received his
MBA from UCLA in 1951 and was a lecturer in accounting at UCLA's business school
from 1951 to 1967. He currently serves on the board of directors of Sewanee
Productions, Inc. and various other private entertainment companies. He has also
served as a member of the board of directors of Act III Broadcasting, Inc. and
Act III Theaters Inc.
Jeffrey A. Sachs, D.D.S. has served as a member of our board of directors
since May 1999. Since October 1998, Dr. Sachs has served as a partner in
Cassandra Chase Entertainment Partners, and has served as a member of Cassandra
Partners since 1997. Dr. Sachs also has served as President of Sachs Associates
Inc. since 1985.
BOARD COMPOSITION
In accordance with the terms of our restated certificate of incorporation,
effective upon the closing of this offering, the terms of office of the members
of the board of directors will be divided into three classes, which will be
determined prior to completion of this offering. After the initial
classification, at each annual meeting of stockholders the successors to
directors whose term will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election. In
addition, our bylaws currently provide that the authorized number of directors
may be changed only by resolution of the board of directors. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the total number of directors. This classification
of the board of directors may have the effect of delaying or preventing changes
in control or management of DEN.
Each officer is elected by, and serves at the discretion of, the board of
directors. Each of our executive officers devotes his or her full-time to the
affairs of DEN, with the exception of our non-employee directors and Gary M.
Gersh and John P. Silva. Messrs. Gersh and Silva will continue to conduct their
music management company. See "Certain Relationships and Related
Transactions -- >en. music group and G.A.S. Entertainment Co." Our non-employee
directors devote such time to the affairs of DEN as is necessary to discharge
their duties. There are no family relationships among any of our directors,
officers or key employees.
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BOARD COMMITTEES
The audit committee of the board of directors meets with the financial
staff to review our internal accounting procedures and reports and consults with
and reviews the services provided by our independent accountants and the audit
scope and reports. The audit committee currently consists of Robert W. Doede and
Murray Neidorf, neither of whom is one of our officers.
The compensation committee of the board of directors reviews and evaluates
our compensation and benefit policies for all of our executive officers,
administers our incentive plans and establishes and reviews general policies
relating to compensation and benefits of our employees. The compensation
committee currently consists of Jeffrey A. Sachs, Robert W. Doede and Gilbert B.
Friesen.
DIRECTOR COMPENSATION
Directors do not currently receive cash compensation from us for their
services as members of the board of directors. However, directors who are not
officers of DEN are reimbursed for certain expenses in connection with
attendance at board and committee meetings. We do not provide additional
compensation for committee participation or special assignments of the board of
directors. Some of our outside directors have received grants of options to
purchase shares of our common stock under our 1999 Incentive Compensation Plan.
Beginning on the completion of this offering, non-employee directors of DEN will
be eligible to receive nondiscretionary, automatic grants of options to purchase
shares of DEN's common stock pursuant to the 1999 Non-Employee Directors' Stock
Option Plan. See "-- 1999 Incentive Compensation Plan" and "-- 1999 Non-
Employee Directors' Stock Option Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Upon completion of this offering, the Compensation Committee will make all
executive officer compensation decisions. Messrs. Sachs, Doede and Friesen are
the only members of the Compensation Committee. Prior to that time, our full
board made compensation decisions. None of the members of the Compensation
Committee of the board of directors is an officer or employee of DEN. None of
our executive officers, directors or compensation committee members presently
serves, or in the past has served, on the compensation committee of any other
company whose directors or executive officers served on our Compensation
Committee.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
during the year ended December 31, 1998 to each person who has served as our
Chief Executive Officer during that year and our other executive officers that
earned more than $100,000 during 1998. Our current Chief Executive Officer, H.
James Ritts III, did not join our company until March 22, 1999.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
------------------------
ANNUAL COMPENSATION NUMBER OF
--------------------------------- RESTRICTED SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL STOCK UNDERLYING ALL OTHER
POSITION SALARY BONUS COMPENSATION AWARDS OPTIONS COMPENSATION
- ------------------ -------- ------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Marc Collins-Rector..... -- -- -- -- -- --
Chairman of the Board
David A. Neuman......... $765,030 -- -- 266,289 13,977 $1,371,000(1)
President
Brock Pierce............ 113,846 -- -- -- -- --
Executive Vice
President-Office of
the Chairman
Alan L. Friel........... 141,538 $60,000 -- -- 52,551 --
General Counsel, Chief
Administrative
Officer and
Secretary
</TABLE>
- -------------------------
(1) Represents a $1,000,000 cash bonus that was accrued in 1998 with payment
deferred until 1999, and a $371,000 bonus paid to Mr. Neuman to fund the
purchase price of 266,289 shares of restricted stock and the related
grossed-up tax liability.
STOCK OPTION INFORMATION
OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1998
The following table sets forth certain information regarding options
granted in 1998 to the executive officers named in the Summary Compensation
Table above. We have never issued stock appreciation rights. Such options were
granted at an exercise price equal to the fair market value of the common stock
at the date of grant. In determining the fair market value of the common stock,
the board of directors considered various factors, including recent arm's-length
transactions, our financial condition and business prospects, operating results,
the absence of a market for the common stock and the risks normally associated
with investments in companies engaged in similar businesses. The term of each
option granted is 10 years from the date of grant. Unvested and unexercisable
options may
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terminate before their expiration dates if the optionee's status as an employee
or a consultant is terminated or upon the optionee's death or disability.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO PER SHARE OPTION TERM(5)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION --------------------
NAME GRANTED(3) 1998(4) PRICE DATE 5% 10%
- ---- ------------- ------------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Marc
Collins-Rector..... -- -- -- -- -- --
David A. Neuman(1)... 9,435 2.7% $0.75 8/31/08 $ 4,450 $11,278
4,542 1.3 6.67 12/31/08 19,043 48,259
Brock Pierce......... -- -- -- -- -- --
Alan L. Friel(2)..... 51,699 14.6 0.75 8/31/08 24,385 61,796
852 0.2 6.67 12/31/08 3,572 9,052
</TABLE>
- -------------------------
(1) Mr. Neuman's options vest 10% on the date of the grant, with 25% of the
balance vesting each year over four years.
(2) 51,699 of Mr. Friel's options vest 25% on the date of the grant and then pro
rata on a daily basis over the succeeding three years. The remaining 852
options vest 10% on the date of grant with 25% of the balance vesting each
year over four years.
(3) Represents options granted under our Amended and Restated 1998 Incentive
Compensation Plan and under each executive's individual employment
agreement.
(4) Based on an aggregate of 355,255 shares of our common stock subject to
options granted to employees in 1998.
(5) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the Securities and Exchange Commission and do not represent
our estimate of projection of future common stock prices.
EXERCISE OF OPTIONS AND YEAR-END VALUES
The following table sets forth information concerning option exercises
during 1998 by the executive officers named in the Summary Compensation Table
above, and the number of shares subject to both exercisable and unexercisable
stock options held by each such officer as of December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marc Collins-Rector..... -- -- -- -- -- --
David A. Neuman......... -- -- 1,398 12,579
Brock Pierce............ -- -- -- -- -- --
Alan L. Friel........... -- -- 13,010 39,541
</TABLE>
- -------------------------
(1) Based on the assumed initial public offering price, minus the exercise
price, multiplied by the number of shares underlying the option.
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EMPLOYMENT AGREEMENTS
We have entered into employment agreements with each of H. James Ritts III,
David A. Neuman, Edward H. Winter, Jr., Bruce J. Gamache, Brock Pierce, Alan L.
Friel, Gregory Carpenter, Gary M. Gersh and John P. Silva. Their respective
employment agreements, as amended and restated in some cases, provide that:
- Mr. Ritts will serve as our Chief Executive Officer from March 22, 1999
to March 21, 2002;
- Mr. Neuman will serve as our President from July 2, 1998 to June 30,
2002;
- Mr. Winter will serve as our Chief Marketing Officer from January 1, 1999
to August 4, 2003;
- Mr. Gamache will serve as our Chief Operating Officer and Chief Financial
Officer from April 12, 1999 to April 11, 2002;
- Mr. Pierce will serve as our Executive Vice President -- Office of the
Chairman from September 1, 1998 to June 30, 2002;
- Mr. Friel will serve as our General Counsel and Chief Administrative
Officer from August 31, 1998 to August 30, 2001;
- Mr. Carpenter will serve as our Chief Technology Officer from August 2,
1999 to August 2, 2003; and
- Messrs. Gersh and Silva will serve as Co-Presidents of >en. music group
from May 1, 1999 to April 30, 2003.
The employment agreements provide for the payment of an annual salary of
$1,500,000 to Mr. Neuman, $1,000,000 to Mr. Winter, $400,000 to Mr. Gamache,
$250,000 to Mr. Pierce, $250,000 to Mr. Friel, $375,000 to Mr. Carpenter and
$600,000 to each of Messrs. Gersh and Silva. Mr. Ritts' agreement provides that
he is entitled to an annual base salary of $350,000 for the first year of his
employment and $500,000 annually thereafter. Each of Messrs. Ritts, Neuman,
Winter, Gamache, Pierce, Friel and Carpenter is eligible for consideration for a
discretionary bonus determined by the board of directors from time to time. Ed
Winter's bonus is to be based on our annual advertising revenues and industry
norms for a chief marketing officer at a similarly situated company. In
addition, Mr. Ritts received a $150,000 bonus upon the signing of his agreement,
Mr. Neuman received a $1,000,000 bonus in January 1999, Mr. Friel received a
$60,000 bonus upon the signing of his agreement and Mr. Carpenter received a
$50,000 bonus upon the signing of his agreement.
Messrs. Gersh and Silva's employment agreements each provide for the
payment of an annual salary of $600,000, $350,000 of which will be paid out over
the course of each year and $250,000 of which shall be applied in recoupment of
the advance described in the next sentence. Each agreement provides for an
advance of $1,000,000, payable in three equal installments on June 15, 1999,
September 15, 1999 and January 18, 2000, subject to our receiving sufficient
funding to make such advances. In the event an advance has not been made by the
dates specified above, we are obligated to reimburse Messrs. Gersh and Silva on
a monthly basis for their actual interest cost (up to 8 1/2% per annum) incurred
to borrow the unpaid amount of the advance then due until such advance is paid.
In addition, each of Messrs. Gersh and Silva's employment agreements provides
for an annual bonus of an amount equal to $50,000 for each $2,000,000 of gross
revenue of our music business, less revenue-related deductions, up to a maximum
bonus of $1,000,000 per annum.
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<PAGE> 75
Pursuant to the employment agreements, we issued the following stock
options, warrants and/or restricted stock to the executives:
- We granted Mr. Ritts non-qualified stock options to purchase 169,607
shares of our common stock at an exercise price of $6.67 per share of
such options, with 25% of the then unvested amount shall become vested
upon consummation of this offering. We also issued to Mr. Ritts
non-qualified stock options to purchase 3,281 shares of our common stock
at an exercise price of $1.67 per share in lieu of paying him $21,875 of
salary in cash. We also issued to Mr. Ritts warrants to purchase 122,028
shares of our common stock at an exercise price of $6.67 per share;
- We granted Mr. Neuman non-qualified stock options to purchase 191,555
shares of our common stock at an exercise price of $6.67 per share,
56,250 shares of our common stock at an exercise price of $1.67 per share
in lieu of paying him $375,000 of salary in cash, and 9,435 shares of our
common stock at an exercise price of $.75 per share. In addition, we
granted Mr. Neuman incentive stock options to purchase 7,500 shares of
our common stock at an exercise price of $6.67 per share. We also issued
to Mr. Neuman warrants to purchase 230,220 shares of our common stock at
an exercise price of $.75 per share and 13,836 shares of our common stock
at an exercise price of $6.67 per share;
- Mr. Neuman purchased 266,289 shares of common stock from us at a price of
$.75 per share and in an amount equal to 4% of the number of shares of
common stock issued and outstanding at the time of such issuance,
calculated on a fully-diluted basis. This common stock is "restricted
stock" and is subject to forfeiture under certain conditions. The
restriction and forfeiture provisions applicable to Mr. Neuman's
restricted stock automatically terminate upon, among other things, the
consummation of this offering. Pursuant to his employment agreement, we
paid Mr. Neuman a bonus in an amount equal to the aggregate purchase
price of the restricted stock, plus an amount sufficient to gross him up
with respect to his taxes attributable to such bonus;
- We granted Mr. Winter non-qualified stock options to purchase 112,808
shares of our common stock at an exercise price of $6.67 per share and
9,375 shares of our common stock at an exercise price of $1.67 per share
in lieu of paying him $62,500 of salary in cash. In addition, we granted
Mr. Winter incentive stock options to purchase 172,326 shares of our
common stock at an exercise price of $.75 per share (all of which shall
become fully vested upon consummation of this offering) and 5,625 shares
of our common stock at an exercise price of $6.67 per share. We also
issued to Mr. Winter warrants to purchase 143,889 shares of our common
stock at an exercise price of $.75 per share and to purchase 8,649 shares
of our common stock at an exercise price of $6.67 per share;
- We granted Mr. Friel non-qualified stock options to purchase 51,699 shares
of our common stock at an exercise price of $.75 per share of such
options, 25% of the then unvested amount shall become fully vested upon
consummation of this offering. We also issued to Mr. Friel non-qualified
stock options to purchase 51,804 shares of our common stock at an exercise
price of $6.67 per share. 37,500 of these options shall become fully
vested upon consummation of this offering. In addition, we issued to Mr.
Friel incentive stock options to purchase 3,750 shares of our common stock
at an exercise price of $6.67 per share, and non-qualified stock options
to purchase 2,343 shares of our common stock at an exercise price of $1.67
per share in lieu of paying him $15,625 of salary in cash. In addition, we
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issued to Mr. Friel warrants to purchase 43,167 shares of our common stock at an
exercise price of $.75 per share and 2,595 shares of our common stock at an
exercise price of $6.67 per share;
- We granted Mr. Gamache non-qualified stock options to purchase 127,952
shares of our common stock at an exercise price of $6.67 per share. Of
such options, 25% of the then unvested amount shall become vested upon
consummation of this offering. We also issued to Mr. Gamache non-qualified
stock options to purchase 10,313 shares of our common stock at an exercise
price of $1.67 per share in lieu of paying him $68,750 of salary in cash.
In addition, we issued to Mr. Gamache warrants to purchase 91,523 shares
of our common stock at an exercise price of $6.67 per share;
- We granted Mr. Pierce non-qualified stock options to purchase 2,343 shares
of our common stock at an exercise price of $1.67 per share in lieu of
paying him $15,625 of salary in cash. We also granted to Mr. Pierce
incentive stock options to purchase 3,750 shares of our common stock at an
exercise price of $6.67 per share;
- We granted Mr. Carpenter non-qualified stock options to purchase 150,000
shares of our common stock at an exercise price of $10.40 per share, 25%
of the unvested amount of which shall become vested as the result of the
consummation of this offering. In addition, we also granted Mr. Carpenter
non-qualified stock options to purchase 50,000 shares of our common stock
at an exercise price of $10.40 per share, with all of such options to
become vested on July 1, 2000, subject to Mr. Carpenter's continued
employment with us on such date; and
- We granted to each of Mr. Silva and Mr. Gersh 399,984 shares of our common
stock. This common stock is also "restricted stock" and is subject to
forfeiture under certain conditions. The restrictions and forfeiture
provisions applicable to Messrs. Silva and Gersh's restricted stock
automatically terminate upon, among other things, the consummation of this
offering.
The employment agreements generally provide that in the event that the
executive's employment is terminated for cause, by reason of our election not to
proceed with our contemplated business, or due to a material continued
interruption in our operations, the executive will be entitled to receive his
base salary and vacation pay accrued through the date of his termination. Mr.
Ritts' agreement also provides that if we terminate his employment during the
first year due to our election not to proceed with our contemplated business,
Mr. Ritts will be entitled to receive the balance of his base salary for such
year.
In the event that we terminate the executive's employment without cause or
the executive terminates his employment as a result of our material breach of
the employment agreement, the respective agreements provide as follows:
- Messrs. Ritts, Neuman, Gersh, Silva, Winter, Gamache, Friel and Carpenter
will be entitled to receive their base salary through the date upon which
their employment agreement would otherwise have expired. Each of them
also would be entitled to receive his accrued vacation pay through the
date of termination. In addition, for a limited period of time, Messrs.
Ritts, Winter, Gamache, Friel and Carpenter are obligated to seek other
employment, and a portion of the income or benefits
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received from their subsequent employment will offset the compensation or
benefits payable to them by us.
- Mr. Pierce will be entitled to receive his base salary through the
earlier of (i) one year from the date of termination, or (ii) the date
upon which his employment agreement would otherwise have expired. Mr.
Pierce also would be entitled to receive his accrued vacation pay through
the date of termination. In addition, Mr. Pierce is obligated to seek
other employment, and a portion of the income or benefits received from
his subsequent employment will offset the compensation or benefits
payable to him by us.
Messrs. Ritts, Neuman, Gersh, Silva, Winter, Gamache, Pierce, Friel and
Carpenter have agreed that they will not compete with us during the term of
their employment agreement and will not solicit our employees during the term of
their employment agreement and for one year thereafter. Mr. Neuman's employment
agreement provides that if he becomes employed by a competitor of DEN prior to
June 30, 2002, we will be entitled to offset certain amounts payable to him
under his employment agreement by amounts that he receives from his subsequent
employment. Messrs. Gersh and Silva's employment agreements provide that if they
become employed by a competitor of DEN prior to May 9, 2003, the amounts payable
to them under their employment agreements will be reduced by the amounts they
receive from their subsequent employers. Messrs. Ritts, Neuman, Gersh, Silva,
Winter, Gamache, Pierce, Friel and Carpenter have also agreed that they will not
at any time disclose confidential information regarding our business.
Pursuant to his employment agreement, Mr. Gamache purchased from us 30,000
shares of our common stock at a price of $6.67 per share.
Mr. Ritts' employment agreement provides that we will pay the costs of his
temporary housing in an amount not to exceed $4,500 per month for a period not
to exceed one year. Mr. Gamache's employment agreement provides that we will pay
the costs of his temporary housing in an amount not to exceed $3,500 per month
for a period not to exceed six months. Mr. Carpenter's employment agreement
provides that we will pay the costs of Mr. Carpenter's actual housing expenses
in an amount not to exceed $5,000 per month for a period not to exceed six
months. We will also reimburse Messrs. Ritts, Gamache and Carpenter for their
reasonable out-of-pocket moving expenses.
AMENDED AND RESTATED 1998 INCENTIVE COMPENSATION PLAN
Our board of directors has adopted, and our stockholders have approved, our
1998 Incentive Compensation Plan (as amended and restated), effective as of
August 21, 1998. The 1998 Incentive Compensation Plan is a flexible plan that
provides the compensation committee, or if no committee is appointed, the board
of directors, with broad discretion to fashion the terms of the awards to
provide eligible participants with stock-based and performance-related
incentives as the compensation committee deems appropriate. The 1998 Incentive
Compensation Plan permits the issuance of awards in a variety of forms,
including:
- non-qualified and incentive stock options for the purchase of our common
stock;
- restricted stock; and
- performance awards.
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The persons eligible to participate in the 1998 Incentive Compensation Plan
are directors, officers, employees and consultants of DEN or our affiliates who,
in the opinion of the compensation committee, contribute to our growth and
success. The purpose of the 1998 Incentive Compensation Plan is to promote the
overall financial objectives of DEN and our stockholders by motivating eligible
participants to achieve long-term growth in stockholder equity and to retain the
association of these individuals. No participant may be granted awards under the
1998 Incentive Compensation Plan relating to more than 562,500 shares of common
stock in any fiscal year, subject to adjustment as provided in the 1998
Incentive Compensation Plan. The 1998 Incentive Compensation Plan is
administered by the compensation committee of our board of directors, or if no
committee is appointed, the board of directors.
The 1998 Incentive Compensation Plan provides for the award of up to
1,500,000 shares of our common stock, subject to adjustment as provided in the
1998 Incentive Compensation Plan. At the discretion of the compensation
committee, shares of common stock subject to an award under the 1998 Incentive
Compensation Plan that remain unissued upon termination of such award or are
forfeited or are received by us as consideration for the payment of an award may
be reissued under the 1998 Incentive Compensation Plan. In the event of a stock
dividend, stock split, recapitalization, reorganization or other similar event,
the compensation committee will adjust the aggregate number of shares of common
stock subject to the 1998 Incentive Compensation Plan and the number, class and
price of shares subject to outstanding awards.
Upon a change of control of DEN:
- any outstanding unvested stock options will become vested and
exercisable;
- all restrictions on outstanding restricted stock granted under the 1998
Incentive Compensation Plan will lapse and will become freely
transferable under the securities laws;
- all performance goals or conditions placed on outstanding performance
awards will be deemed satisfied; and
- participants will have the right to cash-out their outstanding awards
within 60 days following the change of control, unless otherwise provided
in a participant's agreement.
The 1998 Incentive Compensation Plan defines a "change of control" as an
event in which an outside entity becomes the beneficial owner of more than 35%
of the voting power of our outstanding securities, the stockholders approve an
agreement of merger or liquidation or, subject to certain limited exceptions,
the members of the board of directors at the start of any 24-month period fail
to constitute a majority of the board at the end of that 24-month period.
Options granted under the 1998 Incentive Compensation Plan will provide for
the purchase of our common stock at exercise prices determined by the
compensation committee, provided that the per share exercise price of
non-qualified stock options will not be less than 85% of the fair market value
of a share of common stock on the date of grant and the per share exercise price
of incentive stock options will not be less than 100% of the fair market value
of a share of common stock on the date of grant (or 110% of the fair market
value if the optionee owns more than 10% of our voting power on the date of
grant).
No option will be exercisable more than 10 years after the date of grant,
or no more than 5 years from the date of grant in the case of incentive stock
options granted to an
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optionee who owns more than 10% of our voting power on the date of grant.
Options granted to persons who are not our directors, officers or consultants
will vest at a rate of at least 20% per year over 5 years from the date of
grant, subject to reasonable conditions such as continued employment. The 1998
Incentive Compensation Plan provides that upon notice of exercise, the
compensation committee may elect to cash-out options which have been outstanding
for at least six months.
Restricted stock granted under the 1998 Incentive Compensation Plan will be
subject to a risk of forfeiture and transferability restrictions. The period
during which the restricted stock will be subject to such restrictions will be
set by the compensation committee, and the lapse of such restrictions may occur
in installments and may be accelerated in certain events.
Performance awards granted under the 1998 Incentive Compensation Plan will
be subject to grant, vesting or exercisability based on performance conditions
specified by the compensation committee. The compensation committee may grant
performance awards which are intended to qualify as "performance-based
compensation" under Section 162(m) of the Internal Revenue Code.
The 1998 Incentive Compensation Plan will terminate on August 21, 2008.
As of July 31, 1999, we had issued an aggregate of 1,153,083 shares of
common stock subject to outstanding stock options under the 1998 Incentive
Compensation Plan.
1999 INCENTIVE COMPENSATION PLAN
Our board of directors has adopted, and our stockholders have approved, our
1999 Incentive Compensation Plan, effective as of May 2, 1999. The effectiveness
of the plan is subject to stockholder approval which is expected to be obtained
prior to the consummation of this offering. The 1999 Incentive Compensation Plan
contains terms which are substantially similar to the terms described above with
respect to our 1998 Incentive Compensation Plan, with the following exceptions:
- no participant may be granted awards under the 1999 Incentive
Compensation Plan relating to more than 2,250,000 shares of common stock
in any fiscal year, subject to adjustment as provided in the 1999
Incentive Compensation Plan;
- the 1999 Incentive Compensation Plan provides for the award of up to
3,000,000 shares of our common stock, subject to adjustment in the event
of any reorganization, recapitalization, reclassification, common stock
dividend, stock split, reverse stock split or other similar transaction;
and
- the 1999 Incentive Compensation Plan will terminate on May 2, 2009.
As of July 31, 1999, we had issued 503,046 stock options under the 1999
Incentive Compensation Plan.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Our board of directors has adopted our 1999 Non-Employee Directors' Stock
Option Plan, which is expected to be approved by our stockholders and become
effective immediately prior to the closing of this offering. The purpose of the
1999 Non-Employee Directors' Stock Option Plan is to promote the overall
financial objectives of DEN and our stockholders by motivating our non-employee
directors to achieve long-term growth and performance.
Under the 1999 Non-Employee Directors' Stock Option Plan, directors who are
not employees of DEN are entitled to receive non-qualified stock options to
purchase our
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common stock. The 1999 Non-Employee Directors' Stock Option Plan will be
administered by the full board of directors.
Subject to adjustment as provided in the 1999 Non-Employee Directors' Stock
Option Plan, 300,000 shares of our common stock are available for issuance
pursuant to options granted under the 1999 Non-Employee Directors' Stock Option
Plan. At the discretion of the board of directors, shares of common stock
subject to options under the 1999 Non-Employee Directors' Stock Option Plan that
remain unissued upon termination of such option or are forfeited or are received
by us as consideration for the exercise of an option may be reissued under the
1999 Non-Employee Directors' Stock Option Plan. In the event of a stock
dividend, stock split, recapitalization, reorganization or other similar event,
the board of directors will adjust the aggregate number of shares of common
stock subject to the 1999 Non-Employee Directors' Stock Option Plan and the
number, class and price of shares subject to outstanding options.
All options granted under the 1999 Non-Employee Directors' Stock Option
Plan will expire 10 years from the date of the option grant. The exercise price
for options granted under the 1999 Non-Employee Directors' Stock Option Plan
will initially be the price per share of common stock sold in this offering and
thereafter the average of the closing bid and asked price for a share of our
common stock for the 20 trading days immediately preceding the date of grant.
The 1999 Non-Employee Directors' Stock Option Plan provides for the
automatic grant of an option to purchase shares of our common stock to
each person who is a non-employee director on the effective date of the 1999
Non-Employee Directors' Stock Option Plan. Each person who subsequently becomes
a non-employee director will automatically be granted an option to purchase
shares of our common stock upon his or her initial election to the
board of directors. Thereafter, on the date of each annual stockholders' meeting
following the year of the director's initial grant, each participant who
continues as a non-employee director will be granted an additional option to
purchase shares of our common stock.
Subject to the non-employee director's continued service as a director,
options initially granted under the 1999 Non-Employee Directors' Stock Option
Plan will become exercisable over a period of four years, with 25% vesting each
year. Options subsequently granted in connection with a director's re-election
at an annual stockholders' meeting will become exercisable over a period of
three years, with 33 1/3% vesting each year. In the event that a participant
ceases to be a non-employee director by reason of his or her death or
disability, the participant's options, to the extent then exercisable, will
remain exercisable for 90 days following the date of death or disability. In the
event that a participant ceases to be a non-employee director other than due to
death or disability, the participant's options, to the extent then exercisable,
will remain exercisable for two years following the date that he or she ceased
to be a director.
Upon a "change of control" of DEN, all outstanding unvested stock options
will become fully exercisable, and the board of directors will have the
discretion to do any or all of the following:
- provide that the securities of another entity be substituted for the
common stock subject to the options, subject to appropriate adjustments;
- grant the participant the right to cash-out his or her options;
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- require the assumption of our obligations under the 1999 Non-Employee
Directors' Stock Option Plan, subject to appropriate adjustments; and
- take any other action determined by the board of directors.
The definition of a "change of control" in the 1999 Non-Employee Directors'
Stock Option Plan is identical to that contained in the 1998 Incentive
Compensation Plan, as described above, except that the acquisition of 20%, as
opposed to 35%, of the voting power of our outstanding securities constitutes a
change of control for the purposes of the 1999 Non-Employee Directors' Stock
Option Plan.
As of the date of this offering, no options have been granted under the
1999 Non-Employee Directors' Stock Option Plan.
FOUNDERS' PERFORMANCE STOCK OPTION PLAN
Our board of directors has adopted our Founders' Performance Stock Option
Plan which will become effective immediately prior to the closing of this
offering. The Founders' Performance Stock Option Plan provides for the grant of
non-qualified stock options to our founders, Messrs. Collins-Rector, Shackley
and Pierce, upon DEN achieving certain milestones described below. The only
persons eligible to participate in the Founders' Performance Stock Option Plan
are Messrs. Collins-Rector, Shackley and Pierce, each of whom is currently one
of our employees, executive officers and directors. The purpose of the plan is
to promote our overall financial objectives by compensating Messrs.
Collins-Rector, Shackley and Pierce in a manner that motivates them to achieve
our long-term financial goals. Stock option grants under the Founders'
Performance Stock Option Plan represent substantially all of the compensation
that Messrs. Collins-Rector and Shackley will receive for the services that they
perform for us. The Founders' Performance Stock Option Plan will be administered
by our Compensation Committee.
We have reserved 7,500,000 shares of our common stock for the issuance of
options under the Founders' Performance Stock Option Plan, subject to adjustment
as provided in the plan. At the discretion of the Compensation Committee, the
Founders' Performance Stock Option Plan permits us to issue options with respect
to any shares of common stock subject to an option granted pursuant to the
Founders' Performance Stock Option Plan that remain unissued upon termination of
such option, are forfeited, or are received by us as consideration for the
exercise or payment of an option. The number of shares of common stock subject
to the Founders' Performance Stock Option Plan, the number and exercise price of
shares subject to outstanding options and other terms of outstanding options
also will be equitably adjusted in the event of a stock dividend, stock split,
recapitalization, sale of substantially all of our assets, reorganization or
other similar event.
Pursuant to the Founders' Performance Stock Option Plan, each founder, if
then employed by us, will be awarded options to purchase a specified percentage
of our outstanding common stock on a fully diluted basis when our average market
capitalization for a period of one calendar month first exceeds $1 billion. The
applicable percentage for each of our founders is 1.0% for Mr. Collins-Rector,
0.35% for Mr. Shackley and 0.15% for Mr. Pierce, in each case calculated after
giving affect to the issuance of such options. The Founders' Performance Stock
Option Plan defines "market capitalization" as the product of the average daily
closing price of a share of our common stock during a calendar month multiplied
by the number of fully-diluted shares of our common stock outstanding (excluding
non-vested or non-exercisable securities) at the end of such month, less the
value of any consideration received by us in financings, merger and acquisition
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transactions and in respect of options and warrants in transactions other than
incentive compensation issued to officers, directors, employees or consultants.
If we receive non-cash consideration for the issuance of such securities, the
value thereof shall be determined in good faith by our board of directors.
After the initial grant, the founders who continue to be employed by us
will automatically receive similar option grants each time our market
capitalization increases by $1 billion over the market capitalization at the
time of any preceding grant. The maximum number of grants under the Founders'
Performance Stock Option Plan for any participant is ten.
The per share exercise price of options granted under the Founders'
Performance Stock Option Plan will be equal to the fair market value of a share
of our common stock on the date of grant. All options granted under the
Founders' Performance Stock Option Plan will be immediately exercisable, but may
not be exercised later than the tenth anniversary of the date of its grant.
Options will not be transferable other than pursuant to the laws of descent and
distribution or pursuant to a transfer which complies with federal securities
laws and other applicable laws.
In connection with the Founders' Performance Stock Option Plan, prior to
the closing of this offering, it is expected that each of Messrs. Collins-Rector
and Shackley will enter into a two-year employment agreement pursuant to which
they will each receive nominal cash compensation and the options, if any,
granted to him under the Founders' Performance Stock Option Plan. Mr. Pierce
will continue to receive the cash compensation payable to him under his existing
employment agreement as well as the options, if any, granted to him under the
Founders' Performance Stock Option Plan.
We are obligated to submit the Founders' Performance Stock Option Plan for
approval by our stockholders prior to the third annual meeting of our
stockholders following the closing of our initial public offering. If our
stockholders do not approve the Founders' Performance Stock Option Plan, we will
not be permitted to make any grants under the plan following such decision, and
instead we will be obligated to negotiate in good faith with the participants
under such plan to enter into alternative arrangements to compensate our
founders for their services to us.
Our board of directors or the Compensation Committee may amend, modify or
discontinue the Founders' Performance Stock Option Plan at any time, except for
amendments which would (i) impair the rights of a participant without the
participant's consent, or (ii) disqualify the Plan from the exemption provided
by Rule 16b-3 under the Securities Exchange Act of 1934. In addition, amendments
are subject to stockholder approval if required by applicable law, and any
amendment by the Compensation Committee is subject to approval by our board of
directors. The Compensation Committee may amend the terms of any option
previously granted under the Founders' Performance Stock Option Plan (other than
to decrease the option exercise price), subject to the participant's consent if
such amendment impairs the rights of the participant, unless such amendment is
necessary for us to obtain pooling of interest accounting treatment in a
transaction.
The Founders' Performance Stock Option Plan will terminate on the tenth
anniversary of the date of our initial public offering.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of July 31, 1999 by:
- each stockholder known by us to beneficially own 5% or more of our common
stock;
- each director;
- each executive officer named in the Summary Compensation Table under
"Management -- Executive Compensation"; and
- all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. The address of each person listed is c/o Digital
Entertainment Network, Inc., 2230 Broadway, Santa Monica, California 90404.
Except as indicated by footnote, and subject to applicable community property
laws, the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them. The
number of shares of common stock outstanding used in calculating the percentage
for each listed person includes the shares of common stock underlying options or
warrants held by such person that are exercisable within 60 days of July 31,
1999 but excludes shares of common stock underlying options or warrants held by
any other person. Percentage of beneficial ownership is based on 18,549,976
shares of common stock outstanding as of July 31, 1999, after giving effect to:
- the conversion of all outstanding shares of convertible preferred stock;
and
- the conversion of all outstanding convertible notes;
and shares of common stock outstanding after completion of this offering.
"Shares Beneficially Owned" includes "Shares Issuable Upon Exercise of Stock
Options or Warrants."
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<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES
BENEFICIALLY
SHARES ISSUABLE OWNED
SHARES UPON EXERCISE OF -------------------
BENEFICIALLY STOCK OPTIONS PRIOR TO AFTER
NAME OF BENEFICIAL OWNER OWNED OR WARRANTS OFFERING OFFERING
- ------------------------ ------------ ---------------- -------- --------
<S> <C> <C> <C> <C>
Marc Collins-Rector(1)................ 11,534,417 -- 56.51%
Chad M. Shackley...................... 1,913,252 -- 10.31%
Mitchell J. Blutt, M.D.(2)............ 1,500,000 -- 8.09%
Cassandra/Digital Entertainment
Network Partners, LLC(3)............ 1,500,000 -- 8.09%
Chase Venture Capital Associates,
L.P.(4)............................. 1,500,000 -- 8.09%
Jeffrey Sachs(5)...................... 1,500,000 -- 8.09%
Brock Pierce(6)....................... 911,167 2,718 4.76%
David A. Neuman(7).................... 617,110 321,155 3.27%
Gary M. Gersh......................... 468,522 -- 2.53%
John P. Silva......................... 410,829 -- 2.21%
Edward H. Winter, Jr.(8).............. 389,372 360,525 2.06%
Bruce J. Gamache(9)................... 309,197 163,812 1.65%
H. James Ritts III(10)................ 207,042 199,830 1.10%
Alan L. Friel(11)..................... 124,991 120,519 *
Murray Neidorf(12).................... 92,625 2,625 *
Robert W. Doede(13)................... 80,366 8,250 *
Layne Britton(14)..................... 9,837 2,625 *
Gilbert B. Friesen(15)................ 2,625 2,625 *
All directors and executive officers
as a group (17 persons)............. 20,071,349 1,184,685 90.39%
</TABLE>
- -------------------------
* Represents less than 1% of our outstanding shares of common stock.
(1) Includes 1,863,000 shares of common stock owned by Chad Shackley, Brock
Pierce, Murray Neidorf, Michael Neidorf and Scott Shackley which Mr.
Collins-Rector has the right to vote pursuant to the Stockholders'
Agreement, dated January 1, 1998.
(2) The shares listed include 548,077 shares of common stock that are
beneficially owned by Chase Venture Capital Associates, L.P. and 951,922
shares of common stock that are beneficially owned by Cassandra/Digital
Entertainment Network Partners, LLC. Dr. Blutt is a general partner of
Chase Capital Partners, the sole general partner of Chase Venture Capital
Associates; and Chase Venture Capital Associates is the sole managing
member of Cassandra/Digital Entertainment Network Partners. By reason of
such relationships, Dr. Blutt may be deemed to own beneficially the
foregoing shares of common stock. In addition, Chase Venture Capital
Associates and Cassandra/Digital Entertainment Network Partners may be
deemed to be part of a "group" (for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934) as a result of certain co-investment
arrangements between affiliates of each of Chase Venture Capital Associates
and Cassandra/Digital Entertainment Network Partners pursuant to which such
affiliates have agreed to work together regarding the ultimate disposition
of common stock beneficially owned by Chase Venture Capital Associates and
Cassandra/Digital Entertainment Network Partners. Dr. Blutt expressly
disclaims that he is a member
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of such "group" and expressly disclaims beneficial ownership of the shares
owned by Chase Venture Capital Associates and Cassandra/Digital Network
Partners.
(3) The shares listed include 548,077 shares of common stock beneficially owned
by Chase Venture Capital Associates, which is the sole managing member of
Cassandra/Digital Network Partners. Chase Venture Capital Associates and
Cassandra/Digital Network Partners may be deemed to be part of a "group" as
more fully described in note 2 above. Cassandra/Digital Network Partners
expressly disclaims that it is such a member of such "group" and expressly
disclaims beneficial ownership of the shares held by Chase Venture Capital
Associates.
(4) The shares listed include 951,922 shares of common stock owned by
Cassandra/Digital Network Partners, whose sole managing member is Chase
Venture Capital Associates. In addition, Chase Venture Capital Associates
and Cassandra/Digital Network Partners may be deemed to be part of a
"group" as more fully described in note 2 above. Chase Venture Capital
Associates, however, expressly disclaims that it is such a member of such
"group" and expressly disclaims beneficial ownership of the shares held by
Cassandra/Digital Network Partners.
(5) The shares listed include 951,922 shares of common stock that are
beneficially owned by Cassandra/Digital Entertainment Network Partners, LLC
and 548,077 shares of common stock that are beneficially owned by Chase
Venture Capital Associates, L.P.
(6) Includes 2,718 shares of common stock issuable upon exercise of stock
options that are exercisable within 60 days of July 31, 1999. Also includes
608,449 shares of common stock issuable upon exercise of an option held by
Mr. Pierce to purchase $456,337 principal amount of one of Marc
Collins-Rector's convertible notes and the subsequent conversion of that
convertible note. See "Certain Relationships and Related
Transactions -- Notes Payable to Messrs. Collins-Rector and Shackley."
Excludes 3,375 shares of stock issuable upon the exercise of stock options
that are exercisable after July 31, 1999.
(7) Includes 321,155 shares of common stock issuable upon the exercise of stock
options and warrants that are exercisable within 60 days of July 31, 1999,
including warrants that will become exercisable as a result of the
completion of this offering and conversion of our convertible indebtedness.
See "Management -- Employment Agreements." Excludes 187,642 shares of stock
issuable upon exercise of stock options that are not exercisable within 60
days of July 31, 1999.
(8) Includes 360,525 shares of common stock issuable upon exercise of stock
options and warrants that are exercisable within 60 days of July 31, 1999,
including options and warrants that will become exercisable as a result of
the completion of this offering and conversion of the Convertible
Indebtedness. See "Management -- Employment Agreements." Excludes 92,149
shares of stock issuable upon exercise of stock options that are not
exercisable within 60 days of July 31, 1999.
(9) Includes 163,812 shares of common stock issuable upon exercise of stock
options and warrants that are exercisable within 60 days of July 31, 1999,
including options and warrants that will become exercisable as a result of
the completion of this offering and conversion of the Convertible
Indebtedness. Excludes 65,975 shares of common stock issuable upon exercise
of stock options that are not exercisable within 60 days of July 31, 1999.
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(10) Includes 199,830 shares of common stock issuable upon exercise of stock
options and warrants that are exercisable within 60 days of July 31, 1999,
including options and warrants that will become exercisable as a result of
the completion of this offering and conversion of the Convertible
Indebtedness. Excludes 95,087 shares of common stock issuable upon exercise
of stock options that are not exercisable within 60 days of July 31, 1999.
(11) Includes 120,519 shares of common stock issuable upon exercise of stock
options and warrants that are exercisable within 60 days of July 31, 1999,
including options and warrants that will become exercisable as a result of
the completion of this offering and conversion of the Convertible
Indebtedness. See "Management -- Employment Agreements." Excludes 34,839
shares of stock issuable upon exercise of stock options that are not
exercisable within 60 days of July 31, 1999.
(12) Excludes 7,875 shares of common stock issuable upon exercise of stock
options that are not exercisable within 60 days of July 31, 1999.
(13) Excludes 24,750 shares of common stock issuable upon exercise of stock
options that are not exercisable within 60 days of July 31, 1999.
(14) Excludes 7,875 shares of common stock issuable upon exercise of stock
options that are not exercisable within 60 days of July 31, 1999.
(15) Excludes 7,875 shares of common stock issuable upon exercise of stock
options that are not exercisable within 60 days of July 31, 1999.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following summarizes various transactions between us and our directors
or executive officers.
NOTES PAYABLE TO MESSRS. COLLINS-RECTOR AND SHACKLEY
We have executed three convertible promissory notes in favor of an
affiliated trust of Marc Collins-Rector. The first Collins-Rector note was
issued in an initial principal amount of $3,444,819, bears interest at the rate
of 8% per annum, and matures on December 31, 1999. The principal amount of the
note together with interest through December 31, 1999 will be converted at the
closing of this offering into 5,045,283 shares of common stock at a conversion
price of $0.75 per share. In October 1998, Mr. Collins-Rector granted Brock
Pierce an option to purchase $456,337 of the principal amount of the first
Collins-Rector note at an exercise price equal to the principal amount of the
optioned portion of the note. The second Collins-Rector note was issued in an
initial principal amount of $2,131,475, bears interest at the rate of 8% per
annum, matures on December 31, 1999 and similarly the principal amount of the
note together with interest through December 31, 1999 will be converted into
345,933 shares of common stock at a conversion price of $6.67 per share. The
third Collins-Rector note was issued in an initial principal amount of
$7,500,000 (of which $1,000,000 was actually borrowed), bears interest at the
rate of 8% per annum, matures on December 31, 2000 and the principal amount of
the note together with interest through December 31, 1999 will be similarly
converted into 152,125 shares of common stock at a conversion price of $6.93 per
share.
We also have executed two convertible promissory notes in favor of Chad M.
Shackley. The first Shackley note was issued in an initial principal amount of
$484,945, bears interest at the rate of 8% per annum, matures on December 31,
1999 and the principal amount of the note together with interest through
December 31, 1999 will be converted at the closing of this offering into 710,251
shares of common stock at a conversion price of $0.75 per share. The second
Shackley note was issued in an initial principal amount of $65,528, bears
interest at the rate of 8% per annum and matures on December 31, 1999. No amount
was drawn under the second Shackley note.
In May 1999, each of Messrs. Collins-Rector, Shackley and Pierce executed
an agreement under which they will convert their notes immediately prior to the
completion of this offering. The notes will be converted as if they had been
held and were accruing interest up to and including December 31, 1999. Messrs.
Collins-Rector and Shackley also terminated the availability of further funds
under the third Collins-Rector note and the second Shackley note, effective as
of May 31, 1999. As a result, we can no longer draw down any of the remaining
funds under those notes.
In May 1999, we also issued a promissory note in favor of an affiliated
trust of Marc Collins-Rector with borrowing capacity up to $1,000,000, bearing
interest at the rate of 8% per annum. Approximately $500,000 of principal was
drawn down on the note, which amount was repaid on May 26, 1999 using cash
proceeds from our sale of Series B Convertible Preferred Stock. The note was
then terminated and consequently we can no longer draw down any further funds
under it.
EMPLOYMENT ARRANGEMENTS
DEN and each of H. James Ritts III, David A. Neuman, Edward H. Winter, Jr.,
Bruce J. Gamache, Brock Pierce, Alan L. Friel, Gregory Carpenter, Gary M. Gersh
and
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John P. Silva, have entered into employment agreements, each of which is
described under "Management--Employment Agreements."
In addition, we entered into a letter agreement, dated January 1, 1999,
with Messrs. Neuman, Winter, Pierce and Friel pursuant to which we granted
incentive stock options to purchase the following number of shares: 7,500 shares
of common stock to Mr. Neuman, 5,625 shares of common stock to Mr. Winter, 3,750
shares of common stock to Mr. Pierce and 3,750 shares of common stock to Mr.
Friel. The exercise price of these incentive stock options is $6.67 per share,
and the options are subject to vesting and other conditions. Under the same
agreement, we also granted the following non-qualified stock options to purchase
the following number of shares: 56,250 shares of common stock to Mr. Neuman,
9,375 shares of common stock to Mr. Winter, 2,343 shares of common stock to Mr.
Pierce and 2,343 shares of common stock to Mr. Friel. We granted the non-
qualified stock options, each with an exercise price of $1.67 per share, in
exchange for the agreement of these executives to forego a portion of their
respective 1999 salaries. As of May 31, 1999, all of such non-qualified options
were fully vested.
In addition, we entered into a letter agreement, dated April 19, 1999, with
Messrs. Ritts and Gamache pursuant to which we granted the following
non-qualified stock options to purchase the following number of shares: 10,312
shares of common stock to Mr. Gamache and 3,280 shares of common stock to Mr.
Ritts. We granted the non-qualified stock options, each with an exercise price
of $1.67 per share, in exchange for the agreement of these executives to forego
a portion of their respective 1999 salaries. These options vested pro-rata on a
daily basis through July 16, 1999.
In connection with Mr. Neuman's, Mr. Winter's and Mr. Friel's employment
agreements, we also entered into a tax indemnity arrangement relating to the
issuance of restricted stock or stock options, as the case may be, to Messrs.
Neuman, Winter and Friel.
We will enter into new employment agreements with Marc Collins-Rector and
Chad Shackley prior to the closing of this offering. These employment agreements
are expected to provide for payment of nominal cash consideration and contain
customary non-compete and non-solicitation covenants. See
"Management -- Founders' Compensation Plan."
SERIES A CONVERTIBLE PREFERRED STOCK
In December 1998, in private placement transactions, we issued 68,265
shares of Series A Convertible Preferred Stock at a price of $100.00 per share.
In March 1999, we issued 2,188 shares of Series A Convertible Preferred Stock to
Exodus Communications, Inc. as part consideration for information technology
services provided to us. Each share of Series A Convertible Preferred Stock is
convertible into 15 shares of our common stock at a conversion price of $6.67
per share, subject to adjustment. The holders of outstanding shares of Series A
Convertible Preferred Stock are entitled to receive dividends on the common
stock if, when and as declared by the board of directors, in an amount equal to
what the holders of the Series A Convertible Preferred Stock would have received
had such stock been converted into common stock. However, we have never declared
or paid dividends on the Series A Convertible Preferred Stock. All shares of
Series A Convertible Preferred Stock will automatically convert into shares of
common stock upon the closing of this offering. The holders of such Series A
Convertible Preferred Stock are entitled to registration rights with respect to
the shares of common stock issued upon such conversion. See "Description of
Capital Stock -- Registration Rights."
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SERIES B CONVERTIBLE PREFERRED STOCK
In May 1999, in a private placement transaction, we issued 250,000.3 shares
of Series B Convertible Preferred Stock at a price of $104 per share to a group
of investors including seven members of our senior management, Cassandra Chase
Entertainment Partners LLC, Chase Capital Partners, Dell Computer Corp.,
Microsoft Corporation and senior executives of Lazard Freres & Co. LLC. Each
share of Series B Convertible Preferred Stock is convertible into 15 shares of
our common stock at a conversion price of $6.93 per share, subject to
adjustment. The holders of outstanding shares of Series B Convertible Preferred
Stock are entitled to receive dividends in cash if, when and as declared by the
board of directors on the common stock, in an amount equal to what the holders
of the Series B Convertible Preferred Stock would have received had such stock
been converted into common stock. However, we have never declared or paid
dividends on the Series B Convertible Preferred Stock. All shares of Series B
Convertible Preferred Stock will automatically convert into shares of common
stock upon the closing of this offering. The holders of such Series B
Convertible Preferred Stock are entitled to registration rights with respect to
the shares of common stock issuable upon such conversion. See "Description of
Capital Stock -- Registration Rights."
SERIES C CONVERTIBLE PREFERRED STOCK
In September 1999, in a private placement transaction, we issued 47,537
shares of Series C Convertible Preferred Stock at a price of $175 per share to a
group of investors including two members of our Board of Directors and Dell
Computer Corp. Each share of Series C Convertible Preferred Stock is convertible
into 15 shares of our common stock at a conversion price of $11.67 per share,
subject to adjustment. The holders of outstanding shares of Series C Convertible
Preferred Stock are entitled to receive dividends in cash if, when and as
declared by the board of directors on the common stock, in an amount equal to
what the holders of the Series C Convertible Preferred Stock would have received
had such stock been converted into common stock. However, we have never declared
or paid dividends on the Series C Convertible Preferred Stock. All shares of
Series C Convertible Preferred Stock will automatically convert into shares of
common stock upon the closing of this offering. The holders of such Series C
Convertible Preferred Stock are entitled to registration rights with respect to
the shares of common stock issuable upon such conversion. See "Description of
Capital Stock -- Registration Rights."
RELATIONSHIP BETWEEN >EN. MUSIC GROUP AND G.A.S. ENTERTAINMENT CO., LLC
As of May 1, 1999, two of our directors, Gary M. Gersh and John P. Silva,
agreed to serve as Co-Presidents of >en. music group for a period of four years.
In consideration for their services, each of them will receive a salary of
$600,000 and have received 399,984 shares of common stock. Each of them also has
or will receive a cash advance of $1,000,000 payable in three equal installments
on June 15, 1999, September 15, 1999 and January 18, 2000, subject to our
receipt of sufficient proceeds either from this offering or from a private
placement of preferred stock. The June 15, 1999 payments were made using
proceeds from the sale of our Series B Convertible Preferred Stock. We will
recoup these advances by deducting $250,000 from each of Messrs. Gersh's and
Silva's salaries in each year of their respective employment contracts. In the
event of the termination of either Messrs. Gersh or Silva's employment, the
advance shall be deemed fully earned upon termination. We recognized the full
amount of the advance as compensation expense in the three months ended June 30,
1999. Messrs. Gersh and Silva also serve as Co-Presidents of G.A.S.
Entertainment Co., the music management company which they formed in January
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1999. Messrs. Gersh and Silva have agreed to work exclusively for us, except for
providing music artist management. Our agreement with them provides that they
may continue to own and operate G.A.S. Entertainment Co., their existing artist
management company, from our offices on a rent-free basis and continue to work
as artist managers in the entertainment industry, provided that such services do
not materially interfere with their ability to render services to us.
RELATIONSHIP BETWEEN DEN AND U30 GROUP, LLC
As of June 1, 1999, we entered into an agreement with U30 Group, LLC, a
company co-founded and majority-owned by Edward H. Winter, Jr., our Chief
Marketing Officer, for the start-up phase of a proprietary consumer panel to be
created, recruited, managed and maintained by U30 Group exclusively for us.
During the start-up phase, which will last until October 31, 1999, U30 Group has
agreed to recruit for the panel 120 individuals between the ages of 15 and 22 in
four key markets. Among other duties and responsibilities, U30 Group will
provide monetary compensation to the panelists in exchange for various forms of
feedback regarding our programming and will create and maintain a detailed
computer database belonging to us that catalogs the individual preferences and
viewpoints of each panelist. In exchange for such services, we have agreed to
pay U30 Group $100,000 in management and recruiting costs, as well as reimburse
U30 Group for up to $25,000 in travel costs and $30,000 in panelist incentives.
The parties have also agreed to negotiate in good faith for the subsequent
continuation and expansion of the panel into a second phase to begin no later
than November 1, 1999. In addition, U30 Group and DEN share office space in
Knoxville, Tennessee, as well as related expenses. In addition, we share office
space with U30 Group in Knoxville, Tennessee, with U30 Group occupying 60% of
the space and DEN the other 40% of the space. U30 Group and DEN split the rent
accordingly and proportionately share related general and administrative
expenses.
PAYMENT OF OFFICE-RELATED EXPENSES TO MARC COLLINS-RECTOR
During the period from June 4, 1996 to December 31, 1997, we paid a total
of $75,750 to Marc Collins-Rector for shared facility and office rental
expenses. These amounts were allocated based on the proportionate space we used
when our headquarters were located in Mr. Collins-Rector's home during that same
period.
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DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 120,000,000 shares of common
stock, $.01 par value per share, and 20,000,000 shares of preferred stock, $.01
par value per share. Based on the number of shares of common stock, options and
warrants outstanding July 31, 1999, immediately after giving effect to this
offering, there will be outstanding shares of common stock,
outstanding options to purchase 1,917,987 shares of common stock and outstanding
warrants to purchase 655,906 shares of common stock. The shares of Series A
Convertible Preferred Stock, Series B Convertible Preferred Stock and Series C
Convertible Preferred Stock will be converted automatically into shares of
common stock upon the closing of this offering and, following such time, no
shares of preferred stock will be outstanding or designated.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders and they do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared by our board of directors out of
funds legally available therefor, subject to any preferential dividend rights of
any outstanding preferred stock. Upon the liquidation, dissolution or winding up
of DEN, the holders of our common stock will be entitled to receive ratably the
net assets of DEN available after payment of all debts and other liabilities and
subject to the prior rights of any outstanding preferred stock. Holders of our
common stock have no preemptive, subscription, redemption or conversion rights.
The rights of holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate and issue in the future.
PREFERRED STOCK
Effective upon the completion of this offering, all of our outstanding
preferred stock will automatically convert into common stock on a 15-for-one
basis. Accordingly, upon completion of this offering, 20,000,000 shares of
undesignated preferred stock will be authorized, and no shares will be
outstanding. The board of directors has the authority, within the limitations
and restrictions stated in our restated certificate of incorporation, to provide
by resolution for the issuance of shares of preferred stock, in one or more
classes or series, and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. The issuance of
preferred stock could have the effect of decreasing the market price of our
common stock and could adversely affect the voting and other rights of the
holders of common stock. See "Risk Factors -- Anti-Takeover Provisions Affecting
Us Could Prevent or Delay a Change of Control."
OPTIONS
As of July 31, 1999, we had outstanding options to purchase 1,917,987
shares of common stock, and up to an additional 2,565,330 shares of common stock
may be subject to options granted in the future under our 1999 Incentive
Compensation Plan. In addition, 300,000 shares of common stock may be subject to
options granted in the future under our 1999 Non-Employee Director Stock Option
Plan. We also have reserved 7,500,000 shares of our common stock for issuance
under our Founders' Performance Stock Option Plan.
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<PAGE> 92
The number of shares of common stock issuable upon exercise of each option will
be adjusted to reflect changes in our capital structure. See
"Management -- Amended and Restated 1998 Incentive Compensation Plan," "-- 1999
Incentive Compensation Plan", "-- 1999 Non-Employee Directors' Stock Option
Plan" and "-- Founders' Performance Stock Option Plan."
COMMON STOCK WARRANTS
As of July 31, 1999, we had outstanding warrants to purchase 655,906 shares
of our common stock. The number of shares of common stock issuable upon exercise
of each warrant will be adjusted to reflect changes in our capital structure.
See "Management -- Employment Agreements."
REGISTRATION RIGHTS
The holders of our Series A Convertible Preferred Stock are entitled to
have their shares registered by us under the Securities Act pursuant to the
terms of an agreement between us and those holders. Subject to the limitations
specified in the agreement, these registration rights include the following:
- The holders may require us, on one occasion and at least 365 days after
completion of this offering, to register for public resale the shares of
common stock underlying the Series A Convertible Preferred Stock.
- If we register any shares of common stock, the holders are entitled to
include in such registration the shares of common stock underlying their
shares of Series A Convertible Preferred Stock.
The holders of our Series B Convertible Preferred Stock are entitled to
have their shares registered by us under the terms of a similar agreement
between us and those holders. Subject to the limitations specified in that
agreement, these registration rights include:
- The holders may require us, on three occasions and at least 180 days
after the consummation of this offering, to register for public resale
the shares of common stock underlying the Series B Convertible Preferred
Stock.
- If we register any shares of common stock, the holders are entitled to
include in such registration the shares of common stock underlying their
shares of Series B Convertible Preferred Stock.
The rights of holders of our Series B Convertible Preferred Stock are
subject to the rights of holders of Series A Convertible Preferred Stock.
The holders of our Series C Convertible Preferred Stock are entitled to
have their shares registered by us under the terms of a similar agreement
between us and those holders. Subject to the limitations specified in that
agreement, these registration rights include:
- The holders may require us, on one occasion and at least 180 days after
the consummation of this offering, to register for public resale the
shares of common stock underlying the Series C Convertible Preferred
Stock.
- If we register any common stock, the holders are entitled to include in
such registration the shares of common stock underlying their shares of
Series C Convertible Preferred Stock.
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The rights of holders of our Series C Convertible Preferred Stock are
subject to the rights of holders of Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock.
In addition, we have agreed, to the extent permitted by Form S-8 and
subject to any underwriters' lock-up requirements, to use our best efforts to
file a registration statement on Form S-8 covering the issuance of shares of our
common stock upon exercise of options and warrants held by Messrs. Neuman,
Winter, Friel, Ritts and Gamache and the resale of shares of restricted stock
held by Messrs. Neuman, Gersh and Silva. In addition, subject to certain
conditions, we have agreed with Messrs. Neuman, Winter, Friel, Ritts, Gersh,
Silva and Gamache to use our best efforts to include such persons in any
registration rights agreement that we enter into with Mr. Collins-Rector.
DELAWARE ANTI-TAKEOVER LAW AND OUR RESTATED CERTIFICATE OF INCORPORATION AND
BYLAWS
ANTI-TAKEOVER LAW
Upon the closing of this offering, we will be subject to the provisions of
Section 203 of the Delaware General Corporation Law. Section 203 generally
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless:
- the transaction in which such stockholder became an "interested
stockholder" is approved by the board of directors prior to the date the
"interested stockholder" attained that status;
- upon consummation of the transaction that resulted in the stockholder
becoming an "interested stockholder," the "interested stockholder" owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding those shares owned by persons
who are directors and also officers; or
- on or subsequent to the date the "business combination" is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the "interested
stockholder."
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the "interested stockholder." Generally, an
"interested stockholder" is a person who, together with his affiliates and
associates, owns, or within the prior three years did own, 15% or more of the
corporation's voting stock. The restrictions in this statute could prohibit or
delay the accomplishment of mergers or other takeover or change-in-control
attempts with respect to DEN and therefore discourage attempts to acquire DEN.
In addition, our restated certificate of incorporation and bylaws that will
be in effect prior to the closing of this offering, as summarized below, may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in its best interest, including those attempts that might
result in a premium over the market price for our common stock.
CLASSIFIED BOARD OF DIRECTORS
Immediately prior to the closing of this offering, our board of directors
will be divided into three classes of directors serving staggered, three-year
terms. As a result,
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approximately one-third of the members of our board of directors will be elected
each year. When coupled with the provision of our restated certificate of
incorporation authorizing our board of directors to fill vacant directorships
and increase the size of the board of directors, these provisions may prevent
stockholders from replacing a majority of our board of directors by election in
any one year, or by removing incumbent directors and simultaneously gaining
control of our board of directors by filling the vacancies created by such
removals with their own nominees.
NO STOCKHOLDER ACTION BY WRITTEN CONSENT
Immediately prior to the closing of this offering, our restated certificate
of incorporation will provide that the stockholders can take action only at a
duly called annual or special meeting of stockholders. Accordingly, our
stockholders will not be able to take action by written consent in lieu of a
meeting. This provision may have the effect of deterring hostile takeovers or
delaying changes in control or management of DEN.
SPECIAL MEETINGS OF STOCKHOLDERS
Our restated certificate of incorporation will provide that special
meetings of our stockholders can be called only by our Chairman of the Board,
our Chief Executive Officer, our Executive Committee or our board of directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
Our bylaws require that timely notice in writing be provided by
stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. To be timely, a
stockholder's notice must be delivered to or mailed and received at our
principal executive offices not less than 60 days nor more than 90 days prior to
the first anniversary of the date of our notice of annual meeting provided with
respect to the previous year's annual meeting of stockholders.
If no annual meeting of stockholders was held in the previous year or the
date of the annual meeting of stockholders has been changed to be more than 30
days before or after that anniversary date, notice will be timely if received
not later than the close of business on the tenth day following the date on
which notice of the date of the meeting is given to stockholders or made public,
whichever occurs first.
Our bylaws also specify requirements as to the form and content of a
stockholder's notice. These provisions may preclude stockholders from timely
bringing matters before, or from making nominations for directors at, an annual
meeting of stockholders.
AMENDMENTS TO OUR BYLAWS
Our restated certificate of incorporation will provide that our bylaws may
be amended, altered or repealed only with the vote of a majority of all
directors or the vote of the holders of at least a majority of our outstanding
voting stock.
LIMITATIONS ON LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Delaware General Corporation Law authorizes corporations to limit or
eliminate the personal liability of directors to corporations and their
stockholders for monetary damages incurred for the breach of a director's
fiduciary duty or duty of care. Our restated certificate of incorporation
includes a provision that eliminates the personal liability of our
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directors for monetary damages incurred as a result of a breach of their
fiduciary duty as a director, except in the case of:
- any breach of the director's duty of loyalty to us or our stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- acts subject to Section 174 of the Delaware General Corporation Law that
constitute unlawful dividends and stock purchases; or
- any transaction from which the director derived an improper personal
benefit.
Our bylaws generally provide that:
- we must indemnify our directors and officers to the fullest extent
permitted by Delaware law;
- we may indemnify our other employees and agents to the same extent that
we indemnify our officers and directors, unless otherwise required by
law, our restated certificate of incorporation, our bylaws or other
agreements; and
- we must advance expenses, as incurred, to our directors and executive
officers in connection with legal proceedings to the fullest extent
permitted by Delaware law.
We currently have directors' and officers' insurance providing for
indemnification of our directors, officers and some employees. We believe that
these indemnification provisions and insurance are necessary to attract and
retain qualified directors and executive officers.
The limitation of liability and indemnification provisions in our restated
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
Such provisions may also reduce the likelihood of derivative litigation against
directors and officers, even though such an action, if successful, might
otherwise benefit us and our stockholders. Furthermore, the value of a
stockholder's investment may be adversely affected to the extent we pay the
costs of settlement and damage awards against directors and officers in
connection with these indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought. We are
unaware of any threatened litigation that may result in claims for
indemnification.
TRANSFER AGENT AND REGISTER
ChaseMellon Shareholder Services, L.L.C. has been appointed as the transfer
agent and registrar for our common stock. Its telephone number for such purposes
is (213) 553-9700.
LISTING
We intend to apply to have our common stock approved for quotation on The
Nasdaq Stock Market's National Market under the trading symbol "DENX".
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect the market price of our common stock. Furthermore, because no
shares will be available for sale shortly after this offering due to the
contractual and legal restrictions on resale described below, sales of
substantial amounts of common stock in the public market after these
restrictions lapse could adversely affect the market price of our common stock
and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
shares of common stock, assuming no exercise of outstanding
options or warrants and no exercise by the underwriters of their over-allotment
option. All of the shares of common stock sold in the offering will be freely
tradable without restriction or further registration under the Securities Act,
unless such shares are held by "affiliates" as that term is defined in Rule 144
under the Securities Act. The 19,263,031 shares of common stock held by our
existing stockholders are "restricted securities" as that term is defined in
Rule 144 under the Securities Act. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rules 144 or 701 under the Securities Act, which rules are
summarized below.
LOCK-UP AGREEMENTS
Our executive officers, directors and stockholders that own 1% or more of
our outstanding common stock on a fully-diluted basis have agreed not to,
without the prior written consent of Credit Suisse First Boston Corporation on
behalf of the underwriters, during the period ending 180 days after the date of
this prospectus, offer, sell, contract to sell, pledge or otherwise dispose of,
directly or indirectly, any shares of common stock or securities convertible
into or exchangeable or exercisable for common stock, or publicly disclose the
intention to make any such offer, sale, pledge or other disposal.
In addition, each of our executive officers, directors and stockholders
that own 1% or more of our common stock has agreed not to make any demand for
the registration of any shares of common stock or any security convertible into
or exercisable or exchangeable for common stock during such 180-day period.
Upon expiration of the lock-up period, 19,263,031 shares of common stock
will be available for resale to the public in accordance with Rule 144. Credit
Suisse First Boston Corporation may, in their sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
securities for at least one year would be entitled to sell within any
three-month period a number of such restricted securities that does not exceed
the greater of:
- 1% of the number of shares of the same class as such restricted
securities then outstanding; or
- the average weekly trading volume of shares of such class of securities
on a national securities exchange or The Nasdaq Stock Market's National
Market during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to such sale.
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Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us.
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares of restricted securities proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares of restricted securities without complying with the
manner of sale, public information, volume limitation or notice provisions of
Rule 144. Therefore, unless otherwise restricted, "144(k) shares" may be sold
immediately upon the completion of this offering.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect,
any of our employees, consultants or advisors who purchases shares of restricted
securities from us in connection with a compensatory stock plan or other written
agreement is eligible to resell such shares 90 days after the effective date of
this offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
STOCK OPTIONS
Following the consummation of this offering, we also intend to file a
registration statement on Form S-8 under the Securities Act covering 5,717,765
shares of common stock reserved for issuance under our stock option plans and
other outstanding stock options and warrants and shares of restricted stock.
Such registration statement will automatically become effective upon filing. As
of July 31, 1999, options to purchase 617,040 shares were vested. However,
substantially all of the options, warrants and restricted stock covered by the
registration statement will be subject to the lock-up agreements described above
and, as a consequence, may not be sold until 180 days after the offering.
Subject to the exercise of such options and warrants, shares registered under
such registration statement will be available for sale in the open market
immediately after the 180-day lock-up period expires.
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UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, Lazard Freres &
Co. LLC and are acting as representatives, the following
respective numbers of shares of common stock:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ----------
<S> <C>
Credit Suisse First Boston Corporation...................
Lazard Freres & Co. LLC..................................
----------
Total...............................................
==========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering
price, less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per
share on sales to other broker/dealers. After the initial public offering, the
public offering price and concession and discount to broker/dealers may be
changed by the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
PER SHARE TOTAL
------------------------------- -------------------------------
WITHOUT WITH WITHOUT WITH
OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT OVER-ALLOTMENT
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions paid by
us..................... $ $ $ $
Expenses payable by us... $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
Our executive officers, directors and stockholders that own 1% or more of
our outstanding common stock on a fully-diluted basis have agreed that they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, relating to, any shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.
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The underwriters have reserved for sale, at the initial public offering
price up to shares of the common stock for employees, directors and
certain other persons associated with us who have expressed an interest in
purchasing common stock in the offering. The number of shares available for sale
to the general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act, or contribute to payments which the underwriters may be required
to make in that respect.
We have made an application to list the shares of common stock on The
Nasdaq Stock Market's National Market under the symbol "DENX".
Prior to the offering, there has been no public market for the shares of
common stock. The initial public offering price will be negotiated between the
representatives and us. In determining the initial public offering price of the
common stock, the representatives will consider, among other things and in
addition to prevailing market conditions, our historical performance and capital
structure, estimates of our business potential and earning prospects, and
overall assessment of our management and the consideration of the above factors
in relation to market valuation of companies in related businesses.
The representatives, may engage in over-allotment, stabilizing
transactions, syndicate covering transactions and penalty bids in accordance
with Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a syndicate
covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of these transactions. These transactions may be effected on The
Nasdaq Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis and is exempt from the requirement that we prepare and
file a prospectus with the securities regulatory authorities in each province
where trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws which
will vary depending on the relevant jurisdiction, and which may require resales
to be made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, such purchaser is purchasing as principal and not as agent, and
(iii) such purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named in
this prospectus may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer or such persons. All or a substantial portion of the assets of the
issuer and such persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or such persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to the offering. Such a report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
99
<PAGE> 101
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
100
<PAGE> 102
LEGAL MATTERS
The validity of the shares of common stock being sold in this offering and
other legal matters relating to the offering will be passed upon for us by
Latham & Watkins, Los Angeles, California. Certain legal matters relating to the
offering also will be passed upon for us by Katten Muchin & Zavis, Los Angeles,
California. Certain legal matters relating to the offering will be passed upon
for the underwriters by Shearman & Sterling, New York, New York. Certain
partners, including an affiliated investment fund, and associates of Katten
Muchin & Zavis own an aggregate of 1,200 shares of Series A Preferred Stock
which will be automatically converted into 18,000 shares of our common stock
upon the closing of the offering.
EXPERTS
The financial statements for DEN as of December 31, 1997 and 1998 and for
the period from June 4, 1996 (inception) to December 31, 1996, the years ended
December 31, 1997 and 1998, and for the period from June 4, 1996 (inception) to
December 31, 1998 included in this prospectus and elsewhere in the registration
statement have been included in reliance on the report of KPMG LLP, independent
certified public accountants, appearing elsewhere in this registration
statement, upon the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 (including the exhibits, schedules and amendments), under
the Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which is part of the registration statement, does not contain
all of the information set forth in the registration statement and the exhibits
and schedules to the registration statement. For further information regarding
DEN and our common stock, please refer to the registration statement and the
contracts, agreements and other documents filed as exhibits and schedules to the
registration statement.
You may read and copy all or any portion of the registration statement or
any other information that we file at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549, and at regional offices of the SEC
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and at
Citicorp Center, 500-West Madison Street, Suite 1400, Chicago, Illinois 60661.
You can request copies of these documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Our SEC filings,
including the registration statement, are also available to you on the SEC's Web
site at http://www.sec.gov.
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and,
accordingly, will file periodic reports, proxy statements and other information
with the Securities and Exchange Commission. Upon approval of the common stock
for the quotation on the Nasdaq National Stock Market, such reports, proxy and
information statements and other information may also be inspected at the
offices of Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
101
<PAGE> 103
DIGITAL ENTERTAINMENT NETWORK, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statements of Stockholders' Equity (Deficit)................ F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 104
The following report is in the form that will be signed upon the completion of
the stock split described in Note 8 to the financial statements.
Los Angeles, California /s/ KPMG LLP
September 17, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Digital Entertainment Network, Inc.:
We have audited the accompanying balance sheets of Digital Entertainment
Network, Inc., (a development stage company) as of December 31, 1997 and 1998,
and the related statements of operations, stockholders' equity (deficit) and
cash flows for the period from June 4, 1996 (inception) to December 31, 1996,
and for the years ended December 31, 1997 and 1998 and for the period from June
4, 1996 (inception) through December 31, 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digital Entertainment
Network, Inc., (a development stage company) as of December 31, 1997 and 1998,
and the results of its operations and its cash flows for the period from June 4,
1996 (inception) to December 31, 1996 and for the years ended December 31, 1997
and 1998 and for the period from June 4, 1996 (inception) through December 31,
1998 in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Digital Entertainment Network, Inc. will continue as a going concern. As more
fully described in Note 1, the Company is a development stage enterprise and
since inception has earned no revenues and incurred substantial operating losses
and, due to its substantial growth, has experienced increased capital needs.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Los Angeles, California
April 30, 1999
F-2
<PAGE> 105
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
----------------------- JUNE 30, JUNE 30, 1999
1997 1998 1999 (NOTE 1)
--------- ----------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................... $ -- $ 5,879,000 $ 18,585,000 $ 18,585,000
Prepaid expenses................................... -- -- 1,023,000 1,023,000
--------- ----------- ------------ ------------
Total current assets....................... -- 5,879,000 19,608,000 19,608,000
--------- ----------- ------------ ------------
Production costs..................................... -- 943,000 1,680,000 1,680,000
Net property and equipment, at cost.................. -- 314,000 3,441,000 3,441,000
Other assets......................................... -- 148,000 347,000 347,000
--------- ----------- ------------ ------------
Total assets............................... $ -- $ 7,284,000 $ 25,076,000 $ 25,076,000
========= =========== ============ ============
Current liabilities:
Convertible notes payable to founders.............. $ 653,000 $ 5,405,000 $ 7,061,000 --
Accounts payable and accrued expenses.............. 3,000 667,000 4,194,000 4,194,000
Accrued bonuses.................................... -- 1,000,000 1,333,000 1,333,000
Capital lease obligations, current portion......... -- 35,000 132,000 132,000
--------- ----------- ------------ ------------
Total current liabilities.................. 656,000 7,107,000 12,720,000 5,659,000
Capital lease obligations, less current portion...... -- 48,000 203,000 204,000
Stockholders' equity (deficit):
Preferred stock, Authorized 1,000,000 shares at
December 31, 1997 and 1998, and 20,000,000 at
June 30, 1999 (unaudited). Series A, convertible
preferred stock, $0.01 par value. Authorized
250,000 shares; none issued and outstanding at
December 31, 1997, issued and outstanding 68,265
shares at December 31, 1998 and 70,453 shares at
June 30, 1999 (unaudited), no shares pro forma.
(Liquidation preference of $6,827,000 at
December 31, 1998 and $7,045,000 at June 30,
1999)........................................... -- 1,000 1,000 --
Series B, convertible preferred stock, $0.01 par
value. Authorized 260,000 shares; none issued
and outstanding at December 31, 1997 and
December 31, 1998, issued and outstanding
250,000 shares at June 30, 1999 (unaudited), no
shares pro forma. (Liquidation preference of
$26,000,000 at June 30, 1999)................... -- -- 3,000 --
Common stock, $0.01 par value. Authorized 7,500,000
shares at December 31, 1997, 30,000,000 shares
at December 31, 1998, and 120,000,000 shares at
June 30, 1999 (unaudited), respectively, issued
and outstanding 6,000,000 shares at December 31,
1997 and 6,659,616 shares at December 31, 1998,
7,489,584 shares at June 30, 1999 (unaudited),
respectively and 18,549,976 shares on a pro
forma basis at June 30, 1999 (unaudited)........ 60,000 67,000 75,000 186,000
Receivable for issuance of common stock............ (100,000) -- --
Additional paid-in capital......................... 40,000 7,807,000 39,867,000 46,820,000
Accumulated deficit................................ (656,000) (7,746,000) (27,793,000) (27,793,000)
--------- ----------- ------------ ------------
Total stockholders' equity (deficit)....... (656,000) 129,000 12,153,000 19,213,000
Commitments (Note 6)
--------- ----------- ------------ ------------
Total liabilities and stockholders'
equity................................... $ -- $ 7,284,000 $ 25,076,000 $ 25,076,000
========= =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 106
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
JUNE 4, 1996 JUNE 4, 1996
(INCEPTION) YEAR ENDED (INCEPTION) SIX MONTHS ENDED
TO DECEMBER 31, TO JUNE 30,
DECEMBER 31, ----------------------- DECEMBER 31, -------------------------
1996 1997 1998 1998 1998 1999
------------ --------- ----------- --------------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Revenues:................ $ -- $ -- $ -- $ -- $ -- $ --
Operating expenses:
Programming............ -- -- 2,272,000 2,272,000 459,000 12,470,000
Sales and marketing.... -- -- 387,000 387,000 101,000 1,316,000
Network operations..... -- -- 325,000 325,000 -- 1,499,000
General and
administrative...... 434,000 222,000 3,906,000 4,562,000 138,000 4,616,000
---------- --------- ----------- ----------- ---------- ------------
Total operating
expenses.... (434,000) (222,000) (6,890,000) (7,546,000) (698,000) (19,901,000)
---------- --------- ----------- ----------- ---------- ------------
Loss from
operations... (434,000) (222,000) (6,890,000) (7,546,000) (698,000) (19,901,000)
Interest expense, net.... -- -- 200,000 200,000 -- 146,000
---------- --------- ----------- ----------- ---------- ------------
Net loss....... $ (434,000) $(222,000) $(7,090,000) $(7,746,000) $ (698,000) $(20,047,000)
========== ========= =========== =========== ========== ============
Net loss per
share -- basic and
diluted................ $ (0.54) $ (0.07) $ (0.99) $ (0.10) $ (2.68)
========== ========= =========== ========== ============
Weighted average basic
and diluted shares
outstanding............ 800,568 3,315,033 7,186,941 7,021,773 7,489,584
========== ========= =========== ========== ============
Proforma net loss per
share -- basic and
diluted (unaudited).... $ (0.54) $ (0.07) $ (0.84) $ (0.10) $ (1.30)
========== ========= =========== ========== ============
Proforma weighted average
basic and diluted
shares outstanding
(unaudited)............ 800,568 3,315,033 8,207,910 7,021,773 15,276,124
========== ========= =========== ========== ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 107
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996
AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND THE
SIX MONTHS ENDED JUNE 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
RECEIVABLE
CONVERTIBLE FOR
PREFERRED STOCK COMMON STOCK ISSUANCE ADDITIONAL
APPROXIMATE PRICE ---------------- ------------------- OF COMMON PAID-IN-
DATE PER SHARE SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL
----------- --------- ------- ------ --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock to
founders........................... June 1996 $ .33 -- $ -- 600 $ -- $ -- $ --
Net loss............................. -- -- -- -- -- --
------- ------ --------- ------- --------- ----------
Balance at December 31, 1996......... -- $ -- 600 -- -- --
Issuance of common stock for note
receivable......................... July 1997 $ .02 -- -- 6,000,000 60,000 (100,000) 40,000
Cancellation of common stock and
receivable from issuance of common
stock.............................. July 1997 $ .33 -- -- (600) -- -- --
Net loss............................. -- -- -- -- -- --
------- ------ --------- ------- --------- ----------
Balance at December 31, 1997......... -- $ -- 6,000,000 $60,000 $(100,000) $ 40,000
Issuance of common stock............. Feb. 1998-
Sept.
1998 $ .75 -- -- 597,216 6,000 -- 442,000
Issuance of common stock for
services........................... Sept. 1998 $ .75 -- -- 62,400 1,000 -- 46,000
Payment of receivable from issuance
of common stock.................... -- -- -- -- 100,000 --
Compensation expense related to Sept. 1998-
grants of stock options............ Dec. 1998 $ .75 -- -- -- -- -- 453,000
Issuance of Series A convertible
preferred stock.................... Dec. 1998 $100.00 68,265 1,000 -- -- -- 6,826,000
Net loss............................. -- -- -- -- -- --
------- ------ --------- ------- --------- ----------
Balance at December 31, 1998......... 68,265 $1,000 6,659,616 $67,000 $ -- $7,807,000
Compensation expense related to
grants of stock options Jan.- Apr.
(unaudited)........................ 1999 $ 1.67 -- -- -- -- -- 388,000
Issuance of Series A convertible
preferred stock for services
(unaudited)........................ Mar. 1999 $100.00 2,188 -- -- -- -- 219,000
Issuance of Series B convertible
preferred stock.................... Apr. 1999 $104.00 250,000 3,000 -- -- -- 25,949,000
Costs incurred in connection with
Series B convertible preferred
stock offering..................... May 1999 -- -- -- -- -- (234,000)
Sale of common stock to employees.... May 1999 $ 6.67 -- -- 30,000 -- -- 200,000
Compensation expense related to
issuance of common stock to
employees.......................... June 1999 $ 6.93 -- -- 799,968 8,000 -- 5,538,000
Net loss.............................
------- ------ --------- ------- --------- ----------
Balance at June 30, 1999............. 320,453 4,000 7,489,584 75,000 -- 39,867,000
======= ====== ========= ======= ========= ==========
<CAPTION>
TOTAL
STOCKHOLDERS'
ACCUMULATED EQUITY
DEFICIT (DEFICIT)
------------ -------------
<S> <C> <C>
Issuance of common stock to
founders........................... $ -- $ --
Net loss............................. (434,000) (434,000)
------------ ------------
Balance at December 31, 1996......... $ (434,000) $ (434,000)
Issuance of common stock for note
receivable......................... -- --
Cancellation of common stock and
receivable from issuance of common
stock.............................. -- --
Net loss............................. (222,000) (222,000)
------------ ------------
Balance at December 31, 1997......... $ (656,000) $ (656,000)
Issuance of common stock.............
-- 448,000
Issuance of common stock for
services........................... -- 47,000
Payment of receivable from issuance
of common stock.................... -- 100,000
Compensation expense related to
grants of stock options............ -- 453,000
Issuance of Series A convertible
preferred stock.................... -- 6,827,000
Net loss............................. (7,090,000) (7,090,000)
------------ ------------
Balance at December 31, 1998......... $ (7,746,000) $ 129,000
Compensation expense related to
grants of stock options
(unaudited)........................ -- 388,000
Issuance of Series A convertible
preferred stock for services
(unaudited)........................ -- 219,000
Issuance of Series B convertible
preferred stock.................... -- 25,952,000
Costs incurred in connection with
Series B convertible preferred
stock offering..................... -- (234,000)
Sale of common stock to employees.... -- 200,000
Compensation expense related to
issuance of common stock to
employees.......................... -- 5,546,000
Net loss............................. (20,047,000) (20,047,000)
------------ ------------
Balance at June 30, 1999............. (27,793,000) 12,153,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 108
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM CUMULATIVE FROM
JUNE 4, 1996 JUNE 4, 1996
(INCEPTION) YEAR ENDED (INCEPTION) SIX MONTHS ENDED
TO DECEMBER 31, TO JUNE 30,
DECEMBER 31, ----------------------- DECEMBER 31, ------------------------
1996 1997 1998 1998 1998 1999
------------ --------- ----------- --------------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................. $(434,000) $(222,000) $(7,090,000) $(7,746,000) $(698,000) $(20,047,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... -- -- 38,000 38,000 459,000 2,594,000
Stock based compensation................ -- -- 500,000 500,000 -- 6,153,000
Changes in operating assets and
liabilities:
Prepaid expenses...................... -- -- -- -- -- (1,023,000)
Other assets.......................... -- -- (148,000) (148,000) -- (199,000)
Accounts payable and accrued
expenses............................ -- 3,000 664,000 667,000 99,000 3,527,000
Accrued bonuses....................... -- -- 1,000,000 1,000,000 -- 333,000
--------- --------- ----------- ----------- --------- ------------
Net cash used in operating
activities........................ (434,000) (219,000) (5,036,000) (5,689,000) (140,000) (8,662,000)
--------- --------- ----------- ----------- --------- ------------
Cash flows from investing activities:
Increase in production costs.............. -- -- (943,000) (943,000) (459,000) (2,998,000)
Purchase of property and equipment........ -- -- (254,000) (254,000) -- (3,033,000)
--------- --------- ----------- ----------- --------- ------------
Net cash used in investing
activities........................ -- -- (1,197,000) (1,197,000) (459,000) (6,031,000)
--------- --------- ----------- ----------- --------- ------------
Cash flows from financing activities:
Borrowings under convertible notes payable
to founders............................. 434,000 219,000 4,752,000 5,405,000 278,000 1,656,000
Payments under capital lease
obligations............................. -- -- (15,000) (15,000) -- (175,000)
Proceeds from repayment of common stock... -- -- 100,000 100,000 100,000 --
Proceeds from issuance of preferred
stock................................... -- -- 6,827,000 6,827,000 -- 25,952,000
Preferred stock issuance costs............ -- -- -- -- -- (234,000)
Proceeds from issuance of common stock.... -- -- 448,000 448,000 250,000 200,000
--------- --------- ----------- ----------- --------- ------------
Net cash provided by financing
activities........................ 434,000 219,000 12,112,000 12,765,000 628,000 27,399,000
--------- --------- ----------- ----------- --------- ------------
Net increase in cash and cash
equivalents....................... -- -- 5,879,000 5,879,000 29,000 12,706,000
Cash and cash equivalents at beginning of
period.................................... -- -- -- -- -- 5,879,000
--------- --------- ----------- ----------- --------- ------------
Cash and cash equivalents at end of
period.................................... $ -- $ -- $ 5,879,000 $ 5,879,000 $ 29,000 $ 18,585,000
========= ========= =========== =========== ========= ============
Supplemental disclosure of cash flow
information -- cash paid during the period
for:
Income taxes........................ $ 1,000 $ 1,000 $ 1,000 $ 2,000 $ -- $ 1,000
========= ========= =========== =========== ========= ============
Supplemental disclosure of noncash investing
and financing activities:
Capital lease obligations incurred for
equipment............................... $ -- $ -- $ 99,000 $ 99,000 $ -- $ 350,000
========= ========= =========== =========== ========= ============
</TABLE>
See accompanying notes to the financial statements.
F-6
<PAGE> 109
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JUNE 4, 1996 (INCEPTION) TO DECEMBER 31, 1996, THE YEARS ENDED
DECEMBER 31, 1997 AND 1998, AND THE SIX MONTHS ENDED JUNE 30, 1999.
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
Digital Entertainment Network, Inc. (the "Company") was incorporated on
June 4, 1996 under the laws of the state of Delaware. The Company is developing
high quality original programming for youth audiences, for distribution over the
Internet. The Company is engaged in activities related to research and
programming development activities of its proposed business and raising
additional capital. For the period from inception through December 31, 1998, the
Company is continuing to develop and define markets for its products, the
content is still under development, and no revenues have been generated from
operations, hence, the Company considers itself a development stage enterprise.
(b) BASIS OF PRESENTATION
The Company has financed its operations through sales of common stock and
preferred stock and borrowings from its founders under notes payable that will
be converted to common stock. The Company has experienced significant losses and
negative cash flows from operating activities since its inception. Due to its
substantial growth, it has experienced increased capital needs. The Company's
ability to continue as a going concern is dependent upon raising additional
financing through a registered public offering or private equity sources,
signing contracts with additional charter sponsors and other advertisers and/or
securing other sources of financing to fund its planned operations. However, if
such resources are not available, the Company may be required to delay or reduce
expenditures. Should the Company be required to delay or reduce expenditures, it
may not be able to fund its expansion, promote its brand, take advantage of
acquisition or collaborative opportunities, develop or enhance services or
respond to competitive pressures. The conditions described above raise
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
(c) UNAUDITED INTERIM FINANCIAL INFORMATION
The interim financial statements of the Company for the six months ended
June 30, 1998 and 1999, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the SEC. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations relating to interim
financial statements.
In the opinion of management, the accompanying unaudited interim financial
statements reflect all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position of the Company
at June 30, 1999, and the results of its operations and its cash flows for the
six months ended June 30, 1998 and 1999.
(d) UNAUDITED PRO FORMA INFORMATION
In conjunction with the Company's anticipated initial public offering, all
of the Company's outstanding convertible preferred stock and convertible notes
payable to founders will be converted
F-7
<PAGE> 110
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
into shares of common stock. The pro forma effect of the conversion of Series A
Preferred Stock and Series B Preferred Stock and convertible notes payable to
founders has been reflected in the accompanying unaudited pro forma balance
sheet assuming the conversion had occurred on June 30, 1999.
(e) REVENUE RECOGNITION
The Company's revenues are expected to be derived principally from the sale
of various forms of advertisement, including sponsorships, endorsements and
product placements, and from electronic commerce activities related to its
programming. The Company has entered into multi-year, category-exclusive
sponsorships with certain charter advertisers. Advertising revenues will be
recognized in the period in which the advertisement is displayed, provided that
no significant Company obligations remain and collection of the resulting
receivable is probable. Company obligations may include a guarantee of a minimum
number of "impressions" or times that an advertisement appears in pages viewed
by the users of the Company's Web site. To the extent minimum guaranteed
impressions are not met, the Company will defer recognition of the corresponding
revenues until the remaining guaranteed impression levels are achieved.
Revenues from barter transactions are recorded at the estimated fair value
of the advertisements, goods or services received or the estimated fair value of
the advertisements given, based upon recent realized advertising rates,
whichever is a more clearly evident measure of fair value of the transaction.
Revenue from barter transactions is recognized when advertisements are delivered
on the Company's Web sites, provided that no significant company obligations
remain. Barter expense is recognized during the period in which the Company
utilizes the bartered goods, services or advertisements.
The Company expects to recognize revenues from electronic commerce
transactions when the products or services purchased by our users are delivered
or performed. Revenues received in the form of license fees from a network
affiliate will be recognized ratably over the life of the contract governing
such affiliate relationship.
The Company expects to generate music related revenues primarily through
the sale of records and related merchandise and will recognize these revenues at
the time of sale.
(f) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
(g) DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets, generally ranging from three to five years. Leasehold
improvements are amortized over the shorter of the useful life of the related
asset or lease term. Equipment under capital lease obligations is stated at the
present value of
F-8
<PAGE> 111
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
minimum lease payments and is amortized using the straight-line method over the
shorter of the lease term or the estimated useful life of the assets.
(h) PROGRAMMING COSTS
Programming costs consist of the costs related to developing and producing
the Company's original programs. Programming costs are capitalized as incurred
and amortized in full during the month in which the programming is released on
its Web site or expensed as a whole if the programming is abandoned. At the end
of 1998, these programs had not yet been completed or released and amortization
had not commenced. The projects were available for general release in May 1999,
and accordingly, amortization of capitalized production costs related to such
projects began at that time. Amortization expense amounted to $1.8 million for
the six months ended June 30, 1999. Management regularly reviews and evaluates
the future benefits of projects and writes-off any projects with no expected
benefit.
(i) INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under the asset and liability method of Statement 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under SFAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the enactment date.
(j) IMPAIRMENT OF LONG-LIVED ASSETS
The Company accounts for long-lived assets (intangible assets and property
and equipment) under the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS No. 121), "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of." The statement requires that
long-lived assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. To date, no such impairment has been recorded.
(k) STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation," which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities to apply the provisions
F-9
<PAGE> 112
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
of APB Opinion No. 25 and provide pro forma net income disclosures for employee
stock option grants as if the fair-value-based method defined in SFAS No. 123
had been applied. The Company has elected to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(l) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of contingent
assets and liabilities at the balance sheet dates and the reporting of expenses
during the reporting period to prepare these financial statements in conformity
with generally accepted accounting principles. Actual results could differ from
those estimates.
(m) COMPREHENSIVE LOSS
The Company had no material components of other comprehensive loss and
accordingly, the comprehensive loss is the same as net loss for all periods
presented.
(n) SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
and Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that a public enterprise reports information about operating segments in
annual financial statements, and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
stockholders. SFAS No. 131 is effective for fiscal years beginning after
December 15, 1997 and requires statement of earlier periods presented. The
Company has determined that it has one reporting business segment at this time.
(o) NET LOSS PER SHARE
Basic and diluted net loss per common share are presented in conformity
with Statement of Financial Accounting Standards No. 128, "Computation of
Earnings Per Share," for all periods presented. In accordance with SFAS No. 128
and the SEC Staff Accounting Bulletin No. 98, basic earnings per share are
computed using the weighted average number of common shares outstanding during
the period.
In June 1999, the Company issued a total of 799,968 shares of its common
stock to two individuals for nominal consideration. As a result, these shares
have been included in the weighted average number of common shares for all
periods presented.
Diluted loss per share is equivalent to basic loss per share because
outstanding stock options, warrants and convertible preferred stock and
convertible notes payable are anti-dilutive for each of the periods presented.
There were no potentially dilutive common shares outstanding as of December
31, 1996, December 31, 1997 or June 30, 1998. Potentially dilutive common shares
outstanding as of December 31, 1998 and June 30, 1999 were 7,900,362 and
14,305,664 respectively.
F-10
<PAGE> 113
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
The following table sets forth the computation of the unaudited pro forma
basic and diluted loss per share, assuming conversion of notes payable to
founders and preferred stock:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED DECEMBER 31, (UNAUDITED)
---------------------------- ------------------------
1997 1998 1998 1999
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
NUMERATOR:
Net loss........................... (222,000) (7,090,000) (698,000) (20,047,000)
Interest on convertible notes to
founders......................... -- 200,000 -- 246,000
--------- ---------- --------- -----------
Pro forma net loss................. (222,000) (6,890,000) (698,000) (19,801,000)
DENOMINATOR:
Weighted average number of common
shares outstanding............... 3,315,033 7,186,941 7,021,773 7,489,584
EFFECT OF CONVERTIBLE SECURITIES:
Convertible preferred stock........ -- 36,375 -- 1,871,563
Convertible notes payable.......... -- 984,594 -- 5,914,977
--------- ---------- --------- -----------
Shares used in pro forma
calculation...................... 3,315,033 8,207,910 7,021,773 15,276,124
========= ========== ========= ===========
</TABLE>
(p) ACCRUED BONUSES
Accrued bonuses represents a $1,000,000 bonus payable to the Company's
President at December 31, 1998 and $1,333,000 in bonuses payable to the
Co-Presidents of the Company's music division at June 30, 1999.
(2) PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1998 1999
------------ -----------
(UNAUDITED)
<S> <C> <C>
Computer equipment and purchased software................... $118,000 $2,975,000
Office equipment and furniture.............................. 125,000 240,000
Leasehold improvements...................................... 110,000 599,000
-------- ----------
353,000 3,814,000
Less accumulated depreciation and amortization.............. (39,000) (373,000)
-------- ----------
$314,000 $3,441,000
======== ==========
</TABLE>
F-11
<PAGE> 114
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(3) INCOME TAXES
The Company terminated its election as an S Corporation in March 1998, and
accordingly, any tax benefits prior to this date were retained by the
stockholders. The gross deferred tax assets and the related valuation allowance
absorbed by the Company were not material at this date.
Income taxes principally consist of minimum franchise taxes for the state
of California. The Company's provision for income taxes differs from the
expected tax benefit amount computed by applying the statutory Federal income
tax rate of 34% to loss before income taxes as a result of permanent differences
and the increase in valuation allowance.
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets at December 31, 1998 follow:
<TABLE>
<S> <C>
Deferred tax assets:
Intangibles............................................... $ 2,225,000
Stock based compensation.................................. 180,000
Other..................................................... 128,000
-----------
Total gross deferred tax asset.................... 2,533,000
Less valuation allowance.................................. (2,533,000)
-----------
Net deferred tax assets........................... $ --
===========
</TABLE>
In assessing the potential realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of deferred tax
assets is dependent upon the Company attaining future taxable income during the
periods in which those temporary differences become deductible. Due to the
uncertainty surrounding the realization of the benefits of its tax attributes,
including net operating loss carry forwards in future tax returns, the Company
has provided a valuation allowance for its deferred tax assets as of December
31, 1998.
No provision for federal income taxes has been recorded except for minimum
state taxes because we have incurred net operating losses for the six months
ended June 30, 1999 and for each of the three fiscal periods ending December 31,
1998. For tax purposes, we have capitalized a substantial portion of our
expenses. As a result, we do not have any significant net operating loss
carryforwards as of December 31, 1998 and June 30, 1999. We expect to begin to
amortize such capitalized costs for tax purposes over sixty months when we
commence earning revenues. Accordingly, we will either utilize the amortization
expense for the relevant period or include such amortization in our net
operating loss carryforwards for such period.
F-12
<PAGE> 115
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(4) RELATED PARTY TRANSACTIONS
(a) CONVERTIBLE NOTES PAYABLE TO FOUNDERS
The Company has borrowings outstanding under convertible notes payable with
its founders as follows:
<TABLE>
<CAPTION>
JUNE 30,
1997 1998 1999
-------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
8% convertible note due December 31, 1999,
convertible into common stock at $.75 per share... $327,000 $3,445,000 $3,445,000
8% convertible note due December 31, 1999,
convertible into common stock at $.75 per share... 327,000 485,000 485,000
8% convertible note due December 31, 2000,
convertible into common stock at $6.93 per
share............................................. -- -- 1,000,000
8% convertible note due December 31, 1999, principal
amounts advanced from time to time, not to exceed
$2,131,475, which are convertible into common
stock at $6.67 per share.......................... -- 1,475,000 2,131,000
-------- ---------- ----------
$653,000 $5,405,000 $7,061,000
======== ========== ==========
</TABLE>
Effective May 27, 1999, all outstanding borrowings under each convertible
note plus interest through December 31, 1999 will automatically convert to
common shares upon completion of a registered public offering at the price per
share defined in the respective note agreements. No additional amounts were
available for borrowing after May 27, 1999.
At December 31, 1998 and June 30, 1999, accrued interest related to the
loans from founders was $70,000 and $316,000, respectively, which has been
included in accounts payable and accrued expenses.
(b) STOCKHOLDERS' AGREEMENT
Marc Collins-Rector and Chad Shackley entered into a stockholders'
agreement pursuant to which Chad Shackley granted to Marc Collins-Rector the
right to vote all of his shares and any shares transferred by him. Marc
Collins-Rector and Chad Shackley also agreed not to sell, transfer, convey,
gift, assign, pledge, encumber, hypothecate, alienate or otherwise dispose of
any shares of the Company's common stock held by such stockholder on January 1,
1998, or any interest therein, unless the proposed transferee becomes a party to
the stockholders' agreement. The stockholders' agreement terminates on January
1, 2008. Upon closing of the offering, this agreement will terminate as to any
shares transferred to an unaffiliated third party.
(c) ALLOCATED EXPENSES
The Company paid $60,600 and $15,150 during the period from June 4, 1996
(inception) to December 31, 1996 and the year ended December 31, 1997,
respectively, to a founder for shared
F-13
<PAGE> 116
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
facility and office rental expenses. Amounts were allocated based on the
proportionate space which the Company utilized during the respective periods.
In June 1999, the Company entered into an agreement with a company
co-founded by one of the Company's officers to create and manage a proprietary
consumer panel to obtain feedback from this panel. Pursuant to this agreement,
the Company will pay $100,000 for such services, and reimburse related expenses
through October 31, 1999.
Our board of directors has adopted the principal terms of the Founders'
Compensation Plan. The Founders' Compensation Plan provides for the grant of
non-qualified stock options to our founders, Messrs. Collins-Rector, Shackley
and Pierce, upon the Company achieving certain milestones. The only persons
eligible to participate in the Founders' Compensation Plan are Messrs.
Collins-Rector, Shackley and Pierce, each of whom is currently one of our
employees and executive officers.
(5) STOCK-BASED COMPENSATION
In August 1998, the Company adopted the 1998 Incentive Compensation Plan
and, in May 1999, the Company's Board of Directors and the Company's
stockholders approved the 1999 Incentive Compensation Plan (collectively, the
"Option Plans"). The Option Plans provide for a total of 4,500,000 shares of its
common stock available for purchase under stock options. Incentive stock options
and nonqualified stock options can be granted to eligible participants, as
defined, under the Option Plans. Generally, the options vest over a four-year
period, and expire ten years from the date of grant.
Summary stock option activity for option plans as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Granted................................................... 355,256 $1.28
Exercised................................................. -- --
Canceled.................................................. (22,692) .75
---------
Balance at December 31, 1998................................ 332,564 $1.31
=========
Granted................................................... 1,609,826 $6.62
Exercised................................................. -- --
Canceled.................................................. (66,078) 6.71
--------- -----
Balance at June 30, 1999.................................... 1,876,312 $5.69
========= =====
</TABLE>
In connection with the granting of stock options in 1998, the Company
recorded compensation expense of $453,000 during the year ended December 31,
1998.
During the six months ended June 30, 1999, the Company granted 70,311
nonqualified stock options to certain employees in lieu of paying these
individuals a portion of their fixed compensation.
F-14
<PAGE> 117
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
These options were granted at $1.67 per share. Such options were immediately
vested at date of grant. The Company recognized compensation expense of $388,000
during this period.
These amounts represented the difference between the exercise prices of
options at their dates of grant and the deemed fair value of its common stock
for accounting purposes of the common shares subject to such options. Since such
options were immediately vested on the date of grant, the Company recognized the
full amount as compensation expense in the respective period.
In June 1999, the Company issued a total of 799,968 shares of its common
stock to two individuals who agreed to serve as Co-Presidents of the Company's
newly formed music subsidiary for nominal consideration. Accordingly, the
Company recognized $5.5 million in compensation expense during the six months
ended June 30, 1999.
The following table summarizes information regarding options outstanding
and options exercisable at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1998 LIFE PRICE 1998 PRICE
- ------------------------ -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$.75............................. 300,954 9.6 $ .75 65,897 $ .75
$6.67............................ 31,610 10.0 6.67 3,160 6.67
------- ------
332,564 69,057
======= ======
</TABLE>
The following table summarizes information regarding options outstanding
and options exercisable at June 30, 1999 (unaudited):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
JUNE 30, CONTRACTUAL EXERCISE JUNE 30, EXERCISE
RANGE OF EXERCISE PRICES 1999 LIFE PRICE 1999 PRICE
- ------------------------ -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$.75............................. 128,628 9.5 $ .75 11,285 $ .75
$1.67............................ 83,904 9.8 1.67 515,829 1.67
$6.67 - $6.93.................... 1,663,780 9.8 6.74 97,662 6.67
--------- -------
1,876,312 624,776
========= =======
</TABLE>
During the year ended December 31, 1998, the Company granted warrants to
three executives exercisable into 417,276 and 25,080 shares of common stock at
an exercise price of $.75 and $6.67 per share, respectively, which equaled the
fair market value of the Company's common stock at the date of grant.
F-15
<PAGE> 118
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
In March and April 1999, the Company granted warrants to two executive
officers to purchase 213,550 shares of its common stock at a price per share of
$6.67.
On May 2, 1999, the Company's Board of Directors adopted the 1999
Non-Employee Directors' Stock Option Plan. Under this plan, directors who are
not employees of the Company are entitled to receive nonqualified stock options
to purchase common stock. The plan will be administered by the full Board of
Directors. All options granted under this plan will expire ten years from the
date of grant. The exercise price for options granted under this plan will be
the fair market value of a share of the Company's common stock on the date of
grant.
If the Company had elected to recognize compensation cost based on the fair
value at the date of grant, consistent with the method as prescribed by SFAS No.
123, net loss would have changed to the pro forma amounts for the year ended
December 31, 1998 indicated below:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $7,090,000
Pro forma (unaudited)..................................... 7,176,000
Basic net loss per common share -- as reported............ (2.68)
Basic net loss per common share -- pro forma
(unaudited)............................................ (2.69)
</TABLE>
The fair value of options granted during 1998 was determined using a
minimum value method with the following assumptions: dividend yield of 0%,
risk-free interest rate of 6% and an expected life of 4 years.
(6) COMMITMENTS
(a) LEASES
The Company is obligated under two capital leases for computer equipment
which the Company entered into during 1998 and which expire in August 2000. At
December 31, 1998, the gross amount of property and equipment and related
accumulated amortization recorded under capital leases was $98,893 and $10,988,
respectively.
Amortization of assets under capital leases is included in depreciation
expense.
In addition, during 1998, the Company entered into an operating lease for
its corporate offices. The rent expense included in the accompanying statements
of operations for the year ended December 31, 1998 was $109,288.
F-16
<PAGE> 119
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
At December 31, 1998, future minimum payments under these non-cancelable
lease agreements are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-------- ---------
<S> <C> <C>
Year ending December 31:
1999...................................................... $ 55,361 $443,330
2000...................................................... 36,907 64,803
-------- --------
$ 92,268 $508,133
========
Less 8% interest....................................... (8,387)
--------
Present value of minimum lease payments................ $ 83,881
Less current portion................................... (35,412)
--------
Obligations under leases, excluding current portion.... $ 48,469
========
</TABLE>
(b) EMPLOYMENT AGREEMENTS
The Company maintains employment agreements expiring at various dates
beginning 2001 to 2003 with eight executive officers of the Company. The
employment agreements provide for minimum salary levels, incentive compensation
and severance benefits, among other items. The annual base salary for these
eight individuals total $4,950,000 in 1999, and then increasing to $5,100,000,
annually thereafter.
In addition, the Company's Chief Executive Officer received a $150,000
bonus upon the signing of his agreement in March 1999, and the Company's
President received a $1,000,000 signing bonus on July 2, 1998 which was paid in
January 1999.
Three executive officers have tax indemnity arrangements contained in their
employment agreements related to the issuance of restricted stock or exercise of
stock options.
In connection with the employment agreements of the Co-Presidents of >en.
music group, the Company's wholly-owned subsidiary, the Company will provide a
cash advance of $1,000,000 to each individual, payable in three installments
beginning on June 5, 1999, September 15, 1999 and January 18, 2000, subject to
certain terms and conditions, as defined. In the event of termination by either
party, the advance will be deemed fully earned. As a result, the Company
recognized the full amount of the advance as compensation expense during the six
months ended June 30, 1999.
(c) LEGAL PROCEEDINGS
The Company is not currently a party to any material legal proceedings.
From time to time, the Company may become party to litigation arising in the
ordinary course of business.
F-17
<PAGE> 120
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
(7) STOCKHOLDERS' EQUITY
(a) AUTHORIZED SHARES
Effective May 20, 1999, the Company amended and restated its Certificate of
Incorporation which increased the authorized number of shares of common and
preferred stock, each having a par value of one cent ($.01). The authorized
shares of common stock and preferred stock are 120,000,000 and 20,000,000,
respectively.
(b) COMMON STOCK
Holders of shares of common stock are entitled, subject to the senior
rights of holders of preferred stock described below, to receive dividends when
and as declared by the Board of Directors, to share ratably in the proceeds of
any dissolution or winding up of the Company after preferred stock preference
and to vote on certain matters as provided in the Certificate.
During the six months ended June 30, 1999, the Company sold 30,000 shares
of its common stock, at fair value to an employee and received proceeds of
$200,000.
(c) CONVERTIBLE PREFERRED STOCK
As of June 30, 1999, the Company had designated Series A and B Convertible
Preferred Stock (collectively, the "Preferred Stock"). The holders of the
various series of the Preferred Stock generally have the same rights and
privileges. Each class of the Preferred Stock is convertible into common stock
and has rights and preferences which are generally more senior to the Company's
common stock and are more fully described in the Company's amended and restated
Certificate of Incorporation.
In December 1998, the Company issued 68,265 shares of Series A Preferred
Stock at $100 per share for total cash consideration of $6,826,500. In March
1999, the Company issued 2,188 shares of Series A Preferred Stock to a network
service provider as part consideration for information technology services.
Based on the fair value of the Series A Preferred Stock, the Company recorded an
expense of $219,000 for the six months ended June 30, 1999.
In May 1999, the Company completed a private placement of 250,000.3 shares
of Series B Preferred Stock at a price of $104 per share for total cash proceeds
of approximately $26 million. The group of investors in this private placement
included seven members of the Company's senior management.
Conversion Rights
Each share of the Preferred Stock outstanding is convertible, at the option
of the holder, into common stock at the rate of 15 shares of common stock for
each share of preferred stock, adjustable for certain dilutive events.
Such conversion will occur automatically upon the closing of a registered
public offering of the Company's common stock under certain conditions.
F-18
<PAGE> 121
DIGITAL ENTERTAINMENT NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1999 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
Dividend Rights
If any dividends are declared and paid on shares of any class or series of
common stock, the holders of the Preferred Stock will be entitled to receive in
respect to each share of the Preferred Stock such dividends, when and if
declared by the board of directors in the same amount and manner as they would
have been entitled to receive if these shares were converted into common shares.
Liquidation Preference
In the event of any liquidation, dissolution or winding up of the Company,
as defined, on a pari passu basis, an amount equal to $6.67 per share for Series
A Preferred Stock, and $6.93 per share for Series B Preferred Stock, would be
paid out of the assets of the Company available for distribution before any such
payments would be made on any shares of the Company's common shares or any other
capital stock of the Company other than the Preferred Stock, plus any declared
but unpaid dividends.
Voting Rights
Holders of the Preferred Stock are generally entitled to vote together with
holders of common stock on matters presented for stockholder action as if such
shares were converted to common stock.
(8) SUBSEQUENT EVENTS (UNAUDITED)
Subsequent to December 31, 1998, the Company formed certain wholly owned
subsidiaries which will become active after June 30, 1999. Accordingly, the
financial statements presented herein have been prepared on an unconsolidated
basis.
In September 1999, the Company's Board of Directors authorized management
to file a registration statement with the Securities and Exchange Commission to
permit the Company to sell shares of its common stock to the public. Upon
completion of the Company's initial public offering, the Series A, Series B and
Series C Convertible Preferred Stock and certain notes payable to founders will
convert into 11,773,447 shares of common stock. Unaudited pro forma
stockholders' equity reflects the assumed conversion of the Preferred Stock and
notes payable to founders as of June 30, 1999.
In September 1999, the Company received proceeds of $8,319,000 from the
sale of 47,537 shares of its Series C Convertible Preferred Stock.
The Company intends to declare a stock split of 1.5 shares for every 1
share of common stock outstanding. The stock split will become effective
immediately prior to the date the Company's public offering of common stock is
declared effective. Accordingly, the accompanying financial statements and
footnotes have been restated to reflect the stock split for all periods
presented.
F-19
<PAGE> 122
[DIGITAL ENTERTAINMENT NETWORK, INC. LOGO]
<PAGE> 123
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with this offering of the common stock being
registered herein are estimated as follows:
<TABLE>
<S> <C>
Registration fee............................................ $20,850
NASD filing fee............................................. 8,000
Nasdaq National Market listing fee.......................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue sky qualification fees and expenses.................... *
Printing expenses........................................... *
Transfer agent fee.......................................... *
Miscellaneous............................................... *
-------
Total....................................................... *
=======
</TABLE>
- ---------------
* to be provided by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law empowers a Delaware
corporation to indemnify, subject to the standards set forth therein, any person
who is a party in any action in connection with any action, suit or proceeding
brought or threatened by reason of the fact that the person was a director,
officer, employee or agent of such corporation, or is or was serving as such
with respect to another entity at the request of such corporation. The Delaware
General Corporation Law also provides that a Delaware corporation may purchase
insurance on behalf of any such director, officer, employee or agent.
Article VIII of our Amended and Restated Bylaws provides that we shall
indemnify each of our directors and officers to the fullest extent permitted by
applicable law.
We have entered into agreements with our directors and executive officers
that require us to indemnify them against expenses, judgments, fines,
settlements and other amounts that they become legally obligated to pay
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of our
company or any of our affiliated enterprises, provided such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
our best interests. The indemnification agreements also set forth the procedures
that will apply in the event that a claim for indemnification is made under such
agreements.
Section 102(b)(7) of the Delaware General Corporation Law enables a
Delaware corporation to provide in its certificate of incorporation for the
elimination or limitation of the personal liability of a director to the
corporation or its stockholders for monetary damages incurred for a breach of
their fiduciary duty as a director. Any such provision cannot eliminate or limit
a director's liability (1) for any breach of the director's duty of care or
loyalty to the corporation or its stockholders; (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law; (3) under Section 174 of the Delaware General Corporation Law (which
imposes liability on
II-1
<PAGE> 124
directors for unlawful payment of dividends or unlawful stock purchase or
redemption); or (4) for any transaction from which the director derived an
improper personal benefit.
Paragraph 4 of Article Fifth of our restated certificate of incorporation
eliminates the liability of our directors to us or our stockholders for monetary
damages for breach of fiduciary duty as a director to the full extent permitted
by the Delaware General Corporation Law.
We carry policies of insurance which cover our individual directors and
officers for legal liability and which would pay on our behalf for expenses of
indemnification of directors and officers in accordance with our restated
certificate of incorporation.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) We have sold and issued the following unregistered securities since
June 4, 1996 (inception):
(1) On June 6, 1996, we sold an aggregate of 600 shares of common stock
to Marc Collins-Rector and Chad Shackley for an aggregate purchase
price of $200.00. These shares were cancelled in July 1997;
(2) On July 31, 1997, we sold an aggregate of 5,999,400 shares of
common stock to Marc Collins-Rector and Chad Shackley for an
aggregate purchase price of $99,990;
(3) Between February 19, 1998 and March 5, 1998, we sold an aggregate
of 333,327 shares of common stock to Jim White Lumber Sales, Inc.,
Gary C. Grom, Medley A. Larkin and Susan M. Cook for an aggregate
purchase price of $249,995;
(4) On August 27 and September 14, 1998, we sold an aggregate of
266,289 shares of common stock at a price per share of $0.75 to
David A. Neuman in consideration for his entering into an
employment agreement with us;
(5) On September 14, 1998, as settlement of a claim for compensation in
the amount of $45,000 in connection with a terminated consulting
agreement, we issued an aggregate of 60,000 shares of common stock
to Michael Ross;
(6) On October 27, 1998, we issued four convertible notes payable to
affiliated trusts of Marc Collins-Rector and Chad Shackley in the
original principal amount of $6.1 million, bearing interest at 8%
per annum due December 31, 1999. These notes are convertible into
our common stock at conversion prices ranging from $0.75 to $6.67
per share;
(7) Between October 27, 1998 and April 12, 1999, we issued warrants to
purchase an aggregate of 655,906 shares of common stock referenced
above to David A. Neuman, H. James Ritts III, Bruce Gamache, Edward
H. Winter, Jr. and Alan Friel at exercise prices ranging from $0.75
to $6.67 per share. Such numbers reflect the stock split referenced
above;
(8) On December 18, 1998 and December 30, 1998, we sold 68,265 shares
of our Series A Convertible Preferred Stock to accredited investors
for an aggregate purchase price of $6,826,500. After completion of
this offering, these shares will be converted into 1,023,975 shares
of common stock;
(9) On March 18, 1999, we issued 2,188 shares of our Series A
Convertible Preferred Stock to Exodus Communications, Inc. as
partial consideration for information technology services provided
to us pursuant to an agreement dated March 18, 1999;
II-2
<PAGE> 125
(10) On April 12, 1999, we sold 30,000 shares of our common stock at a
price per share of $6.67 to Bruce Gamache, as an inducement to his
entering into an employment contract with us;
(11) On April 22, 1999, we issued a convertible note payable to an
affiliated trust of Marc Collins-Rector in a principal amount not
to exceed $7.5 million, bearing interest at 8% per annum due
December 31, 2000. This note is convertible into shares of common
stock at a price of $6.93 per share;
(12) On June 15, 1999, we issued 399,984 shares of common stock to Gary
M. Gersh and 399,984 shares of common stock to John P. Silva, in
consideration of their entering into employment agreements with
>en. music group;
(13) On May 21, 1999, we sold an aggregate of 250,000.3 shares of our
Series B Convertible Preferred Stock to several accredited
investors for an aggregate purchase price of $26.0 million. After
completion of this offering, these shares will be converted into
3,750,005 shares of common stock; and
(14) As of July 31, 1999, we had granted stock options to employees and
directors covering an aggregate of 1,917,987 shares of our common
stock, at exercise prices varying from $0.75 to $6.67, pursuant to
our Amended and Restated 1998 Incentive Compensation Plan, 1999
Incentive Compensation Plan and additional non-plan options issued
to certain of our executive officers.
(15) On September 15, 1999, we sold an aggregate of 47,537 shares of our
Series C Convertible Preferred Stock to several accredited
investors for an aggregate purchase price of $8,318,975 million.
After completion of this offering, these shares will be converted
into 713,055 shares of common stock.
The common stock amounts and per-share exercise prices in the descriptions
above reflect the 2-for-1 split on December 14, 1998 and the 1.5-for-1 split
which will occur just prior to the consummation of this offering.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Act in reliance upon
Section 4(2) of the Act, Regulation D promulgated thereunder, or, with respect
to certain issuances to employees and directors, Rule 701 promulgated under
Section 3(b) of the Securities Act. The recipients of securities in each such
transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the securities
issued in such transactions. All recipients either received adequate information
about DEN or had adequate access, through their relationships with DEN, to
information about DEN.
(b) There were no underwritten offerings employed in connection with any of
the transactions set forth in Item 15(a).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Second Restated Certificate of Incorporation, as currently
in effect
3.2 Certificate of Designations for the Series B Convertible
Preferred Stock
3.3 Certificate of Designations for the Series C Convertible
Preferred Stock
</TABLE>
II-3
<PAGE> 126
<TABLE>
<C> <S>
3.4 Amended and Restated Bylaws, as currently in effect
3.5 Form of Third Restated Certificate of Incorporation, to be adopted prior to effectiveness of this
registration statement
3.6 Form of Second Amended and Restated Bylaws, to be adopted prior to effectiveness of this registration
statement
4.1 Specimen certificate for common stock
4.2 Convertible Promissory Note, dated as of October 27, 1998, between DEN and Marc Collins-Rector, as
Trustee of the Marc Collins-Rector Revocable Trust u/a/d 7/28/97
4.3 Convertible Promissory Note, dated as of October 27, 1998, between DEN and Marc Collins-Rector, as
Trustee of the Marc Collins-Rector Revocable Trust u/a/d 7/28/97
4.4 Convertible Promissory Note, dated as of October 27, 1998, between DEN and Chad Shackley, as Trustee
of the Chad Shackley Revocable Trust u/a/d 7/28/97
4.5 Convertible Promissory Note, dated as of October 27, 1998, between DEN and Chad Shackley, as Trustee
of the Chad Shackley Revocable Trust u/a/d 7/28/97
4.6 Convertible Promissory Note, dated as of April 22, 1999, between DEN and Marc Collins-Rector, as
Trustee of the Marc Collins-Rector Revocable Trust u/a/d 7/28/97
4.7 Bridge Note, dated as of May 19, 1999, between DEN and Marc Collins-Rector, as Trustee of the Marc
Collins-Rector Revocable Trust u/a/d 7/28/97
4.8 Letter terminating availability under April 22, 1999 Convertible Promissory Note, dated as of May 27,
1999
5.1 Form of Opinion of Latham & Watkins with respect to legality
10.1 Amended and Restated 1998 Incentive Compensation Plan
10.2 1999 Incentive Compensation Plan
10.3 Form of 1999 Non-Employee Directors' Stock Option Plan, to be adopted prior to effectiveness of this
registration statement
10.4* Founders' Performance Stock Option Plan
10.5* Amended and Restated Executive Employment Agreement, dated as of , between DEN and David A.
Neuman
10.6* Amended and Restated Executive Employment Agreement, dated as of , between DEN and Edward
H. Winter, Jr.
10.7* Amended and Restated Executive Employment Agreement, dated as of , between DEN and Alan L.
Friel
10.8* Amended and Restated Executive Employment Agreement, dated as of , between DEN and Brock
Pierce
10.9* Amended and Restated Executive Employment Agreement, dated as of , between DEN and H. James
Ritts III
10.10* Executive Employment Agreement, dated as of April 12, 1999, between DEN and Bruce J. Gamache
10.11* Executive Employment Agreement, dated as of August 2, 1999, between DEN and Greg Carpenter
10.12 Consulting Agreement, dated as of August 5, 1998, between U30 Group LLC and DEN
10.13 Letter Agreement, dated as of June 1, 1999, between U30 Group LLC and DEN
10.14* Executive Employment Agreement, dated as of May 1, 1999, between >en. music group and Gary M. Gersh
10.15* Executive Employment Agreement, dated as of May 1, 1999, between >en. music group and John P. Silva
</TABLE>
II-4
<PAGE> 127
<TABLE>
.16 10 Intentionally omitted
<C> <S>
10.17 Letter Agreement, dated as of October 27, 1998, between DEN
and David A. Neuman, Edward Winter and Alan L. Friel
10.18 Letter Agreement, dated as of January 1, 1999, between DEN
and David A. Neuman, Edward Winter, Alan L. Friel and Brock
Pierce
10.19 Letter Agreement, dated as of April 19, 1999, between DEN
and H. James Ritts III and Bruce Gamache
10.20 Letter Agreement, dated as of April 29, 1999, between DEN
and David A. Neuman, Edward Winter, Alan L. Friel and H.
James Ritts III
10.21 Stock Option Agreement, dated March 15, 1999, between DEN
and David Neuman
10.22 Stock Option Agreement, dated March 15, 1999, between DEN
and Edward Winter
10.23 Internet Data Center Services Agreement, dated as of March
18, 1999, between DEN and Exodus Communications, Inc.
+10.24 Restricted Stock Agreement, dated as of March 18, 1999,
between DEN and Exodus Communications, Inc.
+10.25 Services Agreement, dated May 9, 1999, between DEN and
INTERVU Inc., and letter of extension dated September 1,
1999
10.26 Lease Agreement, dated as of April 6, 1999, between DEN and
1520 Cloverfield Partners, Ltd.
10.27 Sublease Agreement, dated May 25, 1999, between DEN and
BHMA, Inc.
10.28 Lease Agreement, dated July 30, 1998, between DEN and Paul
Weinstein and Edward Silver dba PTL Realty
10.29 Letter Agreement, dated May 5, 1999, between DEN and Paul
Weinstein and Edward Silver dba PTL Realty
10.30 Lease Agreement, dated August 9, 1999, between DEN and The
Deco Group, Inc.
+10.31 Letter Agreement, dated as of April 20, 1999, between DEN
and Ford Motor Company
+10.32 Promotional Agreement, dated as of May 21, 1999, between DEN
and Microsoft Corporation
+10.33 Letter of Agreement, dated May 27, 1999, between DEN and
Pepsi-Cola
10.34* Amended and Restated Subscription and Stockholders'
Agreement, dated as of , between DEN and
David A. Neuman
10.35 Subscription and Stockholders' Agreement, dated as of June
15, 1999, between DEN and Gary M. Gersh
10.36 Subscription and Stockholders' Agreement, dated as of June
15, 1999, between DEN and John P. Silva
10.37 Form of Subscription Agreement, between DEN and the
purchasers of Series A Convertible Preferred Stock
10.38 Form of Series A Convertible Preferred Stock Registration
Rights Agreement, entered into between DEN and each
purchaser of Series A Convertible Preferred Stock
10.39 Purchase Agreement, dated as of May 20, 1999, between DEN
and certain purchasers of Series B Convertible Preferred
Stock
10.40 Form of Subscription Agreement, between DEN and the
purchasers of Series B Convertible Preferred Stock
10.41 Form of Series B Convertible Preferred Stock Registration
Rights Agreement, entered into between DEN and each
purchaser of Series B Convertible Preferred Stock
</TABLE>
II-5
<PAGE> 128
<TABLE>
<C> <S>
10.42 Form of Subscription Agreement, entered into by DEN and the
purchasers of Series C Convertible Preferred Stock
10.43 Form of Series C Convertible Preferred Stock Registration
Rights Agreement, entered into between DEN and each
purchaser of Series C Convertible Preferred Stock
+10.44 License Agreement, dated March 31, 1999, between DEN and
Engage Technologies, Inc.
+10.45 License Agreement, dated March 22, 1999, between DEN and
Vignette Corporation
10.46 Equipment Lease Agreement, dated April 8, 1999, between DEN
and Cisco Systems Capital Corporation
21.1 List of Subsidiaries
23.1 Consent of Latham & Watkins (included in Exhibit 5.1)
23.2 Consent of KPMG LLP
24.1 Power of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit pursuant to a request for confidential treatment filed with the
Securities and Exchange Commission. Omitted portions have been filed
separately with the Securities and Exchange Commission.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes as follows:
(a) To provide to the Underwriters at the closing specified in the
Underwriting Agreement, certificates in such denominations and
registered in such names as required by the Underwriters to permit
prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(e) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-6
<PAGE> 129
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles and State of
California, on the 17th day of September, 1999.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ H. JAMES RITTS III
-------------------------------------
H. James Ritts III
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that, the undersigned directors and officers
of Digital Entertainment Network, Inc., a Delaware corporation (the
"Corporation"), hereby constitute and appoint H. James Ritts III and Bruce J.
Gamache, each with full power of substitution and resubstitution, their true and
lawful attorneys and agents to sign the names of the undersigned directors and
officers in the capacities indicated below to the registration statement to
which this Power of Attorney is filed as an exhibit, including to sign and file
in the name and on behalf of the undersigned as director or officer of the
Corporation (i) any and all amendments or supplements (including any and all
stickers and post-effective amendments) to the registration statement, with all
exhibits thereto, and other documents in connection therewith, and (ii) any and
all additional registration statements, and any and all amendments thereto,
relating to the same offering of securities as those that are covered by the
registration statement that are filed pursuant to Rule 462(b) under the
Securities Act of 1933, with the Securities and Exchange Commission and any
applicable securities exchange or securities self-regulatory body; and each of
the undersigned hereby ratifies and confirms all that said attorneys, agents, or
any of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ MARC COLLINS-RECTOR Chairman of the Board September 17, 1999
- --------------------------------------------------- and Director
Marc Collins-Rector
/s/ H. JAMES RITTS III Chief Executive Officer September 17, 1999
- --------------------------------------------------- and Director
H. James Ritts III
/s/ DAVID A. NEUMAN President and Director September 17, 1999
- ---------------------------------------------------
David A. Neuman
/s/ BRUCE J. GAMACHE Chief Financial Officer September 17, 1999
- --------------------------------------------------- and Chief Operating
Bruce J. Gamache Officer
/s/ CHAD M. SHACKLEY Executive Vice President September 17, 1999
- --------------------------------------------------- and Director
Chad M. Shackley
</TABLE>
II-7
<PAGE> 130
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ BROCK PIERCE Executive Vice September 17, 1999
- --------------------------------------------------- President-Office of
Brock Pierce the Chairman and
Director
/s/ GARY M. GERSH Co-President of >en. September 17, 1999
- --------------------------------------------------- music group and
Gary M. Gersh Director
/s/ MITCHELL J. BLUTT Director September 17, 1999
- ---------------------------------------------------
Mitchell J. Blutt
/s/ ROBERT W. DOEDE Director September 17, 1999
- ---------------------------------------------------
Robert W. Doede
/s/ GILBERT B. FRIESEN Director September 17, 1999
- ---------------------------------------------------
Gilbert B. Friesen
/s/ MARC B. NATHANSON Director September 17, 1999
- ---------------------------------------------------
Marc B. Nathanson
/s/ MURRAY NEIDORF Director September 17, 1999
- ---------------------------------------------------
Murray Neidorf
/s/ JEFFREY A. SACHS Director September 17, 1999
- ---------------------------------------------------
Jeffrey A. Sachs
</TABLE>
II-8
<PAGE> 131
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Second Restated Certificate of Incorporation, as currently
in effect
3.2 Certificate of Designations for the Series B Convertible
Preferred Stock
3.3 Certificate of Designations for the Series C Convertible
Preferred Stock
3.4 Amended and Restated Bylaws, as currently in effect
3.5 Form of Third Restated Certificate of Incorporation, to be
adopted prior to effectiveness of this registration
statement
3.6 Form of Second Amended and Restated Bylaws, to be adopted
prior to effectiveness of this registration statement
4.1 Specimen certificate for common stock
4.2 Convertible Promissory Note, dated as of October 27, 1998,
between DEN and Marc Collins-Rector, as Trustee of the Marc
Collins-Rector Revocable Trust u/a/d 7/28/97
4.3 Convertible Promissory Note, dated as of October 27, 1998,
between DEN and Marc Collins-Rector, as Trustee of the Marc
Collins-Rector Revocable Trust u/a/d 7/28/97
4.4 Convertible Promissory Note, dated as of October 27, 1998,
between DEN and Chad Shackley, as Trustee of the Chad
Shackley Revocable Trust u/a/d 7/28/97
4.5 Convertible Promissory Note, dated as of October 27, 1998,
between DEN and Chad Shackley, as Trustee of the Chad
Shackley Revocable Trust u/a/d 7/28/97
4.6 Convertible Promissory Note, dated as of April 22, 1999,
between DEN and Marc Collins-Rector, as Trustee of the Marc
Collins-Rector Revocable Trust u/a/d 7/28/97
4.7 Bridge Note, dated as of May 19, 1999, between DEN and Marc
Collins-Rector, as Trustee of the Marc Collins-Rector
Revocable Trust u/a/d 7/28/97
4.8 Letter terminating availability under April 22, 1999
Convertible Promissory Note, dated as of May 27, 1999
5.1 Form of Opinion of Latham & Watkins with respect to legality
10.1 Amended and Restated 1998 Incentive Compensation Plan
10.2 1999 Incentive Compensation Plan
10.3 Form of 1999 Non-Employee Directors' Stock Option Plan, to
be adopted prior to effectiveness of this registration
statement
10.4* Founders' Performance Stock Option Plan
10.5* Amended and Restated Executive Employment Agreement, dated
as of , between DEN and David A. Neuman
10.6* Amended and Restated Executive Employment Agreement, dated
as of , between DEN and Edward H. Winter, Jr.
10.7* Amended and Restated Executive Employment Agreement, dated
as of , between DEN and Alan L. Friel
</TABLE>
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.8* Amended and Restated Executive Employment Agreement, dated
as of , between DEN and Brock Pierce
10.9* Amended and Restated Executive Employment Agreement, dated
as of , between DEN and H. James Ritts III
10.10* Executive Employment Agreement, dated as of April 12, 1999,
between DEN and Bruce J. Gamache
10.11* Executive Employment Agreement, dated as of August 2, 1999,
between DEN and Greg Carpenter
10.12 Consulting Agreement, dated as of August 5, 1998, between
U30 Group LLC and DEN
10.13 Letter Agreement, dated as of June 1, 1999, between U30
Group LLC and DEN
10.14* Executive Employment Agreement, dated as of May 1, 1999,
between >en. music group and Gary M. Gersh
10.15* Executive Employment Agreement, dated as of May 1, 1999,
between >en. music group and John P. Silva
10.16 Intentionally omitted
10.17 Letter Agreement, dated as of October 27, 1998, between DEN
and David A. Neuman, Edward Winter and Alan L. Friel
10.18 Letter Agreement, dated as of January 1, 1999, between DEN
and David A. Neuman, Edward Winter, Alan L. Friel and Brock
Pierce
10.19 Letter Agreement, dated as of April 19, 1999, between DEN
and H. James Ritts III and Bruce Gamache
10.20 Letter Agreement, dated as of April 29, 1999, between DEN
and David A. Neuman, Edward Winter, Alan L. Friel and H.
James Ritts III
10.21 Stock Option Agreement, dated March 15, 1999, between DEN
and David Neuman
10.22 Stock Option Agreement, dated March 15, 1999, between DEN
and Edward Winter
10.23 Internet Data Center Services Agreement, dated as of March
18, 1999, between DEN and Exodus Communications, Inc.
+10.24 Restricted Stock Agreement, dated as of March 18, 1999,
between DEN and Exodus Communications, Inc.
+10.25 Services Agreement, dated May 9, 1999, between DEN and
INTERVU Inc., and letter of extension dated September 1,
1999
10.26 Lease Agreement, dated as of April 6, 1999, between DEN and
1520 Cloverfield Partners, Ltd.
10.27 Sublease Agreement, dated May 25, 1999, between DEN and
BHMA, Inc.
10.28 Lease Agreement, dated July 30, 1998, between DEN and Paul
Weinstein and Edward Silver dba PTL Realty
</TABLE>
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
10.29 Letter Agreement, dated May 5, 1999, between DEN and Paul
Weinstein and Edward Silver dba PTL Realty
10.30 Lease Agreement, dated August 9, 1999, between DEN and The
Deco Group, Inc.
+10.31 Letter Agreement, dated as of April 20, 1999, between DEN
and Ford Motor Company
+10.32 Promotional Agreement, dated as of May 21, 1999, between DEN
and Microsoft Corporation
+10.33 Letter of Agreement, dated May 27, 1999, between DEN and
Pepsi-Cola
10.34* Amended and Restated Subscription and Stockholders'
Agreement, dated as of , between DEN and
David A. Neuman
10.35 Subscription and Stockholders' Agreement, dated as of June
15, 1999, between DEN and Gary M. Gersh
10.36 Subscription and Stockholders' Agreement, dated as of June
15, 1999, between DEN and John P. Silva
10.37 Form of Subscription Agreement, between DEN and the
purchasers of Series A Convertible Preferred Stock
10.38 Form of Series A Convertible Preferred Stock Registration
Rights Agreement, entered into between DEN and each
purchaser of Series A Convertible Preferred Stock
10.39 Purchase Agreement, dated as of May 20, 1999, between DEN
and certain purchasers of Series B Convertible Preferred
Stock
10.40 Form of Subscription Agreement, between DEN and the
purchasers of Series B Convertible Preferred Stock
10.41 Form of Series B Convertible Preferred Stock Registration
Rights Agreement, entered into between DEN and each
purchaser of Series B Convertible Preferred Stock
10.42 Form of Subscription Agreement, entered into by DEN and the
purchasers of Series C Convertible Preferred Stock
10.43 Form of Series C Convertible Preferred Stock Registration
Rights Agreement, entered into between DEN and each
purchaser of Series C Convertible Preferred Stock
+10.44 License Agreement, dated March 31, 1999, between DEN and
Engage Technologies, Inc.
+10.45 License Agreement, dated March 22, 1999, between DEN and
Vignette Corporation
10.46 Equipment Lease Agreement, dated April 8, 1999, between DEN
and Cisco Systems Capital Corporation
21.1 List of Subsidiaries
23.1 Consent of Latham & Watkins (included in Exhibit 5.1)
23.2 Consent of KPMG LLP
</TABLE>
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S>
24.1 Power of Attorney (included on signature page)
27 Financial Data Schedule
</TABLE>
- -------------------------
* To be filed by amendment.
+ Confidential treatment has been requested with respect to certain portions of
this exhibit pursuant to a request for confidential treatment filed with the
Securities and Exchange Commission. Omitted portions have been filed
separately with the Securities and Exchange Commission.
<PAGE> 1
EXHIBIT 3.1
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
DIGITAL ENTERTAINMENT NETWORK, INC.
Digital Entertainment Network, Inc., a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Act"), DOES HEREBY CERTIFY THAT:
1. In accordance with the provisions of Sections 242 and 245 of
the Act, the amendment and restatement of the Certificate of
Incorporation as heretofore amended of this Corporation has
been duly adopted by the stockholders and the Board of
Directors of this Corporation by written consent in accordance
with Sections 228(a) and 141(f), respectively, of the Act. The
original Certificate of Incorporation was filed with the
Secretary of State of the State of Delaware on June 4, 1996.
2. Said amendment and restatement amends and restates this
Corporation's Certificate of Incorporation to read in its
entirety as follows:
FIRST: The name of the Corporation is Digital
Entertainment Network, Inc. (hereinafter the "Corporation").
SECOND: The address of the registered office of the
Corporation in the State of Delaware is 1013 Centre Road, City of Wilmington,
County of New Castle, 19805. The name of its registered agent at that address is
The Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in
any lawful act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware as set forth in Title 8 of the
Act.
FOURTH: The total number of shares of stock which the
Corporation shall have the authority to issue is one hundred-twenty million
(120,000,000) shares of Common Stock, each having a par value of one penny
($.01), and twenty million (20,000,000) shares of Preferred Stock, each having a
par value of one penny ($.01) ("Preferred Stock").
The Board of Directors is expressly authorized to
provide for the issuance of all or any shares of the Preferred Stock in one or
more classes or series, and to fix for each
<PAGE> 2
such class or series such voting powers, full or limited, or no voting powers,
and such distinctive designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for the issuance of such
class or series and as may be permitted by the Act, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, (iii) entitled to such rights
upon the dissolution of, or upon any distribution of the assets of, the
Corporation; or (iv) convertible into, or exchangeable for, shares of any other
class or classes of stock, or of any other series of the same or any other class
or classes of stock, of the Corporation at such price or prices or at such rates
of exchange and with such adjustments; all as may be stated in such resolution
or resolutions. Subject to the express terms of any other series of Preferred
Stock outstanding at the time, the Board of Directors may increase or decrease
the number of shares or alter the designation or classify or reclassify any
unissued shares of a particular series of Preferred Stock by fixing or altering
in any one or more respect from time to time before issuing the shares any
terms, rights, restrictions and qualification of the shares.
The Certificate of Designations, Preferences and
Relative, Optional and Other Special Rights of Series A Convertible Preferred
Stock and Qualifications Limitations and Restrictions Thereof, attached hereto
as Exhibit A, is hereby incorporated and by this reference made a part hereof.
FIFTH: The following provisions are inserted for the
management of the business and conduct of the affairs of the Corporation, and
for further definition, limitation and regulation of the powers of the
Corporation and of its directors and stockholders:
(1) All corporate powers and authority of the
Corporation (except as at the time otherwise provided by law, by this
Certificate of Incorporation or by the Bylaws) shall be vested in and
exercised by the Board of Directors.
(2) In furtherance and not in limitation of the
powers conferred upon it by the laws of the State of Delaware, the
Board of Directors shall have the power to adopt, amend, alter or
repeal the Corporation's Bylaws. The affirmative vote of at least a
majority of the entire Board of Directors shall be required to adopt,
amend, alter or repeal the Corporation's Bylaws. The Corporation's
Bylaws also may be adopted, amended, altered or repealed by the
affirmative vote of the holders of at least two-thirds (2/3) of the
voting power of the shares entitled to vote at an election of
directors.
(3) Except as provided in this Certification of
Incorporation, the number of directors of the Corporation shall be
fixed and may be altered from time to time in the manner provided in
the Bylaws, and vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of
directors may be
2
<PAGE> 3
filled and directors may be removed as provided in the Bylaws. Election
of directors need not be by written ballot unless the Bylaws so
provide.
(4) No director shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (iii)
pursuant to Section 174 of the Act or (iv) for any transaction from
which the director derived an improper personal benefit. Any repeal or
modification of this Article FIFTH by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification with respect to acts or omissions occurring prior to such
repeal or modification.
(5) In addition to the powers and authority
hereinbefore or by statute expressly conferred upon them, the directors
are hereby empowered to exercise all such powers and do all such acts
and things as may be exercised or done by the Corporation, subject,
nevertheless, to the provisions of the Act, this Certificate of
Incorporation, and any Bylaws adopted by the stockholders; provided,
however, that no Bylaws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid
if such Bylaws had not been adopted.
(6) Unless otherwise required by law, special
meetings of stockholders, for any purpose or purposes, may be called by
either (i) the Chairman of the Board of Directors, if there be one,
(ii) the President or (iii) the Board of Directors. The ability of the
stockholders to call a special meeting of stockholders is hereby
specifically denied.
SIXTH: Meetings of stockholders may be held within or
without the State of Delaware, as the Bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the Act) outside
the State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the Bylaws of the Corporation.
SEVENTH: The Corporation reserves the right to amend,
alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation.
3
<PAGE> 4
IN WITNESS WHEREOF, I, Bruce Gamache, Chief Financial Officer
and Chief Operating Officer of the Corporation, have executed this Second
Restated Certificate of Incorporation on behalf of the Corporation as of the
19th day of May, 1999, and DO HEREBY CERTIFY under the penalties of perjury that
the facts stated in this Second Restated Certificate of Incorporation are true.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ Bruce Gamache
----------------------------------
Name: Bruce Gamache
Title: Chief Financial Officer and
Chief Operating Officer
4
<PAGE> 5
Exhibit A
DIGITAL ENTERTAINMENT NETWORK, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, OPTIONAL AND OTHER SPECIAL RIGHTS
OF SERIES A CONVERTIBLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
Digital Entertainment Network, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that pursuant to the authority conferred upon the
Board of Directors of the Corporation by its Certificate of Incorporation, and
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, said Board of Directors, by unanimous written consent, dated
as of November 9, 1998, duly approved and adopted the following resolutions,
which resolution remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is authorized within
the limitations and restrictions stated in the Certificate of Incorporation, to
fix by resolution or resolutions the designation of each series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), and the powers,
preferences and relative, optional or other special rights and qualifications,
limitations or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and other subjects or matters as may be fixed by resolution or
resolutions of the Board of Directors under the General Corporation Law of the
State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED that there is hereby created, authorized
and provided such number and series of Preferred Stock on the terms and with the
provisions herein set forth:
1. DESIGNATION; NUMBER OF SHARES. The designation of the single
series of Preferred Stock authorized by this resolution shall be 250,000 shares
of "Series A Convertible Preferred Stock" (the "Series A Preferred Stock"). All
shares of Series A Preferred Stock shall be identical with each other in all
respects.
<PAGE> 6
2. RANK. The Series A Preferred Stock shall, with respect to
rights on liquidation, dissolution and winding up of the affairs of the
Corporation, rank senior to all classes of the common stock of the Corporation
heretofore or hereafter issued (the "Common Stock"). As used herein, the term
"Junior Securities" shall mean the Common Stock and any other class or series of
stock or other equity securities of the Corporation, heretofore or hereafter
authorized, ranking junior to the Series A Preferred Stock in respect of rights
on liquidation, dissolution and winding up of the affairs of the Corporation.
3. VOTING. Except as may be otherwise provided herein, by law or
in the Restated Certificate of Incorporation of the Corporation, the Series A
Preferred Stock shall vote together with all other voting classes and series of
stock of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation. Each share of Series A Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as shall equal the number of shares of Common Stock (including fractions of a
share) into which such share of Series A Preferred Stock is then convertible on
the record date for such action.
4. LIQUIDATION.
(a) Upon the dissolution, liquidation or winding up of the
Corporation and prior to the distribution of any assets of the Corporation to
the holders of all classes of Junior Securities, the assets remaining after the
payment of all debts and liabilities of the Corporation shall be distributed to
the holders of the Series A Preferred Stock, to the extent available, in an
amount equal to $100.00 per share of Series A Preferred Stock (the "Stated
Value"), plus all accumulations of accrued and unpaid dividends as set forth in
Section 6 hereof to the date of such dissolution, liquidation or winding up
(such amounts, in the aggregate, the "Liquidation Preference"), but if the funds
available therefor are insufficient, then to the holders of Series A Preferred
Stock (together with any other preferred stock of the Corporation ranking
equally with respect to all rights upon a liquidation, dissolution or winding up
of the Corporation with the Series A Preferred Stock) on a pro rata basis. The
Liquidation Preference shall be paid to the holders of Series A Preferred Stock
before the holders of Junior Securities are entitled to receive any payment or
distribution of cash, securities or other property with respect to such shares
following the dissolution, liquidation or winding up of the Corporation.
(b) For the purposes of this Section 4, a voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation to one or more other entities shall be deemed to be a liquidation of
the Corporation.
(c) Notwithstanding the foregoing, the amounts to which the
holders of Series A Preferred Stock shall be entitled shall be equitably
adjusted to take account of any stock splits, stock dividends,
recapitalizations, reorganizations or other transactions affecting the number of
shares of Series A Preferred Stock outstanding as a class.
5. CONVERSION RIGHTS. The holders of the Series A Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
6
<PAGE> 7
(a) Conversion. The holders of Series A Preferred Stock shall
have the right to convert each of such shares at any time into ten shares of
Common Stock of the Corporation (the "Conversion Shares"). In addition, upon the
closing of an underwritten initial public offering of the Company's Common Stock
with net proceeds to the Company of at least $15,000,000 that results in the
Common Stock being listed on a national securities exchange, including, without
limitation, the NASDAQ Stock Market, all shares of Series A Preferred Stock
shall be automatically converted into the Conversion Shares. The number of
Conversion Shares into which shares of Series A Preferred Stock may be converted
shall be subject to adjustment in the event certain circumstances occur prior to
such conversion. In such event, each share of Series A Preferred Stock shall be
converted into the number of shares of Conversion Shares calculated by dividing
$100.00 by the then applicable Conversion Price. The Conversion Price shall
initially be $10.00. The Conversion Price shall be adjusted as hereinafter
provided.
(b) Mechanics of Conversion. Before any holder of Series A
Preferred Stock shall be entitled to receive certificates evidencing Conversion
Shares into which Series A Preferred Stock have been converted, such holder
shall surrender the certificate or certificates for Series A Preferred Stock,
duly endorsed, at the office of the Corporation or of any transfer agent for
such stock, and shall give written notice to the Corporation at such office that
such holder wishes to receive certificates evidencing the Conversion Shares and
shall state therein the name or names in which such holder wishes the
certificate or certificates for shares of Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Series A Preferred Stock, a certificate or certificates
for the number of shares of Conversion Shares to which such holder shall be
entitled as aforesaid. The person or persons entitled to receive the shares of
Conversion Shares issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Conversion Shares on
the date of conversion into such Conversion Shares.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the Series A Preferred Stock the Corporation shall (A)
subdivide its outstanding Common Stock, (B) combine its outstanding Common Stock
into a smaller number of shares, or (C) issue by reclassification of its Common
Stock (including any such reclassification in connection with a consolidation or
merger) any shares, the Conversion Price in effect at the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the holder of any Series A Preferred Stock surrendered for conversion
after such time shall be entitled to receive the aggregate number and kind of
shares which, if such Series A Preferred Stock had been converted immediately
prior to such time, such holder would have owned upon such conversion and been
entitled to receive upon such subdivision, combination or reclassification. Such
adjustment shall be made successively whenever any event listed above shall
occur.
(ii) If the Company shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of Common Stock (excluding securities
issued (w) in any of the transactions described in paragraph (i) of clause (c)
of this Section 5, (x) upon conversion of this Series A Preferred Stock, (y)
upon the exercise or
7
<PAGE> 8
conversion of any options, warrants and other securities convertible into or
exchangeable for shares of Common Stock which options, warrants and other
securities are outstanding as of the date hereof or are issued after the date
hereof pursuant to the Company's 1998 Incentive Compensation Plan and (z) issued
in connection with a merger or acquisition or with respect to advertising sales
or distribution of programming) at a price per share of Common Stock (or
exercise price or conversion price per share of Common Stock, as the case may
be) lower than the Conversion Price, then such Conversion Price shall be reduced
to a price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of (x) the
number of shares of Common Stock outstanding immediately prior to such sale or
issuance plus (y) the number of shares of Common Stock which the aggregate
consideration received for such sale or issuance (or the aggregate initial
conversion or exercise price of the convertible securities issued plus any other
consideration to be paid upon such exercise or conversion) would purchase at the
Conversion Price, as adjusted, on the applicable record date, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such issuance or sale (or into which the newly issued rights,
options, warrants or convertible securities are initially exercisable or
convertible as of the date of such issuance or sale). If the Company shall sell
or issue shares of Common Stock in consideration for property other than cash or
its equivalent, then the price per share of Common Stock and fair value of such
property shall be determined in good faith by the Board of Directors of the
Company. Any such adjustment shall be determined and effective on the date of
such sale or issuance and not upon exercise or conversion, as the case may be,
of such rights, options, warrants, or convertible or exchangeable securities. If
any of such rights, options, warrants or convertible or exchangeable securities
expire without having been exercised, converted or exchanged, the Conversion
Price shall be adjusted as if the rights, options, warrants or convertible or
exchangeable securities not so exercised, converted or exchanged had not been
sold or issued.
(iii) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (iv) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this
subsection 3, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate executed by the
Corporation's President or Chief Financial Officer setting forth such adjustment
or readjustment and showing in reasonable detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price for the Series A
Preferred Stock at the time in effect, and (iii) the number of shares of
Conversion Shares and the amount, if any, of other property which at the time
would be received upon the conversion of the Series A Preferred Stock.
8
<PAGE> 9
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of the Series A Preferred Stock:
(i) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus; (ii) to offer for
subscription pro rata to the holders of any class or series of its stock (other
than the Series A Preferred Stock) any additional shares of stock of any class
or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iv) to merge or consolidate with or into any other corporation
where the Corporation is not the surviving corporation, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series A Preferred Stock:
(i) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(ii) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series A Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
A Preferred Stock, the Corporation will take such action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
6. DIVIDENDS. If any dividends or other distributions are
declared and paid on shares of any class or series of Common Stock, the holders
of Series A Preferred Stock shall be entitled to receive in respect of each
share of Series A Preferred Stock such dividends or other distributions out of
funds legally available therefor when, as and if approved by the Board of
Directors in the same amount and manner as they would have been entitled to
receive if the shares of Series A Preferred Stock held of record by such holder
were converted into Conversion Shares on the record date for such dividend or
other distributions.
7. INFORMATION RIGHTS. Upon the written request of a purchaser of
the Series A Convertible Preferred Stock, the Company shall deliver to such
purchaser (i) within forty-five days after the end of a fiscal quarter,
unaudited financial statements of the Company for such quarter, (ii) within
ninety days after the end of a fiscal year of the Company, (A) a financial plan
for the Company for the next year and (B) audited financial statements for such
year.
9
<PAGE> 10
8. EFFECT OF ACQUISITION OF PREFERRED STOCK BY CORPORATION. All
shares of Series A Preferred Stock acquired by the Corporation by reason of
purchase or otherwise shall be canceled and cease to be outstanding and shall
have the status of authorized but unissued shares of undesignated preferred
stock and may be redesignated and reissued as part of any series of Preferred
Stock.
9. CONSENTS. So long as any shares of Series A Preferred Stock
shall be outstanding, the approval of the holders of at least 50% of the shares
of Series A Preferred Stock at the time outstanding, voting as a single class,
shall be required for (i) the authorization of any shares of any class or series
of stock of the Corporation having any preference or priority over the Series A
Preferred Stock upon liquidation, dissolution or winding up of the Corporation,
(ii) the reclassification of any shares of stock of the Corporation into shares
of Series A Preferred Stock, (iii) the authorization of any security of the
Corporation exchangeable for, convertible into, or evidencing the right to
purchase any of the Series A Preferred Stock, and (iv) the amendment, alteration
or repeal of this Certificate to alter or change the preferences, privileges,
rights or powers of the Series A Preferred Stock so as to affect the Series A
Preferred Stock adversely; provided, however, that without the approval of each
holder of the Series A Preferred Stock affected, such amendment or change may
not reduce the Liquidation Preference.
IN WITNESS WHEREOF, Digital Entertainment Network, Inc. has caused
this Certificate to be duly executed in its corporate name as of this 17th date
of November, 1998.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
--------------------------------
Name: Alan L. Friel
Title: Executive Vice President
10
<PAGE> 1
EXHIBIT 3.2
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/20/1999
991200790 - 2630871
DIGITAL ENTERTAINMENT NETWORK, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, OPTIONAL AND OTHER SPECIAL RIGHTS
OF SERIES B CONVERTIBLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
Digital Entertainment Network, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that pursuant to the authority conferred upon the
Board of Directors of the Corporation by its Restated Certificate of
Incorporation, and pursuant to the provisions of Section 151 of the General
Corporation Law of the State of Delaware, said Board of Directors, acting at a
meeting held on May 12, 1999, duly approved and adopted the following
resolution, which resolution remains in full force and effect as of the date
hereof:
WHEREAS, the Board of Directors of the Corporation is authorized within
the limitations and restrictions stated in the Certificate of Incorporation, to
fix by resolution or resolutions the designation of each series of Preferred
Stock, par value $.01 per share (the "Preferred Stock"), and the powers,
preferences and relative, optional or other special rights and qualifications,
limitations or restrictions thereof, including, without limiting the generality
of the foregoing, such provisions as may be desired concerning voting,
redemption, dividends, dissolution or the distribution of assets, conversion or
exchange, and other subjects or matters as may be fixed by resolution or
resolutions of the Board of Directors under the General Corporation Law of the
State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of Preferred Stock and the number of shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED that there is hereby created, authorized
and provided such number and series of Preferred Stock on the terms and with the
provisions herein set forth:
1. Designation; Number of Shares. The designation of the single
series of Preferred Stock authorized by this resolution shall be 260,000 shares
of "Series B Convertible Preferred Stock" (the "Series B Preferred Stock"). All
shares of Series B Preferred Stock shall, with respect to the matters set forth
herein, be identical with each other in all respects.
<PAGE> 2
2. Rank. The Series B Preferred Stock shall, with respect to rights
on liquidation, dissolution and winding up of the affairs of the Corporation,
rank pari passu with the Series A Convertible Preferred Stock, par value $.01
per share, of the Corporation (the "Series A Preferred Stock") and rank senior
to all other classes of stock or other equity securities of the Corporation
heretofore or hereafter issued. As used herein, the term "Junior Securities"
shall mean the common stock, par value $.01 per share of the Corporation (the
"Common Stock") and any other class or series of stock or other equity
securities of the Corporation, heretofore or hereafter authorized, ranking
junior to the Series A Preferred Stock and Series B Preferred Stock in respect
of rights on liquidation, dissolution and winding up of the affairs of the
Corporation.
3. Voting. Except as may be otherwise provided herein, by law or in
the Restated Certificate of Incorporation of the Corporation, the Series B
Preferred Stock shall vote together with all other voting classes and series of
stock of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation. Each share of Series B Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as shall equal the number of votes afforded to the shares of Common Stock
(including fractions of a share) into which such share of Series B Preferred
Stock is then convertible on the record date for such action.
4. Liquidation.
(a) Upon the dissolution, liquidation or winding up of the
Corporation and prior to the distribution of any assets of the Corporation to
the holders of all classes of Junior Securities, the assets remaining after the
payment of all debts and liabilities of the Corporation shall be distributed to
the holders of the Series A Preferred Stock and Series B Preferred Stock, to the
extent available, in an amount equal to the "Liquidation Preference" of the
Series A Preferred Stock (as defined in the Certificate of Designations creating
the Series A Preferred Stock and filed with the Secretary of State of the State
of Delaware on December 14, 1998), and in an amount equal to $104.00 per share
of Series B Preferred Stock (the "Stated Value"), plus all accumulations of
accrued and unpaid dividends as set forth in Section 7 hereof to the date of
such dissolution, liquidation or winding up (such amounts applicable to the
Series B Preferred Stock, in the aggregate, the "Liquidation Preference"), but
if the funds available therefor are insufficient, then to the holders of Series
A Preferred Stock and the holders of Series B Preferred Stock on a pro rata
basis. The Liquidation Preference shall be paid to the holders of Series A
Preferred Stock and the Series B Preferred Stock before the holders of Junior
Securities are entitled to receive any payment or distribution of cash,
securities or other property with respect to such shares following the
dissolution, liquidation or winding up of the Corporation.
(b) For the purposes of this Section 4, a voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation to one or more other entities, a merger of consolidation of the
Corporation with or into another person where such other person is the surviving
entity of such merger or consolidation, or the acquisition by any person or
group (as
2
<PAGE> 3
such term is defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended) of persons of more than 50% of the voting power of the Corporation,
shall be deemed to be a liquidation of the Corporation.
(c) Notwithstanding the foregoing, the amounts to which the
holders of Series B Preferred Stock shall be entitled shall be equitably
adjusted to take account of any stock splits, stock dividends,
recapitalizations, reorganizations or other transactions affecting the number of
shares of Series B Preferred Stock outstanding as a class.
5. Conversion Rights. The holders of the Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Conversion. The holders of Series B Preferred Stock
shall have the right to convert each of such shares at any time into 10 shares
of Common Stock of the Corporation (the "Conversion Shares"). In addition, upon
the closing of an underwritten initial public offering of the Company's Common
Stock that results in the Common Stock being listed on a national securities
exchange or the NASDAQ Stock Market with aggregate Gross Proceeds to the Company
of not less than $40 million at a gross price per share at which such Common
Stock is sold to the public of (x) if such closing occurs prior to March 1,
2000, two (2) times the initial Series B Conversion Price, and (y) if such
closing occurs on or after March 1, 2000, two and one-half (2.5) times the
initial Series B Conversion Price (such equity valuation, the "IPO Valuation,"
and such offering, a "Qualified IPO"), all shares of Series B Preferred Stock
shall be automatically converted into the Conversion Shares without the need for
any action by the holder thereof. "Gross Proceeds" shall mean the aggregate
proceeds from the sale of the Common Stock by the Company in a public offering
prior to the deduction of any underwriting discounts or commissions or any fees
or expenses incurred in connection with such offering. Notwithstanding the
foregoing, when calculating to determine whether the IPO Valuation has been
achieved, the equity valuation shall be adjusted to give effect to the exclusion
of up to 50,000 stock options actually granted to employees or directors prior
to a Qualified IPO (i.e., the IPO Valuation shall be deemed to have been
achieved if the quotient obtained by dividing (x) the product of (i) the number
of shares of Common Stock outstanding on a fully diluted basis on the date of
such public offering before giving effect to the issuance of shares in such
public offering (the "Pre-IPO Shares") and (ii) the gross price per share at
which such Common Stock is sold to the public by (y) the difference of (i) the
Pre-IPO Shares and (ii) 50,000, equals or exceeds the then applicable IPO
Valuation. The number of Conversion Shares into which shares of Series B
Preferred Stock may be converted shall be subject to adjustment as set forth in
Section 6 in the event certain circumstances occur prior to such conversion. In
such event, each share of Series B Preferred Stock shall be converted into the
number of shares of Conversion Shares calculated by dividing $104.00 by the then
applicable Conversion Price. The Conversion Price shall initially be $10.40. The
Conversion Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before any holder of Series B
Preferred Stock shall be entitled to receive certificates evidencing Conversion
Shares into which shares of Series
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<PAGE> 4
B Preferred Stock have been converted, such holder shall surrender the
certificate or certificates for such Series B Preferred Stock, duly endorsed, at
the office of the Corporation or of any transfer agent for such stock, and shall
give written notice to the Corporation at such office that such holder wishes to
receive certificates evidencing the Conversion Shares and shall state therein
the name or names in which such holder wishes the certificate or certificates
for shares of Conversion Shares to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series B Preferred Stock, a certificate or certificates for the number of shares
of Conversion Shares to which such holder shall be entitled as aforesaid. The
person or persons entitled to receive the shares of Conversion Shares issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Conversion Shares on the date of conversion into such
Conversion Shares.
(c) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to Section 6,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock a certificate executed on behalf of the
Corporation by the Corporation's Chief Financial Officer setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series B Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Conversion Price for the Series B
Preferred Stock at the time in effect, and (iii) the number of shares of
Conversion Shares and the amount, if any, of other property which at the time
would be received upon the conversion of the Series B Preferred Stock.
(d) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of the Series B Preferred Stock:
(i) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus; (ii) to offer for
subscription pro rata to the holders of any class or series of its stock (other
than the Series B Preferred Stock) any additional shares of stock of any class
or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iv) to merge or consolidate with or into any other corporation
where the Corporation is not the surviving corporation, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series B Preferred Stock:
(i) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
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<PAGE> 5
(ii) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(e) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series B Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series B Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
B Preferred Stock, the Corporation will take such action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
6. Effect on Conversion Price of Certain Events.
(a) Stock Splits, Recapitalizations, etc. In case at any
time prior to conversion into the Conversion Shares of the Series B Preferred
Stock of the Corporation shall (i) subdivide its outstanding Common Stock, (ii)
combine its outstanding Common Stock into a smaller number of shares, or (iii)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger) any shares, the
Conversion Price in effect at the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Series B Preferred Stock surrendered for conversion after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Series B Preferred Stock had been converted immediately prior to such
time, such holder would have owned upon such conversion and been entitled to
receive upon such subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) Certain Issuances at Prices Less than the Conversion
Price. If and whenever on or after the date hereof the Corporation issues or
sells, or in accordance with Section 6(d) or (e) is deemed to have issued or
sold, any share of Common Stock for a consideration per share less than the
Conversion Price in effect immediately prior to such time, then immediately upon
such issue or sale or deemed issue or sale the Conversion Price shall be reduced
to the lowest price per share at which any such share of Common Stock has been
issued or sold or is deemed to have been issued or sold. If the Corporation
shall sell or issue shares of Common Stock or other securities convertible into
or exchangeable for shares of Common Stock, in consideration for property other
than cash or its equivalent, then the price per share of Common Stock and fair
value of such property shall be determined in good faith by the Board of
Directors of the Corporation. Any such adjustment shall be determined and
effective on the date of such sale or issuance and not upon exercise or
conversion, as the case may be, of such rights, options, warrants, or
convertible or exchangeable securities.
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<PAGE> 6
(c) Certain Exceptions. Notwithstanding anything to the
contrary in this Section 6, there shall be no adjustment to the Conversion Price
hereunder with respect to (i)(A) the granting of stock options, restricted stock
and other equity-based incentive compensation issued to employees, officers,
directors, consultants, service providers or vendors of the Corporation or its
subsidiaries or the exercise thereof, or (B) Common Stock issued or deemed
issued in conjunction with a merger or acquisition or in transactions with
respect to advertising sales or distribution, licensing or production of
programming, in an aggregate amount not to exceed 2,085,000 shares of Common
Stock (as such number of shares is equitably adjusted for subsequent stock
splits, stock combinations, stock dividends and recapitalizations); provided,
however, that such Common Stock is issued for a purchase price, and the price
per share of Common Stock payable upon exercise of such options, warrants and
other securities convertible into or exchangeable for shares of Common Stock, is
not less than the fair market value per share of Common Stock on the date of
issuance, as determined in good faith by the Board of Directors of the
Corporation, (ii) shares of Common Stock issued upon conversion of the Series A
Preferred Stock, or (iii) shares of Common Stock issued upon the exercise or
conversion of any options, warrants and other securities convertible into or
exchangeable for shares of Common Stock which options, warrants and other
securities are outstanding as of the date hereof (all such issuances, "Excluded
Issuances"). There shall be no adjustment to the Conversion Price with respect
to the issuance of 5,000 shares of common stock to Randal Kleiser, pursuant to
that certain agreement, dated as of January 25, 1999, between the Corporation
and Mr. Kleiser.
(d) Issuance of Rights or Options. If the Corporation in any
manner grants or sells any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities (as hereinafter defined)
(collectively, "Options") and the lowest price per share for which any one share
of Common Stock is issuable upon the exercise of any such Option, or upon
conversion or exchange of any Convertible Security issuable upon exercise of any
such Option, is less than the Conversion Price in effect immediately prior to
the time of the granting or sale of such Option, then such share of Common Stock
shall be deemed to be outstanding and to have been issued and sold by the
Corporation at the time of the granting or sale of such Option for such price
per share. For purposes of this subsection (d), the "lowest price per share for
which any one share of Common Stock is issuable" shall be equal to the sum of
the lowest amounts of consideration (if any) received or receivable by the
Corporation with respect to any one share of Common Stock upon the granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
of any Convertible Security issuable upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Security.
(e) Issuance of Convertible Securities. If the Corporation
in any manner issues or sells any stock or securities directly or indirectly
convertible into or exchangeable for Common Stock (each, a "Convertible
Security" and, collectively, "Convertible Securities") and the lowest price per
share for which any one share of Common Stock is issuable upon conversion or
exchange thereof is less than the Conversion Price in effect immediately prior
to the time of such issue or sale, then such share of Common Stock shall be
deemed to be outstanding and to have
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<PAGE> 7
been issued and sold by the Corporation at the time of the issuance or sale of
such Convertible Securities for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Corporation with respect to any one share
of Common Stock upon the issuance or sale of the Convertible Security and upon
the conversion or exchange of such Convertible Security. No further adjustment
of the Conversion Price shall be made upon the actual issue of such Common Stock
upon conversion or exchange of any Convertible Security, and if any such issue
or sale of such Convertible Security is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this Section 6, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(f) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price in effect at the time
of such change shall be adjusted immediately to the Conversion Price which would
have been in effect at such time had such Option or Convertible Security
originally provided for such changed purchase price, additional consideration or
conversion rate, as the case may be, at the time initially granted, issued or
sold.
(g) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Conversion Price then in effect hereunder shall be adjusted
immediately to the Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or Convertible Security, to
the extent outstanding immediately prior to such expiration or termination,
never been issued.
(h) De Minimus Changes. Notwithstanding anything to the
contrary in this Section 6, no adjustment to the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such Conversion Price; provided, however, that any
adjustment which by reason of this subparagraph (h) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subparagraph (h) shall be made to the nearest cent
or the nearest 1/100 of a share, as the case may be.
7. Dividends. If any dividends or other distributions are declared
and paid on shares of any class or series of Junior Securities, the holders of
Series B Preferred Stock shall be entitled to receive in respect of each share
of Series B Preferred Stock such dividends or other distributions out of funds
legally available therefor when, as and if approved by the Board of Directors in
the same amount and manner as they would have been entitled to receive if the
shares of Series B Preferred Stock held of record by such holder were converted
into Conversion Shares on the record date for such dividend or other
distributions.
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<PAGE> 8
8. Information Rights. Upon the written request of a purchaser of
the Series B Convertible Preferred Stock, the Company shall deliver to such
purchaser (i) within forty-five days after the end of a fiscal quarter,
unaudited financial statements of the Company for such quarter, (ii) within
ninety days after the end of a fiscal year of the Company, (A) a financial plan
for the Company for the next year and (B) audited financial statements for such
year.
9. Effect of Acquisition of Preferred Stock by Corporation. All
shares of Series B Preferred Stock acquired by the Corporation by reason of
purchase or otherwise shall be canceled and cease to be outstanding and shall
have the status of authorized but unissued shares of undesignated preferred
stock and may be redesignated and reissued as part of any series of Preferred
Stock.
10. Consents. So long as any shares of Series B Preferred Stock
shall be outstanding, the approval of the holders of at least a majority of the
shares of Series B Preferred Stock at the time outstanding, voting as a single
class, shall be required for (i) the authorization of any shares of any class or
series of stock of the Corporation having any preference or priority over the
Series B Preferred Stock upon liquidation, dissolution or winding up of the
Corporation, (ii) the reclassification of any shares of stock of the Corporation
into shares of Series B Preferred Stock, and (iii) the amendment, alteration or
repeal of this Certificate to alter or change the preferences, privileges,
rights or powers of the Series B Preferred Stock so as to affect the Series B
Preferred Stock adversely; provided, however, that without the approval of each
holder of the Series B Preferred Stock affected, such amendment or change may
not reduce the Liquidation Preference.
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<PAGE> 9
IN WITNESS WHEREOF, Digital Entertainment Network, Inc. has caused this
Certificate to be duly executed in its corporate name as of this 19th day of
May, 1999.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ BRUCE J. GAMACHE
-------------------------------------
Name: Bruce J. Gamache
Title: COO/CFO
<PAGE> 1
EXHIBIT 3.3
DIGITAL ENTERTAINMENT NETWORK, INC.
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RELATIVE, OPTIONAL AND OTHER SPECIAL RIGHTS
OF SERIES C CONVERTIBLE PREFERRED STOCK AND
QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS THEREOF
------------------------------------------------
Pursuant to Sections 141(c) and 151 of the
General Corporation Law of the State of Delaware
------------------------------------------------
Digital Entertainment Network, Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that pursuant to the authority conferred upon the
Board of Directors of the Corporation by its Second Restated Certificate of
Incorporation, and pursuant to the provisions of Sections 141(c) and 151 of the
General Corporation Law of the State of Delaware, the Executive Committee of the
Board of Directors of the Corporation, acting at a meeting held on August 19,
1999, pursuant to authority delegated to it by the Board of Directors of the
Corporation, duly approved and adopted the following resolution, which
resolution remains in full force and effect as of the date hereof:
WHEREAS, the Board of Directors of the Corporation is authorized within
the limitations and restrictions stated in the Second Restated Certificate of
Incorporation, to fix by resolution or resolutions the designation of each
series of Preferred Stock, par value $.01 per share (the "Preferred Stock"), and
the powers, preferences and relative, optional or other special rights and
qualifications, limitations or restrictions thereof, including, without limiting
the generality of the foregoing, such provisions as may be desired concerning
voting, redemption, dividends, dissolution or the distribution of assets,
conversion or exchange, and other subjects or matters as may be fixed by
resolution or resolutions of the Board of Directors of the Corporation under the
General Corporation Law of the State of Delaware; and
WHEREAS, the Board of Directors of the Corporation has previously duly
authorized the issuance of shares of a new class of preferred stock of the
Corporation, to be known as Series C Convertible Preferred Stock and has
delegated to the Executive Committee of the Board of Directors of the
Corporation the authority to so fix the powers, preferences and relative,
optional or other special rights and qualifications, limitations or restrictions
thereof, including, without limiting the generality of the foregoing, such
provisions as may be desired concerning voting, redemption, dividends,
dissolution or the distribution of assets, conversion or exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation, and other subjects or
matters as may be fixed by resolution or resolutions of the Board of Directors
of the Corporation under the General Corporation Law of the State of Delaware;
and
<PAGE> 2
WHEREAS, it is the desire of the Executive Committee of the Board of
Directors of the Corporation, pursuant to its authority as aforesaid, to so
authorize and fix the terms of a series of Preferred Stock and the number of
shares constituting such series;
NOW, THEREFORE, BE IT RESOLVED that there is hereby created, authorized
and provided such number and series of Preferred Stock on the terms and with the
provisions herein set forth:
1. Designation; Number of Shares. The designation of the single
series of Preferred Stock authorized by this resolution shall be 300,000 shares
of "Series C Convertible Preferred Stock" (the "Series C Preferred Stock"). All
shares of Series C Preferred Stock shall, with respect to the matters set forth
herein, be identical with each other in all respects.
2. Rank. The Series C Preferred Stock shall, with respect to rights
on liquidation, dissolution and winding up of the affairs of the Corporation,
rank pari passu with the Series A Convertible Preferred Stock, par value $.01
per share, of the Corporation (the "Series A Preferred Stock"), and the Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock"), and rank senior to all other classes of stock or other equity
securities of the Corporation heretofore or hereafter issued. As used herein,
the term "Junior Securities" shall mean the common stock, par value $.01 per
share of the Corporation (the "Common Stock") and any other class or series of
stock or other equity securities of the Corporation, heretofore or hereafter
authorized, ranking junior to the Series C Preferred Stock in respect of rights
on liquidation, dissolution and winding up of the affairs of the Corporation.
3. Voting. Except as may be otherwise provided herein, by law or in
the Restated Certificate of Incorporation of the Corporation, the Series C
Preferred Stock shall vote together with all other voting classes and series of
stock of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation. Each share of Series C Preferred Stock shall
entitle the holder thereof to such number of votes per share on each such action
as shall equal the number of votes afforded to the shares of Common Stock
(including fractions of a share) into which such share of Series C Preferred
Stock is then convertible on the record date for such action.
4. Liquidation.
(a) Upon the dissolution, liquidation or winding up of the
Corporation and prior to the distribution of any assets of the Corporation to
the holders of all classes of Junior Securities, the assets remaining after the
payment of all debts and liabilities of the Corporation shall be distributed
first, to the holders of the Series A Preferred Stock, Series B Preferred Stock
and the Series C Preferred Stock, to the extent available, in an amount equal to
(i) the "Liquidation Preference" of the Series A Preferred Stock (as defined in
the Certificate of Designations creating the Series A Preferred Stock and filed
with the Secretary of State of the State of Delaware on December 14, 1998), (ii)
the Liquidation Preference of the Series B Preferred Stock (as defined in the
Certificate of Designations creating the Series B Preferred Stock and filed with
the Secretary of State of the State of Delaware on May 20, 1999 (the "Series B
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<PAGE> 3
Certificate of Designations")), and (iii) $175.00 per share of Series C
Preferred Stock (the "Stated Value"), plus all accumulations of accrued and
unpaid dividends as set forth in Section 7 hereof to the date of such
dissolution, liquidation or winding up (such amounts applicable to the Series C
Preferred Stock, in the aggregate, the "Liquidation Preference"), but if the
funds available therefor are insufficient, then to the holders of Series A
Preferred Stock, the holders of Series B Preferred Stock and the holders of the
Series C Preferred Stock on a pro rata basis. The Liquidation Preference shall
be paid to the holders of Series A Preferred Stock, the Series B Preferred Stock
and the Series C Preferred Stock before the holders of Junior Securities are
entitled to receive any payment or distribution of cash, securities or other
property with respect to such shares following the dissolution, liquidation or
winding up of the Corporation.
(b) For the purposes of this Section 4, a voluntary sale,
conveyance, exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation to one or more other entities, a merger of consolidation of the
Corporation with or into another person where such other person is the surviving
entity of such merger or consolidation, or the acquisition by any person or
group (as such term is defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended) of persons of more than 50% of the voting power of the
Corporation, shall be deemed to be a liquidation of the Corporation.
(c) Notwithstanding the foregoing, the amounts to which the
holders of Series C Preferred Stock shall be entitled shall be equitably
adjusted to take account of any stock splits, stock dividends,
recapitalizations, reorganizations or other transactions affecting the number of
shares of Series C Preferred Stock outstanding as a class.
5. Conversion Rights. The holders of the Series C Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Conversion. The holders of Series C Preferred Stock
shall have the right to convert each of such shares at any time into 10 shares
of Common Stock of the Corporation (the "Conversion Shares"). In addition, upon
the closing of an underwritten initial public offering of the Company's Common
Stock that results in the Common Stock being listed on a national securities
exchange or the NASDAQ Stock Market with aggregate Gross Proceeds to the Company
of not less than $40 million (a "Qualified IPO"), all shares of Series C
Preferred Stock shall be automatically converted into the Conversion Shares
without the need for any action by the holder thereof. "Gross Proceeds" shall
mean the aggregate proceeds from the sale of the Common Stock by the Company in
a public offering prior to the deduction of any underwriting discounts or
commissions or any fees or expenses incurred in connection with such offering.
The number of Conversion Shares into which shares of Series C Preferred Stock
may be converted shall be subject to adjustment as set forth in Section 6 in the
event certain circumstances occur prior to such conversion. In such event, each
share of Series C Preferred Stock shall be converted into the number of shares
of Conversion Shares calculated by dividing $175.00 by the then applicable
Series C Conversion Price. The Series C Conversion Price shall initially be
$17.50. The Series C Conversion Price shall be adjusted as hereinafter provided.
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<PAGE> 4
(b) Mechanics of Conversion. Before any holder of Series C
Preferred Stock shall be entitled to receive certificates evidencing Conversion
Shares into which shares of Series C Preferred Stock have been converted, such
holder shall surrender the certificate or certificates for such Series C
Preferred Stock, duly endorsed, at the office of the Corporation or of any
transfer agent for such stock, and shall give written notice to the Corporation
at such office that such holder wishes to receive certificates evidencing the
Conversion Shares and shall state therein the name or names in which such holder
wishes the certificate or certificates for shares of Conversion Shares to be
issued. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to such holder of Series C Preferred Stock, a certificate
or certificates for the number of shares of Conversion Shares to which such
holder shall be entitled as aforesaid. The person or persons entitled to receive
the shares of Conversion Shares issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Conversion
Shares on the date of conversion into such Conversion Shares.
(c) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Series C Conversion Price pursuant to
Section 6, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series C Preferred Stock a certificate executed on behalf of the
Corporation by the Corporation's Chief Financial Officer setting forth such
adjustment or readjustment and showing in reasonable detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon the
written request at any time of any holder of Series C Preferred Stock, furnish
or cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the Series C Conversion Price for the
Series C Preferred Stock at the time in effect, and (iii) the number of shares
of Conversion Shares and the amount, if any, of other property which at the time
would be received upon the conversion of the Series C Preferred Stock.
(d) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of the Series C Preferred Stock:
(i) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock or other securities, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus; (ii) to offer for
subscription pro rata to the holders of any class or series of its stock (other
than the Series C Preferred Stock) any additional shares of stock of any class
or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iv) to merge or consolidate with or into any other corporation
where the Corporation is not the surviving corporation, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
holders of Series C Preferred Stock:
(i) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
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<PAGE> 5
(ii) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(e) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of Series C Preferred Stock, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of the Series C Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of Series
C Preferred Stock, the Corporation will take such action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purpose.
6. Effect on Series C Conversion Price of Certain Events.
(a) Stock Splits, Recapitalizations, etc. In case at any
time prior to conversion into the Conversion Shares of the Series C Preferred
Stock of the Corporation shall (i) subdivide its outstanding Common Stock, (ii)
combine its outstanding Common Stock into a smaller number of shares, or (iii)
issue by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or merger) any shares, the
Series C Conversion Price in effect at the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
holder of any Series C Preferred Stock surrendered for conversion after such
time shall be entitled to receive the aggregate number and kind of shares which,
if such Series C Preferred Stock had been converted immediately prior to such
time, such holder would have owned upon such conversion and been entitled to
receive upon such subdivision, combination or reclassification. Such adjustment
shall be made successively whenever any event listed above shall occur.
(b) Certain Issuances at Prices Less than the Series C
Conversion Price. If and whenever on or after the date hereof the Corporation
issues or sells, or in accordance with Section 6(d) or (e) is deemed to have
issued or sold, any share of Common Stock for a consideration per share less
than the Series C Conversion Price in effect immediately prior to such time,
then immediately upon such issue or sale or deemed issue or sale, the Series C
Conversion Price shall be reduced to the lowest price per share at which any
such share of Common Stock has been issued or sold or is deemed to have been
issued or sold. If the Corporation shall sell or issue shares of Common Stock or
other securities convertible into or exchangeable for shares of Common Stock, in
consideration for property other than cash or its equivalent, then the price per
share of Common Stock and fair value of such property shall be determined in
good faith by the Board of Directors of the Corporation. Any such adjustment
shall be determined and effective on the date of such sale or issuance and not
upon exercise or conversion, as the case may be, of such rights, options,
warrants, or convertible or exchangeable securities.
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(c) Certain Exceptions. Notwithstanding anything to the
contrary in this Section 6, there shall be no adjustment to the Series C
Conversion Price hereunder with respect to (i)(A) the granting of stock options,
restricted stock and other equity-based incentive compensation issued to
employees, officers, directors, consultants, service providers or vendors of the
Corporation or its subsidiaries or the exercise thereof, or (B) Common Stock
issued or deemed issued in conjunction with a merger or acquisition or in
transactions with respect to advertising sales or distribution, licensing or
production of programming, in an aggregate amount not to exceed 2,500,000 shares
of Common Stock (as such number of shares is equitably adjusted for subsequent
stock splits, stock combinations, stock dividends and recapitalizations);
provided, however, that such Common Stock is issued for a purchase price, and
the price per share of Common Stock payable upon exercise of such options,
warrants and other securities convertible into or exchangeable for shares of
Common Stock, is not less than the fair market value per share of Common Stock
on the date of issuance, as determined in good faith by the Board of Directors
of the Corporation, (ii) shares of Common Stock issued upon conversion of the
Series A Preferred Stock or the Series B Preferred Stock, and (iii) shares of
Common Stock issued upon the exercise or conversion of any options, warrants and
other securities convertible into or exchangeable for shares of Common Stock
which options, warrants and other securities are outstanding as of the date
hereof (all such issuances, "Excluded Issuances"). There shall be no adjustment
to the Series C Conversion Price with respect to the issuance of 5,000 shares of
Common Stock to Randal Kleiser, pursuant to that certain agreement, dated as of
January 25, 1999, between the Corporation and Mr. Kleiser (as such number of
shares is equitably adjusted for subsequent stock splits, stock combinations
stock dividends and recapitalizations).
(d) Issuance of Rights or Options. If the Corporation in any
manner grants or sells any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities (as hereinafter defined)
(collectively, "Options") and the lowest price per share for which any one share
of Common Stock is issuable upon the exercise of any such Option, or upon
conversion or exchange of any Convertible Security issuable upon exercise of any
such Option, is less than the Series C Conversion Price in effect immediately
prior to the time of the granting or sale of such Option, then such share of
Common Stock shall be deemed to be outstanding and to have been issued and sold
by the Corporation at the time of the granting or sale of such Option for such
price per share. For purposes of this subsection (d), the "lowest price per
share for which any one share of Common Stock is issuable" shall be equal to the
sum of the lowest amounts of consideration (if any) received or receivable by
the Corporation with respect to any one share of Common Stock upon the granting
or sale of the Option, upon exercise of the Option and upon conversion or
exchange of any Convertible Security issuable upon exercise of such Options or
upon the actual issue of such Common Stock upon conversion or exchange of such
Convertible Security.
(e) Issuance of Convertible Securities. If the Corporation
in any manner issues or sells any stock or securities directly or indirectly
convertible into or exchangeable for Common Stock (each, a "Convertible
Security" and, collectively, "Convertible Securities") and the lowest price per
share for which any one share of Common Stock is issuable upon conversion or
exchange thereof is less than the Series C Conversion Price in effect
immediately prior to the time of such issue or sale, then such share of Common
Stock shall be deemed to be outstanding and
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<PAGE> 7
to have been issued and sold by the Corporation at the time of the issuance or
sale of such Convertible Securities for such price per share. For the purposes
of this paragraph, the "lowest price per share for which any one share of Common
Stock is issuable" shall be equal to the sum of the lowest amounts of
consideration (if any) received or receivable by the Corporation with respect to
any one share of Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion or exchange of such Convertible Security. No
further adjustment of the Series C Conversion Price shall be made upon the
actual issue of such Common Stock upon conversion or exchange of any Convertible
Security, and if any such issue or sale of such Convertible Security is made
upon exercise of any Options for which adjustments of the Series C Conversion
Price had been or are to be made pursuant to other provisions of this Section 6,
no further adjustment of the Series C Conversion Price shall be made by reason
of such issue or sale.
(f) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Option, the additional consideration (if any)
payable upon the issue, conversion or exchange of any Convertible Security or
the rate at which any Convertible Security is convertible into or exchangeable
for Common Stock changes at any time, the Series C Conversion Price in effect at
the time of such change shall be adjusted immediately to the Series C Conversion
Price which would have been in effect at such time had such Option or
Convertible Security originally provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold.
(g) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Security without the exercise of any such
Option or right, the Series C Conversion Price then in effect hereunder shall be
adjusted immediately to the Series C Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Security, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(h) De Minimus Changes. Notwithstanding anything to the
contrary in this Section 6, no adjustment to the Series C Conversion Price shall
be required unless such adjustment would require an increase or decrease of at
least one cent ($0.01) in such Series C Conversion Price; provided, however,
that any adjustment which by reason of this subparagraph (h) is not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this subparagraph (h) shall be made to the
nearest cent or the nearest 1/100 of a share, as the case may be.
7. Dividends. If any dividends or other distributions are declared
and paid on shares of any class or series of Junior Securities, the holders of
Series C Preferred Stock shall be entitled to receive in respect of each share
of Series C Preferred Stock such dividends or other distributions out of funds
legally available therefor when, as and if approved by the Board of Directors in
the same amount and manner as they would have been entitled to receive if the
shares of Series C Preferred Stock held of record by such holder were converted
into Conversion Shares on the record date for such dividend or other
distributions.
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8. Information Rights. The Corporation shall deliver to each holder
of the Series C Preferred Stock (i) monthly unaudited financial statements
within 30 days after the end of each month, (ii) an annual financial plan for
the Corporation not more than 90 days nor less than 60 days prior to the
beginning of each fiscal year, and (iii) annual audited financial statements
within 90 days of the end of each financial year, provided that the Corporation
shall be entitled to notice and a reasonable time to cure any default in such
obligations.
9. Effect of Acquisition of Preferred Stock by Corporation. All
shares of Series C Preferred Stock acquired by the Corporation by reason of
purchase or otherwise shall be canceled and cease to be outstanding and shall
have the status of authorized but unissued shares of undesignated preferred
stock and may be redesignated and reissued as part of any series of Preferred
Stock.
10. Consents. So long as any shares of Series C Preferred Stock
shall be outstanding, the approval of the holders of at least a majority of the
shares of Series C Preferred Stock at the time outstanding, voting as a single
class, shall be required for (i) the authorization of any shares of any class or
series of stock of the Corporation having any preference or priority over the
Series C Preferred Stock upon liquidation, dissolution or winding up of the
Corporation, (ii) the reclassification of any shares of stock of the Corporation
into shares of Series C Preferred Stock, and (iii) the amendment, alteration or
repeal of this Certificate to alter or change the preferences, privileges,
rights or powers of the Series B Preferred Stock so as to affect the Series C
Preferred Stock adversely; provided, however, that without the approval of each
holder of the Series C Preferred Stock affected, such amendment or change may
not reduce the Liquidation Preference.
IN WITNESS WHEREOF, Digital Entertainment Network, Inc. has caused this
Certificate to be duly executed in its corporate name as of this 19th day of
August, 1999.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
-------------------------------------
Name: Alan L. Friel
Title: General Counsel
Chief Administrative Officer
<PAGE> 1
EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
OF
DIGITAL ENTERTAINMENT NETWORK, INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices
at such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for
the election of directors or for any other purpose shall be held at such time
and place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. The annual meetings of stockholders
for the election of directors shall be held on such date and at such time as
shall be designated from time to time by the Board of Directors. Any other
proper business may be transacted at the annual meeting of stockholders. No
business may be transacted at an annual meeting of stockholders, other than
business that is either (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors (or
any duly authorized committee thereof), (b) otherwise properly brought before
the annual meeting by or at the direction of the Board of Directors (or any duly
authorized committee thereof) or (c) otherwise properly brought before the
annual meeting by any stockholder of the Company (i) who is a stockholder of
record on the date of the giving of the notice provided for in this Section 2
and on the record date for the determination of stockholders entitled to vote at
such annual meeting and (ii) who complies with the notice procedures set forth
in this Section 2.
In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company.
<PAGE> 2
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 2; provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 2 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 3. Special Meetings. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), special meetings of
stockholders, for any purpose or purposes, may be called by either (i) the
Chairman, if there be one, or (ii) the President, (iii) any Vice President, if
there be one, (iv) the Secretary or (v) any Assistant Secretary, if there be
one, and shall be called by any such officer at the request in writing of (i)
the Board of Directors, or (ii) a committee of the Board of Directors that has
been duly designated by the Board of Directors and whose powers and authority
include the power to call such meetings. Such request shall state the purpose or
purposes of the proposed meeting. At a special meeting of stockholders, only
such business shall be conducted as shall be specified in the notice of meeting
(or any supplement thereto).
Section 4. Notice. Whenever stockholders are required or permitted to
take any action at a meeting, a written notice of the meeting shall be given
which shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall be
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<PAGE> 3
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
Section 5. Adjournments. Any meeting of the stockholders may be
adjourned from time to time to reconvene at the same or some other place, and
notice need not be given of any such adjourned meeting if the time and place
thereof are announced at the meeting at which the adjournment is taken. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 6. Quorum. Unless otherwise required by law or the Certificate
of Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the manner
provided in Section 5, until a quorum shall be present or represented.
Section 7. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the capital stock
represented and entitled to vote thereat, voting as a single class. Unless
otherwise provided in the Certificate of Incorporation, and subject to Section 5
of Article V hereof, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or by
proxy but no proxy shall be voted on or after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 8. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Company, except as may be otherwise provided in the Certificate
of Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Company (i) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 8 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 8.
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In addition to any other applicable requirements, for a nomination to be
made by a stockholder, such stockholder must have given timely notice thereof in
proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be delivered
to or mailed and received at the principal executive offices of the Company (a)
in the case of an annual meeting, not less than sixty (60) days nor more than
ninety (90) days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided, however, that in the event that the
annual meeting is called for a date that is not within thirty (30) days before
or after such anniversary date, notice by the stockholder in order to be timely
must be so received not later than the close of business on the tenth (10th) day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure of the date of the annual meeting was made,
whichever first occurs; and (b) in the case of a special meeting of stockholders
called for the purpose of electing directors, not later than the close of
business on the tenth (10th) day following the day on which notice of the date
of the special meeting was mailed or public disclosure of the date of the
special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the Secretary
must set forth (a) as to each person whom the stockholder proposes to nominate
for election as a director (i) the name, age, business address and residence
address of the person, (ii) the principal occupation or employment of the
person, (iii) the class or series and number of shares of capital stock of the
Company which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nominations are to be made by such stockholder, (iv) a representation
that such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the Company
unless nominated in accordance with the procedures set forth in this Section 8.
If the Chairman of the meeting determines that a nomination was not made in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the nomination was defective and such defective nomination shall be
disregarded.
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<PAGE> 5
Section 9. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11. Conduct of Meetings. The Board of Directors of the
Corporation may adopt by resolution such rules and regulations for the conduct
of the meetings of the stockholders as it shall deem appropriate. Except to the
extent inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE II
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall consist of not less than one nor more than fifteen members, the exact
number of which shall be fixed from time to time by the Board of Directors.
Except as provided in Section 2 of this Article III, directors shall be elected
by a plurality of the votes cast at the annual meetings of stockholders and each
director so elected shall hold office until the next annual meeting of
stockholders and until such director's successor is duly elected and qualified,
or until such director's earlier death, resignation or removal. Any director may
resign at any time upon written notice to the Corporation. Directors need not
be stockholders.
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<PAGE> 6
Section 2. Vacancies. Unless otherwise required by law or the
Certificate of Incorporation, vacancies arising through death, resignation,
removal, an increase in the number of directors or otherwise may be filled only
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Certificate of Incorporation or
by these Bylaws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by the Board of Directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 5. Quorum. Except as otherwise required by law or the
Certificate of Incorporation, at all meetings of the Board of Directors, a
majority of the entire Board of Directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not he present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting of the time and
place of the adjourned meeting, until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided in the Certificate of Incorporation, members of the Board of Directors
of the Corporation, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
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Section 8. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 9. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors and may be paid a
fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director, payable in cash or securities. No such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor. Members of special or standing committees may
be allowed like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or solely because the director or officer's vote is
counted for such purpose, if (i) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the Board of Directors or the committee, and the Board
of Directors or committee in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (ii) the material
facts as to the director or officer's relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
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ARTICLE IV
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Chief
Financial Officer. The Board of Directors, in its discretion, also may choose a
Chairman of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law or the Certificate of Incorporation. The officers of the Corporation need
not be stockholders of the Corporation nor, except in the case of the Chairman
of the Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first meeting held
after each Annual Meeting of Stockholders, shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier death,
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President or any
other officer authorized to do so by the Board of Directors and any such officer
may, in the name of and on behalf of the Corporation, take all such action as
any such officer may deem advisable to vote in person or by proxy at any meeting
of security holders of any corporation in which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Corporation, unless the Board of Directors
designates the President as the Chief Executive Officer, and, except where by
law the signature of the President is required, the Chairman of the Board of
Directors shall possess the same power as the President to sign all contracts,
certificates and other instruments of the Corporation which may be authorized by
the Board of Directors. During the absence or disability of the President, the
Chairman of the Board of Directors shall exercise all the powers and discharge
all the duties of the President. The Chairman of the Board
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of Directors shall also perform such other duties and may exercise such other
powers as may from time to time be assigned by these Bylaws or by the Board of
Directors.
Section 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors, or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned to such officer by these Bylaws or by the Board of
Directors.
Section 6. Executive Vice Presidents. At the request of the President or
in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the
Executive Vice President, or the Executive Vice Presidents if there is more than
one (in the order designated by the Board of Directors), shall perform the
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Each Executive Vice
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Executive Vice President, the Board of Directors
shall designate the officer of the Corporation who, in the absence of the
President or in the event of the inability or refusal of the President to act,
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for committees of the Board of
Directors when required. The Secretary shall give, or cause to be given, notice
of all meetings of the stockholders and special meetings of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors, the Chairman of the Board of Directors or the President, under
whose supervision the Secretary shall be. If the Secretary shall be unable or
shall refuse to cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there be one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer
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to affix the seal of the Corporation and to attest to the affixing by such
officer's signature. The Secretary shall see that all books, reports,
statements, certificates and other documents and records required by law to be
kept or filed are properly kept or filed, as the case may be.
Section 8. Chief Financial Officer. The Chief Financial Officer shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Chief Financial Officer shall disburse the funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the Board
of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all transactions as Chief Financial Officer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Chief Financial Officer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of the office of the Chief Financial
Officer and for the restoration to the Corporation, in case of the Chief
Financial Officer's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in the
Chief Financial Officer's possession or under the Chief Financial Officer's
control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, shall perform the duties
of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Chief Financial Officer, and in the absence of the Chief
Financial Officer or in the event of the Chief Financial Officer's disability or
refusal to act, shall perform the duties of the Chief Financial Officer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Financial Officer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging to
the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and
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powers. Without limiting the foregoing, the Board of Directors hereby creates
the positions of Chief Marketing Officer and Chief Technology Officer, each
position to have the powers as given them by the Board of Directors and each
position also to be deemed an Executive Vice President.
ARTICLE V
STOCK
Section 1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Chief Financial Officer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the Corporation,
certifying the number of shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued. No transfer of stock shall be valid as against the
Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date.
(a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the board of directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than
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sixty nor less than ten days before the date of such meeting. If no record is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; providing, however, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise required by law.
ARTICLE VI
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at such
person's address as it appears on the records of the Corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Written notice may also
be given personally or by telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting, present in person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the requirements of the DGCL and the provisions of the
Certificate of Incorporation, if any, may be declared by the Board of Directors
at any regular or special meeting of the Board of Directors (or any action by
written consent in lieu thereof in accordance with Section 6 of Article III
hereof), and may be paid in cash, in property, or in shares of the Corporation's
capital stock. Before payment of any dividend, there may be set aside out of any
funds of the Corporation available for dividends such sum or sums as the Board
of Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware." The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article VIII, the Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or investi-
gative (other than an action by or in the right of the Corporation) by reason of
the fact that such person is or was a director or officer of the Corporation, or
is or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The
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termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section 1 or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
such person shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by such person in connection therewith, without
the necessity of authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
such person by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal
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counsel for the Corporation or another enterprise or on information or records
given or reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 4 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 4 shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Section 1 or 2 of this Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. if successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a director
or officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article VIII shall not be deemed exclusive of any other rights
to which those seeking indemnification or advancement of expenses may be
entitled under the Certificate of Incorporation, any Bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
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Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification
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and to the advancement of expenses to employees and agents of the Corporation
similar to those conferred in this Article VIII to directors and officers of the
Corporation.
ARTICLE IX
AMENDMENTS
Section 1. Amendments. These Bylaws may be altered, amended or repealed,
in whole or in part, or new Bylaws may be adopted by, the stockholders or by the
Board of Directors; provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of two-thirds of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX and in
these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
* * *
Adopted as of: December 30, 1998
------------------------------
Last Amended as of: May 2, 1999
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EXHIBIT 3.5
THIRD RESTATED
CERTIFICATE OF INCORPORATION
OF
DIGITAL ENTERTAINMENT NETWORK, INC.
Digital Entertainment Network, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "Act"), DOES HEREBY CERTIFY THAT:
1. In accordance with the provisions of Sections 242 and 245 of the
Act, this restatement of the Second Restated Certificate of
Incorporation of the Corporation has been duly adopted by the
stockholders and the Board of Directors of this Corporation by
written consent in accordance with Section 228(a) and 141(f),
respectively, of the Act. The original Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on
June 4, 1996. The Second Restated Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on
May 20, 1999.
2. This restatement amends and restates this Corporation's Second
Restated Certificate of Incorporation to read in its entirety as
follows:
FIRST: The name of the Corporation is:
Digital Entertainment Network, Inc. (hereinafter the
"Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, City of Wilmington, County of New
Castle, 19805. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as set forth in Title 8 of the Act.
FOURTH: The total number of shares of stock which the Corporation
shall have the authority to issue is one hundred-twenty million (120,000,000)
shares of Common Stock, each having a par value of one penny ($.01) ("Common
Stock"), and twenty million (20,000,000) shares of Preferred Stock, each having
a par value of one penny ($.01) ("Preferred Stock").
The Board of Directors is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such distinctive designations, preferences and
relative, participating, optional or other special rights and such
<PAGE> 2
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such class or series and as may be permitted by
the Act, including, without limitation, the authority to provide that any such
class or series may be (i) subject to redemption at such time or times and at
such price or prices, (ii) entitled to receive dividends (which may be
cumulative or non-cumulative) at such rates, on such conditions, and at such
times, (iii) entitled to such rights upon the dissolution of, or upon any
distribution of the assets of, the Corporation, or (iv) convertible into, or
exchangeable for, shares of any other class or classes of stock, or of any other
series of the same or any other class or classes of stock, of the Corporation at
such price or prices or at such rates of exchange and with such adjustments; all
as may be stated in such resolution or resolutions. Subject to the express terms
of any other series of Preferred Stock outstanding at the time, the Board of
Directors may increase or decrease the number of shares or alter the designation
or classify or reclassify any unissued shares of a particular series of
Preferred Stock by fixing or altering in any one or more respect from time to
time before issuing the shares any terms, rights, restrictions and qualification
of the shares.
FIFTH: Subject to any restrictions or limitations of applicable law,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended, covering
the offer and sale of Common Stock to the public, the directors shall be divided
into three classes, designated Class I, Class II and Class III. Each class shall
consist, as nearly as may be possible, of one-third of the total number of
directors constituting the entire Board of Directors. The term of the initial
Class I directors shall terminate on the date of the 2000 annual meeting; the
term of the initial Class II directors shall terminate on the date of the 2001
annual meeting; and the term of the Class III directors shall terminate on the
date of the 2002 annual meeting. At each succeeding annual meeting of
stockholders beginning in 2000, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equally as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. The initial assignment of directors to the three classes shall be
determined by resolution of the Board of Directors.
SIXTH: The following provisions are inserted for the management of
the business and conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(1) All corporate powers and authority of the Corporation (except as
at the time otherwise provided by law, by this Certificate of
Incorporation or by the Bylaws) shall be vested in and exercised by the
Board of Directors.
(2) In furtherance and not in limitation of the powers conferred
upon it by the laws of the State of Delaware, the Board of Directors shall
have the power to adopt, amend, alter or repeal the Corporation's Bylaws.
The affirmative vote of at least a
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majority of the entire Board of Directors shall be required to adopt,
amend, alter or repeal the Corporation's Bylaws. The Corporation's Bylaws
also may be adopted, amended, altered or repealed by the affirmative vote
of the holders of at least a majority of the voting power of the issued
and outstanding capital stock of the Corporation entitled to vote in the
election of directors.
(3) The Board of Directors shall consist of not less than twelve nor
more than twenty members, the exact number of which shall be fixed from
time to time by the Board of Directors. Except as provided in this
Certification of Incorporation, the number of directors of the Corporation
shall be fixed and may be altered from time to time in the manner provided
in the Bylaws, and vacancies in the Board of Directors and newly created
directorships resulting from any increase in the authorized number of
directors may be filled and directors may be removed as provided in the
Bylaws. Election of directors need not be by written ballot unless the
Bylaws so provide.
(4) No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Act or (iv)
for any transaction from which the director derived an improper personal
benefit.
Any repeal or modification of this Article SIXTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior
to such repeal or modification.
(5) In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such powers and do all such acts and things as may be
exercised or done by the Corporation, subject, nevertheless, to the
provisions of the Act, this Certificate of Incorporation, and any Bylaws
adopted by the stockholders; provided, however, that no Bylaws hereafter
adopted by the stockholders shall invalidate any prior act of the
directors which would have been valid if such Bylaws had not been adopted.
(6) Unless otherwise required by law, special meetings of
stockholders, for any purpose or purposes, may be called by (i) the
Chairman of the Board of Directors, (ii) the Chief Executive Officer of
the Corporation, (iii) the Executive Committee of the Corporation or (iv)
the Board of Directors. The ability of the stockholders to call a special
meeting of stockholders is hereby specifically denied.
(7) Any director of the entire Board of Directors may be removed
from office at any time, but only for cause, and only by the affirmative
vote of the holders of at least sixty-six and two-thirds percent (66 2/3%)
of the voting power of the issued and outstanding capital stock of the
Corporation entitled to vote in the election of directors.
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SEVENTH: Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the Corporation may
be kept (subject to any provision contained in the Act) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
EIGHTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation, and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation; provided, however,
that no amendment, alteration, or repeal may occur to Article FIFTH, Article
SIXTH, Article EIGHTH or this Article NINTH without the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of the issued and outstanding capital stock of the Corporation entitled to
vote in the election of directors; provided, however, that the Executive
Committee may determine that certain of such provisions will not require
super-majority approval for amendment.
IN WITNESS WHEREOF, I, Alan L. Friel, Secretary of the Corporation,
have executed this Amended and Restated Certificate of Incorporation on behalf
of the Corporation as of the ____ day of ______, 1999, and DO HEREBY CERTIFY
under the penalties of perjury that the facts stated in this Third Restated
Certificate of Incorporation are true.
___________________________________
Alan L. Friel
Secretary
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EXHIBIT 3.6
SECOND
AMENDED AND RESTATED
BYLAWS
OF
DIGITAL ENTERTAINMENT NETWORK, INC.
(hereinafter called the "Corporation")
ARTICLE I.
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be in the City of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine.
ARTICLE II.
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors.
Section 2. Annual Meetings. The annual meetings of stockholders for the
election of directors shall be held on such date and at such time as shall be
designated from time to time by the Board of Directors. Any other proper
business may be transacted at the annual meeting of stockholders. No business
may be transacted at an annual meeting of stockholders, other than business that
is either (a) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors (or any duly authorized
committee thereof), (b) otherwise properly brought before the annual meeting by
or at the direction of the Board of Directors (or any duly authorized committee
thereof) or (c) otherwise properly brought before the annual meeting by any
stockholder of the Company (i) who is a stockholder of record on the date of the
giving of the notice provided for in this Section 2 and on the record date for
the determination of stockholders entitled to vote at such annual meeting and
(ii) who complies with the notice procedures set forth in this Section 2.
In addition to any other applicable requirements, for business to be
properly brought before an annual meeting by a stockholder, such stockholder
must have given timely notice thereof in proper written form to the Secretary of
the Company.
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To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company not less than sixty (60) days nor more than ninety (90) days prior to
the anniversary date of the immediately preceding annual meeting of
stockholders; provided, however, that in the event that the annual meeting is
called for a date that is not within thirty (30) days before or after such
anniversary date, notice by the stockholder in order to be timely must be so
received not later than the close of business on the tenth (10th) day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made, whichever
first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth as to each matter such stockholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of such stockholder,
(iii) the class or series and number of shares of capital stock of the Company
which are owned beneficially or of record by such stockholder, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
No business shall be conducted at the annual meeting of stockholders
except business brought before the annual meeting in accordance with the
procedures set forth in this Section 2; provided, however, that, once business
has been properly brought before the annual meeting in accordance with such
procedures, nothing in this Section 2 shall be deemed to preclude discussion by
any stockholder of any such business. If the Chairman of an annual meeting
determines that business was not properly brought before the annual meeting in
accordance with the foregoing procedures, the Chairman shall declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
Section 3. Special Meetings. Unless otherwise required by law or by the
certificate of incorporation of the Corporation, as amended and restated from
time to time (the "Certificate of Incorporation"), special meetings of
stockholders, for any purpose or purposes, may be called by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, (iii) the Executive
Committee or (iv) the Board of Directors or any committee of the Board of
Directors that has been duly designated by the Board of Directors and whose
powers and authority include the power to call such meetings. Such request shall
state the purpose or purposes of the proposed meeting. At a special meeting of
stockholders, only such business shall be conducted as shall be specified in the
notice of meeting (or any supplement thereto). The ability of the stockholders
to call a special meeting of stockholders is hereby specifically denied.
Section 4. Notice. Whenever stockholders are required or permitted to take
any action at a meeting, a written notice of the meeting shall be given which
shall state the place, date and hour of the meeting, and, in the case of a
special meeting, the purpose or purposes for which the meeting is called. Unless
otherwise required by law, the written notice of any meeting shall
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be given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder entitled to vote at such meeting.
Section 5. Adjournments. Any meeting of the stockholders may be adjourned
from time to time to reconvene at the same or some other place, and notice need
not be given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the Corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 6. Quorum. Unless otherwise required by law or the Certificate of
Incorporation, the holders of a majority of the capital stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business. A quorum, once established, shall not be broken by the
withdrawal of enough votes to leave less than a quorum. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, in the manner
provided in Section 5, until a quorum shall be present or represented.
Section 7. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these Bylaws, any question brought before any meeting of
stockholders, other than the election of directors, shall be decided by the vote
of the holders of a majority of the total number of votes of the capital stock
represented and entitled to vote thereat, voting as a single class. Unless
otherwise provided in the Certificate of Incorporation, and subject to Section 5
of Article V hereof, each stockholder represented at a meeting of stockholders
shall be entitled to cast one vote for each share of the capital stock entitled
to vote thereat held by such stockholder. Such votes may be cast in person or by
proxy but no proxy shall be voted on or after three years from its date, unless
such proxy provides for a longer period. The Board of Directors, in its
discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in such officer's discretion, may require that any votes cast at
such meeting shall be cast by written ballot.
Section 8. Nomination of Directors. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors of the Company, except as may be otherwise provided in the Certificate
of Incorporation with respect to the right of holders of preferred stock of the
Corporation to nominate and elect a specified number of directors in certain
circumstances. Nominations of persons for election to the Board of Directors may
be made at any annual meeting of stockholders, or at any special meeting of
stockholders called for the purpose of electing directors, (a) by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (b) by any stockholder of the Company (i) who is a stockholder of record on
the date of the giving of the notice provided for in this Section 8 and on the
record date for the determination of stockholders entitled to vote at such
meeting and (ii) who complies with the notice procedures set forth in this
Section 8.
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In addition to any other applicable requirements, for a nomination
to be made by a stockholder, such stockholder must have given timely notice
thereof in proper written form to the Secretary of the Company.
To be timely, a stockholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Company (a) in the case of an annual meeting, not less than sixty (60) days nor
more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of stockholders; provided, however, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the stockholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth (10th) day following the day on which notice of
the date of the special meeting was mailed or public disclosure of the date of
the special meeting was made, whichever first occurs.
To be in proper written form, a stockholder's notice to the
Secretary must set forth (a) as to each person whom the stockholder proposes to
nominate for election as a director (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class or series and number of shares of capital stock of
the Company which are owned beneficially or of record by the person and (iv) any
other information relating to the person that would be required to be disclosed
in a proxy statement or other filings required to be made in connection with
solicitations of proxies for election of directors pursuant to Section 14 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder; and (b) as to the stockholder giving the
notice (i) the name and record address of such stockholder, (ii) the class or
series and number of shares of capital stock of the Company which are owned
beneficially or of record by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder and each proposed
nominee and any other person or persons (including their names) pursuant to
which the nominations are to be made by such stockholder, (iv) a representation
that such stockholder intends to appear in person or by proxy at the meeting to
nominate the persons named in its notice and (v) any other information relating
to such stockholder that would be required to be disclosed in a proxy statement
or other filings required to be made in connection with solicitations of proxies
for election of directors pursuant to Section 14 of the Exchange Act and the
rules and regulations promulgated thereunder. Such notice must be accompanied by
a written consent of each proposed nominee to being named as a nominee and to
serve as a director if elected.
No person shall be eligible for election as a director of the
Company unless nominated in accordance with the procedures set forth in this
Section 8. If the Chairman of the meeting determines that a nomination was not
made in accordance with the foregoing procedures, the Chairman shall declare to
the meeting that the nomination was defective and such defective nomination
shall be disregarded.
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Section 9. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting, or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
Section 10. Stock Ledger. The stock ledger of the Corporation shall be the
only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 9 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 11. Conduct of Meetings. The Board of Directors of the Corporation
may adopt by resolution such rules and regulations for the conduct of the
meetings of the stockholders as it shall deem appropriate. Except to the extent
inconsistent with such rules and regulations as adopted by the Board of
Directors, the chairman of any meeting of the stockholders shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts as, in the judgment of such chairman, are appropriate for the proper
conduct of the meeting. Such rules, regulations or procedures, whether adopted
by the Board of Directors or prescribed by the chairman of the meeting, may
include, without limitation, the following: (i) the establishment of an agenda
or order of business for the meeting; (ii) the determination of when the polls
shall open and close for any given matter to be voted on at the meeting; (iii)
rules and procedures for maintaining order at the meeting and the safety of
those present; (iv) limitations on attendance at or participation in the meeting
to stockholders of record of the corporation, their duly authorized and
constituted proxies or such other persons as the chairman of the meeting shall
determine; (v) restrictions on entry to the meeting after the time fixed for the
commencement thereof; and (vi) limitations on the time allotted to questions or
comments by participants.
ARTICLE III.
DIRECTORS
Section 1. Staggered Board. The Board of Directors shall consist of
not less than twelve nor more than twenty members, the exact number of which
shall be fixed from time to time by resolution of the Board of Directors.
Subject to any restrictions or limitations of applicable law, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock to the public, the directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the
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total number of directors constituting the entire Board of Directors. The term
of the initial Class I directors shall terminate on the date of the 2000 annual
meeting; the term of the initial Class II directors shall terminate on the date
of the 2001 annual meeting; and the term of the Class III directors shall
terminate on the date of the 2002 annual meeting. At each succeeding annual
meeting of stockholders beginning in 2000, successors to the class of directors
whose term expires at that annual meeting shall be elected for a three-year
term. If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equally as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. The initial assignment of directors to the three classes
shall be determined by resolution of the Board of Directors.
Any director may resign at any time upon written notice to the
Corporation. Directors need not be stockholders.
Section 2. Vacancies. Unless otherwise required by law or the Certificate
of Incorporation, vacancies arising through death, resignation, removal, an
increase in the number of directors or otherwise may be filled only by a
majority of the directors then in office, though less than a quorum, or by a
sole remaining director, and the directors so chosen shall hold office until the
next annual election and until their successors are duly elected and qualified,
or until their earlier death, resignation or removal.
Section 3. Duties and Powers. The business and affairs of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws required to be exercised or done by the stockholders.
Section 4. Meetings. The Board of Directors may hold meetings, both
regular and special, either within or without the State of Delaware. Regular
meetings of the Board of Directors may be held without notice at such time and
at such place as may from time to time be determined by the Board of Directors.
Special meetings of the Board of Directors may be called by the Chairman, if
there be one, the President, or by the Board of Directors. Notice thereof
stating the place, date and hour of the meeting shall be given to each director
either by mail not less than forty-eight (48) hours before the date of the
meeting, by telephone or telegram on twenty-four (24) hours' notice, or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 5. Quorum. Except as otherwise required by law or the Certificate
of Incorporation, at all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. If a quorum
shall not he present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than
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announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
Section 6. Actions by Written Consent. Unless otherwise provided in the
Certificate of Incorporation, or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 7. Meetings by Means of Conference Telephone. Unless otherwise
provided in the Certificate of Incorporation, members of the Board of Directors
of the Corporation, or any committee thereof, may participate in a meeting of
the Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
Section 8. Committees. The Board of Directors may designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or disqualification
of a member of a committee, and in the absence of a designation by the Board of
Directors of an alternate member to replace the absent or disqualified member,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any absent or disqualified member. Any committee, to the
extent permitted by law and provided in the resolution establishing such
committee, shall have and may exercise all the powers and authority of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Each committee shall keep regular minutes and report to the
Board of Directors when required.
Section 9. Compensation. The directors may be paid their expenses, if any,
of attendance at each meeting of the Board of Directors and may be paid a fixed
sum for attendance at each meeting of the Board of Directors or a stated salary
as director, payable in cash or securities. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 10. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers or have a financial interest, shall be void or voidable solely for this
reason, or solely because the director or officer is present at or participates
in the meeting of the Board of Directors or committee thereof which authorizes
the contract or transaction, or
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solely because the director or officer's vote is counted for such purpose, if
(i) the material facts as to the director or officer's relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested directors
be less than a quorum; or (ii) the material facts as to the director or
officer's relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board of Directors,
a committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
ARTICLE IV.
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by the
Board of Directors and shall be a President, a Secretary and a Chief Financial
Officer. The Board of Directors, in its discretion, also may choose a Chairman
of the Board of Directors (who must be a director) and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers and other officers. Any
number of offices may be held by the same person, unless otherwise prohibited by
law or the Certificate of Incorporation. The officers of the Corporation need
not be stockholders of the Corporation nor, except in the case of the Chairman
of the Board of Directors, need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors, at its first meeting held
after each Annual Meeting of Stockholders, shall elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier death,
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of notice of meeting, consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President or any other
officer authorized to do so by the Board of Directors and any such officer may,
in the name of and on behalf of the Corporation, take all such action as any
such officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed
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if present. The Board of Directors may, by resolution, from time to time confer
like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the Board
of Directors, if there be one, shall preside at all meetings of the stockholders
and of the Board of Directors. The Chairman of the Board of Directors shall be
the Chief Executive Officer of the Corporation, unless the Board of Directors
designates the President as the Chief Executive Officer, and, except where by
law the signature of the President is required, the Chairman of the Board of
Directors shall possess the same power as the President to sign all contracts,
certificates and other instruments of the Corporation which may be authorized by
the Board of Directors. During the absence or disability of the President, the
Chairman of the Board of Directors shall exercise all the powers and discharge
all the duties of the President. The Chairman of the Board of Directors shall
also perform such other duties and may exercise such other powers as may from
time to time be assigned by these Bylaws or by the Board of Directors.
Section 5. President. The President shall, subject to the control of the
Board of Directors and, if there be one, the Chairman of the Board of Directors,
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried into effect.
The President shall execute all bonds, mortgages, contracts and other
instruments of the Corporation requiring a seal, under the seal of the
Corporation, except where required or permitted by law to be otherwise signed
and executed and except that the other officers of the Corporation may sign and
execute documents when so authorized by these Bylaws, the Board of Directors or
the President. In the absence or disability of the Chairman of the Board of
Directors or if there be none, the President shall preside at all meetings of
the stockholders and the Board of Directors. If there be no Chairman of the
Board of Directors, or if the Board of Directors shall otherwise designate, the
President shall be the Chief Executive Officer of the Corporation. The President
shall also perform such other duties and may exercise such other powers as may
from time to time be assigned to such officer by these Bylaws or by the Board of
Directors.
Section 6. Executive Vice Presidents. At the request of the President or
in the President's absence or in the event of the President's inability or
refusal to act (and if there be no Chairman of the Board of Directors), the
Executive Vice President, or the Executive Vice Presidents if there is more than
one (in the order designated by the Board of Directors), shall perform the
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Each Executive Vice
President shall perform such other duties and have such other powers as the
Board of Directors from time to time may prescribe. If there be no Chairman of
the Board of Directors and no Executive Vice President, the Board of Directors
shall designate the officer of the Corporation who, in the absence of the
President or in the event of the inability or refusal of the President to act,
shall perform the duties of the President, and when so acting, shall have all
the powers of and be subject to all the restrictions upon the President.
Section 7. Secretary. The Secretary shall attend all meetings of the Board
of Directors and all meetings of stockholders and record all the proceedings
thereat in a book or
9
<PAGE> 10
books to be kept for that purpose; the Secretary shall also perform like duties
for committees of the Board of Directors when required. The Secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors, the Chairman of the Board of
Directors or the President, under whose supervision the Secretary shall be. If
the Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and special meetings of the Board of Directors, and
if there be no Assistant Secretary, then either the Board of Directors or the
President may choose another officer to cause such notice to be given. The
Secretary shall have custody of the seal of the Corporation and the Secretary or
any Assistant Secretary, if there be one, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant Secretary.
The Board of Directors may give general authority to any other officer to affix
the seal of the Corporation and to attest to the affixing by such officer's
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or filed
are properly kept or filed, as the case may be.
Section 8. Chief Financial Officer. The Chief Financial Officer shall have
the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
Corporation and shall deposit all moneys and other valuable effects in the name
and to the credit of the Corporation in such depositories as may be designated
by the Board of Directors. The Chief Financial Officer shall disburse the funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the Board
of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all transactions as Chief Financial Officer and of the
financial condition of the Corporation. If required by the Board of Directors,
the Chief Financial Officer shall give the Corporation a bond in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of the office of the Chief Financial
Officer and for the restoration to the Corporation, in case of the Chief
Financial Officer's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in the
Chief Financial Officer's possession or under the Chief Financial Officer's
control belonging to the Corporation.
Section 9. Assistant Secretaries. Assistant Secretaries, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Secretary, and in the absence of the Secretary or in the
event of the Secretary's disability or refusal to act, shall perform the duties
of the Secretary, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the Secretary.
Section 10. Assistant Treasurers. Assistant Treasurers, if there be any,
shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Chief Financial Officer, and in the absence of the Chief
Financial Officer or in the event of the Chief Financial Officer's
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<PAGE> 11
disability or refusal to act, shall perform the duties of the Chief Financial
Officer, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the Chief Financial Officer. If required by the Board of
Directors, an Assistant Treasurer shall give the Corporation a bond in such sum
and with such surety or sureties as shall be satisfactory to the Board of
Directors for the faithful performance of the duties of the office of Assistant
Treasurer and for the restoration to the Corporation, in case of the Assistant
Treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the Assistant
Treasurer's possession or under the Assistant Treasurer's control belonging to
the Corporation.
Section 11. Other Officers. Such other officers as the Board of Directors
may choose shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers. Without limiting
the foregoing, the Board of Directors hereby creates the positions of Chief
Marketing Officer and Chief Technology Officer, each position to have the powers
as given them by the Board of Directors and each position also to be deemed an
Executive Vice President.
ARTICLE V.
STOCK
Section 1. Form of Certificates. Every holder of stock in the Corporation
shall be entitled to have a certificate signed, in the name of the Corporation
(i) by the Chairman of the Board of Directors, the President or a Vice President
and (ii) by the Chief Financial Officer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number of
shares owned by such stockholder in the Corporation.
Section 2. Signatures. Any or all of the signatures on a certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the Corporation with the same effect as if such
person were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificate theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
certificate, or the owner's legal representative, to advertise the same in such
manner as the Board of Directors shall require and/or to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen or destroyed or the issuance of such new certificate.
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<PAGE> 12
Section 4. Transfers. Stock of the Corporation shall be transferable in
the manner prescribed by law and in these Bylaws. Transfers of stock shall be
made on the books of the Corporation only by the person named in the certificate
or by such person's attorney lawfully constituted in writing and upon the
surrender of the certificate therefor, which shall be canceled before a new
certificate shall be issued. No transfer of stock shall be valid as against the
Corporation for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
Section 5. Record Date.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board of Directors, and which record date shall not be more than sixty
nor less than ten days before the date of such meeting. If no record is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; providing, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining stockholders
for any such purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
Section 6. Record Owners. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, and to hold liable for calls
and assessments a person registered on its books as the owner of shares, and
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise required by law.
ARTICLE VI.
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a
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<PAGE> 13
committee or stockholder, at such person's address as it appears on the records
of the Corporation, with postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall be deposited in the United
States mail. Written notice may also be given personally or by telegram, telex
or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting, present in person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
ARTICLE VII.
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the Corporation,
subject to the requirements of the DGCL and the provisions of the Certificate of
Incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting of the Board of Directors (or any action by written consent
in lieu thereof in accordance with Section 6 of Article III hereof), and may be
paid in cash, in property, or in shares of the Corporation's capital stock.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed thereon
the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE VIII.
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other than
Those by
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<PAGE> 14
or in the Right of the Corporation. Subject to Section 3 of this Article VIII,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such
person's conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article VIII, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that such person is or was a director or officer of the Corporation, or is
or was a director or officer of the Corporation serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection with the defense or settlement of such action or suit
if such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article VIII (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section I or Section 2 of this Article VIII, as the case may be. Such
determination shall be made (i) by a majority vote of the directors who are not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or
14
<PAGE> 15
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, such person shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, without the necessity of authorization in
the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article VIII, a person shall be deemed to have acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe such person's conduct
was unlawful, if such person's action is based on the records or books of
account of the Corporation or another enterprise, or on information supplied to
such person by the officers of the Corporation or another enterprise in the
course of their duties, or on the advice of legal counsel for the Corporation or
another enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public accountant
or by an appraiser or other expert selected with reasonable care by the
Corporation or another enterprise. The term "another enterprise" as used in this
Section 4 shall mean any other corporation or any partnership, joint venture,
trust, employee benefit plan or other enterprise of which such person is or was
serving at the request of the Corporation as a director, officer, employee or
agent. The provisions of this Section 4 shall not be deemed to be exclusive or
to limit in any way the circumstances in which a person may be deemed to have
met the applicable standard of conduct set forth in Section 1 or 2 of this
Article VIII, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article VIII, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to the Court of Chancery in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 1 and 2 of
this Article VIII. The basis of such indemnification by a court shall be a
determination by such court that indemnification of the director or officer is
proper in the circumstances because such person has met the applicable standards
of conduct set forth in Section 1 or 2 of this Article VIII, as the case may be.
Neither a contrary determination in the specific case under Section 3 of this
Article VIII nor the absence of any determination thereunder shall be a defense
to such application or create a presumption that the director or officer seeking
indemnification has not met any applicable standard of conduct. Notice of any
application for indemnification pursuant to this Section 5 shall be given to the
Corporation promptly upon the filing of such application. If successful, in
whole or in part, the director or officer seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses incurred by a director or
officer in defending any civil, criminal, administrative or investigative
action, suit or proceeding shall be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that such person is not entitled to be
indemnified by the Corporation as authorized in this Article VIII.
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses.
The
15
<PAGE> 16
indemnification and advancement of expenses provided by or granted pursuant to
this Article VIII shall not be deemed exclusive of any other rights to which
those seeking indemnification or advancement of expenses may be entitled under
the Certificate of Incorporation, any Bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Sections 1 and 2 of this Article VIII shall be made to the
fullest extent permitted by law. The provisions of this Article VIII shall not
be deemed to preclude the indemnification of any person who is not specified in
Section 1 or 2 of this Article VIII but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware, or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain insurance
on behalf of any person who is or was a director or officer of the Corporation,
or is or was a director or officer of the Corporation serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against such person and incurred by
such person in any such capacity, or arising out of such person's status as
such, whether or not the Corporation would have the power or the obligation to
indemnify such person against such liability under the provisions of this
Article VIII.
Section 9. Certain Definitions. For purposes of this Article VIII,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of this Article VIII with respect to the
resulting or surviving corporation as such person would have with respect to
such constituent corporation if its separate existence had continued. For
purposes of this Article VIII, references to "fines" shall include any excise
taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director or officer with
respect to an employee benefit plan, its participants or beneficiaries; and a
person who acted in good faith and in a manner such person reasonably believed
to be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the best
interests of the Corporation" as referred to in this Article VIII.
Section 10. Survival of Indemnification and Advancement of Expenses. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VIII shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of the heirs, executors and
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<PAGE> 17
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article VIII to the contrary, except for proceedings to
enforce rights to indemnification (which shall be governed by Section 5 hereof),
the Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation may,
to the extent authorized from time to time by the Board of Directors, provide
rights to indemnification and to the advancement of expenses to employees and
agents of the Corporation similar to those conferred in this Article VIII to
directors and officers of the Corporation.
ARTICLE IX.
AMENDMENTS
Section 1. Amendments. These Bylaws may be altered, amended or repealed,
in whole or in part, or new Bylaws may be adopted by, the stockholders or by the
Board of Directors; provided, however, that notice of such alteration,
amendment, repeal or adoption of new Bylaws be contained in the notice of such
meeting of stockholders or Board of Directors as the case may be. All such
amendments must be approved by either the holders of two-thirds of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors then in office.
Section 2. Entire Board of Directors. As used in this Article IX and in
these Bylaws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
* * *
Adopted as of:______________________________
Last Amended as of:_________________________
17
<PAGE> 1
EXHIBIT 4.1
FRONT
Common Stock Common Stock
Number Shares
[logo of Digital Entertainment Network]
incorporated under the laws cusip
of the state of delaware
see reverse for certain
definitions and legends
This certifies that specimen
is the record holder of
fully paid and nonassessable shares of the Common Stock,
par value $.01 per share, of
DIGITAL ENTERTAINMENT NETWORK, INC.
transferable on the books of the corporation by the holder hereof in person or
by duly authorized attorney on surrender of this certificate properly endorsed.
this certificate is not valid until countersigned and registered by the transfer
agent and registrar.
witness the facsimile seal of the corporation and the facsimile signatures of
its duly authorized officers.
dated:
[Seal]
/s/ ALAN L. FRIEL /s/ DAVID NEWMAN
- ---------------------------------- ----------------------------------
secretary president
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY
-------------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
BACK
The Corporation will furnish without charge to each stockholder who so requests
the powers, designations, preferences and relative, participating, optional, or
other special rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences and/or rights.
Such requests shall be made to the Corporation's Secretary at the principal
office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE
CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE OF A
REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C>
TEN COM N -- as tenants in common UNIF GIFT MIN ACT -- ......................... Custodian ...................
TEN ENT N -- as tenants by the entireties (Cust) (Minor)
JT TEN N -- as joint tenants with right of
survivorship and not as tenants
in common under Uniform Gifts to Minors
Act ....................................................
(State)
UNIF TRF MIN ACT -- ................. Custodian (until age ................)
(Cust)
................................ under Uniform Transfers
(Minor)
to Minors Act ..........................................
(State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED, .................. hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
...............................................................................
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
...............................................................................
...............................................................................
.........................................................................Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
........................................................................Attorney
to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated .......................
X ......................................
X ......................................
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
<TABLE>
<CAPTION>
<S> <C>
By ..................................................................................
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
</TABLE>
<PAGE> 3
<PAGE> 1
EXHIBIT 4.2
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM UNDER THE ACT,
THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
DIGITAL ENTERTAINMENT NETWORK, INC.
a Delaware corporation
(the "Corporation")
8% Convertible Note due December 31, 1999
Los Angeles, California
As of October 27, 1998
$3,444,818.92
1. Principal and Interest. For value received, Digital
Entertainment Network, Inc., a Delaware corporation (the "Corporation"), hereby
promises to pay to Marc Collins-Rector, as Trustee of the Marc Collins-Rector
Revocable Trust U/A/D 7/28/97, or registered assigns (the "Holder"), the
principal sum of Three Million Four Hundred Forty-Four Thousand Eight Hundred
Eighteen Dollars and Ninety-Two cents ($3,444,818.92), on December 31, 1999,
together with accrued and unpaid interest thereon (computed on the basis of a
three hundred sixty (360) day year of twelve (12) thirty (30) day months) at the
rate of eight percent (8%) per annum from the date hereof, and with interest on
any overdue principal and on any overdue interest, at the rate of the lesser of
thirteen percent (13%) per annum or the highest rate permitted by applicable law
until paid, with such interest payable on demand. Payments of principal and
interest on this Note shall be made in lawful money of the United States of
America at the offices of the Corporation, or at such other office or agency as
the Holder shall have designated by written notice to the Corporation.
2. Prepayment. The Corporation may prepay all or any part of this
Note, at any time and without premium or penalty, upon thirty (30) days' prior
written notice to the Holder, together with accrued interest on the principal
amount so prepaid, provided that in the event of any prepayment, the Corporation
may not reborrow any amounts prepaid.
<PAGE> 2
3. Conversion Right. The Holder shall have conversion rights as
follows:
(a) Conversion. The Holder shall have the right to convert
all, but not less than all, of the indebtedness represented by this Note (both
principal and interest accrued to the date of conversion) into shares of common
stock, par value $.01 per share (the "Common Stock") of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which such
indebtedness may be converted shall be subject to adjustment in the event
certain circumstances occur prior to such conversion. In such event, such
indebtedness shall be converted into the largest whole number of shares of
Conversion Shares calculated by dividing the amount of such indebtedness by the
then applicable Conversion Price. The Conversion Price shall initially be $2.25.
The Conversion Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before the Holder shall be
entitled to receive certificates evidencing Conversion Shares into which the
indebtedness represented by this Note has been converted, the Holder shall
surrender this Note, duly endorsed, at the office of the Corporation, and shall
give written notice to the Corporation at such office that the Holder wishes to
receive certificates evidencing the Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Conversion Shares to which the Holder shall be entitled as aforesaid. Shares of
Conversion Shares shall not be issued to any person other than the record holder
of this Note on the date of conversion into such Conversion Shares, unless prior
to such conversion the record holder has provided the Corporation with such
documentation as Corporation may reasonably request to establish that such
transfer is exempt from registration or qualification under applicable law and
has made adequate provision for any fees or taxes payable in connection with
such transfer.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the indebtedness represented by this Note the Corporation
shall (A) subdivide its outstanding Common Stock, (B) combine its outstanding
Common Stock into a smaller number of shares or (C) issue by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger) any shares, the Conversion Price in effect at the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of this Note surrendered for
conversion after such time shall be entitled to receive the aggregate number and
kind of shares which, if this Note had been converted immediately prior to the
taking of such action by the Corporation, the Holder would have owned upon such
conversion and been entitled to receive upon such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) If the Corporation shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of
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<PAGE> 3
Common Stock (excluding securities issued (A) in any of the transactions
described in paragraph (i) of clause (c) of this Section 3, (B) upon conversion
of this Note, (C) upon the exercise or conversion of any options, warrants and
other securities convertible into or exchangeable for shares of Common Stock,
which options, warrants and other securities are outstanding as of the date
hereof or are issued after the date hereof pursuant to the Corporation's 1998
Incentive Compensation Plan and (D) issued in connection with a merger or
acquisition or with respect to advertising sales or distribution of programming)
at a price per share of Common Stock (or exercise price or conversion price per
share of Common Stock, as the case may be) lower than the Conversion Price, then
such Conversion Price shall be reduced to a price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such sale or issuance plus (2) the number of
shares of Common Stock which the aggregate consideration received for such sale
or issuance (or the aggregate initial conversion or exercise price of the
convertible securities issued plus any other consideration to be paid upon such
exercise or conversion) would purchase at the Conversion Price, as adjusted, on
the applicable record date, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issuance or sale (or
into which the newly-issued rights, options, warrants or convertible securities
are initially exercisable or convertible as of the date of such issuance or
sale). If the Corporation shall sell or issue shares of Common Stock in
consideration for property other than cash or its equivalent, then the price per
share of Common Stock and fair value of such property shall be determined in
good faith by the Board of Directors of the Corporation. Any such adjustment
shall be determined and effective on the date of such sale or issuance and not
upon exercise or conversion, as the case may be, of such rights, options,
warrants or convertible or exchangeable securities. If any of such rights,
options, warrants or convertible or exchangeable securities expire without
having been exercised, converted or exchanged, the Conversion Price shall be
adjusted as if the rights, options, warrants or convertible or exchangeable
securities not so exercised, converted or exchanged had not been sold or issued.
(iii) In case at any time prior to conversion of this
Note, the Corporation shall pay or make a stock dividend or other distribution
(payable otherwise than in cash out of funds legally available therefor) on any
class of its capital stock payable in shares of Common Stock or shares of its
capital stock convertible into or exchangeable for shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced so that the same shall equal the
price determined by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares of Common
Stock or Common Stock equivalents constituting such dividend or other
distribution, such adjustment to become effective immediately after the opening
of business on the day following the date fixed for such determination.
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<PAGE> 4
(iv) In case at any time prior to conversion of this
Note, the Corporation shall fix a record date for the making of a distribution,
by dividend or otherwise, to all holders of any class or series of its capital
stock, of evidences of its indebtedness or assets (including securities, but
excluding (x) any dividend or distribution referred to in paragraph (iii) of
this subsection (c) and (y) any dividend or distribution paid in cash out of
funds legally available therefor of the Corporation), then in each such case the
Conversion Price in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, of which the numerator shall be the total number of outstanding
shares of such class or series of capital stock multiplied by the fair market
value per share of such class or series of capital stock (as in good faith
determined by the Board of Directors) on such record date, less the fair market
value (as determined in good faith by the Board of Directors) of the portion of
the assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of such class or
series of capital stock multiplied by such fair market value per share of such
class or series of capital stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (v) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of the Holder, furnish
or cause to be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares of Conversion Shares and the amount, if any, of
other property which at the time would be received upon the conversion of this
Note.
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of this Note: (i) to declare any
dividend or distribution upon its Common Stock, whether in cash, property, stock
or other securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus; (ii) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of stock
of any class or series or other rights; (iii) to effect any reclassification or
recapitalization
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<PAGE> 5
of its Common Stock outstanding involving a change in the Common Stock; or (iv)
to merge or consolidate with or into any other corporation where the Corporation
is not the surviving corporation, or sell, lease or convey all or substantially
all of its assets, or to liquidate, dissolve or wind up; then, in connection
with each such event, the Corporation shall send to the Holder:
(A) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the indebtedness represented by this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all indebtedness represented by this Note, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all indebtedness represented by this Note, the
Corporation will take such action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
4. Miscellaneous. The Corporation hereby waives presentment,
protest and all notices (of nonpayment, dishonor, protest, demand and otherwise)
in connection with the delivery, acceptance, performance, default, acceleration
or enforcement of this Note to the fullest extent permitted by applicable law.
Other than pursuant to a writing executed by the Holder, no failure to exercise
any right of the Holder with respect to this Note, or any delay in, or waiver
of, the exercise thereof, shall impair any such right or be deemed to be a
waiver thereof.
Except as expressly stated herein to the contrary, payments received by
the Holder shall be applied in the following order: (a) to amounts due the
Holder other than for interest and/or principal under this Note, (b) interest
currently due and payable on this Note (including any interest on overdue
principal) and (c) to principal amounts on this Note then due and payable.
This Note and each of the provisions hereof shall be binding upon each
of the successors and permitted assigns of the Corporation, and may not be
assigned by the Corporation without the prior written consent of the Holder.
-5-
<PAGE> 6
This Note is a registered note and is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the Holder or its attorney duly
authorized in writing.
This Note is made and delivered in Los Angeles, California, shall be
governed by and interpreted in accordance with the internal laws of the State of
California without giving effect to conflict of laws principles thereof, and
shall not be construed strictly against the drafter hereof.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN FRIEL
-------------------------------------
Name: Alan Friel
Title: Executive Vice President
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<PAGE> 1
EXHIBIT 4.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM UNDER THE ACT,
THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
DIGITAL ENTERTAINMENT NETWORK, INC.
a Delaware corporation
(the "Corporation")
8% Convertible Note due December 31, 1999
Los Angeles, California
As of October 27, 1998
$2,131,475.22
1. Principal and Interest. For value received, Digital
Entertainment Network, Inc., a Delaware corporation (the "Corporation"), hereby
promises to pay to Marc Collins-Rector, as Trustee of the Marc Collins-Rector
Revocable Trust U/A/D 7/28/97, or registered assigns (the "Holder"), the
principal sum advanced from time to time, not to exceed Two Million One Hundred
Thirty-One Thousand Four Hundred Seventy-Five Dollars and Twenty-Two cents
($2,131,475.22), on December 31, 1999, together with accrued and unpaid interest
thereon (computed on the basis of a three hundred sixty (360) day year of twelve
(12) thirty (30) day months) at the rate of eight percent (8%) per annum from
the date hereof, and with interest on any overdue principal and on any overdue
interest, at the rate of the lesser of thirteen percent (13%) per annum or the
highest rate permitted by applicable law until paid, with such interest payable
on demand. Payments of principal and interest on this Note shall be made in
lawful money of the United States of America at the offices of the Corporation,
or at such other office or agency as the Holder shall have designated by written
notice to the Corporation.
2. Advances. The Corporation may draw down on the unborrowed
principal amount of this Note from time to time at any time prior to the
Maturity Date on not less than 3 business days prior written notice to the
Holder.
3. Prepayment. The Corporation may prepay all or any part of this
Note, at any time and without premium or penalty, upon thirty (30) days' prior
written notice to the
<PAGE> 2
Holder, together with accrued interest on the principal amount so prepaid,
provided that in the event of any prepayment, the Corporation may not reborrow
any amounts prepaid.
4. Conversion Right. The Holder shall have conversion rights as
follows:
(a) Conversion. The Holder shall have the right to convert
all, but not less than all, of the indebtedness represented by this Note (both
principal and interest accrued to the date of conversion) into shares of common
stock, par value $.01 per share (the "Common Stock") of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which such
indebtedness may be converted shall be subject to adjustment in the event
certain circumstances occur prior to such conversion. In such event, such
indebtedness shall be converted into the largest whole number of shares of
Conversion Shares calculated by dividing the amount of such indebtedness by the
then applicable Conversion Price. The Conversion Price shall initially be
$20.00. The Conversion Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before the Holder shall be
entitled to receive certificates evidencing Conversion Shares into which the
indebtedness represented by this Note has been converted, the Holder shall
surrender this Note, duly endorsed, at the office of the Corporation, and shall
give written notice to the Corporation at such office that the Holder wishes to
receive certificates evidencing the Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Conversion Shares to which the Holder shall be entitled as aforesaid. Shares of
Conversion Shares shall not be issued to any person other than the record holder
of this Note on the date of conversion into such Conversion Shares, unless prior
to such conversion the record holder has provided the Corporation with such
documentation as Corporation may reasonably request to establish that such
transfer is exempt from registration or qualification under applicable law and
has made adequate provision for any fees or taxes payable in connection with
such transfer.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the indebtedness represented by this Note the Corporation
shall (A) subdivide its outstanding Common Stock, (B) combine its outstanding
Common Stock into a smaller number of shares or (C) issue by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger) any shares, the Conversion Price in effect at the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of this Note surrendered for
conversion after such time shall be entitled to receive the aggregate number and
kind of shares which, if this Note had been converted immediately prior to the
taking of such action by the Corporation, the Holder would have owned upon such
conversion and been entitled to receive upon such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
-2-
<PAGE> 3
(ii) If the Corporation shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of Common Stock (excluding securities
issued (A) in any of the transactions described in paragraph (i) of clause (c)
of this Section 4, (B) upon conversion of this Note, (C) upon the exercise or
conversion of any options, warrants and other securities convertible into or
exchangeable for shares of Common Stock, which options, warrants and other
securities are outstanding as of the date hereof or are issued after the date
hereof pursuant to the Corporation's 1998 Incentive Compensation Plan and (D)
issued in connection with a merger or acquisition or with respect to advertising
sales or distribution of programming) at a price per share of Common Stock (or
exercise price or conversion price per share of Common Stock, as the case may
be) lower than the Conversion Price, then such Conversion Price shall be reduced
to a price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such sale or
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received for such sale or issuance (or the aggregate initial
conversion or exercise price of the convertible securities issued plus any other
consideration to be paid upon such exercise or conversion) would purchase at the
Conversion Price, as adjusted, on the applicable record date, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such issuance or sale (or into which the newly-issued rights,
options, warrants or convertible securities are initially exercisable or
convertible as of the date of such issuance or sale). If the Corporation shall
sell or issue shares of Common Stock in consideration for property other than
cash or its equivalent, then the price per share of Common Stock and fair value
of such property shall be determined in good faith by the Board of Directors of
the Corporation. Any such adjustment shall be determined and effective on the
date of such sale or issuance and not upon exercise or conversion, as the case
may be, of such rights, options, warrants or convertible or exchangeable
securities. If any of such rights, options, warrants or convertible or
exchangeable securities expire without having been exercised, converted or
exchanged, the Conversion Price shall be adjusted as if the rights, options,
warrants or convertible or exchangeable securities not so exercised, converted
or exchanged had not been sold or issued.
(iii) In case at any time prior to conversion of this
Note, the Corporation shall pay or make a stock dividend or other distribution
(payable otherwise than in cash out of funds legally available therefor) on any
class of its capital stock payable in shares of Common Stock or shares of its
capital stock convertible into or exchangeable for shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced so that the same shall equal the
price determined by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares of Common
Stock or Common Stock equivalents constituting such dividend or other
distribution,
-3-
<PAGE> 4
such adjustment to become effective immediately after the opening of business on
the day following the date fixed for such determination.
(iv) In case at any time prior to conversion of this
Note, the Corporation shall fix a record date for the making of a distribution,
by dividend or otherwise, to all holders of any class or series of its capital
stock, of evidences of its indebtedness or assets (including securities, but
excluding (x) any dividend or distribution referred to in paragraph (iii) of
this subsection (c) and (y) any dividend or distribution paid in cash out of
funds legally available therefor of the Corporation), then in each such case the
Conversion Price in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, of which the numerator shall be the total number of outstanding
shares of such class or series of capital stock multiplied by the fair market
value per share of such class or series of capital stock (as in good faith
determined by the Board of Directors) on such record date, less the fair market
value (as determined in good faith by the Board of Directors) of the portion of
the assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of such class or
series of capital stock multiplied by such fair market value per share of such
class or series of capital stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (v) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of the Holder, furnish
or cause to be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares of Conversion Shares and the amount, if any, of
other property which at the time would be received upon the conversion of this
Note.
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of this Note: (i) to declare any
dividend or distribution upon its Common Stock, whether in cash, property, stock
or other securities, whether or not a
-4-
<PAGE> 5
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation where the Corporation is not the
surviving corporation, or sell, lease or convey all or substantially all of its
assets, or to liquidate, dissolve or wind up; then, in connection with each such
event, the Corporation shall send to the Holder:
(A) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the indebtedness represented by this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all indebtedness represented by this Note, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all indebtedness represented by this Note, the
Corporation will take such action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
5. Miscellaneous. The Corporation hereby waives presentment,
protest and all notices (of nonpayment, dishonor, protest, demand and otherwise)
in connection with the delivery, acceptance, performance, default, acceleration
or enforcement of this Note to the fullest extent permitted by applicable law.
Other than pursuant to a writing executed by the Holder, no failure to exercise
any right of the Holder with respect to this Note, or any delay in, or waiver
of, the exercise thereof, shall impair any such right or be deemed to be a
waiver thereof.
Except as expressly stated herein to the contrary, payments received by
the Holder shall be applied in the following order: (a) to amounts due the
Holder other than for interest and/or principal under this Note, (b) interest
currently due and payable on this Note (including any interest on overdue
principal) and (c) to principal amounts on this Note then due and payable.
-5-
<PAGE> 6
This Note and each of the provisions hereof shall be binding upon each
of the successors and permitted assigns of the Corporation, and may not be
assigned by the Corporation without the prior written consent of the Holder.
This Note is a registered note and is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the Holder or its attorney duly
authorized in writing.
This Note is made and delivered in Los Angeles, California, shall be
governed by and interpreted in accordance with the internal laws of the State of
California without giving effect to conflict of laws principles thereof, and
shall not be construed strictly against the drafter hereof.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
-------------------------------------
Name: Alan L. Friel
Title: Executive Vice President
-6-
<PAGE> 1
EXHIBIT 4.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM UNDER THE ACT,
THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
DIGITAL ENTERTAINMENT NETWORK, INC.
a Delaware corporation
(the "Corporation")
8% Convertible Note due December 31, 1999
Los Angeles, California
As of October 27, 1998
$65,527.51
1. Principal and Interest. For value received, Digital
Entertainment Network, Inc., a Delaware corporation (the "Corporation"), hereby
promises to pay to Chad M. Shackley, as Trustee of the Chad Shackley Revocable
Trust U/A/D 7/28/97, or registered assigns (the "Holder"), the principal sum
advanced from time to time, not to exceed Sixty-Five Thousand Five Hundred
Twenty-Seven Dollars and Fifty-One cents ($65,527.51), on December 31, 1999,
together with accrued and unpaid interest thereon (computed on the basis of a
three hundred sixty (360) day year of twelve (12) thirty (30) day months) at the
rate of eight percent (8%) per annum from the date hereof, and with interest on
any overdue principal and on any overdue interest, at the rate of the lesser of
thirteen percent (13%) per annum or the highest rate permitted by applicable law
until paid, with such interest payable on demand. Payments of principal and
interest on this Note shall be made in lawful money of the United States of
America at the offices of the Corporation, or at such other office or agency as
the Holder shall have designated by written notice to the Corporation.
2. Advances. The Corporation may draw down on the unborrowed
principal amount of this Note from time to time at any time prior to the
Maturity Date on not less than 3 business days prior written notice to the
Holder.
3. Prepayment. The Corporation may prepay all or any part of this
Note, at any time and without premium or penalty, upon thirty (30) days' prior
written notice to the
<PAGE> 2
Holder, together with accrued interest on the principal amount so prepaid,
provided that in the event of any prepayment, the Corporation may not reborrow
any amounts prepaid.
4. Conversion Right. The Holder shall have conversion rights as
follows:
(a) Conversion. The Holder shall have the right to convert
all, but not less than all, of the indebtedness represented by this Note (both
principal and interest accrued to the date of conversion) into shares of common
stock, par value $.01 per share (the "Common Stock") of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which such
indebtedness may be converted shall be subject to adjustment in the event
certain circumstances occur prior to such conversion. In such event, such
indebtedness shall be converted into the largest whole number of shares of
Conversion Shares calculated by dividing the amount of such indebtedness by the
then applicable Conversion Price. The Conversion Price shall initially be
$20.00. The Conversion Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before the Holder shall be
entitled to receive certificates evidencing Conversion Shares into which the
indebtedness represented by this Note has been converted, the Holder shall
surrender this Note, duly endorsed, at the office of the Corporation, and shall
give written notice to the Corporation at such office that the Holder wishes to
receive certificates evidencing the Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Conversion Shares to which the Holder shall be entitled as aforesaid. Shares of
Conversion Shares shall not be issued to any person other than the record holder
of this Note on the date of conversion into such Conversion Shares, unless prior
to such conversion the record holder has provided the Corporation with such
documentation as Corporation may reasonably request to establish that such
transfer is exempt from registration or qualification under applicable law and
has made adequate provision for any fees or taxes payable in connection with
such transfer.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the indebtedness represented by this Note the Corporation
shall (A) subdivide its outstanding Common Stock, (B) combine its outstanding
Common Stock into a smaller number of shares or (C) issue by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger) any shares, the Conversion Price in effect at the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of this Note surrendered for
conversion after such time shall be entitled to receive the aggregate number and
kind of shares which, if this Note had been converted immediately prior to the
taking of such action by the Corporation, the Holder would have owned upon such
conversion and been entitled to receive upon such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
-2-
<PAGE> 3
(ii) If the Corporation shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of Common Stock (excluding securities
issued (A) in any of the transactions described in paragraph (i) of clause (c)
of this Section 4, (B) upon conversion of this Note, (C) upon the exercise or
conversion of any options, warrants and other securities convertible into or
exchangeable for shares of Common Stock, which options, warrants and other
securities are outstanding as of the date hereof or are issued after the date
hereof pursuant to the Corporation's 1998 Incentive Compensation Plan and (D)
issued in connection with a merger or acquisition or with respect to advertising
sales or distribution of programming) at a price per share of Common Stock (or
exercise price or conversion price per share of Common Stock, as the case may
be) lower than the Conversion Price, then such Conversion Price shall be reduced
to a price determined by multiplying the Conversion Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such sale or
issuance plus (2) the number of shares of Common Stock which the aggregate
consideration received for such sale or issuance (or the aggregate initial
conversion or exercise price of the convertible securities issued plus any other
consideration to be paid upon such exercise or conversion) would purchase at the
Conversion Price, as adjusted, on the applicable record date, and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such issuance or sale (or into which the newly-issued rights,
options, warrants or convertible securities are initially exercisable or
convertible as of the date of such issuance or sale). If the Corporation shall
sell or issue shares of Common Stock in consideration for property other than
cash or its equivalent, then the price per share of Common Stock and fair value
of such property shall be determined in good faith by the Board of Directors of
the Corporation. Any such adjustment shall be determined and effective on the
date of such sale or issuance and not upon exercise or conversion, as the case
may be, of such rights, options, warrants or convertible or exchangeable
securities. If any of such rights, options, warrants or convertible or
exchangeable securities expire without having been exercised, converted or
exchanged, the Conversion Price shall be adjusted as if the rights, options,
warrants or convertible or exchangeable securities not so exercised, converted
or exchanged had not been sold or issued.
(iii) In case at any time prior to conversion of this
Note, the Corporation shall pay or make a stock dividend or other distribution
(payable otherwise than in cash out of funds legally available therefor) on any
class of its capital stock payable in shares of Common Stock or shares of its
capital stock convertible into or exchangeable for shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced so that the same shall equal the
price determined by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares of Common
Stock or Common Stock equivalents constituting such dividend or other
distribution,
-3-
<PAGE> 4
such adjustment to become effective immediately after the opening of business on
the day following the date fixed for such determination.
(iv) In case at any time prior to conversion of this
Note, the Corporation shall fix a record date for the making of a distribution,
by dividend or otherwise, to all holders of any class or series of its capital
stock, of evidences of its indebtedness or assets (including securities, but
excluding (x) any dividend or distribution referred to in paragraph (iii) of
this subsection (c) and (y) any dividend or distribution paid in cash out of
funds legally available therefor of the Corporation), then in each such case the
Conversion Price in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, of which the numerator shall be the total number of outstanding
shares of such class or series of capital stock multiplied by the fair market
value per share of such class or series of capital stock (as in good faith
determined by the Board of Directors) on such record date, less the fair market
value (as determined in good faith by the Board of Directors) of the portion of
the assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of such class or
series of capital stock multiplied by such fair market value per share of such
class or series of capital stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (v) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
4, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of the Holder, furnish
or cause to be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares of Conversion Shares and the amount, if any, of
other property which at the time would be received upon the conversion of this
Note.
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of this Note: (i) to declare any
dividend or distribution upon its Common Stock, whether in cash, property, stock
or other securities, whether or not a
-4-
<PAGE> 5
regular cash dividend and whether or not out of earnings or earned surplus; (ii)
to offer for subscription pro rata to the holders of any class or series of its
stock any additional shares of stock of any class or series or other rights;
(iii) to effect any reclassification or recapitalization of its Common Stock
outstanding involving a change in the Common Stock; or (iv) to merge or
consolidate with or into any other corporation where the Corporation is not the
surviving corporation, or sell, lease or convey all or substantially all of its
assets, or to liquidate, dissolve or wind up; then, in connection with each such
event, the Corporation shall send to the Holder:
(A) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the indebtedness represented by this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all indebtedness represented by this Note, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all indebtedness represented by this Note, the
Corporation will take such action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
5. Miscellaneous. The Corporation hereby waives presentment,
protest and all notices (of nonpayment, dishonor, protest, demand and otherwise)
in connection with the delivery, acceptance, performance, default, acceleration
or enforcement of this Note to the fullest extent permitted by applicable law.
Other than pursuant to a writing executed by the Holder, no failure to exercise
any right of the Holder with respect to this Note, or any delay in, or waiver
of, the exercise thereof, shall impair any such right or be deemed to be a
waiver thereof.
Except as expressly stated herein to the contrary, payments received by
the Holder shall be applied in the following order: (a) to amounts due the
Holder other than for interest and/or principal under this Note, (b) interest
currently due and payable on this Note (including any interest on overdue
principal) and (c) to principal amounts on this Note then due and payable.
-5-
<PAGE> 6
This Note and each of the provisions hereof shall be binding upon each
of the successors and permitted assigns of the Corporation, and may not be
assigned by the Corporation without the prior written consent of the Holder.
This Note is a registered note and is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the Holder or its attorney duly
authorized in writing.
This Note is made and delivered in Los Angeles, California, shall be
governed by and interpreted in accordance with the internal laws of the State of
California without giving effect to conflict of laws principles thereof, and
shall not be construed strictly against the drafter hereof.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN FRIEL
-------------------------------------
Name: Alan Friel
Title: Executive Vice President
-6-
<PAGE> 1
EXHIBIT 4.5
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM UNDER THE ACT,
THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
DIGITAL ENTERTAINMENT NETWORK, INC.
a Delaware corporation
(the "Corporation")
8% Convertible Note due December 31, 1999
Los Angeles, California
As of October 27, 1998
$484,945.38
1. Principal and Interest. For value received, Digital
Entertainment Network, Inc., a Delaware corporation (the "Corporation"), hereby
promises to pay to Chad M. Shackley, as Trustee of the Chad Shackley Revocable
Trust U/A/D 7/28/97, or registered assigns (the "Holder"), the principal sum of
Four Hundred Eighty-Four Thousand Nine Hundred Forty-Five Dollars and
Thirty-Eight cents ($484,945.38), on December 31, 1999, together with accrued
and unpaid interest thereon (computed on the basis of a three hundred sixty
(360) day year of twelve (12) thirty (30) day months) at the rate of eight
percent (8%) per annum from the date hereof, and with interest on any overdue
principal and on any overdue interest, at the rate of the lesser of thirteen
percent (13%) per annum or the highest rate permitted by applicable law until
paid, with such interest payable on demand. Payments of principal and interest
on this Note shall be made in lawful money of the United States of America at
the offices of the Corporation, or at such other office or agency as the Holder
shall have designated by written notice to the Corporation.
2. Prepayment. The Corporation may prepay all or any part of this
Note, at any time and without premium or penalty, upon thirty (30) days' prior
written notice to the Holder, together with accrued interest on the principal
amount so prepaid, provided that in the event of any prepayment, the Corporation
may not reborrow any amounts prepaid.
<PAGE> 2
3. Conversion Right. The Holder shall have conversion rights as
follows:
(a) Conversion. The Holder shall have the right to convert
all, but not less than all, of the indebtedness represented by this Note (both
principal and interest accrued to the date of conversion) into shares of common
stock, par value $.01 per share (the "Common Stock") of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which such
indebtedness may be converted shall be subject to adjustment in the event
certain circumstances occur prior to such conversion. In such event, such
indebtedness shall be converted into the largest whole number of shares of
Conversion Shares calculated by dividing the amount of such indebtedness by the
then applicable Conversion Price. The Conversion Price shall initially be $2.25.
The Conversion Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before the Holder shall be
entitled to receive certificates evidencing Conversion Shares into which the
indebtedness represented by this Note has been converted, the Holder shall
surrender this Note, duly endorsed, at the office of the Corporation, and shall
give written notice to the Corporation at such office that the Holder wishes to
receive certificates evidencing the Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Conversion Shares to which the Holder shall be entitled as aforesaid. Shares of
Conversion Shares shall not be issued to any person other than the record holder
of this Note on the date of conversion into such Conversion Shares, unless prior
to such conversion the record holder has provided the Corporation with such
documentation as Corporation may reasonably request to establish that such
transfer is exempt from registration or qualification under applicable law and
has made adequate provision for any fees or taxes payable in connection with
such transfer.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the indebtedness represented by this Note the Corporation
shall (A) subdivide its outstanding Common Stock, (B) combine its outstanding
Common Stock into a smaller number of shares or (C) issue by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger) any shares, the Conversion Price in effect at the
effective date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the Holder of this Note surrendered for
conversion after such time shall be entitled to receive the aggregate number and
kind of shares which, if this Note had been converted immediately prior to the
taking of such action by the Corporation, the Holder would have owned upon such
conversion and been entitled to receive upon such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) If the Corporation shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of
-2-
<PAGE> 3
Common Stock (excluding securities issued (A) in any of the transactions
described in paragraph (i) of clause (c) of this Section 3, (B) upon conversion
of this Note, (C) upon the exercise or conversion of any options, warrants and
other securities convertible into or exchangeable for shares of Common Stock,
which options, warrants and other securities are outstanding as of the date
hereof or are issued after the date hereof pursuant to the Corporation's 1998
Incentive Compensation Plan and (D) issued in connection with a merger or
acquisition or with respect to advertising sales or distribution of programming)
at a price per share of Common Stock (or exercise price or conversion price per
share of Common Stock, as the case may be) lower than the Conversion Price, then
such Conversion Price shall be reduced to a price determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such sale or issuance plus (2) the number of
shares of Common Stock which the aggregate consideration received for such sale
or issuance (or the aggregate initial conversion or exercise price of the
convertible securities issued plus any other consideration to be paid upon such
exercise or conversion) would purchase at the Conversion Price, as adjusted, on
the applicable record date, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after such issuance or sale (or
into which the newly-issued rights, options, warrants or convertible securities
are initially exercisable or convertible as of the date of such issuance or
sale). If the Corporation shall sell or issue shares of Common Stock in
consideration for property other than cash or its equivalent, then the price per
share of Common Stock and fair value of such property shall be determined in
good faith by the Board of Directors of the Corporation. Any such adjustment
shall be determined and effective on the date of such sale or issuance and not
upon exercise or conversion, as the case may be, of such rights, options,
warrants or convertible or exchangeable securities. If any of such rights,
options, warrants or convertible or exchangeable securities expire without
having been exercised, converted or exchanged, the Conversion Price shall be
adjusted as if the rights, options, warrants or convertible or exchangeable
securities not so exercised, converted or exchanged had not been sold or issued.
(iii) In case at any time prior to conversion of this
Note, the Corporation shall pay or make a stock dividend or other distribution
(payable otherwise than in cash out of funds legally available therefor) on any
class of its capital stock payable in shares of Common Stock or shares of its
capital stock convertible into or exchangeable for shares of Common Stock, the
Conversion Price in effect at the opening of business on the day following the
date fixed for the determination of stockholders entitled to receive such
dividend or other distribution shall be reduced so that the same shall equal the
price determined by multiplying such Conversion Price by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination and the denominator shall
be the sum of such number of shares and the total number of shares of Common
Stock or Common Stock equivalents constituting such dividend or other
distribution, such adjustment to become effective immediately after the opening
of business on the day following the date fixed for such determination.
-3-
<PAGE> 4
(iv) In case at any time prior to conversion of this
Note, the Corporation shall fix a record date for the making of a distribution,
by dividend or otherwise, to all holders of any class or series of its capital
stock, of evidences of its indebtedness or assets (including securities, but
excluding (x) any dividend or distribution referred to in paragraph (iii) of
this subsection (c) and (y) any dividend or distribution paid in cash out of
funds legally available therefor of the Corporation), then in each such case the
Conversion Price in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, of which the numerator shall be the total number of outstanding
shares of such class or series of capital stock multiplied by the fair market
value per share of such class or series of capital stock (as in good faith
determined by the Board of Directors) on such record date, less the fair market
value (as determined in good faith by the Board of Directors) of the portion of
the assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of such class or
series of capital stock multiplied by such fair market value per share of such
class or series of capital stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (v) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of the Holder, furnish
or cause to be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments; (ii) the Conversion Price at the time in effect;
and (iii) the number of shares of Conversion Shares and the amount, if any, of
other property which at the time would be received upon the conversion of this
Note.
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of this Note: (i) to declare any
dividend or distribution upon its Common Stock, whether in cash, property, stock
or other securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus; (ii) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of stock
of any class or series or other rights; (iii) to effect any reclassification or
recapitalization
-4-
<PAGE> 5
of its Common Stock outstanding involving a change in the Common Stock; or (iv)
to merge or consolidate with or into any other corporation where the Corporation
is not the surviving corporation, or sell, lease or convey all or substantially
all of its assets, or to liquidate, dissolve or wind up; then, in connection
with each such event, the Corporation shall send to the Holder:
(A) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the indebtedness represented by this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all indebtedness represented by this Note, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all indebtedness represented by this Note, the
Corporation will take such action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
4. Miscellaneous. The Corporation hereby waives presentment,
protest and all notices (of nonpayment, dishonor, protest, demand and otherwise)
in connection with the delivery, acceptance, performance, default, acceleration
or enforcement of this Note to the fullest extent permitted by applicable law.
Other than pursuant to a writing executed by the Holder, no failure to exercise
any right of the Holder with respect to this Note, or any delay in, or waiver
of, the exercise thereof, shall impair any such right or be deemed to be a
waiver thereof.
Except as expressly stated herein to the contrary, payments received by
the Holder shall be applied in the following order: (a) to amounts due the
Holder other than for interest and/or principal under this Note, (b) interest
currently due and payable on this Note (including any interest on overdue
principal) and (c) to principal amounts on this Note then due and payable.
This Note and each of the provisions hereof shall be binding upon each
of the successors and permitted assigns of the Corporation, and may not be
assigned by the Corporation without the prior written consent of the Holder.
-5-
<PAGE> 6
This Note is a registered note and is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the Holder or its attorney duly
authorized in writing.
This Note is made and delivered in Los Angeles, California, shall be
governed by and interpreted in accordance with the internal laws of the State of
California without giving effect to conflict of laws principles thereof, and
shall not be construed strictly against the drafter hereof.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN FRIEL
-------------------------------------
Name: Alan Friel
Title: Executive Vice President
-6-
<PAGE> 1
EXHIBIT 4.6
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM UNDER THE ACT,
THE RULES AND REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
DIGITAL ENTERTAINMENT NETWORK, INC.
a Delaware corporation
(the "Corporation")
8% Convertible Note due December 31, 2000
Los Angeles, California
As of April 22, 1999
$7,500,000.00
1. Principal and Interest. For value received, Digital
Entertainment Network, Inc., a Delaware corporation (the "Corporation"), hereby
promises to pay to Marc Collins-Rector Revocable Trust U/A/D 7/28/97, or
registered assigns (the "Holder"), the principal sum advanced from time to time,
not to exceed Seven Million Five Hundred Thousand Dollars and no cents
($7,500,000.00), on December 31, 2000 (the "Maturity Date"), together with
accrued and unpaid interest thereon (computed on the basis of a three hundred
sixty (360) day year of twelve (12) thirty (30) day months) at the rate of eight
percent (8%) per annum from the date hereof, and with interest on any overdue
principal and on any overdue interest, at the rate of the lesser of thirteen
percent (13%) per annum or the highest rate permitted by applicable law until
paid, with such interest payable on demand. Payments of principal and interest
on this Note shall be made in lawful money of the United States of America at
the offices of the Corporation, or at such other office or agency as the Holder
shall have designated by written notice to the Corporation.
2. Advances. The Corporation may draw down on the unborrowed
principal amount of this Note from time to time at any time prior to the
Maturity Date on not less than 4 business days' prior written notice to the
Holder; provided, however, that (i) no amounts shall be advanced prior to April
26, 1999, (ii) the Corporation shall not be entitled to borrow more than $2
million in any given month or $500,000 in any given week, in each case without
the
<PAGE> 2
prior consent of the Holder and (iii) upon 5 business days' prior written notice
to the Chief Financial Officer of the Corporation, the Holder may terminate the
line of credit to the Corporation represented by this Note and the Corporation
thereafter may not draw on any more unborrowed principal amount of this Note.
3. Prepayment. The Corporation may prepay all or any part of this
Note, at any time and without premium or penalty, upon thirty (30) days' prior
written notice to the Holder, together with accrued interest on the principal
amount so prepaid, provided that in the event of any prepayment, the Corporation
may not reborrow any amounts prepaid.
4. Conversion Right. The Holder shall have conversion rights as
follows:
(a) Conversion. The Holder shall have the right to convert
all, but not less than all, of the indebtedness represented by this Note (both
principal and interest accrued to the date of conversion) into shares of common
stock, par value $.01 per share (the "Common Stock") of the Corporation (the
"Conversion Shares"). The number of Conversion Shares into which such
indebtedness may be converted shall be subject to adjustment in the event
certain circumstances occur prior to such conversion. In such event, such
indebtedness shall be converted into the largest whole number of shares of
Conversion Shares calculated by dividing the amount of such indebtedness by the
then applicable Conversion Price. The Conversion Price shall initially be
$10.40. The Conversion Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before the Holder shall be
entitled to receive certificates evidencing Conversion Shares into which the
indebtedness represented by this Note has been converted, the Holder shall
surrender this Note, duly endorsed, at the office of the Corporation, and shall
give written notice to the Corporation at such office that the Holder wishes to
receive certificates evidencing the Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Conversion Shares to which the Holder shall be entitled as aforesaid. Shares of
Conversion Shares shall not be issued to any person other than the record holder
of this Note on the date of conversion into such Conversion Shares, unless prior
to such conversion the record holder has provided the Corporation with such
documentation as Corporation may reasonably request to establish that such
transfer is exempt from registration or qualification under applicable law and
has made adequate provision for any fees or taxes payable in connection with
such transfer.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the indebtedness represented by this Note the Corporation
shall (A) subdivide its outstanding Common Stock, (B) combine its outstanding
Common Stock into a smaller number of shares or (C) issue by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger) any shares, the Conversion Price in effect at the
effective date of such subdivision, combination or reclassification shall be
-2-
<PAGE> 3
proportionately adjusted so that the Holder of this Note surrendered for
conversion after such time shall be entitled to receive the aggregate number and
kind of shares which, if this Note had been converted immediately prior to the
taking of such action by the Corporation, the Holder would have owned upon such
conversion and been entitled to receive upon such subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(ii) If the Corporation shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of Common Stock (excluding securities
issued (A) in any of the transactions described in paragraph (i) of clause (c)
of this Section 3, (B) upon conversion of this Note, (C) upon the exercise or
conversion of any options, warrants and other securities convertible into or
exchangeable for shares of Common Stock, which options, warrants and other
securities are outstanding as of the date hereof or are issued after the date
hereof pursuant to the Corporation's Amended and Restated 1998 Incentive
Compensation Plan or are issued in lieu of cash compensation and (D) issued in
connection with a merger or acquisition or with respect to advertising sales or
distribution of programming) at a price per share of Common Stock (or exercise
price or conversion price per share of Common Stock, as the case may be) lower
than the Conversion Price, then such Conversion Price shall be reduced to a
price determined by multiplying the Conversion Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such sale or issuance
plus (2) the number of shares of Common Stock which the aggregate consideration
received for such sale or issuance (or the aggregate initial conversion or
exercise price of the convertible securities issued plus any other consideration
to be paid upon such exercise or conversion) would purchase at the Conversion
Price, as adjusted, on the applicable record date, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
issuance or sale (or into which the newly-issued rights, options, warrants or
convertible securities are initially exercisable or convertible as of the date
of such issuance or sale). If the Corporation shall sell or issue shares of
Common Stock in consideration for property other than cash or its equivalent,
then the price per share of Common Stock and fair value of such property shall
be determined in good faith by the Board of Directors of the Corporation. Any
such adjustment shall be determined and effective on the date of such sale or
issuance and not upon exercise or conversion, as the case may be, of such
rights, options, warrants or convertible or exchangeable securities. If any of
such rights, options, warrants or convertible or exchangeable securities expire
without having been exercised, converted or exchanged, the Conversion Price
shall be adjusted as if the rights, options, warrants or convertible or
exchangeable securities not so exercised, converted or exchanged had not been
sold or issued.
(iii) In case at any time prior to conversion of this
Note, the Corporation shall pay or make a stock dividend or other distribution
(payable otherwise than in cash out of funds legally available therefor) on any
class of its capital stock payable in shares of Common Stock or shares of its
capital stock convertible into or exchangeable for shares of
-3-
<PAGE> 4
Common Stock, the Conversion Price in effect at the opening of business on the
day following the date fixed for the determination of stockholders entitled to
receive such dividend or other distribution shall be reduced so that the same
shall equal the price determined by multiplying such Conversion Price by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
and the denominator shall be the sum of such number of shares and the total
number of shares of Common Stock or Common Stock equivalents constituting such
dividend or other distribution, such adjustment to become effective immediately
after the opening of business on the day following the date fixed for such
determination.
(iv) In case at any time prior to conversion of this
Note, the Corporation shall fix a record date for the making of a distribution,
by dividend or otherwise, to all holders of any class or series of its capital
stock, of evidences of its indebtedness or assets (including securities, but
excluding (x) any dividend or distribution referred to in paragraph (iii) of
this subsection (c) and (y) any dividend or distribution paid in cash out of
funds legally available therefor of the Corporation), then in each such case the
Conversion Price in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, of which the numerator shall be the total number of outstanding
shares of such class or series of capital stock multiplied by the fair market
value per share of such class or series of capital stock (as in good faith
determined by the Board of Directors) on such record date, less the fair market
value (as determined in good faith by the Board of Directors) of the portion of
the assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of such class or
series of capital stock multiplied by such fair market value per share of such
class or series of capital stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (v) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of the Holder, furnish
or cause to be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments; (ii)
-4-
<PAGE> 5
the Conversion Price at the time in effect; and (iii) the number of shares of
Conversion Shares and the amount, if any, of other property which at the time
would be received upon the conversion of this Note.
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of this Note: (i) to declare any
dividend or distribution upon its Common Stock, whether in cash, property, stock
or other securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus; (ii) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of stock
of any class or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iv) to merge or consolidate with or into any other corporation
where the Corporation is not the surviving corporation, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
Holder:
(A) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the indebtedness represented by this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all indebtedness represented by this Note, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all indebtedness represented by this Note, the
Corporation will take such action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
5. Miscellaneous. The Corporation hereby waives presentment,
protest and all notices (of nonpayment, dishonor, protest, demand and otherwise)
in connection with the delivery, acceptance, performance, default, acceleration
or enforcement of this Note to the fullest extent permitted by applicable law.
Other than pursuant to a writing executed by the Holder, no failure to exercise
any right of the Holder with respect to this Note, or any delay in, or waiver
of, the exercise thereof, shall impair any such right or be deemed to be a
waiver thereof.
-5-
<PAGE> 6
Except as expressly stated herein to the contrary, payments received by
the Holder shall be applied in the following order: (a) to amounts due the
Holder other than for interest and/or principal under this Note, (b) interest
currently due and payable on this Note (including any interest on overdue
principal) and (c) to principal amounts on this Note then due and payable.
This Note and each of the provisions hereof shall be binding upon each
of the successors and permitted assigns of the Corporation, and may not be
assigned by the Corporation without the prior written consent of the Holder.
This Note is a registered note and is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the Holder or its attorney duly
authorized in writing.
This Note is made and delivered in Los Angeles, California, shall be
governed by and interpreted in accordance with the internal laws of the State of
California without giving effect to conflict of laws principles thereof, and
shall not be construed strictly against the drafter hereof.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ H. JAMES RITTS III
-------------------------------------
Name:
Title:
MARC COLLINS-RECTOR
REVOCABLE TRUST U/A/D 7/28/97
By: /s/ MARC COLLINS-RECTOR
-------------------------------------
Name: Marc Collins-Rector
Title: Trustee
-6-
<PAGE> 1
EXHIBIT 4.7
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION THEREFROM UNDER THE ACT, THE RULES AND
REGULATIONS THEREUNDER AND APPLICABLE STATE LAWS.
DIGITAL ENTERTAINMENT NETWORK, INC.
a Delaware corporation
(the "Corporation")
8% Convertible Bridge Note due December 31, 2000
Los Angeles, California
As of May 19, 1999
$1,000,000.00
1. Principal and Interest. For value received, Digital
Entertainment Network, Inc., a Delaware corporation (the "Corporation"), hereby
promises to pay to Marc Collins-Rector Revocable Trust U/A/D 7/28/97, or
registered assigns (the "Holder"), the principal sum advanced from time to time,
not to exceed One Million Dollars and no cents ($1,000,000.00), on December 31,
2000 (the "Maturity Date"), together with accrued and unpaid interest thereon
(computed on the basis of a three hundred sixty (360) day year of twelve (12)
thirty (30) day months) at the rate of eight percent (8%) per annum from the
date hereof, and with interest on any overdue principal and on any overdue
interest, at the rate of the lesser of thirteen percent (13%) per annum or the
highest rate permitted by applicable law until paid, with such interest payable
on demand; provided, however, upon the receipt of net proceeds of at least
$20,000,000 from the sale of the Corporation's Series B Preferred Stock (the
"Offering"), the Corporation shall within one business day thereafter repay to
the Holder the principal sum previously advanced hereunder, together with
accrued interest thereon, and this Note shall then be canceled. Payments of
principal and interest on this Note shall be made in lawful money of the United
States of America at the offices of the Corporation, or at such other office or
agency as the Holder shall have designated by written notice to the Corporation.
<PAGE> 2
2. Advances. The Corporation may draw down on the unborrowed
principal amount of this Note from time to time at any time prior to the
Maturity Date with reasonable notice to the Holder.
3. Prepayment. Subject to the proviso in Section 1, the Corporation
may prepay all or any part of this Note, at any time and without premium or
penalty, upon thirty (30) days' prior written notice to the Holder, together
with accrued interest on the principal amount so prepaid, provided that in the
event of any prepayment, the Corporation may not reborrow any amounts prepaid.
4. Conversion Right. The Holder shall have conversion rights as
follows:
(a) Conversion. The Holder shall have the right to convert
all, but not less than all, of the indebtedness represented by this Note (both
principal and interest accrued to the date of conversion) into shares of common
stock, par value $.01 per share (the "Common Stock") of the Corporation (the
"Conversion Shares") if the Offering has not been consummated prior to July 1,
1999. The number of Conversion Shares into which such indebtedness may be
converted shall be subject to adjustment in the event certain circumstances
occur prior to such conversion. In such event, such indebtedness shall be
converted into the largest whole number of shares of Conversion Shares
calculated by dividing the amount of such indebtedness by the then applicable
Conversion Price. The Conversion Price shall initially be $10.40. The Conversion
Price shall be adjusted as hereinafter provided.
(b) Mechanics of Conversion. Before the Holder shall be
entitled to receive certificates evidencing Conversion Shares into which the
indebtedness represented by this Note has been converted, the Holder shall
surrender this Note, duly endorsed, at the office of the Corporation, and shall
give written notice to the Corporation at such office that the Holder wishes to
receive certificates evidencing the Conversion Shares to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to the Holder a certificate or certificates for the number of shares of
Conversion Shares to which the Holder shall be entitled as aforesaid. Shares of
Conversion Shares shall not be issued to any person other than the record holder
of this Note on the date of conversion into such Conversion Shares, unless prior
to such conversion the record holder has provided the Corporation with such
documentation as Corporation may reasonably request to establish that such
transfer is exempt from registration or qualification under applicable law and
has made adequate provision for any fees or taxes payable in connection with
such transfer.
(c) Adjustments to Conversion Price for Certain Events.
(i) In case at any time prior to conversion into the
Conversion Shares of the indebtedness represented by this Note the Corporation
shall (A) subdivide its outstanding Common Stock, (B) combine its outstanding
Common Stock into a smaller number of shares or (C) issue by reclassification of
its Common Stock (including any such reclassification in connection with a
consolidation or merger) any shares, the Conversion Price
-2-
<PAGE> 3
in effect at the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the Holder of this
Note surrendered for conversion after such time shall be entitled to receive the
aggregate number and kind of shares which, if this Note had been converted
immediately prior to the taking of such action by the Corporation, the Holder
would have owned upon such conversion and been entitled to receive upon such
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(ii) If the Corporation shall, commencing on the date
hereof and continuing for one hundred twenty (120) days thereafter, sell or
issue shares of Common Stock, or rights, options, warrants or other securities
convertible or exchangeable for shares of Common Stock (excluding securities
issued (A) in any of the transactions described in paragraph (i) of clause (c)
of this Section 3, (B) upon conversion of this Note, (C) upon the exercise or
conversion of any options, warrants and other securities convertible into or
exchangeable for shares of Common Stock, which options, warrants and other
securities are outstanding as of the date hereof or are issued after the date
hereof pursuant to the Corporation's Amended and Restated 1998 Incentive
Compensation Plan or are issued in lieu of cash compensation and (D) issued in
connection with a merger or acquisition or with respect to advertising sales or
distribution of programming) at a price per share of Common Stock (or exercise
price or conversion price per share of Common Stock, as the case may be) lower
than the Conversion Price, then such Conversion Price shall be reduced to a
price determined by multiplying the Conversion Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such sale or issuance
plus (2) the number of shares of Common Stock which the aggregate consideration
received for such sale or issuance (or the aggregate initial conversion or
exercise price of the convertible securities issued plus any other consideration
to be paid upon such exercise or conversion) would purchase at the Conversion
Price, as adjusted, on the applicable record date, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
issuance or sale (or into which the newly-issued rights, options, warrants or
convertible securities are initially exercisable or convertible as of the date
of such issuance or sale). If the Corporation shall sell or issue shares of
Common Stock in consideration for property other than cash or its equivalent,
then the price per share of Common Stock and fair value of such property shall
be determined in good faith by the Board of Directors of the Corporation. Any
such adjustment shall be determined and effective on the date of such sale or
issuance and not upon exercise or conversion, as the case may be, of such
rights, options, warrants or convertible or exchangeable securities. If any of
such rights, options, warrants or convertible or exchangeable securities expire
without having been exercised, converted or exchanged, the Conversion Price
shall be adjusted as if the rights, options, warrants or convertible or
exchangeable securities not so exercised, converted or exchanged had not been
sold or issued.
(iii) In case at any time prior to conversion of this
Note, the Corporation shall pay or make a stock dividend or other distribution
(payable otherwise than in cash out of funds legally available therefor) on any
class of its capital stock payable in shares
-3-
<PAGE> 4
of Common Stock or shares of its capital stock convertible into or exchangeable
for shares of Common Stock, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution shall be
reduced so that the same shall equal the price determined by multiplying such
Conversion Price by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding at the close of business on the date fixed
for such determination and the denominator shall be the sum of such number of
shares and the total number of shares of Common Stock or Common Stock
equivalents constituting such dividend or other distribution, such adjustment to
become effective immediately after the opening of business on the day following
the date fixed for such determination.
(iv) In case at any time prior to conversion of this
Note, the Corporation shall fix a record date for the making of a distribution,
by dividend or otherwise, to all holders of any class or series of its capital
stock, of evidences of its indebtedness or assets (including securities, but
excluding (x) any dividend or distribution referred to in paragraph (iii) of
this subsection (c) and (y) any dividend or distribution paid in cash out of
funds legally available therefor of the Corporation), then in each such case the
Conversion Price in effect after such record date shall be determined by
multiplying the Conversion Price in effect immediately prior to such record date
by a fraction, of which the numerator shall be the total number of outstanding
shares of such class or series of capital stock multiplied by the fair market
value per share of such class or series of capital stock (as in good faith
determined by the Board of Directors) on such record date, less the fair market
value (as determined in good faith by the Board of Directors) of the portion of
the assets or evidences of indebtedness so to be distributed, and of which the
denominator shall be the total number of outstanding shares of such class or
series of capital stock multiplied by such fair market value per share of such
class or series of capital stock. Such adjustment shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Conversion Price shall again be adjusted to be the Conversion
Price which would then be in effect if such record date had not been fixed.
(v) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of at
least ten cents ($0.10) in such Conversion Price; provided, however, that any
adjustment which by reason of this paragraph (v) is not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this subsection (c) shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(d) Certificates as to Adjustments. Upon the occurrence of
each adjustment or readjustment of any Conversion Price pursuant to this Section
3, the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to the
Holder a certificate executed by the Corporation's President or Chief Financial
Officer setting forth such adjustment or readjustment and showing in reasonable
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of the Holder, furnish
or cause to be
-4-
<PAGE> 5
furnished to the Holder a like certificate setting forth (i) such adjustments
and readjustments; (ii) the Conversion Price at the time in effect; and (iii)
the number of shares of Conversion Shares and the amount, if any, of other
property which at the time would be received upon the conversion of this Note.
(e) Notice of Record Date. In the event that the Corporation
shall propose at any time prior to conversion of this Note: (i) to declare any
dividend or distribution upon its Common Stock, whether in cash, property, stock
or other securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus; (ii) to offer for subscription pro rata to
the holders of any class or series of its stock any additional shares of stock
of any class or series or other rights; (iii) to effect any reclassification or
recapitalization of its Common Stock outstanding involving a change in the
Common Stock; or (iv) to merge or consolidate with or into any other corporation
where the Corporation is not the surviving corporation, or sell, lease or convey
all or substantially all of its assets, or to liquidate, dissolve or wind up;
then, in connection with each such event, the Corporation shall send to the
Holder:
(A) at least five (5) days' prior written notice of
the record date for such dividend, distribution or subscription rights (and
specifying the date upon which the holders of Common Stock shall be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least five (5) days' prior written notice of the date when
the same shall take place (and specifying the date, if any, on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon the occurrence of such event).
(f) Reservation of Stock Issuable upon Conversion. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the indebtedness represented by this Note, such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all indebtedness represented by this Note, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all indebtedness represented by this Note, the
Corporation will take such action as may, in the opinion of its counsel, be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purpose.
5. Miscellaneous. The Corporation hereby waives presentment,
protest and all notices (of nonpayment, dishonor, protest, demand and otherwise)
in connection with the delivery, acceptance, performance, default, acceleration
or enforcement of this Note to the fullest extent permitted by applicable law.
Other than pursuant to a writing executed by the Holder, no failure to exercise
any right of the Holder with respect to this Note, or any delay in, or waiver
of, the exercise thereof, shall impair any such right or be deemed to be a
waiver thereof.
-5-
<PAGE> 6
Except as expressly stated herein to the contrary, payments received by
the Holder shall be applied in the following order: (a) to amounts due the
Holder other than for interest and/or principal under this Note, (b) interest
currently due and payable on this Note (including any interest on overdue
principal) and (c) to principal amounts on this Note then due and payable.
This Note and each of the provisions hereof shall be binding upon each
of the successors and permitted assigns of the Corporation, and may not be
assigned by the Corporation without the prior written consent of the Holder.
This Note is a registered note and is transferable only upon surrender
of this Note for registration of transfer, duly endorsed, or accompanied by a
written instrument of transfer duly executed, by the Holder or its attorney duly
authorized in writing.
This Note is made and delivered in Los Angeles, California, shall be
governed by and interpreted in accordance with the internal laws of the State of
California without giving effect to conflict of laws principles thereof, and
shall not be construed strictly against the drafter hereof.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ H. JAMES RITTS III
-------------------------------------
Name: H. James Ritts III
--------------------------------
Title: Chief Executive Officer
-------------------------------
MARC COLLINS-RECTOR
REVOCABLE TRUST U/A/D 7/28/97
By: /s/ MARC COLLINS-RECTOR
-------------------------------------
Name: Marc Collins-Rector
Title: Trustee
-6-
<PAGE> 1
EXHIBIT 4.8
[MARC COLLINS-RECTOR LETTERHEAD]
As of May 27, 1999
Digital Entertainment Network, Inc. ("DEN")
2230 Broadway
Santa Monica, CA 90404
Attn: Mr. Bruce Gamache,
Chief Financial Officer
Re: 8% Convertible Note due December 31, 2000, dated as of April 22,
1999, of DEN in favor of Marc Collins-Rector, as Trustee of the Marc
Collins-Rector Revocable Trust u/a/d 7/28/97, in the principal sum
advanced from time to time, not to exceed $7,500,000 (the "Note")
Dear Bruce:
Pursuant to Section 2(iii) of the Note, the undersigned is hereby
notifying DEN that it is hereby giving DEN 5 business days' notice that it is
terminating the line of credit to DEN represented by the Note, and that, in
accordance with and subject to Section 2(iii) of the Note, DEN may not borrow
any additional funds under the Note.
Very truly yours,
MARC COLLINS-RECTOR REVOCABLE TRUST
U/A/D 7/28/97
By: /s/ MARC COLLINS-RECTOR
--------------------------------
Marc Collins-Rector
Trustee
ACKNOWLEDGEMENT OF RECEIPT:
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ BRUCE GAMACHE
-----------------------
Bruce Gamache
Chief Financial Officer
<PAGE> 1
EXHIBIT 5.1
[LATHAM & WATKINS LETTERHEAD]
____________, 1999
(File No.)
027591-0005
Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90404
Ladies and Gentlemen:
This opinion is rendered in connection with the filing by
Digital Entertainment Network, Inc., a Delaware corporation (the "Company"), of
its Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), with respect to the offer and sale by the Company (the "Offering")
of up to __________ shares of the Company's common stock, par value $0.01 per
share (the "Registered Common Stock"), and any subsequent registration statement
the Company may hereafter file with the Commission pursuant to Rule 462(b) under
the Act to register additional shares of the Company's common stock, par value
$0.01 per share, in connection with the Offering (such additional shares,
together with the Registered Common Stock, the "Shares"). We have acted as
special counsel to the Company in connection with the preparation of the
Registration Statement.
In our capacity as such counsel, we are familiar with the
proceedings taken and to be taken by the Company in connection with the
authorization, issuance, and sale of the Common Stock. In addition, we have made
such legal and factual examinations and inquiries, including an examination of
originals (or copies certified or otherwise identified to our satisfaction as
being true reproductions of originals) of such documents, corporate records and
other instruments, and have obtained from officers of the Company and agents
thereof such certificates and other representations and assurances, as we have
deemed necessary or appropriate for the purposes of this opinion.
<PAGE> 2
Latham & Watkins
____________, 1999
Page 2
In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
legal capacity of natural persons executing such documents and the authenticity
and conformity to original documents of documents submitted to us as certified
or photostatic copies.
We are opining herein as to the effect on the subject
transaction only of the General Corporation Law of the State of Delaware,
including statutory and reported decisional law thereunder, and we express no
opinion with respect to the applicability thereto, or the effect thereon, of the
laws of any other jurisdiction or, in the case of Delaware, any other laws, or
as to any matters of municipal law or the laws of any local agencies within any
state.
Subject to the foregoing and the other qualifications set
forth herein, it is our opinion that, as of the date hereof, based on the
foregoing and the proceedings to be taken by the Company referred to above, we
are of the opinion that the Shares have been duly authorized, and upon issuance,
delivery and payment therefor in the manner described in the Registration
Statement, such Shares will be validly issued, fully paid and nonassessable.
We consent to your filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm contained under the
heading "Legal Matters" of the prospectus included therein, and to the
incorporation by reference of this opinion and consent into a registration
statement filed with the Commission pursuant to Rule 462(b) under the Act
relating to the Offering.
Very truly yours,
<PAGE> 1
EXHIBIT 10.1
DIGITAL ENTERTAINMENT NETWORK, INC.
AMENDED AND RESTATED
1998 INCENTIVE COMPENSATION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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<S> <C>
ARTICLE I
ESTABLISHMENT.............................................................................. 1
1.1 Purpose.................................................................. 1
ARTICLE II
DEFINITIONS................................................................................ 1
2.1 "Affiliate".............................................................. 1
2.2 "Agreement" or "Award Agreement"......................................... 1
2.3 "Award".................................................................. 2
2.4 "Beneficiary"............................................................ 2
2.5 "Board of Directors" or "Board".......................................... 2
2.6 "Cause".................................................................. 2
2.7 "Change in Control" ..................................................... 2
2.8 "Code" or "Internal Revenue Code"........................................ 2
2.9 "Commission"............................................................. 2
2.10 "Committee".............................................................. 2
2.11 "Common Stock"........................................................... 3
2.12 "Company"................................................................ 3
2.13 "Covered Employee"....................................................... 3
2.14 "Disability"............................................................. 3
2.15 "Effective Date"......................................................... 3
2.16 "Exchange Act"........................................................... 3
2.17 "Fair Market Value"...................................................... 3
2.18 "Grant Date"............................................................. 4
2.19 "Incentive Stock Option"................................................. 4
2.20 "NASDAQ"................................................................. 4
2.21 "Non-Qualified Stock Option"............................................. 4
2.22 "Option Period".......................................................... 4
2.23 "Option Price"........................................................... 4
2.24 "Participant"............................................................ 4
2.25 "Performance Award"...................................................... 4
2.26 "Plan"................................................................... 4
2.27 "Representative"......................................................... 5
2.28 "Restricted Stock"....................................................... 5
2.29 "Retirement"............................................................. 5
2.30 "Rule 16b-3"............................................................. 5
2.31 "Securities Act"......................................................... 5
2.32 "Stock Option" or "Option"............................................... 5
2.33 "Termination of Employment".............................................. 5
</TABLE>
<PAGE> 3
<TABLE>
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<S> <C>
ARTICLE III
ADMINISTRATION............................................................................. 6
3.1 Committee Structure and Authority........................................ 6
ARTICLE IV
STOCK SUBJECT TO PLAN...................................................................... 8
4.1 Number of Shares......................................................... 8
4.2 Release of Shares........................................................ 9
4.3 Restrictions on Shares................................................... 9
4.4 Stockholder Rights....................................................... 10
4.5 Anti-Dilution............................................................ 10
ARTICLE V
ELIGIBILITY................................................................................ 11
5.1 Eligibility.............................................................. 11
5.2 Per-Person Award Limitations............................................. 11
ARTICLE VI
STOCK OPTIONS.............................................................................. 11
6.1 General.................................................................. 11
6.2 Grant and Exercise....................................................... 12
6.3 Terms and Conditions..................................................... 12
6.4 Termination by Reason of Death........................................... 15
6.5 Termination by Reason of Disability...................................... 15
6.6 Other Termination........................................................ 15
6.7 Cashing Out of Option.................................................... 16
ARTICLE VII
RESTRICTED STOCK........................................................................... 16
7.1 General.................................................................. 16
7.2 Awards and Certificates.................................................. 16
7.3 Terms and Conditions..................................................... 16
ARTICLE VIII
PERFORMANCE AWARDS......................................................................... 17
8.1 Performance Awards....................................................... 17
</TABLE>
<PAGE> 4
<TABLE>
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<S> <C>
ARTICLE IX
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN..................................... 19
9.1 Limited Transfer During Offering......................................... 19
9.2 Committee Discretion..................................................... 20
9.3 No Company Obligation.................................................... 20
9.4 Conditions Upon Issuance of Shares of Common Stock....................... 20
ARTICLE X
CHANGE IN CONTROL PROVISIONS............................................................... 20
10.1 Impact of Event.......................................................... 20
10.2 Definition of Change in Control.......................................... 21
10.3 Change in Control Price.................................................. 22
ARTICLE XI
MISCELLANEOUS.............................................................................. 22
11.1 Amendments and Termination............................................... 22
11.2 Stand-Alone, Additional, Tandem, and Substitute Awards................... 23
11.3 Form and Timing of Payment Under Awards; Deferrals....................... 23
11.4 Status of Awards Under Code Section 162(m)............................... 23
11.5 Unfunded Status of Plan; Limits on Transferability....................... 24
11.6 General Provisions....................................................... 24
11.7 Mitigation of Excise Tax................................................. 26
11.8 Rights with Respect to Continuance of Employment......................... 26
11.9 Awards in Substitution for Awards Granted by Other Corporations.......... 26
11.10 Procedure for Adoption................................................... 27
11.11 Procedure for Withdrawal................................................. 27
11.12 Delay.................................................................... 27
11.13 Headings................................................................. 27
11.14 Severability............................................................. 27
11.15 Successors and Assigns................................................... 27
11.16 Entire Agreement......................................................... 28
</TABLE>
<PAGE> 5
DIGITAL ENTERTAINMENT NETWORK, INC.
1998 INCENTIVE COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT
1.1 Purpose.
The Digital Entertainment Network, Inc. 1998 Incentive Compensation Plan
("Plan") is hereby established by Digital Entertainment Network, Inc.
("Company"). The purpose of the Plan is to promote the overall financial
objectives of the Company and its stockholders by motivating those persons
selected to participate in the Plan to achieve long-term growth in stockholder
equity in the Company and by retaining the association of those individuals who
are instrumental in achieving this growth. The Plan is intended to qualify
certain compensation awarded under the Plan for tax deductibility under Section
162(m) of the Code (as defined herein) to the extent deemed appropriate by the
Committee (as defined herein). The Plan and the grant of awards thereunder are
expressly conditioned upon the Plan's approval by the stockholders of the
Company. If such approval is not obtained, then this Plan and all Awards (as
defined herein) hereunder shall be null and void ab initio. The Plan is adopted,
subject to stockholder approval, effective as of August 21, 1998. The Plan shall
terminate on August 21, 2008, ten years from the date of its adoption.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" or "Award Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
1
<PAGE> 6
2.3 "Award" means any Option, Restricted Stock or Performance Award,
together with any other right or interest granted to a Participant under the
Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are to be
transferred, to the extent permitted hereunder. If, upon a Participant's death,
there is no designated Beneficiary or surviving designated Beneficiary, then the
term Beneficiary means the person, persons, trust or trusts entitled by will or
the laws of descent and distribution to receive such benefits.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's established practices,
policies or guidelines applicable to the Participant or (b) the Participant's
act or failure to act which constitutes gross misconduct with respect to the
Company or an Affiliate in any material respect, including, without limitation,
an act or failure to act of a criminal nature, the result of which is
detrimental to the interests of the Company or an Affiliate, or conduct, or the
omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or an Affiliate.
2.7 "Change in Control" has the meaning set forth in Section 10.2.
2.8 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.9 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.10 "Committee" means the Compensation Committee of the Board or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that, if at any time the grants of Awards made under this
Plan shall be subject to Section 162(m) of the Code, and/or Section 16 of the
Exchange Act, the Committee shall consist solely of two or more directors, each
of whom is a "Non-Employee Director" as defined in Rule 16b-3 under the Exchange
Act and each
2
<PAGE> 7
of whom is also an "outside director" under Section 162(m) of the Code. Any
references in this Plan to the Committee shall refer to the Board, if no
Committee is appointed to administer the Plan.
2.11 "Common Stock" means the shares of the regular voting Common Stock,
$.01 par value per share, whether presently or hereafter issued, and any other
stock or security that the Common Stock may be exchanged for, or converted into,
as described hereinafter, or the common stock of any successor to the Company
which is designated as Common Stock for the purpose of the Plan.
2.12 "Company" means Digital Entertainment Network, Inc., a Delaware
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.13 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.14 "Disability" means the inability of an individual to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred while participating in a criminal offense. The determination of
Disability for purposes of this Plan shall not be construed to be an admission
of disability for any other purpose.
2.15 "Effective Date" means August 21, 1998.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.17 "Fair Market Value" means, as applied to a specified date, the fair
market value per share of Common Stock on such date as determined in good faith
by the Committee in the following manner: (i) if shares of Common Stock are then
listed on any national or regional stock exchange, including without limitation
on the NASDAQ Stock Market, Fair Market Value shall be the mean between the high
and low sales price on the date in question, or if there are no reported sales
on such date, on the last preceding date on which sales were reported, (ii) if
shares of Common Stock are not so listed, then Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized
specialist in the Common Stock at the close of the date in question, or (iii) in
the absence of either of the foregoing,
3
<PAGE> 8
Fair Market Value shall be determined by the Committee in its absolute
discretion after giving consideration to book value, the earnings history and
the prospects of the Company in light of market conditions generally. The
Committee may rely upon an appraisal by a reputable third party to determine
Fair Market Value. The Fair Market Value determined hereunder shall be final,
binding and conclusive on all parties.
2.18 "Grant Date" means the date as of which an Award is granted
pursuant to the Plan.
2.19 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.20 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq
National Market.
2.21 "Non-Qualified Stock Option" means an Option to purchase Common
Stock of the Company granted under the Plan that is not intended to qualify as
an Incentive Stock Option.
2.22 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.23 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.24 "Participant" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such Representative. The term shall also include a trust for the benefit of
the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the person to whom the Award was originally
granted.
2.25 "Performance Award" means a right, granted to a Participant under
Section 8.1 hereof, to receive Awards based upon performance criteria specified
by the Committee.
2.26 "Plan" means the Digital Entertainment Network, Inc. 1998 Incentive
Compensation Plan, as herein set forth and as may be amended from time to time.
4
<PAGE> 9
2.27 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
2.28 "Restricted Stock" means Common Stock granted to a Participant
under Article VII hereof, that is subject to certain restrictions and to a risk
of forfeiture.
2.29 "Retirement" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.30 "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
2.31 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.32 "Stock Option" or "Option" means a right, granted to a Participant
under Article VI hereof, to purchase Common Stock or other Awards at a specified
price during specified time periods.
2.33 "Termination of Employment" means the occurrence of any act or
event, whether pursuant to an employment agreement or otherwise, that actually
or effectively causes or results in the person's ceasing, for whatever reason,
to be an officer, independent contractor, director or employee of the Company or
of any Affiliate, or to be an officer, independent contractor, director or
employee of any entity that provides services to the Company or an Affiliate,
including, without limitation, death, Disability, dismissal, severance at the
election of the Participant, Retirement, or severance as a result of the
discontinuance, liquidation, sale or transfer by the Company or its Affiliates
of all businesses owned or operated by the Company or its Affiliates. With
respect to any Participant who is not an employee of the Company or an
Affiliate, his, her or its Agreement shall establish what act or event shall
constitute a Termination of Employment for purposes of the Plan. A transfer of
employment from the Company to an Affiliate, or from an Affiliate to the
Company, will not be a Termination of Employment, unless expressly determined by
the
5
<PAGE> 10
Committee. A Termination of Employment shall occur for an employee who is
employed by an Affiliate if the Affiliate shall cease to be an Affiliate, and
the Participant shall not immediately thereafter become an employee of the
Company or an Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. The Plan shall be administered by
the Committee. A majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts of a majority
of the members present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for purposes of
this Plan. The Committee may authorize any one or more of its members or an
officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the authority
to remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee may
resign upon notice to the Board. The Committee may allocate among one or more of
its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) to select those persons to whom Awards may be granted from
time to time;
(b) to determine whether and to what extent Awards or any
combination thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each stock-based Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Award, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);
6
<PAGE> 11
(e) to adjust the terms and conditions, at any time or from time
to time, of any Award, subject to the limitations of Section 11.1.
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall be
deferred;
(g) to determine under what circumstances an Award may be settled
in cash or Common Stock;
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable
to the Plan, Awards and the issuance of shares of Common Stock under the
Plan and to require of a Participant that appropriate action be taken
with respect to such requirements;
(k) to cancel, with the consent of the Participant or as
otherwise provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make final determinations with respect to
the remaining number of shares of Common Stock available under this
Plan;
(m) to require, as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding
from a Participant of the amount of any Federal, state or local taxes as
may be necessary in order for the Company or any other employer to
obtain a deduction or as may be otherwise required by law;
(n) to determine whether and with what effect a Participant has
incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a
right or obligation to purchase Common Stock or other Awards from a
Participant and, if so, the terms and conditions on which such Common
Stock or other Awards is to be purchased;
(p) to determine the restrictions or limitations on the transfer
of Common Stock or other Awards;
7
<PAGE> 12
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the
terms of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of
the Plan shall be made in its sole discretion, and in the case of any
determination relating to an Award, may be made at the time of the grant of the
Award or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Participants. No determination shall be subject to de
novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to adjustment under Section 4.5, the total
number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 1,000,000 shares of Common Stock
authorized for issuance. Such shares may consist, in whole or in part, of
authorized and unissued shares, treasury shares or reacquired shares. During the
term of this Plan, the Company shall at all times reserve and keep available for
issuance such number of authorized shares of Common Stock as shall be sufficient
to satisfy the requirements of this Plan. The inability of the Company to obtain
authorization from any regulatory body having jurisdiction, which authorization
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares of Common Stock hereunder, shall relieve the Company of any
liability for its failure to issue or sell such
8
<PAGE> 13
shares of Common Stock as to which such requisite authorization shall not have
been obtained.
4.2 Release of Shares. If any shares of Common Stock that are subject to
any Award cease to be subject to an Award or are forfeited, if any Award
otherwise terminates without issuance of shares of Common Stock being made to
the Participant, or if any shares (whether or not restricted) of Common Stock
are received by the Company in connection with the exercise of an Award,
including the satisfaction of tax withholding or the payment of the exercise
price thereof, such shares, in the discretion of the Committee, may again be
available for distribution in connection with Awards under the Plan.
4.3 Restrictions on Shares. (i) Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Award Agreement. Prior to the time
shares of Common Stock are registered under Section 12(b) or 12(g) of the
Exchange Act, the Company shall deliver certificates representing shares of
Common Stock to any holder thereof who receives such shares pursuant to this
Plan. After shares of Common Stock are registered under Section 12(b) or 12(g)
of the Exchange Act, the Company shall deliver such certificates only upon the
request of a holder of such shares of Common Stock. The time of issuance and
delivery of the certificate(s) representing shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirement of a
national securities exchange (including without limitation the NASDAQ Stock
Market) and any law or regulation applicable to the issuance and delivery of
such shares.
(ii) Unless an appropriate registration statement is filed and declared
effective by the Commission pursuant to the Securities Act with respect to
shares of Restricted Stock or shares of Common Stock underlying Options, as the
case may be, each certificate representing such shares shall be endorsed with a
legend substantially as follows:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE
DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND APPLICABLE
STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL (WHICH
COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF SUCH OPINION ARE,
SATISFACTORY TO THE ISSUER), SUCH OFFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION
OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS.
9
<PAGE> 14
(iii) If required by applicable state authorities, each certificate
representing such shares shall be endorsed with the legends required by such
authorities.
(iv) Each certificate representing such shares shall also contain
legends as are set forth in any agreement pursuant to which such shares are
issued, or as the Committee may otherwise require.
(v) The Committee may require any person exercising an Award to make
such representations and agreements and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Stockholder Rights. No person shall have any rights of a stockholder
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award and/or other action required, such shares shall have been recorded on
the Company's official stockholder records as having been issued or transferred.
Upon exercise of the Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued or transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Anti-Dilution. If the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on Common Stock), stock split,
reverse stock split or other similar transaction, or if any other increase or
decrease occurs in the number of outstanding shares of Common Stock without the
receipt by the Company of consideration by the Company, then an appropriate and
proportional adjustment shall be made, as appropriate, to: (i) the number and
kind of shares of Common Stock covered by each Award, (ii) the number and kind
of shares of Common Stock which have been authorized for issuance under this
Plan but as to which no Awards have yet been granted (or which have been
returned to this Plan pursuant to Section 4.2), and/or (iii) the exercise price
per share of Common Stock covered by each outstanding Option; provided, however,
that the Committee may limit any such adjustment so as to maintain the
deductibility of the Awards under Section 162(m) and that any fractional shares
resulting from such adjustment shall be eliminated by rounding to the next lower
whole number of shares with appropriate payment for such fractional shares as
shall reasonably be determined by the Committee. The granting of stock options,
stock purchase rights, phantom stock or similar awards or bonuses to employees
or other persons eligible for Awards under this Plan (whether or not under this
Plan) and the conversion of any convertible securities of the Company shall not
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be deemed to have been effected "without the receipt of consideration" for the
purposes of this Section 4.5.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees and consultants of the Company or any
Affiliate, who shall be in a position, in the opinion of the Committee, to make
contributions to the growth, management, protection and success of the Company
and its Affiliates. Of those persons described in the preceding sentence, the
Committee may, from time to time, select persons to be granted Awards and shall
determine the terms and conditions with respect thereto. In making any such
selection and in determining the form of the Award, the Committee may give
consideration to the person's functions and responsibilities, the person's
contributions to the Company and its Affiliates, the value of the individual's
service to the Company and its Affiliates and such other factors deemed relevant
by the Committee. The Committee may designate in writing any person who is not
eligible to participate in the Plan if such person would otherwise be eligible
to participate in this Plan; provided, however, after the Company has securities
registered under Section 12 of the Exchange Act, members of the Committee are
hereby expressly excluded from participation in the Plan unless grants of
options to such members are approved by a duly constituted committee of the
Board comprised solely of "outside directors" within the meaning of Section
162(m) under the Code.
5.2 Per-Person Award Limitations. In each fiscal year during any part of
which the Plan is in effect, a Participant may not be granted Awards relating to
more than 375,000 shares of Common Stock, subject to adjustment as provided in
Section 4.5, under each of Articles VI and VII].
ARTICLE VI
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Stock Options
under the Plan at any time or from time to time. Stock Options may be granted
alone or in addition to other Awards and may be either Incentive Stock Options
or Non-Qualified Stock Options. An Option shall entitle the Participant to
receive shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the
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Plan or an Agreement (the terms and provisions of which may differ from other
Agreements), including, without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of
the date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant and the Company. Only a person who
is a common-law employee of the Company, any parent corporation of the Company
or a subsidiary (as such terms are defined in Section 424 of the Code) on the
date of grant shall be eligible to be granted an Option which is intended to be
and is an Incentive Stock Option. To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option. Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422. Neither the Company nor any Affiliate shall
be liable to any Participant granted an Incentive Stock Option or to any other
person if it is determined for any reason by the Internal Revenue Service or any
court having jurisdiction that any Incentive Stock Option granted hereunder is
not an "incentive stock option" under the Code.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall
be fixed by the Committee; provided that no Stock Option shall be
exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an
individual who owns more than ten percent (10%) of the combined voting
power of all classes of stock of the Company, a corporation which is a
parent corporation of the Company or any subsidiary of the Company (each
as defined in Section 424 of the Code), the Option Period shall not
exceed five (5) years from the date of grant. No Option which is
intended to be an Incentive Stock Option shall be granted more than ten
(10) years from the date the Plan is adopted by the Company or the date
the Plan is approved by the stockholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be determined by the Committee;
provided, however, (1) that the Option Price per share shall be, in the
case of Incentive Stock Options, not less than 100% of the Fair Market
Value per share on the
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date the Option is granted; (2) if the Option is intended to qualify as
an Incentive Stock Option and is granted to an individual who owns or is
deemed to own stock possessing more than ten percent (10%) of the
combined voting power of all classes of stock of the Company, a
corporation which is a parent corporation of the Company or any
subsidiary of the Company (each as defined in Section 424 of the Code),
the Option Price per share shall not be less than one hundred ten
percent (110%) of such Fair Market Value per share on the date the
Option is granted; and (3) with respect to Non-Qualified Stock Options,
the Option Price per share shall be not less than 85% of the Fair Market
Value per share on the date the Option is granted.
(c) Exercisability. Subject to Section 10.1, Stock Options shall
be exercisable at such time or times and subject to such terms and
conditions as shall be determined by the Committee; provided, however,
that Participants who are not directors, officers or consultants of the
Corporation shall possess the right to exercise an Option at the rate of
at least 20% per year over 5 years from the date the Option is granted,
subject to reasonable conditions such as continued employment. If the
Committee provides that any Stock Option is exercisable only in
installments, the Committee may at any time waive such installment
exercise provisions, in whole or in part. In addition, the Committee may
at any time accelerate the exercisability of any Stock Option. If the
Committee intends that an Option be an Incentive Stock Option, the
Committee may, in its discretion, provide that the aggregate Fair Market
Value (determined at the Grant Date) of the Common Stock as to which
such Incentive Stock Option which is exercisable for the first time
during any calendar year shall not exceed $100,000. An Option may be
exercised from time to time during the term of the Option (to the extent
vested) for all or any portion of the shares of Common Stock for which
an Option is then exercisable. No Option may be exercised for a fraction
of a share of Common Stock. An Option shall be deemed to be exercised
when the Company has received at its principal business office: (i)
written notice of such exercise in accordance with the terms of the
applicable Agreement, (ii) full payment of the exercise price thereof
and (iii) any other representations and agreements required by this Plan
or the applicable Agreement.
(d) Method of Exercise. Subject to the provisions of this Article
VI, a Participant may exercise Stock Options, in whole or in part, at
any time during the Option Period by the Participant's giving written
notice of exercise on a form provided by the Committee (if available) to
the Company specifying the number of shares of Common Stock subject to
the Stock Option to be purchased. Such notice shall be accompanied by
payment in full of the purchase price by cash or check or such other
form of payment as the Company may accept. If approved by the Committee,
payment in full or in part may also be made (i) by delivering Common
Stock already owned by the Participant having a total Fair Market Value
on the date of such delivery equal
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to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
6.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option
having a total Fair Market Value on the date of delivery equal to the
Option Price; (iv) by the delivery of cash or the extension of credit by
a broker-dealer to whom the Participant has submitted a notice of
exercise or otherwise indicated an intent to exercise an Option (in
accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (v) by any combination
of the foregoing. If payment of the Option Price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted
Stock, the number of shares of Common Stock to be received upon such
exercise that is equal to the number of shares of Restricted Stock used
for payment of the Option Price shall be subject to the same forfeiture
restrictions or deferral limitations to which such Restricted Stock was
subject, unless otherwise determined by the Committee. In the case of an
Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common
Stock subject to the Stock Option may be authorized only at the time the
Stock Option is granted. No shares of Common Stock shall be issued until
full payment therefor, as determined by the Committee, has been made.
Subject to any forfeiture restrictions or deferral limitations that may
apply if a Stock Option is exercised using Restricted Stock, a
Participant shall not have any rights of a stockholder of the Company
holding the class of Common Stock that is subject to such Stock Option
(including, if applicable, the right to vote the shares and the right to
receive dividends), unless the Participant has given written notice of
exercise, has paid in full for such shares and such shares have been
recorded on the Company's official stockholder records as having been
issued or transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option
and subject to the pertinent Agreement and the discretion of the
Committee, the Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such
portion of the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a
third-party for the purpose of tendering the Option Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except
that no extension of credit or guarantee shall obligate the Company for
an amount to exceed the lesser of the aggregate Fair Market Value per
share of the Common Stock on
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the date of exercise, less the par value of the shares of Common Stock
to be purchased upon the exercise of the Award, or the amount permitted
under applicable laws or the regulations and rules of the Federal
Reserve Board and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as otherwise provided
in an Agreement or determined by the Committee, no Stock Option or
interest therein shall be transferable by the Participant other than by
will or by the laws of descent and distribution, and all Stock Options
shall be exercisable during the Participant's lifetime only by the
Participant.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for the period of one
hundred eighty (180) days from the date of such termination or until expiration
of the Option Period, whichever is shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to Disability, any unexpired and unexercised Stock Option held
by such Participant shall thereafter be fully exercisable for the period of one
hundred eighty (180) days from the date of such termination or until the
expiration of the Option Period, whichever is shorter, and the Participant's
death at any time following such Termination of Employment due to Disability
shall not affect the foregoing. In the event of Termination of Employment by
reason of Disability, if an Incentive Stock Option is exercised after the
expiration of the exercise periods that apply for the purposes of Section 422 of
the Code, such Stock Option will thereafter be treated as a Non-Qualified Stock
Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death or Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. Unless
otherwise provided in an agreement or determined by the Committee, if the
Participant incurs a Termination of Employment which is either (a) voluntary on
the part of the Participant (and is not due to Retirement) or (b) with Cause,
any Stock Option held by such Participant shall terminate immediately. The death
or Disability of a Participant after a Termination of Employment otherwise
provided herein shall not extend the time permitted to exercise an Option.
Notwithstanding anything to the contrary in an Agreement, if a
Participant who is an employee of the Company or an Affiliate incurs a
Termination of Employment pursuant to his or her employment agreement with the
Company or an Affiliate, as applicable, as a result of a termination without
cause provision, or as a result of a material uncured breach of such employment
agreement by the Company or an Affiliate, as applicable, then the Stock Option
held by such Participant, to the extent that it otherwise would have been
vested and exercisable as of the end of the term of employment provided for in
such employment agreement, shall become so vested and exercisable immediately
upon such termination.
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6.7 Cashing Out of Option. On receipt of written notice of exercise, the
Committee may elect to cash out all or part of the portion of any Stock Option
with respect to which Option at least six months have elapsed since the Grant
Date (provided that such limitation shall not apply to an Option granted to a
Participant who has subsequently died) by paying the Participant an amount, in
cash or Common Stock, equal to the excess of the Fair Market Value of the Common
Stock that is subject to the Option on the effective date of such cash-out over
the Option Price times the number of shares of Common Stock subject to such
cash-out.
ARTICLE VII
RESTRICTED STOCK
7.1 General. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time. Shares of Restricted
Stock may be awarded either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the persons to whom and the time or
times at which grants of Restricted Stock will be awarded, the number of shares
of Restricted Stock to be awarded to any Participant, the time or times within
which such Awards of Restricted Stock may be subject to forfeiture and any other
terms and conditions of the Awards of Restricted Stock. Each Award of Restricted
Stock shall be confirmed by, and be subject to the terms of, an Agreement. The
Committee may condition the grant of Restricted Stock upon the attainment of
specified performance goals by the Participant or by the Company or an Affiliate
(including a division or department of the Company or an Affiliate) for or
within which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock
Awards need not be the same with respect to any Participant.
7.2 Awards and Certificates. Notwithstanding the limitations on issuance
of shares of Common Stock otherwise provided in the Plan, each Participant
receiving an Award of Restricted Stock shall have a certificate in respect of
such shares of Restricted Stock issued in such Participant's name. Such
certificate shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such Award as determined by the Committee. The
Committee may require that the certificates evidencing such shares be held in
custody by the Company until the restrictions thereon shall have lapsed and
that, as a condition of any Award of Restricted Stock, the Participant shall
have delivered a stock power, endorsed in blank, relating to the Common Stock
covered by such Award.
7.3 Terms and Conditions. Shares of Restricted Stock shall be subject to
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of
the Plan and the Agreement, during a period set by the Committee
commencing
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with the date of such Restricted Stock Award (the "Restriction Period"),
the Participant shall not be permitted to sell, assign, transfer, pledge
or otherwise encumber or dispose of any interest in shares of such
Restricted Stock.
(b) Rights. Except as provided in Section 7.3(a) or as may
otherwise be provided in the applicable Agreement, the Participant shall
have, with respect to the shares of Restricted Stock, all of the rights
of a stockholder of the Company holding the class of Common Stock that
is the subject of the Restricted Stock, including, if applicable, the
right to vote the shares and the right to receive any cash dividends.
(c) Acceleration. Based on service, performance by the
Participant or by the Company or an Affiliate, including any division or
department for which the Participant is employed, or such other factors
or criteria as the Committee may determine, the Committee may provide
for the lapse of restrictions in installments and may accelerate the
vesting of all or any part of any Award and waive the restrictions for
all or any part of such Award.
(d) Forfeiture. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period, all shares of
Restricted Stock still subject to restriction shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining restrictions with respect to any
or all of such Participant's shares of Restricted Stock.
(e) Delivery. If and when the Restriction Period expires without
a prior forfeiture of the Restricted Stock subject to such Restriction
Period, unlegended certificates for such shares shall be delivered to
the Participant.
(f) Election. A Participant may elect to further defer receipt
of the Restricted Stock for a specified period or until a specified
event, subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made one (1) year prior
to completion of the Restriction Period.
ARTICLE VIII
PERFORMANCE AWARDS
8.1 Performance Awards.
(a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and its timing,
may be subject to
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performance conditions specified by the Committee. The Committee may use
business criteria and other measures of performance it deems appropriate
in establishing any performance conditions, and may exercise its
discretion to reduce or increase the amounts payable under any Award
subject to performance conditions, except as limited under Section
8.1(b) hereof in the case of a Performance Award intended to qualify
under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees.
If the Committee determines that a Performance Award to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code Section
162(m), the grant and/or settlement of such Performance Award shall be
contingent upon achievement of preestablished performance goals and
other terms set forth in this Section 8.1(b).
(i) Performance Goals Generally. The performance goals
for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of performance
with respect to such criteria, as specified by the Committee
consistent with this Section 8.1(b). Performance goals shall be
objective and shall otherwise meet the requirements of Code
Section 162(m), including the requirement that the level or
levels of performance targeted by the Committee result in the
performance goals being "substantially uncertain." The Committee
may determine that more than one performance goal must be
achieved as a condition to settlement of such Performance
Awards. Performance goals may differ for Performance Awards
granted to any one Participant or to different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis,
and/or for specified subsidiaries or business units of the
Company (except with respect to the total stockholder return and
earnings per share criteria), shall be used exclusively by the
Committee in establishing performance goals for such Performance
Awards: (1) total stockholder return; (2) such total stockholder
return as compared to total return (on a comparable basis) of a
publicly available index such as, but not limited to, the
Standard & Poor's 500, the Nasdaq Stock Market-U.S. Index or the
H&Q Software Sector Index; (3) net income; (4) pre-tax earnings;
(5) EBITDA; (6) pre-tax operating earnings after interest
expense and before bonuses, service fees, and extraordinary or
special items; (7) operating margin; (8) earnings per share; (9)
return on equity; (10) return on capital; (11) return on
investment; (12) operating income, excluding the effect of
charges for acquired in-process technology and before payment of
executive bonuses; (13) earnings per share, excluding the effect
of
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charges for acquired in-process technology and before payment of
executive bonuses; (14) working capital; and (15) total
revenues.
(iii) Performance Period: Timing For Establishing
Performance Goals. Achievement of performance goals in respect
of such Performance Awards shall be measured over such periods
as may be specified by the Committee. Performance goals shall be
established on or before the dates that are required or
permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Settlement of Performance Awards; Other Terms.
Settlement of Performance Awards may be in cash or Common Stock,
or other Awards, or other property, in the discretion of the
Committee. The Committee may, in its discretion, reduce the
amount of a settlement otherwise to be made in connection with
such Performance Awards, but may not exercise discretion to
increase any such amount payable in respect of a Performance
Award subject to this Section 8.1(b). The Committee shall
specify the circumstances in which such Performance Awards shall
be forfeited or paid in the event of a Termination of Employment
or a Change in Control prior to the end of a performance period
or settlement of Performance Awards, and other terms relating to
such Performance Awards.
(c) Written Determinations. All determinations by the Committee
as to the establishment of performance goals and the potential
Performance Awards related to such performance goals and as to the
achievement of performance goals relating to such Awards shall be made
in writing in the case of any Award intended to qualify under Code
Section 162(m). The Committee may not delegate any responsibility
relating to such Performance Awards.
ARTICLE IX
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
9.1 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of Common Stock, or enter into any swap or other agreement
or any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of Common Stock, or otherwise take any
action requested to not be taken by such underwriters.
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9.2 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company; upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article IX shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article IX, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
9.3 No Company Obligation. None of the Company, the Board, any of the
Company's management, an Affiliate or the Committee shall have any duty or
obligation to disclose affirmatively to a record or beneficial holder of Common
Stock or an Award, and such holder shall have no right to be advised of, any
material information regarding the Company or any Affiliate at any time prior
to, upon or in connection with receipt or the exercise of an Award or the
Company's purchase of Common Stock or an Award from such holder in accordance
with the terms hereof.
9.4 Conditions Upon Issuance of Shares of Common Stock. Shares of Common
Stock shall not be issued pursuant to the exercise of an Option, and shares of
Restricted Stock shall not be issued, unless the exercise of the Option and/or
the issuance and delivery of shares of Common Stock or Restricted Stock pursuant
thereto shall comply with all relevant provisions of law, including, without
limitation, the Securities Act, the Exchange Act, and the requirements of any
stock exchange (including, without limitation, the NASDAQ Stock Market) upon
which shares of Common Stock may then be listed.
ARTICLE X
CHANGE IN CONTROL PROVISIONS
10.1 Impact of Event. Notwithstanding any other provision of the Plan to
the contrary, or of any Agreement entered into as of or prior to August 1, 1999
to the contrary, in the event of a Change in Control (as defined in Section
10.2):
(a) Any Stock Options outstanding as of the date such Change in
Control and not then vested and exercisable shall become fully vested
and exercisable.
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(b) The restrictions and deferral limitations applicable to any
Restricted Stock shall lapse, and such Restricted Stock shall become
free of all restrictions and become fully vested and transferable,
subject to compliance with applicable securities laws, rules and
regulations.
(c) The performance goals and other conditions with respect to
any outstanding Performance Award shall be deemed to have been satisfied
in full, and such Award shall be fully distributable, if and to the
extent provided by the Committee in the Agreement relating to such Award
or otherwise, notwithstanding that the Award may not be fully deductible
to the Company under Section 162(m) of the Code.
(d) Unless the Committee shall expressly provide otherwise in an
Agreement, a Participant shall have the right, whether or not the Award
is fully exercisable or may be otherwise realized by the Participant, by
giving notice during the 60-day period from and after a Change in
Control to the Company, to elect to surrender all or part of a
stock-based Award to the Company and to receive cash, within 30 days of
such notice, in an amount equal to the amount by which the "Change in
Control Price" (as defined in Section 10.3) per share of Common Stock
shall exceed the amount which the Participant must pay to exercise the
Award per share of Common Stock under the Award (the "Spread")
multiplied by the number of shares of Common Stock granted under the
Award as to which the right granted under this Section 10.1(d) shall
have been exercised.
10.2 Definition of Change in Control. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary of
the Company or any of its subsidiaries, or an employee benefit plan (or related
trust) sponsored or maintained by the Company, or other than the stockholders of
the Company on the effective date of this Plan), including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of stock representing more than the thirty-five percent
(35%) of the combined voting power of the Company's then outstanding securities;
(b)(i) the stockholders of the Company approve a definitive agreement to merge
or consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent
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solicitation contest or any action taken to avoid such a contest) during such
24-month period by or upon the recommendation of persons who were members of the
Board of Directors of the Company immediately prior to such 24-month period and
who constituted a majority of the Board of Directors of the Company at the time
of such election, cease to constitute a majority of the Board.
10.3 Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control (if then traded) or (b) if the Change
in Control is the result of a tender or exchange offer, merger, consolidation,
liquidation or sale of all or substantially all of the assets or Common Stock of
the Company (in each case a "Corporate Transaction"), the highest price per
share of Common Stock paid in such Corporate Transaction, except that, in the
case of Incentive Stock Options relating to Incentive Stock Options, such price
shall be based only on the Fair Market Value of the Common Stock on the date any
such Incentive Stock Option is exercised. To the extent that the consideration
paid in any such Corporate Transaction consists all or in part of securities or
other non-cash consideration, the value of such securities or other non-cash
consideration shall be determined in the sole discretion of the Committee.
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Termination. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under a Stock Option or Restricted Stock Award theretofore granted without the
Participant's consent. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Committee may amend the Plan at any time provided that (a) no
amendment shall impair the rights of any Participant under any Award theretofore
granted without the Participant's consent, and (b) any amendment shall be
subject to the approval or rejection of the Board.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as
22
<PAGE> 27
other developments, and to grant Awards which qualify for beneficial treatment
under such rules without stockholder approval. Notwithstanding anything in the
Plan to the contrary, if any right under this Plan would cause a transaction to
be ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the substitution of Common Stock having a Fair Market Value equal to
the cash otherwise payable hereunder for the right which caused the transaction
to be ineligible for pooling of interest accounting.
11.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
Affiliate, or any business entity to be acquired by the Company or an Affiliate,
or any other right of a Participant to receive payment from the Company or an
Affiliate. Such additional, tandem, and substitute or exchange Awards may be
granted at any time. If an Award is granted in substitution or exchange for
another Award or award, the Committee shall require the surrender of such other
Award or award in consideration for the grant of the new Award. In addition,
Awards may be granted in lieu of cash compensation, including in lieu of cash
amounts payable under other plans of the Company or any Affiliate, in which the
Fair Market Value of Common Stock subject to the Award is equivalent in value to
the cash compensation, or in which the exercise price, grant price or purchase
price of the Award in the nature of a right that may be exercised is equal to
the Fair Market Value of the underlying Common Stock minus the value of the cash
compensation surrendered.
11.3 Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Common
Stock in connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee
(subject to Section 11.1 of the Plan) or permitted at the election of the
Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting or crediting of dividend equivalents in respect of installment
or deferred payments denominated in Common Stock.
11.4 Status of Awards Under Code Section 162(m). It is the intent of the
Company that Awards granted to persons who are Covered Employees within the
23
<PAGE> 28
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
11.5 Unfunded Status of Plan; Limits on Transferability. It is intended
that the Plan be an "unfunded" plan for incentive and deferred compensation. The
Committee may authorize the creation of trusts or other arrangements to meet the
obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. Unless otherwise provided in this Plan or in an Agreement,
no Award shall be subject to the claims of Participant's creditors and no Award
may be transferred, assigned, alienated or encumbered in any way other than by
will or the laws of descent and distribution or to a Representative upon the
death of the Participant.
11.6 General Provisions.
(a) Representation. The Committee may require each person
purchasing or receiving shares pursuant to an Award or otherwise
receiving an Award to represent to and agree with the Company in writing
that, among other things, such person is acquiring the shares without a
view to the distribution thereof. The certificates representing such
shares or such other Award may include any legend which the Committee
deems appropriate to reflect any restrictions on transfer or otherwise.
(b) No Additional Obligation. Nothing contained in the Plan
shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount
first becomes includible in the gross income of the Participant for
Federal income tax purposes with respect to any Award, the Participant
shall pay to the Company (or other entity identified by the Committee),
or make arrangements satisfactory to the Company or other entity
identified by the Committee regarding the payment of, any Federal,
state, local or foreign taxes of any kind required by law to be withheld
with respect to such amount required in order for the Company or an
Affiliate to obtain a current deduction. If the Participant disposes of
shares of Common Stock acquired pursuant to an Incentive Stock Option in
any transaction considered to be a "disqualifying transaction" under the
Code, the Participant must give written notice of such transfer to the
Committee and the Company shall have the right to deduct any taxes
required
24
<PAGE> 29
by law to be withheld from any amounts otherwise payable to the
Participant. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock
that is part of the Award that gives rise to the withholding
requirement, provided that any applicable requirements under Section 16
of the Exchange Act are satisfied. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due to the
Participant.
(d) Reinvestment. The reinvestment of dividends in additional
Restricted Stock at the time of any dividend payment is hereby
prohibited.
(e) Representation. The Committee shall establish such
procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
(f) Controlling Law. The Plan and all Awards made and actions
taken thereunder shall be governed by and construed in accordance with
the laws of the State of California. The Plan shall be construed to
comply with all applicable law and to avoid liability to the Company, an
Affiliate or a Participant, including, without limitation, liability
under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by
the Participant of whatever nature may be offset by the Company from the
value of any shares of Common Stock, cash or other thing of value under
this Plan or an Agreement to be transferred to the Participant, and no
shares of Common Stock, cash or other thing of value under this Plan or
an Agreement shall be transferred unless and until all disputes between
the Company and the Participant have been fully and finally resolved and
the Participant has waived all claims to such against the Company or an
Affiliate.
(h) Fail Safe. With respect to persons subject to Section 16 of
the Exchange Act, transactions under this Plan are intended to comply
with all applicable conditions of Rule 16b-3. To the extent any
transaction under the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee. The Committee may authorize the
repurchase of any Award or shares of Common Stock resulting from any
Award in order to prevent a person from incurring or potentially
incurring liability under Section 16(b) of the Exchange Act.
25
<PAGE> 30
(i) Financial Statements. Each Participant shall be provided
with copies of the Company's financial statements at least annually, in
accordance with California Code of Regulations Section 260.140.40.
11.7 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 11.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 11.7 shall apply with
respect to any person only if, after reduction for any applicable Federal excise
tax imposed by Section 4999 of the Code and Federal income tax imposed by the
Code, the Total Payments accruing to such person would be less than the amount
of the Total Payments as reduced, if applicable, under the foregoing provisions
of the Plan and after reduction for only Federal income taxes.
11.8 Rights with Respect to Continuance of Employment. Nothing contained
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.
11.9 Awards in Substitution for Awards Granted by Other Corporations.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the
26
<PAGE> 31
acquisition by the Company or Affiliate of the stock of the employing
corporation, as the result of which it becomes a designated employer under the
Plan. The terms and conditions of the Awards so granted may vary from the terms
and conditions set forth in this Plan at the time of such grant as the majority
of the members of the Committee may deem appropriate to conform, in whole or in
part, to the provisions of the awards in substitution for which they are
granted.
11.10 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
11.11 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
11.12 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, whichever is shorter. The Company shall have the right to suspend or
delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company.
11.13 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
11.14 Severability. If any provision of this Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed as
if such invalid or unenforceable provision were omitted.
11.15 Successors and Assigns. This Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
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<PAGE> 32
11.16 Entire Agreement. This Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between the Plan and the Agreement, the
terms and conditions of this Plan shall control.
28
<PAGE> 1
EXHIBIT 10.2
DIGITAL ENTERTAINMENT NETWORK, INC.
1999 INCENTIVE COMPENSATION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - ESTABLISHMENT.........................................................................................1
1.1 Purpose.....................................................................................1
ARTICLE II - DEFINITIONS..........................................................................................1
2.1 "Affiliate".................................................................................1
2.2 "Agreement" or "Award Agreement"............................................................1
2.3 "Award".....................................................................................2
2.4 "Beneficiary"...............................................................................2
2.5 "Board of Directors" or "Board".............................................................2
2.6 "Cause".....................................................................................2
2.7 "Change in Control" ........................................................................2
2.8 "Code" or "Internal Revenue Code"...........................................................2
2.9 "Commission"................................................................................2
2.10 "Committee".................................................................................2
2.11 "Common Stock"..............................................................................3
2.12 "Company"...................................................................................3
2.13 "Covered Employee"..........................................................................3
2.14 "Disability"................................................................................3
2.15 "Effective Date"............................................................................3
2.16 "Exchange Act"..............................................................................3
2.17 "Fair Market Value".........................................................................3
2.18 "Grant Date"................................................................................4
2.19 "Incentive Stock Option"....................................................................4
2.20 "NASDAQ"....................................................................................4
2.21 "Non-Qualified Stock Option"................................................................4
2.22 "Option Period".............................................................................4
2.23 "Option Price"..............................................................................4
2.24 "Participant"...............................................................................4
2.25 "Performance Award".........................................................................4
2.26 "Plan"......................................................................................4
2.27 "Representative"............................................................................5
2.28 "Restricted Stock"..........................................................................5
2.29 "Retirement"................................................................................5
2.30 "Rule 16b-3"................................................................................5
2.31 "Securities Act"............................................................................5
2.32 "Stock Option" or "Option"..................................................................5
2.33 "Termination of Employment".................................................................5
ARTICLE III - ADMINISTRATION......................................................................................6
3.1 Committee Structure and Authority...........................................................6
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IV - STOCK SUBJECT TO PLAN................................................................................8
4.1 Number of Shares............................................................................8
4.2 Release of Shares...........................................................................9
4.3 Restrictions on Shares......................................................................9
4.4 Stockholder Rights.........................................................................10
4.5 Anti-Dilution..............................................................................10
ARTICLE V - ELIGIBILITY..........................................................................................11
5.1 Eligibility................................................................................11
5.2 Per-Person Award Limitations...............................................................11
ARTICLE VI - STOCK OPTIONS.......................................................................................11
6.1 General....................................................................................11
6.2 Grant and Exercise.........................................................................12
6.3 Terms and Conditions.......................................................................12
6.4 Termination by Reason of Death.............................................................15
6.5 Termination by Reason of Disability........................................................15
6.6 Other Termination..........................................................................15
6.7 Cashing Out of Option......................................................................16
ARTICLE VII - RESTRICTED STOCK...................................................................................16
7.1 General....................................................................................16
7.2 Awards and Certificates....................................................................16
7.3 Terms and Conditions.......................................................................16
ARTICLE VIII - PERFORMANCE AWARDS................................................................................17
8.1 Performance Awards.........................................................................17
ARTICLE IX - PROVISIONS APPLICABLE TO STOCK
ACQUIRED UNDER THE PLAN....................................................................19
9.1 Limited Transfer During Offering...........................................................19
9.2 Committee Discretion.......................................................................20
9.3 No Company Obligation......................................................................20
9.4 Conditions Upon Issuance of Shares of Common Stock.........................................20
ARTICLE X - CHANGE IN CONTROL PROVISIONS.........................................................................20
10.1 Impact of Event............................................................................20
10.2 Definition of Change in Control............................................................21
10.3 Change in Control Price....................................................................22
ARTICLE XI - MISCELLANEOUS.......................................................................................22
11.1 Amendments and Termination.................................................................22
11.2 Stand-Alone, Additional, Tandem, and Substitute Awards.....................................23
11.3 Form and Timing of Payment Under Awards; Deferrals.........................................23
11.4 Status of Awards Under Code Section 162(m).................................................23
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.5 Unfunded Status of Plan; Limits on Transferability.........................................24
11.6 General Provisions.........................................................................24
11.7 Mitigation of Excise Tax...................................................................26
11.8 Rights with Respect to Continuance of Employment...........................................26
11.9 Awards in Substitution for Awards Granted by
Other Corporations.........................................................................26
11.10 Procedure for Adoption.....................................................................27
11.11 Procedure for Withdrawal...................................................................27
11.12 Delay......................................................................................27
11.13 Headings...................................................................................27
11.14 Severability...............................................................................27
11.15 Successors and Assigns.....................................................................27
11.16 Entire Agreement...........................................................................28
</TABLE>
<PAGE> 5
DIGITAL ENTERTAINMENT NETWORK, INC.
1999 INCENTIVE COMPENSATION PLAN
ARTICLE I
ESTABLISHMENT
1.1 Purpose.
The Digital Entertainment Network, Inc. 1999 Incentive Compensation
Plan ("Plan") is hereby established by Digital Entertainment Network, Inc.
("Company"). The purpose of the Plan is to promote the overall financial
objectives of the Company and its stockholders by motivating those persons
selected to participate in the Plan to achieve long-term growth in stockholder
equity in the Company and by retaining the association of those individuals who
are instrumental in achieving this growth. The Plan is intended to qualify
certain compensation awarded under the Plan for tax deductibility under Section
162(m) of the Code (as defined herein) to the extent deemed appropriate by the
Committee (as defined herein). The Plan and the grant of awards thereunder are
expressly conditioned upon the Plan's approval by the stockholders of the
Company. If such approval is not obtained, then this Plan and all Awards (as
defined herein) hereunder shall be null and void ab initio. The Plan is adopted,
subject to stockholder approval, effective as of May 2, 1999. The Plan shall
terminate on May 2, 2009, ten years from the date of its adoption.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" or "Award Agreement" means, individually or
collectively, any agreement entered into pursuant to the Plan pursuant to which
an Award is granted to a Participant.
1
<PAGE> 6
2.3 "Award" means any Option, Restricted Stock or Performance Award,
together with any other right or interest granted to a Participant under the
Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
been designated by a Participant in his or her most recent written beneficiary
designation filed with the Committee to receive the benefits specified under the
Plan upon such Participant's death or to which Awards or other rights are to be
transferred, to the extent permitted hereunder. If, upon a Participant's death,
there is no designated Beneficiary or surviving designated Beneficiary, then the
term Beneficiary means the person, persons, trust or trusts entitled by will or
the laws of descent and distribution to receive such benefits.
2.5 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.6 "Cause" shall mean, for purposes of whether and when a Participant
has incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or failure to
act deemed to constitute cause under the Company's established practices,
policies or guidelines applicable to the Participant or (b) the Participant's
act or failure to act which constitutes gross misconduct with respect to the
Company or an Affiliate in any material respect, including, without limitation,
an act or failure to act of a criminal nature, the result of which is
detrimental to the interests of the Company or an Affiliate, or conduct, or the
omission of conduct, which constitutes a material breach of a duty the
Participant owes to the Company or an Affiliate.
2.7 "Change in Control" has the meaning set forth in Section 10.2.
2.8 "Code" or "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.9 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.10 "Committee" means the Compensation Committee of the Board or such
other Board committee as may be designated by the Board to administer the Plan;
provided, however, that, if at any time the grants of Awards made under this
Plan shall be subject to Section 162(m) of the Code, and/or Section 16 of the
Exchange Act, the Committee shall consist solely of two or more directors, each
of whom is a "Non-Employee Director" as defined in Rule 16b-3 under the Exchange
Act and each
2
<PAGE> 7
of whom is also an "outside director" under Section 162(m) of the Code. Any
references in this Plan to the Committee shall refer to the Board, if no
Committee is appointed to administer the Plan.
2.11 "Common Stock" means the shares of the regular voting Common
Stock, $.01 par value per share, whether presently or hereafter issued, and any
other stock or security that the Common Stock may be exchanged for, or converted
into, as described hereinafter, or the common stock of any successor to the
Company which is designated as Common Stock for the purpose of the Plan.
2.12 "Company" means Digital Entertainment Network, Inc., a Delaware
corporation, and includes any successor or assignee corporation or corporations
into which the Company may be merged, changed or consolidated; any corporation
for whose securities the securities of the Company shall be exchanged; and any
assignee of or successor to substantially all of the assets of the Company.
2.13 "Covered Employee" means a Participant who is a "covered employee"
within the meaning of Section 162(m) of the Code.
2.14 "Disability" means the inability of an individual to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this Plan if
it is the result of (i) a willfully self-inflicted injury or willfully
self-induced sickness; or (ii) an injury or disease contracted, suffered, or
incurred while participating in a criminal offense. The determination of
Disability for purposes of this Plan shall not be construed to be an admission
of disability for any other purpose.
2.15 "Effective Date" means May 2, 1999.
2.16 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
2.17 "Fair Market Value" means, as applied to a specified date, the
fair market value per share of Common Stock on such date as determined in good
faith by the Committee in the following manner: (i) if shares of Common Stock
are then listed on any national or regional stock exchange, including without
limitation on the NASDAQ Stock Market, Fair Market Value shall be the mean
between the high and low sales price on the date in question, or if there are no
reported sales on such date, on the last preceding date on which sales were
reported, (ii) if shares of Common Stock are not so listed, then Fair Market
Value shall be the mean between the bid and ask prices quoted by a market maker
or other recognized specialist in the Common Stock at the close of the date in
question, or (iii) in the absence of either of the foregoing,
3
<PAGE> 8
Fair Market Value shall be determined by the Committee in its absolute
discretion after giving consideration to book value, the earnings history and
the prospects of the Company in light of market conditions generally. The
Committee may rely upon an appraisal by a reputable third party to determine
Fair Market Value. The Fair Market Value determined hereunder shall be final,
binding and conclusive on all parties.
2.18 "Grant Date" means the date as of which an Award is granted
pursuant to the Plan.
2.19 "Incentive Stock Option" means any Stock Option intended to be and
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
2.20 "NASDAQ" means The Nasdaq Stock Market, including the Nasdaq
National Market.
2.21 "Non-Qualified Stock Option" means an Option to purchase Common
Stock of the Company granted under the Plan that is not intended to qualify as
an Incentive Stock Option.
2.22 "Option Period" means the period during which an Option shall be
exercisable in accordance with the related Agreement and Article VI.
2.23 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 6.3(b).
2.24 "Participant" means a person who satisfies the eligibility
conditions of Article V and to whom an Award has been granted by the Committee
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such Representative. The term shall also include a trust for the benefit of
the Participant, the Participant's parents, spouse or descendants, or a
custodian under a uniform gifts to minors act or similar statute for the benefit
of the Participant's descendants, to the extent permitted by the Committee.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the person to whom the Award was originally
granted.
2.25 "Performance Award" means a right, granted to a Participant under
Section 8.1 hereof, to receive Awards based upon performance criteria specified
by the Committee.
2.26 "Plan" means the Digital Entertainment Network, Inc. 1999
Incentive Compensation Plan, as herein set forth and as may be amended from
time to time.
4
<PAGE> 9
2.27 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
2.28 "Restricted Stock" means Common Stock granted to a Participant
under Article VII hereof, that is subject to certain restrictions and to a risk
of forfeiture.
2.29 "Retirement" means the Participant's Termination of Employment
after attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
2.30 "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
2.31 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
2.32 "Stock Option" or "Option" means a right, granted to a Participant
under Article VI hereof, to purchase Common Stock or other Awards at a specified
price during specified time periods.
2.33 "Termination of Employment" means the occurrence of any act or
event, whether pursuant to an employment agreement or otherwise, that actually
or effectively causes or results in the person's ceasing, for whatever reason,
to be an officer, independent contractor, director or employee of the Company or
of any Affiliate, or to be an officer, independent contractor, director or
employee of any entity that provides services to the Company or an Affiliate,
including, without limitation, death, Disability, dismissal, severance at the
election of the Participant, Retirement, or severance as a result of the
discontinuance, liquidation, sale or transfer by the Company or its Affiliates
of all businesses owned or operated by the Company or its Affiliates. With
respect to any Participant who is not an employee of the Company or an
Affiliate, his, her or its Agreement shall establish what act or event shall
constitute a Termination of Employment for purposes of the Plan. A transfer of
employment from the Company to an Affiliate, or from an Affiliate to the
Company, will not be a Termination of Employment, unless expressly determined by
the
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Committee. A Termination of Employment shall occur for an employee who is
employed by an Affiliate if the Affiliate shall cease to be an Affiliate, and
the Participant shall not immediately thereafter become an employee of the
Company or an Affiliate.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Committee Structure and Authority. The Plan shall be administered
by the Committee. A majority of the Committee shall constitute a quorum at any
meeting thereof (including by telephone conference) and the acts of a majority
of the members present, or acts approved in writing by a majority of the entire
Committee without a meeting, shall be the acts of the Committee for purposes of
this Plan. The Committee may authorize any one or more of its members or an
officer of the Company to execute and deliver documents on behalf of the
Committee. A member of the Committee shall not exercise any discretion
respecting himself or herself under the Plan. The Board shall have the authority
to remove, replace or fill any vacancy of any member of the Committee upon
notice to the Committee and the affected member. Any member of the Committee may
resign upon notice to the Board. The Committee may allocate among one or more of
its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to
the terms of the Plan:
(a) to select those persons to whom Awards may be granted from
time to time;
(b) to determine whether and to what extent Awards or any
combination thereof are to be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each stock-based Award granted hereunder;
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, the Option Price, the Option
Period, any exercise restriction or limitation and any exercise
acceleration, forfeiture or waiver regarding any Award, any shares of
Common Stock relating thereto, any performance criteria and the
satisfaction of each criteria);
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(e) to adjust the terms and conditions, at any time or from
time to time, of any Award, subject to the limitations of Section 11.1.
(f) to determine to what extent and under what circumstances
Common Stock and other amounts payable with respect to an Award shall
be deferred;
(g) to determine under what circumstances an Award may be
settled in cash or Common Stock;
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are
applicable to the Plan, Awards and the issuance of shares of Common
Stock under the Plan and to require of a Participant that appropriate
action be taken with respect to such requirements;
(k) to cancel, with the consent of the Participant or as
otherwise provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make final determinations with respect to
the remaining number of shares of Common Stock available under this
Plan;
(m) to require, as a condition of the exercise of an Award or
the issuance or transfer of a certificate of Common Stock, the
withholding from a Participant of the amount of any Federal, state or
local taxes as may be necessary in order for the Company or any other
employer to obtain a deduction or as may be otherwise required by law;
(n) to determine whether and with what effect a Participant
has incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a
right or obligation to purchase Common Stock or other Awards from a
Participant and, if so, the terms and conditions on which such Common
Stock or other Awards is to be purchased;
(p) to determine the restrictions or limitations on the
transfer of Common Stock or other Awards;
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(q) to determine whether an Award is to be adjusted, modified
or purchased, or is to become fully exercisable, under the Plan or the
terms of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as,
in its opinion, may be advisable in the administration of the Plan; and
(t) to appoint and compensate agents, counsel, auditors or
other specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of
the Plan shall be made in its sole discretion, and in the case of any
determination relating to an Award, may be made at the time of the grant of the
Award or, unless in contravention of any express term of the Plan or an
Agreement, at any time thereafter. All decisions made by the Committee pursuant
to the provisions of the Plan shall be final and binding on all persons,
including the Company and Participants. No determination shall be subject to de
novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 2,000,000 shares of Common Stock
authorized for issuance. Such shares may consist, in whole or in part, of
authorized and unissued shares, treasury shares or reacquired shares. During the
term of this Plan, the Company shall at all times reserve and keep available for
issuance such number of authorized shares of Common Stock as shall be sufficient
to satisfy the requirements of this Plan. The inability of the Company to obtain
authorization from any regulatory body having jurisdiction, which authorization
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any shares of Common Stock hereunder, shall relieve the Company of any
liability for its failure to issue or sell such
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shares of Common Stock as to which such requisite authorization shall not have
been obtained.
4.2 Release of Shares. If any shares of Common Stock that are subject
to any Award cease to be subject to an Award or are forfeited, if any Award
otherwise terminates without issuance of shares of Common Stock being made to
the Participant, or if any shares (whether or not restricted) of Common Stock
are received by the Company in connection with the exercise of an Award,
including the satisfaction of tax withholding or the payment of the exercise
price thereof, such shares, in the discretion of the Committee, may again be
available for distribution in connection with Awards under the Plan.
4.3 Restrictions on Shares. (i) Shares of Common Stock issued as or in
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Award Agreement. Prior to the time
shares of Common Stock are registered under Section 12(b) or 12(g) of the
Exchange Act, the Company shall deliver certificates representing shares of
Common Stock to any holder thereof who receives such shares pursuant to this
Plan. After shares of Common Stock are registered under Section 12(b) or 12(g)
of the Exchange Act, the Company shall deliver such certificates only upon the
request of a holder of such shares of Common Stock. The time of issuance and
delivery of the certificate(s) representing shares of Common Stock may be
postponed by the Company for such period as may be required for it, with
reasonable diligence, to comply with any applicable listing requirement of a
national securities exchange (including without limitation the NASDAQ Stock
Market) and any law or regulation applicable to the issuance and delivery of
such shares.
(ii) Unless an appropriate registration statement is filed and declared
effective by the Commission pursuant to the Securities Act with respect to
shares of Restricted Stock or shares of Common Stock underlying Options, as the
case may be, each certificate representing such shares shall be endorsed with a
legend substantially as follows:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS AND UNTIL REGISTERED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR UNLESS, IN THE OPINION OF COUNSEL
(WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF SUCH OPINION ARE,
SATISFACTORY TO THE ISSUER), SUCH OFFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM
REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS.
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(iii) If required by applicable state authorities, each certificate
representing such shares shall be endorsed with the legends required by such
authorities.
(iv) Each certificate representing such shares shall also contain
legends as are set forth in any agreement pursuant to which such shares are
issued, or as the Committee may otherwise require.
(v) The Committee may require any person exercising an Award to make
such representations and agreements and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Stockholder Rights. No person shall have any rights of a
stockholder as to shares of Common Stock subject to an Award until, after proper
exercise of the Award and/or other action required, such shares shall have been
recorded on the Company's official stockholder records as having been issued or
transferred. Upon exercise of the Award or any portion thereof, the Company will
have thirty (30) days in which to issue the shares, and the Participant will not
be treated as a stockholder for any purpose whatsoever prior to such issuance.
No adjustment shall be made for cash dividends or other rights for which the
record date is prior to the date such shares are recorded as issued or
transferred in the Company's official stockholder records, except as provided
herein or in an Agreement.
4.5 Anti-Dilution. If the outstanding shares of Common Stock are
increased, decreased, changed into or exchanged for a different number or kind
of shares or securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on Common Stock), stock split,
reverse stock split or other similar transaction, or if any other increase or
decrease occurs in the number of outstanding shares of Common Stock without the
receipt by the Company of consideration by the Company, then an appropriate and
proportional adjustment shall be made, as appropriate, to: (i) the number and
kind of shares of Common Stock covered by each Award, (ii) the number and kind
of shares of Common Stock which have been authorized for issuance under this
Plan but as to which no Awards have yet been granted (or which have been
returned to this Plan pursuant to Section 4.2), and/or (iii) the exercise price
per share of Common Stock covered by each outstanding Option; provided, however,
that the Committee may limit any such adjustment so as to maintain the
deductibility of the Awards under Section 162(m) and that any fractional shares
resulting from such adjustment shall be eliminated by rounding to the next lower
whole number of shares with appropriate payment for such fractional shares as
shall reasonably be determined by the Committee. The granting of stock options,
stock purchase rights, phantom stock or similar awards or bonuses to employees
or other persons eligible for Awards under this Plan (whether or not under this
Plan) and the conversion of any convertible securities of the Company shall not
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be deemed to have been effected "without the receipt of consideration" for the
purposes of this Section 4.5.
ARTICLE V
ELIGIBILITY
5.1 Eligibility. Except as herein provided, the persons who shall be
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, employees and consultants of the Company or any
Affiliate, who shall be in a position, in the opinion of the Committee, to make
contributions to the growth, management, protection and success of the Company
and its Affiliates. Of those persons described in the preceding sentence, the
Committee may, from time to time, select persons to be granted Awards and shall
determine the terms and conditions with respect thereto. In making any such
selection and in determining the form of the Award, the Committee may give
consideration to the person's functions and responsibilities, the person's
contributions to the Company and its Affiliates, the value of the individual's
service to the Company and its Affiliates and such other factors deemed relevant
by the Committee. The Committee may designate in writing any person who is not
eligible to participate in the Plan if such person would otherwise be eligible
to participate in this Plan; provided, however, after the Company has securities
registered under Section 12 of the Exchange Act, members of the Committee are
hereby expressly excluded from participation in the Plan unless grants of
options to such members are approved by a duly constituted committee of the
Board comprised solely of "outside directors" within the meaning of Section
162(m) under the Code.
5.2 Per-Person Award Limitations. In each fiscal year during any part
of which the Plan is in effect, a Participant may not be granted Awards relating
to more than 1,500,000 shares of Common Stock, subject to adjustment as provided
in Section 4.5, under each of Articles VI and VII].
ARTICLE VI
STOCK OPTIONS
6.1 General. The Committee shall have authority to grant Stock Options
under the Plan at any time or from time to time. Stock Options may be granted
alone or in addition to other Awards and may be either Incentive Stock Options
or NonQualified Stock Options. An Option shall entitle the Participant to
receive shares of Common Stock upon exercise of such Option, subject to the
Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the
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Plan or an Agreement (the terms and provisions of which may differ from other
Agreements), including, without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of
the date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant and the Company. Only a person who
is a common-law employee of the Company, any parent corporation of the Company
or a subsidiary (as such terms are defined in Section 424 of the Code) on the
date of grant shall be eligible to be granted an Option which is intended to be
and is an Incentive Stock Option. To the extent that any Stock Option is not
designated as an Incentive Stock Option or even if so designated does not
qualify as an Incentive Stock Option, it shall constitute a Non-Qualified Stock
Option. Anything in the Plan to the contrary notwithstanding, no term of the
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422. Neither the Company nor any Affiliate shall
be liable to any Participant granted an Incentive Stock Option or to any other
person if it is determined for any reason by the Internal Revenue Service or any
court having jurisdiction that any Incentive Stock Option granted hereunder is
not an "incentive stock option" under the Code.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option
shall be fixed by the Committee; provided that no Stock Option shall be
exercisable more than ten (10) years after the date the Stock Option is
granted. In the case of an Incentive Stock Option granted to an
individual who owns more than ten percent (10%) of the combined voting
power of all classes of stock of the Company, a corporation which is a
parent corporation of the Company or any subsidiary of the Company
(each as defined in Section 424 of the Code), the Option Period shall
not exceed five (5) years from the date of grant. No Option which is
intended to be an Incentive Stock Option shall be granted more than ten
(10) years from the date the Plan is adopted by the Company or the date
the Plan is approved by the stockholders of the Company, whichever is
earlier.
(b) Option Price. The Option Price per share of the Common
Stock purchasable under an Option shall be determined by the Committee;
provided, however, (1) that the Option Price per share shall be, in the
case of Incentive Stock Options, not less than 100% of the Fair Market
Value per share on the
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date the Option is granted; (2) if the Option is intended to qualify as
an Incentive Stock Option and is granted to an individual who owns or
is deemed to own stock possessing more than ten percent (10%) of the
combined voting power of all classes of stock of the Company, a
corporation which is a parent corporation of the Company or any
subsidiary of the Company (each as defined in Section 424 of the Code),
the Option Price per share shall not be less than one hundred ten
percent (110%) of such Fair Market Value per share on the date the
Option is granted; and (3) with respect to Non-Qualified Stock Options,
the Option Price per share shall be not less than 85% of the Fair
Market Value per share on the date the Option is granted.
(c) Exercisability. Subject to Section 10.1, Stock Options
shall be exercisable at such time or times and subject to such terms
and conditions as shall be determined by the Committee; provided,
however, that Participants who are not directors, officers or
consultants of the Corporation shall possess the right to exercise an
Option at the rate of at least 20% per year over 5 years from the date
the Option is granted, subject to reasonable conditions such as
continued employment. If the Committee provides that any Stock Option
is exercisable only in installments, the Committee may at any time
waive such installment exercise provisions, in whole or in part. In
addition, the Committee may at any time accelerate the exercisability
of any Stock Option. If the Committee intends that an Option be an
Incentive Stock Option, the Committee may, in its discretion, provide
that the aggregate Fair Market Value (determined at the Grant Date) of
the Common Stock as to which such Incentive Stock Option which is
exercisable for the first time during any calendar year shall not
exceed $100,000. An Option may be exercised from time to time during
the term of the Option (to the extent vested) for all or any portion of
the shares of Common Stock for which an Option is then exercisable. No
Option may be exercised for a fraction of a share of Common Stock. An
Option shall be deemed to be exercised when the Company has received at
its principal business office: (i) written notice of such exercise in
accordance with the terms of the applicable Agreement, (ii) full
payment of the exercise price thereof and (iii) any other
representations and agreements required by this Plan or the applicable
Agreement.
(d) Method of Exercise. Subject to the provisions of this
Article VI, a Participant may exercise Stock Options, in whole or in
part, at any time during the Option Period by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the number of shares of Common
Stock subject to the Stock Option to be purchased. Such notice shall be
accompanied by payment in full of the purchase price by cash or check
or such other form of payment as the Company may accept. If approved by
the Committee, payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant having a total
Fair Market Value on the date of such delivery equal
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to the Option Price; (ii) by the execution and delivery of a note or
other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Committee and permitted in accordance with Section
6.3(e); (iii) by authorizing the Company to retain shares of Common
Stock which would otherwise be issuable upon exercise of the Option
having a total Fair Market Value on the date of delivery equal to the
Option Price; (iv) by the delivery of cash or the extension of credit
by a broker-dealer to whom the Participant has submitted a notice of
exercise or otherwise indicated an intent to exercise an Option (in
accordance with Part 220, Chapter II, Title 12 of the Code of Federal
Regulations, so-called "cashless" exercise); or (v) by any combination
of the foregoing. If payment of the Option Price of a Non-Qualified
Stock Option is made in whole or in part in the form of Restricted
Stock, the number of shares of Common Stock to be received upon such
exercise that is equal to the number of shares of Restricted Stock used
for payment of the Option Price shall be subject to the same forfeiture
restrictions or deferral limitations to which such Restricted Stock was
subject, unless otherwise determined by the Committee. In the case of
an Incentive Stock Option, the right to make a payment in the form of
already owned shares of Common Stock of the same class as the Common
Stock subject to the Stock Option may be authorized only at the time
the Stock Option is granted. No shares of Common Stock shall be issued
until full payment therefor, as determined by the Committee, has been
made. Subject to any forfeiture restrictions or deferral limitations
that may apply if a Stock Option is exercised using Restricted Stock, a
Participant shall not have any rights of a stockholder of the Company
holding the class of Common Stock that is subject to such Stock Option
(including, if applicable, the right to vote the shares and the right
to receive dividends), unless the Participant has given written notice
of exercise, has paid in full for such shares and such shares have been
recorded on the Company's official stockholder records as having been
issued or transferred.
(e) Company Loan or Guarantee. Upon the exercise of any Option
and subject to the pertinent Agreement and the discretion of the
Committee, the Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such
portion of the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant
from a third-party for the purpose of tendering the Option
Price.
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except
that no extension of credit or guarantee shall obligate the Company for
an amount to exceed the lesser of the aggregate Fair Market Value per
share of the Common Stock on
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the date of exercise, less the par value of the shares of Common Stock
to be purchased upon the exercise of the Award, or the amount permitted
under applicable laws or the regulations and rules of the Federal
Reserve Board and any other governmental agency having jurisdiction.
(f) Non-transferability of Options. Except as otherwise
provided in an Agreement or determined by the Committee, no Stock
Option or interest therein shall be transferable by the Participant
other than by will or by the laws of descent and distribution, and all
Stock Options shall be exercisable during the Participant's lifetime
only by the Participant.
6.4 Termination by Reason of Death. Unless otherwise provided in an
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for the period of one
hundred eighty (180) days from the date of such termination or until expiration
of the Option Period, whichever is shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in
an Agreement or determined by the Committee, if a Participant incurs a
Termination of Employment due to Disability, any unexpired and unexercised Stock
Option held by such Participant shall thereafter be fully exercisable for the
period of one hundred eighty (180) days from the date of such termination or
until the expiration of the Option Period, whichever is shorter, and the
Participant's death at any time following such Termination of Employment due to
Disability shall not affect the foregoing. In the event of Termination of
Employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for the purposes of
Section 422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement, or the Termination of Employment is involuntary on the part
of the Participant (but is not due to death or Disability or with Cause), any
Stock Option held by such Participant shall thereupon terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the
lesser of the ninety (90) day period commencing with the date of such
Termination of Employment or until the expiration of the Option Period. Unless
otherwise provided in an agreement or determined by the Committee, if the
Participant incurs a Termination of Employment which is either (a) voluntary on
the part of the Participant (and is not due to Retirement) or (b) with Cause,
any Stock Option held by such Participant shall terminate immediately. The death
or Disability of a Participant after a Termination of Employment otherwise
provided herein shall not extend the time permitted to exercise an Option.
Notwithstanding anything to the contrary in an Agreement, if a
Participant who is an employee of the Company or an Affiliate incurs a
Termination of Employment pursuant to his or her employment agreement with the
Company or an Affiliate, as applicable, as a result of a termination without
cause provision, or as a result of a material uncured breach of such employment
agreement by the Company or an Affiliate, as applicable, then the Stock Option
held by such Participant, to the extent that it otherwise would have been vested
and exercisable as of the end of the term of employment provided for in such
employment agreement, shall become so vested and exercisable immediately upon
such termination.
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6.7 Cashing Out of Option. On receipt of written notice of exercise,
the Committee may elect to cash out all or part of the portion of any Stock
Option with respect to which Option at least six months have elapsed since the
Grant Date (provided that such limitation shall not apply to an Option granted
to a Participant who has subsequently died) by paying the Participant an amount,
in cash or Common Stock, equal to the excess of the Fair Market Value of the
Common Stock that is subject to the Option on the effective date of such
cash-out over the Option Price times the number of shares of Common Stock
subject to such cash-out.
ARTICLE VII
RESTRICTED STOCK
7.1 General. The Committee shall have authority to grant Restricted
Stock under the Plan at any time or from time to time. Shares of Restricted
Stock may be awarded either alone or in addition to other Awards granted under
the Plan. The Committee shall determine the persons to whom and the time or
times at which grants of Restricted Stock will be awarded, the number of shares
of Restricted Stock to be awarded to any Participant, the time or times within
which such Awards of Restricted Stock may be subject to forfeiture and any other
terms and conditions of the Awards of Restricted Stock. Each Award of Restricted
Stock shall be confirmed by, and be subject to the terms of, an Agreement. The
Committee may condition the grant of Restricted Stock upon the attainment of
specified performance goals by the Participant or by the Company or an Affiliate
(including a division or department of the Company or an Affiliate) for or
within which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock
Awards need not be the same with respect to any Participant.
7.2 Awards and Certificates. Notwithstanding the limitations on
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving an Award of Restricted Stock shall have a certificate in
respect of such shares of Restricted Stock issued in such Participant's name.
Such certificate shall bear an appropriate legend referring to the terms,
conditions, and restrictions applicable to such Award as determined by the
Committee. The Committee may require that the certificates evidencing such
shares be held in custody by the Company until the restrictions thereon shall
have lapsed and that, as a condition of any Award of Restricted Stock, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Common Stock covered by such Award.
7.3 Terms and Conditions. Shares of Restricted Stock shall be subject
to the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions
of the Plan and the Agreement, during a period set by the Committee
commencing
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with the date of such Restricted Stock Award (the "Restriction
Period"), the Participant shall not be permitted to sell, assign,
transfer, pledge or otherwise encumber or dispose of any interest in
shares of such Restricted Stock.
(b) Rights. Except as provided in Section 7.3(a) or as may
otherwise be provided in the applicable Agreement, the Participant
shall have, with respect to the shares of Restricted Stock, all of the
rights of a stockholder of the Company holding the class of Common
Stock that is the subject of the Restricted Stock, including, if
applicable, the right to vote the shares and the right to receive any
cash dividends.
(c) Acceleration. Based on service, performance by the
Participant or by the Company or an Affiliate, including any division
or department for which the Participant is employed, or such other
factors or criteria as the Committee may determine, the Committee may
provide for the lapse of restrictions in installments and may
accelerate the vesting of all or any part of any Award and waive the
restrictions for all or any part of such Award.
(d) Forfeiture. Except to the extent otherwise provided in the
applicable Agreement and the Plan, upon a Participant's Termination of
Employment for any reason during the Restriction Period, all shares of
Restricted Stock still subject to restriction shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining restrictions with respect to any
or all of such Participant's shares of Restricted Stock.
(e) Delivery. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to such
Restriction Period, unlegended certificates for such shares shall be
delivered to the Participant.
(f) Election. A Participant may elect to further defer receipt
of the Restricted Stock for a specified period or until a specified
event, subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made one (1) year prior
to completion of the Restriction Period.
ARTICLE VIII
PERFORMANCE AWARDS
8.1 Performance Awards.
(a) Performance Conditions. The right of a Participant to
exercise or receive a grant or settlement of any Award, and its timing,
may be subject to
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performance conditions specified by the Committee. The Committee may
use business criteria and other measures of performance it deems
appropriate in establishing any performance conditions, and may
exercise its discretion to reduce or increase the amounts payable under
any Award subject to performance conditions, except as limited under
Section 8.1(b) hereof in the case of a Performance Award intended to
qualify under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees.
If the Committee determines that a Performance Award to be granted to a
person the Committee regards as likely to be a Covered Employee should
qualify as "performance-based compensation" for purposes of Code
Section 162(m), the grant and/or settlement of such Performance Award
shall be contingent upon achievement of preestablished performance
goals and other terms set forth in this Section 8.1(b).
(i) Performance Goals Generally. The performance
goals for such Performance Awards shall consist of one or more
business criteria and a targeted level or levels of
performance with respect to such criteria, as specified by the
Committee consistent with this Section 8.1(b). Performance
goals shall be objective and shall otherwise meet the
requirements of Code Section 162(m), including the requirement
that the level or levels of performance targeted by the
Committee result in the performance goals being "substantially
uncertain." The Committee may determine that more than one
performance goal must be achieved as a condition to settlement
of such Performance Awards. Performance goals may differ for
Performance Awards granted to any one Participant or to
different Participants.
(ii) Business Criteria. One or more of the following
business criteria for the Company, on a consolidated basis,
and/or for specified subsidiaries or business units of the
Company (except with respect to the total stockholder return
and earnings per share criteria), shall be used exclusively by
the Committee in establishing performance goals for such
Performance Awards: (1) total stockholder return; (2) such
total stockholder return as compared to total return (on a
comparable basis) of a publicly available index such as, but
not limited to, the Standard & Poor's 500, the Nasdaq Stock
Market-U.S. Index or the H&Q Software Sector Index; (3) net
income; (4) pre-tax earnings; (5) EBITDA; (6) pre-tax
operating earnings after interest expense and before bonuses,
service fees, and extraordinary or special items; (7)
operating margin; (8) earnings per share; (9) return on
equity; (10) return on capital; (11) return on investment;
(12) operating income, excluding the effect of charges for
acquired in-process technology and before payment of executive
bonuses; (13) earnings per share, excluding the effect of
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<PAGE> 23
charges for acquired in-process technology and before payment
of executive bonuses; (14) working capital; and (15) total
revenues.
(iii) Performance Period: Timing For Establishing
Performance Goals. Achievement of performance goals in respect
of such Performance Awards shall be measured over such periods
as may be specified by the Committee. Performance goals shall
be established on or before the dates that are required or
permitted for "performance-based compensation" under Code
Section 162(m).
(iv) Settlement of Performance Awards; Other Terms.
Settlement of Performance Awards may be in cash or Common
Stock, or other Awards, or other property, in the discretion
of the Committee. The Committee may, in its discretion, reduce
the amount of a settlement otherwise to be made in connection
with such Performance Awards, but may not exercise discretion
to increase any such amount payable in respect of a
Performance Award subject to this Section 8.1(b). The
Committee shall specify the circumstances in which such
Performance Awards shall be forfeited or paid in the event of
a Termination of Employment or a Change in Control prior to
the end of a performance period or settlement of Performance
Awards, and other terms relating to such Performance Awards.
(c) Written Determinations. All determinations by the
Committee as to the establishment of performance goals and the
potential Performance Awards related to such performance goals and as
to the achievement of performance goals relating to such Awards shall
be made in writing in the case of any Award intended to qualify under
Code Section 162(m). The Committee may not delegate any responsibility
relating to such Performance Awards.
ARTICLE IX
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
9.1 Limited Transfer During Offering. In the event there is an
effective registration statement under the Securities Act pursuant to which
shares of Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of, or otherwise dispose of or
transfer any shares of Common Stock, or enter into any swap or other agreement
or any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of Common Stock, or otherwise take any
action requested to not be taken by such underwriters.
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<PAGE> 24
9.2 Committee Discretion. The Committee may in its sole discretion
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company; upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article IX shall be construed by the Committee in its sole
discretion, and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article IX, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
9.3 No Company Obligation. None of the Company, the Board, any of the
Company's management, an Affiliate or the Committee shall have any duty or
obligation to disclose affirmatively to a record or beneficial holder of Common
Stock or an Award, and such holder shall have no right to be advised of, any
material information regarding the Company or any Affiliate at any time prior
to, upon or in connection with receipt or the exercise of an Award or the
Company's purchase of Common Stock or an Award from such holder in accordance
with the terms hereof.
9.4 Conditions Upon Issuance of Shares of Common Stock. Shares of
Common Stock shall not be issued pursuant to the exercise of an Option, and
shares of Restricted Stock shall not be issued, unless the exercise of the
Option and/or the issuance and delivery of shares of Common Stock or Restricted
Stock pursuant thereto shall comply with all relevant provisions of law,
including, without limitation, the Securities Act, the Exchange Act, and the
requirements of any stock exchange (including, without limitation, the NASDAQ
Stock Market) upon which shares of Common Stock may then be listed.
ARTICLE X
CHANGE IN CONTROL PROVISIONS
10.1 Impact of Event. Notwithstanding any other provision of the Plan
to the contrary, or of any Agreement entered into as of or prior to August 1,
1999 to the contrary, in the event of a Change in Control (as defined in Section
10.2):
(a) Any Stock Options outstanding as of the date such Change
in Control and not then vested and exercisable shall become fully
vested and exercisable.
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<PAGE> 25
(b) The restrictions and deferral limitations applicable to
any Restricted Stock shall lapse, and such Restricted Stock shall
become free of all restrictions and become fully vested and
transferable, subject to compliance with applicable securities laws,
rules and regulations.
(c) The performance goals and other conditions with respect
to any outstanding Performance Award shall be deemed to have been
satisfied in full, and such Award shall be fully distributable, if and
to the extent provided by the Committee in the Agreement relating to
such Award or otherwise, notwithstanding that the Award may not be
fully deductible to the Company under Section 162(m) of the Code.
(d) Unless the Committee shall expressly provide otherwise
in an Agreement, a Participant shall have the right, whether or not the
Award is fully exercisable or may be otherwise realized by the
Participant, by giving notice during the 60-day period from and after a
Change in Control to the Company, to elect to surrender all or part of
a stock-based Award to the Company and to receive cash, within 30 days
of such notice, in an amount equal to the amount by which the "Change
in Control Price" (as defined in Section 10.3) per share of Common
Stock shall exceed the amount which the Participant must pay to
exercise the Award per share of Common Stock under the Award (the
"Spread") multiplied by the number of shares of Common Stock granted
under the Award as to which the right granted under this Section
10.1(d) shall have been exercised.
10.2 Definition of Change in Control. For purposes of this Plan, a
"Change in Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary of
the Company or any of its subsidiaries, or an employee benefit plan (or related
trust) sponsored or maintained by the Company, or other than the stockholders of
the Company on the effective date of this Plan), including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of stock representing more than the thirty-five percent
(35%) of the combined voting power of the Company's then outstanding securities;
(b)(i) the stockholders of the Company approve a definitive agreement to merge
or consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent
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solicitation contest or any action taken to avoid such a contest) during such
24-month period by or upon the recommendation of persons who were members of the
Board of Directors of the Company immediately prior to such 24-month period and
who constituted a majority of the Board of Directors of the Company at the time
of such election, cease to constitute a majority of the Board.
10.3 Change in Control Price. For purposes of the Plan, "Change in
Control Price" means the higher of (a) the highest reported sales price of a
share of Common Stock in any transaction reported on the principal exchange on
which such shares are listed or on NASDAQ during the 60-day period prior to and
including the date of a Change in Control (if then traded) or (b) if the Change
in Control is the result of a tender or exchange offer, merger, consolidation,
liquidation or sale of all or substantially all of the assets or Common Stock
of the Company (in each case a "Corporate Transaction"), the highest price per
share of Common Stock paid in such Corporate Transaction, except that, in the
case of Incentive Stock Options relating to Incentive Stock Options, such price
shall be based only on the Fair Market Value of the Common Stock on the date
any such Incentive Stock Option is exercised. To the extent that the
consideration paid in any such Corporate Transaction consists all or in part of
securities or other non-cash consideration, the value of such securities or
other non-cash consideration shall be determined in the sole discretion of
the Committee.
ARTICLE XI
MISCELLANEOUS
11.1 Amendments and Termination. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under a Stock Option or Restricted Stock Award theretofore granted without the
Participant's consent. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Committee may amend the Plan at any time provided that (a) no
amendment shall impair the rights of any Participant under any Award theretofore
granted without the Participant's consent, and (b) any amendment shall be
subject to the approval or rejection of the Board.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent.
Subject to the above provisions, the Board shall have authority to
amend the Plan to take into account changes in law and tax and accounting rules,
as well as
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<PAGE> 27
other developments, and to grant Awards which qualify for beneficial treatment
under such rules without stockholder approval. Notwithstanding anything in the
Plan to the contrary, if any right under this Plan would cause a transaction to
be ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the substitution of Common Stock having a Fair Market Value equal to
the cash otherwise payable hereunder for the right which caused the transaction
to be ineligible for pooling of interest accounting.
11.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
Affiliate, or any business entity to be acquired by the Company or an Affiliate,
or any other right of a Participant to receive payment from the Company or an
Affiliate. Such additional, tandem, and substitute or exchange Awards may be
granted at any time. If an Award is granted in substitution or exchange for
another Award or award, the Committee shall require the surrender of such other
Award or award in consideration for the grant of the new Award. In addition,
Awards may be granted in lieu of cash compensation, including in lieu of cash
amounts payable under other plans of the Company or any Affiliate, in which the
Fair Market Value of Common Stock subject to the Award is equivalent in value to
the cash compensation, or in which the exercise price, grant price or purchase
price of the Award in the nature of a right that may be exercised is equal to
the Fair Market Value of the underlying Common Stock minus the value of the cash
compensation surrendered.
11.3 Form and Timing of Payment Under Awards; Deferrals. Subject to the
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash paid in lieu of Common
Stock in connection with such settlement, in the discretion of the Committee or
upon occurrence of one or more specified events (in addition to a Change in
Control). Installment or deferred payments may be required by the Committee
(subject to Section 11.1 of the Plan) or permitted at the election of the
Participant. Payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installment or deferred payments
or the granting or crediting of dividend equivalents in respect of installment
or deferred payments denominated in Common Stock.
11.4 Status of Awards Under Code Section 162(m). It is the intent of
the Company that Awards granted to persons who are Covered Employees within the
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<PAGE> 28
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
11.5 Unfunded Status of Plan; Limits on Transferability. It is
intended that the Plan be an "unfunded" plan for incentive and deferred
compensation. The Committee may authorize the creation of trusts or other
arrangements to meet the obligations created under the Plan to deliver Common
Stock or make payments; provided, however, that, unless the Committee otherwise
determines, the existence of such trusts or other arrangements is consistent
with the "unfunded" status of the Plan. Unless otherwise provided in this Plan
or in an Agreement, no Award shall be subject to the claims of Participant's
creditors and no Award may be transferred, assigned, alienated or encumbered in
any way other than by will or the laws of descent and distribution or to a
Representative upon the death of the Participant.
11.6 General Provisions.
(a) Representation. The Committee may require each person
purchasing or receiving shares pursuant to an Award or otherwise
receiving an Award to represent to and agree with the Company in
writing that, among other things, such person is acquiring the shares
without a view to the distribution thereof. The certificates
representing such shares or such other Award may include any legend
which the Committee deems appropriate to reflect any restrictions on
transfer or otherwise.
(b) No Additional Obligation. Nothing contained in the Plan
shall prevent the Company or an Affiliate from adopting other or
additional compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an
amount first becomes includible in the gross income of the Participant
for Federal income tax purposes with respect to any Award, the
Participant shall pay to the Company (or other entity identified by the
Committee), or make arrangements satisfactory to the Company or other
entity identified by the Committee regarding the payment of, any
Federal, state, local or foreign taxes of any kind required by law to
be withheld with respect to such amount required in order for the
Company or an Affiliate to obtain a current deduction. If the
Participant disposes of shares of Common Stock acquired pursuant to an
Incentive Stock Option in any transaction considered to be a
"disqualifying transaction" under the Code, the Participant must give
written notice of such transfer to the Committee and the Company shall
have the right to deduct any taxes required
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by law to be withheld from any amounts otherwise payable to the
Participant. Unless otherwise determined by the Committee, withholding
obligations may be settled with Common Stock, including Common Stock
that is part of the Award that gives rise to the withholding
requirement, provided that any applicable requirements under Section 16
of the Exchange Act are satisfied. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements, and the
Company and its Affiliates shall, to the extent permitted by law, have
the right to deduct any such taxes from any payment otherwise due to
the Participant.
(d) Reinvestment. The reinvestment of dividends in
additional Restricted Stock at the time of any dividend payment is
hereby prohibited.
(e) Representation. The Committee shall establish such
procedures as it deems appropriate for a Participant to designate a
Representative to whom any amounts payable in the event of the
Participant's death are to be paid.
(f) Controlling Law. The Plan and all Awards made and
actions taken thereunder shall be governed by and construed in
accordance with the laws of the State of California. The Plan shall be
construed to comply with all applicable law and to avoid liability to
the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate
by the Participant of whatever nature may be offset by the Company from
the value of any shares of Common Stock, cash or other thing of value
under this Plan or an Agreement to be transferred to the Participant,
and no shares of Common Stock, cash or other thing of value under this
Plan or an Agreement shall be transferred unless and until all disputes
between the Company and the Participant have been fully and finally
resolved and the Participant has waived all claims to such against the
Company or an Affiliate.
(h) Fail Safe. With respect to persons subject to Section 16
of the Exchange Act, transactions under this Plan are intended to
comply with all applicable conditions of Rule 16b-3. To the extent any
transaction under the Plan or action by the Committee fails to so
comply, it shall be deemed null and void, to the extent permitted by
law and deemed advisable by the Committee. The Committee may authorize
the repurchase of any Award or shares of Common Stock resulting from
any Award in order to prevent a person from incurring or potentially
incurring liability under Section 16(b) of the Exchange Act.
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(i) Financial Statements. Each Participant shall be provided
with copies of the Company's financial statements at least annually, in
accordance with California Code of Regulations ss. 260.140.40.
11.7 Mitigation of Excise Tax. If any payment or right accruing to a
Participant under this Plan (without the application of this Section 11.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 11.7 shall apply with
respect to any person only if, after reduction for any applicable Federal excise
tax imposed by Section 4999 of the Code and Federal income tax imposed by the
Code, the Total Payments accruing to such person would be less than the amount
of the Total Payments as reduced, if applicable, under the foregoing provisions
of the Plan and after reduction for only Federal income taxes.
11.8 Rights with Respect to Continuance of Employment. Nothing
contained herein shall be deemed to alter the relationship between the Company
or an Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract. The Company or an
Affiliate shall have no obligation to retain the Participant in its employ or
service as a result of this Plan. There shall be no inference as to the length
of employment or service hereby, and the Company or an Affiliate reserves the
same rights to terminate the Participant's employment or service as existed
prior to the individual's becoming a Participant in this Plan.
11.9 Awards in Substitution for Awards Granted by Other Corporations.
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the
26
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acquisition by the Company or Affiliate of the stock of the employing
corporation, as the result of which it becomes a designated employer under the
Plan. The terms and conditions of the Awards so granted may vary from the terms
and conditions set forth in this Plan at the time of such grant as the majority
of the members of the Committee may deem appropriate to conform, in whole or in
part, to the provisions of the awards in substitution for which they are
granted.
11.10 Procedure for Adoption. Any Affiliate of the Company may by
resolution of such Affiliate's board of directors, with the consent of the Board
of Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
11.11 Procedure for Withdrawal. Any Affiliate which has adopted the
Plan may, by resolution of the board of directors of such Affiliate, with the
consent of the Board of Directors and subject to such conditions as may be
imposed by the Board of Directors, terminate its adoption of the Plan.
11.12 Delay. If at the time a Participant incurs a Termination of
Employment (other than due to Cause) or if at the time of a Change in Control,
the Participant is subject to "short-swing" liability under Section 16 of the
Exchange Act, any time period provided for under the Plan or an Agreement to the
extent necessary to avoid the imposition of liability shall be suspended and
delayed during the period the Participant would be subject to such liability,
but not more than six (6) months and one (1) day and not to exceed the Option
Period, whichever is shorter. The Company shall have the right to suspend or
delay any time period described in the Plan or an Agreement if the Committee
shall determine that the action may constitute a violation of any law or result
in liability under any law to the Company, an Affiliate or a stockholder of the
Company until such time as the action required or permitted shall not constitute
a violation of law or result in liability to the Company, an Affiliate or a
stockholder of the Company.
11.13 Headings. The headings contained in this Plan are for reference
purposes only and shall not affect the meaning or interpretation of this Plan.
11.14 Severability. If any provision of this Plan shall for any reason
be held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereby, and this Plan shall be construed as
if such invalid or unenforceable provision were omitted.
11.15 Successors and Assigns. This Plan shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
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11.16 Entire Agreement. This Plan and the Agreement constitute the
entire agreement with respect to the subject matter hereof and thereof, provided
that in the event of any inconsistency between the Plan and the Agreement, the
terms and conditions of this Plan shall control.
28
<PAGE> 1
EXHIBIT 10.3
DIGITAL ENTERTAINMENT NETWORK, INC.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - ESTABLISHMENT.................................................................. 1
1.1 Purpose..................................................................... 1
ARTICLE II - DEFINITIONS................................................................... 1
2.1 "Affiliate"................................................................. 1
2.2 "Agreement" or "Option Agreement"........................................... 1
2.3 "Board of Directors" or "Board"............................................. 1
2.4 A "Change in Control"....................................................... 1
2.5 "Code" or "Internal Revenue Code"........................................... 2
2.6 "Commission"................................................................ 2
2.7 "Common Stock".............................................................. 2
2.8 "Company"................................................................... 2
2.9 "Director".................................................................. 2
2.10 "Disability"................................................................ 2
2.11 "Effective Date"............................................................ 2
2.12 "Exchange Act".............................................................. 2
2.13 "Fair Market Value"......................................................... 3
2.14 "Grant Date"................................................................ 3
2.15 "Initial Public Offering"................................................... 3
2.16 "Nasdaq".................................................................... 3
2.17 "Option".................................................................... 3
2.18 "Option Period"............................................................. 3
2.19 "Option Price".............................................................. 3
2.20 "Participant"............................................................... 3
2.21 "Plan"...................................................................... 4
2.22 "Representative"............................................................ 4
2.23 "Rule 16b-3" ............................................................... 4
2.24 "Securities Act"............................................................ 4
ARTICLE III - ADMINISTRATION............................................................... 4
3.1 Board Structure and Authority............................................... 4
ARTICLE IV - STOCK SUBJECT TO PLAN......................................................... 5
4.1 Number of Shares............................................................ 5
4.2 Release of Shares........................................................... 5
4.3 Restrictions on Shares...................................................... 5
4.4 Adjustments................................................................. 5
4.5 Limited Transfer During Offering............................................ 6
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V - OPTIONS........................................................................ 6
5.1 Eligibility................................................................. 6
5.2 Grant and Exercise.......................................................... 6
5.3 Terms and Conditions........................................................ 6
5.4 Termination................................................................. 7
ARTICLE VI - MISCELLANEOUS................................................................. 8
6.1 Amendments and Termination.................................................. 8
6.2 General Provisions.......................................................... 8
6.3 Special Provisions Regarding a Change in Control............................ 9
6.4 Headings.................................................................... 10
6.5 Severability................................................................ 10
6.6 Successors and Assigns...................................................... 10
6.7 Entire Agreement............................................................ 10
</TABLE>
ii
<PAGE> 4
DIGITAL ENTERTAINMENT NETWORK, INC.
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ARTICLE I
ESTABLISHMENT
1.1 Purpose. Digital Entertainment Network, Inc. 1999 Non-employee
Directors' Stock Option Plan is hereby established by Digital Entertainment
Network, Inc., effective as of the date the Commission (as defined herein)
declares effective the registration statement on Form S-1 relating to the
Initial Public Offering (as defined herein). The purpose of the Plan is to
promote the overall financial objectives of the Company and its stockholders by
motivating directors of the Company who are not employees, to further align the
interests of such directors with those of the stockholders of the Company and to
achieve long-term growth and performance of the Company. The Plan and the grant
of Options hereunder are expressly conditioned upon the Plan's approval by the
stockholders of the Company.
ARTICLE II
DEFINITIONS
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership, limited
liability company, association, joint-stock company, trust, unincorporated
association or other entity (other than the Company) that directly, or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, the Company, including, without limitation, any
member of an affiliated group of which the Company is a common parent
corporation as provided in Section 1504 of the Code.
2.2 "Agreement" or "Option Agreement" means, individually or
collectively, any agreement entered into pursuant to this Plan pursuant to which
an Option is granted to a Participant.
2.3 "Board of Directors" or "Board" means the Board of Directors of the
Company.
2.4 A "Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, or an employee benefit
plan (or related trust) sponsored or maintained by the Company), including a
"group" as defined in Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended, becomes the beneficial owner of stock representing more than twenty
percent (20%) of the combined voting power of the Company's then outstanding
securities; (b)(i)
<PAGE> 5
the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were the
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board of Directors of the Company
immediately prior to such 24-month period, together with any persons who were
first elected as directors (other than as a result of any settlement of a proxy
or consent solicitation contest or any action taken to avoid such a contest)
during such 24-month period by or upon the recommendation of persons who were
members of the Board of Directors of the Company immediately prior to such
24-month period and who constituted a majority of the Board of Directors of the
Company at the time of such election, cease to constitute a majority of the
Board.
2.5 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.6 "Commission" means the Securities and Exchange Commission or any
successor agency.
2.7 "Common Stock" means the shares of the Common Stock, par value $.01
per share, of the Company, whether presently or hereafter issued, and any other
stock or security resulting from adjustment thereof as described hereinafter or
the common stock of any successor to the Company which is designated for the
purpose of the Plan.
2.8 "Company" means Digital Entertainment Network, Inc. and includes any
successor or assignee corporation or corporations into which the Company may be
merged, changed or consolidated; any corporation for whose securities the
securities of the Company shall be exchanged; and any assignee of or successor
to substantially all of the assets of the Company.
2.9 "Director" means each and any director who serves on the Board and
who is not an officer or employee of the Company or any of its Affiliates.
2.10 "Disability" means a mental or physical illness that renders a
Participant totally and permanently incapable of performing the Participant's
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under the Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred, while participating in a
criminal offense. The determination of Disability shall be made by the
Committee. The determination of Disability for purposes of the Plan shall not be
construed to be an admission of disability for any other purpose.
2.11 "Effective Date" means the date the Commission declares effective
the registration statement on Form S-1 relating to the Initial Public Offering.
2.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
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<PAGE> 6
2.13 "Fair Market Value" means the value determined on the basis of the
good faith determination of the Committee, pursuant to the applicable method
described below:
(a) if the Common Stock is listed on a national securities
exchange or quoted on Nasdaq, the closing price of the Common Stock on
the relevant date (or, if such date is not a business day or a day on
which quotations are reported, then on the immediately preceding date on
which quotations were reported), as reported by the principal national
exchange on which such shares are traded (in the case of an exchange) or
by Nasdaq, as the case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on Nasdaq, but is actively traded in the
over-the-counter market, the average of the closing bid and asked prices
for the Common Stock on the relevant date (or, if such date is not a
business day or a day on which quotations are reported, then on the
immediately preceding date on which quotations were reported), or the
most recent preceding date for which such quotations were reported; and
(c) if, on the relevant date, the Common Stock is not publicly
traded or reported as described in (a) or (b), the fair market value
determined in good faith by the Committee.
2.14 "Grant Date" means the date as of which an Option is granted
pursuant to the Plan.
2.15 "Initial Public Offering" means the Company's initial public
offering of Common Stock under the Securities Act.
2.16 "Nasdaq" means The Nasdaq Stock Market, including the Nasdaq
National Market.
2.17 "Option" means the right to purchase the number of shares of Common
Stock specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the Committee
impose.
2.18 "Option Period" means the period during which the Option shall be
exercisable in accordance with the Agreement and Article V.
2.19 "Option Price" means the price at which the Common Stock may be
purchased under an Option as provided in Section 5.3.
2.20 "Participant" means a Director to whom an Option has been granted
under the Plan, and in the event a Representative is appointed for a Participant
or another person becomes a Representative, then the term "Participant" shall
mean such appointed Representative. The term shall also include a trust for the
benefit of the Participant, the Participant's parents, spouse or descendants; a
partnership the interests in which are for the benefit of the Participant, the
Participant's parents, spouse or descendants; or a custodian under a uniform
gifts to minors act or similar statute for the benefit of the Participant's
descendants, to the extent permitted by the Committee. Notwithstanding the
foregoing, the term "Termination of Directorship" shall mean
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<PAGE> 7
the Termination of Directorship of the Director.
2.21 "Plan" means the Digital Entertainment Network, Inc. Non-employee
Directors' Stock Option Plan, as herein set forth and as may be amended from
time to time.
2.22 "Representative" means (a) the person or entity acting as the
executor or administrator of a Participant's estate pursuant to the last will
and testament of a Participant or pursuant to the laws of the jurisdiction in
which the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred by the Committee;
provided that only one of the foregoing shall be the Representative at any point
in time as determined under applicable law and recognized by the Committee.
2.23 "Rule 16b-3" means Rule 16b-3, as promulgated under the Exchange
Act, as amended from time to time, or any successor thereto, in effect and
applicable to the Plan and Participants.
2.24 "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
In addition, certain other terms used herein have definitions given to
them in the first place in which they are used.
ARTICLE III
ADMINISTRATION
3.1 Board Structure and Authority. The Plan shall be administered by the
Board. A majority of the Board shall constitute a quorum at any meeting thereof
(including telephone conference), and the acts of a majority of the members
present, or acts approved in writing by a majority of the entire Board without a
meeting, shall be the acts of the Board for purposes of the Plan. The Board may
authorize any one or more of its members or an officer of the Company to execute
and deliver documents on behalf of the Board. A member of the Board shall not
exercise any discretion respecting himself or herself under the Plan. The Board
may allocate among one or more of its members, or may delegate to one or more of
its agents, such duties and responsibilities as it determines.
The Board shall have the authority, subject to the terms of the Plan, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall, from time to time, deem advisable, to interpret
the terms and provisions of the Plan and any Option issued under the Plan and to
otherwise supervise the administration of the Plan. The Board's policies and
procedures may differ with respect to Options granted at different times or to
different Participants.
Any determination made by the Board pursuant to the provisions of the
Plan shall be made in its sole discretion. All decisions made by the Board
pursuant to the provisions of the Plan shall
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<PAGE> 8
be final and binding on all persons, including the Company and Participants. Any
determination shall not be subject to de novo review if challenged in court.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Number of Shares. Subject to the adjustment under Section 4.5, the
total number of shares of Common Stock reserved and available for issuance
pursuant to Options under the Plan shall be [ ] [( )] shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in whole
or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. The Board shall have full authority to determine
the number of shares of Common Stock available for Options, and in its
discretion may include (without limitation) as available for distribution any
shares of Common Stock that have ceased to be subject to Options, any shares of
Common Stock subject to any Options that are forfeited, any Options that
otherwise terminate without issuance of shares of Common Stock being made to the
Participant, or any shares (whether or not restricted) of Common Stock that are
received by the Company in connection with the exercise of a Stock Option,
including the satisfaction of any tax liability or the satisfaction of a tax
withholding obligation. If any shares could not again be available for Options
to a particular Participant under applicable law, such shares shall be available
exclusively for Options to Participants who are not subject to such limitations.
4.3 Restrictions on Shares. Shares of Common Stock issued upon exercise
of an Option shall be subject to the terms and conditions specified herein and
to such other terms, conditions and restrictions as the Board in its discretion
may determine or provide in the Option Agreement. The Company shall not be
required to issue or deliver any certificates for shares of Common Stock, cash
or other property prior to (i) the listing of such shares on any stock exchange,
Nasdaq or other public market on which the Common Stock may then be listed (or
regularly traded), (ii) the completion of any registration or qualification of
such shares under federal or state law, or any ruling or regulation of any
government body which the Board determines to be necessary or advisable, and
(iii) the satisfaction of any applicable withholding obligation in order for the
Company or an Affiliate to obtain a deduction with respect to the exercise of
the Option. The Company may cause any certificate for any share of Common Stock
to be delivered to be properly marked with a legend or other notation reflecting
the limitations on transfer of such Common Stock as provided in the Plan or as
the Board may otherwise require. The Board may require any person exercising an
Option to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of the shares
of Common Stock in compliance with applicable law or otherwise. Fractional
shares shall not be delivered, but shall be rounded to the next lower whole
number of shares.
4.4 Adjustments. In the event, after the Effective Date, of a stock
dividend, stock split, combination or exchange of shares, recapitalization or
other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a
5
<PAGE> 9
stand-alone or consolidated basis), reorganization, rights offering, partial or
complete liquidation, or any other corporate transaction, Company stock offering
or event involving the Company and having an effect similar to any of the
foregoing, then the Board shall adjust or substitute, as the case may be, the
number of shares of Common Stock available for Options under the Plan, the
number of shares of Common Stock covered by outstanding Options, the exercise
price per share of outstanding Options, and any other characteristics or terms
of the Options as the Board shall deem necessary or appropriate to reflect
equitably the effects of such changes to the Participants; provided, however,
that any fractional shares resulting from such adjustment shall be eliminated by
rounding to the next lower whole number of shares with appropriate payment for
such fractional shares as shall reasonably be determined by the Board.
4.5 Limited Transfer During Offering. In the event there is an effective
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly pursuant to an exercise of an Option.
ARTICLE V
OPTIONS
5.1 Eligibility. Each Director shall be granted Options to purchase
shares of Common Stock as provided herein.
5.2 Grant and Exercise. Each person who is a Director on the Effective
Date shall become a Participant and shall be granted an Option to purchase
[_______] [(_____)] shares of Common Stock without further action by the Board
or the Board. Each person who is subsequently elected or appointed as a Director
shall become a Participant and shall, on his date of election or appointment,
without further action by the Board or the Board, be granted an Option to
purchase [_______] [(______ )] shares of Common Stock. Thereafter, on the date
of each annual meeting of stockholders of the Company after which a Participant
continues as a Director, in any year following the year of the initial grant of
an Option to such Participant, such Participant shall be granted an Option to
purchase [_______] [(______ )] shares of Common Stock. If the number of shares
of Common Stock available to grant under the Plan on a scheduled date of grant
is insufficient to make all automatic grants required to be made pursuant to the
Plan on such date, then each eligible Director shall receive an Option to
purchase a pro rata number of the remaining shares of Common Stock available
under the Plan; provided further, however, that if such proration results in
fractional shares of Common Stock, then such Option shall be rounded down to the
nearest number of whole shares of Common Stock. If there is no whole number of
shares remaining to be granted, then no grants shall be made under the Plan.
Each Option granted under the Plan shall be evidenced by an Agreement, in a form
approved by the Board, which shall embody the terms and conditions of such
Option and which shall be subject to the express terms and conditions set forth
in the Plan. Such Agreement shall become effective upon execution by the
Participant.
5.3 Terms and Conditions. Options shall be subject to such terms and
conditions as shall be determined by the Board, including in each case the
following:
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<PAGE> 10
(a) Option Period. The Option Period of each Option shall be ten (10)
years.
(b) Option Price. The Option Price per share of the Common Stock
purchasable under an Option shall be the Fair Market Value as of the Grant Date.
(c) Exercisability. Unless an alternative time is specified in an
Agreement, and subject to the provisions of Section 6.3, Options shall become
exercisable in [TO COME]. An Option only shall be exercisable during the Option
Period.
(d) Method of Exercise. Subject to the provisions of this Article V, a
Participant may exercise Options, in whole or in part, at any time during the
Option Period by the Participant's giving to the Company written notice of
exercise on a form provided by the Board (if available) specifying the number of
shares of Common Stock subject to the Stock Option to be purchased. Except when
waived by the Board, such notice shall be accompanied by payment in full of the
purchase price by cash or check or such other form of payment as the Company may
accept. If approved by the Board (including approval at the time of exercise),
payment in full or in part may also be made (i) by delivering Common Stock
already owned by the Participant having a total Fair Market Value on the date of
such delivery equal to the Option Price; (ii) by the execution and delivery of a
note or other evidence of indebtedness (and any security agreement thereunder)
satisfactory to the Board and permitted in accordance with Section 5.3(e); (iii)
by the delivery of cash or the extension of credit by a broker-dealer to whom
the Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise an Option (in accordance with Part 220, Chapter II, Title 12
of the Code of Federal Regulations, so-called "cashless" exercise); or (iv) by
any combination of the foregoing or by any other method permitted by the Board.
(e) Nontransferability of Options. Except as provided in an Agreement as
determined by the Board, no Option or interest therein shall be transferable by
a Participant other than by will or by the laws of descent and distribution, and
all Options shall be exercisable during the Participant's lifetime only by the
Participant.
5.4 Termination. Unless otherwise provided in an Agreement or determined
by the Board, if a Participant ceases to be a Director due to death, any
unexpired and unexercised Stock Option held by such Participant, to the extent
then exercisable, shall thereafter be exercisable for a period of ninety (90)
days following the date of the appointment of a Representative (or such other
period or no period as the Board may specify) or until the expiration of the
Option Period, whichever period is the shorter. Unless otherwise provided in an
Agreement or determined by the Board, if a Participant ceases to be a Director
due to a Disability, any unexpired and unexercised Stock Option held by such
Participant, to the extent then exercisable, shall thereafter be exercisable by
the Participant for the period of ninety (90) days (or such other period or no
period as the Board may specify) immediately following the date the Participant
ceases to be a Director or until the expiration of the Option Period, whichever
period is shorter, and the Participant's death at any time following the date
the Participant ceases to be a Director due to Disability shall not affect the
foregoing.
Unless otherwise provided in an Agreement or determined by the Board, if
a Participant's directorship is terminated for any reason other than due to
Participant's death or Disability, any Option held by such Participant shall
terminate upon the second anniversary of the date the
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<PAGE> 11
Participant first ceased to hold the position of Director, and such Option shall
only be exercisable to the extent it was exercisable on such date of
termination. Unless otherwise provided in an Agreement, the death or Disability
of a Participant after a termination of Directorship otherwise provided herein
shall not extend the exercisability of the time permitted to exercise an Option.
ARTICLE VI
MISCELLANEOUS
6.1 Amendments and Termination. The Board may amend, alter or
discontinue the Plan at any time, but no amendment, alteration or
discontinuation shall be made which would impair the rights of a Participant
under a Stock Option previously granted, without the Participant's consent,
except such an amendment (a) made to avoid an expense charge to the Company or
an Affiliate, or (b) made to permit the Company or an Affiliate a deduction
under the Code. In addition, no such amendment shall be made without the
approval of the Company's stockholders to the extent such approval is required
by law or agreement.
The Board may amend the Plan at any time subject to the same limitations
(and exceptions to limitations) as applied to the Board and further subject to
any approval or limitations the Board may impose.
The Board may amend the terms of any Stock Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Participant without the Participant's consent or reduce an Option Price,
except such an amendment made to avoid an expense charge to the Company or an
Affiliate or qualify for a deduction.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Options which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interests accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the Board
may modify or adjust the right so that pooling of interests accounting is
available.
6.2 General Provisions.
(a) Representation. The Board may require each person purchasing or
receiving shares pursuant to an Option to represent to and agree with the
Company in writing that such person is acquiring the shares without a view to
the distribution thereof in violation of the Securities Act. The certificates
for such shares may include any legend which the Board deems appropriate to
reflect any restrictions on transfer.
(b) Withholding. If determined to be required to protect the Company, no
later than the date as of which an amount first becomes includible in the gross
income of the Participant for Federal income tax purposes with respect to any
Option, the Participant shall pay to the Company (or other entity identified by
the Board), or make arrangements satisfactory to the Company or other entity
identified by the Board regarding the payment of, any Federal, state, local or
foreign
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<PAGE> 12
taxes of any kind required by law to be withheld with respect to such amount.
Unless otherwise determined by the Board, withholding obligations may be settled
with Common Stock. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements, and the Company and its Affiliates
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment otherwise due to the Participant.
(c) Controlling Law. The Plan and all Options made and actions taken
thereunder shall be governed by and construed in accordance with the laws of the
State of California (other than its law respecting choice of law). The Plan
shall be construed to comply with all applicable law, and to avoid liability to
the Company, an Affiliate or a Participant, including, without limitation,
liability under Section 16(b) of the Exchange Act.
(d) Offset. Any amounts owed to the Company or an Affiliate by the
Participant of whatever nature may be offset by the Company from the value of
any shares of Common Stock, cash or other thing of value under the Plan or an
Agreement to be transferred to the Participant, and no shares of Common Stock,
cash or other thing of value under the Plan or an Agreement shall be transferred
unless and until all disputes between the Company and the Participant have been
fully and finally resolved and the Participant has waived all claims to such
against the Company or an Affiliate.
(e) Fail-Safe. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3. To the extent any action by the Board fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Board.
6.3 Special Provisions Regarding a Change in Control. Notwithstanding
any other provision of the Plan to the contrary, unless otherwise provided in an
Agreement, in the event of a Change in Control:
(a) Any Options outstanding as of the date of such Change in Control and
not then exercisable shall become fully exercisable to the full extent of the
original grant;
(b) The Board shall have full discretion, notwithstanding anything
herein or in an Option Agreement to the contrary, to do any or all of the
following with respect to an outstanding Stock Option:
(1) To provide that the securities of another entity be
substituted hereunder for the Common Stock subject
to Options and to make equitable adjustment with
respect thereto;
(2) To grant the Participant, by giving notice during a
pre-set period, the right to surrender all or part
of a Stock Option to the Company and to receive
cash in an amount equal to the amount by which the
"Change in Control Price" (as defined in Section
6.3(c)) per share of Common Stock subject to
Options on the date of such election shall exceed
the amount which the Participant must pay to
exercise the Option per share of Common Stock under
the Option (the
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<PAGE> 13
"Spread"), multiplied by the number of shares of
Common Stock granted under the Option;
(3) To require the assumption of the obligation of the
Company under the Plan subject to appropriate
adjustment; and
(4) To take any other action the Board determines to
take.
(c) For purposes of this Section, "Change in Control Price" means the
higher of (i) the highest reported sales price of a share of Common Stock in any
transaction reported on the principal exchange on which such shares are listed
or on Nasdaq during the sixty (60)-day period prior to and including the date of
a Change in Control, or (ii) if the Change in Control is the result of a
corporate transaction, the highest price per share of Common Stock paid in such
tender or exchange offer or a corporate transaction. To the extent that the
consideration paid in any such transaction described above consists all or in
part of securities or other non-cash consideration, the value of such securities
or other non-cash consideration shall be determined in the sole discretion of
the Board.
6.4 Headings. The headings contained in the Plan are for reference
purposes only and shall not affect the meaning or interpretation of the Plan.
6.5 Severability. If any provision of the Plan shall for any reason be
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and the Plan shall be construed as if
such invalid or unenforceable provision were omitted.
6.6 Successors and Assigns. The Plan shall inure to the benefit of and
be binding upon each successor and assign of the Company. All obligations
imposed upon a Participant, and all rights granted to the Company hereunder,
shall be binding upon the Participant's heirs, legal representatives and
successors.
6.7 Entire Agreement. The Plan and the Agreement constitutes the entire
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and any Agreement, the terms
and conditions of the Plan shall control.
Executed on this ____ day of ________, 1999.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
---------------------------------
Name:
---------------------------------
Title:
---------------------------------
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<PAGE> 1
EXHIBIT 10.12
CONSULTING AGREEMENT
This Consulting Agreement ("Agreement") is entered into as of August 5,
1998, by and between U30 Group LLC, a Tennessee limited liability company
("Consultant"), and Digital Entertainment Network, Inc., a Delaware corporation
("Company", and together with Consultant, the "Parties").
This Agreement is entered into with reference to the following:
A. Company is a Delaware corporation authorized to do business in
California with power to own property and to employ such agents, representatives
and consultants necessary to carry on the business and operations of Company.
Company is a start-up corporation which intends to produce entertainment content
and distribute it via the Internet and other methods of distribution;
B. Consultant is a Tennessee limited liability company, a professional
consultant to businesses, and desires to assist, through the services of its
member and manager Edward Winter, Company with respect to its sales and
marketing efforts; and
C. Consultant and Company desire to agree upon the compensation payable
to Consultant and to set forth their respective rights and obligations as to
consulting services to be provided by Consultant to Company.
Accordingly, the parties hereto agree as follows:
1. Services To Be Performed.
During the term of this Agreement, Consultant will make Edward
Winter available to consult with, and will cause Edward Winter to provide, on an
exclusive full-time basis, consulting services to Company concerning the matters
set forth on Schedule I attached hereto and incorporated herein by reference.
Consultant hereby acknowledges and agrees that Company's decision to enter into
this Agreement was based on the fact that Edward Winter will be providing
services to Company on a full time exclusive basis hereunder on behalf of
Consultant, and that Consultant may not use any other person to fulfill such
responsibilities. A condition precedent to the Parties' obligations hereunder is
the execution and delivery of the DEN Executive Employment Agreement, a form of
which is attached hereto as Exhibit A, by each of Company and Edward Winter. The
Parties agree that the services to be performed by Edward Winter on behalf of
Consultant hereunder shall be performed primarily at Consultant's principal
office in Knoxville, Tennessee, subject to such travel by Edward Winter as
Company may reasonably require, taking into account, among other factors,
Company's needs and Edward Winter's family obligations.
2. Term.
<PAGE> 2
The term ("Term") of this Agreement will commence as of August 5, 1998
and will terminate as of December 31, 1998, unless terminated sooner pursuant to
the terms of the Paragraph entitled "Termination," and subject to the Paragraph
entitled "Obligations Upon Termination."
3. Compensation.
(a) Cash Compensation. Subject to Paragraph 7 of this Agreement,
as full and complete compensation for Consultant's services hereunder, and for
all rights in and to the results and proceeds of such services, Company will pay
to Consultant the sum (the "Compensation") of Four Hundred Thousand Dollars
($400,000) which shall be payable in equal installments semi-monthly.
4. Termination.
Company has the right to terminate this Agreement subject to this
Paragraph. No amounts shall be paid upon any termination of this Agreement,
whether as liquidated damages or otherwise, except as specifically provided in
the Paragraph entitled "Obligations Upon Termination."
(a) Death or Disability.
(i) This Agreement shall automatically terminate upon
Edward Winter's death; and
(ii) Company may terminate this Agreement, subject to
any applicable Federal and state laws, in the event of Edward Winter's failure
or inability to perform his duties hereunder on behalf of Consultant on an
exclusive and full time basis due to his mental or physical disability. Edward
Winter shall be deemed to be disabled, for purposes of this Agreement, if he is
unable to perform with reasonable accommodation, by reason of physical or mental
disability, his essential duties or obligations on behalf of Consultant
hereunder, for a period of six (6) consecutive weeks.
(b) Termination for Cause. Company may terminate this Agreement
for "cause" at any time upon written notice to Consultant. As used herein, the
term "cause" shall mean any one or combination of the following:
(i) Edward Winter's continuing failure (i) to
substantially perform his services and duties on behalf of Consultant hereunder
(including, without limitation, as described in Paragraphs 1, 13 and 14) or (ii)
to comply with reasonable directions of his supervisors and the Board of
Directors and/or their designees. In the event that a cure of any such failure
is reasonably possible and practicable, the Board of Directors of Company (the
"Board of Directors"), the President of the Company (the "President"), any of
his supervisors and/or whomever is designated by the Board of Directors shall
provide Consultant and Edward Winter fourteen (14) days' written notice and
opportunity to cure the identified deficiencies;
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(ii) Consultant's material breach of this Agreement;
(iii) Edward Winter's gross negligence in the performance
of his services and duties on behalf of Consultant hereunder;
(iv) Edward Winter's conviction of any crime (whether or
not involving Company) which constitutes a crime of moral turpitude or is a
felony; provided, however, that nothing in this Agreement shall obligate Company
to pay the Compensation during any period that he is unable to perform his
services and duties on behalf of Consultant hereunder due to any incarceration;
provided, further, that nothing shall prevent the termination of this Agreement
under another subparagraph of this Paragraph if it provides independent grounds
for termination;
(v) Edward Winter's or Consultant's material violation of
any written rule or regulation of Company applicable to him or it, as the case
may be. In the event that a cure of any such failure is reasonably possible or
practicable, the Board of Directors, the President, any of his supervisors
and/or whomever is designated by the Board of Directors shall provide Edward
Winter and Consultant fourteen (14) days' written notice and opportunity to cure
the identified deficiencies;
(vi) Edward Winter's or Consultant's omission or act
constituting fraud, dishonesty or misrepresentation relating to the business of
Company or the provision of Consultant's services hereunder.
(vii) Edward Winter's failure to satisfy the requirements
of the Immigration Reform and Control Act of 1986. In the event that a cure of
any such failure is reasonably possible or practicable, the Board of Directors,
the President, any of his supervisors and/or whomever is designated by the Board
of Directors shall provide Edward Winter and Consultant fourteen (14) days'
written notice and opportunity to cure the identified deficiencies;
(c) Termination Without Cause. Company may terminate this
Agreement without cause (as "cause" is defined above), subject to the provisions
of the Paragraph entitled "Obligations Upon Termination."
(d) Company Breach. In the event of any material breach of this
Agreement by Company, Consultant shall be entitled to terminate this Agreement
thirty (30) days following written notice to Company, which notice shall
identify such breach and shall give Company the opportunity to cure such breach
within such thirty (30) day period; provided, however, that the cure period for
failure to pay Consultant the Compensation when due is five (5) business days.
5. Election Not to Proceed. Company has the right to terminate this
Agreement immediately upon written notice to Consultant if it elects not to
continue to actively proceed with the development and/or operation of the
business described in Recital A for the remainder of the Term; provided,
however, that as a condition to exercising such termination right, Company shall
pay Consultant all Compensation due and payable as of the date thereof and
unreimbursed business expenses in accordance with Company's customary policies.
If Company so terminates and
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subsequently elects to restart development and/or operation of such business
prior to the expiration of the Term, Company shall give Consultant notice
thereof and Consultant shall have the opportunity for a period of thirty (30)
days from such notice to reinstate the provision of Edward Winter's services and
duties on behalf of Consultant under this Agreement promptly upon written notice
to Company (but without compensation for the period during which the provision
of such services and duties under this Agreement was terminated); provided,
however, that Edward Winter is ready, willing and able to recommence the
provision of his services and duties on behalf of Consultant hereunder upon
expiration of such thirty (30) day period.
6. Force Majeure. In the event of any event or reason beyond the
reasonable control of the Company (including, without limitation, acts of
nature, war, riot, shortage of materials, strike or labor disruption, blackouts,
etc.) which materially interrupts or materially interferes with the development
and/or operation of Company as a whole and which continues for more than
forty-five (45) days ("Event of Force Majeure"), Company has the right to
terminate this Agreement immediately upon notice to Consultant. If Company so
terminates and the Event of Force Majeure ends prior to expiration of the Term,
Company shall give Consultant notice thereof and Consultant shall have the
opportunity for a period of thirty (30) days from such notice to reinstate the
provision of Edward Winter's services and duties on behalf of Consultant under
this Agreement promptly upon written notice to Company (but without compensation
for the period during which the provisions of Edward Winter's services and
duties on behalf of Consultant under this Agreement was terminated on account of
Event of Force Majeure); provided, however, that Edward Winter is ready, willing
and able to recommence his services and duties on behalf of Consultant hereunder
within ten (10) business days of Consultant giving the Company timely notice of
its intention to reinstate the provision of Edward Winter's services and duties
on behalf of Consultant.
7. Obligations Upon Termination.
(a) Notwithstanding anything in this Agreement to the contrary,
in the event of a termination for cause (as defined above), Company shall have
no further obligations to Consultant under this Agreement (other than as
otherwise specifically required by applicable law), except payment of the
Compensation, and reimbursement of expenses (in accordance with Company's
customary policies), and Company shall continue to have all other rights
available hereunder at law or in equity.
(b) Notwithstanding anything in this Agreement to the contrary,
if Company provides Consultant notice that it has made an election to terminate
this Agreement pursuant to either of the paragraphs entitled "Election Not to
Proceed" or "Force Majeure," Company shall have no further obligations to
Consultant under this Agreement (other than as otherwise specifically required
by applicable law), except for payment of the Compensation through the date of
termination, and reimbursement of business expenses in accordance with Company's
customary policies, and Company shall continue to have all other rights
available hereunder at law or in equity.
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8. Reporting.
Edward Winter, on behalf of Consultant, shall report to Marc
Collins-Rector, David Neuman and the Chief Executive Officer, if any, of the
Company, unless otherwise directed by same; provided, however, that in the event
of any conflict in instructions from such persons, Mr. Winter will ultimately
report to Marc Collins-Rector.
9. Expenses.
Consultant shall be entitled to reimbursement for all reasonable,
ordinary and properly vouchered business and business-related entertainment
expenses incurred in the performance of its services hereunder subject to the
Company's policies and procedures with respect thereto as may be from time to
time in effect (including, without limitation, regarding caps on expenses);
provided, however, that if Company requires You to travel outside of Knoxville,
Tennessee, Company shall furnish You with at least first class round-trip air
travel (if available and if used) and first-class accommodations; provided,
further, during the Term hereof, Company shall reimburse You for flying (via
economy class) and housing Your family with You for up to one trip, with a
maximum stay of one week. You shall also be entitled to be reimbursed for a
reasonable portion of Your office expenses and administrative assistance in
Knoxville, Tennessee.
10. Assignment.
Neither Party may assign its rights or delegate its duties hereunder
without first having obtained the other Party's written consent to any such
assignment and/or delegation, which consent may be withheld at such other
Party's sole discretion for any reason whatsoever. Consent of any one assignment
or delegation will not constitute a waiver of such Party's right to approve or
disapprove any subsequent proposed assignment or delegation. Any such assignment
or delegation without the consent of a Party will be void and will, at the
option of such Party, constitute a default under this Agreement.
11. Consultant Not Agent or Employee.
Consultant and Company agree that Consultant and third parties engaged
directly by Consultant (including, but not limited to, Edward Winter) rather
than directly by Company are not and are not to be deemed employees, agents,
joint venturers or partners of Company, but are rendering services hereunder as
an independent contractor and/or employee of Consultant and/or subcontractor
engaged by Consultant, and Consultant and third parties engaged directly by
Consultant (including, but not limited to, Edward Winter) rather than directly
by Company may not assume or create any obligation or responsibility on behalf
of or in Company's name, except as expressly authorized in advance in writing by
Company.
12. No Withholding Obligation.
Consultant and Company agree that Company will not make any payments or
deduct any amounts for unemployment, pension or any other employer
contributions, or withholding or other
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payroll or related taxes, from any payments to Consultant or third parties
engaged directly by Consultant rather than directly by Company, including,
without limitation, Edward Winter and other persons engaged by Consultant.
Consultant shall (i) be solely responsible for any and all taxes or other
required payments related to Edward Winter's and such third parties', (ii)
comply with all federal, state and local income reporting requirements with
respect to itself and third parties engaged by Consultant directly rather than
directly by Company (including, but not limited to, Edward Winter), and shall
(iii) indemnify, defend, save and hold Company, its officers, directors,
stockholders, agents, attorneys, employees, representatives, heirs, successors,
and assigns, harmless from and against any and all actions, claims, losses,
penalties, assessments, damages and other costs and expenses (including, without
limitation, attorneys' fees and costs) arising out of or relating to such
payments.
13. Confidentiality.
(a) Consultant shall not disclose the terms of this Agreement
and/or its association with Company (other than to its professional advisors or
its members and/or managers) without Company's prior approval which can be
withheld by Company in its sole discretion. Consultant further agrees to execute
and be bound by the Confidentiality Agreement attached hereto as Exhibit "B-1"
and cause Edward Winter to execute and be bound by the Confidentiality Agreement
attached hereto as Exhibit "B-2", both of which are incorporated herein by this
reference and the execution of which are conditions precedent to Company's
obligations under this Agreement.
(b) Consultant shall not at any time during the Term be or become
(i) interested or engaged in any manner, directly or indirectly, either alone or
with any person, firm or entity now existing or hereafter created, in any
business which is or may be competitive with the business of Company or (ii)
directly or indirectly involved as a stockholder or officer, director or
employee of, or in any manner associated with, or aid or abet or give
information or financial assistance to, any such business. The provisions of
this subparagraph (b) shall not be deemed to prohibit Consultant's purchase or
ownership, as a passive investment, of not more than five percent (5%) of the
outstanding capital stock of any corporation whose stock is publicly traded. The
foregoing shall not be construed as requiring the divestiture of any investment
made by Consultant prior to the date hereof. Consultant further agrees to
execute and be bound by the Code of Conduct attached hereto as Exhibit "C-1" and
cause Edward Winter to execute and be bound by the Code of Conduct attached
hereto as Exhibit "C-2", both of which are incorporated herein by reference and
the execution of which are conditions precedent to Company's obligations under
this Agreement.
(c) Consultant hereby acknowledges that the provisions of this
Paragraph are reasonable and necessary to protect the legitimate interests of
Company and that any violation of such provisions may result in immediate and
irreparable injury to Company, which cannot reasonably or adequately be
compensated by monetary damages. In the event of a violation of the provisions
of this Paragraph, Consultant further agrees that Company shall, in addition to
all other remedies available to it, be entitled to seek equitable relief by way
of injunction and any other legal or equitable remedies.
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(d) Edward Winter by his acknowledgment on the signature page
hereof agrees to be bound by each and every provision of this Paragraph 13.
14. No Solicitation.
Consultant shall not during the Term or for one (1) year thereafter
induce or attempt to induce any employees or independent contractors (who are
natural persons) of Company (or those of any of its subsidiaries, affiliates or
related companies) to stop working for, contracting with or representing Company
(or any of its subsidiaries, affiliates or related companies) or to otherwise
alter their relationship with Company (or any of its subsidiaries, affiliates or
related companies). Further, Consultant shall not during the Term or for one
year thereafter induce or attempt to induce any employees, or independent
contractors (who are natural persons) of Company to work for, contract with or
represent, any competitors of Company (or any of its subsidiaries, affiliates or
related companies), including Consultant or any third party subsequently
employing Consultant.
Consultant hereby acknowledges that the provisions of this Paragraph are
reasonable and necessary to protect the legitimate interests of Company and that
any violation of such provisions may result in immediate and irreparable injury
to Company, which cannot reasonably or adequately be compensated by monetary
damages. In the event of a violation of the provisions of this Paragraph,
Consultant further agrees that Company shall, in addition to all other remedies
available to it, be entitled to seek equitable relief by way of injunction and
any other legal or equitable remedies.
Edward Winter by his acknowledgment on the signature page hereof agrees
to be bound by each and every provision of this Paragraph 14.
15. Work for Hire.
Other than as set forth on Schedule II attached hereto, all of the
results and proceeds of all services of every kind or nature rendered by
Consultant for Company, including, but not limited to, all (a) plans, methods,
slogans, product names and/or ideas, (b) creative, literary, dramatic and/or
musical material, elements, ideas, suggestions, plots, themes, titles, stories,
characterizations and other material, and/or (c) scientific or technical
material, elements, ideas or suggestions, whether or not in writing, which are
created, suggested and/or obtained by Consultant in the course and scope of
Consultant's performance of its obligations under this Agreement (collectively,
the "Work"), shall be the sole property of Company. To the extent possible or
required under applicable laws, including, without limitation, the U.S.
Copyright Act, the Work shall be considered a "Work Made For Hire." If any
element of the Work is not legally capable of being considered as such, then, in
such event, Consultant hereby irrevocably assigns to Company in perpetuity,
throughout the universe, all rights therein and thereto, including, but not
limited to, copyright and any renewals and/or extensions thereof. Consultant
hereby grants Company the right to change, add to, take from, translate,
reformat and/or reprocess the Work in any manner Company may in its sole
discretion determine. To the fullest extent allowable under any applicable law,
Consultant hereby irrevocably waives or assigns to Company Consultant's
so-called "moral rights" or "droit moral." Consultant and Company acknowledge
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<PAGE> 8
and agree that the Compensation payable hereunder is, in part, in consideration
of, and constitutes equitable remuneration for, any so-called rental right to
the Work. Consultant agrees to immediately deliver to Company upon its request,
but not later than upon completion of its services pursuant to this Agreement,
all copies, notes, tapes, disks, etc. of the Work. Consultant agrees to execute
and deliver to Company such assignments, certificates of engagement or other
instruments as Company may require from time to time to evidence Company's
ownership of the Work.
Edward Winter by his acknowledgment on the signature page hereof agrees
to be bound by each and every provision of this Paragraph 15.
16. No Obligation to Use Consultant.
Notwithstanding anything to the contrary contained in this Agreement,
Company shall not be obligated to actually use the service of Consultant nor to
publish, distribute, advertise, exploit or otherwise make any use of the work
created or worked upon by it and in such instance Company's sole obligation to
Consultant shall be to pay the Compensation due in accordance with and subject
to Paragraph 3.
Edward Winter by his acknowledgment on the signature page hereof agrees
to be bound by each and every provision of this Paragraph 16.
17. Representations and Warranties.
Consultant hereby represents and warrants to Company as follows:
(a) Consultant has full power and authority to execute and
deliver this Agreement, and perform the transactions contemplated thereby.
(b) This Agreement constitutes the legal, valid and binding
obligation of Consultant, enforceable in accordance with its terms, except as
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws and equitable principles relating to or limiting creditors rights
generally.
(c) The execution and delivery of this Agreement, and the
performance of the transactions contemplated thereby, will not (i) conflict with
or violate the Operating Agreement or other organizational documents of
Consultant, or (ii) conflict with, violate or constitute a material breach or
default (whether upon lapse of time and/or the occurrence of any act or event or
otherwise) of any provision of any contract, agreement or understanding
applicable to Consultant, or violate any statute, law, rule, regulation, decree,
injunction, judgment, order, ruling or writ applicable to Consultant.
(d) Consultant understands that Edward Winter's provision of
services and duties to Company on behalf of Consultant hereunder is critical to
Company, and that Company
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would not have entered into this Agreement but for the provision of such
services and duties solely by Edward Winter.
18. Indemnity.
Each Party (an "Indemnifying Party") agrees to defend, indemnify and
hold harmless the other Party, its respective successors, assigns, and
affiliated companies and the directors, officers, stockholders, employees,
agents, attorneys and representatives of each of the foregoing (collectively, an
"Indemnified Party"), from any damage, loss, liability, cost, penalty, award or
expense of any kind (including, without limitation, attorneys' fees and costs)
(collectively, "Liability") incurred, directly or indirectly, as a result of (i)
the breach of any representation or warranty by such Indemnifying Party
hereunder; (ii) the breach of any covenant, agreement or other provision of this
Agreement by such Indemnifying Party; or (iii) any intentional or negligent act
or omission by such Indemnifying Party in the course of performance of this
Agreement. This indemnity does not require payment of Compensation by Company as
a condition precedent to recovery from Consultant hereunder. Company may keep
any accrued Compensation due to Consultant hereunder to offset Consultant's
payment to Company of any Liability under this indemnity and Consultant shall
remain obligated for the amount of said Liability to the extent such kept
payments are insufficient to satisfy the Liability. If the Indemnified Party so
elects, the Indemnified Party shall have the absolute right to control any
litigation of or resolution of any claim, demand or action to which this
indemnity applies.
19. No Implied Waivers.
The failure of either party at any time to require performance by the
other party of any provision hereof will not affect in any way the full right to
request such performance at any time thereafter, nor will the waiver by either
of a breach of any provision hereof be taken or held to be a waiver of any
subsequent breach or of the provision itself.
20. Remedies.
Consultant agrees that it shall not be entitled to injunctive or
equitable relief against Company with respect to Company's performance of its
obligations, and is limited to its remedies at law. All remedies accorded herein
or otherwise available to the parties are cumulative, and no one such remedy
shall be exclusive to any other except as limited by the Paragraph entitled
("Choice of Law, Jurisdiction and Venue"). The pursuit by a party to this
Agreement of any remedy under this Agreement or otherwise shall not be deemed to
waive any other or different remedy which may be available to such party under
this Agreement or otherwise. Without waiving any of a Party's rights or remedies
under this Agreement or otherwise, such Party may from time-to-time recover, by
action, any damages arising out of any breach of this Agreement by the other
Party, and may institute and maintain subsequent actions for additional damages
which may arise from the same or other breaches. The commencement or maintaining
of any such action or actions by a Party shall not constitute an election on
such Party's part to terminate this Agreement or constitute or result in
termination of the other Party's obligations hereunder unless such Party shall
expressly so elect by written notice to the other Party.
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21. Garnishment.
If Company is required because of the service of any garnishment or by
the terms of any contract or assignment executed by Consultant to pay all or any
portion of the Compensation hereunder to any other person or entity, the
withholding of payment of such compensation or any portion thereof shall not be
construed as breach by Company of this Agreement. Consultant further agrees to
indemnify Company for its Liability related in any way to such a service of
garnishment.
22. Publicity.
Consultant hereby irrevocably grants Company the right, during the Term,
to use Edward Winter's approved professional biography with respect to
advertising, promotion and publicity relating to the Company and/or its products
and services. Consultant agrees that Company shall have the right to issue
publicity concerning Edward Winter and/or Consultant with respect to this
Agreement, the results and proceeds of Consultant's services hereunder and
Company and/or Company's products and services. Notwithstanding the foregoing,
Consultant may make incidental, nonderogatory references to Company and/or its
products and services after such time as Company publicly announces this
Agreement.
23. Captions.
Captions in this Agreement are inserted for convenience of reference
only and do not define, describe or affect the construction or interpretation or
limit the scope or the intent of this Agreement or any of the terms or
provisions hereof.
24. Arbitration.
(a) Except for Company's right to seek immediate injunctive and
equitable relief in accordance with the provisions of this Agreement, the
parties hereto agree that all disputes, claims and other matters in controversy
arising out of or relating to this Agreement, or the interpretation, performance
or breach thereof, shall be submitted to binding arbitration in accordance with
the provisions and procedures of this Paragraph 24. This arbitration requirement
shall include, without limitation, the agreement by Consultant to submit to
arbitration any and all claims arising out of any alleged discrimination or
harassment, including, but not limited to, those covered by the California Fair
Employment and Housing Act, the 1961 Civil Rights Act, 42 U.S.C. Sections 2000e
et seq. (Title VII), the Age Discrimination in Employment Act, and the Americans
With Disabilities Act.
(b) The arbitration provided for in this Paragraph 24 shall take
place in Los Angeles County, California, in accordance with the provisions of
Title 9, Sections 1280 et seq. of the California Code of Civil Procedure, except
as provided to the contrary hereunder. The arbitration shall be held before and
decided by a single neutral arbitrator. The single neutral arbitrator shall be
selected in accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association (the "AAA"), as effective on
June
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1, 1997, or as thereafter amended and currently in force (the "AAA Rules"), or
by a process mutually agreed upon by the Parties. If no agreement can be reached
as to the process for selecting the arbitrator or if the agreed method fails,
the arbitrator shall be appointed by the AAA.
(c) The parties hereto shall mutually agree upon the date and
location of the arbitration, subject to the availability of the arbitrator. If
no agreement can be reached as to the date and location of the arbitration, the
arbitrator shall appoint a time and place in accordance with the provisions of
the AAA Rules, except that the arbitrator shall give not less than thirty (30)
days' notice of the hearing unless the parties hereto mutually agree to shorten
time for notice.
(d) The arbitrator shall issue a written reasoned decision
consistent with applicable law. The arbitrator shall not have the authority to
award punitive damages. The decision of the arbitrator may be confirmed pursuant
to the provisions of California Code of Civil Procedure Section 1285, and shall
not be appealable or correctable except to the extent it is inconsistent with
applicable law and/or the express terms of this Agreement, however, it being
understood that a petition to vacate an award for any of the reasons set forth
in California Code of Civil Procedure Section 1286.2(e) shall not be permitted.
25. Completeness of Agreement.
This Agreement (and the exhibits and schedules attached hereto),
together with the Employment Agreement contemplated hereby and that certain
Letter Agreement dated as of the date hereof, among Company, Ed Winter and Marc
Collins-Rector, contains the entire agreement between the parties hereto
relating to the transactions contemplated hereby and all prior or
contemporaneous agreements, understandings, representations, and statements,
oral or written, are superseded and of no force and effect.
26. Modification of Agreement.
Except as otherwise provided for herein, no modification, waiver,
amendment, discharge or change of this Agreement or any term or representation
therein will be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment,
discharge, or change is or may be sought.
27. Attorneys' Fees.
In the event either party commences litigation for the judicial
interpretation, enforcement, breach or rescission hereof, the prevailing party
will be entitled to recover reasonable attorneys' fees and court and other costs
incurred.
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28. Binding Effect.
All terms of this Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective legal
representatives, successors, and assigns.
29. Choice of Law, Jurisdiction, Venue.
This Agreement shall be governed and interpreted by the laws of the
State of California (without giving effect to any conflict of law provisions
thereof) applicable to agreements entered into and to be fully performed
therein. Subject to Paragraph 24 of this Agreement, the parties to this
Agreement agree to submit to the exclusive jurisdiction and venue of the Los
Angeles County Superior Court and/or the U.S. District Court for the Central
District of California with respect to disputes arising under this Agreement,
and hereby consent to service by U.S. Mail.
30. Severability.
In the event that any provision, or portion thereof, of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the validity and enforceability of the remaining provisions, or portions
thereof, will not be affected thereby.
31. Execution in Counterparts.
This Agreement may be executed in counterparts. When each party has
signed and delivered at least one counterpart, each counterpart shall be deemed
an original and, when taken together with the other counterparts, shall
constitute one agreement which shall be binding on and inure to the benefit of
all parties. Photographic or facsimile copies of such signed counterparts may be
used in lieu of the originals for any purpose.
32. Interpretation.
The parties agree that no portion of this Agreement shall be interpreted
against a party because it was the drafting party of such portion of this
Agreement.
33. Survival.
The representations, warranties and indemnities set forth in this
Agreement shall survive the termination of this Agreement.
34. Written Notice.
Unless otherwise specifically provided herein, all notices, demands or
other communications given hereunder will be in writing and will be deemed to
have been delivered as of actual personal delivery or as of the third business
day (excluding Saturdays) after mailing by
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United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
If to Consultant, to:
U30 Group LLC
900 S. Gay Street
Riverview Tower, 23rd Floor
Knoxville, TN 37904
With a copy to:
Gentry, Tipton, Kizer, McLemore & Jendrek, P.C.
800 South Gay Street, Suite 2610
Knoxville, TN 37901
Attn: Timothy M. McLemore, Esq.
If to Company, to:
Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90404
Attn: General Counsel
With a copy to:
Katten Muchin & Zavis
1999 Avenue of the Stars, Suite 1400
Los Angeles, California 90067
Attn: Susan A. Grode, Esq.
35. Acknowledgment of Edward Winter.
Edward Winter acknowledges that he has read this Agreement, confirms his
understanding that Consultant has undertaken to provide the services under this
agreement through him and hereby covenants and agrees that he shall abide by the
terms of this Agreement and provide the services described herein on behalf of
the Consultant.
THE UNDERSIGNED REPRESENTS THAT IT HAS CAREFULLY READ THIS AGREEMENT, HAS BEEN
GIVEN A SUFFICIENT OPPORTUNITY TO CONSULT COUNSEL OF ITS CHOICE WITH RESPECT TO
ENTERING INTO THIS AGREEMENT, THAT IT FULLY UNDERSTANDS THIS AGREEMENT'S FULL
AND BINDING EFFECT, AND THAT IT IS SIGNING THIS AGREEMENT VOLUNTARILY.
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This Agreement has been executed by Consultant and Company effective as
of the date first above written.
U30 GROUP, LLC, a Tennessee limited liability
company ("Consultant")
By: /s/ EDWARD WINTER
---------------------------------------------
Name: Edward Winter
Title: Founder & Chief Manager
DIGITAL ENTERTAINMENT NETWORK, INC.,
a Delaware corporation ("Company")
By: /s/ ALAN FRIEL
---------------------------------------------
Name: Alan Friel
Title: GC, EUP
ACKNOWLEDGED:
/s/ EDWARD WINTER
- ---------------------------
Edward Winter
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EXHIBIT 10.13
[U30 GROUP LETTERHEAD]
As of June 1, 1999
Mr. Andre Richards
Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90404
Dear Andre,
This letter provides the basic terms of a contract between U30 Group, LLC
("U30") and Digital Entertainment Network, Inc., ("DEN"), for the start-up phase
of a proprietary consumer panel ("Panel") to be created, recruited, managed and
maintained by U30 Group exclusively for DEN, beginning June 1, 1999.
RIGHTS
DEN will have exclusive ownership of the Panel and all data associated with it.
All work performed by U30 for DEN (and for which DEN has paid U30) and all
rights, title and interest thereto, including, without limitation, all
copyrights (including all renewals and extensions thereof), trademarks and
patents, shall be the sole property of and shall be credited to DEN. To the
extent possible or required under the applicable laws, including, without
limitation, the U.S. Copyright Act, the results, products and proceeds of any
and all services (collectively, "Results and Proceeds") created, produced or
worked upon by U30 shall be considered "Works Made For Hire," specially ordered
and commissioned by DEN. If such Results and Proceeds are not legally capable of
being considered as Works Made For Hire, then, in such event, U30 hereby
irrevocably grants, transfers and assigns to DEN in perpetuity all right, title
and interest, including, without limitation, copyright, and all extensions and
renewals thereof, U30 may have in or to such Results and Proceeds throughout the
universe. In the event that under any current or future copyright law of any
jurisdiction, any of the rights in or to the Results and Proceeds are subject to
a right of termination or reversion, to the extent and as soon as legally
permissible, U30 agrees to accord DEN rights of first negotiation for thirty
(30) days and last refusal for fifteen (15) days to match any third-party offer
in connection therewith.
<PAGE> 2
U30 agrees that DEN is the sole owner of all rights, title and interest in all
of the Materials provided to U30 by DEN. U30 agrees to immediately deliver all
of such Materials and all material created by U30 hereunder to DEN upon
completion of U30's services pursuant to this Agreement or upon DEN's earlier
request (except that U30 may retain copies for its internal uses). U30 shall
execute any documents (after being afforded a reasonable opportunity to review
same) and do any other acts as may be reasonably required by DEN or its
assignees or licensees to further evidence or effectuate the purposes of this
Agreement and DEN's rights as set forth in this Agreement.
Notwithstanding the foregoing, U30 will manage the Panel for DEN on an on-going
contract basis and have sole and exclusive ownership of the recruiting and Panel
management process and associated recruitment materials, which shall be rights
reserved to U30, except to the extent such materials use DEN materials or
trademarks. U30 shall also have the right to disclose to third parties that DEN
is or has been a client of U30.
RESPONSIBILITIES OF THE PARTIES
The general responsibilities of U30 will be to provide DEN with reliable,
as-needed access to a permanent, proprietary Panel of young people who meet the
criteria agreed to by DEN and U30, and detailed in Exhibit 1. U30 will
accomplish these responsibilities by recruiting, maintaining and managing this
Panel, and making these Panel members available exclusively to DEN for
programming, advertising, technical, lifestyle and other appropriate research.
The parties intend that the development and management of the DEN Panel will be
accomplished in two phases: Phase 1--the start-up phase, and Phase 2--the
expansion phase.
PHASE 1
Phase 1 is designed to be a short-term, start-up period that allows DEN to have
the benefits of a threshold level Panel in key markets during its launch and
gain some experience with Panel, at a low initial investment. The Start-up Phase
Panel will be comprised of approximately 120 panelists in four key markets, and
will have a duration of no more than five months (through October 31, 1999).
PHASE 2
Phase 2 will be the expansion beyond a start-up to a full-fledged Panel of
greater numbers of panelists and/or markets. The ultimate size and market
composition of the Panel will be designed and mutually agreed upon by U30 and
DEN. The parties agree that all details and planning for the expansion to Phase
2 will be completed during the five month Phase 1 period so that a seamless
transition to Phase 2 will be accomplished no later than November 1, 1999. DEN
and U30 shall use their
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<PAGE> 3
respective good faith efforts to enter into and complete the expansion (Phase 2)
and the parties intend that the relationship be ongoing.
U30 will perform the following duties and responsibilities:
- At U30's cost (as part of the Management Fee to be paid by DEN), U30
shall recruit individuals in each designated market, and in total, to
meet agreed upon Panel quotas. Select for Panel membership only those
individuals who meet the demographic, pyschographic and behavioral
criteria to be agreed upon by DEN and U30, and are able to comfortably
articulate their opinions and attitudes. Replenish the Panel as
required in Phase 2 to maintain agreed upon quotas.
- At U30's cost (as part of the Management Fee to be paid by DEN), U30
shall provide appropriate incentives to facilitate initial recruitment
of Panel members, including incentives to prospective panelists,
honorariums to recruiting locations and the cost of creating and
placing recruiting advertising, as required.
- U30 will provide monetary or other incentives to panelists for
participation in Panel activities. Funding for these incentives will be
billed to DEN according to the schedule and terms detailed under the
headings FEES and PAYMENT SCHEDULE below, and shall be payable by DEN
in addition to the Management Fee.
- Create and maintain a detailed computer database that includes personal
data, contact information, habits and preferences, and project
participation records for each Panel member. The database shall be
property of DEN, and DEN shall have unlimited, full-time access to the
Database, via a download to a disk (or other electronic medium) upon
reasonable request by DEN to U30.
- Secure parental consent for panelists under 18 to participate in the
Panel, DEN approved (photo/video) appearance releases, and
confidentiality agreements from all panelists. All such legal documents
will be in the form required by DEN and provided to U30. Copies of all
legal documents shall be sent to DEN's Business and Legal Affairs
Department.
- Schedule active Panel members to participate in the following panel
activities, as well as no more than two annual ad hoc projects to be
mutually agreed upon by both parties. For these projects, U30 will
recruit and confirm panelists, provide directions, schedules and
materials on a per project basis as well as work with DEN to schedule
locations/facilities. Since the size and scope of projects can vary
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dramatically, U30 will work in good faith with DEN to handle reasonable
requests beyond this contract on a cost per project basis. U30 is not
responsible for any research facility or meeting room rental fees,
moderator/facilitator's fees, audio visual rentals, etc., that may be
required by DEN for Panel projects. Any request for payment for such
expenses shall be submitted to and approved by DEN in advance in
accordance with a reasonable approval process acceptable to DEN and
U30.
1. WEEKLY PROGRAMMING FEEDBACK: To obtain continuous feedback on DEN
programming, U30 will survey approximately 25% of DEN panelists
via email on each of two business days each week (days to be
determined by DEN), so that approximately 50% of the Panel will
be asked to provide feedback on a weekly basis. To prevent over
usage, panelists will be rotated each week so that no panelist
participates in this specific activity more than twice per month.
These weekly surveys will consist of 5-10 questions, developed by
DEN in conjunction with U30. U30 will gather and forward
electronically to DEN simple tabulations of the results within a
48-hour period. Reporting of results will be handled by a
freelance writer, separately contracted for and compensated by
DEN.
2. BI-WEEKLY PHONE INTERVIEWS/SURVEYS: Every other week, U30 will
conduct approximately 5-10 telephone interviews/surveys of no
more than 20 minutes duration during business days and evenings.
These phone interviews/surveys will be recorded and transcribed
by U30 and forwarded electronically to DEN research personnel.
3. FOCUS GROUPS, IN-PERSON OR ONLINE CHAT SESSIONS: U30 will select
and recruit panelists for focus groups and informal chat sessions
at the request of DEN. A maximum of two (2) focus groups or chat
sessions (with 6-8 panelists) may be requested per month (total
of 24 annually). If DEN does not fully utilize each month's quota
of focus groups/chat sessions, they may not carry them over from
one month to the next.
- Design and produce a distinctive, DEN-approved, Panel logo for use on
all stationery, postcards, business cards, etc., which are used in
communications with the Panel. The logo will be owned exclusively by
DEN.
- Travel as required to meet the requirements of recruiting, maintaining
and managing the Panel, as well as for meetings, presentations, etc.,
requested by DEN. Accommodations shall be in the form of coach class
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airfare and reasonable business class hotel accommodations (comparable
to those accommodations listed on Exhibit 2 attached hereto).
- Assign one and one-half U30 employees to be fully dedicated to DEN
Panel business, as well as appropriate management and support staff
involvement. U30 and DEN will consult with the other regarding the
staffers assigned to the DEN project by U30.
Among the responsibilities of DEN will be to:
- Provide guidance and input on all aspects of developing the Panel
including its composition and use, and feedback to U30 on Panel member
participation in projects where U30 is not physically present.
- Provide U30 with a reasonable amount of time to execute all requests in
order for U30 to consistently and successfully meet those requests at a
high standard, particularly when U30's services may be required at
night, over weekends and holidays.
CONFIDENTIALITY
U30 agrees to maintain the learning from this Panel and all DEN information,
except that which is necessary to perform services under this contract and with
the permission of DEN, in strict confidence and not to disclose any proprietary
information gained in the execution of this contract to anyone outside of U30
and DEN without the prior written consent of DEN.
DEN agrees to maintain in strict confidence U30's proprietary methods and
processes, trade secrets, and confidential business information.
FEES AND COSTS
The fees for U30's management of the Panel are comprised of three elements:
1.) MANAGEMENT/RECRUITING COSTS -- those that are associated with recruiting
and the day-to-day management of the Panel, including initial Panel
recruiting and replenishment, data base development, contact with
panelists, recruiting for projects requested by DEN, top line reporting,
administration, etc. These costs include all personnel costs, office
expenses, initial recruiting incentives to panelists, recruiting location
rentals, photography (by U30 personnel), film and processing expenses, and
profit.
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<PAGE> 6
MANAGEMENT/RECRUITING FEE:
PHASE 1 $100,000.00
PHASE 2 TBD (based on Panel size, # of markets
and level of project activity)
2.) TRAVEL AND OUT OF POCKET COSTS - these costs include reasonable and
pre-approved travel expenses for recruiting and replenishing the Panel in
designated markets, U30's participation in Panel projects, presentations
and meetings with DEN, etc. Travel expenses are limited to coach class air
fare and business class hotel accommodations. Out of pocket costs are the
reasonable and pre-approved costs of producing or enhancing Panel projects,
including video editing, purchasing cameras, photo processing, full color
reproduction, materials, express shipping charges, etc. U30 will be
responsible for reasonable costs incurred in the regular course of
business, including without limitation, photocopies, telephone, facsimile
and postage expenses. Both travel and out of pocket costs are strictly
pass-through costs, billed at net.
TRAVEL COSTS (ESTIMATE):
PHASE 1 $25,000.00
PHASE 2 TBD
3.) PANELIST INCENTIVES -- these are the net costs associated with compensating
panelists for their participation in Panel projects, and can vary by the
number and complexity of such projects.
INCENTIVES (ESTIMATE):
PHASE 1 $30,000.00 (ASSUMES $50/MONTH PER
PANELIST)
PHASE 2 TBD
PAYMENT SCHEDULE
DEN will pay to U30 an annual Management/Recruiting Fee of $100,000 and
Incentive Costs of $30,000 for Phase 1. Actual incentive payments to panelists
will be drawn against the Incentive Cost fee, and an accounting will be made to
DEN at the end of each six month period. Travel costs and any other Panel
related costs incurred by U30 at the request and prior approval of DEN will be
billed as they occur. Fees for Phase 2 and beyond are to be determined by
November 1, 1999.
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<PAGE> 7
The Phase I Management/Recruiting Fee will be payable as follows: $32,500 in
each of four monthly invoices, June 1, July 1, August 1 and September 1. Fees
and other charges are due within 30 days of the date of invoice. U30 reserves
the right to assess service charges of one-and-one-half percent (1 1/2%) on any
amounts outstanding for more than 30 days from the date of invoice.
TERM
The agreements and obligations of this contract are binding on the parties for
the Phase I term of five months (June 1, 1999 to October 31, 1999. It is the
intention of both parties to continue this relationship into the Phase 2
expansion provided that the parties are not in uncured breach of this Agreement,
the parties shall negotiate in good faith and use their best faith efforts to
amend this Agreement to reflect the expanded Panel requirements for Phase 2.
MISCELLANEOUS
U30 and DEN agree and recognize that U30 is not and is not to be deemed an
employee, agent, joint venturer or partner of DEN, but is an independent
contractor, and that DEN is not obligated to make or deduct any payments on
U30's behalf, including, without limitation, any withholding or other payroll or
related taxes, unemployment, pension or any other employee payment as may be
required by the United States or any other country (individually and
collectively, "taxes"), from any payments to U30. In the event that any taxes
and/or other payments are imposed on DEN directly resulting from payments to U30
pursuant to this Agreement, U30 shall defend, hold harmless and indemnify DEN
from any claims, actions, judgments or damages, including, without limitation,
attorneys' fees and costs, arising out of or relating to any and all such taxes
and payments. U30 shall not have any right or authority to assume or create any
obligation or responsibility on behalf of or in DEN's name.
DEN and U30 agree and recognize that DEN is not and is not to be deemed an
employee, agent, joint venturer or partner of U30, but is an independent
contractor. DEN shall not have any right or authority to assume or create any
obligation or responsibility on behalf of or in U30's name.
U30 warrants and represents that U30 is free and available to enter this
Agreement and perform the services herein and that permission of no other party
is required to perform such services. Except as specifically provided herein,
U30 shall be solely responsible for any and all liability, loss or damage
related to U30's rendition of services and the Results and Proceeds thereof. U30
shall indemnify, defend, save and hold harmless DEN and any of its subsidiaries
or affiliates, and their respective officers, directors, shareholders, agents,
employees, representatives, heirs, successors and assigns, from any and all
actions, claims, losses, damages and other costs and expenses, including,
without limitation, reasonable attorneys' fees and costs, arising out of or
relating to intentional wrongdoing or gross negligence by U30 in connection with
U30's services and the Results and Proceeds, except with
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<PAGE> 8
regard to Materials supplied by DEN, and/or any material breach of U30's
warranties, representations or agreements herein. The representations,
warranties and indemnity obligations set forth in this Agreement shall survive
the expiration or termination of this Agreement.
Excepting any matters which are subject to indemnification by U3O as set forth
above, or arising out of U30's gross negligent acts or omissions, DEN agrees to
indemnify and hold U30 harmless from any and all actions, claims, losses,
damages and other costs and expenses, including, without limitation, reasonable
attorneys' fees and costs arising out of DEN's production, distribution or other
exploitation of the Property.
Notwithstanding anything to the contrary contained in this Agreement, DEN shall
not be obligated to develop, produce, manufacture, publish, license, sell,
distribute, advertise, exploit or otherwise make use of the Results and Proceeds
created or worked upon by U30 or to accord credit of any kind to U30. DEN may
only terminate this Agreement if U30 is in material breach of this Agreement
which is uncured within seven (7) days following written notice from DEN to U30
specifying the alleged, material defaults.
U30 expressly understands and agrees that in the event it is ultimately
determined by a court of law that DEN has a committed a material breach of this
Agreement, the damage, if any, caused thereby would not be irreparable or
otherwise sufficient to entitle U30 to injunctive or other equitable relief. U30
hereby acknowledges that U3O's rights and remedies in any such event shall be
strictly limited to the right, if any, to recover money damages in an action at
law, and U30 shall not have either the right to rescind this Agreement or any of
DEN's rights hereunder or the right to enjoin any use by DEN of the Property,
the Results and Proceeds, the exploitation of any theatrical motion picture or
television program or series, any ancillary or subsidiary rights thereto or any
other use or exploitation in any media now known or hereafter devised in any
language throughout the universe. U30 confirms that U30's services are of a
special, unique, unusual, extraordinary, intellectual or artistic nature which
gives them a peculiar value, the loss of which cannot reasonably or adequately
be compensated by monetary damages, so that if U30 refuses or fails to render
the services in accordance with this Agreement, DEN shall be entitled to seek
and obtain an injunction and any other available relief at law or equity,
This Agreement, and its validity, construction and effect, shall be governed by
and enforced in accordance with the internal laws of the State of California
(without reference to the conflicts of laws provisions thereof), and U30 agrees
to the jurisdiction of the courts therein. This Agreement and its performance
shall be binding on the parties hereto, their heirs, administrators, successors
and assigns. This Agreement shall not be assigned by U30 or modified except by
mutual written agreement between U30 and DEN. DEN may freely assign this
Agreement in whole or in part but DEN shall remain responsible for all payment
obligations to U30.
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<PAGE> 9
This Agreement contains the entire agreement between U30 and DEN relating to
U30's performance of services herein and shall supersede any and all other
agreements whether written or oral. The parties may execute addenda to this
agreement that set forth any additional specific terms of agreement as required
over the course of the contract, consistent with the terms of this letter. The
parties agree to be bound by the terms of this letter and agree to work in good
faith towards execution of any addenda detailing additional necessary terms.
Other services, special requests, unanticipated projects, etc., not specified in
this contract will be considered outside the scope of the contract, unless
agreed to in writing by both parties, and will be billed on a case-by-case
basis.
Please indicate your acceptance of the terms outlined herein by signing and
returning the enclosed copy of this letter. We are pleased to be involved with
DEN on this project and look forward to working with you in the years to come.
Sincerely yours, Approved and accepted for Digital
Entertainment Network, Inc.:
U30 Group
By: /s/ [Illegible Signature] By: /s/ H. JAMES RITTS III
-------------------------------- --------------------------------
Title: CO-FOUNDER Its: Chief Executive Officer
----------------------------- -------------------------------
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<PAGE> 10
EXHIBIT 1
PHASE 1 PANEL COMPOSITION, DEFINITIONS and CRITERIA
Size: 120 panelists (approx. 30 in each of four markets)
Markets: Los Angeles, New York, Detroit, Austin (TX)
Gender: Approx. 60% males and 40% females
Age: 15-22*
*Approximately 25% - Age 15-16
50% - Age 17-19
25% - Age 20-22
Technology usage: Regular access to PC at home and/or work
On line 3X or more/week
On line 4 or more hours/week
--Some % (TBD) on line 10 or more
hours/week
Ideally two-thirds of panelists will be using high-speed
modems (56.6K or above) and large band width (T1, T3,
ISDN), and one-third of panelists will be using modems
of 28.8K. However, the ultimate composition of the panel
as defined by modem speed and band width will be
determined by actual in the field recruiting experience
and agreed to by both parties.
General Attitudes: Interested, responsive, enthusiastic, willing to be a
reporter
Able to communicate thoughtfully and intelligently in
verbal as well as written form
PHASE 2 PANEL COMPOSITION, DEFINITIONS AND CRITERIA TBD
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EXHIBIT 2
Hilton Hotels
Marriott Hotels
Sheraton Hotels
Embassy Suites
Westin Hotels
Hyatt Hotels
Radisson Hotels
and other comparably priced and equipped accommodations
11
<PAGE> 1
EXHIBIT 10.16
<PAGE> 1
EXHIBIT 10.17
Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, California 90402
As of October 27, 1998
Mr. David Neuman
2201 Sunset Plaza Drive
Los Angeles, CA 90069
Mr. Edward Winter
1520 Lyons Road
Knoxville, TN 37919
Mr. Alan Friel
8341 Sunset Blvd., Apt. #5
Los Angeles, CA 90069
Gentlemen:
Reference is made to: (i) the DEN Executive Employment Agreement, dated
as of July 2, 1998 (the "Neuman Employment Agreement"), between Digital
Entertainment Network, Inc. ("DEN") and David Neuman, (ii) Subscription and
Stockholder's Agreement, dated as of August 27, 1998, between DEN and David
Neuman (the "Stockholder's Agreement"), (iii) that certain letter agreement,
dated as of August 5, 1998 (the "Winter Letter Agreement"), among DEN, Edward
Winter and Marc Collins-Rector and (iv) the DEN Executive Employment Agreement,
dated as of August 31, 1998 (the "Friel Employment Agreement", and together with
the Neuman Employment Agreement, the Stockholder's Agreement and the Winter
Letter Agreement, the "Executive Employment Agreements"), between DEN and Alan
Friel.
This letter is to confirm our mutual understanding of the
treatment of certain events that were not anticipated at the time the
above-referenced agreements were entered into and as to which such agreements
may be ambiguous. Information set forth in this letter agreement with respect to
share prices and share amounts has been reflected on a pre-split basis.
1. Conversion of Certain Notes.
(a) The parties hereto acknowledge that (i) Marc
Collins-Rector, as Trustee of the Collins-Rector Revocable Trust U/A/D 7/28/97
(together with Marc Collins-Rector individually, "Collins-Rector"), currently
holds the following two convertible notes made by DEN: (a) 8% Convertible Note
due December 31, 1999 in the principal amount of $3,444,818.92, which is
initially convertible into shares of DEN's common stock ("Common Stock") at a
price of $2.25 per share (the "$2.25 Collins-Rector Note"), and (b) 8%
<PAGE> 2
Convertible Note due December 31, 1999, in the principal amount advanced from
time to time, not to exceed $2,131,475.22, which is initially convertible into
Common Stock at a price of $20 per share (the "$20.00 Collins-Rector Note", and
together with the $2.25 Collins-Rector Note, the "Collins-Rector Notes"), and
(ii) Chad Shackley, as Trustee of the Shackley Revocable Trust U/A/D 7/28/97
(together with Chad Shackley individually, "Shackley"), currently holds the
following two convertible notes made by DEN: (a) 8% Convertible Note due
December 31, 1999 in the principal amount of $484,945.38, which is initially
convertible into shares of Common Stock at a price of $2.25 per share (the
"$2.25 Shackley Note"), and (b) 8% Convertible Note due December 31, 1999 in the
principal amount advanced from time to time, not to exceed $65,527.51, which is
initially convertible into Common Stock at a price of $20 per share, but
pursuant to which DEN will not be making any borrowings (the $20 Shackley Note",
and together with the $2.25 Shackley Note, the "Shackley Notes"). The
Collins-Rector Notes and the Shackley Notes are hereinafter collectively
referred to as the "Notes."
(b) The parties hereto agree that the decrease in
proportionate ownership resulting from the conversion of any or all of the Notes
will be protected solely by the issuance to Messrs. Neuman, Winter and Friel of
the warrants described below (the "Warrants") to purchase Common Stock. Each of
Messrs. Neuman, Winter and Friel (collectively, the "Executives") shall be
granted two Warrants with respect to the Collins-Rector Notes and one Warrant
with respect to the Shackley Notes, all as more particularly set forth below.
The Warrants to be issued to each of Messrs. Neuman, Winter and Friel with
respect to the $2.25 Collins-Rector Note shall be initially exercisable at $2.25
per share, shall be exercisable upon the first to occur of (i) conversion of
such Note and (ii) seven years from the date hereof, and shall initially be
exercisable for 67,270, 42,044 and 12,613 shares, respectively. The Warrants to
be issued to each of Messrs. Neuman, Winter and Friel with respect to the $2.25
Shackley Note shall be initially exercisable at $2.25 per share, shall be
exercisable upon the first to occur of (i) conversion of such Note and (ii)
seven years from the date hereof, and shall initially be exercisable for 9,470,
5,919 and 1,776 shares, respectively. The Warrants to be issued to each of
Messrs. Neuman, Winter and Friel with respect to the $20 Collins-Rector Note
shall be initially exercisable at $20 per share, shall be exercisable upon the
first to occur of (i) conversion of such Note and (ii) seven years from the date
hereof, and shall initially be exercisable for 4,612, 2,883 and 865 shares,
respectively. No warrants shall be issued to any of Messrs. Neuman, Winter and
Friel with respect to the $20 Shackley Note. The form of Warrants is attached
hereto as Exhibit A.
(c) DEN and each of Messrs. Neuman, Winter and Friel agree
that, upon the issuance of the Warrants to such executives, the anti-dilution
protection granted to such executives pursuant to the Executive Employment
Agreements shall be satisfied in full and such executives shall have no rights
thereunder with respect to the issuance or conversion of the Notes.
(d) The issuance of the Warrants are subject to the
requirement that, in connection with DEN's IPO (as hereinafter defined), each of
Messrs. Neuman, Winter and Friel, as applicable, shall enter into such lock-up
agreement as may be required by DEN's underwriters; provided, that such lock-up
agreement shall (i) only contain terms and conditions
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as may be required by such underwriters and (ii) be substantially similar in
length of duration and all other material respects as the lock-up agreements
that other senior executives and affiliates of DEN enter into in connection with
the IPO (each, a "Lock-Up Agreement").
2. Certain Other Anti-dilution Protection.
(a) Notwithstanding anything to the contrary in the Executive
Employment Agreements, the parties hereto agree that subject to Section 2(b),
any decrease in proportionate percentage ownership in DEN's Common Stock held by
Messrs. Neuman, Winter and Friel resulting from the issuance by DEN of shares of
Common Stock, or securities exchangeable or exercisable for, or convertible
into, Common Stock (collectively with the Common Stock, "Common Stock
Equivalents") to employees, directors or consultants shall be addressed solely
as follows: as of the end of each fiscal quarter of DEN commencing as of
December 31, 1998, Messrs. Neuman, Winter and Friel shall be granted options
("Catch-Up Options") exercisable for 4.0%, 2.5% and 0.75%, respectively, of the
aggregate number of shares of Common Stock underlying the Common Stock
Equivalents issued in such fiscal quarter. The Catch-Up Options shall (i) vest
10% on execution of a stock option agreement in substantially the form attached
hereto as Exhibit B, with the balance vesting, subject to continued employment
with DEN, in four equal installments on each of the first four anniversaries of
the grant; provided, however, that if such Executive's employment is terminated
for any reason other than voluntary termination by the applicable Executive
(other than as a result of a material and uncured breach (after giving effect to
applicable notice and cure periods) by DEN of the applicable Executive
Employment Agreement), expiration of the applicable employment agreement, death,
"disability" or "cause" (as such terms are defined in the applicable Executive
Employment Agreement), such Executive's Catch-Up Options shall automatically
become fully vested and shall remain exercisable for the periods specified in
the applicable stock option agreement, (ii) have per share exercise prices equal
to the fair market value of one share of DEN's Common Stock (as determined in
good faith by DEN's Board of Directors) on the date of grant of such Catch-Up
Options, (iii) be non-qualified stock options and (iv) shall be issued pursuant
and subject to the terms and conditions of DEN's Amended and Restated 1998
Incentive Compensation Plan (or any successor incentive compensation plan),
including without limitation the requirements that a stock option agreement in
substantially the form attached hereto as Exhibit B and the Lock-Up Agreement be
entered into. The parties hereto agree that Messrs. Neuman, Winter and Friel's
and DEN's respective rights and obligations with respect to the issuance of
Catch-Up Options shall terminate upon the consummation by DEN of a sale of its
Common Stock in an underwritten public offering registered under the Securities
Act of 1933, as amended, resulting in the listing of DEN's Common Stock on a
nationally recognized stock exchange, including, without limitation, the NASDAQ
Stock Market (an "IPO").
(b) Notwithstanding anything to the contrary set forth in this
Agreement or the Executive Employment Agreements, the parties hereto agree that,
in the event that DEN issues Common Stock Equivalents, none of Messrs. Neuman,
Winter and Friel shall have any anti-dilution protection and/or percentage
protection with respect to such issuances so long as (i) such issuances are in
lieu of cash compensation to the recipient thereof for services rendered to DEN
or any affiliated company; provided, that such arrangements are either
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<PAGE> 4
pursuant to written agreements or the terms of which are otherwise generally
known to Messrs. Neuman, Winter and Friel, (ii) the amount of such cash
compensation is reasonable in comparison to cash compensation paid or payable to
similarly situated employees, officers or consultants, as the case may be, and
(iii) the current fair value of such Common Stock Equivalents on the date of
grant does not exceed the intended gross amount of such cash compensation.
(c) Notwithstanding anything to the contrary in this Agreement
or in any of the Executive Employment Agreements, and for the sake of clarity,
the parties hereto acknowledge and agree that no "Catch-Up Options" or other
types of equity grants shall be issuable to any of the Executives as a result of
the issuance of similar Catch-Up Options or other "Catch-Up" equity securities
(including, without limitation, the Warrants) to any of the other Executives.
Also for the sake of clarity, the parties hereto acknowledge and agree that the
anti-dilution/percentage protection set forth in this Section 2 amends and
restates in its entirety the anti-dilution/percentage protection set forth in
the Executive Employment Agreements.
Please indicate your agreement with the foregoing by signing below
where indicated.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ MARC COLLINS-RECTOR
____________________________________
Name: Marc Collins-Rector
Title: Chairman of the Board
AGREED AND ACCEPTED:
/s/ DAVID NEUMAN
______________________________
David Neuman
/s/ EDWARD WINTER
______________________________
Edward Winter
/s/ ALAN FRIEL
______________________________
Alan Friel
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<PAGE> 5
EXHIBIT A
FORM OF WARRANT
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF THIS
WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION UNDER THE
ACT OR THE RULES AND REGULATIONS THEREUNDER.
Original Issue: [date]
DIGITAL ENTERTAINMENT NETWORK, INC.
WARRANT TO PURCHASE COMMON STOCK
($0.01 Par Value)
This is to certify that, for value received, [ ] or its registered
assigns (the "Holder"), is entitled to purchase, subject to the provisions of
this Warrant, from DIGITAL ENTERTAINMENT NETWORK, INC., a Delaware corporation
(the "Company"), at the exercise price equal to $[ ] per share, at any time
after the Exercise Date (as hereinafter defined) through ten years from the date
hereof (the "Expiration Date"), up to [ ] ([ ]) shares of the common stock of
the Company, $0.01 par value per share (the "Common Stock"), and the Holder
shall be governed and bound by all of the covenants, terms and conditions
contained herein. The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for a share of Common Stock
may be adjusted from time to time as hereinafter set forth. The shares of Common
Stock deliverable upon such exercise and as adjusted from time to time are
hereinafter sometimes referred to as "Warrant Shares," and the exercise price
for a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price". The Exercise
Date is the first to occur of (i) the date that certain 8% Convertible Note due
December 31, 1999 made by the Company in favor of [ ] in the principal amount of
$[ ] (the "Note") is converted into shares of Common Stock of the Company and
(ii) seven years from the date hereof.
1. Exercise of Warrant.
This Warrant may be exercised in whole or in part at any time or from
time to time after the Exercise Date until the Expiration Date, by presentation
and surrender hereof to the Company at its office at 2230 Broadway, Santa
Monica, California 90404, with the purchase form annexed hereto duly executed
and accompanied by payment of the Exercise Price for the number of shares of
Common Stock specified in such form. Payment of the Exercise Price may be made
by Holder,
<PAGE> 6
among other things, authorizing the Company to retain shares of Common Stock
which would otherwise be issuable upon exercise of the Warrant having a total
fair market value (as determined in good faith by the Board of Directors of the
Company) on the date of exercise equal to the Exercise Price or by a promissory
note in form and substance satisfactory to the Board of Directors of Company
(including appropriate security). If this Warrant should be exercised in part
only, the Company shall, upon surrender of this Warrant for cancellation,
execute and deliver a new Warrant evidencing the rights of the Holder to
purchase the balance of the Warrant Shares purchasable hereunder. Upon receipt
by the Company of this Warrant at its office in proper form for exercise, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder. The
covenants and agreements of the Company under this Warrant shall, as applicable,
survive the exercise hereof.
2. Reservation of Shares, Fractional Shares.
(a) The Company hereby agrees that at all times it shall reserve for
issue and delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issue and delivery upon exercise of this
Warrant. To the extent that such reserved shares are not sufficient for purposes
of this Warrant, the Company agrees to use its best efforts to ensure that such
reserved shares be available.
(b) No fractional shares or scrip representing fractional shares
shall be issued upon the exercise of this Warrant. With respect to any fraction
of a share called for upon exercise hereof, the Company shall pay to the Holder
an amount in cash equal to such fraction multiplied by the then current market
value of a share of Common Stock, determined as follows:
(i) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange
the current value shall be the last reported sale price of the Common
Stock on such exchange on the last business day prior to the date of
exercise of this Warrant or if no such sale is made on such day, the
average closing bid and asked prices for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges the current value shall be the mean of the last
reported bid and ask prices reported by the NASDAQ SmallCap Market or
the National Quotation Bureau, Inc., on the last business day prior to
the date of the exercise of this Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and ask prices are not so reported,
the current value shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the Board
of Directors of the Company.
3. Exchange, Assignment, or Loss of Warrant. This Warrant is
exchangeable, without expense to the Holder, at the option of the Holder, upon
presentation and surrender hereof to the Company for other Warrants of different
denominations entitling the Holder hereof to purchase in the aggregate the same
number of shares of Common Stock purchasable hereunder.
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<PAGE> 7
Any such exchange shall be made by surrender of this Warrant to the Company or
at the office of its agent, if any, with the assignment form annexed duly
executed. Subject to compliance with the provisions of applicable law, the
Company, without charge to the Holder, shall execute and deliver a new Warrant
in the name of any assignee named in such instrument or assignment, and this
Warrant shall promptly be canceled. This Warrant may be divided or combined with
other Warrants which carry the same rights upon presentation hereof at the
office of the Company or at the office of its agent, if any, together with a
written notice specifying the names and denominations in which new Warrants are
to be issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any Warrants into which this Warrant may be divided or exchanged. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will execute and deliver
a new Warrant of like tenor and date.
4. Rights of the Holder. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company. No
provision of this Warrant, in the absence of affirmative action by the Holder to
purchase shares of Common Stock, and no mere enumeration herein of the rights or
privileges of the Holder, shall give rise to any liability of the Holder for the
warrant purchase price or as a stockholder of the Company, whether such
liability is asserted by the Company or by creditors of the Company. The rights
of the Holder are limited to those expressed in this Warrant and are not
enforceable against the Company except to the extent set forth herein.
5. Adjustments. If, pursuant to Section 4 of the Note, the
"Conversion Price" (as defined in the Note) is adjusted, then corresponding and
equitable adjustments shall be made to both the Exercise Price of the Warrant
and the number of Warrant Shares issuable upon exercise of the Warrant.
6. Restriction on Transferability.
(a) This Warrant and the Warrant Shares have not been registered
under the Securities Act of 1933, as amended (the "Act"), or the securities laws
of any state. By acceptance hereof, the Holder covenants, agrees and represents
that:
(i) This Warrant has been acquired for, and such Warrant Shares,
if acquired upon the exercise of this Warrant, shall be acquired for,
investment and may not be sold, offered for sale, pledged, hypothecated
or otherwise transferred, in the absence of an effective registration
statement for such securities under the Act or an opinion of counsel
for the Company to the effect that registration is not required under
the Act, and the Holder has the capacity to protect its interests in
connection with the purchase of this Warrant.
(ii) The Holder has had the opportunity to ask questions and
receive answers from the Company about the Company's business and the
purchase by Holder of these securities, and Holder has been given the
opportunity to make any inquiries that Holder
-3-
<PAGE> 8
may desire of any personnel of the Company concerning the proposed
operation of the Company and has been furnished with all of the
information he has requested. No advertisement has been used in
connection with the offer or sale of this Warrant to the Holder.
(iii) The Holder will not offer, sell, transfer, mortgage, assign
or otherwise dispose of this Warrant or the Warrant Shares except
pursuant to a registration statement under the Act and qualification
under applicable state securities laws or pursuant to an opinion of
counsel satisfactory to the Company that such registration and
qualification are not required, and that the transaction (if it
involves a sale in the over-the-counter market or on a securities
exchange) does not violate any provision of the Act. The Holder
understands that a stop-transfer order will be placed on the books of
the Company respecting this Warrant and any certificates representing
the Warrant Shares and that this Warrant and any such certificates
shall bear a restrictive legend and a stop transfer order shall be
placed with the transfer agent prohibiting any such transfer until such
time as the securities represented by such certificates shall have been
registered under the Act or shall have been transferred in accordance
with an opinion of counsel for the Company that such registration is
not required; and
(iv) The Holder understands that it must hold the Warrant Shares
indefinitely unless they are registered under the Act or an exemption
from registration becomes available.
(b) Each certificate for the Warrant Shares shall bear a legend in
substantially the following form:
"The securities represented by this Certificate have been acquired for
investment and have not been registered under the Securities Act of
1933, as amended (the "Act"), and may not be sold, offered for sale,
pledged, hypothecated or otherwise transferred except pursuant to a
registration statement under the Act or an exemption from registration
under the Act or the rules and regulations thereunder."
(c) Without limitation of any other provision of this Warrant, no
transfer of this Warrant and/or the underlying Warrant Shares shall be effective
unless and until the transferee agrees in a written instrument satisfactory in
form and substance to the Company that it agrees to be bound by all of the
provisions of this Warrant.
7. Registration on the Books of the Company. The Company shall keep,
or cause to be kept, at its office at 2230 Broadway, Santa Monica, California
90404, a register in which the Company shall register this Warrant (the "Warrant
Registry"). No transfer of this Warrant shall be valid unless made at such
office and noted on the Warrant Registry upon satisfaction of all conditions for
transfer. When presented for transfer or payment, this Warrant shall be
accompanied by a written instrument or instruments of transfer or surrender, in
form satisfactory to the Company, duly executed by the registered Holder or by
his duly authorized attorney. The Company may deem and treat the registered
Holder hereof as the absolute owner of this Warrant for all purposes, and the
Company shall not be affected by any notice to the contrary.
-4-
<PAGE> 9
8. Governing Law. This Warrant has been executed and delivered in
the State of California and shall be construed in accordance with the laws of
the State of California (without reference to conflicts of laws principles).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officer.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_____________________________________
Name:________________________________
Title:_______________________________
Agreed to and Accepted:
[ ]
By:________________________________
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<PAGE> 10
EXERCISE FORM
To:
Dated:
The undersigned, pursuant to the provisions set forth in the attached
warrant, hereby agrees to subscribe for the purchase of _________ shares of
Common Stock represented by this warrant and makes payment herewith in full
therefor at the price per share provided by this warrant.
Print Name_____________________________
Signature______________________________
<PAGE> 11
ASSIGNMENT FORM
FOR VALUE RECEIVED __________________________________________ hereby
sells, assigns and transfers unto
Name __________________________________________________________________________
(Please typewrite or print in block letters)
Address _______________________________________________________________________
the right to purchase Common Stock, represented by this warrant, to the extent
of __________________ shares as to which such right is exercisable and does
hereby irrevocably constitute and appoint ___________________________ attorney,
to transfer the same on the books of the Company with full power of substitution
in the premises.
Signature_______________________________
Date: ________________, 19__
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
ONLY BE SOLD OR TRANSFERRED PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT OR, AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
SUCH ACT, PROVIDED THAT IN THE EVENT THAT ANY RESALE OF THIS SECURITY IS MADE
PURSUANT TO SUCH AN EXEMPTION AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY
AND ITS LEGAL COUNSEL, WILL BE PROVIDED TO THE EFFECT THAT SUCH TRANSFER IS MADE
PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933.
<PAGE> 12
EXHIBIT B
FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of
__________________ ("Grant Date"), is between Digital Entertainment Network,
Inc., a Delaware corporation (the "Company"), and _______________, an employee,
director, officer or consultant of the Company or any Affiliate (the
"Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to carry out the purposes of the Digital Entertainment Network, Inc.
Amended and Restated 1998 Incentive Compensation Plan (the "Plan"); and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Definitions.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Plan.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option") to
purchase _____ shares of the Common Stock of the Company ("Option
Shares") on the terms and conditions herein set forth. Participant
shall have all the rights and obligations as provided for in this
Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $__ per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $_________.
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period. During the Option Period, the Option
shall be
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<PAGE> 13
exercisable in accordance with the determination of the Committee, but
in no event later than the earlier of (i) the date the Option is vested
or (ii) immediately prior to a Change in Control.
(d) Subject to Sections 2(e) and 2(f) below, unvested options
shall be forfeited at Termination of Employment for any reason. The
percentage of Options which are vested and which will not be forfeited
at Termination of Employment (unless such termination is for Cause)
shall be determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Number of
Date Option Shares Vested
----------------------------------------------------------------------------
<S> <C>
On Grant Date [10%]
First Anniversary
of Grant Date [32.5%]
Second Anniversary
of Grant Date [55%]
Third Anniversary
of Grant Date [77.5%]
Fourth Anniversary
of Grant Date [100.0%]
========
Total Number of Option Shares [100%]
</TABLE>
(e) Notwithstanding the foregoing Section 2(d), all Options
shall be 100% vested upon a Change in Control.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment; provided, however, if Participant's Termination of
Employment is due to any reason other than voluntary termination by
Participant (other than as a result of a material and uncured breach
(after giving effect to applicable notice and cure periods) by Company
of his employment agreement with Company), expiration of his employment
agreement with the Company, death, Disability or Cause, the Option
shall automatically become fully vested upon the date of such
termination.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
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<PAGE> 14
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the date of the
appointment of a Representative or until the expiration of the Option
Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability or with Cause), any unexercised portion of the Option shall
immediately terminate, except that the Option, to the extent then
exercisable, may be exercised for a period of thirty (30) days
immediately following the date of such Termination of Employment or
until the expiration of the Option Period, whichever period is shorter.
(d) If Participant's Termination of Employment is for Cause,
any unexercised portion of the Option shall terminate immediately,
without any exercise thereof. The death or Disability of Participant
after a Termination of Employment otherwise provided herein shall not
extend the time permitted to exercise the Option.
4. Exercise. The Option shall be exercisable during the Participant's
lifetime only by the Participant (or his or her guardian or legal
representative), and after the Participant's death only by the Representative.
The Option may only be exercised by the delivery to the Company of a properly
completed written notice, in form satisfactory to the Committee, which notice
shall specify the number of Option Shares to be purchased and the aggregate
Option Price for such shares, together with payment in full of such aggregate
Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
-3-
<PAGE> 15
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold
an amount on account of any tax imposed as a result of the exercise of the
Option, the Participant shall be required to pay such amount to the Company, as
provided in the Plan.
6. Requirements of Law; Registration and Transfer Requirements. The
Company shall not be required to sell or issue any shares under the Option if
the issuance of such shares shall constitute a violation of any provision of any
law or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted, as is
provided for in the Plan.
7. Adjustments/Change in Control. In the event of a Change in Control or
other corporate restructuring provided for in the Plan, the Participant shall
have such rights, and the Committee shall take such actions, as provided in the
Plan.
8. Nontransferability. A Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of an Option to his
parents, spouse or descendants, to any trust for the benefit of the foregoing or
to a partnership the interests of which are for the foregoing or to a custodian
under a uniform gifts to minors act or similar statute for the benefit of any of
the Participant's descendants. An Option and any interest in the Option may not
otherwise be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner without the prior written consent of the
Company, and any such attempted sale, assignment, conveyance, gift, pledge,
hypothecation or transfer other than as permitted herein shall be null and void;
provided, however, after consummation of the Company's initial public offering
of Common Stock that results in the Common Stock being listed on a national
securities exchange, including without limitation the Nasdaq Stock Market,
shares of Common Stock for which the
-4-
<PAGE> 16
Option was exercised may be transferred without the consent of Company, subject
to applicable securities laws, rules and regulations.
9. Plan. Notwithstanding any other provision of this Agreement, the Option
is granted pursuant to the Plan, as shall be adopted by the Company, and is
subject to all the terms and conditions of the Plan, as the same may be amended
from time to time; provided, however, that no provision of the Plan shall
deprive the Participant, without the Participant's consent, of the Option or of
any of Participant's rights under this Agreement. The interpretation and
construction by the Committee of the Plan, this Agreement and the Option, and
such rules and regulations as may be adopted by the Committee for the purpose of
administering the Plan, shall be final and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option
granted hereunder shall give the Participant any right to continue in the employ
of the Company or any of its Affiliates, create any inference as to the length
of employment of the Participant, affect the right of the Company or its
Affiliates to terminate the employment of the Participant, with or without
cause, or give the Participant any right to participate in any employee welfare
or benefit plan or other program (other than the Plan) of the Company or any of
its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option
shall not affect in any way the right or authority of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel
for the Company, a particular representation is required under the Securities
Act of 1933 or any other applicable federal or state law, or any regulation or
rule of any governmental agency, the Company may require such representations as
the Company reasonably may determine to be necessary.
-5-
<PAGE> 17
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement, together with the Plan, constitute
the entire obligation of the parties hereto with respect to the subject matter
hereof and shall supersede any prior expressions of intent or understanding with
respect to this transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and
signed by the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to
require performance by the other party of any provision hereof shall not affect
its right to require performance of such provision unless and until such
performance has been waived in writing. Each and every right hereunder is
cumulative and may be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or
permitted to give the other shall be in writing and may be delivered personally
or by mail, postage prepaid, addressed to the Secretary of the Company, at its
then corporate headquarters, and to the Participant at his address as shown on
the Company's records, or to such other address as the Participant, by notice to
the Company, may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason
by held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed on the Participant or a Representative, and all rights granted to the
Company hereunder, shall be binding upon the Participant's or the
Representative's heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and
be responsible for any and all tax consequences to himself with respect to the
Option.
-6-
<PAGE> 18
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set his hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_____________________________________
Name:
Title:
PARTICIPANT:
________________________________________
-7-
<PAGE> 1
EXHIBIT 10.18
DEN: Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90404
As of January 1, 1999
Mr. David Neuman
2201 Sunset Plaza
Los Angeles, CA 90069
Mr. Edward Winter
1520 Lyons Road
Knoxville, TN 37919
Mr. Alan Friel
6630 Whitlet Terrace
Hollywood, CA 90068
Mr. Brock Pierce
5255 Encino Ave.
Encino, CA 91316
Re: Payment of Salary in the Form of DEN Equity
Gentlemen:
This letter confirms and memorializes the agreements of Digital
Entertainment Network, Inc. ("DEN") with each of you with respect to the matters
set forth below.
1. Agreements to Forego Salary
(a) Each of DEN and Mr. David Neuman ("Neuman") agrees that, subject to
Section 2(a) below, for the pay period commencing as of January 3, 1999 and
ending on April 10, 1999, an aggregate of $374,999.95 of Neuman's fixed
compensation shall not be paid to him (the "1Q Neuman Salary").
(b) Each of DEN and Mr. Edward Winter ("Winter") agrees that, subject
to Section 2(b) below, for the pay period commencing as of January 3, 1999 and
ending on April 3, 1999, an aggregate of $62,500 of Winter's fixed compensation
shall not be paid to him (the "1Q Winter Salary").
(c) Each of DEN and Mr. Alan Friel ("Friel") agrees that, subject to
Section 2(c) below, for the pay period commencing as of January 3, 1999 and
ending on April 10, 1999, an aggregate of $15,624.96 of Friel's fixed
compensation shall not be paid to him (the "1Q Friel Salary").
<PAGE> 2
Page 2
January 1, 1999
(d) Each of DEN and Mr. Brock Pierce ("Pierce") agrees that, subject to
Section 2(d) below, for the pay period commencing as of January 3, 1999 and
ending on April 10, 1999, an aggregate of $15,624.96 of Pierce's fixed
compensation shall not be paid to him (the "1Q Pierce Salary").
(e) The parties hereto acknowledge and agree that, in consideration of
the agreements of Messrs. Neuman, Winter, Friel, and Pierce to forego their
fixed compensation as set forth in this Section 1 and for other good and
valuable consideration, the receipt and adequacy of which is hereby
acknowledged, DEN shall grant, as of January 1, 1999, incentive stock options
(the "ISOs") with $10 per share exercise prices to purchase 5,000, 3,750, 2,500
and 2,500 shares of common stock, par value $.01 per share (the "Common Stock"),
to Messrs. Neuman, Winter, Friel and Pierce, respectively, pursuant to incentive
stock option agreements in substantially the form attached hereto as Exhibit A.
2. Payment of 1Q Salaries in the Form of Discounted Stock Options.
(a) Each of DEN and Neuman agree that, in lieu of paying Neuman the 1Q
Neuman Salary, DEN shall instead issue to Neuman, as of January 1, 1999,
non-qualified stock options to purchase 37,500 shares of DEN's common stock, par
value $.01 per share (the "Common Stock"), at a per share exercise price of
$2.50. The shares of Common Stock underlying such options shall vest pro-rata on
a daily basis from the date of grant until April 10, 1999.
(b) Each of DEN and Winter agree that, in lieu of paying Winter the 1Q
Winter Salary, DEN shall instead issue to Winter, as of January 1, 1999,
non-qualified stock options to purchase 6,250 shares of Common Stock, at a per
share exercise price of $2.50. The shares of Common Stock underlying such
options shall vest pro-rata on a daily basis from the date of grant until April
3, 1999.
(c) Each of DEN and Friel agree that, in lieu of paying Friel the 1Q
Friel Salary, DEN shall instead issue to Friel, as of January 1, 1999,
non-qualified stock options to purchase 1,562 shares of Common Stock, at a per
share exercise price of $2.50. Such options shall vest pro-rata on a daily basis
from the date of grant through April 10, 1999.
(d) Each of DEN and Pierce agree that, in lieu of paying Pierce the 1Q
Pierce Salary, DEN shall instead issue to Pierce, as of January 1, 1999,
non-qualified stock options to purchase 1,562 shares of Common Stock, at a per
share exercise price of $2.50. Such options shall vest pro rata on a daily basis
from the date of grant through April 10, 1999.
(e) Each of DEN, Neuman, Winter, Friel and Pierce acknowledge and agree
(i) that a condition precedent to the effectiveness of the option grants
described in Section 1(e) and this Section 2 is execution and delivery of a
stock option agreement in substantially the form attached hereto as Exhibit A or
Exhibit B, as the case may be, by DEN and each of such executives,
<PAGE> 3
(ii) the ISOs (but not the non-qualified stock options) shall be issued pursuant
to DEN's Amended and Restated 1998 Incentive Compensation Plan and (iii) that
the issuance of such options (together with the ISOs) are subject to the
requirement that, in connection with DEN's initial public offering of common
stock, each of such executives shall enter into such lock-up agreement as may be
required by DEN's underwriters; provided, that such lock-up agreements shall (A)
only contain terms and conditions as may be required by such underwriters and
(B) be substantially similar in length of duration and all other material
respects as the lock-up agreements that the other senior executives of DEN enter
into in connection with such initial public offering.
Please indicate your agreement with the foregoing by signing in the
space indicated next to your name.
Very truly yours,
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ CHAD SHACKLEY
____________________________________
Name: Chad Shackley
Title: Chief Technology Officer &
Executive Vice President
AGREED AND ACCEPTED:
/s/ DAVID NEUMAN
______________________________
David Neuman
/s/ EDWARD WINTER
______________________________
Edward Winter
/s/ ALAN FRIEL
______________________________
Alan Friel
/s/ BROCK PIERCE
______________________________
Brock Pierce
<PAGE> 4
EXHIBIT A
FORM OF ISO AGREEMENT
<PAGE> 5
INCENTIVE STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of January 1,
1999 ("Grant Date"), is between Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), and _____________, an employee, director, officer
or consultant of the Company or any Affiliate (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to carry out the purposes of the Digital Entertainment Network, Inc.
Amended and Restated 1998 Incentive Compensation Plan (the "Plan"); and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties do hereby agree as follows:
1. Definitions.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Plan.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and in lieu of salary or any other compensation
for services, the right and option (the "Option") to purchase [ ]
shares of the Common Stock of the Company ("Option Shares") on the
terms and conditions herein set forth. Participant shall have all the
rights and obligations as provided for in this Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $10 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $____________.
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period. During the Option Period, the Option
shall be exercisable in accordance with the determination of the
Committee, but in no event later than the earlier of (i) the date the
Option is vested or (ii) immediately prior to a Change in Control.
1
<PAGE> 6
(d) Subject to Sections 2(e) and 2(f) below, unvested Option
Shares shall be forfeited at Termination of Employment for any reason.
The percentage of Option Shares which are vested and which will not be
forfeited at Termination of Employment (unless such termination is for
Cause) shall be determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Number
Date of Option Shares Vested
-----------------------------------------------------------------------
<S> <C>
On Grant Date [10%]
First Anniversary of Grant Date [32.5%]
Second Anniversary of Grant Date [55%]
Third Anniversary of Grant Date [77.5%]
Fourth Anniversary of Grant Date [100%]
=======
Total Number of Option Shares [100%]
</TABLE>
(e) Notwithstanding the foregoing Section 2(d), all Option
Shares shall be 100% vested on a Change in Control.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment,
shall be canceled simultaneously with the date of such Termination of
Employment.
(g) The Option granted hereunder is, to the extent permitted
by law, designated as Incentive Stock Option, as such term is defined
in Section 422 of the Internal Revenue Code.
(h) The Company shall not be required to issue any fractional
Option Shares.
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option that was
vested on the date of such Termination of Employment shall thereafter
be fully exercisable for a period of one hundred eighty (180) days
immediately following the date of such Termination of Employment or
until the expiration of the Option Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the
2
<PAGE> 7
Option Period, whichever period is shorter, and Participant's death at
any time following such Termination of Employment due to Disability
shall not affect the foregoing. In the event of Participant's
Termination of Employment by reason of Disability, if any portion of
the Option is exercised after the expiration of the exercise periods
that apply for purposes of Section 422 of the Code, such portion of the
Option will thereafter be treated as a Non-Qualified Stock Option.
(c) If Participant's Termination is voluntary on the part of
the Participant (including due to Retirement) or is involuntary on the
part of Participant (but is not due to death or Disability or with
Cause), any unexercised portion of the Option shall immediately
terminate, except that the Option, to the extent then exercisable, may
be exercised for a period of thirty (30) days immediately following the
date of such Termination of Employment or until the expiration of the
Option Period, whichever period is shorter.
(d) if Participant's Termination of Employment is for Cause,
any unexercised portion of the Option shall terminate immediately,
without any exercise thereof. The death or Disability of Participant
after a Termination of Employment otherwise provided herein shall not
extend the time permitted to exercise the Option.
4. Exercise. The Option shall be exercisable during the Participant's
lifetime only by the Participant (or his or her guardian or legal
representative), and after the Participant's death only by the Representative.
The Option may only be exercised by the delivery to the Company of a properly
completed written notice, in form satisfactory to the Committee, which notice
shall specify the number of Option Shares to be purchased and the aggregate
Option Price for such shares, together with payment in full of such aggregate
Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of
3
<PAGE> 8
exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold
an amount on account of any tax imposed as a result of the exercise of the
Option, the Participant shall be required to pay such amount to the Company, as
provided in the Plan.
6. Requirements of Law; Registration and Transfer Requirements. The
Company shall not be required to sell or issue any shares under the Option if
the issuance of such shares shall constitute a violation of any provision of any
law or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted, as is
provided for in the Plan.
7. Adjustments/Change in Control. In the event of a Change in Control or
other corporate restructuring provided for in the Plan, the Participant shall
have such rights, and the Committee shall take such actions, as provided in the
Plan.
8. Nontransferability. A Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of an Option to his
parents, spouse or descendants, to any trust for the benefit of the foregoing or
to a partnership the interests of which are for the foregoing or to a custodian
under a uniform gifts to minors act or similar statute for the benefit of any of
the Participant's descendants. An Option and any interest in the Option may not
otherwise be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner without the prior written consent of the
Company, and any such attempted sale, assignment, conveyance, gift, pledge,
hypothecation or transfer other than as permitted herein shall be null and void;
provided, however, after consummation of an initial public offering of the
Company's common stock that results in such stock being listed on a national
securities exchange or the Nasdaq Stock Market, shares of Common Stock for which
the Option was exercised may be transferred without the consent of the Company,
subject to applicable securities laws, rules and regulations.
9. Plan. Notwithstanding any other provision of this Agreement, the Option
is granted pursuant to the Plan, as shall be adopted by the Company, and is
subject to all the terms and conditions of the Plan, as the same may be amended
from time to time; provided, however, that
4
<PAGE> 9
no provision of the Plan shall deprive the Participant, without the
Participant's consent, of the Option or of any of Participant's rights under
this Agreement. The interpretation and construction by the Committee of the
Plan, this Agreement and the Option, and such rules and regulations as may be
adopted by the Committee for the purpose of administering the Plan, shall be
final and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option
granted hereunder shall give the Participant any right to continue in the employ
of the Company or any of its Affiliates, create any inference as to the length
of employment of the Participant, affect the right of the Company or its
Affiliates to terminate the employment of the Participant, with or without
cause, or give the Participant any right to participate in any employee welfare
or benefit plan or other program (other than the Plan) of the Company or any of
its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option
shall not affect in any way the right or authority of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel
for the Company, a particular representation is required under the Securities
Act of 1933 or any other applicable federal or state law, or any regulation or
rule of any governmental agency, the Company may require such representations as
the Company reasonably may determine to be necessary.
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement, together with the Plan, constitute
the entire obligation of the parties hereto with respect to the subject matter
hereof and shall supersede any prior
5
<PAGE> 10
expressions of intent or understanding with respect to this transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and
signed by the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to
require performance by the other party of any provision hereof shall not affect
its right to require performance of such provision unless and until such
performance has been waived in writing. Each and every right hereunder is
cumulative and may be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or
permitted to give the other shall be in writing and may be delivered personally
or by mail, postage prepaid, addressed to the Secretary of the Company, at its
then corporate headquarters, and to the Participant at his address as shown on
the Company's records, or to such other address as the Participant, by notice to
the Company, may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason
by held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed on the Participant or a Representative, and all rights granted to the
Company hereunder, shall be binding upon the Participant's or the
Representative's heirs, legal representatives and successors.
24. Tax Consequences. The Company shall not be liable or responsible in any
way for the Option constituting or failing to constitute an Incentive Stock
Option for any reason, and Participant agrees to undertake to determine and be
responsible for any and all tax consequences to himself with respect to the
Option's constituting or failing to constitute an Incentive Stock Option.
6
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set his hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_____________________________________
Name:
Title:
PARTICIPANT:
________________________________________
7
<PAGE> 12
EXHIBIT B
FORM OF DISCOUNTED OPTION AGREEMENT
<PAGE> 13
NON-QUALIFIED STOCK OPTION AGREEMENT -- NON-PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of January 1,
1999 ("Grant Date"), is between Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), and [ ], an employee, director, officer or
consultant of the Company or any Affiliate (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to promote the overall financial objectives of the Company and its
stockholders by motivating Participant to achieve long-term growth in
stockholder equity in the Company and by retaining the association of
Participant, who is instrumental in achieving this growth; and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms are defined as set
forth below:
"Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company, including, without limitation, any member of any affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Beneficiary" means the person, persons, trust or trusts which have
been designated by Participant in his most recent written beneficiary
designation filed with the Committee to receive the benefits under this
Agreement upon Participant's death or to which Options are to be transferred, to
the extent permitted hereunder. If, upon Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Cause" shall mean, for purposes of whether and when Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
Participant and the Company or an
<PAGE> 14
Affiliate for "cause" as defined in such agreement or arrangement, or in the
event that there is no such agreement or arrangement or the agreement or
arrangement does not define "cause" or a substantially equivalent term, then
Cause shall mean (a) any act or failure to act deemed to constitute cause under
the Company's established practices, policies or guidelines applicable to the
Participant or (b) the Participant's act or failure to act which constitute
gross misconduct with respect to the Company or an Affiliate in any material
respect, including, without limitation, an act or failure to act of a criminal
nature, the result of which is detrimental to the interests of the Company or an
Affiliate, or conduct, or the omission of conduct, which constitutes a material
breach of a duty the Participant owes to the Company or an Affiliate.
"Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, an employee benefit plan
(or related trust) sponsored or maintained by the Company, or the stockholders
of the Company on the Grant Date), including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than thirty-five percent (35%) of
the combined voting power of the Company's then outstanding securities; (b)(i)
the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
"Change in Control Price" means the higher of (a) the highest reported
sales price of a share of Common Stock in any transaction reported on the
principal exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Change in Control (if then
traded) or (b) if the Change in Control is the result of a tender or exchange
offer, merger, consolidation, liquidation or sale of all or substantially all of
the assets or Common Stock of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common stock paid in such
Corporate Transaction. To the extent that the consideration paid in any such
Corporate Transaction consists of all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration
shall be determined in the sole discretion of the Committee.
"Code" means the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including proposed regulations) thereunder and any subsequent
Internal Revenue Code.
-2-
<PAGE> 15
"Committee" means the Compensation Committee of the Board. Any
references in this Agreement to the Committee shall refer to the Board, if no
Committee is appointed.
"Disability" means the inability of Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this
Agreement if it is the result of (i) a wilfully self-inflicted injury or
wilfully self-induced sickness; or (ii) an injury or disease contracted,
suffered, or incurred while participating in a criminal offense. The
determination of Disability for purposes of this Agreement shall not be
construed to be an admission of disability for any other purpose.
"Fair Market Value" means, as applied to a specified date, the fair
market value per share of Common Stock on such date as determined in good faith
by the Committee in the following manner: (i) if shares of Common Stock are then
listed on any national or regional stock exchange, including, without limitation
on the NASDAQ Stock Market, Fair Market Value shall be the mean between the high
and low sales price on the date in question, or if there are no reported sales
on such date, on the last preceding date on which sales were reported, (ii) if
shares of Common Stock are not so listed, then Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized
specialist in the Common Stock at the close of the date in question, or (iii) in
the absence of either of the foregoing, Fair Market Value shall be determined by
the Committee in its absolute discretion after giving consideration to book
value, the earning history and the prospects of the Company in light of market
conditions generally. The Committee may rely upon an appraisal by a reputable
third party to determine Fair Market Value. The Fair Market Value determined
hereunder shall be final, binding and conclusive on all parties.
"Representative" means (a) the person or entity acting as the executor
or administrator of Participant's estate pursuant to the last will and testament
of Participant or pursuant to the laws of the jurisdiction in which Participant
had his primary residence at the date of his death; (b) the person or entity
acting as the guardian or temporary guardian of Participant; (c) the person or
entity which is the Beneficiary of Participant upon or following Participant's
death; or (d) any person to whom an Option has been permissibly transferred;
provided, that only one of the foregoing shall be the Representative at any
point in time as determined under applicable law and recognized by the
Committee.
"Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if Participant is covered by such a plan, or if the
Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
"Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in Participant's ceasing, for whatever reason, to
be an officer, independent contractor, director or
-3-
<PAGE> 16
employee of the Company or of any Affiliate, or to be an officer, independent
contractor, director or employee of any entity that provides services to the
Company or an Affiliate, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliate.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and in lieu of salary, the right and option (the
"Option") to purchase [ ] shares of the common stock, par value
$.01 per share (the "Common Stock"), of the Company ("Option Shares")
on the terms and conditions herein set forth. Participant shall have
all the rights and obligations as provided for in this Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $2.50 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $[ ].
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period.
(d) Subject to Sections 2(e) and 2(f) below, unvested options
shall be forfeited at Termination of Employment for any reason. Option
Shares shall vest pro-rata on a daily basis from the Grant Date through
April __, 1999.
(e) Notwithstanding the foregoing Section 2(d), (i) all
Option Shares shall be 100% vested upon a Change in Control, and (ii)
all Option Shares that would have otherwise been vested at the end of
the employment term shall immediately become vested and exercisable
in the event that Participant's employment is terminated under his or
her respective employment agreement with the Company or an Affiliate,
as applicable, pursuant to a termination without cause provision or
as a result of a material uncured breach thereof by the Company or an
Affiliate, as applicable.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
-4-
<PAGE> 17
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the date of the
appointment of a Representative or until the expiration of the Option
Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability or with Cause), any unexercised portion of the Option shall
immediately terminate, except that the Option, to the extent then
exercisable, may be exercised for a period of one hundred eighty (180)
days immediately following the date of such Termination of Employment
or until the expiration of the Option Period, whichever period is
shorter.
4. Exercise. The Option shall be exercisable during the Participant's
lifetime only by the Participant (or his or her guardian or legal
representative), and after the Participant's death only by the Representative.
The Option may only be exercised by the delivery to the Company of a properly
completed written notice, in form satisfactory to the Committee, which notice
shall specify the number of Option Shares to be purchased and the aggregate
Option Price for such shares, together with payment in full of such aggregate
Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the
-5-
<PAGE> 18
Option having a total Fair Market Value on the date of delivery equal
to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold
an amount on account of any tax imposed as a result of the exercise of the
Option, the Participant shall be required to pay such amount to the Company.
6. Requirements of Law; Registration and Transfer Requirements. The
Company shall not be required to sell or issue any shares under the Option if
the issuance of such shares shall constitute a violation of any provision of any
law or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted.
7. Adjustments/Change in Control. In the event of a Change in Control, the
Participant shall have such rights, and the Committee shall take such actions,
as are specified in this Agreement. Participant shall have the right, by giving
notice during the 60-day period from and after a Change in Control of the
Company, to elect to surrender all or part of the Option to the Company and to
receive cash, within 30 days of such notice, in an amount equal to the amount by
which the "Change in Control Price" per share of Common Stock on the date of
such election shall exceed the amount which Participant must pay to exercise the
Option per share of Common Stock under the Option (the "Spread) multiplied by
the number of shares of Common Stock granted under the Option as to which the
right granted hereby shall have been exercised.
8. Nontransferability. A Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of an Option to his
parents, spouse or descendants, to any trust for the benefit of the foregoing or
to a partnership the interests of which are for the foregoing or to a custodian
under a uniform gifts to minors act or similar statute for the benefit of any of
the Participant's descendants. An Option and any interest in the Option may not
otherwise be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner
-6-
<PAGE> 19
without the prior written consent of the Company, and any such attempted sale,
assignment, conveyance, gift, pledge, hypothecation or transfer other than as
permitted herein shall be null and void; provided, however, after consummation
of the Company's initial public offering of Common Stock that results in the
Common Stock being listed on a national securities exchange, including without
limitation the Nasdaq Stock Market, shares of Common Stock for which the Option
was exercised may be transferred without the consent of Company, subject to
applicable securities laws, rules and regulations.
9. Interpretation. The interpretation and construction by the Committee of
this Agreement and the Option, and such rules and regulations as may be adopted
by the Committee for the purpose of administering this Agreement, shall be final
and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option
granted hereunder shall give the Participant any right to continue in the employ
of the Company or any of its Affiliates, create any inference as to the length
of employment of the Participant, affect the right of the Company or its
Affiliates to terminate the employment of the Participant, with or without
cause, or give the Participant any right to participate in any employee welfare
or benefit plan or other program of the Company or any of its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option
shall not affect in any way the right or authority of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel
for the Company, a particular representation is required under the Securities
Act of 1933 or any other applicable federal or state law, or any regulation or
rule of any governmental agency, the Company may require such representations as
the Company reasonably may determine to be necessary.
-7-
<PAGE> 20
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement constitutes the entire obligation of
the parties hereto with respect to the subject matter hereof and shall supersede
any prior expressions of intent or understanding with respect to this
transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and
signed by the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to
require performance by the other party of any provision hereof shall not affect
its right to require performance of such provision unless and until such
performance has been waived in writing. Each and every right hereunder is
cumulative and may be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or
permitted to give the other shall be in writing and may be delivered personally
or by mail, postage prepaid, addressed to the Secretary of the Company, at its
then corporate headquarters, and to the Participant at her address as shown on
the Company's records, or to such other address as the Participant, by notice to
the Company, may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason
by held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed on the Participant or a Representative, and all rights granted to the
Company hereunder, shall be binding upon the Participant's or the
Representative's heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and
be responsible for any and all tax consequences to himself with respect to the
Option.
25. Anti-Dilution. If the outstanding shares of Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on the Common Stock), stock split,
reverse stock split or other similar transaction, or if any increase or decrease
-8-
<PAGE> 21
occurs in the number of outstanding shares of Common Stock without the receipt
by the Company of consideration therefor, then an appropriate and proportional
adjustment shall be made, as appropriate, to: (i) the number and kind of shares
of Common Stock covered by the Option, and/or (ii) the exercise price per share
of Common Stock covered by the Option granted hereunder; provided, however, that
the Committee may limit such adjustment so as to maintain the deductibility
under Section 162(m) of the Code and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional shares as shall be
reasonably determined by the Committee. The granting of stock options, stock
purchase rights, phantom stock or similar awards or bonuses to employees,
officers, directors or consultants of the Company or any Affiliate, or of any
company performing services to the Company or any Affiliate, shall not be deemed
to have been effected "without the receipt of consideration" for the purposes of
this Section 25.
-9-
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set her hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_____________________________________
Name:
Title:
PARTICIPANT:
________________________________________
[ ]
-10-
<PAGE> 1
EXHIBIT 10.19
DEN: Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90404
As of April 19, 1999
Mr. H. James Ritts III
643 Palisades Beach Rd.
Santa Monica, CA 90402
Mr. Bruce Gamache
10445 Wilshire Blvd., Apt. 806
Los Angeles, CA 90024
Re: Payment of Salary in the Form of DEN Equity
Gentlemen:
This letter confirms and memorializes the agreements of Digital
Entertainment Network, Inc. ("DEN") with each of you with respect to the matters
set forth below.
1. Agreements to Forego Salary
(a) Each of DEN and Mr. H. James Ritts ("Ritts") agrees that, subject
to Section 2(a) below, for the pay period commencing as of April 19, 1999 and
ending on July 16, 1999, an aggregate of $21,874.97 of Ritts' fixed compensation
shall not be paid to him (the "2Q Ritts Salary").
(b) Each of DEN and Mr. Bruce Gamache ("Gamache") agrees that, subject
to Section 2(b) below, for the pay period commencing as of April 19, 1999 and
ending on July 16, 1999, an aggregate of $68,749.98 of Gamache's fixed
compensation shall not be paid to him (the "2Q Gamache Salary").
2. Payment of 2Q Salaries in the Form of Discounted Stock Options.
(a) Each of DEN and Ritts agree that, in lieu of paying Ritts the 2Q
Ritts Salary, DEN shall instead issue to Ritts, as of April 19, 1999,
non-qualified stock options to purchase 2,187 shares of DEN's common stock, par
value $.01 per share (the "Common Stock"), at a per share exercise price of
$2.50. The shares of Common Stock underlying such options shall vest pro-rata on
a daily basis from the date of grant until July 16, 1999.
(b) Each of DEN and Gamache agree that, in lieu of paying Gamache the
2Q Gamache Salary, DEN shall instead issue to Gamache, as of April 19, 1999,
non-qualified stock options to purchase 6,875 shares of Common Stock, at a per
share exercise price of $2.50. The shares of
<PAGE> 2
Common Stock underlying such options shall vest pro-rata on a daily basis from
the date of grant until July 16, 1999.
(c) Each of DEN, Ritts and Gamache acknowledge and agree (i) that a
condition precedent to the effectiveness of the option grants described in this
Section 2 is execution and delivery of a stock option agreement in substantially
the form attached hereto as Exhibit A, by DEN and each of such executives, (ii)
such option shall not be issued pursuant to DEN's Amended and Restated 1998
Incentive Compensation Plan and (iii) that the issuance of such options are
subject to the requirement that, in connection with DEN's initial public
offering of common stock, each of such executives shall enter into such lock-up
agreement as may be required by DEN's underwriters; provided, that such lock-up
agreements shall (A) only contain terms and conditions as may be required by
such underwriters and (B) be substantially similar in length of duration and all
other material respects as the lock-up agreements that the other senior
executives of DEN enter into in connection with such initial public offering.
Please indicate your agreement with the foregoing by signing in the
space indicated next to your name.
Very truly yours,
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
___________________________________
Name: Alan L. Friel
Title: Chief Administrative Officer,
General Counsel and Secretary
AGREED AND ACCEPTED:
/s/ H. JAMES RITTS III
______________________________
H. James Ritts III
/s/ BRUCE GAMACHE
______________________________
Bruce Gamache
<PAGE> 3
EXHIBIT A
FORM OF DISCOUNTED OPTION AGREEMENT
<PAGE> 4
NON-QUALIFIED STOCK OPTION AGREEMENT -- NON-PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of April 19,
1999 ("Grant Date"), is between Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), and [ ], an employee, director, officer or
consultant of the Company or any Affiliate (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to promote the overall financial objectives of the Company and its
stockholders by motivating Participant to achieve long-term growth in
stockholder equity in the Company and by retaining the association of
Participant, who is instrumental in achieving this growth; and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms are defined as set
forth below:
"Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company, including, without limitation, any member of any affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Beneficiary" means the person, persons, trust or trusts which have
been designated by Participant in his most recent written beneficiary
designation filed with the Committee to receive the benefits under this
Agreement upon Participant's death or to which Options are to be transferred, to
the extent permitted hereunder. If, upon Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Cause" shall mean, for purposes of whether and when Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
Participant and the Company or an
<PAGE> 5
Affiliate for "cause" as defined in such agreement or arrangement, or in the
event that there is no such agreement or arrangement or the agreement or
arrangement does not define "cause"or a substantially equivalent term, then
Cause shall mean (a) any act or failure to act deemed to constitute cause under
the Company's established practices, policies or guidelines applicable to the
Participant or (b) the Participant's act or failure to act which constitute
gross misconduct with respect to the Company or an Affiliate in any material
respect, including, without limitation, an act or failure to act of a criminal
nature, the result of which is detrimental to the interests of the Company or an
Affiliate, or conduct, or the omission of conduct, which constitutes a material
breach of a duty the Participant owes to the Company or an Affiliate.
"Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, an employee benefit plan
(or related trust) sponsored or maintained by the Company, or the stockholders
of the Company on the Grant Date), including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than thirty-five percent (35%) of
the combined voting power of the Company's then outstanding securities; (b)(i)
the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
"Change in Control Price" means the higher of (a) the highest reported
sales price of a share of Common Stock in any transaction reported on the
principal exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Change in Control (if then
traded) or (b) if the Change in Control is the result of a tender or exchange
offer, merger, consolidation, liquidation or sale of all or substantially all of
the assets or Common Stock of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common stock paid in such
Corporate Transaction. To the extent that the consideration paid in any such
Corporate Transaction consists of all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration
shall be determined in the sole discretion of the Committee.
"Code" means the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including proposed regulations) thereunder and any subsequent
Internal Revenue Code.
-2-
<PAGE> 6
"Committee" means the Compensation Committee of the Board. Any
references in this Agreement to the Committee shall refer to the Board, if no
Committee is appointed.
"Disability" means the inability of Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this
Agreement if it is the result of (i) a wilfully self-inflicted injury or
wilfully self-induced sickness; or (ii) an injury or disease contracted,
suffered, or incurred while participating in a criminal offense. The
determination of Disability for purposes of this Agreement shall not be
construed to be an admission of disability for any other purpose.
"Fair Market Value" means, as applied to a specified date, the fair
market value per share of Common Stock on such date as determined in good faith
by the Committee in the following manner: (i) if shares of Common Stock are then
listed on any national or regional stock exchange, including, without limitation
on the NASDAQ Stock Market, Fair Market Value shall be the mean between the high
and low sales price on the date in question, or if there are no reported sales
on such date, on the last preceding date on which sales were reported, (ii) if
shares of Common Stock are not so listed, then Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized
specialist in the Common Stock at the close of the date in question, or (iii) in
the absence of either of the foregoing, Fair Market Value shall be determined by
the Committee in its absolute discretion after giving consideration to book
value, the earning history and the prospects of the Company in light of market
conditions generally. The Committee may rely upon an appraisal by a reputable
third party to determine Fair Market Value. The Fair Market Value determined
hereunder shall be final, binding and conclusive on all parties.
"Representative" means (a) the person or entity acting as the executor
or administrator of Participant's estate pursuant to the last will and testament
of Participant or pursuant to the laws of the jurisdiction in which Participant
had his primary residence at the date of his death; (b) the person or entity
acting as the guardian or temporary guardian of Participant; (c) the person or
entity which is the Beneficiary of Participant upon or following Participant's
death; or (d) any person to whom an Option has been permissibly transferred;
provided, that only one of the foregoing shall be the Representative at any
point in time as determined under applicable law and recognized by the
Committee.
"Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if Participant is covered by such a plan, or if the
Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
"Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in Participant's ceasing, for whatever reason, to
be an officer, independent contractor, director or
-3-
<PAGE> 7
employee of the Company or of any Affiliate, or to be an officer, independent
contractor, director or employee of any entity that provides services to the
Company or an Affiliate, including, without limitation, death, Disability,
dismissal, severance at the election of the Participant, Retirement, or
severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its Affiliates of all businesses owned or operated by the Company
or its Affiliate.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and in lieu of salary, the right and option (the
"Option") to purchase [ ] shares of the common stock, par value $.01
per share (the "Common Stock"), of the Company ("Option Shares") on the
terms and conditions herein set forth. Participant shall have all the
rights and obligations as provided for in this Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $2.50 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $[ ].
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period.
(d) Subject to Sections 2(e) and 2(f) below, unvested options
shall be forfeited at Termination of Employment for any reason. Option
Shares shall vest pro-rata on a daily basis from the Grant Date through
July 16, 1999.
(e) Notwithstanding the foregoing Section 2(d), (i) all Option
Shares shall be 100% vested upon a Change in Control, and (ii) all
Option Shares that would have otherwise been vested at the end of the
employment term shall immediately become vested and exercisable in the
event that Participant's employment is terminated under his or her
respective employment agreement with the Company or an Affiliate, as
applicable, pursuant to a termination without cause provision or as a
result of a material uncured breach thereof by the Company or an
Affiliate, as applicable.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
-4-
<PAGE> 8
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the date of the
appointment of a Representative or until the expiration of the Option
Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability or with Cause), any unexercised portion of the Option shall
immediately terminate, except that the Option, to the extent then
exercisable, may be exercised for a period of one hundred eighty (180)
days immediately following the date of such Termination of Employment
or until the expiration of the Option Period, whichever period is
shorter.
4. Exercise. The Option shall be exercisable during the Participant's
lifetime only by the Participant (or his or her guardian or legal
representative), and after the Participant's death only by the Representative.
The Option may only be exercised by the delivery to the Company of a properly
completed written notice, in form satisfactory to the Committee, which notice
shall specify the number of Option Shares to be purchased and the aggregate
Option Price for such shares, together with payment in full of such aggregate
Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the
-5-
<PAGE> 9
Option having a total Fair Market Value on the date of delivery equal
to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold
an amount on account of any tax imposed as a result of the exercise of the
Option, the Participant shall be required to pay such amount to the Company.
6. Requirements of Law; Registration and Transfer Requirements. The
Company shall not be required to sell or issue any shares under the Option if
the issuance of such shares shall constitute a violation of any provision of any
law or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted.
7. Adjustments/Change in Control. In the event of a Change in Control, the
Participant shall have such rights, and the Committee shall take such actions,
as are specified in this Agreement. Participant shall have the right, by giving
notice during the 60-day period from and after a Change in Control of the
Company, to elect to surrender all or part of the Option to the Company and to
receive cash, within 30 days of such notice, in an amount equal to the amount by
which the "Change in Control Price" per share of Common Stock on the date of
such election shall exceed the amount which Participant must pay to exercise the
Option per share of Common Stock under the Option (the "Spread) multiplied by
the number of shares of Common Stock granted under the Option as to which the
right granted hereby shall have been exercised.
8. Nontransferability. A Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of an Option to his
parents, spouse or descendants, to any trust for the benefit of the foregoing or
to a partnership the interests of which are for the foregoing or to a custodian
under a uniform gifts to minors act or similar statute for the benefit of any of
the Participant's descendants. An Option and any interest in the Option may not
otherwise be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner
-6-
<PAGE> 10
without the prior written consent of the Company, and any such attempted sale,
assignment, conveyance, gift, pledge, hypothecation or transfer other than as
permitted herein shall be null and void; provided, however, after consummation
of the Company's initial public offering of Common Stock that results in the
Common Stock being listed on a national securities exchange, including without
limitation the Nasdaq Stock Market, shares of Common Stock for which the Option
was exercised may be transferred without the consent of Company, subject to
applicable securities laws, rules and regulations.
9. Interpretation. The interpretation and construction by the Committee of
this Agreement and the Option, and such rules and regulations as may be adopted
by the Committee for the purpose of administering this Agreement, shall be final
and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option
granted hereunder shall give the Participant any right to continue in the employ
of the Company or any of its Affiliates, create any inference as to the length
of employment of the Participant, affect the right of the Company or its
Affiliates to terminate the employment of the Participant, with or without
cause, or give the Participant any right to participate in any employee welfare
or benefit plan or other program of the Company or any of its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option
shall not affect in any way the right or authority of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel
for the Company, a particular representation is required under the Securities
Act of 1933 or any other applicable federal or state law, or any regulation or
rule of any governmental agency, the Company may require such representations as
the Company reasonably may determine to be necessary.
-7-
<PAGE> 11
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement constitutes the entire obligation of
the parties hereto with respect to the subject matter hereof and shall supersede
any prior expressions of intent or understanding with respect to this
transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and
signed by the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to
require performance by the other party of any provision hereof shall not affect
its right to require performance of such provision unless and until such
performance has been waived in writing. Each and every right hereunder is
cumulative and may be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or
permitted to give the other shall be in writing and may be delivered personally
or by mail, postage prepaid, addressed to the Secretary of the Company, at its
then corporate headquarters, and to the Participant at her address as shown on
the Company's records, or to such other address as the Participant, by notice to
the Company, may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason
by held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed on the Participant or a Representative, and all rights granted to the
Company hereunder, shall be binding upon the Participant's or the
Representative's heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and
be responsible for any and all tax consequences to himself with respect to the
Option.
25. Anti-Dilution. If the outstanding shares of Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on the Common Stock), stock split,
reverse stock split or other similar transaction, or if any increase or decrease
-8-
<PAGE> 12
occurs in the number of outstanding shares of Common Stock without the receipt
by the Company of consideration therefor, then an appropriate and proportional
adjustment shall be made, as appropriate, to: (i) the number and kind of shares
of Common Stock covered by the Option, and/or (ii) the exercise price per share
of Common Stock covered by the Option granted hereunder; provided, however, that
the Committee may limit such adjustment so as to maintain the deductibility
under Section 162(m) of the Code and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional shares as shall be
reasonably determined by the Committee. The granting of stock options, stock
purchase rights, phantom stock or similar awards or bonuses to employees,
officers, directors or consultants of the Company or any Affiliate, or of any
company performing services to the Company or any Affiliate, shall not be deemed
to have been effected "without the receipt of consideration" for the purposes of
this Section 25.
-9-
<PAGE> 13
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set her hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
_____________________________________
Name:
Title:
PARTICIPANT:
________________________________________
[ ]
-10-
<PAGE> 1
EXHIBIT 10.20
DEN: Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90402
as of April 29, 1999
Mr. David Neuman
2201 Sunset Plaza Drive
Los Angeles, CA 90069
Mr. Edward Winter
1520 Lyons Road
Knoxville, TN 37919
Mr. Alan Friel
6630 Whitley Terrace
Los Angeles, CA 90068
Mr. H. James Ritts III
643 Palisades Beach Road
Santa Monica, CA 90402
Re: Termination of Anti-Dilution Rights and Related Matters
Gentlemen:
Reference is made to (i) DEN Executive Employment Agreement, dated as
of July 2, 1998 (the "Neuman Employment Agreement"), between Digital
Entertainment Network, Inc. ("DEN") and David Neuman, (ii) Subscription and
Stockholder's Agreement, dated as of August 27, 1998, between DEN and David
Neuman (the "Stockholder's Agreement"), (iii) that certain letter agreement,
dated as of August 5, 1998, between DEN and Edward Winter (the "Winter Letter
Agreement"), (iv) DEN Executive Employment Agreement, dated as of August 31,
1998 (the "Friel Employment Agreement"), (vi) DEN Executive Employment
Agreement, dated as of March 22, 1999, between DEN and H. James Ritts III (the
"Ritts Employment Agreement"), and (vii) that certain letter agreement, dated as
of October 27, 1998, among DEN, David Neuman, Ed Winter and Alan Friel (the
"4-Party Agreement", and together with the Neuman Employment Agreement, the
Stockholder's Agreement, the Winter Letter Agreement, the Friel Employment
Agreement, the Ritts Employment Agreement and the 4-Party Agreement, the
"Executive Agreements").
The parties hereto agree that, in consideration of the grant to Messrs.
Neuman, Winter, Friel and Ritts (each, an "Executive") of non-qualified stock
options (the "Options") to purchase 29,767, 18,605, 5,581 and 14,884 shares of
DEN's common stock, par value $.01 per share (the "Common Stock"), respectively,
and other good and valuable consideration, the receipt of which is hereby
acknowledged, and notwithstanding anything to the contrary in any of the
Executive Agreements, none of Messrs. Neuman, Winter, Friel and Ritts shall
have, effective as of today
<PAGE> 2
and continuing indefinitely until otherwise agreed in writing, any anti-dilution
and/or percentage protection with respect to any issuances by the Company of
shares of Common Stock or other securities exercisable or exchangeable for, or
convertible into, Common Stock. In addition to the issuances described in the
foregoing sentence, the Executives shall also receive a grant of stock options
pursuant to, or consistent with, the 4-Party Agreement attributable to grants of
stock options during the period of April 1, 1999 through April 28, 1999.
Accordingly, the following provisions, each as modified by the 4-Party
Agreement, are hereby terminated: (i) Section 4(e)(viii)(B) of the Neuman
Employment Agreement, (ii) Section 10 of the Stockholder's Agreement, (iii)
Section 1 of the Winter Letter Agreement, (iv) Section 4(e) of the Friel
Employment Agreement and (v) Section 4(d) of the Ritts Employment Agreement.
Without limitation of the foregoing, the Executives agree that they shall have
no anti-dilution and/or percentage protection with respect to (i) the making of
a convertible loan by Marc Collins-Rector or any affiliated trust (other than as
set forth in Section 2(a) of the 4-Party Agreement) to DEN and (ii) the issuance
of equity to Messrs Gary Gersh and John Silva pursuant to that certain letter
agreement, dated as of April 1999, among DEN, Gary Gersh and John Silva.
The Options shall (i) vest 10% as of the date of grant (which is as of
today), with the balance vesting, subject to continued employment with DEN, in
four equal installments on each of the first four anniversaries of the date of
grant; provided, however, that if such Executive's employment is terminated for
any reason other than voluntary termination by the applicable Executive (other
than as a result of a material and uncured breach (after giving effect to
applicable notice and cure periods) by DEN of the applicable Executive
Employment Agreement), expiration of the applicable employment agreement, death,
"disability" or "cause" (as such terms are defined in the applicable Executive's
employment agreement with DEN), such Executive's Options shall automatically
become fully vested and shall remain exercisable for the periods specified in
the applicable stock option agreement, (ii) have a $10 per share exercise price,
(iii) be non-qualified stock options and (iv) shall be issued pursuant and
subject to the terms and conditions of DEN's Amended and Restated 1998 Incentive
Compensation Plan, including without limitation the requirements that a stock
option agreement in substantially the form attached hereto as Exhibit A and the
"Lock-Up Agreement" be entered into. As used in this letter agreement, the term
"LockUp Agreement" shall mean any lock-up agreement as may be required by DEN's
underwriters; provided, that such lock-up agreement shall (i) only contain terms
and conditions as may be required by such underwriters and (ii) be substantially
similar in length of duration and all other material respects as the lock-up
agreements that other senior executives and affiliates of DEN enter into.
The parties hereto agree to take such further actions that may be
necessary or appropriate to implement the transactions contemplated by this
letter agreement, including, without limitation, the amending and restating of
the Executive Agreements to contain terms not inconsistent with those set forth
herein.
<PAGE> 3
Please acknowledge your agreement to the foregoing by signing below
where indicated next to your name.
Very truly yours,
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ CHAD SHACKLEY
_________________________________________
Name: Chad Shackley
Title: Chief Technical Officer
& Executive Vice President
AGREED AND ACCEPTED:
/s/ DAVID NEUMAN
_____________________________
David Neuman
/s/ EDWARD WINTER
_____________________________
Edward Winter
/s/ ALAN FRIEL
_____________________________
Alan Friel
/s/ H. JAMES RITTS III
_____________________________
H. James Ritts III
<PAGE> 4
EXHIBIT A
FORM OF
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of
__________________ ("Grant Date"), is between Digital Entertainment Network,
Inc., a Delaware corporation (the "Company"), and _______________, an employee,
director, officer or consultant of the Company or any Affiliate (the
"Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to carry out the purposes of the Digital Entertainment Network, Inc.
Amended and Restated 1998 Incentive Compensation Plan (the "Plan"); and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Definitions.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Plan.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option") to
purchase _____ shares of the Common Stock of the Company ("Option
Shares") on the terms and conditions herein set forth. Participant
shall have all the rights and obligations as provided for in this
Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $10 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $_________.
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period. During the Option Period, the Option
shall be exercisable in accordance with the determination of the
Committee, but in no event later
<PAGE> 5
than the earlier of (i) the date the Option is vested or (ii)
immediately prior to a Change in Control.
(d) Subject to Sections 2(e) and 2(f) below, unvested options
shall be forfeited at Termination of Employment for any reason. The
percentage of Options which are vested and which will not be forfeited
at Termination of Employment (unless such termination is for Cause)
shall be determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Number of
Date Option Shares Vested
---- --------------------
<S> <C>
On Grant Date [10%]
First Anniversary
of Grant Date [32.5%]
Second Anniversary
of Grant Date [55%]
Third Anniversary
of Grant Date [77.5%]
Fourth Anniversary
of Grant Date [100.0%]
========
Total Number of Option Shares [100%]
</TABLE>
(e) Notwithstanding the foregoing Section 2(d), all Options
shall be 100% vested upon a Change in Control.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment; provided, however, if Participant's Termination of
Employment is due to any reason other than quit, expiration of his
employment agreement with the Company, death, Disability or Cause, the
Option shall automatically become fully vested upon the date of such
termination.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the
<PAGE> 6
date of the appointment of a Representative or until the expiration of
the Option Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability or with Cause), any unexercised portion of the Option shall
immediately terminate, except that the Option, to the extent then
exercisable, may be exercised for a period of thirty (30) days
immediately following the date of such Termination of Employment or
until the expiration of the Option Period, whichever period is shorter.
(d) If Participant's Termination of Employment is for Cause,
any unexercised portion of the Option shall terminate immediately,
without any exercise thereof. The death or Disability of Participant
after a Termination of Employment otherwise provided herein shall not
extend the time permitted to exercise the Option.
4. Exercise. The Option shall be exercisable during the Participant's
lifetime only by the Participant (or his or her guardian or legal
representative), and after the Participant's death only by the Representative.
The Option may only be exercised by the delivery to the Company of a properly
completed written notice, in form satisfactory to the Committee, which notice
shall specify the number of Option Shares to be purchased and the aggregate
Option Price for such shares, together with payment in full of such aggregate
Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price;
<PAGE> 7
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold
an amount on account of any tax imposed as a result of the exercise of the
Option, the Participant shall be required to pay such amount to the Company, as
provided in the Plan.
6. Requirements of Law; Registration and Transfer Requirements. The
Company shall not be required to sell or issue any shares under the Option if
the issuance of such shares shall constitute a violation of any provision of any
law or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted, as is
provided for in the Plan.
7. Adjustments/Change in Control. In the event of a Change in Control or
other corporate restructuring provided for in the Plan, the Participant shall
have such rights, and the Committee shall take such actions, as provided in the
Plan.
8. Nontransferability. A Participant may at any time make a transfer of
shares of Common Stock received pursuant to the exercise of an Option to his
parents, spouse or descendants, to any trust for the benefit of the foregoing or
to a partnership the interests of which are for the foregoing or to a custodian
under a uniform gifts to minors act or similar statute for the benefit of any of
the Participant's descendants. An Option and any interest in the Option may not
otherwise be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner without the prior written consent of the
Company, and any such attempted sale, assignment, conveyance, gift, pledge,
hypothecation or transfer other than as permitted herein shall be null and void;
provided, however, after consummation of the Company's initial public offering
of Common Stock that results in the Common Stock being listed on a national
securities exchange, including without limitation the Nasdaq Stock Market,
shares of Common Stock for which the Option was exercised may be transferred
without the consent of Company, subject to applicable securities laws, rules and
regulations.
9. Plan. Notwithstanding any other provision of this Agreement, the Option
is granted pursuant to the Plan, as shall be adopted by the Company, and is
subject to all the terms and
<PAGE> 8
conditions of the Plan, as the same may be amended from time to time; provided,
however, that no provision of the Plan shall deprive the Participant, without
the Participant's consent, of the Option or of any of Participant's rights under
this Agreement. The interpretation and construction by the Committee of the
Plan, this Agreement and the Option, and such rules and regulations as may be
adopted by the Committee for the purpose of administering the Plan, shall be
final and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option
granted hereunder shall give the Participant any right to continue in the employ
of the Company or any of its Affiliates, create any inference as to the length
of employment of the Participant, affect the right of the Company or its
Affiliates to terminate the employment of the Participant, with or without
cause, or give the Participant any right to participate in any employee welfare
or benefit plan or other program (other than the Plan) of the Company or any of
its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option
shall not affect in any way the right or authority of the Company or its
stockholders to make or authorize any or all adjustments, recapitalizations,
reorganizations or other changes in the Company's capital structure or its
business, or any merger or consolidation of the Company, or any issue of bonds,
debentures, preferred or prior preference stock ahead of or affecting the Common
Stock or the rights thereof, or the dissolution or liquidation of the Company,
or any sale or transfer of all or any part of its assets or business, or any
other corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel
for the Company, a particular representation is required under the Securities
Act of 1933 or any other applicable federal or state law, or any regulation or
rule of any governmental agency, the Company may require such representations as
the Company reasonably may determine to be necessary.
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
<PAGE> 9
16. Entire Agreement. This Agreement, together with the Plan, constitute
the entire obligation of the parties hereto with respect to the subject matter
hereof and shall supersede any prior expressions of intent or understanding with
respect to this transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and
signed by the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to
require performance by the other party of any provision hereof shall not affect
its right to require performance of such provision unless and until such
performance has been waived in writing. Each and every right hereunder is
cumulative and may be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or
permitted to give the other shall be in writing and may be delivered personally
or by mail, postage prepaid, addressed to the Secretary of the Company, at its
then corporate headquarters, and to the Participant at his address as shown on
the Company's records, or to such other address as the Participant, by notice to
the Company, may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason
by held to be invalid or unenforceable, such invalidity or unenforceability
shall not effect any other provision hereof, and this Agreement shall be
construed as if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon each successor and assign of the Company. All obligations
imposed on the Participant or a Representative, and all rights granted to the
Company hereunder, shall be binding upon the Participant's or the
Representative's heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and
be responsible for any and all tax consequences to himself with respect to the
Option.
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set his hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:____________________________________
Name:
Title:
PARTICIPANT:
_______________________________________
<PAGE> 1
EXHIBIT 10.21
NON-QUALIFIED STOCK OPTION AGREEMENT -- NON-PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of March 15,
1999 ("Grant Date"), is between Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), and David Neuman, an employee, director, officer or
consultant of the Company or any Affiliate (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to promote the overall financial objectives of the Company and its
stockholders by motivating Participant to achieve long-term growth in
stockholder equity in the Company and by retaining the association of
Participant, who is instrumental in achieving this growth; and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms are defined as set
forth below:
"Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company, including, without limitation, any member of any affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Beneficiary" means the person, persons, trust or trusts which have
been designated by Participant in his most recent written beneficiary
designation filed with the Committee to receive the benefits under this
Agreement upon Participant's death or to which Options are to be transferred, to
the extent permitted hereunder. If, upon Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Cause" shall mean, for purposes of whether and when Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
Participant and
-1-
<PAGE> 2
the Company or an Affiliate for "cause" as defined in such agreement or
arrangement, or in the event that there is no such agreement or arrangement or
the agreement or arrangement does not define "cause"or a substantially
equivalent term, then Cause shall mean (a) any act or failure to act deemed to
constitute cause under the Company's established practices, policies or
guidelines applicable to the Participant or (b) the Participant's act or failure
to act which constitute gross misconduct with respect to the Company or an
Affiliate in any material respect, including, without limitation, an act or
failure to act of a criminal nature, the result of which is detrimental to the
interests of the Company or an Affiliate, or conduct, or the omission of
conduct, which constitutes a material breach of a duty the Participant owes to
the Company or an Affiliate.
"Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, an employee benefit plan
(or related trust) sponsored or maintained by the Company, or the stockholders
of the Company on the Grant Date), including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than thirty-five percent (35%) of
the combined voting power of the Company's then outstanding securities; (b)(i)
the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
"Change in Control Price" means the higher of (a) the highest reported
sales price of a share of Common Stock in any transaction reported on the
principal exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Change in Control (if then
traded) or (b) if the Change in Control is the result of a tender or exchange
offer, merger, consolidation, liquidation or sale of all or substantially all of
the assets or Common Stock of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common stock paid in such
Corporate Transaction. To the extent that the consideration paid in any such
Corporate Transaction consists of all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration
shall be determined in the sole discretion of the Committee.
"Code" means the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including proposed regulations) thereunder and any subsequent
Internal Revenue Code.
-2-
<PAGE> 3
"Committee" means the Compensation Committee of the Board. Any
references in this Agreement to the Committee shall refer to the Board, if no
Committee is appointed.
"Disability" means the inability of Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this
Agreement if it is the result of (i) a wilfully self-inflicted injury or
wilfully self-induced sickness; or (ii) an injury or disease contracted,
suffered, or incurred while participating in a criminal offense. The
determination of Disability for purposes of this Agreement shall not be
construed to be an admission of disability for any other purpose.
"Fair Market Value" means, as applied to a specified date, the fair
market value per share of Common Stock on such date as determined in good faith
by the Committee in the following manner: (i) if shares of Common Stock are then
listed on any national or regional stock exchange, including, without limitation
on the NASDAQ Stock Market, Fair Market Value shall be the mean between the high
and low sales price on the date in question, or if there are no reported sales
on such date, on the last preceding date on which sales were reported, (ii) if
shares of Common Stock are not so listed, then Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized
specialist in the Common Stock at the close of the date in question, or (iii) in
the absence of either of the foregoing, Fair Market Value shall be determined by
the Committee in its absolute discretion after giving consideration to book
value, the earning history and the prospects of the Company in light of market
conditions generally. The Committee may rely upon an appraisal by a reputable
third party to determine Fair Market Value. The Fair Market Value determined
hereunder shall be final, binding and conclusive on all parties.
"Representative" means (a) the person or entity acting as the executor
or administrator of Participant's estate pursuant to the last will and testament
of Participant or pursuant to the laws of the jurisdiction in which Participant
had his primary residence at the date of his death; (b) the person or entity
acting as the guardian or temporary guardian of Participant; (c) the person or
entity which is the Beneficiary of Participant upon or following Participant's
death; or (d) any person to whom an Option has been permissibly transferred;
provided, that only one of the foregoing shall be the Representative at any
point in time as determined under applicable law and recognized by the
Committee.
"Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if Participant is covered by such a plan, or if the
Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
<PAGE> 4
"Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in Participant's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliate.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option") to
purchase 75,843 shares of the common stock, par value $.01 per share
(the "Common Stock"), of the Company ("Option Shares") on the terms and
conditions herein set forth. Participant shall have all the rights and
obligations as provided for in this Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $10 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $758,430.
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period.
(d) Subject to Sections 2(e) and 2(f) below, unvested Option
Shares shall be forfeited at Termination of Employment for any reason.
The percentage of Option Shares which are vested and which will not be
forfeited at Termination of Employment shall be determined in
accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Number of
Date Option Shares Vested
---- --------------------
<S> <C>
On Grant Date 7,584
July 2, 2000 30,337
July 2, 2001 53,090
June 30, 2002 75,843
======
Total Number of Option Shares 75,843
</TABLE>
-4-
<PAGE> 5
(e) Notwithstanding the foregoing Section 2(d), (i) all Option
Shares shall be 100% vested upon a Change in Control, and (ii) all
Option Shares that would have otherwise been vested at the end of the
employment term shall immediately become vested and exercisable in the
event that Participant's employment is terminated under his or her
respective employment agreement with the Company or an Affiliate, as
applicable, pursuant to a termination without cause provision or as a
result of a material uncured breach thereof by the Company or an
Affiliate, as applicable.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the date of the
appointment of a Representative or until the expiration of the Option
Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability), any unexercised portion of the Option shall immediately
terminate, except that the Option, to the extent then exercisable, may
be exercised for a period of sixty (60) days immediately following the
date of such Termination of Employment or until the expiration of the
Option Period, whichever period is shorter.
4. Exercise. The Option shall be exercisable during the Participant's lifetime
only by the Participant (or his or her guardian or legal representative), and
after the Participant's death only by the Representative. The Option may only be
exercised by the delivery to the Company of a properly completed written notice,
in form satisfactory to the Committee, which notice shall specify the number of
Option Shares to be purchased and the aggregate Option Price for such shares,
together with payment in
<PAGE> 6
full of such aggregate Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold an
amount on account of any tax imposed as a result of the exercise of the Option,
the Participant shall be required to pay such amount to the Company.
6. Requirements of Law; Registration and Transfer Requirements. The Company
shall not be required to sell or issue any shares under the Option if the
issuance of such shares shall constitute a violation of any provision of any law
or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted.
7. Adjustments/Change in Control. In the event of a Change in Control, the
Participant shall have such rights, and the Committee shall take such actions,
as are
<PAGE> 7
specified in this Agreement. Participant shall have the right, by giving notice
during the 60-day period from and after a Change in Control of the Company, to
elect to surrender all or part of the Option to the Company and to receive cash,
within 30 days of such notice, in an amount equal to the amount by which the
"Change in Control Price" per share of Common Stock on the date of such election
shall exceed the amount which Participant must pay to exercise the Option per
share of Common Stock under the Option (the "Spread) multiplied by the number of
shares of Common Stock granted under the Option as to which the right granted
hereby shall have been exercised.
8. Nontransferability. Subject to the last sentence of this Section 8, a
Participant may at any time make a transfer of shares of Common Stock received
pursuant to the exercise of an Option to his parents, spouse or descendants, to
any trust for the benefit of the foregoing or to a partnership the interests of
which are for the foregoing or to a custodian under a uniform gifts to minors
act or similar statute for the benefit of any of the Participant's descendants.
An Option and any interest in the Option may not otherwise be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner
without the prior written consent of the Company, and any such attempted sale,
assignment, conveyance, gift, pledge, hypothecation or transfer other than as
permitted herein shall be null and void; provided, however, after consummation
of the Company's initial public offering of Common Stock that results in the
Common Stock being listed on a national securities exchange, including without
limitation the Nasdaq Stock Market, and subject to the last sentence of this
Section 8, shares of Common Stock for which the Option was exercised may be
transferred without the consent of Company, subject to applicable securities
laws, rules and regulations. Notwithstanding anything to the contrary in this
Agreement, Participant may not transfer any shares of Common Stock (or any
interest therein) received pursuant to the exercise of the Option until a period
of one year has elapsed from the date of exercise of the Option.
9. Interpretation. The interpretation and construction by the Committee of this
Agreement and the Option, and such rules and regulations as may be adopted by
the Committee for the purpose of administering this Agreement, shall be final
and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option granted
hereunder shall give the Participant any right to continue in the employ of the
Company or any of its Affiliates, create any inference as to the length of
employment of the
<PAGE> 8
Participant, affect the right of the Company or its Affiliates to terminate the
employment of the Participant, with or without cause, or give the Participant
any right to participate in any employee welfare or benefit plan or other
program of the Company or any of its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option shall
not affect in any way the right or authority of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Company's capital structure or its business, or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel for
the Company, a particular representation is required under the Securities Act of
1933 or any other applicable federal or state law, or any regulation or rule of
any governmental agency, the Company may require such representations as the
Company reasonably may determine to be necessary.
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement constitutes the entire obligation of the
parties hereto with respect to the subject matter hereof and shall supersede any
prior expressions of intent or understanding with respect to this transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and signed by
the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to require
performance by the other party of any provision hereof shall not affect its
right to require performance of such provision unless and until such performance
has been waived in writing. Each and every right hereunder is cumulative and may
be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or permitted
to give the other shall be in writing and may be delivered personally or by
mail, postage prepaid, addressed to the Secretary of the Company, at its then
corporate
<PAGE> 9
headquarters, and to the Participant at her address as shown on the Company's
records, or to such other address as the Participant, by notice to the Company,
may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason by
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereof, and this Agreement shall be construed as
if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
on the Participant or a Representative, and all rights granted to the Company
hereunder, shall be binding upon the Participant's or the Representative's
heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and be
responsible for any and all tax consequences to himself with respect to the
Option.
25. Anti-Dilution. If the outstanding shares of Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on the Common Stock), stock split,
reverse stock split or other similar transaction, or if any increase or decrease
occurs in the number of outstanding shares of Common Stock without the receipt
by the Company of consideration therefor, then an appropriate and proportional
adjustment shall be made, as appropriate, to: (i) the number and kind of shares
of Common Stock covered by the Option, and/or (ii) the exercise price per share
of Common Stock covered by the Option granted hereunder; provided, however, that
the Committee may limit such adjustment so as to maintain the deductibility
under Section 162(m) of the Code and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional shares as shall be
reasonably determined by the Committee. The granting of stock options, stock
purchase rights, phantom stock or similar awards or bonuses to employees,
officers, directors or consultants of the Company or any Affiliate, or of any
company performing services to the Company or any Affiliate, shall not be deemed
to have been effected "without the receipt of consideration" for the purposes of
this Section 25.
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set her hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
Name: Alan L. Friel
Title:
PARTICIPANT:
/s/ DAVID NEUMAN
David Neuman
<PAGE> 1
EXHIBIT 10.22
NON-QUALIFIED STOCK OPTION AGREEMENT -- NON-PLAN
THIS STOCK OPTION AGREEMENT (the "Agreement") dated as of March 15,
1999 ("Grant Date"), is between Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), and Edward Winter, an employee, director, officer
or consultant of the Company or any Affiliate (the "Participant").
WHEREAS, the Company desires, by affording the Participant an
opportunity to purchase shares of the Company's Common Stock as hereinafter
provided, to promote the overall financial objectives of the Company and its
stockholders by motivating Participant to achieve long-term growth in
stockholder equity in the Company and by retaining the association of
Participant, who is instrumental in achieving this growth; and
WHEREAS, the Committee has duly made all determinations necessary or
appropriate to the grants hereunder; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth and for other good and valuable consideration,
receipt of which is hereby acknowledged, the parties hereto have agreed, and do
hereby agree, as follows:
1. Certain Definitions.
For purposes of this Agreement, the following terms are defined as set
forth below:
"Affiliate" means any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company, including, without limitation, any member of any affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
"Beneficiary" means the person, persons, trust or trusts which have
been designated by Participant in his most recent written beneficiary
designation filed with the Committee to receive the benefits under this
Agreement upon Participant's death or to which Options are to be transferred, to
the extent permitted hereunder. If, upon Participant's death, there is no
designated Beneficiary or surviving designated Beneficiary, then the term
Beneficiary means the person, persons, trust or trusts entitled by will or the
laws of descent and distribution to receive such benefits.
"Board" means the Board of Directors of the Company.
"Cause" shall mean, for purposes of whether and when Participant has
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
Participant and
<PAGE> 2
the Company or an Affiliate for "cause" as defined in such agreement or
arrangement, or in the event that there is no such agreement or arrangement or
the agreement or arrangement does not define "cause"or a substantially
equivalent term, then Cause shall mean (a) any act or failure to act deemed to
constitute cause under the Company's established practices, policies or
guidelines applicable to the Participant or (b) the Participant's act or failure
to act which constitute gross misconduct with respect to the Company or an
Affiliate in any material respect, including, without limitation, an act or
failure to act of a criminal nature, the result of which is detrimental to the
interests of the Company or an Affiliate, or conduct, or the omission of
conduct, which constitutes a material breach of a duty the Participant owes to
the Company or an Affiliate.
"Change in Control" shall be deemed to have occurred if (a) any
corporation, person or other entity (other than the Company, a majority-owned
subsidiary of the Company or any of its subsidiaries, an employee benefit plan
(or related trust) sponsored or maintained by the Company, or the stockholders
of the Company on the Grant Date), including a "group" as defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes the
beneficial owner of stock representing more than thirty-five percent (35%) of
the combined voting power of the Company's then outstanding securities; (b)(i)
the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
"Change in Control Price" means the higher of (a) the highest reported
sales price of a share of Common Stock in any transaction reported on the
principal exchange on which such shares are listed or on NASDAQ during the
60-day period prior to and including the date of a Change in Control (if then
traded) or (b) if the Change in Control is the result of a tender or exchange
offer, merger, consolidation, liquidation or sale of all or substantially all of
the assets or Common Stock of the Company (in each case a "Corporate
Transaction"), the highest price per share of Common stock paid in such
Corporate Transaction. To the extent that the consideration paid in any such
Corporate Transaction consists of all or in part of securities or other non-cash
consideration, the value of such securities or other non-cash consideration
shall be determined in the sole discretion of the Committee.
"Code" means the Internal Revenue Code of 1986, as amended, Treasury
Regulations (including proposed regulations) thereunder and any subsequent
Internal Revenue Code.
<PAGE> 3
"Committee" means the Compensation Committee of the Board. Any
references in this Agreement to the Committee shall refer to the Board, if no
Committee is appointed.
"Disability" means the inability of Participant to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment and shall be determined by the Committee on the basis of such
medical evidence as the Committee deems warranted under the circumstances.
Notwithstanding the foregoing, a Disability shall not qualify under this
Agreement if it is the result of (i) a wilfully self-inflicted injury or
wilfully self-induced sickness; or (ii) an injury or disease contracted,
suffered, or incurred while participating in a criminal offense. The
determination of Disability for purposes of this Agreement shall not be
construed to be an admission of disability for any other purpose.
"Fair Market Value" means, as applied to a specified date, the fair
market value per share of Common Stock on such date as determined in good faith
by the Committee in the following manner: (i) if shares of Common Stock are then
listed on any national or regional stock exchange, including, without limitation
on the NASDAQ Stock Market, Fair Market Value shall be the mean between the high
and low sales price on the date in question, or if there are no reported sales
on such date, on the last preceding date on which sales were reported, (ii) if
shares of Common Stock are not so listed, then Fair Market Value shall be the
mean between the bid and ask prices quoted by a market maker or other recognized
specialist in the Common Stock at the close of the date in question, or (iii) in
the absence of either of the foregoing, Fair Market Value shall be determined by
the Committee in its absolute discretion after giving consideration to book
value, the earning history and the prospects of the Company in light of market
conditions generally. The Committee may rely upon an appraisal by a reputable
third party to determine Fair Market Value. The Fair Market Value determined
hereunder shall be final, binding and conclusive on all parties.
"Representative" means (a) the person or entity acting as the executor
or administrator of Participant's estate pursuant to the last will and testament
of Participant or pursuant to the laws of the jurisdiction in which Participant
had his primary residence at the date of his death; (b) the person or entity
acting as the guardian or temporary guardian of Participant; (c) the person or
entity which is the Beneficiary of Participant upon or following Participant's
death; or (d) any person to whom an Option has been permissibly transferred;
provided, that only one of the foregoing shall be the Representative at any
point in time as determined under applicable law and recognized by the
Committee.
"Retirement" means the Participant's Termination of Employment after
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if Participant is covered by such a plan, or if the
Participant is not covered by such a plan, then age 65, or age 55 with the
accrual of 10 years of service.
<PAGE> 4
"Termination of Employment" means the occurrence of any act or event,
whether pursuant to an employment agreement or otherwise, that actually or
effectively causes or results in Participant's ceasing, for whatever reason, to
be an officer, independent contractor, director or employee of the Company or of
any Affiliate, or to be an officer, independent contractor, director or employee
of any entity that provides services to the Company or an Affiliate, including,
without limitation, death, Disability, dismissal, severance at the election of
the Participant, Retirement, or severance as a result of the discontinuance,
liquidation, sale or transfer by the Company or its Affiliates of all businesses
owned or operated by the Company or its Affiliate.
2. Grant of Option, Option Price and Term.
(a) The Company hereby grants to the Participant, as a matter
of separate agreement and not in lieu of salary or any other
compensation for services, the right and option (the "Option") to
purchase 42,793 shares of the common stock, par value $.01 per share
(the "Common Stock"), of the Company ("Option Shares") on the terms and
conditions herein set forth. Participant shall have all the rights and
obligations as provided for in this Agreement.
(b) For each of the Option Shares purchased, the Participant
shall pay to the Company $10 per share (the "Option Price").
Accordingly, the aggregate Option Price to exercise all of the Option
is $427,930.
(c) The term of this Option shall be a period of ten (10)
years from the Grant Date (the "Option Period"). The termination of the
Option Period shall result in the termination and cancellation of the
Option. In no event shall the Option be exercisable for any period
greater than the Option Period.
(d) Subject to Sections 2(e) and 2(f) below, unvested Option
Shares shall be forfeited at Termination of Employment for any reason.
The percentage of Option Shares which are vested and which will not be
forfeited at Termination of Employment shall be determined in
accordance with the following schedule:
<TABLE>
<CAPTION>
Cumulative Number of
Date Option Shares Vested
---- --------------------
<S> <C>
On Grant Date 4,279
August 4, 1999 13,908
August 4, 2000 23,536
August 4, 2001 33,164
August 4, 2002 42,793
======
Total Number of Option Shares 42,793
</TABLE>
<PAGE> 5
(e) Notwithstanding the foregoing Section 2(d), (i) all
Option Shares shall be 100% vested upon a Change in Control, and (ii)
all Option Shares would have otherwise been vested at the end of the
employment term shall immediately become vested and exercisable in the
event that Participant's employment is terminated under his or her
respective employment agreement with the Company or an Affiliate, as
applicable, pursuant to a termination without cause provision or as a
result of a material uncured breach thereof by the Company or an
Affiliate, as applicable.
(f) Any portion of the Option which is not vested, pursuant to
Section 2(d) or 2(e), as of a Participant's Termination of Employment
shall be canceled simultaneously with the date of such Termination of
Employment.
(g) The Option granted hereunder is designated as a
non-qualified stock option.
(h) The Company shall not be required to issue any fractional
Option Shares.
3. Termination of Option.
(a) If Participant incurs a Termination of Employment due to
death, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for a
period of one hundred eighty (180) days following the date of the
appointment of a Representative or until the expiration of the Option
Period, whichever period is shorter.
(b) If Participant incurs a Termination of Employment due to a
Disability, any unexpired and unexercised portion of the Option, to the
extent then exercisable, shall thereafter be fully exercisable for the
period of one hundred eighty (180) days immediately following the date
of such Termination of Employment or until the expiration of the Option
Period, whichever period is shorter, and Participant's death at any
time following such Termination of Employment due to Disability shall
not affect the foregoing.
(c) If Participant's Termination of Employment is voluntary on
the part of the Participant (including due to Retirement) or is
involuntary on the part of Participant (but is not due to death or
Disability), any unexercised portion of the Option shall immediately
terminate, except that the Option, to the extent then exercisable, may
be exercised for a period of sixty (60) days immediately following the
date of such Termination of Employment or until the expiration of the
Option Period, whichever period is shorter.
4. Exercise. The Option shall be exercisable during the Participant's lifetime
only by the Participant (or his or her guardian or legal representative), and
after the Participant's death only by the Representative. The Option may only be
exercised by the delivery to the Company of a properly completed written notice,
in form satisfactory to the Committee, which notice shall specify the number of
Option Shares to be
<PAGE> 6
purchased and the aggregate Option Price for such shares, together with payment
in full of such aggregate Option Price. Payment shall only be made:
(a) in cash or by check;
(b) with the prior written approval of the Committee, by the
delivery to the Company of a valid and enforceable stock certificate
(or certificates) representing shares of Common Stock held by the
Participant, which is endorsed in blank or accompanied by an executed
stock power (or powers) and guaranteed in a manner acceptable to the
Committee;
(c) with the prior approval of the Committee, by a loan
extended by the Company;
(d) with the prior approval of the Committee, by authorizing
the Company to retain shares of Common Stock which would otherwise be
issuable upon exercise of the Option having a total Fair Market Value
on the date of delivery equal to the Option Price;
(e) with the prior approval of the Committee, by the delivery
of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise; or
(f) with the prior approval of the Committee, in any
combination of (a), (b), (c), (d) or (e).
If any part of the payment of the Option Price is made in shares of Common
Stock, such shares shall be valued by using their Fair Market Value as of their
date of delivery.
The Option shall not be exercised unless there has been compliance with
all the preceding provisions of this Paragraph 4, and, for all purposes of this
Agreement, the date of the exercise of the Option shall be the date upon which
there is compliance with all such requirements.
5. Payment of Withholding Taxes. If the Company is obligated to withhold an
amount on account of any tax imposed as a result of the exercise of the Option,
the Participant shall be required to pay such amount to the Company.
6. Requirements of Law; Registration and Transfer Requirements. The Company
shall not be required to sell or issue any shares under the Option if the
issuance of such shares shall constitute a violation of any provision of any law
or regulation of any governmental authority applicable to the Company. This
Option and each and every obligation of the Company hereunder are subject to the
requirement that the Option may not be exercised or performed, in whole or in
part, unless and until the Option Shares are listed, registered or qualified,
properly marked with a legend or other notation, or otherwise restricted.
7. Adjustments/Change in Control. In the event of a Change in Control, the
<PAGE> 7
Participant shall have such rights, and the Committee shall take such actions,
as are specified in this Agreement. Participant shall have the right, by giving
notice during the 60-day period from and after a Change in Control of the
Company, to elect to surrender all or part of the Option to the Company and to
receive cash, within 30 days of such notice, in an amount equal to the amount by
which the "Change in Control Price" per share of Common Stock on the date of
such election shall exceed the amount which Participant must pay to exercise the
Option per share of Common Stock under the Option (the "Spread) multiplied by
the number of shares of Common Stock granted under the Option as to which the
right granted hereby shall have been exercised.
8. Nontransferability. Subject to the last sentence of this Section 8, a
Participant may at any time make a transfer of shares of Common Stock received
pursuant to the exercise of an Option to his parents, spouse or descendants, to
any trust for the benefit of the foregoing or to a partnership the interests of
which are for the foregoing or to a custodian under a uniform gifts to minors
act or similar statute for the benefit of any of the Participant's descendants.
An Option and any interest in the Option may not otherwise be sold, assigned,
conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner
without the prior written consent of the Company, and any such attempted sale,
assignment, conveyance, gift, pledge, hypothecation or transfer other than as
permitted herein shall be null and void; provided, however, after consummation
of the Company's initial public offering of Common Stock that results in the
Common Stock being listed on a national securities exchange, including without
limitation the Nasdaq Stock Market, and subject to the last sentence of this
Section 8, shares of Common Stock for which the Option was exercised may be
transferred without the consent of Company, subject to applicable securities
laws, rules and regulations. Notwithstanding anything to the contrary in this
Agreement, Participant may not transfer any shares of Common Stock (or any
interest therein) received pursuant to the exercise of the Option until a period
of one year has elapsed from the date of exercise of the Option.
9. Interpretation. The interpretation and construction by the Committee of this
Agreement and the Option, and such rules and regulations as may be adopted by
the Committee for the purpose of administering this Agreement, shall be final
and binding upon the Participant.
10. Stockholder Rights. Until the Option shall have been duly exercised to
purchase such Option Shares and such shares have been officially recorded as
issued on the Company's official stockholder records, no person or entity shall
be entitled to vote, receive distributions or dividends or be deemed for any
purpose the holder of any Option Shares, and adjustments for dividends or
otherwise shall be made only if the record date therefor is subsequent to the
date such shares are recorded and after the date of exercise and without
duplication of any adjustment.
11. Employment Rights. No provision of this Agreement or of the Option granted
hereunder shall give the Participant any right to continue in the employ of the
Company
<PAGE> 8
or any of its Affiliates, create any inference as to the length of employment of
the Participant, affect the right of the Company or its Affiliates to terminate
the employment of the Participant, with or without cause, or give the
Participant any right to participate in any employee welfare or benefit plan or
other program of the Company or any of its Affiliates.
12. Disclosure Rights. The Company shall have no duty or obligation to
affirmatively disclose to the Participant or a Representative, and the
Participant or Representative shall have no right to be advised of, any material
information regarding the Company or an Affiliate at any time prior to, upon or
in connection with the exercise of an Option.
13. Changes in Company's Capital Structure. The existence of the Option shall
not affect in any way the right or authority of the Company or its stockholders
to make or authorize any or all adjustments, recapitalizations, reorganizations
or other changes in the Company's capital structure or its business, or any
merger or consolidation of the Company, or any issue of bonds, debentures,
preferred or prior preference stock ahead of or affecting the Common Stock or
the rights thereof, or the dissolution or liquidation of the Company, or any
sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
14. Investment Representation and Agreement. If, in the opinion of counsel for
the Company, a particular representation is required under the Securities Act of
1933 or any other applicable federal or state law, or any regulation or rule of
any governmental agency, the Company may require such representations as the
Company reasonably may determine to be necessary.
15. Governing Law. This Agreement and the Option granted hereunder shall be
governed by, and construed and enforced in accordance with, the laws of the
State of California (other than its laws respecting choice of law).
16. Entire Agreement. This Agreement constitutes the entire obligation of the
parties hereto with respect to the subject matter hereof and shall supersede any
prior expressions of intent or understanding with respect to this transaction.
17. Amendment. Any amendment to this Agreement shall be in writing and signed by
the Company and the Participant.
18. Waiver; Cumulative Rights. The failure or delay of either party to require
performance by the other party of any provision hereof shall not affect its
right to require performance of such provision unless and until such performance
has been waived in writing. Each and every right hereunder is cumulative and may
be exercised in part or in whole from time to time.
19. Counterparts. This Agreement may be signed in two counterparts, each of
which shall be an original, but both of which shall constitute but one and the
same instrument.
20. Notices. Any notice which either party hereto may be required or permitted
to give the other shall be in writing and may be delivered personally or by
mail, postage
<PAGE> 9
prepaid, addressed to the Secretary of the Company, at its then corporate
headquarters, and to the Participant at her address as shown on the Company's
records, or to such other address as the Participant, by notice to the Company,
may designate in writing from time to time.
21. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect the meaning or interpretation of this
Agreement.
22. Severability. If any provision of this Agreement shall for any reason by
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereof, and this Agreement shall be construed as
if such invalid or unenforceable provision were omitted.
23. Successors and Assigns. This Agreement shall inure to the benefit of and be
binding upon each successor and assign of the Company. All obligations imposed
on the Participant or a Representative, and all rights granted to the Company
hereunder, shall be binding upon the Participant's or the Representative's
heirs, legal representatives and successors.
24. Tax Consequences. The Participant agrees to undertake to determine and be
responsible for any and all tax consequences to himself with respect to the
Option.
25. Anti-Dilution. If the outstanding shares of Common Stock are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock dividend (but only on the Common Stock), stock split,
reverse stock split or other similar transaction, or if any increase or decrease
occurs in the number of outstanding shares of Common Stock without the receipt
by the Company of consideration therefor, then an appropriate and proportional
adjustment shall be made, as appropriate, to: (i) the number and kind of shares
of Common Stock covered by the Option, and/or (ii) the exercise price per share
of Common Stock covered by the Option granted hereunder; provided, however, that
the Committee may limit such adjustment so as to maintain the deductibility
under Section 162(m) of the Code and that any fractional shares resulting from
such adjustment shall be eliminated by rounding to the next lower whole number
of shares with appropriate payment for such fractional shares as shall be
reasonably determined by the Committee. The granting of stock options, stock
purchase rights, phantom stock or similar awards or bonuses to employees,
officers, directors or consultants of the Company or any Affiliate, or of any
company performing services to the Company or any Affiliate, shall not be deemed
to have been effected "without the receipt of consideration" for the purposes of
this Section 25.
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by an officer thereunto duly authorized, and the Participant has
hereunto set her hand, all as of the day and year first above written.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
-----------------------------------
Name: Alan L. Friel
Title:
PARTICIPANT:
/s/ EDWARD WINTER
-----------------------------------
Edward Winter
<PAGE> 1
EXHIBIT 10.23
EXODUS COMMUNICATIONS, INC.
INTERNET DATA CENTER SERVICES AGREEMENT
THIS INTERNET DATA CENTER SERVICES AGREEMENT (this "Agreement") is made
effective as of the Submission Date March 18, 1999 (the "Effective Date")
indicated in the initial Internet Data Center Services Order Form executed by
and between Exodus Communications, Inc. ("Exodus") and the customer identified
below ("Customer") attached hereto as Exhibit A.
PARTIES:
CUSTOMER NAME: DIGITAL ENTERTAINMENT NETWORK, INC.
ADDRESS: 2230 BROADWAY
SANTA MONICA, CA 90404
PHONE: (310) 998-9200
FAX: (310) 998-1101
EXODUS COMMUNICATIONS, INC.
2831 Mission College Blvd.
Santa Clara, CA 95055-1838
Phone: (408) 346-2200
Fax: (408) 346-2420
1. INTERNET DATA CENTER SERVICES.
1.1 Subject to the terms and conditions of this Agreement, during the term
of this Agreement, Exodus will provide to Customer the services described in the
Internet Data Center Services Order Forms(s) ("Initial IDC Services Order
Form(s)") attached hereto as Exhibit A, the product specifications attached
hereto as Exhibit B (the "Product Specifications") and the Statement of Work
attached hereto as Exhibit C (the "SOW") (such services, the "Internet Data
Center Services"). Any future IDC Services Order Forms accepted by Exodus are
incorporated herein by this reference, each as of the Submission Date indicated
in such form.
1.2 Exodus will notify Customer prior to assigning or transferring any key
personnel to or from Customer's account.
1.3 The Customer site at Exodus' Irvine Internet Data Center will be
operational in beta test mode on April 1, 1999. For purposes of this Agreement,
beta test mode shall mean that the facilities aspects of the Internet Data
Center Services, including racks, bandwidth, and space, will be available but
that the Internet Data Center Services will be subject to periodic intervals
of non-operation in order for modifications to be made. Both parties will use
best efforts to have the Irvine site operational and accessible in conformance
with the service level warranty set forth in Section 5.2 by April 1, 1999, but
in no event later than May 1, 1999 (the "Operational Date"). The Customer site
at Exodus' Herndon Internet Data Center will be operational and accessible in
conformance with the service level warranty set forth in Section 5.2 within
sixty (60) days of the Operational Date of the Irvine Data Center.
2. FEES AND BILLING.
2.1 Fees. Customer will pay all fees due according to the initial IDC
Services Order Form(s) and any subsequent IDC Services Order Forms submitted by
Customer and accepted by Exodus. The fees set forth in the initial IDC Services
Order Form reflect a discount related exclusively to the purchase by Exodus of
an equity interest in Customer as set forth more fully in that certain
Restricted Stock Purchase Agreement executed by and between the parties (the
"Restricted Stock Purchase Agreement") attached hereto as Exhibit F.
2.2 Billing Commencement. Except as expressly set forth herein, billing
for Internet Data Center Services, other than Setup Fees, indicated in the
Initial IDC Services Order Form shall commence as set forth on such initial IDC
Services Order Form. In the event that Customer orders additional Internet Data
Center Services, billing for such services shall commence on the date Exodus
first provides such additional Internet Data Center Services to Customer or as
otherwise agreed to by Customer and Exodus.
2.3 Billing and Payment Terms. Customer will be billed monthly in advance
of the provision of Internet Data Center Services, and payment of such fees will
be due within thirty (30) days of the date of each Exodus invoice. All payments
will be made in U.S. dollars. Late payments hereunder will accrue interest at a
rate of one and one-half percent (1 1/2%) per month, or the highest rate allowed
by applicable law, whichever is lower. If in its judgment Exodus determines that
Customer is not creditworthy or is otherwise not financially secure, Exodus may,
upon written notice to Customer, modify the payment terms to require full
payment before the provision of Internet Data Center Services or other
assurances to secure Customer's payment obligations hereunder.
2.4 Taxes. All payments required by this Agreement are exclusive of all
national, state, municipal or other governmental excise, sales, value-added,
use, personal property, and occupational taxes, excises, withholding taxes and
obligations and other levies now in force or enacted in the future, all of which
Customer will be responsible for and will pay in full, except for taxes based on
Exodus' net income.
3. CUSTOMER'S OBLIGATIONS.
3.1 Compliance with Law and Rules and Regulations. The parties agree that
they will materially comply at all times with all applicable laws and
regulations and Exodus' general rules and regulations relating to its provision
of Internet Data Center Services, an reasonably updated by Exodus from time to
time and attached hereto as exhibit D ("Rules and Regulations"). Customer
acknowledges that Exodus exercises no control whatsoever over the content of the
information passing through its sites continuing the "Customer Area" (the
portion(s) of the Internet Data Centers, as defined below, made available to
Customer hereunder for the placement of equipment used by Customer) and
equipment and facilities used by Exodus to provide Internet Data Center Services
("Internet Data Centers"), and that it is the sole responsibility of Customer to
ensure that the information it transmits and receives complies with all
applicable laws and regulations.
3.2 Customer's Costs. Customer agrees that it will be solely responsible,
and at Exodus's request will reimburse Exodus, for all costs and expenses
approved in writing by Customer (other than those included as part of the
Internet Data Center Services and except as otherwise expressly provided
herein) Customer incurs in connection with this Agreement.
3.3 Access and Security. Subject to the limitations set forth in Section
6, customer will be fully responsible for any charges, costs, expenses, (other
than those included in the Internet Data Center Services), and third party
claims that may result from Customer's physical use of, or physical access to,
the Internet Data Centers and/or of the Customer Area including but not limited
to any unauthorized use by Customer of any access devices provided by Exodus
hereunder. Except with the advanced written consent of Exodus, Customer's access
to the Internet Data Centers will be limited solely to the individuals
identified and authorized by Customer to have access to the Internet Data
Centers and the Customer Area in accordance with this Agreement, as identified
in the Customer Registration Form, as amended from time to time, which is hereby
incorporated by this reference ("Representatives"). Excluding periods of
reasonable maintenance with advance notice to Customer and emergency situations,
Customer shall have physical and remote access to the applicable Internet Data
Center 24 hours a day, seven days a week.
3.4 No Competitive Services. Customer may not resell Exodus' services
without prior written consent. Customer's customers may not have access to the
IDC(s).
3.5 Insurance.
(a) Minimum Levels. Each party will keep in full force and effect during
the term of this Agreement: (i) comprehensive general liability insurance in an
amount not less than $5 million per occurrence for bodily injury and property
damage; (ii) employer's liability insurance in an amount not less than $1
million per occurrence; and (iii) workers' compensation insurance in an amount
not less than that required by applicable law. Each party also agrees that it
will, and will be solely responsible for ensuring that its agents (including
contractors and subcontractors) maintain, other insurance at levels no less than
those required by applicable law and customary in such party's and its agents'
industries. Additionally, Exodus will insure the equipment provided hereunder at
levels no less than a reasonably prudent business person would.
(b) Certificate of Insurance. Prior to installation of any equipment in
the Customer Area in the applicable Internet Data Center, each party will
furnish the other party with certificates of insurance which evidence the
minimum levels of insurance set forth above.
(c) Additional Insured. Each party agrees that prior to the installation
of any equipment, it will cause its insurance provider(s) to name the other
party as an additional insured and notify such other party in writing of the
effective date thereof.
4. CONFIDENTIAL INFORMATION.
4.1 Confidential Information. Each party acknowledges that it will have
access to certain confidential information of the other party concerning the
other party's business, plans, customers, technology, and products, including
the terms and conditions of this Agreement ("Confidential Information").
Confidential Information will include, but not be limited to, Customer Content,
Customer User Information, each party's proprietary software and customer
information. Each party agrees that it will not use in any way, for its own
account or the account of any third party, except as expressly permitted by this
Agreement, nor disclose to any third party (except as required by law or to that
party's attorneys, accountants and other advisors as reasonably necessary), any
of the other party's Confidential Information and will exercise the same level
of care in protecting the other party's Confidential Information from
unauthorized use and disclosure as it uses to protect its own Confidential
Information, which in no event will be less protective than the safeguards a
reasonably prudent business would exercise in similar circumstances. Each party
shall give the other party reasonable notice of any disclosure of the other
party's Confidential Information required by law and a reasonable opportunity to
object and limit such disclosure.
4.2 Exceptions. Information will not be deemed Confidential Information
hereunder if such information: (i) is known to the receiving party prior to
receipt from the disclosing party directly or indirectly from a source other
than one having an obligation of confidentiality to the disclosing party; (ii)
becomes known (independently of disclosure by the disclosing party) to the
receiving party directly or indirectly from a source other than one having an
obligation of confidentiality to the disclosing party; (iii) becomes publicly
known or otherwise ceases to be secret or confidential, except through a breach
of this Agreement by the receiving party; or (iv) is independently developed by
the receiving party.
4.3 Survival. This Section 4 shall survive any expiration or termination
of this Agreement for a period of three (3) years.
5. REPRESENTATIONS AND WARRANTIES.
5.1 Warranties by Customer.
Non-Standard -- DEN 031299 Clean
EXODUS COMMUNICATIONS, INC. CONFIDENTIAL AND PROPRIETARY (rev 6/98) Page 1
<PAGE> 2
(a) Customer represents and warrants that (i) it has the full power, right
and authority to execute and deliver this Agreement and perform its obligations
hereunder, and (ii) neither execution and delivery nor Customer's services,
products, materials, data, and information used by Customer in connection with
this Agreement as well as Customer's and its permitted customers' and users' use
of the Internet Data Center Services (collectively, "Customer's Business") will
(A) materially violate any provision of any law, rule, regulations or order
applicable to Customer or (B) materially violate, breach, conflict with, result
in the termination of, acceleration of or cancellation of any obligation under,
or require the payment of any fee or constitute a default under (x) the articles
of incorporation or bylaws of Customer or (v) any contract, permit, license or
other instrument to which Customer is bound or subject.
(Intentionally deleted)
(c) Rules and Regulations. Customer has read the Rules and Regulations
and represents and warrants that Customer and Customer's Business are currently
in material compliance with the Rules and Regulations, and will remain so at
all times during the term of this Agreement.
(d) Breach of Warranties. In the event of any material breach of the
warranty set forth in Section 5.1(a)(ii)(A) or 5.1(c) which will result in a
material liability to Exodus, Exodus shall provide written notice to Customer
of such breach. If Customer fails to cure such breach within five (5) business
days of receipt of such notice, Exodus shall have the option to terminate this
Agreement subject to the provision of the applicable Transmission Services set
forth in Section 8.7. Such termination shall be considered termination for
cause pursuant to Section 8.2(b).
5.2 Warranties and Disclaimers by Exodus.
5.2(a) Service Level Warranty. In the event Customer experiences any
of the following and Exodus determines that such inability was caused by
Exodus' failure to provide Internet Data Center Services for reasons within
Exodus' operational control and not as a result of any actions or inactions of
Customer or any third parties not within the operational control of Exodus
(including equipment provided by Customer, if any, ("Customer Equipment") and
third party equipment), Exodus will, upon Customer's request in accordance with
paragraph (iii) below, credit Customer's account as described below.
(i) Inability to Access Internet (Downtime). If Customer is unable to
transmit and receive information from Exodus' Internet Data Centers (i.e.,
Exodus' LAN and WAN) to other portions of the Internet because Exodus failed to
provide the Internet Data Center Services for more than fifteen (15)
consecutive minutes, Exodus will credit Customer's account the pro-rata
connectivity charges (i.e., all bandwidth related charges) for one (1) day of
service, up to an aggregate maximum credit of connectivity charges for seven (7)
days of service in any one calendar (1) month. Exodus' scheduled maintenance of
the Internet Data Centers and Internet Data Center Services, as described in
the Rules and Regulations, shall not be deemed to be a failure of Exodus to
provide Internet Data Center Services. For purposes of the foregoing, "unable
to transmit and receive" shall mean sustained packet loss in excess of 50%
based on Exodus' measurements.
(ii) Packet Loss and Latency. Exodus does not proactively monitor the
packet loss or transmission latency of specific customers. Exodus does,
however, proactively monitor the aggregate packet loss and transmission latency
within its LAN and WAN. In the event that Exodus discovers (either from its own
efforts or after being notified by Customer) that Customer is experiencing
packet loss in excess of one percent (1%) ("Excess Packet Loss") or
transmission latency in excess of 96 milliseconds round trip time (based on
Exodus' measurements) between any two Internet Data Centers within Exodus' U.S.
network (collectively, "Excess Latency", and with Excess Packet Loss "Excess
Packet Loss/Latency"), and Customer notifies Exodus (or confirms that Exodus
has notified Customer), Exodus will take all actions necessary to determine the
source of the Excess Packet Loss/Latency.
(A) Time to Discover Source of Excess Packet Loss/Latency;
Notification of Customer. Within two (2) hours of discovering the existence of
Excess Packet Loss/Latency, Exodus will determine whether the source of the
Excess Packet Loss/Latency is limited to the Customer Equipment and the Exodus
equipment connecting the Customer Equipment to Exodus' LAN ("Customer Specific
Packet Loss/Latency"). If the Excess Packet Loss/Latency is not a Customer
Specific Packet Loss/Latency, Exodus will determine the source of the Excess
Packet Loss/Latency within two (2) hours after determining that it is not a
Customer Specific Packet Loss/Latency. In any event, Exodus will notify
Customer of the source of the Excess Packet Loss/Latency within sixty (60)
minutes after identifying the source.
(B) Remedy of Excess Packet Loss/Latency. If the Excess Packet
Loss/Latency remedy is within the operational control of Exodus, Exodus will
remedy the Excess Packet Loss/Latency within two (2) hours of determining the
source of the Excess Packet Loss/Latency. If the Excess Packet Loss/Latency is
caused from outside of the Exodus LAN or WAN, Exodus will notify Customer and
will use commercially reasonable efforts to notify the party(ies) responsible
for the source and cooperate with it (them) to resolve the problem as soon as
possible.
(C) Failure to Determine Source and/or Resolve Problem. In the
event that Exodus is unable to determine the source of and remedy the Excess
Packet Loss/Latency within the time periods described above (where Exodus had
operational control of the source), Exodus will credit Customer's account the
pro-rata connectivity charges for one (1) day of service for every two (2)
hours after the time periods described above that it takes Exodus to resolve
the problem, up to an aggregate maximum credit of connectivity charges for
seven (7) days of service in any one (1) month.
(iii) Customer Must Request Credit: To receive any of the credits
described in this section 5.2(a), Customer must notify Exodus within ten (10)
business days from the time Customer becomes eligible to receive a credit.
Failure to comply with this requirement will forfeit Customer's right to
receive a credit.
(iv) Remedies Shall Not Be Cumulative; Maximum Credit. In the event
that Customer is entitled to multiple credits hereunder arising from the same
event, such events shall not be cumulative and Customer shall be entitled to
receive only the maximum single credit available for such event. In no event
will Exodus be required to credit Customer in any one (1) calendar month
connectivity charges in excess of seven (7) days of service. A credit shall be
applied only to the month in which there was the incident that resulted in the
credit. Customer shall not be eligible to receive any credits for periods in
which Customer received any Internet Data Center Services free of charge,
provided that for the purposes of this Section, the Internet Data Center
Services shall not be considered as being received free of charge due to the
Customer discount referred to in Section 2.1.
(v) Termination Option for Chronic Problems: If, in any single calendar
month, Customer would be able to receive credits totaling fifteen (15) or more
days (but for the limitation in paragraph (iv) above) resulting from three (3)
or more events during such calendar month or, if any single event entitling
customer to credits under paragraph 5.2(a)(1) exists for a period of eight (8)
consecutive hours, then Customer may terminate this Agreement for cause and
without penalty by notifying Exodus within five (5) days following the end of
such calendar month. Such termination shall be considered termination for cause
pursuant to Section 8.2(b) and will be effective thirty (30) days after receipt
of such notice by Exodus, subject to the provision of the Transition Services
set forth in Section 8.7.
(vi) Active Packet Monitoring. As of the Effective Date, Exodus does not
provide active monitoring of packet loss and transmission latency for
individual customer sites. The parties understand that Exodus is developing the
functionality to actively monitor packet loss and transmission latency for
individual customer sites. Exodus will use best efforts to include Customer as
a participant in any beta test or other evaluation program, however, such
active monitoring shall be available to Customer only to the extent necessary
for the beta test or evaluation program and will terminate at the conclusion of
such test or program. Active packet monitoring received by Customer as a
participant in a beta test or evaluation program will be at no fee. Exodus
shall not be obligated to continue active packet monitoring for Customer if
Exodus, in its sole discretion, decides not to add active packet monitoring as
a service available to all of its customers. If Exodus does implement a service
whereby active packet monitoring is available to all of its customers, such
service will be made available to Customer at a cost to be negotiated in good
faith between the parties. Participation in a beta test or evaluation program
of active packet monitoring shall not alter the responsibilities of either
party under the service level warranty set forth in this section.
THIS WARRANTY DOES NOT APPLY TO ANY INTERNET DATA CENTER SERVICES THAT
EXPRESSLY EXCLUDE THIS WARRANTY (AS DESCRIBED IN THE SPECIFICATION SHEETS FOR
SUCH PRODUCTS WHICH ARE ATTACHED HERETO AS EXHIBIT B). THIS SECTION 5.2(a)
STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY A BREACH OF SUCH WARRANTY.
(b) Exodus represents and warrants that (i) it has the full power, right
and authority to execute and deliver this Agreement and perform its obligations
hereunder, and (ii) neither execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (A) materially
violate any provision of any law, rule, regulations or order applicable to
Exodus or (B) materially violate, breach, conflict with, result in the
termination of, acceleration of or cancellation of any obligation under, or
require the payment of any fee or constitute a default under (x) the articles
of incorporation or bylaws of Exodus or (v) any contract, permit, license or
other instrument to which Exodus is bound or subject.
(c) Equipment and software. Exodus represents and warrants that it owns
or has the legal right and authority, and will continue to own or maintain the
legal right and authority during the term of this Agreement, to place, provide
and allow Customer access to the equipment ("Equipment") and software
("Software") as contemplated by this Agreement. Exodus further represents and
warrants that its placement, arrangement, and provision of access to the
Equipment in the Internet Data Centers complies with the Equipment
manufacturer's environmental and other specifications. Solely as to Equipment
and Software described in Exhibit E attached hereto, Exodus further represents
and warrants that the prices that Exodus is charging Customer for access to such
Equipment and software reflect (i) the average price of three (3) competitive
leasing quotes based on a leasing term of twelve (12) months for such Equipment
and Software, plus (ii) a markup not to exceed five percent (5%).
Notwithstanding Section 5.2(f), if Exodus breaches the immediately preceding
warranty, Exodus shall refund to Customer the applicable excess amounts. The
terms and conditions, including pricing, of additional equipment and/or software
requested by Customer shall be negotiated in good faith between the parties at
the time of the request. After the first (1st) anniversary of the Installation
Date, and in Exodus' sole discretion, Exodus may allow Customer to purchase the
Equipment or Software for a price to be negotiated in good faith between the
parties, provided, however, that Customer shall not be obligated to purchase
such Equipment or Software.
(d) Current Technology; Network. Exodus represents and warrants the
Exodus Network as described in the SOW is, and during the term of this
Agreement shall continue to be, as advanced as then current network technology.
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(e) Year 2000 Compliance. Exodus warrants that the provision of the
Internet Data Center Services shall not be interrupted and shall not fail to
conform to the service level warranties because of the failure of any product
or service reasonably under the control of Exodus to process correctly, provide
or receive date data that is on, before or after December 31, 1999; provided,
however, that no representation or warranty is made as to the adequacy of any
Customer or third party service provider hardware or software used in
connection with the IDC Services.
(f) Breach of Warranties. In the event of any breach of the warranties
under Sections 5.2(b), (c), (d), or (e) Customer's sole remedy shall be its
ability to terminate this Agreement subject to the provision of the Transition
Services set forth in Section 8.7., and such termination shall be considered
termination for cause pursuant to Section 8.2(b).
(g) No Other Warranty. EXCEPT FOR THE EXPRESS WARRANTY SET OUT IN THIS
SECTION 5, THE INTERNET DATA CENTER SERVICES ARE PROVIDED ON AN "AS IS" BASIS,
AND CUSTOMER'S USE OF THE INTERNET DATA CENTER SERVICES IS AT ITS OWN RISK.
EXODUS DOES NOT MAKE, AND HEREBY DISCLAIMS, ANY AND ALL OTHER EXPRESS AND/OR
IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT AND TITLE,
AND ANY WARRANTIES ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE.
EXODUS DOES NOT WARRANT THAT THE INTERNET DATA CENTER SERVICES WILL BE
UNINTERRUPTED, ERROR-FREE OR COMPLETELY SECURE.
(h) Disclaimer Of Actions Caused By And/Or Under The Control Of Third
Parties. EXODUS DOES NOT AND CANNOT CONTROL THE FLOW OF DATA TO OR FROM EXODUS'
INTERNET DATA CENTERS AND OTHER PORTIONS OF THE INTERNET. SUCH FLOW DEPENDS IN
LARGE PART ON THE PERFORMANCE OF INTERNET SERVICES PROVIDED OR CONTROLLED BY
THIRD PARTIES NOT WITHIN THE OPERATIONAL CONTROL OF EXODUS. AT TIMES, ACTIONS
OR INACTIONS CAUSED BY THESE THIRD PARTIES CAN PRODUCE SITUATIONS IN WHICH
EXODUS' CUSTOMERS' CONNECTIONS TO THE INTERNET (OR PORTIONS THEREOF) MAY BE
IMPAIRED OR DISRUPTED. ALTHOUGH EXODUS WILL USE COMMERCIALLY REASONABLE EFFORTS
TO TAKE ACTIONS IT DEEMS APPROPRIATE TO REMEDY AND AVOID SUCH EVENTS, EXODUS
CANNOT GUARANTEE THAT THEY WILL NOT OCCUR. ACCORDINGLY, EXODUS DISCLAIMS ANY
AND ALL LIABILITY RESULTING FROM OR RELATED TO SUCH EVENTS.
6. LIMITATIONS OF LIABILITY.
6.1 Personal Injury. EACH REPRESENTATIVE AND ANY OTHER PERSONS VISITING THE
INTERNET DATA CENTERS DOES SO AT ITS OWN RISK AND EXODUS ASSUMES NO LIABILITY
WHATSOEVER FOR ANY HARM TO SUCH PERSONS RESULTING FROM ANY CAUSE OTHER THAN
EXODUS' NEGLIGENCE OR WILLFUL MISCONDUCT RESULTING IN PERSONAL INJURY TO SUCH
PERSONS DURING SUCH A VISIT.
(Intentionally deleted)
6.3 Exclusions. EXCEPT FOR SECTIONS 6.1 AND 7.1(ii), IN NO EVENT WILL
EITHER PARTY BE LIABLE TO THE OTHER, FOR ANY LOST REVENUE, LOST PROFITS,
REPLACEMENT GOODS, INCIDENTAL, PUNITIVE, INDIRECT OR CONSEQUENTIAL DAMAGES, OR
LOSS OF DATA OR CUSTOMER'S BUSINESS, EVEN IF SUCH PARTY IS ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, WHETHER UNDER THEORY OF CONTRACT, TORT
(INCLUDING NEGLIGENCE), STRICT LIABILITY OR OTHERWISE.
6.4 Maximum Liability. EXCEPT FOR THE PARTIES INDEMNIFICATION OBLIGATIONS
HEREUNDER OR PROPERTY DAMAGE CAUSED BY CUSTOMER'S NEGLIGENCE OR WILLFUL
MISCONDUCT, NEITHER PARTY'S MAXIMUM AGGREGATE LIABILITY TO THE OTHER RELATED TO
OR IN CONNECTION WITH THIS AGREEMENT SHALL EXCEED THE TOTAL AMOUNT PAID BY
CUSTOMER TO EXODUS HEREUNDER FOR THE PRIOR TWELVE (12) MONTH PERIOD.
6.5 (Intentionally deleted)
6.6 Basis of the Bargain; Failure of Essential Purpose. The parties
acknowledge that the parties have agreed upon the prices and entered into this
Agreement in reliance upon the limitations of liability and the disclaimers of
warranties and damages set forth herein, and that same form an essential basis
of the bargain between the parties. The parties agree that the limitations and
exclusions of liability and disclaimers specified in this Agreement will survive
and apply even if found to have failed of their essential purpose.
7. INDEMNIFICATION.
7.1 Exodus' Indemnification of Customer. Exodus will indemnify, defend
and hold Customer harmless from and against any and all costs, liabilities,
losses, and expenses (including, but not limited to, reasonable outside
attorneys' fees) (collectively, "Losses") resulting from any third party claim,
suit, action, or proceeding (each, an "Action") brought against Customer, its
affiliates or their directors, officers or employees and agents alleging (1)
the infringement or misappropriation of intellectual property rights, or (ii)
personal injury to Customer's Representatives from Exodus's negligence or
willful misconduct.
7.2 Customer's Indemnification of Exodus. Customer will indemnify, defend
and hold Exodus, its affiliates and customers harmless from and against any and
all Losses resulting from or arising out of any Action brought by or against
Exodus, its affiliates or customers alleging: (a) with respect to the
Customer's Business: (i) infringement or misappropriation of any intellectual
property rights; (ii) defamation, libel, slander, obscenity, pornography, or
violation of the rights of privacy or publicity; or (iii) spamming, or any
other offensive, harassing or illegal conduct or violation of the Rules and
Regulations; or (b) any damage or destruction to the Customer Area, the
Internet Data Centers or the equipment of Exodus or any other customer by
Customer or Representative(s) or Customer's designees.
7.3 Notice. Upon the assertion of any Action against a party (the
"Indemnified Party") for which the other party (the "Indemnifying Party") may
be obligated to indemnify the Indemnified Party, the Indemnified Party shall
promptly notify the Indemnifying Party of the existence of such claim and shall
give the Indemnifying Party reasonable opportunity to defend and/or settle the
claim at its own expense and with counsel of its own selection. The Indemnified
Party shall cooperate with the Indemnifying Party and shall at all times have
the right to fully participate in, but not control, such defense with its own
counsel and its own expense. The Indemnified Party shall not make any
settlements of any claims which might give rise to liability of the
Indemnifying Party hereunder without the prior written consent of the
Indemnifying Party.
8. TERM AND TERMINATION.
8.1 Term. This Agreement will be effective for a period of one (1) year
from the Installation Date, unless earlier terminated according to the
provisions of this Section 8. The Agreement will automatically renew for
additional terms of one (1) year each.
8.2 Termination.
(a) For Convenience.
(i) By Customer During First Thirty Days. Customer may terminate this
Agreement for convenience by providing written notice to Exodus at any time
during the thirty (30) day period beginning on the Installation Date.
(ii) By Either Party. Either party may terminate this Agreement for
convenience at any time effective after the first (1st) anniversary of the
Installation Date by providing one hundred and eighty (180) days' prior written
notice to the other party at any time thereafter. Customer may terminate this
Agreement on the first (1st) anniversary of the Installation Date by providing
Exodus thirty (30) days' prior written notice.
(b) For Cause. Either party will have the right to terminate this
Agreement if: (i) the other party breaches any material term or condition of
this Agreement, including failure to pay fees, and fails to cure such breach
within thirty (30) days after receipt of written notice of the same; (ii) the
other party becomes the subject of a voluntary petition in bankruptcy or any
voluntary proceeding relating to insolvency, receivership, liquidation, or
composition for the benefit of creditors; or (iii) the other party becomes the
subject of an involuntary petition in bankruptcy or any involuntary proceeding
relating to insolvency, receivership, liquidation, or composition for the
benefit of creditors, if such petition or proceeding is not dismissed within
sixty (60) days of filing.
8.3 No Liability for Termination. Neither party will be liable to the
other for any termination or expiration of this Agreement in accordance with its
terms. This provision shall not limit any other remedies or recoveries that
either party may be entitled to.
8.4 Effect of Termination. Upon the effective date of expiration or
termination of this Agreement: (a) Exodus will immediately cease providing the
Internet Data Center Services; (b) any and all payment obligations of Customer
under this Agreement will become due within fifteen (15) days; and (c) within
thirty (30) days after such expiration or termination, each party will return
all Confidential Information of the other party in its possession at the time
of expiration or termination and will not make or retain any copies of such
Confidential Information except as required to comply with any applicable legal
or accounting record keeping requirement.
8.5 Intentionally deleted.
8.6 Survival. The following provisions will survive any expiration or
termination of the Agreement: Sections 2,3 4 (pursuant to the terms set forth in
section 4.3), 5, 6, 7, 8, 9 and 10.
8.7 Transition Services. Exodus shall provide the transition services to
Customer as set forth in this Section 8.7 (the "Transition Services").
(a) Prior to any termination or expiration of this Agreement, upon
Customer's request, Exodus will provide reasonable assistance in closing the
Sites, including the return of any Customer data stored on the Equipment on
suitable media, in preparation for Customer's transfer of such Sites and/or
data. Exodus will bill Customer for its reasonable costs associated with such
assistance. If this Agreement is terminated by Exodus pursuant to Section
8.2(b) because of customer's failure to pay fees or Section 8.2(b)(ii) or
(iii), Exodus may, upon written notice to Customer, require full payment for
such Transition Services before the provision of any transition Services as
required hereunder.
(b) Additionally, upon notice of termination for cause by Customer
pursuant to Section 8.2(b) or the thirty (30) day termination by Customer on
the first anniversary of the Installation Date pursuant to Section 8.2(a)(ii),
and upon the request of Customer, Exodus shall continue to provide the Internet
Data Center Services pursuant to the terms and conditions hereunder following
the applicable termination date until the Sites are operational at the
alternative facility, provided that Exodus shall only be obligated to provide
such services for a period up to sixty (60) days after the applicable
termination date, provided that the terms and conditions of this Agreement will
continue in full force and effect throughout such period.
9. MISCELLANEOUS PROVISIONS.
9.1 Force Majeure. Except for the obligation to pay money, neither party
will, for a period not to exceed thirty (30) days, be liable for any failure of
delay in its performance under this Agreement due to any cause beyond its
reasonable control, including act of war, acts of God, earthquake, flood,
embargo, riot, sabotage, labor shortage or dispute, governmental act or failure
of the Internet, provided that the delayed party: (a) gives the other party
prompt notice of such cause, and (b) uses its reasonable commercial efforts to
correct promptly such failure or delay in performance. If any force majeure
event continues for a period beyond thirty (30) days, each party's sole remedy
shall be its ability to terminate this Agreement and such termination shall be
considered termination for cause pursuant to Section 8.2(b).
9.2 No Lease. This Agreement is a services agreement and is not intended
to and will not constitute a lease of any real or personal property. Customer
acknowledges and agrees that
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(i) it has been granted only a license to occupy the Customer Space and use the
Internet Data Centers and any equipment provided by Exodus in accordance with
this Agreement, (ii) Customer has not been granted any real property interest in
the Customer Space or Internet Data Centers, and (iii) Customer has no rights as
a tenant or otherwise under any real property or landlord/tenant laws,
regulations, or ordinances. For good cause, and with prior notice to Customer,
Exodus may suspend the right of any Representative or other person to visit the
Internet Data Centers. If Exodus exercises such suspension right, Exodus agrees
to provide Customer with reasonable assistance until Customer identifies another
Representative, but in no event for a period longer than thirty (30) days.
Customer agrees to pay all of Exodus' reasonable costs related to such
assistance.
9.3 Marketing. The parties agree that upon the prior written consent of the
other party (for each reference or description) not to be unreasonably withheld,
each may refer to the other by trade name and trademark, and may briefly
describe the business relationship and the other party's business (subject to
Section 4) in such party's marketing materials and web site. Each party hereby
grants to the other party a non-exclusive, non-assignable, royalty-free,
worldwide license to use trade names and trademarks of the granting party solely
in connection with the rights granted to such party pursuant to this Section
9.3. Notwithstanding anything to the contrary, Exodus may list customer in a
generalized list of all or a representative group of Exodus' customers.
9.4 Government Regulations. Customer will not export, re-export, transfer,
or make available, whether directly or indirectly, any regulated item or
information to anyone outside the U.S. in connection with this Agreement without
first complying with all export control laws and regulations which may be
imposed by the U.S. Government and any country or organization of nations within
whose jurisdiction Customer operates or does business.
9.5 Non-Solicitation. During the period beginning on the Effective Date and
ending on the first anniversary of the termination or expiration of this
Agreement in accordance with its terms, each party agrees that it will not, and
will ensure that its affiliates do not, directly or indirectly, solicit or
attempt to solicit for employment any persons employed by the other party during
such period.
9.6 Governing Law; Dispute Resolution, Severability; Waiver. This Agreement
is made under and will be governed by and construed in accordance with the laws
of the State of California (except that body of law controlling conflicts of
law) and specifically excluding from application to this Agreement that law
known as the Untied Nations Convention on the International Sale of Goods. Any
dispute relating to the terms, interpretation or performance of this Agreement
(other than claims for preliminary injunctive relief or other pre-judgment
remedies) will be resolved at the request of either party through binding
arbitration. Arbitration will be conducted in Santa Clara County, California,
under the rules and procedures of the Judicial Arbitration and Mediation Society
("JAMS"). The parties will request that JAMS appoint a single arbitrator
possessing knowledge of online services agreements; however the arbitration will
proceed even if such a person is unavailable. In the event any provision of this
Agreement is held by a tribunal of competent jurisdiction to be contrary to the
law, such provision shall be interpreted as having the broadest application as
shall be enforceable under such law or order. The invalidity or unenforceability
of any particular provision of this Agreement shall not affect the remaining
provisions of this Agreement which shall continue in full force and effect. The
waiver of any breach or default of this Agreement will not constitute a waiver
of any subsequent breach or default, and will not act to amend or negate the
rights of the waiving party.
9.7 Assignment; Notices. Neither party may not assign its rights or delegate
its duties under this Agreement either in whole or in part without the prior
written consent of the other party, except that a party may assign this
Agreement in whole to its affiliate or as part of a corporate reorganization,
consolidation, merger, or sale of substantially all of its assets. Any
attempted assignment or delegation without such consent will be void. This
Agreement will bind and inure to the benefit of each party's successors and
permitted assigns. Any notice or communication required or permitted to be given
hereunder may be delivered by hand, deposited with an overnight courier, sent by
confirmed facsimile, or mailed by registered or certified mail, return receipt
requested, postage prepaid, in each case to the address of the receiving party
indicated on the signature page hereof, or at such other address as may
hereafter be furnished in writing by either party hereto to the other. Such
notice will be deemed to have been given as of the date it is delivered, mailed
or sent, whichever is earlier. All notices hereunder shall be sent to the
attention of the party's General Counsel.
9.8 Relationship of Parties. Exodus and Customer are independent contractors
and this Agreement will not establish any relationship of partnership, joint
venture, employment, franchise or agency between Exodus and Customer. Neither
Exodus nor Customer will have the power to bind the other or incur obligations
on the other's behalf without the other's prior written consent, except as
otherwise expressly provided herein.
9.9 Entire Agreement; Counterparts. This Agreement and all exhibits and
documents incorporated herein by reference, including without limitation, the
SOW and Product Specifications, and Restricted Stock Purchase Agreement,
constitutes the complete and exclusive agreement between the parties with
respect to the subject matter hereof, and supersedes and replaces any and all
prior or contemporaneous discussions, negotiations, understandings and
agreements, written and oral, regarding such subject matter. This Agreement may
be executed in two or more counterparts, each of which will be deemed an
original, but all of which together shall constitute one and the same
instrument.
9.10 Amendment. This Agreement may not be amended or modified except by
written agreement executed by both parties.
9.11 Injunctive Relief. Each party acknowledges and agrees that any breach
of Sections 4, 8.7 or 10.4 may cause irreparable harm and significant injury to
an extent that may be extremely difficult to ascertain. Accordingly, each party
agrees that the other party shall have, in addition to any other rights or
remedies available to it at law or in equity, the right to seek injunctive
relief to enjoin any such breach and/or specific performance. Exodus' obligation
of specific performance is expressly conditioned on Customer's continued
adherence to the terms and conditions of this Agreement for the period of such
performance.
10. Proprietary Rights--Ownership and Licenses.
10.1 Customer shall provide to Exodus the text, graphics, audio, video and
other information (collectively, the "Customer Content") for use in the Customer
sites. Provider shall not, without prior written consent from Customer, modify,
change, or alter in any way the Customer Content.
10.2 All of Customer's users' information, including without limitation,
personal information, email addresses, internet addresses, and domain names,
whether provided at any time by Customer or such users, ("Customer User
Information") is proprietary to Customer. Provider shall not disclose, use,
sell, lease, transfer or modify in any way such user information.
10.3 Ownership. Except for the rights expressly granted herein and
assignment expressly made herein, this Agreement does not transfer from Exodus
to Customer any Exodus Technology, and all right, title and interest in and to
Exodus Technology will remain solely with Exodus. Except for the rights
expressly granted herein, this Agreement does not transfer from Customer to
Exodus any Customer Technology, Customer Content, or Customer User Information,
and all right, title and interest in and to Customer Technology, Customer
Content and Customer User Information will remain solely with Customer. Exodus
and Customer each agrees that it will not, directly or indirectly, reverse
engineer, decompile, disassemble or otherwise attempt to derive source code or
other trade secrets from the other party.
10.4 Licenses--Services. During the term of the applicable IDC Services
Order Form, Exodus grants Customer a non-transferable, non-exclusive license to
use Exodus Technology (as defined below) solely in conjunction with the Internet
Data Center Services or as expressly set forth below. During the term of the
applicable IDC Services Order Form, Customer grants Exodus a non-transferable,
non-exclusive license to use the Customer Content and the Customer Technology
(as defined below) provided by Customer for use with the Customer Content solely
in conjunction with the Internet Data Center Services.
10.5 Assignments and Licenses--Work. Commencing at the time Exodus receives
full and final payment for the Work, Exodus (i) assigns to Customer all rights,
title and interest, including all intellectual property rights, in the Work (and
such Work shall thereafter be considered Customer Technology) provided, however,
that such assignment does not include underlying Exodus Technology and (ii)
grants Customer a non-exclusive, non-transferable, royalty free, perpetual
license to use Exodus Technology incorporated into the Work in order to fully
exploit the Work. To the extent that Customer or its employees or contractors
participate in the creation or development of Exodus Technology, Customer, on
behalf of itself and its employees and contractors, hereby assigns to Exodus all
right, title and interest, including all intellectual property rights in, Exodus
Technology. To the extent that Exodus or its employees or contractors
participate in the creation or development of Customer Technology, Exodus, on
behalf of itself and its employees and contractors, hereby assigns to Customer
all right, title and interest, including all intellectual property rights in,
Customer Technology.
10.6 General Skills and Knowledge. Notwithstanding anything to the contrary
in this Agreement, Exodus will not be prohibited or enjoined at any time by
Customer from utilizing any "skills or knowledge of a general nature" acquired
during the course of providing the Internet Data Center Services. "Skills or
knowledge of a general nature" includes, without limitation, information
publicly known or available or that could reasonably be acquired in similar work
performed for another customer of Exodus.
10.7 Definitions. For purposes of this Agreement:
(a) "Exodus Technology" means Exodus' proprietary technology, including
Exodus Internet Data Center Services, software tools, hardware designs,
algorithms, software (in source and object forms), user interface designs,
architecture, class libraries, objects and documentation (both printed and
electronic), network designs, know-how, trade secrets and any related
intellectual property rights throughout the world (whether owned by Exodus or
licensed to Exodus from a third party) and also including any derivatives,
improvements, enhancements or extensions of Exodus Technology conceived, reduced
to practice, or developed during the term of this Agreement by either party that
are not uniquely applicable to Customer or that have general applicability in
the art.
(b) "Customer Technology" means Customer's proprietary technology,
including Customer's Internet operations design, content, software tools,
hardware designs, algorithms, software (in source and object forms), user
interface designs, architecture, class libraries, objects and documentation
(both printed and electronic), know-how, trade secrets and any related
intellectual property rights throughout the world (whether owned by Customer or
licensed to Customer from a third party) and also including any derivatives,
improvements, enhancements or extensions of Customer Technology conceived,
reduced to practice, or developed during the term of this Agreement by either
party.
(c) "Work" means the products, deliverables or services uniquely
developed, created, or otherwise provided for Customer by Exodus within the
scope of Services provided pursuant to this Agreement.
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Customer's and Exodus' authorized representatives have read the foregoing and
all documents incorporated therein and agree and accept such terms effective as
of the date first above written.
CUSTOMER EXODUS COMMUNICATIONS, INC.
Signature: /s/ Adam Wegner Signature: /s/ Alan L. Friel
------------------------- ------------------------
Print Name: Adam Wegner Print Name: Alan L. Friel
------------------------ -----------------------
Title: General Counsel Title: General Counsel
----------------------------- Executive VP Operations
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EXHIBIT 10.24
RESTRICTED STOCK AGREEMENT
This Restricted Stock Agreement (the "Agreement"), is dated as of
March 18, 1999, by and between Digital Entertainment Network, Inc., a
Delaware corporation (the "Company"), and Exodus Communications, Inc., a
California corporation ("Exodus").
WHEREAS, the Company and Exodus have entered into that certain
Internet Data Center Services Agreement, dated as of the date hereof (the
"Services Agreement"), pursuant to which Exodus shall be providing certain
services to the Company; and
WHEREAS, such services shall be provided to the Company at a
discount in the approximate amount of [*] from Exodus' standard rates; and
WHEREAS, in consideration of such discount, the Company is
issuing [*] shares of its Series A Convertible Preferred Stock, valued at $100
per share (the "Convertible Preferred Stock"), to Exodus, all on the terms and
conditions sets forth in this Agreement.
NOW, THEREFORE, in consideration of the premises, mutual
covenants and agreements hereinafter contained and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, each
of Company and Exodus agrees as follows:
1. Certain Definitions. Capitalized terms used but not otherwise defined
herein shall have the meanings assigned to them in the Services Agreement.
2. Issuance of Restricted Stock.
(a) Upon the execution and delivery of this Agreement by the
parties hereto, Company shall issue to Exodus [*] shares (the "Shares") of the
Convertible Preferred Stock. Promptly after the execution and delivery of this
Agreement, Company shall deliver or cause to be delivered to Exodus
certificate(s) representing the Shares, registered in Exodus' name.
(b) A copy of this Agreement shall be filed with the Secretary of
the Company and kept with the records of the Company. Each certificate
representing any Shares owned by Exodus shall bear the following legends:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
UNLESS, IN THE OPINION OF
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1
<PAGE> 2
COUNSEL TO THE STOCKHOLDER (WHICH COUNSEL MUST BE, AND THE FORM AND SUBSTANCE OF
SUCH OPINION ARE, SATISFACTORY TO THE ISSUER) SUCH OFFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM REGISTRATION
OR IS OTHERWISE IN COMPLIANCE WITH THE ACT AND SUCH LAWS."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND FORFEITURE, AS SPECIFIED IN THE RESTRICTED STOCK AGREEMENT, DATED
AS OF March 18, 1999, BETWEEN THE ISSUER AND EXODUS COMMUNICATIONS, INC.
(THE "STOCKHOLDER'S AGREEMENT")." A COPY OF THE STOCKHOLDER'S AGREEMENT IS ON
FILE AT THE OFFICE OF THE ISSUER AND WILL BE FURNISHED WITHOUT CHARGE TO THE
HOLDER OF SUCH SHARES UPON WRITTEN REQUEST."
In addition, such certificates will bear such legends as may be required
by any state securities laws.
(c) The Shares shall be subject to the transferability
restrictions (the "Transfer Restrictions") and forfeiture provisions (the
"Forfeiture Provisions," and together with the Transfer Restrictions, the
"Restrictions") set forth in Sections 3 and 4 below.
(d) Simultaneously with the delivery by Company to Exodus of the
certificates representing the Shares, Exodus shall deliver to the Company one or
more stock powers endorsed in blank relating to the Shares. Upon expiration of
the Restrictions applicable to the Shares and receipt by the Company from Exodus
of the certificate(s) representing the Shares, the Company shall deliver or
cause to be delivered to Exodus a new certificate or certificates without the
second legend set forth in subparagraph (b) of this Section 2.
(e) Exodus shall have all rights and privileges with respect to
the Shares as is conferred upon a holder of the Convertible Preferred Stock by
the Certificate of Designation relating to the Convertible Preferred Stock that
was filed with the Secretary of the State of Delaware (as the same may be
amended from time to time), except that the Restrictions shall apply as set
forth in this Agreement to the Shares.
(f) In connection with an initial public offering of the
Company's common stock that results in such stock becoming listed on a national
securities exchange, including without limitation the Nasdaq Stock Market,
Exodus shall enter into such lock-up agreement as may be requested by the
Company's underwriters prohibiting any Transfer (as hereinafter defined)
(including, without limitation, indirect transfers of the economic interest in
the Shares such as hedging transactions) of any of the Shares, or any interest
therein, without the prior written consent of the Company and its underwriters.
2
<PAGE> 3
3. Transfer Restrictions. From the date of issuance of the Shares to
Exodus hereunder until the one-year anniversary of the Operational Date, Exodus
may not, directly or indirectly, sell, give, transfer, convey, assign, pledge,
alienate, encumber, hypothecate, or otherwise dispose of or transfer, or offer
to do any of the foregoing (collectively, "Transfer"), any of the Shares, or any
interest therein, without the prior written consent of the Board of Directors of
the Company, which the Board of Directors of the Company may withhold in its
sole and absolute discretion; provided, however, in the event that Exodus is in
default under the Services Agreement, then the Transfer Restrictions shall be
extended past the one-year anniversary of the Operational Date by the amount of
time that such default was continuing. Any attempt to Transfer any of the
Shares, or any interest therein, contrary to the foregoing restriction shall be
null, void and ineffective.
4. Forfeiture. All rights of Exodus with respect to Shares as to which
the Forfeiture Provisions have not previously expired in accordance with Section
5 below shall forthwith terminate and such shares shall be forfeited in their
entirety to the Company for no consideration if the Services Agreement is
terminated on or prior to the first-year anniversary (including any extension)
of the Operational Date by the Company pursuant to Sections 9.2(a)(i) or 9.2(b)
of the Services Agreement. Upon such forfeiture of the Shares, the certificate
or certificates, as the case may be, representing the Shares shall be promptly
delivered by or on behalf of Exodus to the Company for cancellation.
5. Expiration of Forfeiture Provisions. Subject to subsection (f) of
this Section 5, the Forfeiture Provisions shall expire with respect to the
Shares as follows:
(a) [*] of the Shares shall no longer be subject to the
Forfeiture Provisions as of the Operational Date; provided, however, if the
Services Agreement is terminated by Company within three months of the
Operational Date pursuant to Section 9.2(b) thereof, then such Shares, together
with all other Shares, shall be forfeited in their entirety to the Company for
no consideration as set forth in Section 4.
(b) An additional [*] of the Shares shall no longer be subject to
the Forfeiture Provisions on the three-month anniversary of the Operational
Date.
(c) An additional [*] of the Shares shall no longer be subject to
the Forfeiture Provisions on the six-month anniversary of the Operational Date.
(d) An additional [*] of the Shares shall no longer be subject to
the Forfeiture Provisions on the nine-month anniversary of the Operational Date.
(e) The final [*] of the Shares shall no longer be subject to the
Forfeiture Provisions on the one-year anniversary of the Operational Date.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
<PAGE> 4
(f) In the event that Exodus is in default under the Services
Agreement, then the respective expiration dates of the applicability of the
Forfeiture Provisions set forth in subparagraphs (a) - (e) immediately above
shall be extended by the amount of time Exodus remains in such default. By way
of example, if Exodus is in default under the Services Agreement commencing on
the first-month anniversary of the Operational Date, and such default is not
cured until the second-month anniversary of the Operational Date (and the
Services Agreement is not terminated by the Company pursuant to Section 9.2(b)
thereof), then the additional [*] Shares described in subparagraph (b) shall
remain subject to the Forfeiture Provisions until the four-month anniversary of
the Operational Date, the next [*] Shares described in subparagraph (c) shall
remain subject to the Forfeiture Provisions until the seven-month anniversary of
the Operational Date, and so on.
6. Arbitration.
(a) Except for the right to seek immediate injunctive and
equitable relief, the parties hereto agree that all disputes, claims and other
matters in controversy arising out of or relating to this Agreement, or the
interpretation, performance or breach thereof, shall be submitted to binding
arbitration in accordance with the provisions and procedures of this Section 6.
(b) The arbitration provided for in this Section 6 shall take
place in Los Angeles County, California, in accordance with the provisions of
Title 9, Sections 1280 et seq. of the California Code of Civil Procedure, except
as provided to the contrary hereunder. The arbitration shall be held before and
decided by a single neutral arbitrator. The single neutral arbitrator shall be
selected in accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association (the "AAA"), as effective on
June 1, 1997, or as thereafter amended and currently in force (the "AAA Rules"),
or by a process mutually agreed upon by the parties hereto. If no agreement can
be reached as to the process for selecting the arbitrator or if the agreed
method fails, the arbitrator shall be appointed by the AAA.
(c) The parties hereto shall mutually agree upon the date and
location of the arbitration, subject to the availability of the arbitrator. If
no agreement can be reached as to the date and location of the arbitration, the
arbitrator shall appoint a time and place in accordance with the provisions of
the AAA Rules, except that the arbitrator shall give not less than thirty (30)
days' notice of the hearing unless the parties hereto mutually agree to shorten
time for notice.
(d) The arbitrator shall issue a written reasoned decision
consistent with applicable law. The arbitrator shall not have the authority to
award punitive damages. The decision of the arbitrator may be confirmed pursuant
to the provisions of California Code of Civil Procedure Section 1285, and shall
not be appealable or correctable except to the extent it is inconsistent with
applicable law and/or the express terms of this Agreement, however, it being
understood that a petition to vacate an award for any of the reasons set forth
in California Code of Civil Procedure Section 1286.2(e) shall not be permitted.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
4
<PAGE> 5
7. Choice of Law, Jurisdiction, Venue.
This Agreement shall be governed and interpreted by the laws of the
State of California (without giving effect to any conflict of law provisions
thereof) applicable to agreements entered into and to be fully performed
therein. Subject to Section 6 of this Agreement, the parties to this Agreement
agree to submit to the exclusive jurisdiction and venue of the Los Angeles
County Superior Court and/or the U.S. District Court for the Central District of
California with respect to disputes arising under or related to this Agreement,
and hereby consent to service by U.S. Mail. In the event either party commences
arbitration or litigation for the judicial interpretation, enforcement, breach
or rescission hereof, the substantially prevailing party shall be entitled to
recover reasonable outside attorneys' fees and court and other costs incurred.
8. Binding Effect; Assignment.
All terms of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective legal
representatives, successors and permitted assigns. Neither party hereto may
assign any of its rights hereunder, or delegate any of its duties hereunder,
without the prior written consent of the other party.
9. Severability.
In the event that any provision, or portion thereof, of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby.
10. Interpretation.
Each party to this Agreement has participated in, cooperated in, or
contributed to the drafting and preparation of this Agreement. In any
construction of this Agreement, the same shall not be construed for, or against,
any party but shall be construed fairly according to its plain meaning.
5
<PAGE> 6
11. Captions.
Captions in this Agreement are inserted for convenience of reference
only and do not define, describe or affect the construction or interpretation or
limit the scope or the intent of this Agreement or any of the terms or
provisions hereof.
12. Execution in Counterparts.
This Agreement may be executed in counterparts. When each party has
signed and delivered at least one counterpart, each counterpart shall be deemed
an original and, when taken together with the other counterparts, shall
constitute one agreement which shall be binding on and inure to the benefit of
all parties hereto. Photographic or facsimile copies of such signed counterparts
may be used in lieu of the originals for any purpose.
13. Written Notice.
Unless otherwise specifically provided herein, all notices, demands or
other communications given hereunder shall be in writing and shall be deemed to
have been delivered as of actual personal delivery or as of the third business
day (excluding Saturdays) after mailing by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Exodus, to:
Exodus Communications, Inc.
2650 San Tomas Expressway
Santa Clara, CA 95051
If to Company, to:
Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, CA 90404
Attn: Alan L. Friel, Esq.
with a copy to:
Katten Muchin & Zavis
1999 Avenue of the Stars
Los Angeles, CA 90067
Attn: Mark A. Conley, Esq.
6
<PAGE> 7
14. Completeness of Agreement.
This Agreement (together with the Services Agreement) contains the
entire agreement between the parties hereto relating to the transactions
contemplated hereby, and all prior or contemporaneous agreements,
understandings, representations and statements, oral or written, are superseded
and of no force and effect.
15. Modification of Agreement.
Except as otherwise provided for herein, no modification, waiver,
amendment, discharge or change of this Agreement or any term or representation
therein shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment, discharge
or change is or may be sought.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
EXODUS:
EXODUS COMMUNICATIONS, INC.
By: /s/ ADAM WEGNER
---------------------------------
Name: Adam Wegner
Title: VP General Counsel
THE COMPANY:
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ ALAN L. FRIEL
---------------------------------
Name: Alan L. Friel
Title: General Counsel
Executive VP Operations
8
<PAGE> 1
EXHIBIT 10.25
[INTERVU LOGO]
May 9, 1999
DIGITAL ENTERTAINMENT NETWORK, INC.
AND
INTERVU INC.
- --------------------------------------------------------------------------------
INTERNET MULTIMEDIA-STREAMING VIDEO CONTENT
MANAGEMENT & DELIVERY SERVICES AGREEMENT
- --------------------------------------------------------------------------------
This agreement (the "Agreement") defines the terms and conditions of the
understanding between Digital Entertainment Network, Inc. (">EN") and INTERVU
Inc. ("ITVU"), (collectively, the "Parties" and each a "Party"). The Parties
hereby agree as follows:
1) The term of this Agreement shall begin as of May 9, 1999 and shall continue
until August 31, 1999 at which time all services shall terminate. Except as
otherwise agreed by the Parties, in order to extend the term of this
Agreement, both parties must approve an amendment to this Agreement no
later than August 10, 1999.
2) ITVU shall provide to >EN, video-on-demand streaming media services
utilizing [*] with the >EN infrastructure for up to [*] simultaneous
streams. Without the prior consent of ITVU, >EN may not resell, lease or
otherwise transfer the services set forth in this Section 2 to any other
person or organization.
3) At >EN's option, and upon at least 36 hours' prior notice from >EN, ITVU
will provide to >EN content storage and hosting services for >EN content
utilizing the INTERVU Network. Content will be stored on INTERVU native
format streaming
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1
INTERVU CONFIDENTIAL
<PAGE> 2
media servers (i.e., RealPlayer, MediaPlayer and Quicktime) on the INTERVU
Network. Content stored on the INTERVU Network will be subject to standard
monthly storage fees according to a per-Gigabyte ("GB") per month accounting
method (pricing listed below). >EN will be able to access this content at
anytime through a dedicated file transfer protocol account which ITVU will
furnish for >EN.
STORAGE PRICING SCHEDULE:
<TABLE>
<CAPTION>
Total GB Stored per Month Cost per GB Stored
- --------------------------------------------------------------------------------
<S> <C>
0-4 $[*]
- --------------------------------------------------------------------------------
5-10 $[*]
- --------------------------------------------------------------------------------
11-15 $[*]
- --------------------------------------------------------------------------------
16-30 $[*]
- --------------------------------------------------------------------------------
31 and over $[*]
- --------------------------------------------------------------------------------
</TABLE>
4) At >EN's option, and upon at least 36 hours' prior notice from >EN, ITVU
shall provide streaming media delivery services utilizing the INTERVU
Network. Such streaming media delivery services will be priced according to
a total GB delivered per month accounting model. >EN may determine how much
of their content stored on the INTERVU Network to make available for
on-demand viewing through management of the dedicated FTP account. All VOD
content that is delivered via the INTERVU Network must be stored on the
INTERVU Network. Monthly reports will determine the GB transferred per
month and associated costs.
DELIVERY PRICING SCHEDULE:
<TABLE>
<CAPTION>
Total GB Transferred per Month Cost per GB Delivered
- --------------------------------------------------------------------------------
<S> <C>
0-999 $[*]
- --------------------------------------------------------------------------------
1,000-4,999 $[*]
- --------------------------------------------------------------------------------
5,000-9,999 $[*]
- --------------------------------------------------------------------------------
10,000-19,999 $[*]
- --------------------------------------------------------------------------------
20,000-29,999 $[*]
- --------------------------------------------------------------------------------
30,000 and over $[*]
- --------------------------------------------------------------------------------
</TABLE>
5) ITVU shall provide to >EN the services set forth in Section 3 and 4, [*]
according to the rates set forth in Section 3 and 4.
6) In connection with the delivery services set forth in Section 4, and upon
>EN's specific request, ITVU will provide to >EN ITVU network consulting
services for the duration of this Agreement. All ITVU Network consulting
services provided to >EN will be billed on a per-hour basis to be charged
at $[*] per hour. ITVU and >EN will exchange all relevant employee contact
information including names, addresses and numbers. ITVU personnel will be
available to >EN on a 24/7 basis. ITVU shall assign a liaison acceptable to
>EN who shall have the primary responsibility for communicating and
coordinating with >EN in connection with this Agreement.
7) ITVU will provide to >EN a monthly billing statement that will detail all
services performed during the month, including supporting INTERVU Network
reports. >EN will pay all billing statements within 30 days of receipt of
each statement.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
INTERVU CONFIDENTIAL 2
<PAGE> 3
8) During the term of this agreement, >EN shall notify ITVU of any
request for proposals ("RFP") covering services provided by ITVU
to >EN and ITVU may respond to any such RFP in accordance with
the terms of such RFP.
9) ITVU shall provide to >EN on a weekly basis via e-mail statistical
reporting on stream names, maximum simultaneous streams, megabits
delivered and total streams requested. This information shall be
considered proprietary to >EN by ITVU. ITVU shall not release this
information to any third parties for any reason without >EN's prior
written consent which may be given or withheld at >EN's sole
discretion.
10) ITVU shall perform its obligations under this Agreement in a
workmanlike manner and in accordance with best-of-industry standards
and practices.
11) ITVU acknowledges and agrees that >EN shall own all rights, title
and interest in and to any and all content of any kind whatsoever
that >EN provides to ITVU in connection with this Agreement and ITVU
shall not use, exploit, reproduce or distribute any such content
except as is necessary to perform its obligations under this
Agreement.
12) ITVU represents and warrants that (i) ITVU has and shall maintain all
rights necessary to fully perform its obligations under this
Agreement and (ii) ITVU's full performance under this Agreement will
not violate any obligation of ITVU to a third party or result in a
breach of any agreement between ITVU and a third party. ITVU shall
promptly notify >EN of any breach of any of the foregoing
representations and warranties.
13) The Non-Disclosure Agreement entered into by and between ITVU and >EN
dated as of the date hereof is hereby incorporated into this
Agreement and all references to potential business opportunities
shall be deemed to include this Agreement.
14) This Agreement, and its validity, construction and effect shall be
governed, interpreted and enforced in accordance with the laws of
California (without reference to the conflicts of laws provisions
thereof), and the Parties agree to the jurisdiction of the courts
therein. This Agreement and its performance shall be binding on the
parties hereto, their heirs, administrators, successors and assigns.
This Agreement may not be assigned by ITVU without the prior written
consent of >EN. >EN may assign its rights under this Agreement in
whole or in part, provided that >EN may not assign its rights under
Section 2 of this Agreement without the prior written consent of ITVU.
15) Either party may terminate this Agreement if the other party
materially breaches this Agreement and fails to cure such breach
within 30 days' written notice.
16) Each Party shall defend, indemnify, save and hold harmless the other
Party and its affiliates, and all officers, directors and employees
thereof, from and against any claims, actions, damages or losses,
including, without limitation reasonable outside attorneys' fees and
costs, arising out of or in connection with such Party's material
breach of this Agreement or any material breach of such Party's
representations, warranties or covenants under this Agreement.
17) EXCEPT AS PROVIDED IN SECTION 15, IN NO EVENT WILL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR DAMAGES IN EXCESS OF
INTERVU CONFIDENTIAL 3
<PAGE> 4
THE AMOUNT OF FEES TO BE PAID UNDER THIS AGREEMENT, IF ANY, OR SPECIAL,
COLLATERAL, EXEMPLARY, PUNITIVE, INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
18) ITVU shall be an independent contractor of >EN and shall not be deemed an
employee, agent, joint venturer or partner of >EN.
19) If any of the provisions or any portion of the provisions of this Agreement
shall be invalid or unenforceable, such invalidity or unenforceability will
not invalidate or render unenforceable the other provisions of this
Agreement and this Agreement shall be enforced so as to give effect to the
intent of Parties to the greatest extent possible.
20) This Agreement contains the entire agreement between the Parties relating
to the subject matter hereof and shall supersede any and all other
agreements relating to the subject matter hereof whether written or oral.
21) This Agreement may be executed in one or more counterparts.
The Parties have entered into this Agreement as of the date first set forth
above:
>EN
/s/ JIM RITTS
-----------------------------------------------------
Jim Ritts
Chief Executive Officer
ITVU
/s/ MARK CURTIS
-----------------------------------------------------
Mark Curtis
Director of Sales, Southwest United States
INTERVU CONFIDENTIAL 4
<PAGE> 5
September 1, 1999
INTERVU Inc.
6815 Flanders Drive
Suite 200
San Diego, CA 92121
ATTN: Mark Curtis
Re: Extension of DEN/INTERVU Agreement
Dear Mark:
When counter-executed by an authorized officer of INTERVU, Inc. ("INTERVU"),
that certain Internet Multimedia-Streaming Video Contract Management and
Delivery Services Agreement dated as of May 9, 1999 between INTERVU and Digital
Entertainment Network, Inc. ("DEN") shall be deemed amended and extended,
without interruption, as follows:
The term of agreement shall be extended until thirty (30) days
after either party gives the other party written notice of
termination (which may be for any reason); provided, however, that
the term shall end no later than December 31, 1999, regardless of
whether any such notice is given.
If INTERVU is agreeable to the above, please have all multiple copies of this
letter executed and returned to me.
Sincerely,
/s/ ALAN L. FRIEL
Alan L. Friel
ALF/ac
ACCEPTED AND AGREED:
By: /s/ MARK CURTIS
-------------------------------
Name: Mark Curtis
-----------------------------
Title: Director of Sales
----------------------------
An authorized signatory of
INTERVU, Inc.
<PAGE> 1
EXHIBIT 10.26
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, April
6, 1999, is made by and between 1520 CLOVERFIELD PARTNERS, LTD., a California
limited partnership ("LESSOR") and DIGITAL ENTERTAINMENT NETWORK, INC., a
Delaware corporation ("LESSEE"), (collectively the "PARTIES," or individually a
"PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 1522-D and 1522-E, located in the City
of Santa Monica, County of Los Angeles, State of California, with zip code
90404, as outlined on Exhibit A attached hereto ("PREMISES"). The "BUILDING" is
that certain building containing the Premises: The Premises and Building contain
approximately 3,545 and 58,115 square feet of rentable/usable area,
respectively. In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: -0- unreserved vehicle parking spaces ("UNRESERVED PARKING
SPACES"); and 4 reserved tandem parking stalls reserved vehicle parking spaces
("RESERVED PARKING SPACES"). (Also see Paragraph 2.6 and Paragraph 52 of
Addendum No. 1.)
1.3 TERM: 1 year and 4 months and 16 days ("ORIGINAL TERM") commencing
April 2, 1999 ("COMMENCEMENT DATE") and ending August 17, 2000 ("EXPIRATION
DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (Also see Paragraphs
3.2 and 3.3.)
1.5 BASE RENT: $8,011.70 per month ("BASE RENT"), payable on the first
(1st) day of each month commencing April 1, 1999 (Also see Paragraph 4.).
[x] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum No. 1, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $8,011.70 as Base Rent for the period
April 1-30, 1999.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: six & one-tenth
percent (6.1%) ("LESSEE'S SHARE") as determined by [ ] prorata square footage of
the Premises as compared to the total square footage of the Building.
1.7 SECURITY DEPOSIT: $16,307.00 ("SECURITY DEPOSIT"). (Also see Paragraph
5.)
1.8 PERMITTED USE: General office use. ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[x] Beitler Commercial Realty Services represents Lessor exclusively ("LESSOR'S
BROKER");
[x] First Property Realty Corporation represents Lessee exclusively ("LESSEE'S
BROKER"); or
[ ] ____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) for brokerage services
rendered by said Broker(s) in connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 58, and Exhibits A, all of which constitute
a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within sixty (60) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense. See Section 56 of Addendum No. 1.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
MULTI-TENANT--MODIFIED NET Initials: ________
(c) American Industrial Real Estate
Association 1993 ________
<PAGE> 2
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.) See
Paragraph 52 of Addendum No. 1.
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease in excess of the Common Area
Operating Expenses incurred by Lessor during 1999, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement of
actual expenses is presented to Lessee by Lessor. At Lessor's option, however,
an amount may be estimated by Lessor from time to time of Lessee's Share of
annual Common Area Operating Expenses and the same shall be payable monthly or
quarterly, as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2(d) during said preceding year exceed Lessee's Share as
indicated on said statement, Lessor shall be credited the amount of such
over-
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payment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor the amount of the deficiency within ten (10) days
after delivery by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including
but not limited to the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS. See Paragraph 53 of Addendum No. 1.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke
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detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit of any statute now or hereafter in effect which would otherwise
afford Lessee the right to make repairs at Lessor's expense or to terminate this
Lease because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION. See Section 55 of
Addendum No. 1.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in
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<PAGE> 5
this Paragraph 8. Lessee shall cause to be delivered to Lessor, within seven (7)
days after the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts of,
the insurance required under Paragraph 8.2(a) and 8.4. No such policy shall be
cancelable or subject to modification except after thirty (30) days' prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than twenty percent (20%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is twenty percent (20%) or more
of the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate following the date
of such Premises Total Destruction, whether or not the damage or destruction is
an Insured Loss or was caused by a negligent or willful act of Lessee. In the
event, however, that the damage or destruction was caused by Lessee, Lessor
shall have the right to recover Lessor's damages from Lessee except as released
and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of Base Rent, Common Area Operating Expenses and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
sixty (60) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than thirty (30) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within fifteen (15) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within fifteen (15) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
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to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2, applicable to the Industrial Center, and except as otherwise
provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL PROPERTY
TAXES" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Industrial Center by any authority having the
direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Industrial Center or any portion thereof, Lessor's
right to rent or other income therefrom, and/or Lessor's business of leasing the
Premises. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d). See Paragraph 51 of Addendum No. 1.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. See Section 57 of Addendum No. 1.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
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12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
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(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day
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<PAGE> 9
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone or facsimile confirmation of receipt of the
transmission thereof, provided a copy is also delivered via delivery or mail. If
notice is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred twenty-five
percent (125%) of the Base Rent applicable during the month immediately
preceding such expiration or earlier termination. Nothing contained herein shall
be construed as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, including but not limited to the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
MULTI-TENANT--MODIFIED NET Initials: ________
(c) American Industrial Real Estate
Association 1993 -9- ________
<PAGE> 10
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
MULTI-TENANT--MODIFIED NET Initials: ________
(c) American Industrial Real Estate
Association 1993 -10- ________
<PAGE> 11
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Executed at:
----------------------- ------------------------------
on: on:
------------------------------- ---------------------------------------
By LESSOR: By LESSEE:
1520 CLOVERFIELD PARTNERS, LTD., DIGITAL ENTERTAINMENT NETWORK, INC.,
- ----------------------------------- ------------------------------------------
a California limited partnership a Delaware corporation
- ----------------------------------- ------------------------------------------
By: /s/ MIKE SCHUMINSKY By: /s/ DAVID NEUMAN
-------------------------------- ---------------------------------------
Name Printed: Mike Schuminsky Name Printed: David Neuman
--------------------- ----------------------------
Title: General Partner Title: Chairman/[President]/Vice President
----------------------------- ------------------------------------
(Circle one)
By: By: /s/ ALAN L. FRIEL
-------------------------------- ---------------------------------------
Name Printed: Name Printed: Alan L. Friel
--------------------- ----------------------------
Title: Title: [Secretary]/Assistant Secretary/
----------------------------- Chief Financial Officer/Assistant
Treasurer
Address: 82 Armstrong Drive -----------------------------------
--------------------------- (Circle one)
Mustang, Oklahoma 73064 Address: 2230 Broadway
- ----------------------------------- ----------------------------------
Telephone: (405) 376-4509 Santa Monica, CA 90404
------------------------- ----------------------------------
Facsimile: (405) 376-9321 Telephone: ( )
------------------------- --------------------------------
Facsimile: (310) 998-1101
--------------------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 So. Figueroa St., M-1, Los Angeles, CA 90071, (213)
687-8777.
MULTI-TENANT--MODIFIED NET Initials: ________
(c) American Industrial Real Estate
Association 1993 -11- ________
<PAGE> 12
EXHIBIT A
PREMISES
[FLOOR LAYOUT PLAN]
<PAGE> 13
ADDENDUM NO. 1 TO STANDARD INDUSTRIAL/COMMERCIAL
MULTI-TENANT LEASE - MODIFIED NET
BETWEEN
1520 CLOVERFIELD PARTNERS, LTD.,
a California limited partnership
("Lessor")
AND
DIGITAL ENTERTAINMENT NETWORK, INC.,
a Delaware corporation
("Lessee")
THIS ADDENDUM NO. 1 TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT
LEASE - MODIFIED NET is entered into by and between the above-referenced Lessor
and Lessee and is incorporated into and made a part of the Standard
Industrial/Commercial Multi-Tenant Lease - Modified Net between Lessor and
Lessee dated for reference purposes April 6, 1999, as if set forth herein at
length.
49. Base Rent. The Base Rent shall be $8,011.70 per month from the
Commencement Date of the Original Term through March 31, 2000, and $8,153.50
per month from April 1, 2000 through August 17, 2000.
50. Acceptance of Premises in "As Is" Condition. Lessee expressly
acknowledges and agrees that it is leasing the Premises in its "as-is" and "with
all faults" condition, and that except as otherwise provided in Section 2.2 and
2.3 of the Lease, Lessor has not made and does not make any warranty or
representation regarding the condition of the Premises nor of the Building nor
of the electrical, plumbing, HVAC or other systems located therein.
51. Janitorial and Electricity.
51.1 Janitorial Services. Lessee shall supply its own janitorial
services to the Premises, sufficient to keep the Premises in a neat and clean
condition at all times, at Lessee's sole cost and expense.
51.2 Electricity. Lessor has installed a separate meter for
electrical service to the Premises. Lessee shall pay all electrical bills for
the period beginning on the Commencement Date and continuing through the
Expiration Date and any extensions or renewals thereof. Lessee agrees to make
such payments within seven (7) days after receipt of a bill.
52. Parking. During the Original Term, Lessee shall be entitled to
four (4) reserved tandem parking stalls in the parking lot of the Industrial
Center at no charge to Lessee. Lessor shall designate the location of the
reserved tandem parking stalls. At Lessor's request, Lessee shall execute and
deliver to Lessor Lessor's standard form of Parking License Agreement. Neither
Lessee nor Lessee's employees, agents, contractors, visitors, customers,
suppliers or invitees shall have the right at any time to perform or permit to
be performed any motor vehicle repair, maintenance or servicing work, including
without limitation washing vehicles or changing oil, in the parking lot of the
Industrial Center. Any violation of the foregoing prohibition shall constitute
a Default by Lessee.
-1-
<PAGE> 14
53. Amendment of Paragraph 7.3. Paragraph 7.3 of the Lease is hereby
amended by adding at the end of it the following:
"(d) All such Alterations and Utility Installations shall be
constructed in good and workmanlike manner and only good grades of material
shall be used. Lessee shall permit Lessor to supervise construction operations
in connection with such alterations if Lessor requests to do so at no charge to
Lessee, and Lessor shall not unreasonably interfere with or constructively
limit Lessee's or Lessee's construction activities.
(e) If Lessee fails to pay or discharge any mechanic's or
materialman's lien within thirty (30) days after the same is recorded, Lessor
may, at its option, pay or discharge the same and charge Lessee the amount so
paid as additional rent."
54. Limitation on Lessor's Liability. Lessee, for itself and its
successors and assigns, covenants and agrees that in the event of any actual or
alleged breach or default of the Lease or this Addendum by Lessor, Lessee's and
its successors' and assigns' sole and exclusive remedy shall be against
Lessor's interest in the Premises and the Industrial Center and not against any
other asset of Lessor or of any constituent partner of Lessor.
55. Chain Link Fence. Lessor hereby approves Lessee's removal (at
Lessee's expense) of the existing chain link fence at the rear of the Premises,
so long as Lessee at Lessee's expense causes such fence (or a new chain link
fence of at least comparable quality and aesthetics) to be re-installed in the
same location on or before the expiration or earlier termination of the
Original Term.
56. Damage or Destruction. In the event of damage or destruction to
the Premises governed by Section 9 of the Lease, said Section 9 shall control in
the event of a conflict between said Section 9 and Sections 2.2 or 7.1 of the
Lease.
57. Assignment and Subleasing. Notwithstanding anything to the
contrary contained in Section 12 of the Lease, if Lessor's consent to a
requested assignment or sublease is neither given nor denied within ten (10)
business days following Lessor's receipt of Lessee's written request (which
written request shall contain all of the information and the fee required to be
supplied/paid by Lessee as set forth in Section 12, and which written request
shall also indicate that Lessor's silence after ten (10) business days
constitutes Lessor's approval), then Lessor's consent to such requested
assignment or sublease shall conclusively be deemed as given.
58. Ratification. Except as otherwise provided in this Addendum, the
terms and conditions of the Lease are hereby ratified and confirmed. In the
event of a conflict between the provisions of the Lease and the provisions of
this Addendum, the provisions of this Addendum shall control. The Lease and
this Addendum supersede and cancel all prior oral or written understandings and
agreements between the parties, including without limitation that certain
Memorandum from Lessor's broker Beitler Commercial Realty Services (Ian Strano)
to Lessee's
-2-
<PAGE> 15
broker First Property Realty Corporation (Michael Geller) dated March 22, 1999.
IN WITNESS WHEREOF, the parties have executed this Addendum as of the
same date as the Lease to which it is attached and of which it forms a part.
1520 CLOVERFIELD PARTNERS, LTD.,
a California limited partnership
By:
--------------------------------
Mike Schuminsky
General Partner
("Lessor")
DIGITAL ENTERTAINMENT NETWORK, INC.,
a Delaware corporation
By: /s/ DAVID NEUMAN
--------------------------------
David Neuman
Its Chairman of the Board/
(President)/Vice President
(circle one)
By: /s/ ALAN L. FRIEL
--------------------------------
Alan L. Friel
Its (Secretary)/Assistant Secretary
Chief Financial Officer/
Assistant Treasurer
(circle one)
-3-
<PAGE> 1
EXHIBIT 10.27
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD SUBLEASE
(SHORT-FORM TO BE USED WITH POST 1995 AIR LEASES)
1. PARTIES. This Sublease, dated for reference purposes only, May 25,
1999, is made by and between BHMA, Inc., a California Corporation ("Sublessor")
and Digital Entertainment Network, Inc., a California Corporation ("Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property, including all
improvements therein, and commonly known by the street address of 2236
Barrington Avenue located in the County of Los Angeles, State of California and
generally described as (describe briefly the nature of the property) a
two-story brick building of approximately 15,400 square feet, including
approximately 7,700 square feet of office area on a total site of approximately
11,266 square feet. ("Premises").
3. TERM.
3.1 TERM. The term of this Sublease shall be for Fourteen (14)
months and Seventeen (17) days commencing on June 1, 1999 and ending on August
17, 2000 unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Sublessor agrees to use its best
commercially reasonable efforts to deliver possession of the Premises by the
commencement date. If, despite said efforts, Sublessor is unable to deliver
possession as agreed, the rights and obligations of Sublessor and Sublessee
shall be as set forth in Paragraph 3.3 of the Master Lease (as modified by
Paragraph 7.3 of this Sublease).
4. RENT.
4.1 BASE RENT. Sublessee shall pay to Sublessor as Base Rent for the
Premises equal monthly payments of $20,790.00 in advance, on the 1st day of
each month of the term hereof. Sublessee shall pay Sublessor upon the execution
hereof a pro-rated amount of $693.00 per day as Base Rent for the remaining
days in June after Sublessor surrenders possession of the Premises to
Sublessee. Base Rent for any period during the term hereof which is for less
than one month shall be a pro rata portion of the monthly installment.
4.2 RENT DEFINED. All monetary obligations of Sublessee to Sublessor
under the terms of this Sublease (except for the Security Deposit) are deemed
to be rent ("Rent"). Rent shall be payable in lawful money of the United States
to Sublessor at the address stated herein or to such other persons or at such
other places as Sublessor may designate in writing.
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon
execution hereof $41,580.00 as security for Sublessee's faithful performance of
Sublessee's obligations hereunder. The rights and obligations of Sublessor and
Sublessee as to said Security Deposit shall be as set forth in Paragraph 5 of
the Master Lease (as modified by Paragraph 7.3 of this Sublease).
6. USE.
6.1 AGREED USE. The Premises shall be used and occupied only for
general office, film production, and any other legally permitted uses (other
than general office use) and for no other purpose.
6.2 COMPLIANCE. Sublessor warrants that the improvements on the
Premises comply with all applicable covenants or restrictions of record and
applicable building codes, regulations and ordinances ("Applicable
Requirements") in effect on the commencement date. Said warranty does not apply
to the use to which Sublessee will put the Premises (other than general office
use) or to any alterations or utility installations made or to be made by
Sublessee. NOTE: Sublessee is responsible for determining whether or not the
zoning is appropriate for its intended use, and acknowledges that past uses of
the Premises may no longer be allowed. If the Premises do not comply with said
warranty, or in the event that the Applicable Requirements are hereafter
changed, the rights and obligations of Sublessor and Sublessee shall be as
provided in Paragraph 2.3 of the Master Lease (as modified by Paragraph 7.3 of
this Sublease).
6.3 ACCEPTANCE OF PREMISES AND LESSEE. Sublessor acknowledges that:
(a) it has been advised by Brokers to satisfy itself with respect
to the condition of the Premises (including but not limited to the electrical
HVAC and fire sprinkler systems, security, environmental aspects, and compliance
with Applicable Requirements), and their suitability for Sublessee's intended
use.
(b) Sublessee has made a visual inspection with reference to such
matters, and
(c) neither Sublessor, Sublessor's agents, nor any Broker has
made any oral or written representations or warranties with respect to said
matters other than as set forth in this Sublease and in Paragraph 2.2 of the
Master Lease (as modified by Paragraph 7.3 of this Sublease).
In addition, Sublessor acknowledges that:
(a) Broker has made no representations, promises or warranties
concerning Sublessee's ability to honor the Sublease or suitability to occupy
the Premises, and
(b) it is Sublessor's sole responsibility to investigate the
financial capability and/or suitability of all proposed tenants.
7. MASTER LEASE
7.1 Sublessor is the Sublessee of the Premises by virtue of a
Sublease between Discus Dental Impressions, Inc., as Sublessor ("First
Sublessor") and Sublessor herein, as Sublessee, dated Jan. 12, 1998 (the "First
Sublessee"). The First Sublease is a Sublease under a lease dated January 12,
1998 between Frank J. Ardolf, Jr., Trustee of the Frank J. Ardolf Trust dated
December 15, 1985 and Drazen Investments and Van J. Kaufman and Gertrude
Kaufman as Trustee of the Kaufman Revocable Living Trust, as Landlord ("Master
Lessor"), and First Sublessee, as Lessee, dated March 18, 1987 (the "Master
Lease").
7.2 This Sublease is and shall be at all times subject and
subordinate to the Master Lease and First Sublease.
7.3 The terms, conditions and respective obligations of
Sublessor and Sublessee to each other under this Sublease shall be the terms
and conditions of the First Sublease except for those provisions of the First
Sublessee which are directly contradicted by this Sublease in which event the
terms of the Sublease document shall control over the First Sublease.
Therefore, for the purposes of this Sublease, wherever in the First Sublease the
word Sublessor is used it shall be deemed to mean the Sublessor herein and
wherever in the First Sublease the word Sublessee is used it shall be deemed to
mean the Sublessee herein.
7.4 During the term of this Sublease and for all periods
subsequent for obligations which have arisen prior to the termination of this
Sublease, Sublessee does hereby expressly assume and agree to perform and
comply with, for the benefit of Sublessor and Master Lessor, each and every
obligation of Sublessor under the Master Lease except for the following
paragraphs which are excluded therefrom: 1.1, 1.3, 1.5, 1.6, 1.7, 1.10,
Addendum Paragraphs 49, 51, 54.
7.5 The obligations that Sublessee has assumed under paragraph
7.4 hereof are hereinafter referred to as the "Sublessee's Assumed
Obligations." The obligations that Sublessee has not assumed under paragraph
7.4 hereof are hereinafter referred to as the "Sublessor's Remaining
PAGE 1 OF 3
REVISED
(R)1997 - American Industrial Real Estate Association FORM SBS-1-3/97E
<PAGE> 2
Obligations.
7.6 Sublessee shall hold Sublessor free and harmless from all liability,
judgments, costs, damages, claims or demands, including reasonable attorneys'
fees, arising out of Sublessee's failure to comply with or perform Sublessee's
Assumed Obligations.
7.7 Sublessor agrees to maintain the First Sublease during the entire
term of this Sublease, subject, however, to any earlier termination of the
First Sublease without the fault of the Sublessor, and to comply with or
perform Sublessor's Remaining Obligations and to hold Sublessee free and
harmless from all liability, judgments, costs, damages, claims or demands
arising out of Sublessor's failure to comply with or perform Sublessor's
Remaining Obligations.
7.8 Sublessor represents to Sublessee that the Master Lease and First
Sublease are in full force and effect and that no notice of default has been
given by any Party to the Master Lease or the First Sublease and the lease and
sublease attached hereto as Exhibits A7B are true, correct and complete copies
of the Master Lease and First Sublease respectively except that rental rates and
rental adjustments have been omitted, and there are no other agreements between
Master Lessor and First Sublessor nor between First Sublessor and First
Sublessee pertaining to the Premises.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1 Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in the Sublease, subject however to the provisions of
Paragraph 8.2 hereof.
8.2 Master Lessor, by executing this document, agrees that until a
Default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the Rent accruing
under this Sublease. However, if Sublessor shall Default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all Rent owing and to be owed under this
Sublease, as such Rent shall become due and payable under the Sublease. Master
Lessor shall not, by reason of this assignment of the Sublease nor by reason of
the collection of the Rent from the Sublessee, be deemed liable to Sublessee
for any failure of the Sublessor to perform and comply with Sublessor's
Remaining Obligations.
8.3 Sublessor hereby irrevocably authorizes and directs Sublessee upon
receipt of any written notice from the Master Lessor stating that a Default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the Rent due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor, and that Sublessee shall pay such Rent
to Master Lessor without any obligation or right to inquire as to whether such
Default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such Rent so paid by Sublessee.
8.4 No changes or modifications shall be made to the Sublease without the
consent of Master Lessor which shall not be unreasonably withheld or delayed.
9. CONSENT OF MASTER LESSOR.
9.1 In the event that the Master Lease and First Sublease requires that
Sublessor obtain the consent of Master Lessor and/or First Sublessor to any
subletting by Sublessor then, this Sublease shall not be effective unless,
within ten days of the date hereof, Master Lessor and First Sublessor signs this
Sublease thereby giving its consent to this Subletting.
9.2 In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then neither this Sublease, nor the
Master Lessor's consent, shall be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving their consent to this
Sublease. Sublessor represents and warrants that the obligations of the
Sublessor and First Sublessor under the First Sublease and to its knowledge, the
Master Lease, have not been guaranteed by any third party.
9.3 In the event that Master Lessor and First Sublessor does give such
consent then:
(a) Such consent shall not release Sublessor of its obligations or
alter the primary liability of Sublessor to pay the Rent and perform and comply
with all of the obligations of Sublessor to be performed under the Master Lease.
(b) The acceptance of Rent by Master Lessor from Sublessee or anyone
else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent to any
subsequent subletting or assignment.
(d) In the event of any Default of Sublessor under the Master Lease, or
First Sublease, Master Lessor or First Sublessor may proceed directly against
Sublessor, any guarantors or anyone else liable under the Master Lease or First
Sublease, or this Sublease without first exhausting Master Lessor's or First
Sublessor's remedies against any other person or entity liable thereon to Master
Lessor or First Sublessor.
(e) Master Lessor may not consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor or any one else liable under
the Master Lease or First Sublease and without obtaining their consent.
9.4 The signatures of the Master Lessor and First Sublessor at the end of
this document shall constitute their consent to the terms of this Sublease.
9.5 Master Lessor and First Sublessor acknowledges that, to the best of
Master Lessor's and First Sublessor's knowledge, no Default presently exists
under the Master Lease or First Sublease of obligations to be performed by
Sublessor and that the Master Lease and First Sublease are in full force and
effect.
9.6 In the event that First Sublessor Defaults under its obligations to be
performed under the Master Lease by First Sublessor or Sublessor defaults under
its obligations under the First Sublease, Master Lessor and First Sublessor
agree to deliver to Sublessee a copy of any such notice of default. Sublessee
shall have the right, but not the obligation, to cure any Default of Sublessor
or First Sublessor described in any notice of default within ten days after
service of such notice of default on Sublessee. If such Default is cured by
Sublessee then Sublessee shall have the right of reimbursement and offset from
and against Sublessor and First Sublessor.
10. BROKERS FEE
10.1 Upon execution hereof by all parties, Sublessor shall pay to Altemus,
Warner & Co. a licensed real estate broker, ("Broker") a fee as set forth in a
separate agreement between Sublessor and Broker for brokerage services rendered
by Broker to Sublessor in this transaction.
10.2 Sublessor agrees that if Sublessee exercises any option or right of
first refusal as granted by Sublessor herein, or any option or right
substantially similar thereto, either to extend the term of this Sublease, to
renew this Sublease, to purchase the Premises, or to lease or purchase adjacent
property which Sublessor may own or in which Sublessor has an interest, then
Sublessor shall pay to Broker a fee in accordance with the schedule of Broker in
effect at the time of the execution of this Sublease. Notwithstanding the
foregoing, Sublessor's obligation under this Paragraph 10.2 is limited to a
transaction in which Sublessor is acting as a Sublessor, lessor or seller.
10.3 Master Lessor agrees that if Sublessee shall exercise any option or
right of first refusal granted to Sublessee by Master Lessor in connection with
this Sublease, or any option or right substantially similar thereto, either to
extend or renew the Master Lease, to purchase the Premises or any part thereof,
or to lease or purchase adjacent property which Master Lessor may own or in
which Master Lessor has an interest, or if Broker is the procuring cause of any
other lease or sale entered into between Sublessee and Master Lessor pertaining
to the Premises, any part thereof, or any adjacent property which Master Lessor
owns or in which it has an interest, then as to any of said transactions, Master
Lessor shall pay to Broker a fee, in cash, in accordance with the schedule of
Broker in effect at the time of the execution of this Sublease.
10.4 Any fee due from Sublessor or Master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew, upon the
execution of any new lease, or, in the event of a purchase, at the close of
escrow.
10.5 Any transferee of Sublessor's interest in this Sublease, or of Master
Lessor's interest in the Master Lease, by accepting an assignment thereof, shall
be deemed to have assumed the respective obligations of Sublessor or Master
Lessor under the Paragraph 10. Broker shall be deemed to be a third-party
beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party of the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions, draw a
line from this point to the next printed word after the space left here. If
there are additional provisions place the same here.]
13. Whenever the consent or approval of the Master Lessor is required
hereunder, the consent or approval of both the Master Lessor and First Sublessor
shall be required. Anything contained herein to the contrary notwithstanding, it
is currently understood and agreed that this is a
Page 2 of 3
REVISED
(R)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM SBS-1-3/97E
<PAGE> 3
Sub-Sublease subject and Subordinate to both the Master Lease and the First
Sublease.
14. Other Terms. The following attachments are adopted & incorporated in this
Standard Sublease:
(a) the Addendum to Standard Sublease by and between BHMA, Inc., a
California corporation and Digital Entertainment Network, Inc., a
California corporation, dated May 25, 1999;
(b) the Option to Extend Standard Sublease Addendum;
(c) the Rider to Standard Sublease, dated May 25, 1999, by and between
BHMA, Inc., a California corporation ("Sublessor") and Digital
Entertainment Network, Inc. a California corporation ("Sublessee");
(d) Exhibit A -- Standard Industrial/Commercial Single-Tenant
Lease-Gross, by and between Mr. Frank J. Ardolf, Jr., Trustee of the
Frank ______________________________ ("Master Lease"); and
(e) Exhibit B -- Standard Sublease, by and between Discus Dental
Impressions, Inc. and BHMA, Inc. ("First Sublease").
________________________________________________________________________________
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY REAL ESTATE BROKER AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS SUBLEASE OR THE
TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
SUBLEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PROPERTY, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR SUBLESSEE'S INTENDED USE.
3. WARNING: IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, CERTAIN PROVISIONS OF THE SUBLEASE MAY NEED TO BE REVISED TO COMPLY
WITH THE LAWS OF THE STATE IN WHICH THE PROPERTY IS LOCATED.
________________________________________________________________________________
Executed at: Los Angeles, CA BHMA, Inc., a California Corporation
_____________________________ ________________________________________
on June , 1999 By:
_____________________________ ________________________________________
Address:
_____________________________ By:_____________________________________
"Sublessor" (Corporate Seal)
("First Sublessee")
_____________________________ ________________________________________
Executed at: Los Angeles, CA Digital Entertainment Network, Inc.
_____________________________ ________________________________________
on June , 1999 By:
_____________________________ ________________________________________
Address:
_____________________________ By:_____________________________________
"Sublessee" (Corporate Seal)
Frank J. Ardolf, Jr., Trustee of the
Frank J. Ardolf Trust Dated December
15, 1995 and Drazon Investments and Van
J. Kaufman and Gertrude Kaufman as
Trustees of the Kaufman Revocable Living
Trust.
___________________________ ________________________________________
Executed at: Los Angeles
_____________________________ ________________________________________
on June , 1999 By:
_____________________________ ________________________________________
Address:
_____________________________ By:_____________________________________
"Master Lessor" (Corporate Seal)
Executed at: Discus Dental Impressions
_____________________________ ________________________________________
on By:
_____________________________ ________________________________________
Address:
_____________________________ By:_____________________________________
"Master Lessee" (Corporate Seal)
("First Sublessor")
_____________________________ ________________________________________
Note: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call the make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
St., Suite 600, Los Angeles, CA 90017. (213) 687-3777.
Page 3 of 3
Revised
<PAGE> 4
ADDENDUM TO STANDARD SUBLEASE
BY AND BETWEEN BHMA, INC., A CALIFORNIA CORPORATION
AND DIGITAL ENTERTAINMENT NETWORK, INC.,
A CALIFORNIA CORPORATION
DATED: MAY 25, 1999
13. PARKING:
For the term of the Sublease the Sublessee shall have the exclusive use,
free of charge, the following parking areas:
a) 2236 Barrington Ave. - All of the parking located on the property.
b) 2230 Barrington Ave. - The six (6) southernmost parking spaces
(consisting of two (2) three deep tandem spaces) located at the rear of
the property.
c) 2254 Barry Ave. - Four (4) parking spaces the location of which shall
be designated by Sublessor.
14. OPTION(S) TO EXTEND: SEE ATTACHED.
- ------------ ------------
- ------------ ------------
<PAGE> 5
[AIR LOGO]
OPTION(S) TO EXTEND
STANDARD SUBLEASE ADDENDUM
Dated May 25, 1999
By and Between (SubLessor) BHMA, Inc., a California Corporation
(SubLessee) Digital Entertainment Network, Inc., a
California Corporation
Address of Premises: 2236 Barrington Avenue, Los Angeles, CA
Paragraph 14.
A. OPTION(S) TO EXTEND:
SubLessor hereby grants to SubLessee the option to extend the term of this
SubLease for One (1) additional approximately 43 month & 13 day period(s)
commencing when the prior term expires and ending on March 31, 2004, upon each
and all of the following terms and conditions.
(i) In order to exercise an option to extend, SubLessee must give written
notice of such election to SubLessor and SubLessor must receive the same at
least 4 but not more than 9 months prior to the date that the option period
would commence, time being of the essence. If proper notification of the
exercise of an option is not given and/or received, such option shall
automatically expire. Options (if there are more than one) may only be
exercised consecutively.
(ii) The provisions of paragraph 39 of the Master Lease, including those
relating to SubLessee's Default set forth in paragraph 39.4 of the Master Lease,
are conditions of this Option.
(iii) Except for the provisions of this SubLease granting an option or
options to extend the term, all of the terms and conditions of this SubLease
except where specifically modified by this option shall apply.
(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below): (Check Method(s) to
be Used and Fill in Appropriately)
[X] I. COST OF LIVING ADJUSTMENT(S) (COLA)
a. On (Fill in COLA Dates): August 18, 2000, and annually thereafter the
Base Rent shall be adjusted by the change, if any, from the Base Month specified
below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S.
Department of Labor for (select one): [X] CPI W (Urban Wage Earners and Clerical
Workers) or [ ] CPI U (All Urban Consumers) for (Fill in Urban Area):
Los Angeles-Anaheim-Riverside
All Items (1982-1984 = 100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a. of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
4.1 of the attached SubLease, shall be multiplied by a fraction the numerator of
which shall be the CPI of the calendar month two months prior to the month(s)
specified in paragraph A.I.a. above during which the adjustment is to take
effect, and the denominator of which shall be the CPI of the calendar month
which is two months prior to (select one): [X] the month which is two months
prior to the first month of the term of this SubLease as set forth in paragraph
3.1 ("Base Month") or [ ] (Fill in Other "Base Month"): _______ . The sum so
calculated shall constitute the new monthly rent hereunder, but in no event,
shall any such new monthly rent be less than the rent payable for the month
immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the CPI shall be used to
make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
The C.P.I. increases shall be a minimum of three (3%) percent per annum and
in no event exceed five (5%) percent per annum.
Initials: _______ Initials: _______
_______ _______
Page 1 of 2
(c) 1997 - American Industrial Real Estate Association
REVISED FORM OE-2-3/97E
<PAGE> 6
C. BROKER'S FEE:
The Broker's specified in paragraph 10.1 shall be paid a Brokerage Fee for
each adjustment specified above in accordance with paragraph 10.2 through 10.5
of the Lease.
Initials: _______ Initials: _______
_______ _______
Page 2 of 2
(R) 1997 - American FORM OE-2-3/97E
Industrial Real Estate REVISED
Association
<PAGE> 7
RIDER TO STANDARD SUBLEASE
DATED MAY 25, 1999
BY AND BETWEEN
BHMA, INC., a California Corporation ("Sublessor")
AND
DIGITAL ENTERTAINMENT NETWORK, INC.,
a California Corporation ("Sublease")
1. By consenting to this Sublease, Master Lessor and First Sublessor each
agree not to amend or modify the Master Lease and First Sublease,
respectively, or grant any consents thereunder which would adversely
affect the rights or increase the obligations of Sublessee under this
Sublease without having obtained the prior written consent of Sublessee,
which consent may be withheld in the absolute discretion of Sublessee.
2. In the event of any default of either first Sublessor or Sublessor in the
performance of its obligations under the Master Lease and/or First
Sublease, as applicable, and termination of the same or lawful re-entry or
repossession of the Premises by Master Lessor or First Sublessor, then
Master Lessor or First Sublessor, as applicable, may, at its option and
without being obligated to do so, require Sublessee to attorn to Master
Lessor or First Sublessor. In the event Master Lessor or First Sublessor
exercises such option, Master Lessor or First Sublessor shall undertake
the obligations of Sublessor under the Sublease from the time of the
exercise of such option to the date of termination of the Sublease, but
Master Lessor or First Sublessor, as applicable, shall not (a) be liable
for any prepayment of more than one month's rent or any security deposit
paid by Sublessee, to the extent the same has not been delivered to Master
Lessor or First Sublessor (b) be liable for any previous act or omission
of Sublessor or First Sublessor under the Master Lease or First Sublease
or for any other defaults of Sublessor under the Sublease, (c) be subject
to any defenses or offsets previously accrued which Sublessee may have
against Sublessor or (d) be bound by any changes or modifications made to
the Sublease without the written consent of Master Lessor, which consent
will not be unreasonably withheld.
3. The Premises shall be delivered to Sublessee in broom clean condition with
the security system and all telephone wiring intact. However, Sublessor
shall have the right, either prior to or after the Commencement Date, to
remove the phone switch from the Premises it being understood and agreed
that the phone switch shall be and remain the property of Sublessor.
4. Sublessee shall have the right to sublease or assign its interest in the
Sublease so long as the Sublessee is not in default of any terms of the
Sublease, First Sublease or Master Lease and Sublessee complies with all
terms and conditions of subletting and assigning contained in Section 12
of the Master Lease. If the Master Lessor and First Sublessor consents to
Sublessee's subletting or assignment of its rights herein, Sublessor will
not withhold its consent.
5. By consenting to this Sublease and subject to the requirements and
conditions set forth in Paragraph 7.3(b) of the Master Lease, Master
Lessor & Sublessor shall not unreasonably withhold or delay consent for
any improvements or alterations by the Sublessee.
<PAGE> 1
EXHIBIT 10.28
[LOGO]
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- GROSS
(DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, July
30, 98, is made by and between Paul Weinstein and Edward Silver, individuals,
dba PTL Realty ("LESSOR") and Digital Entertainment Network, Inc. a Delaware
corporation ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 2230 Broadway Avenue, Santa Monica, located in the County of Los
Angeles, State of California, and generally described as (describe briefly the
nature of the property and, if applicable, the "PROJECT", if the property is
located within a Project) a red brick, industrial type building, one-story with
mezzanine containing approximately 17,400 square feet encompassing the entire
building ("PREMISES"). (See also Paragraph 2).
1.3 TERM: one (1) years and no months ("ORIGINAL TERM") commencing August
17, 1998 ("COMMENCEMENT DATE") and ending August 16, 1999 ("EXPIRATION DATE").
(See also Paragraph 3)
1.4 EARLY POSSESSION: Upon mutual execution hereof ("EARLY POSSESSION
DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $31,225.00 per month ("BASE RENT"), payable on the first
day of each month commencing August 17, 1998. (See also Paragraph 4)
[ ] If this box is checked, there are provisions in this Lease for the Base Rent
to be adjusted and/or for common area maintenance charges.
1.6 BASE RENT PAID UPON EXECUTION: $31,225.00 as Base Rent for the period
August 17, 1998 - September 16, 1998.
1.7 SECURITY DEPOSIT: $62,450.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: General office use and live, prerecorded, animated and
computer-sourced film, video, sound and multimedia production, pre-production
and post production uses, and office and other uses related thereto. (See also
Paragraph 6)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY". The Annual "Base
Premium" is $______ . (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
[ ] represents Lessor exclusively ("LESSOR'S BROKER");
[X] First Property Realty Corporation represents Lessee exclusively ("LESSEE'S
BROKER"); or
[ ] represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement (or if there is no such agreement, the sum of 3-1/2% of the
total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by None ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through 55 and Exhibits ___, all of which
constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of size set forth in this Lease, or that may have been
used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises broom clean and free of
debris on the Commencement Date or the Early Possession Date, whichever first
occurs ("START DATE"), and warrants that the existing electrical, plumbing, fire
sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"),
loading doors, if any, and all other such elements of the building, in the
Premises, other than those constructed by Lessee, shall be in good operating
condition on said date and that the surface and structural elements of the roof,
skylights, bearing walls and foundation of any buildings on the Premises (the
"BUILDING") shall be free of material defects. If a non-compliance with said
warranty exists as of the Start Date, Lessor shall, except as otherwise provided
in this Lease, promptly after receipt of written notice from Lessee setting
forth with specificity the nature and extent of such non-compliance, rectify
same at Lessor's expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises
comply with all applicable laws, covenants or restrictions of record, building
codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the
Start Date. Said warranty does not apply to the use to which Lessee will put the
Premises or to any Alterations or Utility Installations (as defined in Paragraph
7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for
determining whether or not the zoning is appropriate for Lessee's intended use,
and acknowledges that past uses of the Premises may no longer be allowed. If the
Premises do not comply with said warranty, Lessor shall, except as otherwise
provided, promptly after receipt of written notice from Lessee setting forth
with specificity the nature and extent of such non-compliance, rectify the same
at Lessor's expense. If the Applicable Requirements are hereafter changed (as
opposed to being in existence at the Start Date, which is addressed in Paragraph
6.2(e) below) so as to require during the term of this Lease the construction of
an addition to or an alteration of the Building, the remediation of any
Hazardous Substance, or the reinforcement or other physical modification of the
Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of
such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are
required as a result of the specific and unique use of the Premises by Lessee as
compared with uses by tenants in general, Lessee shall be fully responsible for
the cost thereof, provided, however, that if such Capital Expenditure is
required during the last two (2) years of this Lease and the cost thereof
exceeds two (2) months' Base Rent, Lessee may instead terminate this Lease
unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of
Lessee's termination notice that Lessor has elected to pay the difference
between the actual cost thereof and the amount equal to two (2) months' Base
Rent. If Lessee elects termination, Lessee shall
Page 1 of 11
<PAGE> 2
deliver to Lessor written notice specifying a termination date at least ninety
(90) days thereafter. Such termination date shall, however, in no event be
earlier than the last day that Lessee could legally utilize the Premises without
commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor shall pay for such costs pursuant to the
provisions of Paragraph 7.1(c); provided, however, that if such Capital
Expenditure is required during the last two years of this Lease or if Lessor
reasonably determines that it is not economically feasible to pay its share
thereof, Lessor shall have the option to terminate this Lease upon ninety (90)
days prior written notice to Lessee unless Lessee notifies Lessor, in writing,
within ten (10) days after receipt of Lessor's termination notice that Lessee
will pay for such Capital Expenditure. If Lessor does not elect to terminate,
and fails to tender its share of any such Capital Expenditure, Lessee may
advance such funds and deduct same, with Interest, from Rent until Lessor's
share of such costs have been fully paid. If Lessee is unable to finance
Lessor's share, or if the balance of the Rent due and payable for the remainder
of this Lease is not sufficient to fully reimburse Lessee on an offset basis,
Lessee shall have the right to terminate this Lease upon thirty (30) days
written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered by
Lessee as a result of an actual or proposed change in use, change in intensity
of use, or modification to the Premises then, and in that event, Lessee shall be
fully responsible for the cost thereof, and Lessee shall not have any right to
terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by
Lessor and/or Brokers to satisfy itself with respect to the condition of the
Premises (including but not limited to the electrical, HVAC and fire sprinkler
systems, security, environmental aspects, and compliance with Applicable
Requirements), and their suitability for Lessee's intended use, (b) Lessee has
made such investigation as it deems necessary with reference to such matters and
assumes all responsibility therefor as the same relate to its occupancy of the
Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any
oral or written representations or warranties with respect to said matters other
than as set forth in this Lease. In addition, Lessor acknowledges that: (a)
Broker has made no representations, promises or warranties concerning Lessee's
ability to honor the Lease or suitability to occupy the Premises, and (b) it is
Lessor's sole responsibility to investigate the financial capability and/or
suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be abated
for the period of such early possession. All other terms of this Lease shall,
however, be in effect during such period. Any such early possession shall not
affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date. If, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease. Lessee shall not, however,
be obligated to pay Rent or perform its other obligations until it receives
possession of the Premises. If possession is not delivered within five (5) days
after the Commencement Date, Lessee may, at its option, by notice in writing
within ten (10) days after the end of such five (5) day period, cancel this
Lease, in which event the Parties shall be discharged from all obligations
hereunder. If such written notice is not received by Lessor within said ten (10)
day period, Lessee's right to cancel shall terminate. Except as otherwise
provided, if possession is not tendered to Lessee by the Start Date and Lessee
does not terminate this Lease, as aforesaid, any period of rent abatement that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts
or omissions of Lessee. If possession of the Premises is not delivered within
four (4) months after the Commencement Date, this Lease shall terminate unless
other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession
of the Premises to Lessee until Lessee complies with its obligation to provide
evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee
shall be required to perform all of its obligations under this Lease from and
after the Start Date, including the payment of Rent, notwithstanding Lessor's
election to withhold possession pending receipt of such evidence of insurance.
Further, if Lessee is required to perform any other conditions prior to or
concurrent with the Start Date, the Start Date shall occur but Lessor may elect
to withhold possession until such conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease (except for the Security Deposit) are deemed to be rent
("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor
in lawful money of the United States, without offset or deduction (except as
specifically permitted in this Lease), on or before the day on which it is due.
Rent for any period during the term hereof which is for less than one (1) full
calendar month shall be prorated based upon the actual number of days of said
month. Payment of Rent shall be made to Lessor at its address stated herein or
to such other persons or place as Lessor may from time to time designate in
writing. Acceptance of a payment which is less than the amount then due shall
not be a waiver of Lessor's rights to the balance of such Rent, regardless of
Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit as security for Lessee's faithful performance of its
obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults
under this Lease, Lessor may use, apply or retain all or any portion of said
Security Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, expense, loss or damage which Lessor may
suffer or incur by reason thereof. If Lessor uses or applies all or any portion
of said Security Deposit, Lessee shall within ten (10) days after written
request therefor deposit monies with Lessor sufficient to restore said Security
Deposit to the full amount required by this Lease. Lessor shall not be required
to keep the Security Deposit separate from its general accounts. Within fourteen
(14) days after the expiration or termination of this Lease, if Lessor elects to
apply the Security Deposit only to unpaid Rent, and otherwise within fifteen
(15) days after the Premises have been vacated pursuant to Paragraph 7.4(c)
below, Lessor shall return that portion of the Security Deposit not used or
applied by Lessor. No part of the Security Deposit shall be considered to be
held in trust, to bear interest or to be prepayment for any monies to be paid by
Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use,
or any other legal use which is reasonably comparable thereto, and for no other
purpose. Lessee shall not use or permit the use of the Premises in a manner that
is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to neighboring properties. Lessor shall not
unreasonably withhold or delay its consent to any written request for a
modification of the Agreed Use, so long as the same will not impair the
structural integrity of the improvements on the Premises or the mechanical or
electrical systems therein, or is not significantly more burdensome to the
Premises. If Lessor elects to withhold consent, Lessor shall within five (5)
business days after such request give written notification of same, which notice
shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE"
as used in this Lease shall mean any product, substance, or waste whose
presence, use, manufacture, disposal, transportation, or release, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substances shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, and/or crude oil or any products, by-products or fractions
thereof. Lessee shall not engage in any activity in or on the Premises which
constitutes a Reportable Use of Hazardous Substances without the express prior
written consent of Lessor and timely compliance (at Lessee's expense) with all
Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use
of any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to
which any Applicable Requirements requires that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may use any ordinary and customary materials reasonably
required to be used in the normal course of the Agreed Use, so
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<PAGE> 3
long as such use is in compliance with all Applicable Requirements, is not a
Reportable Use, and does not expose the Premises or neighboring property to any
meaningful risk of contamination or damage or expose Lessor to any liability
therefor. In addition, Lessor may condition its consent to any Reportable Use
upon receiving such additional assurances as Lessor reasonably deems necessary
to protect itself, the public, the Premises and/or the environment against
damage, contamination, injury and/or liability, including, but not limited to,
the installation (and removal on or before Lease expiration or termination) of
protective modifications (such as concrete encasements) and/or increasing the
Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises, other than as previously consented to by Lessor, Lessee
shall immediately give written notice of such fact to Lessor, and provide Lessor
with a copy of any report, notice, claim or other documentation which it has
concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused by Lessee.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, harmless from
and against any and all damages, liabilities, judgments, claims, expenses,
penalties, and attorneys' and consultants' fees arising out of or involving any
Hazardous Substance brought onto the Premises by Lessee, (provided, however,
that Lessee shall have no liability under this Lease with respect to underground
migration of any Hazardous Substance under the Premises from adjacent
properties). Lessee's obligations shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation, removal,
remediation, restoration and/or abatement, and shall survive the expiration or
termination of this Lease. NO TERMINATION, CANCELLATION OR RELEASE AGREEMENT
ENTERED INTO BY LESSOR AND LESSEE SHALL RELEASE LESSEE FROM ITS OBLIGATIONS
UNDER THIS LEASE WITH RESPECT TO HAZARDOUS SUBSTANCES, UNLESS SPECIFICALLY SO
AGREED BY LESSOR IN WRITING AT THE TIME OF SUCH AGREEMENT.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its agents, employees and
lenders, harmless from and against any and all environmental damages,
liabilities, judgements, claims, expenses, penalties, and attorneys' and
consultants' fees, including the cost of remediation, as a result of Hazardous
Substances on the Premises prior to the Start Date or which are caused by the
gross negligence or willful misconduct of Lessor, its agents or employees.
Lessor's obligations, as and when required by the Applicable Requirements, shall
include, but not be limited to, the cost of investigation, removal, remediation,
restoration and/or abatement, and shall survive the expiration or termination of
this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures required
by governmental entities having jurisdiction with respect to the existence of
Hazardous Substances on the Premises prior to the Start Date, unless such
remediation measure is required as a result of Lessee's specific use (including
alterations) of the Premises, in which event Lessee shall be responsible for
such payment. Lessee shall cooperate fully in any such activities at the request
of Lessor, including allowing Lessor and Lessor's agents to have reasonable
access to the Premises at reasonable times in order to carry out Lessor's
investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee shall make the investigation and remediation
thereof required by the Applicable Requirements and this Lease shall continue in
full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and
Paragraph 13), Lessor may, at Lessor's option to be exercised within 30 days
after receipt by Lessor of knowledge of the occurrence of such Hazardous
Substance Condition, either (i) investigate and remediate such Hazardous
Substance Condition, if required, as soon as reasonably possible at Lessor's
expense, and in such a manner that it will not interfere with Lessee's use of
the Premises, in which event this Lease shall continue in full force and effect,
or (ii) if the estimated cost to remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee, within thirty (30) days after receipt by Lessor of knowledge
of the occurrence of such Hazardous Substance Condition, of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give a notice, Lessee may, within ten (10)
days thereafter, give written notice to Lessor of Lessee's commitment to pay the
amount by which the cost of the remediation of such Hazardous Substance
Condition exceeds an amount equal to twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said
funds or satisfactory assurance thereof within thirty (30) days following such
commitment. In such event, this Lease shall continue in full force and effect,
and Lessor shall proceed to make such remediation as soon as reasonably possible
after the required funds are available. If Lessee does not give such notice and
provide the required funds or assurance thereof within the time provided, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise
provided in this Lease, Lessee shall, at Lessee's sole expense, fully,
diligently and in a timely manner, materially comply with all Applicable
Requirements, the requirements of any applicable fire insurance underwriter or
rating bureau, without regard to whether said requirements are now in effect or
become effective after the Start Date. Lessee shall, within ten (10) days after
receipt of Lessor's written request, provide Lessor with copies of all permits
and other documents, and other information evidencing Lessee's compliance with
any Applicable Requirements specified by Lessor, and shall immediately upon
receipt, notify Lessor in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or report
pertaining to or involving the failure of Lessee or the Premises to comply with
any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in
Paragraph 30 below) and consultants shall have the right to enter into Premises
at any time, in the case of an emergency, and otherwise at reasonable times, and
with reasonable notice, for the purpose of inspecting the condition of the
Premises and for verifying compliance by Lessee with this Lease. The cost of any
such inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such case,
Lessee shall upon request reimburse Lessor for the cost of such inspections, so
long as such inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee shall,
at Lessee's sole expense, keep the Premises, Utility Installations, and
Alterations in good order, condition and repair (whether or not the portion of
the Premises requiring repairs, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, but not limited to, all
equipment or facilities, such as plumbing, heating, ventilating,
air-conditioning, electrical, lighting facilities, boilers, pressure vessels,
fire protection system, fixtures, walls (interior and exterior), ceilings,
floors, windows, doors, skylights, landscaping, driveways, fences, signs,
sidewalks and parkways located in, on, or adjacent to the Premises. Lessee is
also responsible for keeping the roof and roof drainage clean and free of
debris. Lessor shall keep the surface and structural elements of the roof,
skylights, parking lot, foundations, and bearing walls in good repair (see
Paragraph 7.2). Lessee, in keeping the Premises in good order, condition and
repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or a part thereof in good
order, condition and state of repair. Lessee shall, during the term of this
Lease, keep the exterior appearance of the Building in a first-class condition
(including, e.g., graffiti removal) consistent with the exterior appearance of
other similar facilities of comparable age and size in the vicinity, excluding
the exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("Basic Elements"), if
any, if and when installed on the Premises: (i) HVAC equipment.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Items which are Lessee's responsibility to maintain under the
lease which are all described in Paragraph 7.1(a) cannot be repaired other than
at a cost which is in excess of 50% of the cost of replacing such items, then
such items shall be replaced by Lessor, and the cost thereof shall be prorated
between the Parties and Lessee shall only be obligated to pay, each month during
the remainder of the term of this Lease, on the date on which Base Rent is due,
an amount equal to the product of multiplying the cost of such replacement by a
fraction, the numerator of which is one, and the denominator of which is the
number of months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is then
commercially reasonable in the judgment of Lessor's accountants), with Lessee
reserving the right to prepay its obligation at any time. Notwithstanding the
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provisions of this Paragraph 7, if the cost of a repair or replacement which is
Lessee's responsibility under Paragraph 7.1(a) of this Lease is greater than
$4,000.00, Lessor shall determine whether to repair or replace and such repair
or replacement shall be treated as a "prorated" cost which is subject to the
cost sharing provisions of this Paragraph 7.1(c)
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code), 9
(Damage or Destruction) and 14 (Condemnation), it is intended by the Parties
hereto that Lessor have no obligation, in any manner whatsoever, to repair and
maintain the Premises, or the equipment therein, all of which obligations are
intended to be that of the Lessee, except for the surface and structural
elements of the roof, skylights, parking lot foundations and bearing walls, the
repair of which shall be the responsibility of Lessor upon receipt of written
notice that such a repair is necessary. It is the intention of the Parties that
the terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises, and they expressly waive the benefit of
any statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease. Notwithstanding anything contained in this Lease, Lessee
and Lessor agree to promptly hire a mutually acceptable air conditioning company
to ascertain the operational condition of the existing air conditioning units.
If such air conditioning company recommends repair or replacement of the
existing units, or if said units require repair or replacement within the first
ninety (90) days of the lease term, Lessor agrees to bear said repair or
replacement at Lessor's sole cost and expense.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS"
refers to all floor and window coverings, air lines, power panels, electrical
distribution, security and fire protection systems and signs, communication
systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the
Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment
that can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements, other than
Utility Installations or Trade Fixtures, whether by addition or deletion.
"LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or
Utility Installations to the Premises without Lessor's prior written consent
which consent shall not be unreasonably withheld, conditioned or delayed. Lessee
may, however, make non-structural Utility Installations to the interior of the
Premises (excluding the roof) without such consent but upon notice to Lessor, as
long as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative cost
thereof during this Lease as extended does not exceed $50,000 in the aggregate.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. Consent shall be deemed
conditioned upon Lessee's: (ii) furnishing Lessor with copies of the plans and
specifications prior to commencement of the work. Any Alterations or Utility
Installations shall be performed in a workmanlike manner with good and
sufficient materials. Lessee shall promptly upon completion furnish Lessor with
as-built plans and specifications.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility. If Lessee shall contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend and protect itself, Lessor and the Premises against the same and
shall pay and satisfy any such adverse judgment that may be rendered thereon
before the enforcement thereof. If Lessor shall require, Lessee shall furnish a
surety bond in an amount equal to one and one-half times the amount of such
contested lien, claim or demand, indemnifying Lessor against liability for the
same.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect
ownership as hereinafter provided, all Alterations and Utility Installations
made by Lessee shall be the property of Lessee, but considered a part of the
Premises. Lessor may, at any time, elect in writing to be the owner of all or
any specified part of the Lessee Owned Alterations and Utility Installations.
Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned
Alterations and Utility Installations shall, at the expiration or termination of
this Lease, become the property of Lessor and be surrendered by Lessee with the
Premises. Notwithstanding anything to the contrary contained in this Lease, any
and all signs, communications systems, lighting fixtures, security systems,
computer systems, sound systems, editing bays, screening rooms and equipment,
production equipment, and post-production equipment installed by on behalf of
Lessee shall be considered Trade Fixtures, all of which shall at all times be
and remain the property of Lessee and which shall be removed by Lessee as
provided in Section 7.4(c) below.
(b) Lessor may require the removal at any time of all or any part of
any Lessee Owned Alterations or Utility Installations made without the required
consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom clean and free of debris, and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. Lessee shall repair any damage occasioned by the installation,
maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or
Utility Installations, furnishings, and equipment as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or groundwater contaminated by Lessee. Trade
Fixtures shall remain the property of Lessee and shall be removed by Lessee. The
failure by Lessee to timely vacate the Premises pursuant to this Paragraph
7.4(c) without the express written consent of Lessor shall constitute a holdover
under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost increase which
results from Lessee's specific use as opposed to general office use ("INSURANCE
COST INCREASE") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a) and 8.3(b) ("REQUIRED INSURANCE"), over
and above the Base Premium as hereinafter defined calculated on an annual basis.
"Insurance Cost Increase" shall include increases resulting from any act or
omission of Lessee, increased valuation of the Premises resulting from
improvements installed by Lessee/or. The Parties are encouraged to fill in the
Base Premium in Paragraph 1.9 with a reasonable premium for the Required
Insurance based on the Agreed Use of the Premises. If the Parties fail to insert
a dollar amount in Paragraph 1.9, then the Base Premium shall be the lowest
annual premium reasonably obtainable for the Required Insurance as of the
commencement of the Original Term for the Agreed Use of the Premises. In no
event, however, shall Lessee be responsible for any portion of the increase in
the premium cost attributable to liability insurance carried by Lessor under
Paragraph 8.1(b) in excess of $2,000,000 per occurrence.
(b) Lessee shall pay any such Insurance Cost Increase to Lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises, Lessor
shall also deliver to Lessee a statement of the amount of such Insurance Cost
Increase attributable only to the Premises showing in reasonable detail the
manner in which such amount was computed. Premiums for policy periods commencing
prior to, or extending beyond the term of this Lease, shall be prorated to
correspond to the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury, personal injury and property damage based upon
or arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an occurrence
basis providing single limit coverage in an amount not less than $2,000,000 per
occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES
ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT"
for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall
not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance shall not, however, limit the
liability of Lessee nor relieve Lessee of any obligation hereunder. All
insurance carried by Lessee shall be primary to and not contributory with any
similar insurance carried by Lessor, whose insurance shall be considered excess
insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as
described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an additional
insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force a policy or policies in the name of Lessor, with loss payable to
Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the
Premises. The amount of such insurance shall be equal to the full replacement
cost of the Premises, as the same shall exist from time to time, or the amount
required by any Lenders, but in no event more than the commercially reasonable
and
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<PAGE> 5
available insurable value thereof. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's
personal property shall be insured by Lessee under Paragraph 8.4 rather than by
Lessor. If the coverage is available and commercially appropriate, such policy
or policies shall insure against all risks of direct physical loss or damage
(except the perils of flood and/or earthquake unless required by a Lender or
included in the Base Premium), including coverage for debris removal and the
enforcement of any Applicable Requirements requiring the upgrading, demolition,
reconstruction or replacement of any portion of the Premises as the result of a
covered loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property insurance
coverage amount by a factor of not less than the adjusted U.S. Department of
Labor Consumer Price Index for All Urban Consumers for the city nearest to where
the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force
a policy or policies in the name of Lessor, with loss payable to Lessor and any
Lender, insuring the loss of the full Rent for one (1) year. Said insurance
shall provide that in the event the Lease is terminated by reason of an insured
loss, the period of indemnity for such coverage shall be extended beyond the
date of the completion of repairs or replacement of the Premises, to provide for
one full year's loss of Rent from the date of any such loss. Said insurance
shall contain an agreed valuation provision in lieu of any coinsurance clause,
and the amount of coverage shall be adjusted annually to reflect the projected
Rent otherwise payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to the
Premises, the Lessee shall pay for any increase in the premiums for the property
insurance of such building or buildings if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned
Alterations and Utility Installations. Such insurance shall be full replacement
cost coverage with a deductible of not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the replacement of
personal property, Trade Fixtures and Lessee Owned Alterations and Utility
Installations. Lessee shall provide Lessor with written evidence that such
insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of
income and extra expense insurance in amounts as will reimburse Lessee for
direct or indirect loss of earnings attributable to all perils commonly insured
against by prudent lessees in the business of Lessee or attributable to
prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits or forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies
duly licensed or admitted to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, as set forth in the most current issue of "Best's
Insurance Guide", or such other rating as may be required by a Lender. Lessee
shall not do or permit to be done anything which invalidates the required
insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor
certified copies of policies of such insurance or certificates evidencing the
existence and amounts of the required insurance. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. Such policies shall be for a term of at least
one year, or the length of the remaining term of this Lease, whichever is less.
If either Party shall fail to procure and maintain the insurance required to be
carried by it, the other Party may, but shall not be required to, procure and
maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages against the other, for loss of or damage to its
property arising out of or incident to the perils required to be insured against
herein. The effect of such releases and waivers is not limited by the amount of
insurance carried or required, or by any deductibles applicable hereto. The
Parties agree to have their respective property damage insurance carriers waive
any right to subrogation that such companies may have against Lessor or Lessee,
as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence or willful misconduct,
Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor
and its agents, Lessor's master or ground lessor, partners and Lenders, from and
against any and all claims, loss of rents and/or damages, liens, judgments,
penalties, attorneys' and consultants' fees, expenses and/or liabilities arising
out of, involving, or in connection with, the use and/or occupancy of the
Premises by Lessee. If any action or proceeding is brought against Lessor by
reason of any of the foregoing matters, Lessee shall upon notice defend the same
at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, HVAC or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations, Utility
Installations and Trade Fixtures, which can reasonably be repaired in six (6)
months or less from the date of the damage or destruction. Lessor shall notify
Lessee in writing within thirty (30) days from the date of the damage or
destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations and
Trade Fixtures, which cannot reasonably be repaired in six (6) months or less
from the date of the damage or destruction. Lessor shall notify Lessee in
writing within thirty (30) days from the date of the damage or destruction as to
whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations
and Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of Applicable Requirements, and without
deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for that
purpose. Notwithstanding the foregoing, if the required insurance was not in
force or the insurance proceeds are not sufficient to effect such repair, the
Insuring Party shall promptly contribute the shortage in proceeds as and when
required to complete said repairs. In the event, however, such shortage was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If such funds or assurance are not received, Lessor
may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to: (i) make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this Lease
shall remain in full force and effect; or (ii) have this Lease terminate thirty
(30) days thereafter. Lessee shall not be entitled to reimbursement of any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense),
Lessor may either: (i) repair such damage as soon as reasonably possible at
Lessor's
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<PAGE> 6
expense, in which event this Lease shall continue in full force and effect, or
(ii) terminate this Lease by giving written notice to Lessee within thirty (30)
days after receipt by Lessor of knowledge of the occurrence of such damage
provided the uninsured loss is in excess of $50,000.00. Such termination shall
be effective sixty (60) days following the date of such notice. In the event
Lessor elects to terminate this Lease, Lessee shall have the right within ten
(10) days after receipt of the termination notice to give written notice to
Lessor of Lessee's commitment to pay for the repair of such damage without
reimbursement from Lessor. Lessee shall provide Lessor with said funds or
satisfactory assurance thereof within thirty (30) days after making such
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
after the required funds are available. If Lessee does not make the required
commitment, this Lease shall terminate as of the date specified in the
termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by the
gross negligence or willful misconduct of Lessee, Lessor shall have the right to
recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds three
(3) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this
Lease effective sixty (60) days following the date of occurrence of such damage
by giving a written termination notice to Lessee within thirty (30) days after
the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee
at that time has an exercisable option to extend this Lease or to purchase the
Premises, then Lessee may preserve this Lease by exercising such option.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises
Total Destruction or a Hazardous Substance Condition for which Lessee is not
responsible under this Lease, the Rent payable by Lessee for the period required
for the repair, remediation or restoration of such damage shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired. All
other obligations of Lessee hereunder shall be performed by Lessee, and Lessor
shall have no liability for any such damage, destruction, remediation, repair or
restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the
Premises and does not commence, in a substantial and meaningful way, such repair
or restoration within ninety (90) days after such obligation shall accrue,
Lessee may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice, of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee gives such notice
and such repair or restoration is not commenced within thirty (30) days
thereafter, this Lease shall terminate as of the date specified in said notice.
If the repair or restoration is commenced within said thirty (30) days, this
Lease shall continue in full force and effect. "COMMENCE" shall mean the
beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by Lessee
to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's
Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this Lease and hereby waive the provisions of
any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other than
inheritance, personal income or estate taxes); improvement bond; and/or license
fee imposed upon or levied against any legal or equitable interest of Lessor in
the Premises, Lessor's right to other income therefrom, and/or Lessor's business
of leasing, by any authority having the direct or indirect power to tax and
where the funds are generated with reference to the Building address and where
the proceeds so generated are to be applied by the city, county or other local
taxing authority of a jurisdiction within which the Premises are located. The
term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring during
the term of this Lease, including, but not limited to, a change in the ownership
of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase, solely as a result of Alterations or Utility Installations placed in
the Premises by Lessee, over the fiscal tax year during which the Commencement
Date occurs ("TAX INCREASE"). Subject to Paragraph 10.2(b), payment of any such
Tax Increase shall be made by Lessee to Lessor within thirty (30) days after
receipt of Lessor's written statement setting forth the amount due and the
computation thereof. If any such taxes shall cover any period of time prior to
or after the expiration or termination of this Lease, Lessee's share of such
taxes shall be prorated to cover only that portion of the tax bill applicable to
the period that this Lease is in effect.
(b) [intentionally omitted]
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the
contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand therefor
the entirety of any increase in Real Property Taxes assessed by reason of
Alterations or Utility Installations placed upon the Premises by Lessee or at
Lessee's request.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for all
of the land and improvements included within the tax parcel assessed, such
proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to
delinquency, all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and
all personal property of Lessee. When possible, Lessee shall cause such property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent, which shall not be unreasonably withheld
conditioned or delayed.
(b) [intentionally omitted]
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution of
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<PAGE> 7
this Lease or at the time of the most recent assignment to which Lessor has
consented, or as it exists immediately prior to said transaction or transactions
constituting such reduction, whichever was or is greater, shall be considered an
assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF
LESSEE" shall mean the net worth of Lessee (excluding any guarantors)
established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity of any notice and grace period. If Lessor elects to
treat such unapproved assignment or subletting as a noncurable Breach, Lessor
may terminate this Lease. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to one hundred ten percent
(110%) of the price previously in effect.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease; (ii)
release Lessee of any obligations hereunder; or (iii) alter the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of Rent or performance shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any. Lessee agrees to provide Lessor
with such other or additional information and/or documentation as may be
reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to conform and comply with each and every term, covenant,
condition and obligation herein to be observed or performed by Lessee during the
term of said assignment or sublease, other than such obligations as are contrary
to or inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice from
Lessor stating that a Breach exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor all Rent due and to become due under the
sublease. Sublessee shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option,
require sublessee to attorn to Lessor, in which event Lessor shall undertake the
obligations of the sublessor under such sublease from the time of the exercise
of said option to the expiration of such sublease; provided, however, Lessor
shall not be liable for any prepaid rents or security deposit paid by such
sublessee to such sublessor or for any prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants, conditions or rules under
this Lease. A "BREACH" is defined as the occurrence of one or more of the
following Defaults, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) [intentionally omitted]
(b) The failure of Lessee to make any payment of Rent or any
Security Deposit required to be made by Lessee hereunder, whether to Lessor or
to a third party, when due, to provide reasonable evidence of insurance or
surety bond, or to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) business days following receipt of written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an unauthorized assignment or subletting, (iv) a Tenancy
Statement, (v) a requested subordination, (vi) evidence concerning any guaranty
and/or Guarantor, (vii) any document requested under Paragraph 42 (easements),
or (viii) any other documentation or information which Lessor may reasonably
require of Lessee under the terms of this Lease, where any such failure
continues for a period of ten (10) days following receipt of written notice to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
other than those described in subparagraphs 13.1(a), (b) or (c), above, where
such Default continues for a period of thirty (30) days after written notice;
provided, however, that if the nature of Lessee's Default is such that more than
thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach if Lessee commences such cure within said thirty (30) day
period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of
any general arrangement or assignment for the benefit of creditors; (ii)
becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute
thereto (unless, in the case of a petition filed against Lessee, the same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets located at
the Premises or of Lessee's interest in this Lease, where possession is not
restored to Lessee within thirty (30) days; or (iv) the attachment, execution or
other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease, where such seizure is not
discharged within thirty (30) days; provided, however, in the event that any
provision of this subparagraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect, and not affect the validity of the
remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty; (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing; (iv) a Guarantor's refusal to honor the guaranty; or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the then existing resources of Lessee, equals or exceeds the combined
financial resources of Lessee and the Guarantors that existed at the time of
execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of an
emergency, without notice), Lessor may, at its option, perform such duty or
obligation on Lessee's behalf, including, but not limited to, the obtaining of
reasonably required bonds, insurance policies, or governmental licenses, permits
or approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, with or without
further notice or demand, and without limiting Lessor in the exercise of any
right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
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immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) the unpaid Rent which had been earned at
the time of termination; (ii) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until the
time of award exceeds the amount of such rental loss that the Lessee proves
could have been reasonably avoided; (iii) the worth at the time of award of the
amount by which the unpaid rent for the balance of the term after the time of
award exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of the District within which the Premises are
located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Breach of this Lease shall not waive
Lessor's right to recover damages under Paragraph 12. If termination of this
Lease is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such proceeding any unpaid Rent and damages
as are recoverable therein, or Lessor may reserve the right to recover all or
any part thereof in a separate suit. If a notice and grace period required under
Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to
perform or quit given to Lessee under the unlawful detainer statute shall also
constitute the notice required by Paragraph 13.1. In such case, the applicable
grace period required by Paragraph 13.1 and the unlawful detainer statute shall
run concurrently, and the failure of Lessee to cure the Default within the
greater of the two such grace periods shall constitute both an unlawful detainer
and a Breach of this Lease entitling Lessor to the remedies provided for in this
Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the
laws or judicial decisions of the state wherein the Premises are located. The
expiration or termination of this Lease and/or the termination of Lessee's right
to possession shall not relieve Lessee from liability under any indemnity
provisions of this Lease as to matters occurring or accruing during the term
hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other
charges, or for the giving or paying by Lessor to or for Lessee of any cash or
other bonus, inducement or consideration for Lessee's entering into this Lease,
all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS,"
shall be deemed conditioned upon Lessee's full and faithful performance of all
of the terms, covenants and conditions of this Lease. Upon Breach of this Lease
by Lessee, any such Inducement Provision shall automatically be deemed deleted
from this Lease and of no further force or effect, and any rent, other charge,
bonus, inducement or consideration theretofore abated, given or paid by Lessor
under such an inducement Provision shall be immediately due and payable by
Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee.
The acceptance by Lessor of rent or the cure of the Breach which initiated the
operation of this paragraph shall not be deemed a waiver by Lessor of the
provisions of this paragraph unless specifically so stated in writing by Lessor
at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent
shall not be received by Lessor within five (5) days after such amount shall be
due, and following an additional three (3) days after Lessee's receipt of notice
or said overdue amount, Lessee shall pay to Lessor a one-time late charge equal
to three percent (3%) of each such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of such late payment. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent the exercise of any of the other
rights and remedies granted hereunder. In the event that a late charge is
payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding any provision of this Lease to
the contrary, Base Rent shall, at Lessor's option, become due and payable
quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor within thirty (30) days following the date
on which it was due shall bear interest from the thirty-first (31st) day after
it was due. The interest ("INTEREST") charged shall be equal to the prime rate
reported in the Wall Street Journal as published closest prior to the date when
due plus four percent (4%), but shall not exceed the maximum rate allowed by
law. Interest is payable in addition to the potential late charge provided for
in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph, a reasonable
time shall in no event be less than ten (10) days after receipt by Lessor, and
any Lender whose name and address shall have been furnished Lessee in writing
for such purpose, of written notice specifying wherein such obligation of Lessor
has not been performed; provided, however, that if the nature of Lessor's
obligation is such that more than ten (10) days are reasonably required for its
performance, then Lessor shall not be in breach if performance is commenced
within such ten (10) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that
neither Lessor nor Lender cures said breach within ten (10) days after receipt
of said written notice, or if having commenced said cure they do not diligently
pursue it to completion, then Lessee may elect to cure said breach at Lessee's
expense and offset from Rent. Lessee shall document the cost of said cure and
supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (collectively "CONDEMNATION"), this Lease shall terminate as to the part
taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building portion
of the premises, or more than twenty-five percent (25%) of the land area portion
of the premises not occupied by any building, is taken by Condemnation, Lessee
may, at Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the Base Rent shall be reduced in
proportion to the reduction in utility of the Premises caused by such
Condemnation. Condemnation awards and/or payments shall be the property of
Lessor, whether such award shall be made as compensation for diminution in value
of the leasehold, the value of the part taken, or for severance damages;
provided, however, that Lessee shall be entitled to any compensation for
Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures,
without regard to whether or not this Lease is terminated pursuant to the
provisions of this Paragraph. All Alterations and Utility Installations made to
the Premises by Lessee, for purposes of Condemnation only, shall be considered
the property of the Lessee and Lessee shall be entitled to any and all
compensation which is payable therefor. In the event that this Lease is not
terminated by reason of the Condemnation, Lessor shall repair any damage to the
Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option; (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located within the same Project, if any, within which the Premises is located;
(c) if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease; or (d) if Base Rent is increased, whether by
agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
due as and for commissions pertaining to this Lease when due, then such amounts
shall accrue Interest. In addition, if Lessor fails to pay any amounts to
Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and
Lessee of such failure and if Lessor fails to pay such amounts within ten (10)
days after said notice, Lessee shall pay said monies to its Broker and offset
such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a
third party beneficiary of any commission agreement entered into by and/or
between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and
Lessor each represent and warrant to the other that it has had no dealings with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
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<PAGE> 9
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
(b) If the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party; (ii) there are no uncured defaults in the Requesting Party's performance;
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance. Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) [intentionally omitted]
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such
transfer or assignment and delivery of the Security Deposit, as aforesaid, the
prior Lessor shall be relieved of all liability with respect to the obligations
and/or covenants under this Lease thereafter to be performed by the Lessor.
Subject to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined. Notwithstanding the above, and subject to the provisions of Paragraph
20 below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to Hazardous
Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above,
the obligations of Lessor under this Lease shall not constitute personal
obligations of Lessor, the individual partners of Lessor or its or their
individual partners, directors, officers or shareholders, and Lessee shall look
to the Premises, and to no other assets of Lessor, for the satisfaction of any
liability of Lessor with respect to this Lease, and shall not seek recourse
against the individual partners of Lessor, or its or their individual partners,
directors, officers or shareholders, or any of their personal assets for such
satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. The liability (including court costs and Attorneys'
fees), of any Broker with respect to negotiation, execution, delivery or
performance by either Lessor or Lessee under this Lease or any amendment or
modification hereto shall be limited to an amount up to the fee received by such
Broker pursuant to this Lease; provided, however, that the foregoing limitation
on each Broker's liability shall not be applicable to any gross negligence or
willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and shall be delivered by overnight courier, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing of
notices. Either Party may by written notice to the other specify a different
address for notice, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for notice. A copy of all notices
to Lessor shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Notices delivered by overnight courier that guarantee
next day delivery shall be deemed given twenty-four (24) hours after delivery of
the same to the Postal Service or courier. Notices transmitted by facsimile
transmission or similar means shall be deemed delivered upon telephone
confirmation of receipt, provided a copy is also delivered via delivery or mail.
If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. The acceptance of
Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any
payment by Lessee may be accepted by Lessor on account of monies or damages due
Lessor, notwithstanding any qualifying statements or conditions made by Lessee
in connection therewith, which such statements and/or conditions shall be of no
force or effect whatsoever unless specifically agreed to in writing by Lessor at
or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or termination of this Lease.
In the event that Lessee holds over, then the Base Rent shall be increased to
one hundred twenty-five percent (125%) of the Base Rent applicable during the
herein shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the Parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the plural
and vice versa. This Lease shall not be construed as if prepared by one of the
Parties, but rather according to its fair meaning as a whole, as if both Parties
had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed upon the Premises, to any and all advances made on the security
thereof, and to all renewals, modifications, and extensions thereof. Lessee
agrees that the holders of any such Security Devices (in this Lease together
referred to as "Lessor's Lender") shall have no liability or obligation to
perform any of the obligations of Lessor under this Lease. Any Lender may elect
to have this Lease and/or any Option granted hereby superior to the lien of its
Security Device by giving written notice thereof to Lessee, whereupon this Lease
and such Options shall be deemed prior to such Security Device, notwithstanding
the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership; (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor; or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance
Agreement provides that Lessee's possession of the Premises, and this Lease,
including any options to extend the term hereof, will not be disturbed so long
as
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Lessee is not in Breach hereof and attorns to the record owner of the Premises.
Further, within sixty (60) days after the execution of this Lease, Lessor shall
use its commercially reasonable efforts to obtain a Non-Disturbance Agreement
from the holder of any pre-existing Security Device which is secured by the
Premises. In the event that Lessor is unable to provide the Non-Disturbance
Agreement within said sixty (60) days, then Lessee may, at Lessee's option,
directly contact Lessor's lender and attempt to negotiate for the execution and
delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any
subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to declare rights
hereunder, the Prevailing Party (as hereafter defined) in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term,
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The attorneys' fees award shall not be computed
in accordance with any court fee schedule, but shall be such as to fully
reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be
entitled to attorneys' fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations in connection therewith, whether
or not a legal action is subsequently commenced in connection with such Default
or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises as Lessor may deem necessary.
All such activities shall be without abatement of rent or liability to Lessee.
Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and
Lessor may during the last six (6) months of the term hereof place on the
Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or
about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor shall
not be obligated to exercise any standard of reasonableness in determining
whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, that Lessor may elect to continue any one or all
existing subtenancies. Lessor's failure within ten (10) days following any such
event to elect to the contrary by written notice to the holder of any such
lesser interest, shall constitute Lessor's election to have such event
constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the
consent of a Party is required to an act by or for the other Party, such consent
shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs
and expenses (including but not limited to architects', attorneys', engineers'
and other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
shall be paid by Lessee upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent. The failure to specify herein any particular
condition to Lessor's consent shall not preclude the imposition by Lessor at the
time of consent of such further or other conditions as are then reasonable with
reference to the particular matter for which consent is being given. In the
event that either Party disagrees with any determination made by the other
hereunder and reasonably requests the reasons for such determination, the
determining party shall furnish its reasons in writing and in reasonable detail
within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in
the form most recently published by the American Industrial Real Estate
Association, and each such Guarantor shall have the same obligations as Lessee
under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a certified copy
of a resolution of its board of directors authorizing the making of such
guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d)
written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured; (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given Lessee); (iii) during the
time Lessee is in Breach of this Lease; or (iv) in the event that Lessee has
been given three (3) or more notices of separate Default, whether or not the
Defaults are cured, during the twelve (12) month period immediately preceding
the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect,
notwithstanding Lessee's due and timely exercise of the Option, if, after such
exercise and prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the care and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, and that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, each individual executing
this Lease on behalf of such entity represents and warrants that he or she is
duly authorized to execute and deliver this Lease on its behalf. Each Party
shall, within thirty (30) days
Page 10 of 11
<PAGE> 11
after request, deliver to the other party satisfactory evidence of such
authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. This Lease is not intended to be binding until executed and
delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease [X] IS [ ] IS NOT attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE
PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE
PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL
INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY
OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Las Vegas Executed at: LOS ANGELES
------------------------ ---------------------------
on: on: AUGUST 3, 1998
--------------------------------- ------------------------------------
by LESSOR: by LESSEE:
Paul Weinstein & Edward Silver, DIGITAL ENTERTAINMENT NETWORK, INC.
- ------------------------------------- ----------------------------------------
individuals, dpa PTL Realty
- ------------------------------------- ----------------------------------------
By: /s/ PAUL WEINSTEIN By: /s/ DAVID A. NEUMAN
--------------------------------- ------------------------------------
Name Printed: Paul Weinstein Name Printed: DAVID A. NEUMAN
----------------------- --------------------------
Title: Owner Title: PRESIDENT
------------------------------ ---------------------------------
By: /s/ EDWARD SILVER By: /s/ LLOYD CHAO
--------------------------------- ------------------------------------
Name Printed: Edward Silver Name Printed: LLOYD CHAO
----------------------- --------------------------
Title: Owner Title: EXECUTIVE VICE PRESIDENT
------------------------------ ---------------------------------
Address: 5151 Shanadoah Avenue Address: 5255 Encino Avenue
---------------------------- -------------------------------
Los Angeles, CA 90056 Encino, CA
---------------------------- -------------------------------
Telephone: (310) 649-0571 Telephone: (818) 986-3402
-------------------------- -----------------------------
Facsimile: (310) 645-9990 Facsimile: (818) 986-3658
-------------------------- -----------------------------
Federal ID No. Federal ID No. 65-06-76-396
----------------------- -------------------------
NOTE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.
Fax No. (213) 687-8616
Page 11 of 11
<PAGE> 12
[LOGO]
ARBITRATION AGREEMENT
STANDARD LEASE ADDENDUM
DATED July 30, 1998
BY AND BETWEEN (LESSOR) Paul Weinstein and Edward Silver,
--------------------------------------------
as individuals, dba PTL Realty
--------------------------------------------
(LESSEE) Digital Entertainment Network, Inc.,
--------------------------------------------
a Delaware corporation
--------------------------------------------
ADDRESS OF PREMISES 2230 Broadway Avenue, Santa Monica, CA
--------------------------------------------
--------------------------------------------
Paragraph 49
A. ARBITRATION OF DISPUTES:
Except as provided in Paragraph B below, the Parties agree to resolve any and
all claims, disputes or disagreements arising under this Lease, including, but
not limited to any matter relating to Lessor's failure to approve an assignment,
sublease or other transfer of Lessee's interest in the Lease under Paragraph 12
of this Lease, any other defaults by Lessor, or any defaults by Lessee by and
through arbitration as provided below and irrevocably waive any and all rights
to the contrary. The Parties agree to at all times conduct themselves in strict,
full, complete and timely accordance with the terms hereof and that any attempt
to circumvent the terms of this Arbitration Agreement shall be absolutely null
and void and of no force or effect whatsoever.
B. DISPUTES EXCLUDED FROM ARBITRATION:
The following claims, disputes or disagreements under this Lease are expressly
excluded from the arbitration procedures set forth herein: 1. Disputes for which
a different resolution determination is specifically set forth in this Lease, 2.
All claims by either party which (a) seek anything other than enforcement or
determination of rights under this Lease, or (b) are primarily founded upon
matters of fraud, willful misconduct, bad faith or any other allegations of
tortious action, and seek the award of punitive or exemplary damages, 3. Claims
relating to (a) Lessor's exercise of any unlawful detainer rights pursuant to
applicable law or (b) rights or remedies used by Lessor to gain possession of
the Premises or terminate Lessee's right of possession to the Premises, all of
which disputes shall be resolved by suit filed in the applicable court of
jurisdiction, the decision of which court shall be subject to appeal pursuant to
applicable law and 4. All claims arising under Paragraph 39 of this Lease, which
disputes shall be resolved by the specific dispute resolution procedure provided
in Paragraph 39 to the extent that such disputes concern solely the
determination of rent.
C. APPOINTMENT OF AN ARBITRATOR:
All disputes subject to this Arbitration Agreement, shall be determined by
binding arbitration before: [X] a retired judge of the applicable court of
jurisdiction (e.g., the Superior Court of the State of California) affiliated
with Judicial Arbitration & Mediation Services, Inc. ("JAMS"), [ ] the American
Arbitration Association ("AAA") under its commercial arbitration rules,
[ ] ________________________________________________________________________, or
as may be otherwise mutually agreed by Lessor and Lessee (the "Arbitrator").
Such arbitration shall be initiated by the Parties, or either of them, within
ten (10) days after either party sends written notice (the "Arbitration Notice")
of a demand to arbitrate by registered or certified mail to the other party and
to the Arbitrator. The Arbitration Notice shall contain a description of the
subject matter of the arbitration, the dispute with respect thereto, the amount
involved, if any, and the remedy or determination sought. If the Parties have
agreed to use JAMS they may agree on a retired judge from the JAMS panel. If
they are unable to agree within ten days, JAMS will provide a list of three
available judges and each party may strike one. The remaining judge (or if there
are two, the one selected by JAMS) will serve as the Arbitrator. If the Parties
have elected to utilize AAA or some other organization, the Arbitrator shall be
selected in accordance with said organization's rules. In the event the
Arbitrator is not selected as provided for above for any reason, the party
initiating arbitration shall apply to the appropriate Court for the appointment
of a qualified retired judge to act as the Arbitrator.
D. ARBITRATION PROCEDURE:
1. PRE-HEARING ACTIONS. The Arbitrator shall schedule a pre-hearing
conference to resolve procedural matters, arrange for the exchange of
information, obtain stipulations, and narrow the issues. The Parties will submit
proposed discovery schedules to the Arbitrator at the pre-hearing conference.
The scope and duration of discovery will be within the sole discretion of the
Arbitrator. The Arbitrator shall have the discretion to order a pre-hearing
exchange of information by the Parties, including, without limitation,
production of requested documents, exchange of summaries of testimony of
proposed witnesses, and examination by deposition of parties and third-party
witnesses. This discretion shall be exercised in favor of discovery reasonable
under the circumstances. The Arbitrator shall issue subpoenas and subpoenas
duces tecum as provided for in the applicable statutory or case law (e.g., in
California Code of Civil Procedure Section 1282.6).
2. THE DECISION. The arbitration shall be conducted in the city or county
within which the Premises are located at a reasonably convenient site. Any Party
may be represented by counsel or other authorized representative. In rendering a
decision(s), the Arbitrator shall determine the rights and obligations of the
Parties according to the substantive laws and the terms and provisions of this
Lease. The Arbitrator's decision shall be based on the evidence introduced at
the hearing, including all logical and reasonable inferences therefrom. The
Arbitrator may make any determination and/or grant any remedy or relief that is
just and equitable. The decision must be based on, and accompanied by, a written
statement of decision explaining the factual and legal basis for the decision as
to each of the principal controverted issues. The decision shall be conclusive
and binding, and it may thereafter be confirmed as a judgment by the court of
applicable jurisdiction, subject only to challenge on the grounds set forth in
the applicable statutory or case law (e.g., in California Code of Civil
Procedure Section 1286.2). The validity and enforceability of the Arbitrator's
decision is to be determined exclusively by the court of appropriate
jurisdiction pursuant to the provisions of this Lease. The Arbitrator may award
costs, including without limitation, Arbitrator's fees and costs, attorneys'
fees, and expert and witness costs, to the prevailing party, if any, as
determined by the Arbitrator in his discretion.
ARBITRATION AGREEMENT
Page 1 of 2
(con't)
<PAGE> 13
Whenever a matter which has been submitted to arbitration involves a
dispute as to whether or not a particular act or omission (other than a failure
to pay money) constitutes a Default, the time to commence or cease such action
shall be tolled from the date that the Notice of Arbitration is served through
and until the date the Arbitrator renders his or her decision. Provided,
however, that this provision shall NOT apply in the event that the Arbitrator
determines that the Arbitration Notice was prepared in bad faith.
Whenever a dispute arises between the Parties concerning whether or not
the failure to make a payment of money constitutes a default, the service of an
Arbitration Notice shall NOT toll the time period in which to pay the money. The
Party allegedly obligated to pay the money may, however, elect to pay the money
"under protest" by accompanying said payment with a written statement setting
forth the reasons for such protest. If thereafter, the Arbitrator determines
that the Party who received said money was not entitled to such payment, said
money shall be promptly returned to the Party who paid such money under protest
together with Interest thereon as defined in Paragraph 13.5. If a Party makes a
payment "under protest" but no Notice of Arbitration is filed within thirty
days, then such protest shall be deemed waived. (See also Paragraph 43)
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call us to make sure you are utilizing the
most current form: American Industrial Real Estate Association, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017, Telephone No.: (213) 687-8777.
Fax No.: (213) 687-8616.
ARBITRATION AGREEMENT
Page 2 of 2
REVISED
<PAGE> 14
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS
("ADDENDUM") DATED AS OF JULY 21, 1998 BY AND BETWEEN PAUL WEINSTEIN AND EDWARD
SILVER, DBA PTL REALTY ("LESSOR") AND DIGITAL ENTERTAINMENT NETWORK, INC., A
DELAWARE CORPORATION ("LESSEE")
50. Options
50.1 Lessee shall have three (3) successive options to extend the Term of
the Lease as to all (and not less than all) of the Premises for a term of one
year each (each an "Option Period"), upon the same terms and conditions as are
applicable to the Original Term hereof, except for the grant of these Options
(which is only an extension option), and Base Rent, neither of which shall
apply. Each Option may be validly exercised not earlier than six (6) months and
not later than four (4) months prior to the Expiration of the Original Term or
prior Option terms, as applicable (the "Option Exercise Period"). If Lessee
does not exercise any Option during an Option Exercise Period in strict
accordance with the provision contained in the Lease, the Option shall forever
terminate and be of no further force or effect.
50.2 If Lessee exercises the Options pursuant to this paragraph 50, then
Lessee shall pay to Lessor during the Option Period Base Rent according to the
following schedule:
a. First Option (August 17, 1999 through August 16, 2000): $32,162.00
b. Second Option (August 17, 2000, through August 16, 2001):
$33,127.00
c. Third Option (August 17, 2001, through August 16, 2002): $34,120.00
51. Assignment and Subletting.
Notwithstanding anything to the contrary contained in this Lease,
Lessee shall pay to Lessor, promptly following Lessee's receipt thereof,
one-half of all "Premiums" (as hereinafter defined) derived from that portion
of the sublease if more than 8,700 square feet of building is sublet.
"Premiums" shall mean the amount by which: (a) all rental and other payments
and consideration received by Lessee relating to the sublet or assigned space
in question (whether paid in installments, lump sum or otherwise) exceed (b)
the Base Rent, additional rent, and other amounts payable pursuant to this
Lease, for the sublease or assignment period with respect to such space (with
rental and other amounts payable by Lessee for the Premises allocated on the
basis of rentable square feet), less (c) tenant improvements made and paid for
by Lessee specifically and exclusively for the assignee or subtenant, brokerage
commissions, and reasonable attorney's fees and costs actually incurred by
Lessee in preparing the assignment or sublease and obtaining Lessor's consent
thereto. Lessee shall not artificially structure any sublease, assignment or
other transfer in order to reduce the amount payable to Lessor under this
Paragraph 51. In the event that Lessee does so, the amount payable to Lessor
under this Paragraph 51 shall be the amount that would have been payable to
Lessor had the same not occurred.
Further, Lessee shall have the right without the receipt of Lessor's
consent, to sublease a portion of the Premises to individuals, entities or
independent contractors relating to Tenant's business; provided however such
individuals, entities or independent contractors shall not occupy a separately
demised portion of the Premises.
52. Parking.
Lessor shall provide Lessee with the right, during the Lease term or
any extension thereof, to use all of the on-site parking spaces. Lessee shall
have the right, in accordance with code to restripe the parking lot to
accommodate additional vehicles.
53. Signage.
Lessee shall be permitted to install appropriate signage, logo, etc.
on the walls of the Building fronting Broadway Avenue and fronting the parking
lot adjacent to Lessee's entry door with Lessor's approval, which approval
shall not be unreasonably withheld.
54. Consent.
Whenever consent shall be required by either Lessor or Lessee under
the Lease, it shall be understood that neither party shall unreasonably
withhold or delay the giving of such consent.
55. Conflict.
In the event of any conflict between any of the provisions of this
Addendum and any provisions of the Lease, the provisions of this Addendun shall
control. Except as modified herein, the terms of the Lease shall remain in full
force and effect.
LESSOR: LESSEE:
PAUL WEINSTEIN AND EDWARD SILVER, DIGITAL ENTERTAINMENT NETWORK, INC.
INDIVIDUALS, DBA PTL REALTY A DELAWARE CORPORATION
By: /s/ PAUL WEINSTEIN By: /s/ DAVID A. NEUMAN
----------------------------- --------------------------------
Its: Owner Its: President
----------------------------- -------------------------------
By: /s/ EDWARD SILVER By: /s/ LLOYD CHAO
------------------------------ --------------------------------
Its: Owner Its: Executive Vice President
---------------------------- -------------------------------
<PAGE> 1
EXHIBIT 10.29
[DEN LETTERHEAD]
May 5th, 1999
Paul Weinstein and Edward Silver
dba PTL Realty
5151 Shenadoah Avenue
Los Angeles, CA 90056
Re: 2230 Broadway Ave., Santa Monica, CA; Digital Entertainment Network,
Inc. - Letter Agreement
Dear Mr. Weinstein and Mr. Silver:
This Letter Agreement shall amend the terms and conditions of the
July 30, 1998 "Standard Industrial/Commercial Single-Tenant Lease -- Gross"
(the "Lease") by and between Paul Weinstein and Edward Silver, individuals, dba
PTL Realty ("Lessor") and Digital Entertainment Network, Inc. ("Lessee").
Except for the provisions which are inconsistent with this Letter Agreement,
the above referenced Lease shall remain in full force and effect and both the
Lessee and Lessor hereby ratify the Lease as amended by this Letter Agreement.
1. Option to Extend. This letter shall serve as notice of Lessee
exercising the first extension option described in Paragraph 50 of
the Addendum to the Lease. Both Lessee and Lessor acknowledge that
this First Option term will commence August 17, 1999 and terminate on
August 16, 2000. The Lease terms and conditions, as modified by this
Letter Agreement, will govern the First Option Exercise Period,
except that the Base Rent shall be $32,162.00 per month and two (2)
one (1) year options to extend shall remain.
2. Existing Tenant Improvements. Lessor acknowledges the Lessee
Owned Alterations and/or Utility Installations on the attached
Schedule totaling $137,609.83 and hereby waives any right to require
such alterations restored or removed at anytime prior to or after the
expiration of the extended term.
<PAGE> 2
3. Planned Tenant Improvements. Lessee plans to install air
conditioning throughout the main warehouse of the Premises. This
Lessee Owned Utility Installation is estimated to cost Lessee
approximately $62,000.00. Lessee further plans to install telephone
cables which will originate in the existing phone room, extend
through the opposite wall, traveling through the existing conduit and
weatherhead on the roof of the building, then said cable will be
mounted along the outside of the building (approximately 15 feet) to
the corner of the building and will freely extend across the rear
parking lot to the GTE support pole located behind the building.
Lessor consents to each of these installations and acknowledges that
all conditions to this consent are hereby satisfied.
4. Lessee Removal of Air Conditioning. Lessor waives the right to
elect to own all Lessee Owned Utility Installations of air
conditioning systems as granted in Section 7.4(b). Lessee will
therefore have the option, but not the obligation, to remove said
Utility Installations at the expiration or early termination of the
lease term. Upon such removal, Lessee must restore the Premises in
accordance with Section 7.4(c) of the Lease. If said Utility
Installations are removed by Lessee then Lessee agrees that Lessor
may retain up to $5,000 of the Security Deposit for up to 4 months
after Premises have been vacated. Lessor shall return to Lessee that
portion of the retained Security Deposit not used or applied by
Lessor in accordance with Section 5 of the Lease.
Please signify your acknowledgment, consent and agreement to the
above provisions by executing one original copy of this Letter Agreement and
returning to me via fax at (310) 828-7337 and in the enclosed prepaid and
pre-addressed envelope.
Sincerely,
/s/ ALAN L. FRIEL
-----------------------------------
Alan L. Friel
Secretary and General Counsel
Acknowledged, consented and agreed to:
/s/ PAUL WEINSTEIN
- -----------------------------
Paul Weinstein
/s/ EDWARD SILVER
- -----------------------------
Edward Silver
<PAGE> 1
EXHIBIT 10.30
[DECO TRADE MARK LOGO]
9 August, 1999
Digital Entertainment Network
2230 Broadway
Santa Monica, CA 90404
To whom it may concern:
This will confirm the terms of Digital Entertainment Network's ("You") booking
of The Deco Group, Inc.'s ("We/Us") Venice/Del Rey Stages One and Two
("Stages") both located at 4120 Del Rey Avenue, for a minimum of fifteen (15)
months.
We and You acknowledge that You have previously booked The Deco Group, Inc.'s
Venice/Del Rey Stage One pursuant to that certain letter agreement, dated as of
March 24, 1999 (the "March Letter Agreement"), between You and Us, for the
period of 4-1-99 through 9-30-99. Except as otherwise expressly set forth
herein, the terms and conditions of the March Letter Agreement shall apply to
Stage One until 8-30-99, and the terms and conditions of this letter agreement
shall apply to Stage One thereafter. We and You agree that You shall have
option, exercisable by providing written notice to Us within thirty (30) days
of the expiration of the applicable term, to renew the term for the Stages for
six months upon the same terms and conditions set forth in this letter
agreement; provided, that You may so renew the term for the Stages for up to
two (2) renewal terms.
1
<PAGE> 2
For rent, power and Stage Managers for both Stages during the rental period
from 9-1-99 through 11-30-00, you agree to pay as follows:
STAGES
$27,500.00 per month
POWER
As used
STAGE MANAGERS
Not applicable
We must receive your non-refundable payment in the amount of $13,750.00
reserving the Stages for the above mentioned dates by 8-13-99 (to be applied
against the payments described above).
As you have previously paid us a security deposit in the amount of $13,750
pursuant to the March Letter Agreement, You shall not be required to send Us an
additional security deposit; provided, however, We may keep your security
deposit sent to us pursuant to the March Letter Agreement until the expiration
of the term (or any renewal(s) thereof) for the Stages pursuant to this letter
agreement, subject to the next paragraph of this letter agreement.
Provided that the Stages and all rented equipment are returned in good
condition, the security deposit will be refunded (in the form of a check from
The Deco Group, Inc.) seven (7) business days after inspection of facilities
and all equipment and payment in full of all outstanding invoices.
A certificate of insurance in the amount of $2,000,000 for both Stages together,
naming The Deco Group, Inc. as loss payee is required Prior to commencement of
occupancy of Stage Two. In the event of any insurance claim, except for claims
caused by the negligence or intentional acts or omissions of The Deco Group,
Inc. or material defects with the property, Digital Entertainment Network is
responsible for and agrees to pay any insurance deductible. Subsequent monthly
rental payments will be paid on
2
<PAGE> 3
or before the first of each month. The stages will be delivered to You in good
condition and it is expected that you will return them to us in the same
manner. You are responsible for restoring all floors, walls, offices, other
rooms and the facility structure in general to their condition at the time of
commencement of occupancy.
Prior to use of any snow, water, clay, sod, sand, soil, dirt or any similar
substance, or the use of any pyrotechnic device or substance you must notify
and obtain written approval from us. If such approval is granted an additional,
separate insurance policy may be required. You are responsible for any and all
damage to any equipment (including any sub-rentals), floors, walls and
structure in general, heating and air systems resulting from the use of the
aforementioned substance(s), except for claims caused by the negligence or
intentional acts or omissions of The Deco Group, Inc. or material defects with
the property.
We are not liable or responsible for and will be held blameless for any form of
injury or loss of any kind to person and/or property, officers, agents,
employees, invitees or licensees, whether caused directly or indirectly by
theft, fire or casualty or by any act of omission, except for claims caused by
the gross negligence or intentional acts or omissions of The Deco Group, Inc. or
material defects with the property known, or that after due inquiry would have
been known, to The Deco Group, Inc. (a "Deco Act"), in which case The Deco
Group, Inc. shall be liable if a court determines such injury or loss was caused
by a Deco Act.
We agree to use our best efforts to maintain provided equipment in working
condition but must make reasonably timely efforts to repair a failure if
material to production process (such as electrical supply), within 24 hours or
you may then cure the failure at a reasonable cost and deduct that cost from
your rental payment, or you can terminate rental if the failure can not be
cured in a reasonable amount of time. Any tampering with stage electrical
panels, generators or any other power distribution equipment is a violation of
contract and charges will be applied accordingly. You and your electric crews
are responsible for balancing and maintaining proper amperage loads. You and
your grip crews are responsible for adhering to maximum loads on all grids and
rigging equipment. Under no circumstances may anything be hung from or any
holes be drilled into any purlines or insufficient wood beams.
3
<PAGE> 4
We reserve the right to remove any personnel, extra, animal, and/or guest from
the property at any time if facility, equipment, our personnel or our own best
interests are subjected to any danger, possibility of damage and/or harassment
resulting from unacceptable behavior or misbehavior of the aforementioned
personnel, extra, animal and/or guest (based on entertainment industry
standards in Los Angeles).
We agree that you shall have use of the approximately 8,000 square feet of yard
space in front of the stages for your use for parking and loading access,
during the applicable term (and any renewal(s) thereof).
Sincerely,
/s/ DAVID S. EFFRESS
David S. Effress
President
Agreed and accepted to by:
/s/ ALAN L. FRIEL
Name/Signature Title Date
Alan L. Friel
General Counsel
Executive VP Operations
4
<PAGE> 1
EXHIBIT 10.31
April 20, 1999
Mr. David Ropes
Ford Motor Company
16800 Executive Plaza Drive, Suite SN239
Dearborn, MI 48126
RE: LETTER OF AGREEMENT
Dear David:
On behalf of Digital Entertainment Network, Inc. ("DEN"), I'd like to thank you
for your commitment to be one of DEN's Charter Sponsors. This Letter of
Agreement sets forth the basic agreement between DEN and Ford Motor Company
("Advertiser") with respect to the purchase of category-exclusive sponsorship
for Programming Year 1 (July 1, 1999-June 30, 2000).
1. Advertiser shall have advertising exclusivity for the multi-product
category of new and used, domestic and imported automobiles (i.e. passenger
cars and trucks), rentals and/or sales (collectively, "Automobiles") for
Programming Year 1 for DEN programming Episode(s) to be distributed on or
by DEN's channels and/or websites on the World Wide Web.
2. At Advertiser's request, DEN and Advertiser shall work together in good
faith to develop Advertiser's advertising and any other sponsorship
elements for Programming Year 1. If Advertiser desires, DEN will consult
with Advertiser and its advertising agencies to develop its creative for
DEN. If Advertiser desires, DEN will also produce in-house the banners and
commercials which Advertiser runs on DEN programming. If DEN produces
Advertiser's banners and commercials in-house, there will be no charge to
Advertiser for this production. Advertising may include audiovisual
advertising spots similar to television commercials ("Commercial Spots"),
so-called banner ads displayed on DEN's web pages ("Banner Ads"), in-Episode
product placements (i.e., "hero" cars and trucks in DEN shows), audio
clips, endorsements, games, contests, sweepstakes, hypertext links to
informational or purchase opportunities or other advertising opportunities
mutually agreeable to DEN and Advertiser (collectively "Ad(s)").
Additionally, if Advertiser desires to include in-Episode product
placement, DEN will, at no additional cost to Advertiser make good faith
efforts to incorporate such product(s) in recognizable form into Episode(s)
if consistent with DEN's artistic and creative vision of the Episode(s) and
subject to DEN's production schedule.
3. DEN guarantees that the aggregate of all Episode(s) first released in
Programming Year 1 which include Advertiser messages shall receive not less
than an aggregate of [*] advertising impressions. Of the [*] impressions, at
least [*] will come from Advertiser banners and commercials if Advertiser
chooses to make broadscale use of these types of creative elements. The
remainder may come from a combination of banners, commercials, product
placement and other types of Advertiser mentions. Impressions achieved for
Advertiser during the May-June 1999 development phase will be at no cost to
Advertiser, but DEN will count all impressions toward the [*] impressions
guarantee. The accounting of advertising impressions shall be verified by a
mutually agreed upon third-party verification service. If fewer Total
Impressions are verified, the remedy to Advertiser will be one of the
following: [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
[*]
4. DEN shall collect data reasonably requested by Advertiser, provided such
data is readily available to DEN, concerning the viewers of Episode(s) and
the viewing of the Episode(s) and Ad(s) during Programming Year 1 and make
such information available to Advertiser.
5. In consideration of the above, Advertiser agrees to:
(a) pay DEN the sum of [*] for the period July 1, 1999-December 31, 1999 of
which [*] may be mutually agreed upon barter (for example, automobiles,
targeted youth media, etc.);
(b) pay to DEN the sum of [*] for the period January 1, 2000-June 30, 2000
on a mutually agreed upon payment schedule;
(c) For Programming Year 1, Advertiser shall not be required to [*].
6. Provided all amounts due hereunder have been paid, Advertiser shall have two
(2) successive, dependent rights of first negotiation and subsequent rights
of first refusal for each of the Programming Years 2 and 3 (July 2000-June
2001 and July 2001-June 2002, respectively) for the "Automobile"
multi-product category. The first of such rights (for Programming Year 2)
shall need to be exercised by [*] for Advertiser to hold "Automobile"
category. Commitment for Programming Year 3, if applicable, will need to be
exercised by Advertiser no later than [*]. (See Attachment I for Year 2 and
Year 3 maximum pricing for Ford for "Automobile" category.) Should Advertiser
choose to make an incremental commitment to DEN over and above its Charter
Sponsor commitment during any Programming Year in which it holds a
category-exclusive Charter Sponsorship. Advertiser will be entitled to a [*]
discount for this incremental buy vs. general market "spot" rates.
The parties shall negotiate in good faith to enter into a more formal agreement
incorporating the material terms and such other terms and conditions as are
typical of agreements of this type in the U.S. advertising industry. Until such
time, if ever, this agreement shall be binding upon the parties.
We look forward to working with you to develop an effective digital branding
effort for Ford Motor Company on the DEN.
Sincerely,
Ed Winter
Chief Marketing Officer
"UNDERSTOOD AND AGREED"
"Advertiser"
By: /s/ DAVID ROPES
-------------------------------------
Its: Director of Corporate Advertising
------------------------------------
Date Signed: 5/13/99
----------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 3
Attachment I
Maximum Charter Sponsor pricing for Ford for "Automobile" category
Year 2 [*]
Year 3 [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
EXHIBIT 10.32
PROMOTIONAL AGREEMENT
This Promotional Agreement (the "Agreement") is entered into and effective as
of May 21, 1999 (the "Effective Date"), by and between MICROSOFT CORPORATION, a
Washington corporation located at One Microsoft Way, Redmond, WA 98052
("Microsoft"), and DIGITAL ENTERTAINMENT NETWORK, INC. a Delaware corporation
located at 2230 Broadway, Santa Monica, CA 90404 ("DEN").
RECITALS
Microsoft and DEN are entering into a separate Digital Entertainment Networks,
Inc. Series B Preferred Stock Purchase Agreement as of the Effective Date (the
"Investment Agreement").
Microsoft and DEN wish to enter into this Agreement for certain promotional
activities and to make Microsoft a preferred technology platform provider for
DEN.
The Parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "ASF" means the proposed industry standard multimedia file format which, as
of the Effective Date, is in comment/revision processes within industry
standards bodies, and also any successors or replacements for such format
that Microsoft Corp. may support.
1.2 "Component Versions" means versions of Microsoft software which are
generally made available to third party developers and/or end users
without payment of a flat-rate or per-copy royalty separate from the cost
of the Platform, either as integral components of client and/or server
configurations, as developer toolkits, or otherwise. By way of example, a
developer may pay a yearly subscription fee for access to Microsoft
software development kits ("SDKs"), but such SDK would be considered a
Component Version unless a per-copy royalty was charged with respect to
the software included with such SDK. "Professional", "plus" or similar
extended versions or configurations which Microsoft may offer as for-fee
products separate from the WMT components that are a part of the Platforms
would not be considered Component Versions.
1.3 "Confidential Information" means: (i) any pre-release or beta Microsoft
software and any Microsoft source code other than Sample Source; (ii) any
trade secrets and/or other proprietary non-public information not
generally known relating to either party's product plans, designs, costs,
prices and names, finances, marketing plans, business opportunities,
personnel, research, development or know-how; and (iii) the terms and
conditions of this Agreement. "Confidential Information" shall not include
information that: (A) is or becomes generally known or available by
publication, commercial use or otherwise through no fault of the receiving
party; (B) is known and has been reduced to tangible form by the receiving
party prior to the time of disclosure and is not subject to restriction;
(C) is independently developed by the receiving party without the use of
the other party's Confidential Information; (D) is lawfully obtained from
a third party that has the right to make such disclosure; (E) is made
generally available by the disclosing party without restriction on
disclosure; or (F) as otherwise provided in Section 5 of this Agreement.
<PAGE> 2
1.4 "Content" means data, text, video, graphics, photographs, artwork and
other technology and materials, as well as audio content such as music,
voice and sounds (and including optional, metadata such as song title and
artist's name related to such audio content).
1.5 "DEN Network" means the programming and infrastructure used to deliver
DEN created or licensed Content across a network including internet,
dial-up, cable modem, xDSL or settop boxes.
1.6 "Microsoft Software" means Windows Media Technologies and Windows NT.
1.7 "Platforms" means Windows NT, Windows 9x and/or Windows 2000 operating
system-based systems on Intel x86 and Alpha hardware platforms.
"Platforms" does not include Windows CE or any other Microsoft or
non-Microsoft operating systems, nor any hardware platform other than
Intel x86 and Alpha.
1.8 "Term" means a period of two (2) years commencing upon the Effective Date.
1.9 "Windows Media Player" means Microsoft's client operating system software
for multimedia (including audio and video) playback on the Platforms,
including Updates thereof.
1.10 "Windows Media SDKs" means the Windows Media Services SDK and the WMAudio
SDK.
1.11 "Windows Media Services" means Component Versions of Microsoft's server
operating system software for multimedia (including audio and video)
streaming on the Platforms, including Windows Media Tools and Updates
thereof.
1.12 "Windows Media Technologies" or "WMT" means Component Versions of Windows
Media Player, Windows Media Services and Windows Media SDKs that
Microsoft generally makes commercially available during the Term.
1.13 "Windows Media Tools" means the software tools provided with Windows
Media Services that provide capabilities to encode and format, and stream
audio and video files on the Internet.
1.14 "Windows NT" means Microsoft's Windows NT Server and Windows NT
Workstation, version 4.x operating system software.
1.15 "WMA" means Content encoded using the Microsoft's Windows Media Audio
codec, contained within an ASF file using a ".wma" file extension.
1.16 Updates means, as to any Microsoft software, all subsequent Component
Version public releases thereof (including public beta releases) during
the Term, including Component Versions of public maintenance releases,
error corrections, upgrades, enhancements, additions, improvements,
extensions, modifications and successor versions.
All other initially capitalized terms shall have the meanings assigned to
them in this Agreement.
2. MICROSOFT OBLIGATIONS
2.1 Microsoft Software. During the Term, Microsoft shall provide DEN, at no
cost to DEN, with (i) an unlimited number of royalty-free copies of
Windows Media Technologies for use with the DEN Network and (ii) up to [*]
copies of Windows NT for use with the DEN Network solely as (A) Windows
Media Technologies content servers, (B) servers for the delivery of web or
database content using other Microsoft technologies and/or (C) in-house
workstations used by DEN.
(a) License Terms. This Section 2.1 shall not be considered a license
to any Microsoft Software. Any and all copies of Microsoft Software
licensed to DEN shall be licensed under the applicable terms,
conditions and restrictions associated with the applicable
component of
Confidential
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 2 of 7
<PAGE> 3
Microsoft Software, at no cost to DEN. Use of Windows NT, Windows
Media Player and Windows Media Services, for example, shall be
governed by the end user license agreement ("EULA") accompanying
each copy thereof. Window Media SDKs shall be used pursuant to the
specific licenses accompanying them. Violation of any material term
or restriction of the EULAs and/or license agreements governing use
of the Microsoft Software shall be a material breach of this
Agreement, subject to notice and a reasonable opportunity to cure
under Section 9.2.
(b) Support. Microsoft will provide a Microsoft Professional Support
Services contract for technical support to DEN regarding Windows
Media Technologies for [*], after which DEN may purchase
per-incident or flat rate support from Microsoft Professional
Support Services at standard terms and conditions. Other technical
assistance will be covered by the agreement mentioned in Section
3.3.
2.2 Advertising Promotion. During calendar years 1999 and 2000 during the
Term, Microsoft will purchase [*] worth of non-category-exclusive
advertising on DEN's network valued under DEN's standard advertising rate
card ("Advertising Commitment"). Microsoft may, at its sole discretion,
purchase such Advertising Commitment using (i) cash, (ii) [*] of barter
promotion and advertising on WebEvents or other Microsoft web sites,
(subject to acceptability thereof to DEN, granting of permission for
which, subject to DEN's reasonable business judgment, shall not be
unreasonably withheld or delayed), under the Microsoft sites' standard
advertising rate card ("Barter Advertising") or (iii) [*].
2.3 DEN Affiliate. During the sixty (60) days period following the Effective
Date, Microsoft shall negotiate in good faith with DEN to establish (i)
the Microsoft Network ("MSN"); (ii) the Microsoft Network Internet Access
("MSNIA"); or (iii) both MSN and MSNIA as a DEN Affiliate. For purposes of
this Section 2.3, a "DEN Affiliate" means a licensee of DEN which
distributes DEN Content and its network including internet, dial-up, cable
modem, xDSL, or settop boxes.
2.4 Technology Platform. During the term, DEN may, at its discretion,
integrate Microsoft technologies into the DEN Network including Microsoft
Passport Services, HotMail, Instant Messaging and Commerce Server. Such
integration shall be governed by Microsoft's customary terms and
conditions for the software and/or services.
3. DEN OBLIGATIONS
3.1 Promotion of Windows Media Technologies. During the Term, and so long as
DEN has obtained "Technical Satisfaction" with the performance of Windows
Media Technologies (and related formats, WMA and ASF), DEN shall market
and promote Windows Media Technologies (and related WMT formats, WMA and
ASF) on its websites and the DEN Network as DEN's default and preferred
technologies and formats for all DEN download and streaming audio and
streaming video content. Such promotion shall include, but not be limited
to, DEN completing the following: (i) causing the Windows Media Player
preference checkbox to be checked by default; (ii) prominently promoting
WMT branding on DEN websites under appropriate Microsoft trademark
licenses and guidelines; (iii) promoting, on DEN websites, WMT icons,
buttons and/or branding no less prominently than it promotes any other
icon, button or branding from any and all other streaming technology
vendors; and (iv) ensuring any codecs used by DEN for streaming and
download Content production via Windows Media Technologies shall be as
mutually agreed by Microsoft and DEN, and such codecs shall include at
least Microsoft's MPEG4 video codec and
Confidential
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Page 3 of 7
<PAGE> 4
Windows Media Audio music/sound codec. The foregoing shall not restrict DEN
from providing users, in addition to a WMT version of DEN content, any
other format of content based on an alternate technology. For the purposes
of this Section 3.1, DEN's "Technical Satisfaction" shall mean (A) that DEN
has evaluated and tested current versions of Windows Media Technologies
(with assistance from Microsoft where appropriate) and found WMT to meet
DENs reasonable performance and quality requirements with respect to DEN's
"default and preferred technologies" for the DEN Network, and (B) that in
the event that DEN finds WMT not to meet its reasonable quality and
performance requirements, DEN shall provide Microsoft with prompt notice of
any such deficiencies and the parties shall work together in good faith to
satisfy the quality and performance problems. If the Technical Satisfaction
criteria is not met, DEN's obligations to promote Windows Media as its
default and preferred technologies format shall be replaced with an
obligation to continue to feature it as DEN-approved technologies until
Microsoft can demonstrate Windows Media Technologies are able to meet the
Technical Satisfaction criteria. When able to meet the Technical
Satisfaction criteria, Windows Media Technologies shall revert to the
default and preferred technologies as described herein.
3.2 Announcement of MSN as a DEN Affiliate. Upon execution of the agreement
contemplated in Section 2.3, DEN will issue a press release announcing
Microsoft's MSN as a DEN Affiliate.
3.3 Development Relationship. During the ninety (90) days period following the
Effective Date, DEN shall negotiate in good faith with Microsoft regarding
entering into a strategic alliance utilizing WMT and the development of new
technologies and functionality ("New Technologies") for purposes of
designing a system that maximizes the delivery of targeted advertising and
other technical applications relating to DEN's use of Microsoft
technologies.
4. ANNOUNCEMENT(S)
Microsoft and DEN shall jointly announce this Agreement as set forth in a
press release and announcement plan to be mutually agreed upon by the
parties. The parties will cooperate with each other on additional press
releases and similar communications regarding the non-confidential subject
matter of this Agreement. The content, timing and necessity of any and all
such communications, including the proposed announcement attached as
Attachment 2, will be agreed upon in writing by both parties.
5. CONFIDENTIALITY
5.1 Each party shall protect the other's Confidential Information from
unauthorized dissemination and use with the same degree of care that such
party uses to protect its own like information. Neither party will use the
other's Confidential Information for purposes other than those necessary to
directly further the purposes of this Agreement. Neither party will
disclose to third parties the other's Confidential Information without the
prior written consent of the other party; provided, however, that DEN may
disclose this Agreement to investors, potential investors, investment
bankers and it's underwriters and as may be necessary for DEN to comply
with disclosure obligations pursuant to law or regulation (including,
without limitation, SEC reporting obligations) or legal compulsion or
process (provided that DEN notifies Microsoft so that Microsoft may have a
reasonable opportunity to obtain an appropriate protective order protecting
the confidentiality of and Confidential Information to be disclosed).
Except as expressly provided in this Agreement, no ownership or license
rights is granted in any Confidential Information.
5.2 The parties' obligations of confidentiality under this Agreement shall not
be construed to limit either party's right to independently develop or
acquire products without use of the other party's Confidential Information.
Further, either party shall be free to use for any purpose the residuals
Confidential Page 4 of 7
<PAGE> 5
resulting from access to or work with such Confidential Information,
provided that such party shall maintain the confidentiality of the
Confidential Information as provided herein. The term "residuals" means
information in non-tangible form, which may be retained by persons who
have had access to the Confidential Information, including ideas,
concepts, know-how or techniques contained therein. Neither party shall
have any obligation to limit or restrict the assignment of such persons
or to pay royalties for any work resulting from the use of residuals.
However, the foregoing shall not be deemed to grant to either party a
license under the other party's copyrights or patents.
6. WARRANTY
6.1 DEN. DEN warrants and covenants that it has the full power to enter into
and perform according to the terms of this Agreement.
6.2 Microsoft. Microsoft warrants and covenants that it has the full power to
enter into and perform according to the terms of this Agreement.
6.3 Continuous Nature. The representations and warranties contained in this
Section 6 are continuous in nature and shall be deemed to have been given
by the warrantor at execution of this Agreement and at each stage of
performance hereunder.
7. DISCLAIMER OF FURTHER WARRANTIES
EXCEPT AS EXPRESSLY SET FORTH IN SECTION 6, ANY AND ALL SOFTWARE, CONTENT, OR
CONFIDENTIAL INFORMATION PROVIDED BY EITHER PARTY TO THE OTHER HEREUNDER IS
PROVIDED "AS IS," WITHOUT WARRANTY OF ANY KIND. EACH PARTY DISCLAIMS ALL
WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND
NONINFRINGEMENT.
8. DISCLAIMER OF CONSEQUENTIAL DAMAGES
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL, INDIRECT,
OR CONSEQUENTIAL DAMAGES WHATSOEVER (INCLUDING, BUT NOT LIMITED TO, DAMAGES FOR
LOSS OF PROFITS OR CONFIDENTIAL OR OTHER INFORMATION, FOR BUSINESS
INTERRUPTION, FOR PERSONAL INJURY, FOR LOSS OF PRIVACY, FOR FAILURE TO MEET ANY
DUTY INCLUDING OF GOOD FAITH OR OF REASONABLE CARE, FOR NEGLIGENCE, AND FOR ANY
OTHER PECUNIARY OR OTHER LOSS WHATSOEVER) ARISING OUT OF OR IN ANY WAY RELATED
TO ANY PROVISION OF AGREEMENT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9. TERMINATION
9.1 Term. This Agreement shall continue for the Term unless earlier
terminated pursuant to Section 9.2.
9.2 Termination. Either party may suspend performance and/or terminate
this Agreement immediately upon written notice at any time if:
(a) The other party is in material breach of any material warranty,
term, condition or covenant of this Agreement, other than those
contained in Section 5, and fails to cure that breach within fifteen
(15) days after written notice thereof; or
Page 5 of 7
Confidential
<PAGE> 6
(b) The other party is in material breach of Section 5.
9.3 Survival. In the event of termination or expiration of this Agreement for
any reason, Sections 5, 6, 7, 8 and 10 shall survive. Neither party shall
be liable to the other for damages of any sort resulting solely from
terminating this Agreement in accordance with its terms.
10. GENERAL PROVISIONS
10.1 Notices. All notices and requests in connection with this Agreement shall
be deemed given as of the day they are received either by messenger,
delivery service, or in the United States of America mails, postage
prepaid, certified or registered, return receipt requested, to the
addresses below:
<TABLE>
<S> <C>
To DEN: To Microsoft:
Digital Entertainment Network, Inc. Microsoft Corporation
2230 Broadway One Microsoft Way
Santa Monica, CA 90404 Redmond, WA 98052-6399
Attention: General Counsel Attention:
Phone: 310-998-9200 Phone: (425) 882-8080
Fax: 310-998-1101 Fax: (425) 936-7329
Copy to: Copy to:
Susan A. Grode Microsoft Corporation
Katten, Muchin & Zavis One Microsoft Way
1999 Avenue of the Stars Redmond, WA 98052-6399
Los Angeles, CA 90067 Attention: Law & Corporate Affairs
Fax: Fax: (425) 936-7409
</TABLE>
or to such other address as a party may designate pursuant to this notice
provision.
10.2 Independent Parties. Nothing in this Agreement shall be construed as
creating an employer-employee relationship, an agency relationship, a
partnership, or a joint venture between the parties.
10.3 Governing Law. This Agreement will be governed by the laws of the State of
California, as though entered into between California residents and
performed entirely within the State of California. Any action or
litigation concerning this Agreement will take place exclusively in the
federal or state courts in Los Angeles County, California, and the parties
expressly consent to jurisdiction of and venue in such courts and waive
all defenses of lack of personal jurisdiction and forum non conveniens
with respect to such courts. DEN hereby agrees to service of process by
mail or other method acceptable under the laws of the State of California.
10.4 Attorneys' Fees. In any action or suit to enforce any right or remedy
under this Agreement or to interpret any provision of this Agreement, the
prevailing party shall be entitled to recover its costs, including
reasonable outside attorneys' fees and costs.
10.5 Assignment. This Agreement and any rights or obligations hereunder may not
be assigned by DEN without Microsoft's prior written approval except to
DEN's wholly owned subsidiaries. Any attempted assignment, sub-license,
transfer, encumbrance or other disposal by DEN without such consent will
be void and will constitute a material default and breach of this
Agreement for which Microsoft may terminate this Agreement in accordance
with Section 9.2. Except as otherwise provided, this Agreement will be
binding upon and inure to the benefit of the parties' successors and
lawful assigns.
10.6 Force Majeure. Neither party shall be liable to the other under this
Agreement for any delay or failure to perform its obligations under this
Agreement if such delay or failure arises from any
Page 6 of 7
Confidential
<PAGE> 7
cause (for example, labor disputes, strikes, earthquake, floods, fire,
lightning, utility or communications failures, earthquakes, vandalism,
war, acts of terrorism, riots, insurrections, embargoes, or laws,
regulations or orders of any governmental entity) beyond such party's
reasonable control.
10.7 Construction. If for any reason a court of competent jurisdiction finds
any provision of this Agreement, or portion thereof, to be unenforceable,
that provision of the Agreement will be enforced to the maximum extent
permissible so as to effect the intent of the parties, and the remainder
of this Agreement will continue in full force and effect. Failure by
either party to enforce any provision of this Agreement will not be
deemed a waiver of future enforcement of that or any other provision.
This Agreement has been negotiated by the parties and their respective
counsel and will be interpreted fairly in accordance with its terms and
without any strict construction in favor of or against either party.
10.8 Entire Agreement. This Agreement does not constitute an offer by
Microsoft and it shall not be effective until signed by both parties.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and merges all prior and
contemporaneous communications. It shall not be modified except by a
written agreement dated subsequent to the date of this Agreement and
signed on behalf of DEN and Microsoft by their respective duly authorized
representatives.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
Effective Date written above.
MICROSOFT CORPORATION DIGITAL ENTERTAINMENT NETWORK, INC.
/s/ WILLIAM POOLE /s/ H. JAMES RITTS III
- ---------------------------------- ----------------------------------
By(sign) By(sign)
William Poole H. James Ritts III
- ---------------------------------- ----------------------------------
Name(print) Name(print)
Senior Director Chief Executive Officer
- ---------------------------------- ----------------------------------
Title Title
June 16, 1999 May 25, 1999
- ---------------------------------- ----------------------------------
Date Date
Page 7 of 7
Confidential
<PAGE> 1
EXHIBIT 10.33
May 27, 1999
Mr. Rick Rock
Pepsi-Cola
700 Anderson Hill Road
Purchase, NY 10577
RE: LETTER OF AGREEMENT
Dear Rick:
On behalf of Digital Entertainment Network, Inc. ("DEN"), I'd like to thank you
for your commitment to be one of DEN's Charter Sponsors. This Letter of
Agreement sets forth the basic agreement between DEN and Pepsi-Cola
("Advertiser") with respect to the purchase of category-exclusive sponsorship
for Programming Year 1 (July 1, 1999-June 30, 2000).
1. Advertiser shall have advertising exclusivity for the category including
carbonated soft drinks, juice, RTD tea, water and salty snacks (but
excluding, without limitation, isotonic drinks, sports drinks and coffee)
for Programming Year 1 for DEN programming Episode(s) which will at least
meet PG-13 and TV 14 standards, and to be distributed on or by DEN's
channels and/or websites on the World Wide Web and other DEN-branded
businesses, such as its record label.
2. At Advertiser's request, DEN and Advertiser shall work together in good
faith to develop Advertiser's advertising and any other sponsorship elements
for Programming Year 1. If Advertiser desires, DEN will consult with
Advertiser and its advertising agencies to develop its creative for DEN. If
Advertiser desires, DEN will also produce in-house the banners and
commercials which Advertiser runs on DEN programming. If DEN produces
Advertiser's banners and commercials in-house, there will be no charge to
Advertiser for this production. Advertising may include audiovisual
advertising spots similar to television commercials ("Commercial Spots"),
so-called banner ads displayed on DEN's web pages ("Banner Ads"), in-Episode
product placements (i.e. "hero" cars and trucks in DEN shows), audio clips,
endorsements, games, contests, sweepstakes, hypertext links to informational
or purchase opportunities or other advertising opportunities mutually
agreeable to DEN and Advertiser (collectively,"Ad(s)"). Additionally, if
Advertiser desires to include in-Episode product placement, DEN will, at no
additional cost to Advertiser, make good faith efforts to incorporate such
product(s) in Episode(s) subject to DEN's production schedule.
3. DEN guarantees that the aggregate of all Episode(s) first released in
Programming Year 1 which include Advertiser messages shall receive not less
than an aggregate of [*] U.S. (50 states) 12-24 advertising impressions
("Total Impressions"). Impressions achieved for Advertiser prior to the
commencement of Programming Year 1 ("development phase") will be at no cost
to Advertiser. The accounting of advertising impressions shall be verified
by a mutually agreed upon third-party verification service paid for by DEN.
If fewer Total Impressions are verified, the remedy to Advertiser will be
one of the following: [*]
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 2
[*]
4. DEN shall collect data reasonably requested by Advertiser, provided such
data is readily available to DEN, concerning the viewers of Episode(s) and
the viewing of the Episode(s) and Ad(s) during Programming Year 1 and make
such information available to Advertiser.
5. In consideration of the above, Advertiser agrees to:
(a) pay DEN the sum of [*] for the period July 1, 1999 - December 31,
1999 of which [*] will be mutually agreed upon barter (for example,
in-theatre trailers, targeted youth media, Pepsi World, etc.);
(b) pay to DEN, on December 28, 1999, the sum of [*] for the period
January 1, 2000 - June 30, 2000, provided that DEN is and continues
to be operating as contemplated herein.
6. Provided all amounts due hereunder have been paid, Advertiser shall have
two (2) successive, dependent rights of first negotiation and subsequent
rights of first refusal for each of the Programming Years 2 and 3 (July
2000 - June 2001 and July 2001 - June 2002, respectively) for the
carbonated soft drink, Juice, RTD tea, water and salty snacks category.
The parties shall negotiate in good faith for sixty (60) days from the
date hereof with respect to the exercise date for the options and
additional term and conditions with respect to Programming Years 2 and 3,
including, without limitation and with respect to an equity component. For
Pepsi in the DEN, in return for sponsorship.
The parties shall negotiate in good faith to enter into a more formal agreement
incorporating the material terms and such other terms and conditions as are
typical of agreements of this type in the U.S. advertising industry. Until such
time, if ever, this agreement shall be binding upon the parties.
We look forward to working with you to develop an effective digital branding
effort for Pepsi-Cola on The DEN.
Sincerely,
Ed Winter
Chief Marketing Officer
"UNDERSTOOD AND AGREED"
"Advertiser"
By: /s/ Rich Rose
-------------------------------
Its:
------------------------------
Date Signed: 5/27/99
----------------------
Cc: Alan Friel (DEN)
Ashley Shomaker (DEN)
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 1
EXHIBIT 10.35
SUBSCRIPTION AND STOCKHOLDER'S AGREEMENT
This Subscription and Stockholder's Agreement (this "Agreement")
is made as of the 15th day of June, 1999, by and among DIGITAL ENTERTAINMENT
NETWORK, INC., a Delaware corporation (the "Company"), Gary Gersh (the
"Executive") and, only with respect to Sections 6 and 7 hereof, Marc
Collins-Rector (together with any trust into which he may deposit his shares of
Common Stock (as defined below), the "Selling Stockholder").
WHEREAS, Company and Executive have entered into the DEN
Executive Employment Agreement (the "Employment Agreement"), dated as of May 1,
1999;
WHEREAS, this Agreement is being entered into pursuant to
Paragraph 4(e) of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Employment Agreement.
2. Issuance of Stock.
(a) Upon the execution and delivery of this Agreement by the
parties hereto, Company will issue to Executive, and Executive will receive from
Company, 266,656 shares (the "Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock").
(b) Promptly (but in no event more than thirty (30) days) after
the execution and delivery of this Agreement by the parties hereto, Company
shall deliver to Executive certificate(s) representing the Shares, registered in
Executive's name.
(c) Executive acknowledges that the Shares will be issued
pursuant to exemptions from registration and qualification provided by Section
4(2) of the Securities Act of 1933 and California Corporations Code Section
25102(f).
(d) Executive represents and warrants:
(i) The Shares will be acquired for Executive's own account,
and not with a view to or for sale in connection with
any distribution of such security.
(ii) By reason of Executive's knowledge and experience in
financial and business matters in general, and
investments in particular, Executive is able to evaluate
the merits and risks of an investment in the Shares.
3. Transfer Restrictions.
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(a) Prior to the consummation of the Company's IPO, Executive may
not, directly or indirectly, sell, give, transfer, convey, assign, pledge,
alienate, encumber, hypothecate, or otherwise dispose of or transfer, or offer
to do any of the foregoing (collectively, "Transfer"), any of the Shares, or any
interest therein, except to a Permitted Transferee (as defined below), without
the prior written consent of the Board of Directors of the Company, which the
Board of Directors of the Company may withhold in its sole and absolute
discretion, Any attempt to Transfer any of the Shares, or any interest therein,
contrary to the foregoing restriction, shall be null, void and ineffective.
"Permitted Transferee" means a trust established for the exclusive benefit of
Executive and/or Executive's spouse, parents or direct lineal descendants or,
upon the death of Executive, Executive's executors, administrators, testamentary
trustees, heirs, devisees and legatees. The provisions of this Section 3(a) do
not apply to any Transfer pursuant to Sections 4, 5, 6 or 7 of this Agreement.
(b) A copy of this Agreement shall be filed with the Secretary of
the Company and kept with the records of the Company. Each certificate
representing any Shares owned by Executive shall bear the following legends:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
UNLESS, IN THE OPINION OF COUNSEL TO THE STOCKHOLDER (WHICH COUNSEL MUST BE, AND
THE FORM AND SUBSTANCE OF SUCH OPINION ARE, SATISFACTORY TO THE ISSUER) SUCH
OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS
EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT, SUCH LAWS
AND THE SUBSCRIPTION AND STOCKHOLDER'S AGREEMENT, DATED AS OF JUNE 15, 1999,
BETWEEN THE ISSUER AND GARY GERSH (THE "STOCKHOLDER'S AGREEMENT").
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND OTHER RESTRICTIONS, AS SPECIFIED IN THE STOCKHOLDER'S AGREEMENT. A
COPY OF THE STOCKHOLDER'S AGREEMENT IS ON FILE AT THE OFFICE OF THE ISSUER AND
WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SHARES UPON WRITTEN
REQUEST."
In addition, such certificates will bear such legends as may be required by any
state securities laws.
(c) Any Transfer of Shares to a Permitted Transferee permitted
under Section 3(a) of this Agreement shall be permitted and shall be effective
only if such Permitted Transferee shall agree in writing to be bound by the
terms and conditions of this Agreement pursuant to an instrument of assumption
reasonably satisfactory in substance and form to the Board of Directors of the
Company. Upon the execution of such instrument by such Permitted Transferee,
such Permitted Transferee shall be deemed to be the Executive for all purposes
of this Agreement.
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(d) In connection with an IPO, Executive shall enter into a
lock-up agreement prohibiting any Transfer (including, without limitation,
indirect transfers of the economic interest in the Shares, such as hedging
transactions) of any of the Shares, or any interest therein, without the prior
written consent of the Company and its underwriters. Such lock-up agreement
shall (i) only contain such terms and conditions as may be required by such
underwriters and (ii) be substantially similar in length of duration and all
other material respects as the lock-up agreements that other senior executives
and affiliates of the Company enter into in connection with the IPO. All senior
executives and affiliates of the Company, including, without limitation, Marc
Collins-Rector, will be required to enter into such substantially similar
lock-up agreements as Executive in connection with the IPO. The obligation
contained in this subsection (d) will survive the termination of this Agreement,
and any such lock-up agreement shall be in effect for such period of time from
and after the effective date of the final prospectus for the IPO as may be
required by such underwriters. In order to enforce the limitations of this
subsection (d), the Company may impose stop-transfer instructions with respect
to the Shares until the end of such lock-up period.
4. Forfeiture of the Shares.
(a) If Executive's employment with Company is terminated pursuant
to Paragraph 5(b) of the Employment Agreement or Executive resigns from
employment with the Company other than pursuant to Paragraph 5(e) or 5(f) of the
Employment Agreement, all rights of Executive with respect to the Shares shall
immediately terminate and be forfeited in their entirety.
(b) Upon the forfeiture of the Shares, in accordance with Section
4(a) of this Agreement, the certificate or certificates, as the case may be,
representing the Shares shall be delivered by or on behalf of Executive or his
Permitted Transferee, as the case may be, to the Company and canceled.
5. Right of First Refusal.
(a) The Company is hereby granted the following right of first
refusal (the "First Refusal Right") with respect to any proposed Transfer of the
Shares, or any interest therein. The First Refusal Right is not applicable to
Transfers to a Permitted Transferee.
(b) In the event Executive desires to accept a bona fide
third-party offer for the Transfer of any or all of the Shares, or any interest
therein (the Shares or interest therein subject to such offer to be hereinafter
referred to as the "Target Shares"), Executive shall promptly deliver to the
Secretary of the Company written notice (the "Disposition Notice") of the terms
and conditions of the offer, including the purchase price and the identity of
the third-party offeror.
(c) The Company (or its assignees) shall, upon the decision of
the Board of Directors of the Company, for a period of twenty-five (25) days
following receipt of the Disposition Notice, have the right to agree to the
repurchase of any or all of the Target Shares subject to the Disposition Notice
upon the same terms and conditions as those specified therein
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<PAGE> 4
or upon such other terms and conditions to which Executive consents in writing.
Such right shall be exercisable by delivery of written notice (the "Exercise
Notice") to Executive prior to the termination of the twenty-five (25) day
exercise period. If such right is exercised with respect to the Target Shares,
the Company (or its assignees) shall effect the repurchase of such shares,
including payment of the purchase price, not more than ten (10) business days
after delivery of the Exercise Notice; and at such time Executive shall deliver
to the Company the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer.
(d) Should the purchase price specified in the Disposition Notice
be payable in property other than cash or evidences of indebtedness, the Company
(or its assignees) shall have the right to pay the purchase price in the form of
cash equal in amount to the value of such property. If Executive and the Company
(or its assignees) cannot agree on such cash value within ten (10) days after
the Company's receipt of the Disposition Notice, the valuation shall be made by
an appraiser of recognized standing selected by Executive and the Company (or
its assignees) or, if they cannot agree on an appraiser within twenty (20) days
after the Company's receipt of the Disposition Notice, each shall select an
appraiser of recognized standing and the two (2) appraisers shall designate a
third appraiser of recognized standing, whose appraisal shall be determinative
of such value. The cost of such appraisal shall be shared equally by Executive
and the Company. The closing shall then be held on the later of (i) the fifth
business day following delivery of the Exercise Notice or (ii) the fifth
business day after such cash valuation shall have been made.
(e) In the event that the Exercise Notice is not given to
Executive within twenty-five (25) days following the date of the Company's
receipt of the Disposition Notice, (i) the First Refusal Right shall be deemed
to not have been exercised, (ii) the Target Shares (and, for the avoidance of
doubt, any additional Shares) shall continue to be subject to the Transfer
restrictions contained in Section 3 of this Agreement and (iii) Executive shall
not Transfer any of the Shares to such third-party offeror unless the Board of
Directors of the Company consents in writing (which consent can be withheld by
the Board of Directors of the Company in its sole and absolute discretion) and
the other requirements of this Agreement and applicable law are satisfied.
6. Tag-Along Rights.
(a) If the Selling Stockholder negotiates or receives and elects
to accept one or more bona fide offers to purchase shares of Common Stock (a
"Purchase Offer") owned by him, the Selling Stockholder, subject to other
restrictions contained herein, shall promptly notify in writing Executive and
the Company of the terms and conditions of such Purchase Offer and the number of
shares of Common Stock proposed for sale pursuant to the Purchase Offer (the
"Tag-Along Rights Notice") and must include therewith a copy of all materials
relating to the Purchase Offer.
(b) Executive shall have the right (the "Tag-Along Right"),
exercisable upon written notice to the Selling Stockholder within ten (10) days
after the date of his receipt of the Tag-Along Rights Notice, to participate in
the Selling Stockholder's sale of Common Stock pursuant to the specified terms
and conditions of such Purchase Offer and with respect to an
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<PAGE> 5
amount of Shares (the "Election Number of Shares"), expressed as a percentage of
the number of Shares then owned by Executive, that is no more than the
percentage of the number of shares of Common Stock then owned by the Selling
Stockholder intended to be sold in such sale. To the extent Executive exercises
such right of participation, the number of shares of Common Stock that the
Selling Stockholder may sell pursuant to such Purchase Offer shall be
correspondingly reduced. Nothing herein shall prevent Executive from waiving his
rights under this Section 6.
(c) The exercise of the Tag-Along Right and the transfer of the
Election Number of Shares shall occur on the date of and at the place of closing
of the transaction between the Selling Stockholder and the maker(s) of the
Purchase Offer (the "Closing Date"). On the Closing Date, Executive shall
deliver to the maker(s) of the Purchase Offer, one or more stock certificates
representing the Election Number of Shares, properly endorsed for transfer,
against payment of the purchase price therefor by a wire transfer of funds to
the bank account designated by Executive or by cashiers check. In the event that
Executive's certificate(s) represents more Shares than the Election Number,
Executive shall first deliver such certificate(s) to Company, which shall cancel
such certificate(s) and reissue two new certificates in the name of Executive,
one of such certificates representing the Election Number of Shares, and the
other certificate representing the balance of the Shares so delivered to
Company. Executive shall then deliver the certificate representing the Election
Number of Shares, properly endorsed for transfer, to the maker(s) of the
Purchase Offer.
(d) If there is any material change in the terms and conditions
of the transaction described in the Tag-Along Rights Notice (including, without
limitation, any decrease in the purchase price) after Executive makes the
election set forth above, the Selling Stockholder shall promptly notify
Executive in writing (the "Change Notice") of the changed material terms or
conditions and Executive shall have the right, exercisable upon written notice
to the Selling Stockholder within five (5) days after his receipt of the Change
Notice, to withdraw from participation in such transaction any or all of his
Shares.
(e) The provisions of this Section 6 shall not apply to: (i)
sales by the Selling Stockholder of not more than ten percent (10%) (when
aggregated with all prior sales) of his shares of Common Stock, (ii) sales
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act") and (iii) sales in which the rights
provided in Section 7 of this Agreement are exercised.
7. Drag-Along Rights.
(a) If the Selling Stockholder proposes to sell to one or more
third parties in a bona fide sale (the "Buyer") shares of Common Stock, then, if
requested in writing by the Selling Stockholder (the "Drag-Along Right"),
Executive shall be required to sell in such sale, subject to the other
restrictions contained herein, that percentage of the number of Shares then
owned by Executive that is equal to the percentage of the number of shares of
Common Stock then owned by the Selling Stockholder intended to be sold in such
sale (the "Required Number"). To exercise the Drag-Along Right, the Selling
Stockholder shall give written notice thereof (the "Drag-Along Notice") to
Executive. The Drag-Along Notice shall state (i) the name and address of the
Buyer, (ii) the price per share and the form of consideration which the Buyer
proposes to pay for the purchased shares of Common Stock and (iii) the method of
payment and other
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material terms and conditions of the proposed sale.
(b) The sale of the Shares that Executive is required to sell
pursuant to Section 7(a) of this Agreement shall be for a purchase price and on
other terms and conditions not less favorable to Executive than those applicable
to the Selling Stockholder.
(c) The exercise of the Drag-Along Right and the transfer of
Shares resulting from the exercise of such right shall occur on the date of and
at the place of closing of the transaction between the Selling Stockholder and
the Buyer (the "Drag-Along Closing Date"). On the Drag-Along Closing Date,
Executive shall promptly deliver to the Buyer, for transfer to the Buyer, one or
more stock certificates representing the Required Number of Shares, properly
endorsed for transfer, against payment of the purchase price therefor by a wire
transfer of funds to the bank account designated by Executive or by cashiers
check. In the event that such certificate(s) represents more than the Required
Number of Shares, then procedures similar to those described in the last two
sentences of Section 6(c) of this Agreement shall be followed.
(d) The provisions of this Section 7 shall not apply to: (i)
sales by the Selling Stockholder of not more than ten percent (10%) (when
aggregated with all prior sales) of his shares of Common Stock, (ii) sales
pursuant to an effective registration statement under the Securities Act and
(iii) sales in which the rights provided in Section 6 of this Agreement are
exercised.
(e) Any agreement pursuant to which the Shares are to be sold
pursuant to Section 6 or Section 7 of this Agreement shall contain the
representations, warranties, indemnities, covenants and other agreements by
Executive as may be reasonably requested by the Buyer or the maker(s) of the
Purchase Offer, as the case may be. If Executive refuses to make such
representations, warranties, indemnities, covenants and other agreements, and is
otherwise unable to negotiate to the mutual satisfaction of Executive and such
Buyer or maker(s) of the Purchase Offer, as the case may be, then the rights and
obligations conferred upon Executive by Sections 6 and 7 shall terminate as to
such sale and the Selling Stockholder shall be able to consummate such sale
without the participation of Executive.
8. Piggyback Registration Rights.
The Company hereby covenants to use its best efforts to include in any
registration rights agreement that it enters into with the Selling Stockholder
provisions to the effect that, if Company registers under the Securities Act
shares of Common Stock held by the Selling Stockholder, Company will also
register under the Securities Act Shares held by Executive, subject to the
following: (i) the percentage of the number of Shares held by Executive (on the
date the Company files such registration statement) to be so registered by
Company shall be as close as possible to the percentage of the number of shares
of Common Stock held by the Selling Stockholder (on the date the Company files
such registration statement) to be so registered by Company and (ii) the
Company's registration obligations with respect to the Shares will be subject to
market cutbacks by the underwriters of such registered offering.
9. Arbitration.
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(a) Except for Company's right to seek immediate injunctive and
equitable relief in accordance with the provisions of this Agreement, the
Parties agree that all disputes, claims, causes of action and other matters in
controversy arising out of or relating to Your employment, remuneration or terms
and conditions of employment shall be submitted to binding arbitration in
accordance with the provisions and procedures of this Section 9. The obligation
to arbitrate shall be mutual.
(b) The arbitration provided for in this Section 9 shall take
place in Los Angeles County, California, in accordance with the provisions of
Title 9, Sections 1280 et seq. of the California Code of Civil Procedure, except
as provided to the contrary hereunder. The arbitration shall be held before and
decided by a single neutral arbitrator. The single neutral arbitrator shall be
selected in accordance with the National Rules for the Resolution of Employment
Disputes of the American Arbitration Association (the "AAA"), as effective on
May 1, 1997, or as thereafter amended and currently in force (the "AAA Rules"),
or by an alternative process mutually agreed upon by the Parties. If no
agreement can be reached as to the process for selecting the arbitrator or if
the agreed method fails, the arbitrator shall be appointed by the AAA.
(c) The Parties shall agree upon the date and location of the
arbitration, subject to the availability of the arbitrator. If no agreement can
be reached as to the date and location of the arbitration, the arbitrator shall
appoint a time and place in accordance with the provisions of the AAA Rules,
except that the arbitrator shall give not fewer than thirty (30) days' notice of
the hearing unless the Parties mutually agree to shorten time for notice.
(d) Discovery shall be permitted in connection with the
arbitration provided for in this Paragraph 9 pursuant to California Code of
Civil Procedure Sections 1282.2, et seq.
(e) The arbitrator shall issue a written reasoned decision
consistent with and based upon California and/or federal law, whichever shall
apply. The decision of the arbitrator may be confirmed pursuant to the
provisions of California Code of Civil Procedure Section 1285, and entered as an
award in any court of competent jurisdiction.
10. Choice of Law, Jurisdiction, Venue.
This Agreement shall be governed and interpreted by the laws of the
State of California (without giving effect to any conflict of law provisions
thereof) applicable to agreements entered into and to be fully performed
therein. Subject to Section 9 of this Agreement, the Parties to this Agreement
agree to submit to the exclusive jurisdiction and venue of the Los Angeles
County Superior Court and/or the U.S. District Court for the Central District of
California with respect to disputes arising under or related to this Agreement,
and hereby consent to service by U.S. Mail. In the event either party commences
arbitration or litigation for the judicial interpretation, enforcement, breach
or rescission hereof, the substantially prevailing party shall be entitled to
recover reasonable outside attorneys' fees and court and other costs incurred.
11. Binding Effect; Assignment.
All terms of this Agreement shall be binding upon and inure to the
benefit of and be
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enforceable by the Parties hereto and their respective legal representatives,
successors and permitted assigns. Executive may not assign any of his rights
hereunder or delegate any of his duties hereunder. The Company may assign any or
all of its rights hereunder and delegate any or all of its duties hereunder.
12. Severability.
In the event that any provision, or portion thereof, of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby.
13. Interpretation.
Each party to this Agreement has participated in, cooperated in or
contributed to the drafting and preparation of this Agreement. In any
construction of this Agreement, the same shall not be construed for, or against,
any party but shall be construed fairly according to its plain meaning.
14. Captions.
Captions in this Agreement are inserted for convenience of reference
only and do not define, describe or affect the construction or interpretation or
limit the scope or the intent of this Agreement or any of the terms or
provisions hereof.
15. Execution in Counterparts.
This Agreement may be executed in counterparts. When each party has
signed and delivered at least one counterpart, each counterpart shall be deemed
an original and, when taken together with the other counterparts, shall
constitute one agreement which shall be binding on and inure to the benefit of
all Parties. Photographic or facsimile copies of such signed counterparts may be
used in lieu of the originals for any purpose.
16. Written Notice.
Unless otherwise specifically provided herein, all notices, demands or
other communications given hereunder shall be in writing and shall be deemed to
have been delivered as of actual personal delivery or as of the third business
day (excluding Saturdays) after mailing by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive, to:
Gary Gersh
c/o Gary Stiffelman, Esq.
Ziffren, Brittenham, Branca & Fischer
1801 Century Park West
Los Angeles, California 90067
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With a copy to:
Gary Stiffelman, Esq.
Ziffren, Brittenham, Branca & Fischer
1801 Century Park West
Los Angeles, California 90067
If to Company or the Selling Stockholder, to:
Digital Entertainment Network, Inc.
2400 Broadway, Suite 230
Santa Monica, California 90404
Attn: Alan L. Friel, Esq.
With a copy to:
Katten Muchin & Zavis
1999 Avenue of the Stars, Suite 1400
Los Angeles, California 90067
Attn: Susan Grode, Esq.
17. Completeness of Agreement.
This Agreement contains the entire agreement between the Parties hereto
relating to the transactions contemplated hereby, and all prior or
contemporaneous agreements, understandings, representations and statements, oral
or written, are superseded and of no force and effect.
18. Modification of Agreement.
Except as otherwise provided for herein, no modification, waiver,
amendment, discharge or change of this Agreement or any term or representation
therein shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment, discharge
or change is or may be sought.
19. Termination.
This Agreement shall terminate upon the first to occur of (i) mutual
consent of the Parties hereto (ii) Executive's termination of the Employment
Agreement for the Company's failure to deliver a Fund Notice (as defined in the
Employment Agreement); (iii) the consummation of the Company's IPO; or (iv) the
occurrence of a Change in Control which shall be deemed to have occurred if (a)
any corporation, person or other entity (other than the Company, a
majority-owned subsidiary of the Company or any of its subsidiaries, an employee
benefit plan (or related trust) sponsored or maintained by the Company, or the
stockholders of the Company on the Grant Date), including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of stock representing more than thirty-five percent (35%)
of the combined voting power of the Company's then outstanding securities;
(b)(i)
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the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
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IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first written above.
EXECUTIVE:
/s/ Gary Gersh
-----------------------------
Gary Gersh
COMPANY:
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ H. James Ritts, III
-------------------------
H. James Ritts, III
Chief Executive Officer
SELLING STOCKHOLDER (only with
respect to Sections 6 and 7):
/s/ Marc Collins-Rector
-----------------------------
Marc Collins-Rector
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EXHIBIT 10.36
SUBSCRIPTION AND STOCKHOLDER'S AGREEMENT
This Subscription and Stockholder's Agreement (this "Agreement")
is made as of the 15th day of June, 1999, by and among DIGITAL ENTERTAINMENT
NETWORK, INC., a Delaware corporation (the "Company"), John Silva (the
"Executive") and, only with respect to Sections 6 and 7 hereof, Marc
Collins-Rector (together with any trust into which he may deposit his shares of
Common Stock (as defined below), the "Selling Stockholder").
WHEREAS, Company and Executive have entered into the DEN
Executive Employment Agreement (the "Employment Agreement"), dated as of May 1,
1999;
WHEREAS, this Agreement is being entered into pursuant to
Paragraph 4(e) of the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Definitions.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Employment Agreement.
2. Issuance of Stock.
(a) Upon the execution and delivery of this Agreement by the
parties hereto, Company will issue to Executive, and Executive will receive from
Company, 266,656 shares (the "Shares") of the Company's common stock, par value
$.01 per share (the "Common Stock").
(b) Promptly (but in no event more than thirty (30) days)
after the execution and delivery of this Agreement by the parties hereto,
Company shall deliver to Executive certificate(s) representing the Shares,
registered in Executive's name.
(c) Executive acknowledges that the Shares will be issued
pursuant to exemptions from registration and qualification provided by Section
4(2) of the Securities Act of 1933 and California Corporations Code Section
25102(f).
(d) Executive represents and warrants:
(i) The Shares will be acquired for Executive's own
account, and not with a view to or for sale in connection with any distribution
of such security.
(ii) By reason of Executive's knowledge and
experience in financial and business matters in general, and investments in
particular, Executive is able to evaluate the merits and risks of an investment
in the Shares.
3. Transfer Restrictions.
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(a) Prior to the consummation of the Company's IPO,
Executive may not, directly or indirectly, sell, give, transfer, convey, assign,
pledge, alienate, encumber, hypothecate, or otherwise dispose of or transfer, or
offer to do any of the foregoing (collectively, "Transfer"), any of the Shares,
or any interest therein, except to a Permitted Transferee (as defined below),
without the prior written consent of the Board of Directors of the Company,
which the Board of Directors of the Company may withhold in its sole and
absolute discretion, Any attempt to Transfer any of the Shares, or any interest
therein, contrary to the foregoing restriction, shall be null, void and
ineffective. "Permitted Transferee" means a trust established for the exclusive
benefit of Executive and/or Executive's spouse, parents or direct lineal
descendants or, upon the death of Executive, Executive's executors,
administrators, testamentary trustees, heirs, devisees and legatees. The
provisions of this Section 3(a) do not apply to any Transfer pursuant to
Sections 4, 5, 6 or 7 of this Agreement.
(b) A copy of this Agreement shall be filed with the
Secretary of the Company and kept with the records of the Company. Each
certificate representing any Shares owned by Executive shall bear the following
legends:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS AND
UNTIL REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR
UNLESS, IN THE OPINION OF COUNSEL TO THE STOCKHOLDER (WHICH COUNSEL MUST BE, AND
THE FORM AND SUBSTANCE OF SUCH OPINION ARE, SATISFACTORY TO THE ISSUER) SUCH
OFFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION, TRANSFER OR OTHER DISPOSITION IS
EXEMPT FROM REGISTRATION OR IS OTHERWISE IN COMPLIANCE WITH THE ACT, SUCH LAWS
AND THE SUBSCRIPTION AND STOCKHOLDER'S AGREEMENT, DATED AS OF JUNE 15, 1999,
BETWEEN THE ISSUER AND JOHN SILVA (THE "STOCKHOLDER'S AGREEMENT").
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER AND OTHER RESTRICTIONS, AS SPECIFIED IN THE STOCKHOLDER'S AGREEMENT. A
COPY OF THE STOCKHOLDER'S AGREEMENT IS ON FILE AT THE OFFICE OF THE ISSUER AND
WILL BE FURNISHED WITHOUT CHARGE TO THE HOLDER OF SUCH SHARES UPON WRITTEN
REQUEST."
In addition, such certificates will bear such legends as may be required by any
state securities laws.
(c) Any Transfer of Shares to a Permitted Transferee
permitted under Section 3(a) of this Agreement shall be permitted and shall be
effective only if such Permitted Transferee shall agree in writing to be bound
by the terms and conditions of this Agreement pursuant to an instrument of
assumption reasonably satisfactory in substance and form to the Board of
Directors of the Company. Upon the execution of such instrument by such
Permitted Transferee, such Permitted Transferee shall be deemed to be the
Executive for all purposes of this Agreement.
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(d) In connection with an IPO, Executive shall enter into a
lock-up agreement prohibiting any Transfer (including, without limitation,
indirect transfers of the economic interest in the Shares, such as hedging
transactions) of any of the Shares, or any interest therein, without the prior
written consent of the Company and its underwriters. Such lock-up agreement
shall (i) only contain such terms and conditions as may be required by such
underwriters and (ii) be substantially similar in length of duration and all
other material respects as the lock-up agreements that other senior executives
and affiliates of the Company enter into in connection with the IPO. All senior
executives and affiliates of the Company, including, without limitation, Marc
Collins-Rector, will be required to enter into such substantially similar
lock-up agreements as Executive in connection with the IPO. The obligation
contained in this subsection (d) will survive the termination of this Agreement,
and any such lock-up agreement shall be in effect for such period of time from
and after the effective date of the final prospectus for the IPO as may be
required by such underwriters. In order to enforce the limitations of this
subsection (d), the Company may impose stop-transfer instructions with respect
to the Shares until the end of such lock-up period.
4. Forfeiture of the Shares.
(a) If Executive's employment with Company is terminated
pursuant to Paragraph 5(b) of the Employment Agreement or Executive resigns from
employment with the Company other than pursuant to Paragraph 5(e) or 5(f) of the
Employment Agreement, all rights of Executive with respect to the Shares shall
immediately terminate and be forfeited in their entirety.
(b) Upon the forfeiture of the Shares, in accordance with
Section 4(a) of this Agreement, the certificate or certificates, as the case may
be, representing the Shares shall be delivered by or on behalf of Executive or
his Permitted Transferee, as the case may be, to the Company and canceled.
5. Right of First Refusal.
(a) The Company is hereby granted the following right of
first refusal (the "First Refusal Right") with respect to any proposed Transfer
of the Shares, or any interest therein. The First Refusal Right is not
applicable to Transfers to a Permitted Transferee.
(b) In the event Executive desires to accept a bona fide
third-party offer for the Transfer of any or all of the Shares, or any interest
therein (the Shares or interest therein subject to such offer to be hereinafter
referred to as the "Target Shares"), Executive shall promptly deliver to the
Secretary of the Company written notice (the "Disposition Notice") of the terms
and conditions of the offer, including the purchase price and the identity of
the third-party offeror.
(c) The Company (or its assignees) shall, upon the decision
of the Board of Directors of the Company, for a period of twenty-five (25) days
following receipt of the Disposition Notice, have the right to agree to the
repurchase of any or all of the Target Shares subject to the Disposition Notice
upon the same terms and conditions as those specified therein
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<PAGE> 4
or upon such other terms and conditions to which Executive consents in writing.
Such right shall be exercisable by delivery of written notice (the "Exercise
Notice") to Executive prior to the termination of the twenty-five (25) day
exercise period. If such right is exercised with respect to the Target Shares,
the Company (or its assignees) shall effect the repurchase of such shares,
including payment of the purchase price, not more than ten (10) business days
after delivery of the Exercise Notice; and at such time Executive shall deliver
to the Company the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer.
(d) Should the purchase price specified in the Disposition
Notice be payable in property other than cash or evidences of indebtedness, the
Company (or its assignees) shall have the right to pay the purchase price in the
form of cash equal in amount to the value of such property. If Executive and the
Company (or its assignees) cannot agree on such cash value within ten (10) days
after the Company's receipt of the Disposition Notice, the valuation shall be
made by an appraiser of recognized standing selected by Executive and the
Company (or its assignees) or, if they cannot agree on an appraiser within
twenty (20) days after the Company's receipt of the Disposition Notice, each
shall select an appraiser of recognized standing and the two (2) appraisers
shall designate a third appraiser of recognized standing, whose appraisal shall
be determinative of such value. The cost of such appraisal shall be shared
equally by Executive and the Company. The closing shall then be held on the
later of (i) the fifth business day following delivery of the Exercise Notice or
(ii) the fifth business day after such cash valuation shall have been made.
(e) In the event that the Exercise Notice is not given to
Executive within twenty-five (25) days following the date of the Company's
receipt of the Disposition Notice, (i) the First Refusal Right shall be deemed
to not have been exercised, (ii) the Target Shares (and, for the avoidance of
doubt, any additional Shares) shall continue to be subject to the Transfer
restrictions contained in Section 3 of this Agreement and (iii) Executive shall
not Transfer any of the Shares to such third-party offeror unless the Board of
Directors of the Company consents in writing (which consent can be withheld by
the Board of Directors of the Company in its sole and absolute discretion) and
the other requirements of this Agreement and applicable law are satisfied.
6. Tag-Along Rights.
(a) If the Selling Stockholder negotiates or receives and
elects to accept one or more bona fide offers to purchase shares of Common Stock
(a "Purchase Offer") owned by him, the Selling Stockholder, subject to other
restrictions contained herein, shall promptly notify in writing Executive and
the Company of the terms and conditions of such Purchase Offer and the number of
shares of Common Stock proposed for sale pursuant to the Purchase Offer (the
"Tag-Along Rights Notice") and must include therewith a copy of all materials
relating to the Purchase Offer.
(b) Executive shall have the right (the "Tag-Along Right"),
exercisable upon written notice to the Selling Stockholder within ten (10) days
after the date of his receipt of the Tag-Along Rights Notice, to participate in
the Selling Stockholder's sale of Common Stock pursuant to the specified terms
and conditions of such Purchase Offer and with respect to an
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<PAGE> 5
amount of Shares (the "Election Number of Shares"), expressed as a percentage of
the number of Shares then owned by Executive, that is no more than the
percentage of the number of shares of Common Stock then owned by the Selling
Stockholder intended to be sold in such sale. To the extent Executive exercises
such right of participation, the number of shares of Common Stock that the
Selling Stockholder may sell pursuant to such Purchase Offer shall be
correspondingly reduced. Nothing herein shall prevent Executive from waiving his
rights under this Section 6.
(c) The exercise of the Tag-Along Right and the transfer of
the Election Number of Shares shall occur on the date of and at the place of
closing of the transaction between the Selling Stockholder and the maker(s) of
the Purchase Offer (the "Closing Date"). On the Closing Date, Executive shall
deliver to the maker(s) of the Purchase Offer, one or more stock certificates
representing the Election Number of Shares, properly endorsed for transfer,
against payment of the purchase price therefor by a wire transfer of funds to
the bank account designated by Executive or by cashiers check. In the event that
Executive's certificate(s) represents more Shares than the Election Number,
Executive shall first deliver such certificate(s) to Company, which shall cancel
such certificate(s) and reissue two new certificates in the name of Executive,
one of such certificates representing the Election Number of Shares, and the
other certificate representing the balance of the Shares so delivered to
Company. Executive shall then deliver the certificate representing the Election
Number of Shares, properly endorsed for transfer, to the maker(s) of the
Purchase Offer.
(d) If there is any material change in the terms and
conditions of the transaction described in the Tag-Along Rights Notice
(including, without limitation, any decrease in the purchase price) after
Executive makes the election set forth above, the Selling Stockholder shall
promptly notify Executive in writing (the "Change Notice") of the changed
material terms or conditions and Executive shall have the right, exercisable
upon written notice to the Selling Stockholder within five (5) days after his
receipt of the Change Notice, to withdraw from participation in such transaction
any or all of his Shares.
(e) The provisions of this Section 6 shall not apply to: (i)
sales by the Selling Stockholder of not more than ten percent (10%) (when
aggregated with all prior sales) of his shares of Common Stock, (ii) sales
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act") and (iii) sales in which the rights
provided in Section 7 of this Agreement are exercised.
7. Drag-Along Rights.
(a) If the Selling Stockholder proposes to sell to one or
more third parties in a bona fide sale (the "Buyer") shares of Common Stock,
then, if requested in writing by the Selling Stockholder (the "Drag-Along
Right"), Executive shall be required to sell in such sale, subject to the other
restrictions contained herein, that percentage of the number of Shares then
owned by Executive that is equal to the percentage of the number of shares of
Common Stock then owned by the Selling Stockholder intended to be sold in such
sale (the "Required Number"). To exercise the Drag-Along Right, the Selling
Stockholder shall give written notice thereof (the "Drag-Along Notice") to
Executive. The Drag-Along Notice shall state (i) the name and address of the
Buyer, (ii) the price per share and the form of consideration which the Buyer
proposes to pay for the purchased shares of Common Stock and (iii) the method of
payment and other
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<PAGE> 6
material terms and conditions of the proposed sale.
(b) The sale of the Shares that Executive is required to
sell pursuant to Section 7(a) of this Agreement shall be for a purchase price
and on other terms and conditions not less favorable to Executive than those
applicable to the Selling Stockholder.
(c) The exercise of the Drag-Along Right and the transfer of
Shares resulting from the exercise of such right shall occur on the date of and
at the place of closing of the transaction between the Selling Stockholder and
the Buyer (the "Drag-Along Closing Date"). On the Drag-Along Closing Date,
Executive shall promptly deliver to the Buyer, for transfer to the Buyer, one or
more stock certificates representing the Required Number of Shares, properly
endorsed for transfer, against payment of the purchase price therefor by a wire
transfer of funds to the bank account designated by Executive or by cashiers
check. In the event that such certificate(s) represents more than the Required
Number of Shares, then procedures similar to those described in the last two
sentences of Section 6(c) of this Agreement shall be followed.
(d) The provisions of this Section 7 shall not apply to: (i)
sales by the Selling Stockholder of not more than ten percent (10%) (when
aggregated with all prior sales) of his shares of Common Stock, (ii) sales
pursuant to an effective registration statement under the Securities Act and
(iii) sales in which the rights provided in Section 6 of this Agreement are
exercised.
(e) Any agreement pursuant to which the Shares are to be
sold pursuant to Section 6 or Section 7 of this Agreement shall contain the
representations, warranties, indemnities, covenants and other agreements by
Executive as may be reasonably requested by the Buyer or the maker(s) of the
Purchase Offer, as the case may be. If Executive refuses to make such
representations, warranties, indemnities, covenants and other agreements, and is
otherwise unable to negotiate to the mutual satisfaction of Executive and such
Buyer or maker(s) of the Purchase Offer, as the case may be, then the rights and
obligations conferred upon Executive by Sections 6 and 7 shall terminate as to
such sale and the Selling Stockholder shall be able to consummate such sale
without the participation of Executive.
8. Piggyback Registration Rights.
The Company hereby covenants to use its best efforts to include in any
registration rights agreement that it enters into with the Selling Stockholder
provisions to the effect that, if Company registers under the Securities Act
shares of Common Stock held by the Selling Stockholder, Company will also
register under the Securities Act Shares held by Executive, subject to the
following: (i) the percentage of the number of Shares held by Executive (on the
date the Company files such registration statement) to be so registered by
Company shall be as close as possible to the percentage of the number of shares
of Common Stock held by the Selling Stockholder (on the date the Company files
such registration statement) to be so registered by Company and (ii) the
Company's registration obligations with respect to the Shares will be subject to
market cutbacks by the underwriters of such registered offering.
9. Arbitration.
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(a) Except for Company's right to seek immediate injunctive
and equitable relief in accordance with the provisions of this Agreement, the
Parties agree that all disputes, claims, causes of action and other matters in
controversy arising out of or relating to Your employment, remuneration or terms
and conditions of employment shall be submitted to binding arbitration in
accordance with the provisions and procedures of this Section 9. The obligation
to arbitrate shall be mutual.
(b) The arbitration provided for in this Section 9 shall
take place in Los Angeles County, California, in accordance with the provisions
of Title 9, Sections 1280 et seq. of the California Code of Civil Procedure,
except as provided to the contrary hereunder. The arbitration shall be held
before and decided by a single neutral arbitrator. The single neutral arbitrator
shall be selected in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association (the "AAA"), as
effective on May 1, 1997, or as thereafter amended and currently in force (the
"AAA Rules"), or by an alternative process mutually agreed upon by the Parties.
If no agreement can be reached as to the process for selecting the arbitrator or
if the agreed method fails, the arbitrator shall be appointed by the AAA.
(c) The Parties shall agree upon the date and location of
the arbitration, subject to the availability of the arbitrator. If no agreement
can be reached as to the date and location of the arbitration, the arbitrator
shall appoint a time and place in accordance with the provisions of the AAA
Rules, except that the arbitrator shall give not fewer than thirty (30) days'
notice of the hearing unless the Parties mutually agree to shorten time for
notice.
(d) Discovery shall be permitted in connection with the
arbitration provided for in this Paragraph 9 pursuant to California Code of
Civil Procedure Sections 1282.2, et seq.
(e) The arbitrator shall issue a written reasoned decision
consistent with and based upon California and/or federal law, whichever shall
apply. The decision of the arbitrator may be confirmed pursuant to the
provisions of California Code of Civil Procedure Section 1285, and entered as an
award in any court of competent jurisdiction.
10. Choice of Law, Jurisdiction, Venue.
This Agreement shall be governed and interpreted by the laws of the
State of California (without giving effect to any conflict of law provisions
thereof) applicable to agreements entered into and to be fully performed
therein. Subject to Section 9 of this Agreement, the Parties to this Agreement
agree to submit to the exclusive jurisdiction and venue of the Los Angeles
County Superior Court and/or the U.S. District Court for the Central District of
California with respect to disputes arising under or related to this Agreement,
and hereby consent to service by U.S. Mail. In the event either party commences
arbitration or litigation for the judicial interpretation, enforcement, breach
or rescission hereof, the substantially prevailing party shall be entitled to
recover reasonable outside attorneys' fees and court and other costs incurred.
11. Binding Effect; Assignment.
All terms of this Agreement shall be binding upon and inure to the
benefit of and be
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enforceable by the Parties hereto and their respective legal representatives,
successors and permitted assigns. Executive may not assign any of his rights
hereunder or delegate any of his duties hereunder. The Company may assign any or
all of its rights hereunder and delegate any or all of its duties hereunder.
12. Severability.
In the event that any provision, or portion thereof, of this Agreement
is held to be unenforceable or invalid by any court of competent jurisdiction,
the validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby.
13. Interpretation.
Each party to this Agreement has participated in, cooperated in or
contributed to the drafting and preparation of this Agreement. In any
construction of this Agreement, the same shall not be construed for, or against,
any party but shall be construed fairly according to its plain meaning.
14. Captions.
Captions in this Agreement are inserted for convenience of reference
only and do not define, describe or affect the construction or interpretation or
limit the scope or the intent of this Agreement or any of the terms or
provisions hereof.
15. Execution in Counterparts.
This Agreement may be executed in counterparts. When each party has
signed and delivered at least one counterpart, each counterpart shall be deemed
an original and, when taken together with the other counterparts, shall
constitute one agreement which shall be binding on and inure to the benefit of
all Parties. Photographic or facsimile copies of such signed counterparts may be
used in lieu of the originals for any purpose.
16. Written Notice.
Unless otherwise specifically provided herein, all notices, demands or
other communications given hereunder shall be in writing and shall be deemed to
have been delivered as of actual personal delivery or as of the third business
day (excluding Saturdays) after mailing by United States registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to Executive, to:
John Silva
c/o Eric Greenspan
Myman, Abell, Fineman & Greenspan
11777 San Vicente Boulevard, #880
Los Angeles, California 90049-5061
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With a copy to:
Eric Greenspan
Myman, Abell, Fineman & Greenspan
11777 San Vicente Boulevard, #880
Los Angeles, California 90049-5061
If to Company or the Selling Stockholder, to:
Digital Entertainment Network, Inc.
2400 Broadway, Suite 230
Santa Monica, California 90404
Attn: Alan L. Friel, Esq.
With a copy to:
Katten Muchin & Zavis
1999 Avenue of the Stars, Suite 1400
Los Angeles, California 90067
Attn: Susan Grode, Esq.
17. Completeness of Agreement.
This Agreement contains the entire agreement between the Parties hereto
relating to the transactions contemplated hereby, and all prior or
contemporaneous agreements, understandings, representations and statements, oral
or written, are superseded and of no force and effect.
18. Modification of Agreement.
Except as otherwise provided for herein, no modification, waiver,
amendment, discharge or change of this Agreement or any term or representation
therein shall be valid unless the same is in writing and signed by the party
against which the enforcement of such modification, waiver, amendment, discharge
or change is or may be sought.
19. Termination.
This Agreement shall terminate upon the first to occur of (i) mutual
consent of the Parties hereto (ii) Executive's termination of the Employment
Agreement for the Company's failure to deliver a Fund Notice (as defined in the
Employment Agreement); (iii) the consummation of the Company's IPO; or (iv) the
occurrence of a Change in Control which shall be deemed to have occurred if (a)
any corporation, person or other entity (other than the Company, a
majority-owned subsidiary of the Company or any of its subsidiaries, an employee
benefit plan (or related trust) sponsored or maintained by the Company, or the
stockholders of the Company on the Grant Date), including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, becomes
the beneficial owner of stock representing more than thirty-five percent (35%)
of the combined voting power of the Company's then outstanding securities;
(b)(i)
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the stockholders of the Company approve a definitive agreement to merge or
consolidate the Company with or into another corporation other than a
majority-owned subsidiary of the Company, or to sell or otherwise dispose of all
or substantially all of the Company's assets, and (ii) the persons who were
members of the Board of Directors of the Company prior to such approval do not
represent a majority of the directors of the surviving, resulting or acquiring
entity or the parent thereof; (c) the stockholders of the Company approve a plan
of liquidation of the Company; or (d) within any period of 24 consecutive
months, persons who were members of the Board immediately prior to such 24-month
period, together with any persons who were first elected as directors (other
than as a result of any settlement of a proxy or consent solicitation contest or
any action taken to avoid such contest) during such 24-month period by or upon
the recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board at the time of such election, cease to constitute a majority of the
Board.
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first written above.
EXECUTIVE:
/s/ John Silva
------------------------------------------
John Silva
COMPANY:
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ H. James Ritts, III
---------------------------------------
H. James Ritts, III
Chief Executive Officer
SELLING STOCKHOLDER (only with
respect to Sections 6 and 7):
/s/ Marc Collins-Rector
------------------------------------------
Marc Collins-Rector
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<PAGE> 1
EXHIBIT 10.37
DIGITAL ENTERTAINMENT NETWORK, INC.
SUBSCRIPTION AGREEMENT
PLEASE READ CAREFULLY BEFORE SIGNING
ALL SUBSCRIPTIONS ARE SUBJECT TO ACCEPTANCE BY THE COMPANY. ALL INFORMATION
REQUIRED TO BE PROVIDED HEREIN BY SUBSCRIBERS FOR DETERMINING PURCHASER
QUALIFICATION WILL BE KEPT STRICTLY CONFIDENTIAL.
To: Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, California 90404
Attention: General Counsel
Telephone: (310) 998-9200
Telecopy: (310) 998-1101
Ladies and Gentlemen:
1. SUBSCRIPTION FOR SHARES. The undersigned hereby irrevocably subscribes
for ___________ shares of Series A Convertible Preferred Stock, par value $.01
per share (the "Shares"), of Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), for $100.00 per Share, representing an aggregate
purchase price of $__________.
2. ACCEPTANCE OF THIS SUBSCRIPTION AGREEMENT. It is understood that this
subscription is not binding on the Company until the Company accepts it, which
acceptance may be made in the Company's sole discretion. The closing of the
purchase and sale of the Shares shall take place on December 18, 1998, unless
such date is extended by the Company in its discretion.
3. REPRESENTATIONS AND WARRANTIES. To induce the Company to accept this
Subscription Agreement, the undersigned hereby represents, warrants and
covenants to the Company as follows:
A. The undersigned acknowledges that the undersigned has been
furnished with the Company's Confidential Offering Memorandum, as
supplemented or amended from time to time (the "Memorandum"), which sets
forth the relevant terms and conditions of this offering (the "Offering"),
and such other documents, materials and information as the undersigned
deems necessary or appropriate for evaluating an investment in the Company.
The undersigned confirms that the undersigned carefully has read and
understands such materials and has made such further investigation of the
Company as the undersigned deemed appropriate to obtain additional
information to verify the accuracy of such materials and to evaluate the
merits and risks of this investment. The undersigned acknowledges that the
undersigned has had the opportunity to ask questions of, and receive
answers from, the Company and persons acting on its behalf, concerning the
terms and conditions of the Offering and the information contained in the
Offering materials, and all such questions have been answered to the
undersigned's full satisfaction.
B. The undersigned understands that neither the Securities and
Exchange Commission nor any other federal or state agency has recommended,
approved or endorsed the purchase of the Shares as an investment or passed
on the accuracy or adequacy of the information set forth in the Memorandum
or any other Company documents.
C. The undersigned confirms that the undersigned is acquiring the
Shares subscribed for herein solely for the undersigned's own account, for
investment, and not with a view to the distribution or resale of such
Shares.
<PAGE> 2
D. The undersigned understands that: there are substantial
restrictions on the transferability of the Shares; holders of the Shares
have limited rights to require the Shares to be registered under the Act
(as hereinafter defined) or the securities laws of any state; there will be
no public market for the Shares; and it may not be possible for the
undersigned to liquidate the undersigned's investment in the Company, and
accordingly, the undersigned may have to hold the Shares, and bear the
economic risk of this investment, indefinitely.
E. If the undersigned is an individual, the undersigned has the legal
capacity and authority to execute, deliver, and perform the undersigned's
obligations under this Subscription Agreement. If the undersigned is a
corporation, partnership, trust, or other entity, the person executing this
Subscription Agreement has the full power and authority to execute and
deliver this Subscription Agreement on behalf of the subscribing entity,
and such entity is duly formed and organized, validly existing and in good
standing under the laws of its jurisdiction of formation, and such entity
has duly authorized the execution, delivery and performance of its
obligations under this Subscription Agreement.
F. If the undersigned is an entity, it has not been organized for the
specific purpose of acquiring the Shares or, if it has been organized for
the specific purpose of acquiring Shares, each of its beneficial owners is
separately accredited as defined in Rule 501(a) of Regulation D under the
Securities Act of 1933, as amended (the "Act").
G. If the undersigned is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), in making the proposed
investment it is aware of and has taken into consideration the applicable
fiduciary standards of conduct under ERISA, including but not limited to
the prudence and diversification requirements of Section 404(a)(1) of
ERISA.
H. The undersigned confirms that Shares were not offered to the
undersigned by any means of general solicitation or general advertising,
that the undersigned has received no representations, warranties or written
communications with respect to the offering of Shares other than those
contained in the Memorandum and in entering into this transaction the
undersigned is not relying upon any information other than that contained
in the Memorandum and the results of the undersigned's own independent
investigation.
I. The undersigned hereby understands and agrees that this
subscription, when accepted by the Company, is irrevocable and that the
representations and warranties set forth in this Subscription Agreement
shall survive the acceptance hereof by the Company.
J. The undersigned acknowledges that the undersigned has been advised
to consult with the undersigned's own attorney regarding legal matters
concerning the Shares and to consult with the undersigned's tax advisor
regarding the tax consequences of owning the Shares.
4. RELIANCE ON REPRESENTATIONS AND WARRANTIES. The undersigned
understands the meaning of the representations and warranties contained in this
Subscription Agreement and in the suitability questionnaire attached hereto (the
"Suitability Questionnaire") and understands and acknowledges that the Company
is relying upon the representations and warranties contained in this
Subscription Agreement and in the Suitability Questionnaire in determining
whether the Offering is eligible for exemption from the registration
requirements contained in the Act and in determining whether to accept the
subscription tendered hereby. The undersigned represents and warrants that the
information contained in this Subscription Agreement and in the Suitability
Questionnaire is true and correct as of the date hereof and agrees to notify
immediately the Company of any changes in such information (or, if there have
been any changes in the information provided to the Company by the undersigned
in the Suitability Questionnaire since the date the Suitability Questionnaire
was furnished, the undersigned has advised the Company in writing of such
changes). The undersigned hereby agrees to indemnify and hold harmless the
Company and each director, officer, stockholder, affiliate, attorney,
representative and employee thereof from and against any and all losses,
damages, costs, expenses, liabilities or attorneys' fees incurred, directly or
indirectly, from a breach of any representation or warranty of the undersigned,
whether contained in this Subscription Agreement or the Suitability
Questionnaire. Notwithstanding any of the representations, warranties,
acknowledgments or agreements made in this Subscription Agreement and in the
Suitability Questionnaire by the undersigned, the undersigned does not
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hereby, thereby or in any other manner waive any rights granted to the
undersigned under federal or state securities law.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. In the event that this
subscription is accepted, the undersigned agrees that the representations,
warranties and agreements set forth in this Subscription Agreement and in the
Suitability Questionnaire shall survive the acceptance of this subscription.
6. ASSIGNABILITY. The undersigned agrees not to transfer or assign this
Subscription Agreement, or any interest of the undersigned herein. This
Subscription Agreement and the representations and warranties contained herein
shall be binding upon the heirs, executors, administrators and other successors
of the undersigned and this Subscription Agreement shall inure to the benefit of
and be enforceable by the Company, and its successors and assigns. If there is
more than one signatory hereto, the obligations, representations, warranties,
and agreements of the undersigned are made jointly and severally.
7. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard to principles of conflicts of
law.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, may be
amended only by a writing executed by all of the parties and supersedes any
prior agreement between the parties with respect to the subject matter hereof.
9. CONSENT TO REPRESENTATION. The undersigned acknowledges and agrees
that Katten Muchin & Zavis has acted as legal counsel to the Company in
connection with this offering of Shares and that such firm has in the past and
may from time to time in the future render services to the Company and its
affiliates. The undersigned further acknowledges and agrees that such firm may
also, in the future, render services to the Company with respect to activities
other than the offer and sale of Shares. The undersigned understands that Katten
Muchin & Zavis is not representing the undersigned or any other prospective
purchaser of Shares in connection with this Offering.
10. LOCK-UP AGREEMENT. The undersigned acknowledges and agrees that, if
requested by the underwriters of the Company's initial public offering of Common
Stock ("IPO"), the undersigned will not, without the prior written consent of
such underwriters, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock (collectively with Common
Stock, "Common Stock Equivalents") or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequences of ownership of Common Stock Equivalents,
prior to and for up to 365 days after the Company's IPO.
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DIGITAL ENTERTAINMENT NETWORK, INC.
Subscription Agreement
SIGNATURE PAGE FOR INDIVIDUALS AND JOINT ACCOUNTS
I/we hereby subscribe for ___________ Shares, at a price of $100.00 per
Share, for a total subscription price of $________________.
- ---------------- ---------------- --------------------- -------
Signature Print Name Social Security No. Date
- ---------------- ---------------- --------------------- -------
Signature Print Name Social Security No. Date
- ----------------------------------- ------------------------------------------
- ----------------------------------- ------------------------------------------
- ----------------------------------- ------------------------------------------
Residential Address Mailing Address
Type of Ownership (Initial One) ____ Individual
____ Tenants in Common (Both Parties Sign)
____ Joint Tenants with Right of Survivorship
(Both Parties Sign)
____ Community Property (Both Parties Sign)
4
<PAGE> 5
DIGITAL ENTERTAINMENT NETWORK, INC.
Subscription Agreement
SIGNATURE PAGE FOR ENTITIES
The undersigned entity hereby subscribes for ___________ Shares, at a
price of $100.00 per Share, for a total subscription price of $______________.
Form of Organization: ___ Partnership, ___ Limited Liability Company,
___Corporation, ___ Trust, ___ Other (Explain ________________________)
Full Name of Subscriber: _____________________________________________________
Tax I.D. No. _____________________
Address:
-----------------------------------
-----------------------------------
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Telephone:
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The undersigned warrants that he or she has full power and authority to
execute this Subscription Agreement on behalf of the above entity, and
investment in the Company is not prohibited by the governing documents of the
entity.
Name:
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(Entity Name)
By:
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(Signature)
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(Signer's Printed Name)
Date:
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ACCEPTANCE
The undersigned hereby accepts the foregoing subscription this ____ day
of ______________, 1999. This subscription shall not be binding until accepted
by the Company and shall become effective as of the date of such acceptance,
upon the terms set forth in Sections 1 and 2 of the Subscription Agreement.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
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Name: Alan L. Friel
Title: General Counsel
Executive VP Operations
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EXHIBIT 10.38
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of ____________ __, 19__, by and among Digital Entertainment
Network, Inc., a Delaware corporation (the "Company"), and the purchasers of the
Series A Convertible Preferred Stock (the "Convertible Preferred Stock") of the
Company (the "Holders").
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Exchange Act: The Securities Exchange Act of 1934, as amended.
IPO: The underwritten initial public offering of the Common Stock
(as hereinafter defined) that results in net proceeds to the Company of at least
$20,000,000 and results in the Common Stock being listed on a national
securities exchange, including, without limitation, the NASDAQ Stock Market.
Person: Any individual, partnership, corporation, limited
liability company, trust, unit trust, unincorporated organization, government or
agency or political subdivision thereof, or any other entity.
Proceeding: An action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Registrable Securities: The shares of common stock, par value
$.01 per share, of the Company (the "Common Stock") received by the Holders upon
conversion of shares of the Convertible Preferred Stock, until such time as such
shares of Common Stock (i) are effectively registered under the Securities Act
and disposed of in accordance with a Registration Statement covering such
shares, (ii) are saleable by the Holder thereof pursuant to Rule 144(k) or (iii)
are distributed for resale pursuant to Rule 144.
<PAGE> 2
Registration Statement: Any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
Securities Act: The Securities Act of 1933, as amended.
Special Counsel: Any one special counsel to the Holders, which
counsel shall be selected by the Holders of a majority of the Registrable
Securities requested to be included in the applicable registration.
underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Demand Registration
(a) Requests for Registration. Subject to the terms of this
Agreement, the Holders of a majority of the then outstanding Registrable
Securities shall have the right by written notice delivered to the Company (the
"Demand Notice") to require the Company to register (a "Demand Registration")
under and in accordance with the provisions of the Securities Act the number of
Registrable Securities requested to be so registered pursuant and subject to the
terms of this Agreement.
Notwithstanding anything to the contrary set forth herein, the right to
require a Demand Registration hereunder may only be exercised after 365 days
following completion of the IPO.
In no event shall the number of Demand Registrations pursuant to this
Section 2(a) exceed one for all Holders unless the Demand Registration does not
become effective or is not maintained effective for the period required pursuant
to this Section 2(a), in which case the Holders of a majority of the then
outstanding Registrable Securities shall be entitled to one additional Demand
Registration in lieu thereof until such Demand Registration is declared and
maintained effective for such period.
Within 10 days after receipt by the Company of a Demand Notice sent by
such Holders of a majority of the then outstanding Registrable Securities, the
Company shall give written notice of such Demand Notice to all other Holders and
shall, subject to the provisions of Section 2(b) hereof, include in such
registration all Registrable Securities with respect to which the Company
received written requests for inclusion therein within 10 days after such notice
is given by the Company to such other Holders.
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All requests made pursuant to this Section 2 will specify the number of
Registrable Securities to be registered and the intended methods of disposition
thereof.
If the Holders of a majority of the then outstanding Registrable
Securities request that such Demand Registration be a "shelf" registration
pursuant to Rule 415 under the Securities Act, the Company shall file such
Demand Registration under Rule 415 and shall keep the Registration Statement
filed in respect thereof effective for a period that shall terminate on the
earlier of (i) 180 days from the date on which the SEC declares such
Registration Statement effective and (ii) the date on which all Registrable
Securities covered by such Registration Statement have been sold pursuant to
such Registration Statement.
(b) Priority on Demand Registration. If any of the Registrable
Securities registered pursuant to a Demand Registration are to be sold in a firm
commitment underwritten offering, and the managing underwriter or underwriters
advise the Holders of such securities in writing that in its opinion the total
number or dollar amount of Registrable Securities proposed to be sold in such
offering is such as to materially and adversely affect the success of such
offering, then there shall be included in such firm commitment underwritten
offering the number or dollar amount of Registrable Securities that in the
opinion of such managing underwriter can be sold, and such Registrable
Securities shall be allocated pro rata among the Holders on the basis of the
number or dollar amount of securities requested by such Holders to be included
in such offering.
(c) Postponement of Demand Registration. The Company shall be
entitled to postpone, for a reasonable period of time not in excess of 90 days,
the filing of a Registration Statement if the Company determines, in good faith
exercise of its reasonable business judgment, that such registration and
offering could materially adversely affect bona fide financing plans of the
Company or would require disclosure of information, the premature disclosure of
which could materially adversely affect the Company or any transaction under
consideration by the Company.
Upon the expiration of the postponement period, which period may be
extended for an additional 90 days if the requirements of this Section 2(c) are
met, the Company shall be required to file a Registration Statement covering the
Registrable Securities requested to be registered.
3. Piggyback Registration
(a) Right to Piggyback. If at any time after the IPO the Company
proposes to file a registration statement under the Securities Act with respect
to an offering of Common Stock (other than a registration statement (i) on Form
S-4 or Form S-8 or any successor forms thereto or (ii) filed solely in
connection with an exchange offer or an offering made solely to employees of the
Company), whether or not for its own account, then the Company shall give
written notice of such proposed filing to the Holders at least 30 days before
the anticipated filing date. Such notice shall offer such Holders the
opportunity to register such amount of Registrable Securities as each such
Holder may request (a "Piggyback Registration"). Subject to Section 3(b) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities with respect to which
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the Company has received written requests for inclusion therein within 10 days
after notice has been given to the applicable Holder (which request shall
specify the intended method of distribution). The Holders shall be permitted to
withdraw all or part of the Registrable Securities from a Piggyback Registration
at any time prior to the effective date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause
the managing underwriter of a proposed underwritten offering to permit the
Holders that requested their Registrable Securities to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any other shares of Common Stock, if any, of the
Company included therein. Notwithstanding the foregoing, if the managing
underwriter of such underwritten offering informs such Holders that the total
number or dollar amount of securities that such Holders, the Company and any
other Persons having rights to participate in such registration, propose to
include in such offering is such as to materially and adversely affect the
success of such offering, then the amount of Common Stock to be offered (i) for
the account of Holders and (ii) for the account of all such other Persons (other
than the Company) shall be reduced or limited pro rata in proportion to the
respective dollar amounts of Common Stock requested by such persons to be
included in such offering.
4. Hold-Back Agreements
(a) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder agrees, in connection with any sale of securities by the
Company and in connection with any Registration Statement filed pursuant to
Section 2 or Section 3 hereof, if requested (pursuant to a timely written
notice) by the Company or the managing underwriter or underwriters in an
underwritten offering, not to effect any public sale or distribution of any of
the Company's securities, including a sale pursuant to Rule 144 (except as part
of such underwritten offering), during the period beginning 10 days prior to,
and ending 180 days after, the closing date of each underwritten offering made
by the Company or pursuant to such Registration Statement.
The foregoing provisions shall not apply to any Holder if such Holder is
prevented by applicable statute or regulation from entering into any such
agreement; provided, however, that any such Holder shall undertake in its
request to participate in any such underwritten offering, not to effect any
public sale or distribution of the class of securities covered by such
Registration Statement (except as part of such underwritten offering) during
such period unless it has provided 90 days' prior written notice of such sale or
distribution to the managing underwriter or underwriters.
(b) Restrictions on Public Sale by the Company. The Company
agrees that without the written consent of the managing underwriter in an
underwritten offering of Registrable Securities covered by a Registration
Statement filed pursuant to Section 2 or Section 3 hereof, it will not effect
any public or private sale or distribution of any of its equity securities,
including a sale pursuant to Regulation D under the Securities Act, during the
10-day period prior to, and during the 180-day period beginning on, the closing
date of each underwritten offering made pursuant to such
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Registration Statement (except (i) as part of such underwritten registration,
(ii) pursuant to registrations on Form S-4 or Form S-8 or any successor forms
thereto or filed solely in connection with an offering made solely to employees
of the Company, (iii) in connection with an exchange offer or (iv) in connection
with the acquisition of assets by the Company or its subsidiaries).
5. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 2 or Section 3 hereof, the Company shall effect such registrations to
permit the sale of such Registrable Securities in accordance with the intended
method or methods of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(a) Prepare and file with the Securities and Exchange Commission
(the "SEC") a Registration Statement or Registration Statements on any
appropriate form under the Securities Act that shall be available for the sale
of the Registrable Securities by the Holders thereof in accordance with the
intended method or methods of distribution thereof, and use its best efforts to
cause each such Registration Statement to become effective and remain effective
as provided herein. Before filing any Registration Statement or Prospectus or
any amendments or supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall furnish or otherwise make available to the Holders of the Registrable
Securities covered by such Registration Statement, the Special Counsel and the
managing underwriters, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders, the
Special Counsel and such underwriters, if any; provided, however, that the
Company shall not be required to deliver to such Holders a copy of any such
document that has not been materially changed from a copy of such document that
was previously delivered to such Holders.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective during the period
provided herein with respect to the disposition of the Registrable Securities
covered thereby; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement as so amended or to such Prospectus as
so supplemented.
(c) Notify the selling Holders of Registrable Securities, the
Special Counsel and the managing underwriters, if any, promptly, and (if
requested by any such Person) confirm such notice in writing:
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(i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information (provided, that
the Company shall not be required to notify the Holders or the Special Counsel
of all comments letters or the Company's responses thereto to the Holders or the
Special Counsel unless such letters request information from or about the
Holders),
(iii) of the issuance by the SEC or any other Federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
(iv) if at any time the representations and warranties
of the Company contained in any agreement contemplated by Section 5(n)
(including any underwriting agreement) below cease to be true and correct,
(v) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose,
(vi) of the happening of any event that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
or that requires the making of any changes in a Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and
(vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction.
(e) If requested by the managing underwriters, if any, or the
Holders of a majority of the Registrable Securities being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and
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such Holders reasonably agree should be included therein as may be required by
applicable law, (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as the Company has received notification
of the matters to be incorporated in such Prospectus supplement or
post-effective amendment, and (iii) supplement or make amendments to any
Registration Statement; provided, however, that the Company shall not be
required to take any actions under this Section 5(e) that are not, in the
opinion of counsel for the Company, in compliance with applicable law.
(f) Furnish to each selling Holder of Registrable Securities, the
Special Counsel and each managing underwriter, if any, without charge, at least
one conformed copy of the Registration Statement or Statements and any
post-effective amendment thereto, including financial statements (but excluding
schedules, all documents incorporated therein by reference or deemed
incorporated therein by reference and all exhibits, unless requested in writing
by such Holder, Special Counsel or underwriter).
(g) Deliver to each selling Holder of Registrable Securities, the
Special Counsel and the underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; and the Company hereby consents to the
use of such Prospectus or each amendment or supplement thereto by each of the
selling Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities to use
its reasonable best efforts to register or qualify or cooperate with the selling
Holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any seller or underwriter reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject.
(i) Cooperate with the selling Holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends; and enable such Registrable
Securities to be registered in such names as the managing underwriters, if any,
shall request at least two business days prior to any sale of Registrable
Securities to the underwriters.
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(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all respects with the
filing of such Registration Statement and the granting of such approvals, as may
be necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
5(c)(vi) or 5(c)(vii) above, prepare a supplement or post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(l) Use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be (i) listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed, or (ii) authorized to be quoted on The Nasdaq Stock Market National
Market if the securities so qualify; in each case, if requested by the Holders
of a majority of shares of the Registrable Securities covered by such
Registration Statement or the managing underwriters, if any.
(m) Prior to the effective date of the Registration Statement
relating to the Registrable Securities, (i) provide the transfer agent with
printed certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number for
the Registrable Securities.
(n) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the Holders
of a majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration;
(i) make such representations and warranties to the
Holders of such Registrable Securities and the underwriters, if any, with
respect to the business of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings and,
if true, confirm the same if and when requested;
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(ii) use its reasonable best efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the Holders of a majority of the Registrable
Securities being sold) addressed to each selling Holder of Registrable
Securities and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and underwriters,
including without limitation the matters referred to in Section 5(n)(i) above;
(iii) use its reasonable best efforts to obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each selling Holder of
Registrable Securities (unless such accountants shall be prohibited from so
addressing such letters by applicable standards of the accounting profession)
and each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and
(iv) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable Securities
being sold, the Special Counsel and the managing underwriters, if any, to
evidence the continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
(o) Make available for inspection by a representative of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition of Registrable Securities, if any, and any attorney or
accountant retained by such selling Holders or underwriter, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that any records, information or
documents that are designated by the Company in writing as confidential at the
time of delivery of such records, information or documents shall be kept
confidential by such Persons unless (i) such records, information or documents
are in the public domain or otherwise publicly available, (ii) disclosure of
such records, information or documents is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities or (iii)
disclosure of such records, information or documents, in the opinion of counsel
to such Person, is otherwise required by law (including, without limitation,
pursuant to the requirements of the Securities Act). Without limiting the
foregoing, no such information shall be used by such Person as the basis for any
market transactions in securities of the Company or its subsidiaries in
violation of law.
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(p) Comply with all applicable rules and regulations of the SEC
and make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts underwritten offering, and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing and the Company
may exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 5(c)(ii), 5(c)(iii),
5(c)(v), 5(c)(vi) or 5(c)(vii) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
6. Registration Expenses
All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or selling
Holders in. connection with Blue Sky qualifications of the Registrable
Securities pursuant to Section 5(h) hereof)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for Registrable Securities
in a form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Holders of a
majority of the Registrable Securities included in any Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of all independent certified
public accountants referred to in Section 5(n)(iii) hereof (including the
expenses of any "cold comfort" letters required by this Agreement), (vi) the
fees and expenses of any "qualified independent underwriter" or other
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independent appraiser participating in an offering pursuant to Section 3 of
Schedule E to the Bylaws of the National Association of Securities Dealers, Inc.
and (vii) fees and expenses of all other Persons retained by the Company. In
addition, the Company shall pay its internal expenses (including without
limitation all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Company are then listed and the fees and expenses of any Person, including
special experts, retained by the Company.
In addition, whether or not any of the Registration Statements become
effective, the Company shall pay the reasonable fees and disbursements of a
Special Counsel for the Holders, together with appropriate local counsel.
The Company shall not be required to pay any underwriter's fees and
expenses (including discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals) relating
to the distribution of Registrable Securities.
7. Indemnification
(a) Indemnification by the Company. The Company shall, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder of Registrable Securities whose Registrable
Securities are registered pursuant to this Agreement, the officers, directors,
agents and employees of each of them, each Person who controls such Holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and employees of any such
controlling person, from and against all losses, claims, damages, liabilities,
costs (including, without limitation, the costs of preparation and reasonable
attorneys' fees) and expenses (collectively, "Losses") to be reimbursed
promptly, as incurred, arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or form of Prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or based upon any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are based solely upon information furnished in writing to the Company by
such Holder expressly for use therein; provided, however, that the Company shall
not be liable to any Holder of Registrable Securities to the extent that (A) any
such Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus if
(i) such Holder failed to send or deliver a copy of the Prospectus with or prior
to the delivery of written confirmation of the sale by such Holder of a
Registrable Security to the person asserting the claim from which such losses
arise and (ii) the Prospectus would have corrected in all material respects such
untrue statement or alleged untrue statement or such omission or alleged
omission; or (B) any such Losses arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission in the
Prospectus, if (x) such untrue statement or alleged untrue statement, omission
or alleged omission is corrected in all material respects in an amendment or
supplement to the Prospectus and
11
<PAGE> 12
(y) having previously been furnished by or on behalf of the Company with copies
of the Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended and supplemented, prior to or concurrently
with the sale of a Registrable Security to the Person asserting the claim from
which such Losses arise.
(b) Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, such Holder of Registrable Securities shall furnish
to the Company in writing such information relating to such Holder, as such, or
the Registrable Securities being sold by such Holder (the "Holder Information")
as the Company reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the fullest extent permitted
by law, the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any Holder
Information so furnished in writing by such Holder to the Company expressly for
use in such Registration Statement or Prospectus and that such Holder
Information was solely relied upon by the Company in preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event shall
the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such Holder directly from the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution to the same extent as provided above with respect to information so
furnished in writing by such Persons expressly for use in any Prospectus or
Registration Statement.
(b) Conduct of Indemnification Proceedings. If any Person shall
be entitled to indemnity hereunder (an "indemnified party"), such indemnified
party shall give prompt notice to the party from which such indemnity is sought
(the "indemnifying party") of any claim or of the commencement of any Proceeding
with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; provided, however, that the delay or failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such delay or failure. The indemnifying party
shall have the right, exercisable by giving written notice to an indemnified
party promptly after the receipt of written notice from such indemnified party
of such claim or Proceeding, to assume, at the indemnifying party's expense, the
defense of any such claim or Proceeding, with counsel reasonably satisfactory to
such indemnified party; provided, however, that an indemnified party shall have
the right to employ separate counsel in any such claim or Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (1) the indemnifying
party agrees to pay such
12
<PAGE> 13
fees and expenses; (2) the indemnifying party fails promptly to assume the
defense of such claim or Proceeding or fails to employ counsel reasonably
satisfactory to such indemnified party or (3) counsel for the indemnified party
advises the indemnifying party in writing that there are issues that raise
conflicts of interest between the indemnified party and the indemnifying party;
in which case the indemnified party shall have the right to employ counsel and
to assume the defense of such claim or proceeding; provided, however, that the
indemnifying party shall not, in connection with any one such claim or
Proceeding or separate but substantially similar or related claims or
Proceedings in the same jurisdiction, arising out of the same general
allegations or circumstances, be liable for the fees and expenses of more than
one firm of attorneys (together with appropriate local counsel) at any time for
all of the indemnified parties, or for fees and expenses that are not
reasonable.
Whether or not such defense is assumed by the indemnifying party,
such indemnified party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
All such fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or proceeding)
shall be paid to the indemnified party, as incurred, within five days of written
notice thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). The indemnifying party shall not consent to entry of any judgment or
enter into any settlement or otherwise seek to terminate any Proceeding in which
any indemnified party is a party and as to which indemnification or contribution
could be sought by such indemnified party under this Section 7, unless such
judgment, settlement or other termination includes as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release, in form and substance reasonably satisfactory to the indemnified party,
from all liability in respect of such claim or litigation for which such
indemnified party would be entitled to indemnification hereunder.
(c) Contribution. If the indemnification provided for in this
Section 7 is unavailable to an indemnified party under Section 7(a) or 7(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall, jointly and severally, contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or indemnifying parties, on the
one hand, and such indemnified party, on the other hand, shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding.
13
<PAGE> 14
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 7(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 7(d), an indemnifying party that
is a selling Holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds (after
deducting the aggregate underwriters' discount) received by such indemnifying
party from the sale of such Registrable Securities exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay
(including, without limitation, pursuant to any other indemnification or
contribution obligation such indemnifying party may have) by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 7 shall
survive so long as Registrable Securities remain outstanding, notwithstanding
any transfer of the Registrable Securities by any Holder or any termination of
this Agreement.
8. Rule 144
The Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act, and will take such further action as any
Holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144. Upon the request of any Holder of Registrable
Securities, the Company shall deliver to such Holder a written statement as to
whether it has complied with such filing requirements.
9. Underwritten Registrations
If any Demand Registration is an underwritten offering, the Company
shall select the investment banker or bankers and managers to administer the
offering subject to the reasonable consent of the Holders of a majority of the
Registrable Securities included in such offering; provided, that such investment
banker or bankers and managers shall be reasonably satisfactory to the Company.
If any Piggyback Registration is an underwritten offering, the Company shall
have the right to select the investment banker or investment bankers and
managers to administer the offering.
10. Miscellaneous
14
<PAGE> 15
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next day courier,
postage prepaid, to the parties as follows:
(x) if to a Holder of Registrable Securities, at the
most current address given by such Holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with respect to
each Holder, the address set forth on his respective signature page attached
hereto; and
(y) if to the Company, at 2230 Broadway, Santa Monica,
California 90404, Attention: President;
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(d) Owner of Registrable Securities. The Company will maintain,
or will cause its registrar and transfer agent to maintain, a stock book with
respect to the Common Stock, in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem and
treat the person in whose name Registrable Securities are registered in the
stock book of the Company as the owner thereof for all purposes, including
without limitation, the giving of notices under this Agreement.
15
<PAGE> 16
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder of any Registrable
Securities. The Company may not assign its rights or obligations hereunder
without the prior written consent of each Holder of any Registrable Securities.
No Holder may assign its rights or obligations hereunder without the prior
written consent of the Company.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF CALIFORNIA, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(i) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(j) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
16
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
---------------------------------
- ---------------- Name:
----------------------------
- ----------------
Title:
- ---------------- ---------------------------
[HOLDER]
By:
---------------------------------
Name:
----------------------------
Title:
---------------------------
17
<PAGE> 1
EXHIBIT 10.39
PURCHASE AGREEMENT
DATED AS OF MAY 21, 1999
BETWEEN DIGITAL ENTERTAINMENT NETWORK, INC.
AND THE PURCHASERS SET FORTH
ON THE SIGNATURE PAGES HERETO
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Authorization and Closing................................................................................1
1A. Authorization of the Preferred Stock............................................................1
1B. Purchase and Sale of the Preferred Stock........................................................1
1C. The Closing.....................................................................................1
2. Conditions of Each Purchaser's Obligation at the Closing.................................................2
2A. Representations and Warranties; Covenants.......................................................2
2B. Certificate of Designation......................................................................2
2C. Registration Agreement..........................................................................2
2D. Sale of Preferred Stock to Each Purchaser.......................................................2
2E. Securities Law Compliance.......................................................................2
2F. Closing Documents...............................................................................2
2G. Joint Sale and Voting Agreement.................................................................3
2H. Proceedings.....................................................................................3
2I. Waiver..........................................................................................4
3. Covenants................................................................................................4
3A. Financial Statements and Other Information......................................................4
3B. Designation of Directors........................................................................5
3C. Restrictions....................................................................................6
3D. Affirmative Covenants...........................................................................7
3E. Compliance with Agreements......................................................................8
3F. SBIC Regulatory Provisions......................................................................8
3G. Reservation of Common Stock.....................................................................9
3H. Intellectual Property Rights....................................................................9
3I. Rights of First Refusal and Preemptive Rights..................................................10
3J. Regulatory Compliance Cooperation..............................................................12
3K. Put Rights.....................................................................................12
3L. Incentive Compensation for Founders............................................................13
4. Transfer of Restricted Securities.......................................................................14
4A. General Provisions.............................................................................14
4B. Opinion Delivery...............................................................................14
4C. Rule 144A......................................................................................14
4D. Legend Removal.................................................................................14
5. Representations and Warranties of the Company...........................................................15
5A. Organization, Corporate Power and Licenses.....................................................15
5B. Capital Stock and Related Matters..............................................................15
5C. Subsidiaries; Investments......................................................................16
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
5D. Authorization; No Breach.......................................................................16
5E. Financial Statements...........................................................................17
5F. Absence of Undisclosed Liabilities.............................................................17
5G. No Material Adverse Change.....................................................................17
5H. Absence of Certain Developments................................................................17
5I. Assets.........................................................................................19
5J. Contracts and Commitments......................................................................20
5K. Intellectual Property Rights...................................................................22
5L. Litigation, etc................................................................................22
5M. Brokerage......................................................................................22
5N. Governmental Consent, etc......................................................................23
5O. Insurance......................................................................................23
5P. Compliance with Laws...........................................................................23
5Q. Taxes..........................................................................................23
5R. Environmental, Health, and Safety Matters......................................................24
5S. Employees......................................................................................25
5T. Year 2000......................................................................................25
5U. Small Business Concern, Etc....................................................................26
5V. Closing Date...................................................................................27
6. Definitions.............................................................................................27
6A. Definitions....................................................................................27
7. Miscellaneous...........................................................................................30
7A. Expenses.......................................................................................30
7B. Purchaser's Representations....................................................................31
7C. Consent to Amendments..........................................................................32
7D. Survival of Representations and Warranties.....................................................32
7E. Successors and Assigns.........................................................................32
7F. Severability...................................................................................32
7G. Counterparts...................................................................................33
7H. Descriptive Headings; Interpretation...........................................................33
7I. Governing Law..................................................................................33
7J. Notices........................................................................................33
7K. No Strict Construction.........................................................................33
7L. Indemnification................................................................................33
Schedules and Exhibits
Schedule of Wire Transfer Instructions
Schedule of Purchasers
Schedule of Subscribers
List of Exhibits
List of Disclosure Schedules
</TABLE>
ii
<PAGE> 4
DIGITAL ENTERTAINMENT NETWORK, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of May 21, 1999, between Digital
Entertainment Network, Inc., a Delaware corporation (the "Company"), and the
Persons listed on the Schedule of Purchasers attached hereto (collectively
referred to herein as the "Purchasers" and individually as a "Purchaser").
Except as otherwise indicated herein, capitalized terms used herein are defined
in Section 6 hereof.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
1A. Authorization of the Preferred Stock. The Company shall
authorize the issuance and sale to the Purchasers of 210,577 shares of its
Series B Convertible Preferred Stock, par value $.01 per share (the "Preferred
Stock"), having the rights and preferences set forth in Exhibit A attached
hereto. The Preferred Stock is convertible into shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock").
1B. Purchase and Sale of the Preferred Stock. Subject to the
terms and conditions set forth herein, at the Closing, the Company shall sell to
each Purchaser and, each Purchaser shall purchase from the Company, the number
of shares of Preferred Stock set forth opposite such Purchaser's name on the
Schedule of Purchasers attached hereto at a price of $104.00 per share.
1C. The Closing. The closing of the separate purchases and
sales of the Preferred Stock (the "Closing") shall take place at the offices of
Katten, Muchin & Zavis, 1999 Avenue of the Stars, Suite 1400, Los Angeles,
California at 10:00 a.m. on May 21, 1999, or at such other place or on such
other date as may be mutually agreeable to the Company and each Purchaser. At
the Closing, the Company shall deliver to each Purchaser stock certificates
evidencing the Preferred Stock to be purchased by such Purchaser, registered in
such Purchaser's or its nominee's name, upon payment of the purchase price
thereof by wire transfer of immediately available funds to the Company's account
at Imperial Bank, Beverly Hills, California, as set forth on the attached
Schedule of Wire Transfer Instructions, in the aggregate amount set forth
opposite such Purchaser's name on the Schedule of Purchasers.
1
<PAGE> 5
Section 2. Conditions of Each Purchaser's Obligation at the
Closing. The obligation of each Purchaser to purchase and pay for the Preferred
Stock at the Closing is subject to the satisfaction or waiver as of the Closing
of the following conditions:
2A. Representations and Warranties; Covenants. The
representations and warranties contained in Section 5 hereof shall be true and
correct in all material respects at and as of the Closing as though then made,
except to the extent of changes caused by the transactions contemplated herein,
and the Company shall have performed in all material respects all of the
covenants required to be performed by it hereunder prior to the Closing.
2B. Certificate of Designation. The Company shall have duly
adopted, executed and filed with the Secretary of State of Delaware a
Certificate of Designation of Rights and Preferences establishing the terms and
the relative rights and preferences of the Preferred Stock in the form set forth
in Exhibit A hereto (the "Certificate of Designation"), and the Company shall
not have adopted or filed any other document designating terms, relative rights
or preferences of its preferred stock, other than the Certificate of
Designations, Preferences and Relative Optional and other Specific Rights of
Series A Convertible Preferred Stock and Qualifications, Limitations and
Restrictions thereof, filed with the Secretary of State of Delaware on December
14, 1998 (such Stock, the "Series A Preferred Stock") or otherwise amended its
certificate of incorporation, except for permitted amendments pursuant to
paragraph 3C.(x). The Certificate of Designation shall be in full force and
effect as of the Closing under the laws of Delaware and shall not have been
amended or modified.
2C. Registration Agreement. The Company and the Purchasers
shall have entered into a registration rights agreement in form and substance as
set forth in Exhibit B attached hereto (the "Registration Agreement"), and the
Registration Agreement shall be in full force and effect as of the Closing.
2D. Sale of Preferred Stock to Each Purchaser. The Company
shall have simultaneously sold to each Purchaser the Preferred Stock to be
purchased by such Purchaser hereunder at the Closing and shall have received
payment therefor in full.
2E. Securities Law Compliance. The Company shall have made all
filings under all applicable federal and state securities laws necessary to
consummate the issuance of the Preferred Stock pursuant to this Agreement in
compliance with such laws.
2F. Closing Documents. The Company shall have delivered to
each Purchaser all of the following documents:
(i) an Officer's Certificate, dated the date of the
Closing, stating that the conditions specified in Section 1 and
Paragraphs 2A through 2E, inclusive, have been fully satisfied in all
material respects;
2
<PAGE> 6
(ii) certified copies of the resolutions duly adopted by
the Company's board of directors authorizing the execution, delivery
and performance of this Agreement, the Registration Agreement and each
of the other agreements contemplated hereby, the filing of the
Certificate of Designation, the issuance and sale of the Preferred
Stock, the reservation for issuance upon conversion of the Preferred
Stock of an aggregate of 2,500,001 shares of Common Stock and the
consummation of all other transactions contemplated by this Agreement;
(iii) certified copies of the Company's Restated
Certificate of Incorporation (the "Certificate of Incorporation"),
Certificate of Designations, Preferences and Relative, Optional and
Other Special Rights of Series A Convertible Preferred Stock and
Qualifications, Limitations and Restrictions Thereof, the Certificate
of Designation and the Company's Amended and Restated Bylaws (the
"Bylaws"), each as in effect at the Closing;
(iv) copies of all third party and governmental
consents, approvals and filings required in connection with the
consummation of the transactions hereunder (including, without
limitation, all blue sky law filings and waivers of all preemptive
rights and rights of first refusal (if any));
(v) an opinion of Katten, Muchin & Zavis, counsel to
the Company, with respect to the matters set forth in the attached
Exhibit E;
(vi) in the case of Cassandra/Digital Entertainment
Network Partners, L.L.C. ("Cassandra/Chase") and Chase Capital Partners
("Chase Capital"), (A) duly completed and executed SBA Forms 480, 652
and Parts A and B of 1031, (B) a business plan showing the Company's
financial projections for the years ended 1999 through 2001, and (C) a
list, after giving effect to the transactions contemplated by this
Agreement, of (1) the name of each of the Company's directors, (2) the
name and title of each of the Company's officers, and (3) the name of
each of the Company's stockholders setting forth the number and class
of shares held of record; and
(vii) such other documents relating to the transactions
contemplated by this Agreement as any Purchaser or its special counsel
may reasonably request.
2G. Joint Sale and Voting Agreement. The Purchasers and Marc
Collins-Rector shall have entered into an agreement in form and substance as set
forth in Exhibit D attached hereto the "Joint Sale and Voting Agreement"), and
the Joint Sale and Voting Agreement shall be in full force and effect as of the
Closing.
2H. Proceedings. All corporate and other proceedings taken or
required to be taken by the Company in connection with the transactions
contemplated hereby to be consummated at or prior to the Closing and all
documents incident thereto shall be reasonably satisfactory in form and
substance to each Purchaser and its special counsel.
3
<PAGE> 7
2I. Waiver. Any condition specified in this Section 2 may be
waived if consented to by each Purchaser; provided that no such waiver shall be
effective against any Purchaser unless it is set forth in a writing executed by
such Purchaser.
Section 3. Covenants.
3A. Financial Statements and Other Information. The Company
shall deliver to each Purchaser:
(i) as soon as available but in any event within 30 days
after the end of each monthly accounting period in each fiscal year,
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and
for the period from the beginning of the fiscal year to the end of such
month, and unaudited consolidating and consolidated balance sheets of
the Company and its Subsidiaries as of the end of such monthly period,
and commencing with the statements for January 2000, setting forth in
each case comparisons to the corresponding period in the preceding
fiscal year, and all such statements, except as disclosed therein,
shall be prepared in accordance with generally accepted accounting
principles, consistently applied, subject to the absence of footnote
disclosures and to normal year-end adjustments and the Company's chief
financial officer shall deliver a certificate to such effect;
(ii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of
the Company and its Subsidiaries for such fiscal year, and
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each
case comparisons to the Company's annual budget and to the preceding
fiscal year, all prepared in accordance with generally accepted
accounting principles, consistently applied (except as otherwise
disclosed in such financial statements), and accompanied by, (a) with
respect to the consolidated portions of such statements, an opinion of
an independent accounting firm of recognized national standing, (b) a
certificate from such accounting firm, addressed to the Company's board
of directors, stating that in the course of its examination nothing
came to its attention that caused it to believe that there was an Event
of Noncompliance in existence or that there was any material default by
the Company or any Subsidiary in the fulfillment of or compliance with
any of the terms, covenants, provisions or conditions of any other
material agreement to which the Company or any Subsidiary is a party
or, if such accountants have reason to believe any Event of
Noncompliance or other such a default by the Company or any Subsidiary
exists, a certificate specifying the nature and period of existence
thereof, and (c) a copy of such firm's annual management letter to the
board of directors;
(iii) promptly upon receipt thereof, any additional
reports, management letters or other detailed information concerning
significant aspects of the Company's
4
<PAGE> 8
operations or financial affairs given to the Company by its independent
accountants (and not otherwise contained in other materials provided
hereunder);
(iv) not more than 90 nor less than 60 days prior to the
beginning of each fiscal year commencing as of January 1, 2000, an
annual financial plan for the Company and its Subsidiaries for such
fiscal year (displaying anticipated statements of income and cash flows
and balance sheets), and promptly upon preparation thereof any
revisions of such annual financial plan; and
(v) with reasonable promptness, such other information
and financial data concerning the Company and its Subsidiaries as a
Purchaser may reasonably request.
Each of the financial statements referred to in subparagraph (i) and (ii) shall
be true and correct in all material respects as of the dates and for the periods
stated therein, subject in the case of the unaudited financial statements to
changes resulting from normal year-end adjustments.
Notwithstanding the foregoing, the provisions of this paragraph 3A shall cease
to be effective so long as the Company (a) is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements and (b) promptly provides to each Person otherwise entitled to
receive information pursuant to this paragraph 3A all reports and other
materials filed by the Company with the Securities and Exchange Commission
pursuant to the periodic reporting requirements of the Securities Exchange Act.
Except as otherwise required by law or judicial order or decree or by any
governmental agency or authority, each Purchaser entitled to receive information
regarding the Company and its Subsidiaries under paragraph 3A shall use its best
efforts to maintain the confidentiality of all nonpublic information obtained
by it hereunder which the Company has reasonably designated as, or that a
reasonable person would believe was, proprietary or confidential in nature;
provided that each such Purchaser may, to the extent required by law, disclose
such information in connection with a bona fide sale or transfer of any
Preferred Stock, if the proposed transferee of such Person's Preferred Stock
agrees in advance in writing in a written instrument in form and substance
satisfactory to the Company to be bound by the provisions hereof.
3B. Designation of Directors. So long as any Preferred Stock
and, until the fifth anniversary of the date of this Agreement, at least 25% of
the Underlying Common Stock (calculated on an as-if-converted basis) originally
purchased by Cassandra/Chase and Chase Capital is held by Cassandra/Chase and
Chase Capital, Cassandra/Chase and Chase Capital shall each have the right to
select one (1) representative to be elected to the Company's board of directors,
at least one of which shall also be elected to the Company's Compensation
Committee, and at least one of which shall also be elected to the Company's
Executive Committee, and the Company shall nominate such representatives for
election to the board of directors and such committee(s). The Company shall use
its best efforts to cause such representatives to be elected to the board of
directors and such committee(s) and shall not take any action which would
diminish the prospects of such
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<PAGE> 9
representatives being elected to the board of directors and such committee(s).
All reasonable out-of-pocket and documented expenses of each board member
incurred in connection with attending regular and special board meetings and any
meeting of any board committee shall be reimbursed by the Company.
3C. Restrictions. The Company shall not, without the prior
written consent of the holders of at least a majority of the outstanding
Preferred Stock:
(i) directly or indirectly declare or pay any dividends
or make any distributions upon any of its capital stock or other equity
securities, except for dividends payable in shares of Common Stock
issued upon the outstanding shares of Common Stock, Series A Preferred
Stock and the Preferred Stock;
(ii) directly or indirectly redeem, purchase or
otherwise acquire, or permit any Subsidiary to redeem, purchase or
otherwise acquire, any of the Company's or any Subsidiary's capital
stock or other equity securities (including, without limitation,
warrants, options and other rights to acquire such capital stock or
other equity securities), other than pursuant to this Agreement;
(iii) except as expressly contemplated by this Agreement,
authorize, issue or enter into any agreement providing for the issuance
(contingent or otherwise) of, (a) any notes or debt securities
containing equity features (including, without limitation, any notes or
debt securities convertible into or exchangeable for capital stock or
other equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit
participation features) or (b) any capital stock or other equity
securities (or any securities convertible into or exchangeable for any
capital stock or other equity securities) which are senior to or on a
parity with the Preferred Stock with respect to the payment of
dividends, redemptions or distributions upon liquidation or otherwise,
or (c) additional shares of Preferred Stock, other than shares issued
at or within five (5) business days of the Closing to the Persons set
forth on the Schedule of Subscribers attached hereto in the number of
shares set forth opposite such Persons names on such schedule;
(iv) merge or consolidate with any Person or sell all or
substantially all of the consolidated assets of the Company and its
Subsidiaries, other than in a transaction or series of related
transactions in which (A) the holders of the Preferred Stock would
receive consideration comprised of cash and/or publicly traded
securities and (B) the consideration received by holders of the
Preferred Stock (on an as-if-converted basis) would be not less than
the applicable IPO Valuation;
(v) issue in a transaction or series of related
transactions involving a Change of Control any capital stock, or
securities exchangeable or exercisable for, or convertible into,
capital stock, other than in a transaction or series of related
transactions in which (A) the Company would receive consideration
comprised of cash and/or publicly
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<PAGE> 10
traded securities and (B) the consideration received by holders of the
Preferred Stock (on an as-if-converted basis) would be not less than
the applicable IPO Valuation;
(vi) consummate any offering of equity securities
registered under the Securities Act other than the Qualified IPO;
(vii) consummate any material sale of assets out of the
ordinary course of business, excluding transactions approved by the
Company's board of directors (including both of the directors elected
pursuant to paragraph 3B);
(viii) enter into any transactions with Affiliates,
excluding (A) transactions having an aggregate value (as of the date of
such transaction) of less than $25,000 and (B) transactions that are on
terms fair to the Company and that are no less favorable to the Company
than those that could have been obtained in a comparable transaction by
the Company from an independent third party, as determined in the good
faith judgment of the board of directors of the Company (including both
of the directors elected pursuant to paragraph 3B);
(ix) enter into the ownership, active management or
operation of any business other than (A) the development, creation,
distribution and/or exploitation of informational, educational and/or
entertainment content and/or the intellectual property rights related
thereto in all forms of media now or hereafter known, throughout the
universe, including, without limitation, with respect to programming
distributed via the Internet and/or other forms of digital delivery and
all aspects of the music and recording industries; (B) Internet,
on-line and/or digital delivery business activities now or hereafter
known, throughout the universe, including, without limitation,
entertainment and commerce; and/or (C) all ancillary business
activities related to (A) or (B) now or hereafter known, throughout the
universe; and
(x) except as contemplated by Exhibit C, make any
amendment to the Certificate of Incorporation or the Bylaws.
3D. Affirmative Covenants. So long any of the Preferred Stock
remains outstanding the Company shall, and shall cause each Subsidiary to,
unless it has received the prior written consent of the holders of at least a
majority of the outstanding Preferred Stock:
(i) at all times cause to be done all things necessary
to maintain, preserve and renew its corporate existence and all
material licenses, authorizations and permits necessary to the conduct
of its businesses;
(ii) maintain and keep its material properties in good
repair, working order and condition, and from time to time make all
necessary repairs, renewals and replacements;
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(iii) pay and discharge when payable all taxes,
assessments and governmental charges imposed upon its properties or
upon the income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and all claims
for labor, materials or supplies to the extent to which the failure to
pay or discharge such obligations would reasonably be expected to have
a Material Adverse Effect, unless and to the extent that, in either
case, the same are being contested in good faith and by appropriate
proceedings and adequate reserves (as determined in accordance with
generally accepted accounting principles, consistently applied) have
been established on its books with respect thereto;
(iv) comply with all other obligations which it incurs
pursuant to any contract or agreement, as such obligations become due,
unless the failure to so comply would not reasonably be expected to
have a Material Adverse Effect, or such obligations are being contested
in good faith and by appropriate proceedings and adequate reserves (as
determined in accordance with generally accepted accounting principles,
consistently applied) have been established on its books with respect
thereto;
(v) comply with all applicable laws, rules and
regulations of all governmental authorities, the violation of which
would reasonably be expected to have a Material Adverse Effect;
(vi) apply for and continue in force adequate insurance
covering risks of such types and in such amounts as are customary for
corporations of similar size engaged in similar lines of business; and
(vii) maintain proper books of record and account which
present fairly in all material respects its financial condition and
results of operations and make provisions on its financial statements
for all such proper reserves as in each case are required in accordance
with generally accepted accounting principles, consistently applied.
3E. Compliance with Agreements. The Company shall perform and
observe (i) all of its obligations to each holder of the Preferred Stock set
forth in the Certificate of Designation, and (ii) all of its obligations to each
holder of Registrable Securities set forth in the Registration Agreement.
3F. SBIC Regulatory Provisions.
(i) Within 75 days after the Closing, and at the end
of each month thereafter until all of the proceeds of the Financing
have been used by the Company and its Subsidiaries, the Company shall
deliver to Cassandra/Chase and Chase Capital a written statement
certified by the Company's chief executive officer or chief financial
officer describing in reasonable detail the use of the proceeds of the
Financing (as hereinafter defined) hereunder by the Company and its
Subsidiaries. In addition to any other rights
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<PAGE> 12
granted hereunder, the Company shall grant Cassandra/Chase, Chase
Capital and the United States Small Business Administration (the "SBA")
access to the Company's records for the purpose of verifying the use of
such proceeds.
(ii) Upon the occurrence of a Regulatory Violation
(as hereinafter defined) or in the event that Cassandra/Chase or Chase
Capital determines in its reasonable good faith judgment that a
Regulatory Violation has occurred, in addition to any other rights and
remedies to which it may be entitled as a holder of Preferred Stock,
Cassandra/Chase and Chase Capital shall each have the right to the
extent, but only to the extent, required under the SBIC Regulations to
demand the immediate repurchase of all of the outstanding shares of
Preferred Stock owned by it at a price per share equal to the purchase
price paid for such stock hereunder by delivering written notice of
such demand to the Company. The Company shall pay the purchase price
for such stock by a cashier's or certified check or by wire transfer of
immediately available funds to such holder within 45 days after the
Company's receipt of the demand notice, provided that such holder had
previously delivered to the Company the certificates evidencing the
Preferred Stock to be repurchased duly endorsed for transfer or
accompanied by duly executed forms of assignment.
(iii) For purposes of this paragraph, "Regulatory
Violation" means (a) a diversion of the a material portion proceeds of
such Financing from the use thereof previously provided to the
Purchasers, if such diversion was effected without obtaining the prior
written consent of Cassandra/Chase and Chase Capital (which may be
withheld in their sole discretion) or (b) a change in the principal
business activity of the Company and its Subsidiaries to an ineligible
business activity (within the meaning of the SBIC Regulations) if such
change occurs within one year after the date of the closing of the
Financing hereunder; "SBIC Regulations" means the Small Business
Investment Act of 1958 and the regulations issued thereunder as set
forth in 13 CFR 107 and 121, as amended; and the term "Financing" shall
have the meaning set forth in the SBIC Regulations.
3G. Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of issuance upon the conversion of the
Preferred Stock, such number of shares of Common Stock issuable upon the
conversion of all outstanding Preferred Stock. All shares of Common Stock which
are so issuable shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges. The Company shall take
all such actions as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be promptly transmitted by the Company upon issuance).
3H. Intellectual Property Rights. The Company shall, and shall
cause each Subsidiary to, possess and maintain all Intellectual Property Rights
necessary to the conduct of their respective businesses and own all right, title
and interest in and to, or have a valid license for, all
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<PAGE> 13
such Intellectual Property Rights, except to the extent that the failure to do
so would, individually or in the aggregate, be reasonably likely to have a
Material Adverse Effect. Neither the Company nor any Subsidiary shall take any
action, or fail to take any action, which would result in the invalidity,
abandonment, misuse or unenforceability of such Intellectual Property Rights or
which would materially infringe upon or misappropriate any material rights of
other Persons, except to the extent that such action or failure to take action
would not be reasonably likely to have a Material Adverse Effect.
3I. Rights of First Refusal and Preemptive Rights.
(i) Except for issuances of shares of Preferred Stock
to the Persons and in the number of shares of Preferred Stock and at
the purchase price set forth on the Schedule of Subscribers, issuances
of Common Stock or Common Stock equivalents that constitute Excluded
Issuances and issuances of Common Stock, Common Stock equivalents or
other securities in a public offering consented to by the holders of
the Preferred Stock pursuant to Section 3.C.(vi), if the Company
authorizes the issuance or sale in a financing (other than a financing
incurred to fund the Company's obligations under paragraph 3K below) of
any shares of Common Stock or any securities containing options or
rights to acquire any shares of Common Stock (other than as a dividend
on the outstanding Common Stock, Series A Preferred Stock and Preferred
Stock), the Company shall first offer to sell to each holder of
Preferred Stock a portion of such stock or securities equal to (x) the
quotient determined by dividing (1) the number of shares of Underlying
Common Stock held by such holder by (2) the sum of the total number of
shares of Underlying Common Stock (the "First Offer Right"). The
Company shall make such offer by delivering to each holder a written
notice (the "First Offer Notice") setting forth the following proposed
terms of such financing: (i) the aggregate amount of such financing,
(ii) the proposed type of security to be issued, (iii) the number of
shares or units of such security to be issued, (iv) the proposed
purchase price, (v) the conversion price if such security is
convertible into Common Stock, (vi) the dividend rate and liquidation
preference, if any and (vii) such other terms as the Company deems
material.
(ii) In order to exercise its First Offer Right, a
holder of Underlying Common Stock must within 10 business days after
receipt of a First Offer Notice from the Company deliver a written
notice to the Company describing its election with respect to the First
Offer Right. If all of the stock and securities offered to the holders
of Underlying Common Stock is not fully subscribed by such holders, the
remaining stock and securities shall be available for offer by the
Company to the Persons to whom the Company originally proposed to issue
such securities.
(iii) In the event that a holder of Underlying Common
Stock does not exercise its First Offer Right, such holder shall be
entitled to elect to purchase a portion of the stock or securities to
be sold in such financing equal to (x) the quotient determined by
dividing (1) the number of shares of Underlying Common Stock held by
such holder by (2)
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<PAGE> 14
the sum of the total number of shares of Underlying Common Stock and
the number of shares of Common Stock outstanding, the number of shares
of Common Stock issuable upon the exercise of any options or warrants,
and upon the conversion of the Series A Preferred Stock, any other
equity security convertible into Common Stock and any convertible
indebtedness of the Company, which are not shares of Underlying Common
Stock (the "Preemptive Right").
(iv) In order to exercise its Preemptive Right, a
holder of Underlying Common Stock must within 10 business days after
receipt of a First Offer Notice from the Company deliver a written
notice to the Company describing its election with respect to the
Preemptive Right. If all of the stock and securities offered to the
holders of Underlying Common Stock is not fully subscribed by such
holders and holders of Underlying Common Stock exercising the First
Offer Right, the remaining stock and securities shall be available for
offer by the Company to the Persons to whom the Company originally
proposed to issue such securities.
(v) Upon the expiration of the offering period
described above, and for a period of 120 days thereafter, the Company
shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase on terms and
conditions no more favorable to the purchasers thereof than those
offered to such holders; provided, however, that a deviation of not
more than 10% in the principal terms of the transaction outlined in the
First Offer Notice shall be deemed not to be more favorable to the
purchasers thereof than those offered to such holders.
(vi) Each holder of Underlying Common Stock who has
exercised a First Offer Right or a Preemptive Right shall be entitled
to purchase such stock or securities on the same terms and conditions
as such stock or securities are sold to any other Persons; provided
that if all Persons entitled to purchase or receive such stock or
securities are required to also purchase other securities of the
Company, the holders of Underlying Common Stock exercising their rights
pursuant to this paragraph shall also be required to purchase the same
combination of securities (on the same terms and conditions) that such
other Persons are required to purchase. The purchase price for all
stock and securities offered to the holders of the Underlying Common
Stock shall be payable in cash at the closing of the transaction with
the other purchasers.
(vii) The rights of the holders of Underlying Common
Stock under this paragraph shall terminate upon the effectiveness of a
registration statement filed by the Company with the Securities and
Exchange Commission under the Securities Act with respect to a
Qualified IPO; provided that if the registration statement is withdrawn
or abandoned before any shares of Common Stock are sold thereunder, the
provisions of this paragraph shall remain in effect.
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3J. Regulatory Compliance Cooperation.
(i) In the event that an SBIC Holder determines that
it has a Regulatory Problem (as defined below), the SBIC Holder shall
have the right to transfer its Preferred Stock without regard to any
restrictions on transfer set forth in this Agreement other than the
securities law restrictions set forth in Section 5 hereof (provided
that the transferee agrees to become a party to this Agreement), and
the Company shall take all such actions as are reasonably requested by
the SBIC Holder in order to (a) effectuate and facilitate any transfer
by the SBIC Holder of any securities of the Company then held by such
SBIC Holder to any Person designated by such SBIC Holder, (b) permit
such SBIC Holder (or any Affiliate of such SBIC Holder) to exchange all
or any portion of the Common Stock then held by such SBIC Holder on a
share-for-share basis for shares of a class of nonvoting common stock
of the Company, which nonvoting common stock shall be identical in all
respects to such Common Stock, except that such common stock shall be
nonvoting and shall be convertible into Common Stock on such terms as
are requested by such SBIC Holder in light of regulatory considerations
then prevailing, and (d) amend this Agreement and other related
agreements to effectuate and reflect the foregoing.
(ii) For purposes of this Agreement, a "Regulatory
Problem" means any set of facts or circumstances wherein it has been
asserted by any governmental regulatory agency (or the SBIC Holder
believes that there is a substantial risk of such assertion) that the
SBIC Holder and its Affiliates are not entitled to hold, or exercise
any significant right with respect to, the Preferred Stock or the
Common Stock.
3K. Put Rights.
(i) At any time during the Put Exercise Period (as
hereinafter defined), each holder of the Preferred Stock shall have the
right, by delivering not less than 270 days prior notice of its
intention to exercise such right to the Company (the "Put Notice"), to
require the Company to repurchase all of the Preferred Stock held by
such holder(s) (the "Put") at the fair market value of such stock as of
the date of such Put Notice, as determined pursuant to subparagraph
(ii) below (the "Put Price"). The "Put Exercise Period" shall commence
on the fifth anniversary of the closing of the purchase and sale of the
Preferred Stock pursuant to this Agreement and shall terminate upon
consummation of a Qualified IPO. The obligation of each Selling Holder
(as hereinafter defined) to deliver its shares of Preferred Stock on
the Put Closing Date (as hereinafter defined) shall be irrevocable on
the date of delivery to the Company of such Selling Holder's Put
Notice.
(ii) Upon the delivery of the Put Notice, the Company
and such holder(s) as have delivered a Put Notice (the "Selling
Holders") shall in good faith attempt to mutually agree on the Put
Price. If the Company and the Selling Holders have not mutually agreed
on the Put Price within 30 days of delivery of the Put Notice, the
disagreement shall be submitted for final determination to an
accounting firm or appraisal
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firm of recognized national standing (the "Independent Appraiser"),
such Independent Appraiser to be appointed within 45 days of delivery
of the Put Notice by two other accounting or appraisal firms of
recognized national standing, one of which will be selected by the
Company and one of which will be selected by the Selling Holders. The
Independent Appraiser shall follow such procedures as it deems
appropriate for obtaining the necessary information in considering the
positions of the Company and the Selling Holders but shall not conduct
an independent audit. The Independent Appraiser shall render its
determination on the matter within 60 days of its submission by the
Company and the Selling Holders, and such determination shall be final,
conclusive and binding upon the Company and the Selling Holders. The
fees and expenses of the Independent Appraiser shall be paid by the
Selling Holders if the Company's proposed Put Price is closer to the
Independent Appraiser's determination than was the proposed Put Price
of the Selling Holders; provided, that, in the event there is more than
one such holder, the obligation to pay the fees and expenses of the
Independent Appraiser shall be several among the Selling Holders.
Conversely, if the Selling Holders' proposed Put Price is closer to the
Independent Appraiser's determination than the proposed Put Price of
the Company, the fees and expenses of the Independent Appraiser shall
be paid by the Company. The "Put Closing Date" shall be the first
business day that is 270 days after the date on which the Put Notice is
delivered to the Company, or such earlier date that is specified by the
Company by not less than 30 nor more than 60 days prior written notice
delivered to the Selling Holders (such notice, the "Confirmation
Notice").
(iii) On the Put Closing Date, the Selling Holders
shall deliver to the Company certificates representing the shares of
Preferred Stock to be repurchased by the Company, free and clear of all
Liens and duly endorsed in blank or accompanied by duly executed forms
of assignment (with signatures guaranteed), and the Company shall
deliver to such holder(s) the Put Price as determined by the
Independent Appraiser by cashier's or certified check payable to such
holder(s) or by wire transfer of next day funds to an account
designated in writing by such holder(s); provided, that if and to the
extent any such purchase for cash is prohibited by the provisions of
applicable state law or by the provisions of the Company's debt
agreements or would cause the Company to violate any minimum working
capital level in any such debt agreements, the amount of the Put Price
which is not able to be paid in cash shall be paid for by the issuance
of subordinated promissory notes in form and substance satisfactory to
such holder(s) with the principal amount payable on the first
anniversary of issuance, bearing interest (payable quarterly in
arrears) at a floating rate per annum equal to the prime rate plus 700
basis points and secured by collateral reasonably satisfactory to such
holder(s); provided, that such holder(s) shall be entitled to rescind
any portion of the exercised Put if any portion of the Put Price would
be payable by such a note.
3L. Incentive Compensation for Founders. The Company and each of
the Purchasers acknowledge that Marc Collins-Rector will be provided a
compensation arrangement for each of himself, Chad Shackley and Brock Pierce
(collectively, the "Founders") that will be
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<PAGE> 17
in the form of warrants or options to purchase Common Stock and will provide the
Founders with base compensation and incentives to grow the Company. The Company
and each of the Purchasers agree that promptly after the Closing and upon
receipt of a proposal from the Founders, they will negotiate in good faith the
terms of such compensation arrangement and, subject to the receipt of all
requisite approvals, including, without limitation, approvals by the Company and
approvals pursuant to Section 3C of this Agreement, the Company will implement
such an incentive compensation arrangement.
Section 4. Transfer of Restricted Securities.
4A. General Provisions. Restricted Securities are transferable
only pursuant to (i) public offerings registered under the Securities Act, (ii)
Rule 144 or Rule 144A of the Securities and Exchange Commission (or any similar
rule or rules then in force) if such rule is available and (iii) subject to the
conditions specified in paragraph 4B below, any other legally available means of
transfer.
4B. Opinion Delivery. In connection with the transfer of any
Restricted Securities (other than a transfer described in paragraph 4A(i)
above), the holder thereof shall deliver written notice to the Company
describing in reasonable detail the transfer or proposed transfer, together with
an opinion (in form and substance satisfactory to the Company) of Kirkland &
Ellis or other counsel which (to the Company's satisfaction) is knowledgeable in
securities law matters to the effect that such transfer of Restricted Securities
may be effected without registration of such Restricted Securities under the
Securities Act. In addition, if the holder of the Restricted Securities delivers
to the Company such opinion of Kirkland & Ellis or such other counsel that no
subsequent transfer of such Restricted Securities shall require registration
under the Securities Act, the Company shall promptly upon such contemplated
transfer deliver new certificates for such Restricted Securities which do not
bear the Securities Act legend set forth in paragraph 7B. If the Company is not
required to deliver new certificates for such Restricted Securities not bearing
such legend, the holder thereof shall not transfer the same until the
prospective transferee has confirmed to the Company in writing (in form and
substance satisfactory to the Company) its agreement to be bound by the
conditions contained in this paragraph and paragraph 7B.
4C. Rule 144A. Upon the request of any Purchaser and the
execution and delivery to the Company of a confidentiality agreement by such
Purchaser's prospective transferees in form and substance satisfactory to the
Company, the Company shall promptly supply to such Purchaser or its prospective
transferees all information regarding the Company required to be delivered in
connection with a transfer pursuant to Rule 144A of the Securities and Exchange
Commission.
4D. Legend Removal. If any Restricted Securities become
eligible for sale pursuant to Rule 144(k), the Company shall, upon the request
of the holder of such Restricted Securities, remove the legend set forth in
paragraph 7B from the certificates for such Restricted Securities.
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Section 5. Representations and Warranties of the Company. The
Company hereby represents and warrants to the Purchasers that, except as set
forth in the disclosure schedules hereto:
5A. Organization, Corporate Power and Licenses. The Company is
a corporation duly organized, validly existing and in good standing under the
laws of Delaware and is qualified to do business in every jurisdiction in which
its lease or ownership of property or conduct of business requires it to so
qualify, except where the failure to so qualify has not had and would not
reasonably be expected to have a Material Adverse Effect. The Company possesses
all requisite corporate power and authority and all material licenses, permits
and authorizations necessary to own and operate its properties, to carry on its
businesses as now conducted and to carry out the transactions contemplated by
this Agreement, except for such licenses, permits and authorizations as the
failure to possess would not reasonably be expected to have a Material Adverse
Effect. The copies of the Company's and each Subsidiary's charter documents and
bylaws which have been furnished to the Purchasers' special counsel reflect all
amendments made thereto at any time prior to the date of this Agreement and are
correct and complete.
5B. Capital Stock and Related Matters.
(i) As of the Closing and immediately thereafter, the
authorized capital stock of the Company shall consist of (a) 20,000,000
shares of preferred stock, of which 260,000 shares shall be designated
as Preferred Stock and 250,000 shares have been designated as Series A
Preferred Stock, of which 70,453 shares of Series A Preferred Stock are
issued and outstanding, and (b) 100,000,000 shares of Common Stock, of
which 4,459,744 are issued and outstanding and 2,500,001 shares shall
be reserved for issuance upon conversion of the Preferred Stock. As of
the Closing, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any
shares of its capital stock or containing any profit participation
features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or
securities convertible into or exchangeable for its capital stock or
any stock appreciation rights or phantom stock plans, except as set
forth on the attached "Capitalization Schedule." As of the Closing,
neither the Company nor any Subsidiary shall be subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire
or retire any shares of its capital stock or any warrants, options or
other rights to acquire its capital stock, except as contemplated by
this Agreement. As of the Closing, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and
nonassessable.
(ii) There are no statutory or contractual
stockholders preemptive rights or rights of refusal with respect to the
issuance of the Preferred Stock hereunder or the issuance of the Common
Stock upon conversion of the Preferred Stock. The Company has not
violated any applicable federal or state securities laws in connection
with the offer, sale or issuance of any of its capital stock, and the
offer, sale and issuance of the Preferred Stock hereunder does not
require registration under the Securities Act or any applicable state
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securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the
voting or transfer of the Company's capital stock, except for (A) the
Stockholder's Agreement, dated as of January 1, 1998, between Marc
Collins-Rector and Chad Shackley, (B) the Convertible Note Option
Agreement, dated as of October 27, 1998, between Marc Collins-Rector
and Brock Pierce and (C) as set forth on paragraph 5B of the Disclosure
Schedule.
5C. Subsidiaries; Investments. The attached "Subsidiary
Schedule" correctly sets forth the name of each Subsidiary, the jurisdiction of
its incorporation and the Persons owning the outstanding capital stock of such
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, possesses all
requisite corporate power and authority and all material licenses, permits and
authorizations necessary to own its properties and to carry on its businesses as
now being conducted and as presently proposed to be conducted, except for such
licenses, permits and authorizations as the failure to possess would not
reasonably be expected to have a Material Adverse Effect, and is qualified to do
business in every jurisdiction in which its lease or ownership of property or
conduct of business require it to so qualify, except where the failure to so
qualify has not had and would not reasonably be expected to have a Material
Adverse Effect. All of the outstanding shares of capital stock of each
Subsidiary are validly issued, full paid and nonassessable, and all such shares
are owned by the Company or another Subsidiary free and clear of any Lien and
not subject to any option or right to purchase any such shares. Except as set
forth on the Subsidiary Schedule, neither the Company nor any Subsidiary owns or
holds the right to acquire any shares of stock or any other security or interest
in any other Person.
5D. Authorization; No Breach. The execution, delivery and
performance of this Agreement and the Registration Agreement and the filing of
the Certificate of Designation have been duly authorized by the Company. This
Agreement, the Registration Agreement and the Certificate of Designation each
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms. The execution and delivery by the Company of this
Agreement and the Registration Agreement, the offering, sale and issuance of the
Preferred Stock hereunder, the issuance of the Common Stock upon conversion of
the Preferred Stock, the filing of the Certificate of Designation and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and would not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's or any Subsidiary's capital stock or assets pursuant to, (iv)
give any third party the right to modify, terminate or accelerate any obligation
under, (v) result in a violation of, or (vi) other than pursuant to applicable
securities laws, rules and regulations, require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any court or administrative or governmental body or agency pursuant to,
the Certificate of Designation or the charter or bylaws of the Company or any
Subsidiary, or any law, statute, rule or regulation to which the Company or any
Subsidiary is subject, or any agreement, instrument, order, judgment or decree
to which the Company or any Subsidiary is subject.
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5E. Financial Statements. Attached hereto as the
"Financial Statements Schedule" are the following financial statements:
(i) the audited consolidated balance sheets of the
Company and its Subsidiaries as of December 31, 1998 and 1997, and the
related statements of income and cash flows (or the equivalent) for the
respective twelve-month periods then ended.
(ii) the unaudited consolidated balance sheet of the
Company and its Subsidiaries as of March 31, 1999 (the "Latest Balance
Sheet and the related statements of income and cash flows (or the
equivalent) for the three-month period then ended).
Each of the foregoing financial statements (including in all cases the notes
thereto, if any) is accurate and complete in all material respects, is
consistent with the books and records of the Company (which, in turn, are
accurate and complete in all material respects) and has been prepared in
accordance with generally accepted accounting principles, consistently applied,
except as disclosed therein, subject in the case of the unaudited financial
statements to the absence of footnote disclosure and changes resulting from
normal year end adjustments.
5F. Absence of Undisclosed Liabilities. Except as set forth on
the attached "Liabilities Schedule," the Company and its Subsidiaries do not
have any obligation or liability other than: (i) liabilities set forth on the
Latest Balance Sheet (including any notes thereto), (ii) liabilities and
obligations which have arisen after the date of the Latest Balance Sheet in the
ordinary course of business and in connection with this transaction (iii) other
liabilities and obligations disclosed in the other Schedules to this Agreement,
and (iv) other liabilities or obligations which would not reasonably be expected
to have a Material Adverse Effect.
5G. No Material Adverse Change. Except as set forth on the
attached "Adverse Change Schedule," and other than changes in general economic
and business conditions and changes that generally affect the Internet and
entertainment industries and the Company's competitors since the date of the
Latest Balance Sheet, there has been no material adverse change in the financial
condition, operating results, assets, operations, employee relations or customer
or supplier relations of the Company and its Subsidiaries taken as a whole.
5H. Absence of Certain Developments.
(i) Except as expressly contemplated by this
Agreement or as set forth on the attached "Developments Schedule,"
since the date of the Latest Balance Sheet, neither the Company nor any
Subsidiary have
(a) issued any notes, bonds or other debt
securities or, except as set forth in the Capitalization
Schedule, any capital stock or other equity securities or any
securities convertible, exchangeable or exercisable into any
capital stock or other equity securities;
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(b) borrowed any amount or incurred or
become subject to any material liabilities, except
liabilities incurred in the ordinary course of business and
liabilities under contracts entered into in the ordinary
course of business;
(c) discharged or satisfied any material
Lien, other than Permitted Liens, or paid any material
obligation or liability, other than current liabilities paid
in the ordinary course of business;
(d) declared or made any payment or
distribution of cash or other property to its stockholders
with respect to its capital stock or other equity securities
or purchased or redeemed any shares of its capital stock or
other equity securities (including, without limitation, any
warrants, options or other rights to acquire its capital
stock or other equity securities);
(e) mortgaged or pledged any of its
properties or assets or subjected them to any material Lien,
except Permitted Liens and Liens for current property taxes
not yet due and payable;
(f) sold, assigned or transferred any of its
tangible assets, except in the ordinary course of business,
or canceled any material debts or claims;
(g) sold, assigned or transferred any
Intellectual Property Rights, corporate names, trade secrets
or other intangible assets;
(h) suffered any material extraordinary
losses or waived any rights of material value, except in the
ordinary course of business and consistent with past
practice;
(i) made any capital expenditures or
commitment therefor that is in excess of $50,000;
(j) made any loans or advances to,
guarantees for the benefit of, or any investments in, any
Person in excess of $50,000 in the aggregate;
(k) made any charitable contributions in
excess of $50,000 in the aggregate;
(l) suffered any damage, destruction or
casualty loss exceeding $50,000, whether or not covered by
insurance;
(m) changed any of the accounting methods
used unless required by GAAP;
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(n) adopted or amended in any material
respect any collective bargaining agreement;
(o) filed any amended Tax Return,
surrendered any right to claim a refund of Taxes or take any
similar action, or omitted to take any action relating to the
filing of any Tax Return or the payment of any Tax, if such
election, adoption, change, amendment, agreement, settlement,
surrender, consent, or other action or omission would have
the effect of increasing the present or future tax liability
or decreasing any present or future Tax asset of the Company;
or
(p) authorized or entered into an agreement,
whether in writing or otherwise, to do any of the actions
prohibited above.
(ii) No officer, director, employee or agent of the
Company or any of its Subsidiaries has been or is authorized to make or
receive, and the Company does not know of any such person making or
receiving, any bribe, kickback or other illegal payment.
5I. Assets. Except as set forth on the attached "Assets
Schedule," the Company and each Subsidiary have good and marketable title to, or
a valid leasehold interest in, the material properties and assets used by them,
located on their premises or shown on the Latest Balance Sheet or acquired
thereafter, free and clear of all Liens, except for properties and assets
disposed of in the ordinary course of business since the date of the Latest
Balance Sheet and except for Liens disclosed on the Latest Balance Sheet
(including any notes thereto) and Liens for current property taxes not yet due
and payable. Except as set forth in the attached Assets Schedule, the Company
and the Subsidiaries validly own or lease all buildings, machinery, equipment,
and other tangible assets necessary for the conduct of their businesses as
presently conducted. Except as described on the Assets Schedule, the Company's
and each Subsidiary's buildings, equipment and other tangible assets are in good
operating condition in all material respects and are fit for use in the ordinary
course of business. There are no proceedings in eminent domain or other similar
proceedings pending or, to the knowledge of the Company, threatened, affecting
any portion of the material real property owned or leased by the Company or any
Subsidiary. There exists no writ, injunction, decree, order or judgment
outstanding, nor any litigation, pending or threatened, relating to the
ownership, lease, use, occupancy or operation by any Person of any such real
property. The current use of the real property does not violate in any material
respect any instrument of record or agreement affecting such real property.
There is no violation of any covenant, condition, restriction, easement,
agreement or order of any governmental authority having jurisdiction over any of
the real property that affects such real property or the use or occupancy
thereof, except a violation which would not result in material liabilities to
the Company or any Subsidiary or otherwise result in a Material Adverse Effect.
No damage or destruction has occurred with respect to any of the real property
that, individually or in the aggregate, has had or resulted in, or will have or
result in, material liabilities to the Company or any Subsidiary or otherwise
result in a Material Adverse Effect.
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5J. Contracts and Commitments.
(i) Except as expressly contemplated by this
Agreement or as set forth on the attached "Contracts Schedule" or the
attached "Employee Benefits Schedule," neither the Company nor any
Subsidiary is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option,
employee stock purchase or other plan or arrangement
providing for deferred or other compensation to employees or
any other employee benefit plan or arrangement, or any
collective bargaining agreement or any other contract with
any labor union, or severance agreements, programs, policies
or arrangements;
(b) contract for the employment of any
officer, individual employee or other Person on a full-time,
part-time, consulting or other basis providing annual
compensation in excess of $100,000 or contract relating to
loans to officers, directors or Affiliates;
(c) contract under which the Company or any
Subsidiary has advanced or loaned any other Person amounts in
the aggregate exceeding $50,000;
(d) agreement or indenture relating to
borrowed money or other Indebtedness or the mortgaging,
pledging or otherwise placing a Lien on any material asset or
material group of assets of the Company and its Subsidiaries;
(e) guarantee of any obligation in excess of
$50,000 (other than by the Company of a Wholly-Owned
Subsidiary's debts or a guarantee by a Subsidiary of the
Company's debts or another Subsidiary's debts);
(f) lease or agreement under which the
Company or any Subsidiary is lessee of or holds or operates
any property, real or personal, owned by any other party,
except for any lease of real or personal property under which
the aggregate annual rental payments do not exceed $50,000;
(g) lease or agreement under which the
Company or any Subsidiary is lessor of or permits any third
party to hold or operate any property, real or personal,
owned or controlled by the Company or any Subsidiary;
(h) contract or group of related contracts
with the same party or group of affiliated parties the
performance of which involves consideration in excess of
$100,000;
(i) any agreement under which the Company or
any Subsidiary could have liabilities in the future relating
to the acquisition or disposition of assets
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or properties having a fair market value in excess of
$100,000 by way of merger, consolidation, purchase, sale or
otherwise, or granting to any Person a right at such Person's
option to purchase or acquire any material asset or property,
of the Company or any Subsidiary or any interest therein (not
including dispositions of inventory in the ordinary course of
business);
(j) any agreement for the construction,
acquisition or modification of any land, building, structure,
improvement, fixture or other fixed asset, or for the
incurrence of any other capital expenditure involving amounts
in excess of $50,000 in the aggregate;
(k) assignment, license, indemnification or
agreement with respect to any material intangible property
(including without limitation any Intellectual Property);
(l) warranty agreement with respect to its
services rendered or its products sold or leased;
(m) agreement under which it has granted any
Person any registration rights (including, without
limitation, demand and piggyback registration rights);
(n) sales, distribution or franchise
agreement; or
(o) contract or agreement prohibiting it
from freely engaging in any business or competing anywhere in
the world.
(ii) All of the contracts, agreements and instruments
set forth on the Contracts Schedule are, with respect to the Company,
valid, binding and enforceable in accordance with their respective
terms. The Company and each Subsidiary have performed all material
obligations required to be performed by them under the contracts,
agreements and instruments listed on the Contracts Schedule to which
they are parties and are not in material default under or in material
breach of nor in receipt of any written claim of default or breach
under any material contract, agreement or instrument to which the
Company or any Subsidiary is a party listed on the Contracts Schedule;
and no event has occurred which with the passage of time or the giving
of notice or both would result in a material default, breach or event
of noncompliance by the Company or any Subsidiary under any material
contract, agreement or instrument to which the Company or any
Subsidiary is a party listed on the Contracts Schedule.
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5K. Intellectual Property Rights.
(i) The attached "Intellectual Property Schedule"
contains a complete and accurate list, as of May 14, 1999, of all (a)
patented or registered Intellectual Property Rights owned or used by
the Company or any Subsidiary, (b) pending patent applications and
applications for registrations of other Intellectual Property Rights
filed by the Company or any Subsidiary, (c) unregistered trade names
and corporate names owned or used by the Company or any Subsidiary and
(d) unregistered trademarks, service marks, copyrights and computer
software owned or used by the Company or any Subsidiary, in each case
which are material to the financial condition, operating results,
assets, operations or business prospects of the Company and its
Subsidiaries taken as a whole. The Intellectual Property Schedule also
contains a complete and accurate list of all licenses and other rights
granted by the Company or any Subsidiary to any third party with
respect to any material Intellectual Property Rights and all licenses
and other rights granted by any third party to the Company or any
Subsidiary with respect to any material Intellectual Property Rights,
in each case identifying the subject Intellectual Property Rights.
Except as set forth on the Intellectual Property Schedule, the Company
or one of its Subsidiaries owns all right, title and interest to, or
has the right to use pursuant to a valid license, all Intellectual
Property Rights necessary for the operation of the businesses of the
Company and its Subsidiaries as presently conducted. To the Company's
knowledge, the Company and its Subsidiaries have taken all reasonably
necessary actions to maintain and protect the Intellectual Property
Rights which they own.
(ii) Except as set forth on the Intellectual Property
Schedule, (a) there have been no claims made against the Company or any
Subsidiary asserting the invalidity, misuse or unenforceability of any
of such Intellectual Property Rights, (b) neither the Company nor any
Subsidiary has received any notices of any infringement or
misappropriation by, or conflict with, any third party with respect to
such Intellectual Property Rights, and (c) to the Company's knowledge,
the conduct of the Company's and each Subsidiary's business has not
infringed, misappropriated or conflicted with and does not infringe,
misappropriate or conflict with any Intellectual Property Rights of
other Persons.
5L. Litigation, etc. Except as set forth on the attached
"Litigation Schedule," there are no actions, suits, proceedings, orders,
investigations or claims pending or, to the best of the Company's knowledge,
threatened against the Company or any Subsidiary that would reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any
Subsidiary is subject to any arbitration proceedings under collective bargaining
agreements or otherwise or, to the Company's knowledge, any governmental
investigations or inquiries. Neither the Company nor any Subsidiary is subject
to any judgment, order or decree of any court or other governmental agency.
5M. Brokerage. Except as set forth on the attached "Brokerage
Schedule," there are no claims for brokerage commissions, finders' fees or
similar compensation in connection with
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the transactions contemplated by this Agreement based on any arrangement or
agreement binding upon the Company or any Subsidiary.
5N. Governmental Consent, etc. Other than with respect to
applicable securities laws, rules and regulations, and filings with the
Secretary of State of Delaware, no permit, consent, approval or authorization
of, or declaration to or filing with, any governmental authority is required in
connection with the execution, delivery and performance by the Company of this
Agreement or the Registration Agreement, or the consummation by the Company of
any other transactions contemplated hereby or thereby, except as set forth on
the attached "Consents Schedule" and except as expressly contemplated herein or
in the exhibits hereto.
5O. Insurance. The attached "Insurance Schedule" contains a
true, correct and complete description of each insurance policy maintained by
the Company and its Subsidiaries with respect to its properties, assets and
businesses, and each such policy is in full force and effect as of the Closing.
Neither the Company nor any Subsidiary is in default with respect to its
obligations under any insurance policy maintained by it, and neither the Company
nor any Subsidiary has been denied insurance coverage. Except as set forth on
the Insurance Schedule, the Company and its Subsidiaries do not have any
self-insurance or co-insurance programs, and the reserves set forth on the
Latest Balance Sheet are adequate to cover all anticipated liabilities with
respect to any such self-insurance or co-insurance programs.
5P. Compliance with Laws. Except as set forth on the attached
"Compliance Schedule," to the Company's knowledge, neither the Company nor any
Subsidiary has violated any law or any governmental regulation or requirement
which violation has had or would reasonably be expected to have, either
individually or in the aggregate, a Material Adverse Effect, and neither the
Company nor any Subsidiary has received notice of any such violation.
5Q. Taxes.
Except for any failure or default as would not
reasonably be expected to have a Material Adverse Effect,
(i) The Company has timely filed (or has had timely
filed on its behalf) or will file or cause to be timely filed, all
material Tax Returns required by applicable law to be filed by any of
them prior to or as of the Closing. All such Tax Returns are, or will
be at the time of filing, true, complete and correct in all material
respects.
(ii) The Company has paid (or has had paid on its
behalf), or where payment is not due, has established (or has had
established on its behalf and for its sole benefit and recourse), or
will establish or cause to be established on or before the Closing, an
adequate accrual for the payment of, all material Taxes due with
respect to any period ending prior to or as of the Closing.
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(iii) The Company and its Subsidiaries have withheld
and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, creditor,
independent contractor or other third party.
(iv) For purposes of this Agreement, the following
terms shall have the following meanings: (A) "Taxes" shall mean all
Federal, state, local and foreign taxes, and other assessments of a
similar nature (whether imposed directly or through withholding),
including any interest, additions to tax, or penalties applicable
thereto, and (B) "Tax Returns" shall mean all Federal, state, local and
foreign tax returns, declarations, statements, reports, schedules,
forms and information returns and any amended tax return relating to
Taxes.
5R. Environmental, Health, and Safety Matters. Except as set
forth in Section 5R of the Disclosure Schedule or as would not reasonably be
expected to have a Material Adverse Effect:
(i) the Company, the Subsidiaries and their
respective Affiliates have complied and are in compliance with all
Environmental and Safety Requirements (including without limitation all
permits and licenses required thereunder);
(ii) the Company, the Subsidiaries and their
respective Affiliates have not received any written or oral notice,
report or other information regarding any actual or alleged violation
of Environmental and Safety Requirements, or any liabilities or
potential liabilities, including any investigatory, remedial or
corrective obligations, relating to any of them or its facilities
arising under Environmental and Safety Requirements;
(iii) to the Company's knowledge, none of the
following exists at any property or facility owned or operated by the
Company or any Subsidiary or any of their respective Affiliates: (a)
underground storage tanks, (b) asbestos-containing material in any form
or condition, (c) materials or equipment containing polychlorinated
biphenyls, or (d) landfills, surface impoundments, or disposal areas;
(iv) neither the Company nor any Subsidiary has
treated, stored, disposed of, arranged for or permitted the disposal
of, transported, handled, or released any substance, including without
limitation any hazardous substance, or owned or operated any property
or facility (and no such property or facility is contaminated by any
such substance) in a manner that has given or would give rise to
liabilities, including without limitation any liability for response
costs, corrective action costs, personal injury, property damage,
natural resources damages or attorney fees, pursuant to the CERCLA, the
Solid Waste Disposal Act, as amended or any other Environmental and
Safety Requirements;
(v) to the Company's knowledge, neither this
Agreement nor the consummation of the transactions contemplated hereby
will result in any obligations for site investigation or cleanup, or
notification to or consent of government agencies or third parties,
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pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements;
(vi) to the Company's knowledge, the Company and the
Subsidiaries have not, either expressly or by operation of law,
assumed, undertaken or otherwise become subject to any liability,
including without limitation any liability for corrective or remedial
action, of any other Person relating to Environmental and Safety
Requirements; and
(vii) to the Company's knowledge, no facts, events or
conditions relating to the past or present facilities, properties or
operations of the Company or any Subsidiary will prevent, hinder or
limit continued compliance with Environmental and Safety Requirements,
give rise to any investigatory, remedial or corrective liabilities
pursuant to Environmental and Safety Requirements, or give rise to any
other liabilities pursuant to Environmental and Safety Requirements,
including without limitation any liability relating to onsite or
offsite releases or threatened releases of hazardous materials,
substances or wastes, personal injury, property damage or natural
resources damage;
except, in each case, where the failure to comply would not result in material
liabilities to the Company or any Subsidiary or otherwise result in a Material
Adverse Effect.
5S. Employees. Except as set forth on Section 5S of the
Disclosure Schedule, to the Knowledge of the Company, no officer of the Company
who is an Executive Vice President or higher ranking officer and no group of
employees or independent contractors of the Company or any Subsidiary has any
plans to terminate his, her or its employment or relationship as an independent
contractor with the Company or any Subsidiary. Except as set forth in Section 5S
of the Disclosure Schedule, no organizational effort is presently being made or,
to the knowledge of the Company, threatened by or on behalf of any labor union
with respect to any employees of the Company or any Subsidiary and none of their
employees are represented by any labor union. Except as set forth in Section 5S
of the Disclosure Schedule and, in each case, where the failure to comply would
not result in material liabilities to the Company or any Subsidiary or otherwise
result in a Material Adverse Effect, the Company and the Subsidiaries are in
compliance with all applicable laws respecting employment and employment
practices, terms and conditions of employment and wages and hours, and are not
engaged in any unfair labor practice and, to the knowledge of the Company, there
is no reasonable basis for any unfair labor practice complaint or claim to be
asserted against the Company or any Subsidiary, and there is no labor strike,
dispute, slowdown or stoppage actually pending or, to the knowledge of the
Company, threatened, against the Company or any Subsidiary. Except as set forth
in Section 5S of the Disclosure Schedule, the employees of the Company and the
Subsidiaries are not subject to any collective bargaining agreement.
5T. Year 2000.
Except as set forth on Schedule 5T,
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(i) To the Company's knowledge, none of the computer
software, computer firmware, computer hardware (whether general or
special purpose) or other similar or related items of automated,
computerized or software systems that are used or relied on by Company
or by any of its Subsidiaries in the conduct of their respective
businesses will malfunction, will cease to function, will generate
incorrect data or will produce incorrect results when processing,
providing or receiving (a) date-related data from, into and between the
twentieth and twenty-first centuries or (b) date-related data in
connection with any valid date in the twentieth and twenty-first
centuries;
(ii) To the Company's knowledge, none of the products
and services sold, licensed, leased, rendered, or otherwise provided by
the Company or by any of its Subsidiaries in the conduct of their
respective businesses will malfunction, will cease to function, will
generate incorrect data or will produce incorrect results when
processing, providing or receiving (a) date-related data from, into and
between the twentieth and twenty-first centuries or (b) date-related
data in connection with any valid date in the twentieth and
twenty-first centuries; and, accordingly, neither the Company nor any
of its Subsidiaries is or will be subject to any claim, demand, action,
suit, liability, damage, material loss, or material expense arising
from, or related to, circumstances where such products and services
malfunction, cease to function, generate incorrect data, or produce
incorrect results when processing, providing or receiving (x)
date-related data from, into and between the twentieth and twenty-first
centuries or (y) date-related data in connection with any valid date in
the twentieth and twenty-first centuries; and
(iii) Neither the Company nor any of its Subsidiaries
has made any other representations or warranties regarding the ability
of any product or service sold, licensed, leased, rendered, or
otherwise provided by Company or by any of its Subsidiaries in the
conduct of their respective businesses to operate without malfunction,
to operate without ceasing to function, to generate correct data or to
produce correct results when processing, providing or receiving (a)
date-related data from, into and between the twentieth and twenty-
first centuries and (b) date-related data in connection with any valid
date in the twentieth and twenty-first centuries.
5U. Small Business Concern, Etc.
(a) The information regarding the Company and its
affiliates set forth in the Small Business Administration the ("SBA") Forms 480,
652 and Parts A and B of Form 1031 to be delivered at the Closing will be
accurate and complete in all material respects.
(b) The proceeds from the purchase of stock by
Cassandra/Chase and Chase Capital under this Agreement (the "Financing") will be
used by the Company for purposes of acquisitions, working capital and capital
expenditures, including, without limitation, up to $3,000,000 that will be used
to fund the development and initial operations of the Company's music subsidiary
and $2,000,000 that will be used to fund advances against the compensation of
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the co-presidents of the Company's music subsidiary; provided that such
proceeds will not be used for the purchase or redemption of any shares of
capital stock of the Company or any of its Subsidiaries or affiliates.
5V. Closing Date. The representations and warranties of the
Company contained in this Section 5 and elsewhere in this Agreement and all
information contained in any exhibit, schedule or attachment hereto or in any
certificate or other writing delivered by, or on behalf of, the Company to any
Purchaser at the Closing shall be true and correct in all material respects on
the date of the Closing as though then made, except as affected by the
transactions expressly contemplated by this Agreement, and will not contain any
untrue statement of a material fact or omit a material fact necessary to make
each statement contained herein or therein misleading.
Section 6. Definitions.
6A. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Change of Control" means an issuance or related issuances of
stock by the Corporation to a Person or group (as defined in Section 13(d)(3) of
the Exchange Act), (other than the existing beneficial owners of the Company's
Common Stock) who, as a result of such issuance or issuances, becomes the direct
or indirect beneficial owner of more than 50% of the outstanding voting stock of
the Corporation.
"Environmental and Safety Requirements" means all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety and pollution or protection of the
environment, including without limitation all such standards of conduct and
bases of obligations relating to the presence, use, production, generation,
handling, transport, treatment, storage, disposal, distribution, labeling,
testing, processing, discharge, release, threatened release, control, or cleanup
of any hazardous materials, substances or wastes, chemical substances or
mixtures, pesticides, pollutants, contaminants, toxic chemicals, petroleum
products or by-products, asbestos, polychlorinated biphenyls (or PCBs), noise or
radiation, each as amended and as now or hereafter in effect.
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"Event of Noncompliance" means any condition, occurrence or
event which, without regard to any giving of notice, lapse of time, or both,
would constitute a breach of any of the Company's obligations under this
Agreement.
"Excluded Issuances" has the meaning set forth in Section 6(c)
of the Certificate of Designation.
"Intellectual Property Rights" means all (i) patents, patent
applications, patent disclosures and inventions, (ii) trade names, trademarks,
service marks and registrations and applications for registration thereof, and
(iii) copyrights (registered or unregistered) and registrations and applications
for registration thereof.
"IPO Valuation" has the meaning set forth in Section 5(a)
of the Certificate of Designation.
"Liens" means any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind, any sale of receivables with recourse
against the Company, any Subsidiary or any Affiliate, any filing or agreement to
file a financing statement as debtor under the Uniform Commercial Code or any
similar statute other than to reflect ownership by a third party of property
leased to the Company or any Subsidiaries under a lease which is not in the
nature of a conditional sale or title retention agreement, or any subordination
arrangement in favor of another Person (other than any subordination arising in
the ordinary course of business).
"Material Adverse Effect" means a material adverse effect on
the financial condition, operating results, assets, operations or business
prospects of the Company and its Subsidiaries taken as a whole.
"Officer's Certificate" means a certificate signed on behalf
of the Company by the Company's chief executive officer, its chief financial
officer or chief administrative officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
reasonably necessary in order to permit him to verify the accuracy of the
information set forth in such certificate and (ii) to such officer's knowledge,
such certificate does not misstate any material fact and does not omit to state
any material fact necessary to make the certificate not misleading.
"Permitted Liens" means:
(i) tax liens with respect to taxes not
yet due and payable or which are
being contested in good faith by
appropriate proceedings and for
which appropriate reserves have been
established in accordance with
generally accepted accounting
principles, consistently applied;
28
<PAGE> 32
(ii) deposits or pledges made in
connection with, or to secure
payment of, utilities or similar
services, workers' compensation,
unemployment insurance, old age
pensions or other social security
obligations;
(iii) purchase money security interests in
any property acquired by the Company
or any Subsidiary to the extent
permitted by this Agreement;
(iv) interests or title of a lessor under
any lease permitted by this
Agreement;
(v) mechanics', materialmen's or
contractors' liens or encumbrances
or any similar lien or restriction;
(vi) easements, rights-of-way,
restrictions and other similar
charges and encumbrances not
interfering with the ordinary
conduct of the business of the
Company and its Subsidiaries or
detracting from the value of the
assets of the Company and its
Subsidiaries;
(vii) liens outstanding on the date hereof
which secure indebtedness and which
are described in the schedules to
this Agreement.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Qualified IPO" has the meaning set forth in Section 5(a) of
the Certificate of Designation.
"Restricted Securities" means (i) the Preferred Stock issued
hereunder, (ii) the Common Stock issued upon conversion of the Preferred Stock
and (iii) any securities issued with respect to the securities referred to in
clauses (i) or (ii) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization. As to any particular Restricted Securities, such
securities shall cease to be Restricted Securities when they have (a) been
effectively registered under the Securities Act and disposed of in accordance
with the registration statement covering them, (b) been distributed to the
public through a broker, dealer or market maker pursuant to Rule 144 (or any
similar provision then in force) under the Securities Act or become eligible for
sale pursuant to Rule 144(k) (or any similar provision then in force) under the
Securities Act or (c) been otherwise transferred and new certificates for them
not bearing the Securities Act legend set forth in paragraph 7B have been
delivered
29
<PAGE> 33
by the Company in accordance with paragraph 4B. Whenever any particular
securities cease to be Restricted Securities, the holder thereof shall be
entitled to receive from the Company, without expense, new securities of like
tenor not bearing a Securities Act legend of the character set forth in
paragraph 7B.
"SBIC" means a small business investment company licensed
under the Small Business Investment Act of 1958, as amended.
"SBIC Regulations" means the Small Business Investment Company
Act of 1958, as amended, and the regulations issued by the Small Business
Administration thereunder, 13 CFR 107 and 121, as amended.
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental
body or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended, or any similar federal law then in force.
"Subsidiary" means any corporation of which the securities
having a majority of the ordinary voting power in electing the board of
directors are, at the time as of which any determination is being made, owned by
the Company either directly or through one or more Subsidiaries.
"Underlying Common Stock" means (i) the Common Stock issued or
issuable upon conversion of the Preferred Stock and (ii) any Common Stock issued
or issuable with respect to the securities referred to in clause (i) above by
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
"Wholly-Owned Subsidiary" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
Section 7. Miscellaneous.
7A. Expenses. The Company shall reimburse the Purchasers for
all reasonable and documented out-of-pocket expenses (including the reasonable
attorneys' fees and out-of-pocket expenses of one outside counsel) actually
incurred by them in connection with the transactions contemplated by this
Agreement up to $150,000 in the aggregate.
30
<PAGE> 34
7B. Purchaser's Representations. Each Purchaser hereby
represents and warrants to the Company as follows:
(i) it is acquiring the Restricted Securities
purchased hereunder or acquired pursuant
hereto for its own account with the
intention of holding such securities for
purposes of investment, and that it has no
intention of selling such securities in a
public distribution in violation of the
federal securities laws or any applicable
state securities laws. Each certificate or
instrument representing Restricted
Securities shall be imprinted with a legend
in substantially the following form:
"The securities represented by this certificate were originally issued
on May __, 1999, and have not been registered under the Securities Act
of 1933, as amended or the securities laws of any state. The transfer
of the securities represented by this certificate is subject to the
conditions specified in the Purchase Agreement, dated as of May __,
1999 and as amended and modified from time to time, between the issuer
(the "Company") and certain investors, and the Company reserves the
right to refuse the transfer of such securities until such conditions
have been fulfilled with respect to such transfer. A copy of such
conditions shall be furnished by the Company to the holder hereof upon
written request and without charge."
(ii) it is, if an entity, an entity duly
organized, validly existing and in
good standing under the laws of the
jurisdiction of its organization
and is qualified to do business in every
jurisdiction in which its lease
or ownership of property or conduct of
business requires it to so qualify, except
where the failure to so qualify has not had
and would not reasonably be expected to
have a material adverse effect on the
financial condition, operating results,
assets, operations or business prospects of
such Purchaser or on such Purchaser's
ability to perform its obligations hereunder
(a "Purchaser Material Adverse Effect"). It
possesses all requisite power and authority
(corporate or otherwise) and all material
licenses, permits and authorizations
necessary to own and operate its properties,
to carry on its businesses as now conducted
and to carry out the transactions
contemplated by this Agreement, except for
such licenses, permits and authorizations
as the failure to possess would not
reasonably be expected to have a Purchaser
Material Adverse Effect.
(iii) The execution, delivery and performance of
this Agreement have been duly authorized by
such Purchaser. This Agreement constitutes a
valid and binding obligation of such
Purchaser, enforceable in accordance with
its terms. The execution and delivery by
such Purchaser of this Agreement, the
purchase of the Preferred Stock
31
<PAGE> 35
hereunder and the fulfillment of and
compliance with the terms hereof by such
Purchaser, do not and would not (i) conflict
with or result in the breach of the terms,
conditions or provisions of, (ii) constitute
a default under, (iii) result in the
creation of any lien, security interest,
charge or encumbrance upon such Purchaser's
securities or assets pursuant to, (iv) give
any third party the right to modify,
terminate or accelerate any obligation
under, (v) result in a violation of, or (vi)
other than pursuant to applicable securities
laws, rules and regulations, require any
authorization, consent, approval, exemption
or other action by or notice or declaration
to, or filing with, any court or
administrative or governmental body or
agency pursuant to, the organization
documents of such Purchaser, or any law,
statute, rule or regulation to which such
Purchaser is subject, or any agreement,
instrument, order, judgment or decree to
which such Purchaser is subject.
(iv) Such Purchaser is an "accredited investor"
as defined in Regulation D promulgated under
the Securities Act.
7C. Consent to Amendments. Except as otherwise expressly
provided herein, the provisions of this Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of the holders of a majority of the outstanding Preferred Stock. No
other course of dealing between the Company and the holder of any Preferred
Stock or any delay in exercising any rights hereunder or under the Certificate
of Designation shall operate as a waiver of any rights of any such holders. For
purposes of this Agreement, shares of Preferred Stock held by the Company or any
Subsidiaries shall not be deemed to be outstanding.
7D. Survival of Representations and Warranties. All
representations and warranties contained herein or made in writing by any party
in connection herewith shall survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of one year after the Closing.
7E. Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto whether so expressed
or not.
7F. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
32
<PAGE> 36
7G. Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, any one of which need not contain
the signatures of more than one party, but all such counterparts taken together
shall constitute one and the same Agreement.
7H. Descriptive Headings; Interpretation. The descriptive
headings of this Agreement are inserted for convenience only and do not
constitute a substantive part of this Agreement. The use of the word "including"
in this Agreement shall be by way of example rather than by limitation.
7I. Governing Law. This Agreement and the exhibits and
schedules hereto shall be governed by, and construed in accordance with, the
laws of the State of California, without giving effect to any choice of law or
conflict of law rules or provisions (whether of the State of California or any
other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of California.
7J. Notices. All notices, demands or other communications to
be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and shall be deemed to have been given when delivered
personally to the recipient, sent to the recipient by reputable overnight
courier service (charges prepaid) or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to each Purchaser at the address
indicated on the Schedule of Purchasers and to the Company at the address
indicated below:
2230 Broadway
Santa Monica, CA 90402
Attn: General Counsel and Chief Administrative Officer
Telephone: 310-828-8366
Facsimile: 310-828-7337
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7K. No Strict Construction. The parties hereto have
participated jointly in the negotiation and drafting of this Agreement. In the
event an ambiguity or question of intent or interpretation arises, this
Agreement shall be construed as if drafted jointly by the parties hereto, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any of the provisions of this Agreement.
7L. Indemnification. In consideration of the Purchaser's
execution and delivery of this Agreement and acquiring the Preferred Stock
hereunder and in addition to all of the Company's other obligations under this
Agreement, the Company shall defend, protect, indemnify and hold harmless each
Purchaser and all of their officers, directors, employees and agents
(collectively, the "Indemnitees") from and against any and all actions, causes
of action, suits, claims,
33
<PAGE> 37
losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "Indemnified Liabilities"),
incurred by the Indemnitees or any of them as a result of, or arising out of, or
relating to the execution, delivery, performance or enforcement of this
Agreement and any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees Notwithstanding the foregoing, Indemnified
Liabilities shall not include costs and expenses incurred by any Indemnitee in
connection with (a) any violations of law or governmental regulations by such
Indemnitee, (b) any acts of willful misconduct or gross negligence by such
Indemnitee or (c) any actions against such Indemnitee by creditors of such
Indemnitee or shareholders or creditors of such Indemnitee's parent companies.
[Signatures Appear on Following Page]
34
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the date first written above.
DIGITAL ENTERTAINMENT NETWORK, INC.
By: /s/ BRUCE J. GAMACHE
---------------------------------------
Name: Bruce J. Gamache
Title: COO/CFO
PURCHASERS:
CASSANDRA/DIGITAL ENTERTAINMENT
NETWORK PARTNERS, L.L.C.
By: Cassandra-Chase Entertainment
Partners, L.L.C.
By: /s/ SAMUEL F. HOLDSWORTH
-----------------------------------
Samuel F. Holdsworth, Member
CHASE VENTURE CAPITAL ASSOCIATES
By: /s/ MITCHELL BLUTT
----------------------------------------
Mitchell Blutt, Executive Partner
DELL USA L.P., a Texas limited partnership
By: Dell Gen. P. Corp., a Delaware
corporation
By: /s/ THOMAS H. WELCH, JR.
----------------------------
Thomas H. Welch, Jr.
Assistant Secretary
MICROSOFT CORPORATION
By: /s/ GREG MAFFEI
---------------------------------------
Name: Greg Maffei
Title: CFO and Senior Vice President
<PAGE> 39
DEN PARTNERS LLC
By: /s/ SAID ARMUTCUOGLU
-----------------------------------------
Said Armutcuoglu, Managing Member
JAMES L. KEMPNER
/s/ JAMES L. KEMPNER
-------------------------------------------
<PAGE> 40
SCHEDULE OF WIRE TRANSFER INSTRUCTIONS
Wire transfers should be sent to the Company's account at:
Imperial Bank
977 Wilshire Boulevard
Beverly Hills, CA 90212
ABA No.: 122201444
Account holder: Digital Entertainment Network, Inc.
Account No.: 60-085-439
Reference: Series B Preferred Stock
Contact Information at Imperial Bank:
Ms. Marie Estrada
Telephone no.: 800-505-0534
Facsimile no.: 800-303-2297
<PAGE> 41
SCHEDULE OF PURCHASERS
<TABLE>
<CAPTION>
Total
No. of Purchase
Shares Price
of for
Names and Preferred Preferred
Addresses Stock Stock
----------- ---------- --------------
<S> <C> <C>
Cassandra/Digital Entertainment 63,461.5 $6,599,996.00
Network Partners, L.L.C.
Chase Venture Capital Associates 36,538.5 3,800,004.00
Dell USA L.P. 28,846.2 3,000,004.80
Microsoft Corporation 43,269.2 4,499,996.80
DEN Partners LLC 36,538.5 3,800,004.00
James L. Kempner 1,923.1 200,002.40
TOTAL 210,577 $21,900,008.00
</TABLE>
<PAGE> 42
SCHEDULE OF SUBSCRIBERS
DIGITAL ENTERTAINMENT NETWORK, INC.
SERIES B SUBSCRIBERS
<TABLE>
<CAPTION>
Series B Preferred
Purchase Price Shares at $104
-------------- ------------------
<S> <C> <C>
David Neuman $500,000.80 4,807.7
Jim Ritts 50,003.20 480.8
Ed Winter 200,002.40 1,923.1
Bruce Gamache 799,999.20 7,692.3
Alan Friel 31,002.40 298.1
Gary Gersh 500,000.80 4,807.7
John Silva 99,996.00 961.5
GAS, LLC 99,996.00 961.5
Evan Strauss 99,996.00 961.5
Patricia Klowden 500,000.80 4,807.7
Bob Doede 500,000.80 4,807.7
Layne Britton 50,003.20 480.8
Todd Zelek 50,003.20 480.8
Garrett Bland 19,999.20 192.3
Anthony Greenberg 50,003.20 480.8
Lawrence Besk 149,999.20 1,442.3
Scott Helbing 50,003.20 480.8
Ron Palmieri 98,997.60 951.9
Brandon Douglas 50,003.20 480.8
Jay Sures 50,003.20 480.8
Gary Horwitz 50,003.20 480.8
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
<S> <C> <C>
Ziffren Brittenham 50,003.20 480.8
Branca & Fischer
LLP
Joshua Grode 25,001.60 240.4
Jason Grode 25,001.60 240.4
TOTAL $4,100,023.20 39,423.3
</TABLE>
<PAGE> 44
LIST OF EXHIBITS
Exhibit A - Certificate of Designation
Exhibit B - Registration Agreement
Exhibit C - Permitted Changes to Certificate of Incorporation and Bylaws
Exhibit D - Joint Sale and Voting Agreement
Exhibit E - Legal Opinion of Katten, Muchin & Zavis
<PAGE> 45
LIST OF DISCLOSURE SCHEDULES
Capitalization Schedule
Subsidiary Schedule
Restrictions Schedule
Financial Statements Schedule
Liabilities Schedule
Adverse Change Schedule
Developments Schedule
Assets Schedule
Contracts Schedule
Intellectual Property Schedule
Litigation Schedule
Brokerage Schedule
Consents Schedule
Insurance Schedule
Compliance Schedule
Employee Schedule
Y2K Schedule
<PAGE> 1
EXHIBIT 10.40
DIGITAL ENTERTAINMENT NETWORK, INC.
SUBSCRIPTION AGREEMENT
PLEASE READ CAREFULLY BEFORE SIGNING
ALL SUBSCRIPTIONS ARE SUBJECT TO ACCEPTANCE BY THE COMPANY. ALL INFORMATION
REQUIRED TO BE PROVIDED HEREIN BY SUBSCRIBERS FOR DETERMINING PURCHASER
QUALIFICATION WILL BE KEPT STRICTLY CONFIDENTIAL.
To: Digital Entertainment Network, Inc.
2230 Broadway
Santa Monica, California 90404
Attention: General Counsel
Telephone: (310) 998-9200
Telecopy: (310) 998-1101
Ladies and Gentlemen:
1. SUBSCRIPTION FOR SHARES. The undersigned hereby irrevocably
subscribes for ___________ shares of Series B Convertible Preferred Stock, par
value $0.01 per share (the "Shares"), of Digital Entertainment Network, Inc., a
Delaware corporation (the "Company"), for $104.00 per Share, representing an
aggregate purchase price of $_______________.
2. ACCEPTANCE OF THIS SUBSCRIPTION AGREEMENT. It is understood that
this subscription is not binding on the Company until the Company accepts it,
which acceptance may be made in the Company's sole discretion. The closing of
the purchase and sale of the Shares shall take place on __________, 1999, unless
such date is extended by the Company in its discretion.
3. REPRESENTATIONS AND WARRANTIES. To induce the Company to accept this
Subscription Agreement, the undersigned hereby represents, warrants and
covenants to the Company as follows:
A. The undersigned acknowledges that the undersigned has been
furnished with the relevant terms and conditions of this offering (the
"Offering") and such other documents, materials and information as the
undersigned deems necessary or appropriate for evaluating an investment
in the Company. The undersigned confirms that the undersigned carefully
has read and understands such materials and has made such further
investigation of the Company as the undersigned deemed appropriate to
obtain additional information to verify the accuracy of such materials
and to evaluate the merits and risks of this investment. The
undersigned acknowledges that the undersigned has had the opportunity
to ask questions of, and receive answers from, the Company and persons
acting on its behalf, concerning the terms and conditions of the
Offering and the information contained in the materials reviewed or
provided, and all such questions have been answered to the
undersigned's full satisfaction.
B. The undersigned understands that neither the Securities and
Exchange Commission nor any other federal or state agency has
recommended, approved or endorsed the purchase of the Shares as an
investment or passed on the accuracy or adequacy of the information set
forth in the Memorandum or any other Company documents.
<PAGE> 2
C. The undersigned confirms that the undersigned is acquiring
the Shares subscribed for herein solely for the undersigned's own
account, for investment, and not with a view to the distribution or
resale of such Shares.
D. The undersigned understands that: there are substantial
restrictions on the transferability of the Shares; holders of the
Shares have limited rights to require the Shares to be registered under
the Act (as hereinafter defined) or the securities laws of any state;
there will be no public market for the Shares; and it may not be
possible for the undersigned to liquidate the undersigned's investment
in the Company, and accordingly, the undersigned may have to hold the
Shares, and bear the economic risk of this investment, indefinitely.
E. If the undersigned is an individual, the undersigned has
the legal capacity and authority to execute, deliver, and perform the
undersigned's obligations under this Subscription Agreement. If the
undersigned is a corporation, partnership, trust, or other entity, the
person executing this Subscription Agreement has the full power and
authority to execute and deliver this Subscription Agreement on behalf
of the subscribing entity, and such entity is duly formed and
organized, validly existing and in good standing under the laws of its
jurisdiction of formation, and such entity has duly authorized the
execution, delivery and performance of its obligations under this
Subscription Agreement.
F. If the undersigned is an entity, it has not been organized
for the specific purpose of acquiring the Shares or, if it has been
organized for the specific purpose of acquiring Shares, each of its
beneficial owners is separately accredited as defined in Rule 501(a) of
Regulation D under the Securities Act of 1933, as amended (the "Act").
G. If the undersigned is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), in making the
proposed investment it is aware of and has taken into consideration the
applicable fiduciary standards of conduct under ERISA, including but
not limited to the prudence and diversification requirements of Section
404(a)(1) of ERISA.
H. The undersigned confirms that Shares were not offered to
the undersigned by any means of general solicitation or general
advertising, that the undersigned has received no representations,
warranties or written communications with respect to the offering of
Shares other than those contained in the Memorandum and in entering
into this transaction the undersigned is not relying upon any
information other than that contained in the Memorandum and the results
of the undersigned's own independent investigation.
I. The undersigned hereby understands and agrees that this
subscription, when accepted by the Company, is irrevocable and that the
representations and warranties set forth in this Subscription Agreement
shall survive the acceptance hereof by the Company.
J. The undersigned acknowledges that the undersigned has been
advised to consult with the undersigned's own attorney regarding legal
matters concerning the Shares and to consult with the undersigned's tax
advisor regarding the tax consequences of owning the Shares.
4. RELIANCE ON REPRESENTATIONS AND WARRANTIES. The undersigned
understands the meaning of the representations and warranties contained in this
Subscription Agreement and in the suitability questionnaire attached hereto (the
"Suitability Questionnaire") and understands and acknowledges that the Company
is relying upon the representations and warranties contained in this
Subscription Agreement and in the Suitability Questionnaire in determining
whether the Offering is eligible for exemption from the registration
requirements contained in the Act and in determining whether to accept the
subscription tendered hereby. The undersigned represents and warrants that the
information contained in this Subscription Agreement and in the Suitability
Questionnaire is true and correct as of the date hereof and agrees to notify
immediately the Company of any changes in such information (or, if there have
been any changes in the information provided to the Company by
2
<PAGE> 3
the undersigned in the Suitability Questionnaire since the date the Suitability
Questionnaire was furnished, the undersigned has advised the Company in writing
of such changes). The undersigned hereby agrees to indemnify and hold harmless
the Company and each director, officer, stockholder, affiliate, attorney,
representative and employee thereof from and against any and all losses,
damages, costs, expenses, liabilities or attorneys' fees incurred, directly or
indirectly, from a breach of any representation or warranty of the undersigned,
whether contained in this Subscription Agreement or the Suitability
Questionnaire. Notwithstanding any of the representations, warranties,
acknowledgments or agreements made in this Subscription Agreement and in the
Suitability Questionnaire by the undersigned, the undersigned does not hereby,
thereby or in any other manner waive any rights granted to the undersigned under
federal or state securities law.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. In the event that this
subscription is accepted, the undersigned agrees that the representations,
warranties and agreements set forth in this Subscription Agreement and in the
Suitability Questionnaire shall survive the acceptance of this subscription.
6. ASSIGNABILITY. The undersigned agrees not to transfer or assign this
Subscription Agreement, or any interest of the undersigned herein. This
Subscription Agreement and the representations and warranties contained herein
shall be binding upon the heirs, executors, administrators and other successors
of the undersigned and this Subscription Agreement shall inure to the benefit of
and be enforceable by the Company, and its successors and assigns. If there is
more than one signatory hereto, the obligations, representations, warranties,
and agreements of the undersigned are made jointly and severally.
7. APPLICABLE LAW. This Agreement shall be construed in accordance with
the laws of the State of Delaware, without regard to principles of conflicts of
law.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof, may be
amended only by a writing executed by all of the parties and supersedes any
prior agreement between the parties with respect to the subject matter hereof.
9. CONSENT TO REPRESENTATION. The undersigned acknowledges and agrees
that Katten Muchin & Zavis has acted as legal counsel to the Company in
connection with this offering of Shares and that such firm has in the past and
may from time to time in the future render services to the Company and its
affiliates. The undersigned further acknowledges and agrees that such firm may
also, in the future, render services to the Company with respect to activities
other than the offer and sale of Shares. The undersigned understands that Katten
Muchin & Zavis is not representing the undersigned or any other prospective
purchaser of Shares in connection with this Offering.
10. LOCK-UP AGREEMENT. The undersigned acknowledges and agrees that, if
requested by the underwriters of the Company's initial public offering of Common
Stock ("IPO"), the undersigned will not, without the prior written consent of
such underwriters, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock (collectively with Common
Stock, "Common Stock Equivalents") or (ii) enter into any swap or any other
agreement or any transaction that transfers, in whole or in part, directly or
indirectly, the economic consequences of ownership of Common Stock Equivalents,
prior to and for up to 365 days after the Company's IPO.
3
<PAGE> 4
DIGITAL ENTERTAINMENT NETWORK, INC.
Subscription Agreement
SIGNATURE PAGE FOR INDIVIDUALS AND JOINT ACCOUNTS
I/we hereby subscribe for ___________ Shares, at a price of $104.00 per
Share, for a total subscription price of $________________.
<TABLE>
<S> <C> <C>
- ---------------- ------------------------------------- -----------
Signature Print Name Social Security No. Date
- ---------------- ------------------------------------- -----------
Signature Print Name Social Security No. Date
</TABLE>
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
Residential Address Mailing Address
Type of Ownership (Initial One) ____ Individual
____ Tenants in Common (Both Parties Sign)
____ Joint Tenants with Right of
Survivorship (Both Parties Sign)
____ Community Property (Both Parties Sign)
4
<PAGE> 5
DIGITAL ENTERTAINMENT NETWORK, INC.
Subscription Agreement
SIGNATURE PAGE FOR ENTITIES
The undersigned entity hereby subscribes for ___________ Shares, at a
price of $104.00 per Share, for a total subscription price of $______________.
Form of Organization: ___ Partnership, ___ Limited Liability Company,
___ Corporation, ___ Trust, ___ Other (Explain ________________________)
Full Name of Subscriber: _____________________________________________________
Tax I.D. No. _____________________
Address: _________________________________
---------------------------------
Telephone: _________________________________
The undersigned warrants that he or she has full power and authority to
execute this Subscription Agreement on behalf of the above entity, and
investment in the Company is not prohibited by the governing documents of the
entity.
Name: _________________________________
(Entity Name)
By: _________________________________
(Signature)
---------------------------------
(Signer's Printed Name)
Date: _________________________________
5
<PAGE> 6
ACCEPTANCE
The undersigned hereby accepts the foregoing subscription this ____ day
of ______________, 1999. This subscription shall not be binding until accepted
by the Company and shall become effective as of the date of such acceptance,
upon the terms set forth in Sections 1 and 2 of the Subscription Agreement.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:_________________________________________
Name: Alan L. Friel
Title: General Counsel
Executive VP Operations
6
<PAGE> 1
EXHIBIT 10.41
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of May __, 1999, by and among Digital Entertainment Network,
Inc., a Delaware corporation (the "Company"), and the purchasers of the Series B
Convertible Preferred Stock, par value $.01 per share (the "Convertible
Preferred Stock") of the Company (the "Holders").
WHEREAS, certain of the Holders and the Company are parties to that
certain Purchase Agreement of even date herewith (the "Purchase Agreement")
pursuant to which the Company has agreed to issue to the Holders, and the
Holders have agreed to purchase from the Company, shares of the Company's
Convertible Preferred Stock;
WHEREAS, certain other Holders and the Company are parties to separate
Subscription Agreements of even date herewith ("Subscription Agreements")
pursuant to which the Company has agreed to issue to the Holders, and the
Holders have agreed to purchase from the Company, shares of the Company's
Convertible Preferred Stock;
WHEREAS, the Convertible Preferred Stock is convertible into shares of
the Company's common stock, par value $0.01 per share (the "Common Stock");
WHEREAS, to induce the Holders to enter into the Purchase Agreement and
to purchase the Convertible Preferred Stock, the Company has agreed to grant to
the Holders the registration and other rights contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties hereto hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Capital Stock: Any and all shares, interests, participations, or
other equivalents (however designated) of capital stock, or any and all
equivalent ownership interests.
Certificate of Designation: The Company's Certificate of
Designations, Preferences and Relative, Optional and Other Special Rights of
Series B Convertible Preferred Stock and Qualifications, Limitations and
Restrictions Thereof, filed with the Delaware Secretary of State pursuant to
Section 151 of the General Corporation Law of the State of Delaware.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holder: Each of the Persons listed under the caption "Holders" on
the signature pages hereto and any assignee thereof in accordance with Section
10.
Market Value: As of any date with respect to any security, the
average of the Quoted Prices of such security for the twenty (20) consecutive
trading days (or, if such security is publicly
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traded but has been so traded for less than twenty (20) consecutive trading
days, such shorter period in which such security has been publicly traded)
immediately preceding such date; provided, however, that, if an event described
in Section 6(a) of the Certificate of Designation occurs with respect to such
security during the period from the first of such consecutive trading days
through the last of such consecutive trading days, the computation of Market
Value shall be appropriately adjusted to take account of such event. "Quoted
Price" of any security for any date shall be the last reported sales price (or,
in case no such sale takes place on such date, the average of the reported
closing bid and ask prices) of such security as reported by the principal
national securities exchange on which such security is listed or traded, or as
reported by the Nasdaq National Market System, or if such security is neither so
reported nor listed or traded, the average of the last reported bid and ask
prices of such security in the over-the-counter market on such date. If such
security is not listed or traded on any national securities exchange or quoted
in the over-the-counter market, the Market Value shall be deemed an amount
mutually agreed upon between the Company and the Holders of a majority of the
Registrable Securities then outstanding, and if no agreement can be reached,
then the Market Value of such security as of any date shall be the fair market
value thereof as determined by an independent nationally recognized investment
banking firm selected by investment banking firms representing each of the
Company and the Holders of a majority of the Registrable Securities then
outstanding. The Company shall pay all costs of all determinations of fair
market value by such nationally recognized investment banking firm.
Person: Any individual, partnership, corporation, limited
liability company, trust, unit trust, unincorporated organization, government or
agency or political subdivision thereof, or any other entity.
Proceeding: An action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Qualified Offering: As defined in the Purchase Agreement.
Register, registered, and registration: A registration effected
by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document
Registrable Securities: The Common Stock and any other Capital
Stock which is part of a series or class of securities that is (i) publicly
traded or (ii) subject to a registration rights agreement, in each case issued
or issuable by the Company upon conversion of the Convertible
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Preferred Stock (including shares received from the Company with respect to or
in replacement of such shares by reason of splits, dividends, combinations and
recapitalizations), and any Capital Stock into which such Common Stock or other
Capital Stock may be changed and securities of any successor or acquiring
corporation in the event the Company is acquired by or merged or consolidated
with or into another corporation, received by or distributed to the holders of
such Common Stock or other Capital Stock (such securities, together with the
Company's Common Stock, collectively, the "Common Stock"), but excluding any
securities (x) which are effectively registered under the Securities Act and
disposed of in accordance with a Registration Statement covering such shares, or
(y) which may be resold by the Holder owning such securities without restriction
pursuant to Rule 144 or other comparable provision of the Securities Act ("Rule
144"), provided that the Company delivers an opinion of counsel reasonably
satisfactory to such Holder, in form and substance satisfactory to such Holder,
that such Holder is not an "affiliate" (as such term is defined in Rule 144) of
the Company or an "issuer" (as such term is used in Section 2(11) of the
Securities Act) with respect to securities of the Company. The "Registrable
Securities then outstanding" will be determined by the number of shares
outstanding which are, and the number of shares issuable upon conversion of then
outstanding shares of Convertible Preferred Stock which are, Registrable
Securities.
Registration Statement: Any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended.
Special Counsel: Any one special counsel to the Holders, which
counsel shall be selected by the Holders of a majority of the Registrable
Securities requested to be included in the applicable registration.
underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Demand Registration
(a) If the Company receives at any time after the date that is
180 days after the effective date of the Qualified Offering, a written request
from the Holders of a majority of the Registrable Securities then outstanding
that the Company file a Registration Statement on Form S-1 or any similar
long-form registration ("Long-Form Registrations") under the Securities Act
covering the registration of such Holder's or Holders' Registrable Securities
(the "Initiating Holders"), then
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the Company will, within ten business days of the receipt thereof, give written
notice of such request to all Holders and will, subject to the limitations set
forth below and of subsection 2(b), effect as soon as practicable, and in any
event shall use its reasonable best efforts to effect within sixty (60) days of
the receipt of such request, a Registration Statement under the Securities Act
of all Registrable Securities then outstanding which the Holders request to be
registered within fifteen (15) days of the mailing of such notice by the
Company. Notwithstanding the foregoing, the Company's obligation to effect the
requested registration shall be conditioned upon the anticipated aggregate
offering price of Registrable Securities equaling or exceeding $10,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they will so advise the Company as a part of their request made pursuant to this
Section 2 and the Company will include such information in the written notice
referred to in subsection 2(a). The underwriter (the "Underwriter") will be
selected by a majority in interest of the selling stockholders (the "Selling
Holders"), subject to approval by the Company, not to be unreasonably withheld.
In such event, the right of any Holder to include such Holder's Registrable
Securities in such registration will be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Selling Holders and such Holder) to the extent
provided in this Agreement. All Holders proposing to distribute their securities
through such underwriting will (together with the Company as provided in
subsection 5(e)) enter into an underwriting agreement in customary form with the
Underwriter. Notwithstanding any other provision of this Section 2, if the
Underwriter advises the Selling Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company will so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant to this Agreement, and
the number of shares of Registrable Securities that may be included in the
underwriting will be allocated pro rata among the Holders and the holders
("Series A Holders") of the Company's Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), who have exercised
piggyback registration rights to participate in such offering on the basis of
the number or dollar amount of securities requested by such Holders and Series A
Holders to be included in such offering.
(c) Notwithstanding the foregoing, (i) the Company shall not be
obligated to register any Registrable Securities pursuant to this Section 2 if
such Registrable Securities may be, and the Company causes them to be,
registered pursuant to Section 3, and (ii) the Company shall be obligated to
effect only three registrations pursuant to this Section 2; provided, however,
that the Company shall be deemed to fulfill its obligations pursuant to this
Section 2 only (x) if the number of shares of Registrable Securities included in
the Registration Statement has not been reduced by more than 25% pursuant to
subsection 2(b) (unless such Registrable Securities are not so included due to
the fault of the Holder), and (y) when such registration has become effective
(unless such registration has not become effective due to the fault of the
Holder) and remained effective in compliance with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such Registration Statement for a period of not less than 180 days,
(unless such Registrable Securities are not disposed of due to the fault of the
Holder); and, provided further, that the Company will pay all registration
expenses in connection with any registration initiated at
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the request of a Holder to the extent provided below in Section 7 (unless such
registration is not consummated due to the fault of the Holder).
(d) Notwithstanding the foregoing, the Company may postpone for
up to three (3) months the filing or the effectiveness of a Registration
Statement for any registration if (i) the Company reasonably believes that such
registration would have a material adverse effect on any proposal or plan by the
Company or any of its Subsidiaries (as defined in the Purchase Agreement) to
engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other significant
transaction pending at the time a request is made for a registration, (ii) such
registration would require the Company to disclose contract negotiations pending
at the time a request is made for a registration or other information, the
disclosure of which would, in the reasonable belief of the Company, have a
material adverse effect on the Company or (iii) the holders of the Series A
Preferred Stock have previously requested a registration. Such postponement may
be effected by delivery of written notice to the Holders within fifteen (15)
business days of the Company's receipt of a request for a registration. Failure
to so notify the Holders of such a postponement within said 15 business day
period shall constitute a waiver of the Company's right under this paragraph
2(d). During such period, the Company shall not be entitled to file any other
Registration Statement relating to the Company's securities pursuant to any
other outstanding registration rights agreement or for any other secondary
offering, other than such demand registration previously requested by the Series
A Holders; and provided further, that the Company shall not have the right to so
defer such action more than once in any three hundred sixty-five (365) day
period. Upon the expiration of the deferral period the Company shall be required
to file a Registration Statement covering the Registrable Securities requested
to be registered. Notwithstanding the foregoing, in the event that the Company
has deferred the filing of a Registration Statement pursuant to clause (iii) and
a Registration Statement requested by the holders of the Series A Preferred
Stock becomes effective, the deferral period shall be a period of up to 120 days
from the date of the request by the holders of the Series A Preferred Stock plus
a period of 180 days after the effectiveness of such registration or the closing
date of any underwritten offering.
(e) The Company shall have no obligation to any Holder under this
Section 2 with respect to the Registrable Securities then outstanding of such
Holder if the Company has obtained an opinion of counsel reasonably satisfactory
to such Holder, in form and substance satisfactory to such Holder, to the effect
that all such Registrable Securities then outstanding of such Holder may be
immediately sold to the public without registration thereof, whether pursuant to
Rule 144 or otherwise.
3. S-3 Registration Undertaking.
(a) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to Section 2, at any time after the date that is
180 days after the effective date of the Qualified Offering, the holders of
Registrable Securities shall be entitled to request an unlimited number of
registrations on Form S-2 or S-3 or any similar short-form registration
("Short-Form Registrations") under the Securities Act. If the Company at any
such time receives a written request from the Holder(s) of a majority of the
Registrable Securities then outstanding that the Company file a Short Form
Registration covering the registration of the Holder's or Holders' Registrable
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Securities (the "S-3 Initiating Holders"), then the Company will, within ten
business days of the receipt thereof, give written notice of such request to all
Holders and will, subject to the limitations set forth below and of subsection
3(b), effect as soon as practicable, and in any event shall use its reasonable
best efforts to effect within sixty (60) days of the receipt of such request, a
Registration Statement under the Securities Act of all Registrable Securities
then outstanding which the Holders request to be registered within fifteen (15)
days of the mailing of such notice by the Company. Notwithstanding the
foregoing, the Company's obligation to effect the requested registration shall
be conditioned upon the anticipated aggregate offering price of Registrable
Securities equaling or exceeding $5,000,000. Demand Registrations shall be
Short-Form Registrations whenever the Company is permitted to use any applicable
short form. After the Company has become subject to the reporting requirements
of the Securities Exchange Act, the Company shall use all commercially
reasonable efforts to make Short-Form Registrations on Form S-3 available for
the sale of Registrable Securities.
(b) If the Initiating S-3 Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they will so advise the Company as a part of their request made pursuant to this
Section 3 and the Company will include such information in the written notice
referred to in subsection 3(a). The Underwriter will be selected by a majority
in interest of the Selling Holders, subject to approval by the Company, not to
be unreasonably withheld. In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration will be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Selling Holders and such Holder) to the
extent provided in this Agreement. All Holders proposing to distribute their
securities through such underwriting will (together with the Company as provided
in subsection 6(n)) enter into an underwriting agreement in customary form with
the Underwriter. Notwithstanding any other provision of this Section 3, if the
Underwriter advises the Selling Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company will so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant to this Agreement, and
the number of shares of Registrable Securities that may be included in the
underwriting will be allocated pro rata among the Holders and the Series A
Holders who have exercised piggyback registration rights to participate in such
offering on the basis of the number or dollar amount of securities requested by
such Holders and Series A Holders to be included in such offering.
(c) Notwithstanding the foregoing, the Company may postpone for
up to three (3) months the filing or the effectiveness of a Registration
Statement for any registration if (i) the Company reasonably believes that such
registration would have a material adverse effect on any proposal or plan by the
Company or any of its Subsidiaries (as defined in the Purchase Agreement) to
engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other significant
transaction pending at the time a request is made for a registration, (ii) such
registration would require the Company to disclose contract negotiations pending
at the time a request is made for a registration or other information, the
disclosure of which would, in the reasonable belief of the Company, have a
material adverse effect on the Company or (iii) the holders of the Series A
Preferred Stock have previously requested a registration. Such
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postponement may be effected by delivery of written notice to the Holders within
fifteen (15) business days of the Company's receipt of a request for a
registration. Failure to so notify the Holders of such a postponement within
said 15 business day period shall constitute a waiver of the Company's right
under this paragraph 2(d). During such period, the Company shall not be entitled
to file any other Registration Statement relating to the Company's securities
pursuant to any other outstanding registration rights agreement or for any other
secondary offering, other than such demand registration previously requested by
the Series A Holders; and provided further, that the Company shall not have the
right to so defer such action more than once in any three hundred sixty-five
(365) day period. Upon the expiration of the deferral period the Company shall
be required to file a Registration Statement covering the Registrable Securities
requested to be registered. Notwithstanding the foregoing, in the event that the
Company has deferred the filing of a Registration Statement pursuant to clause
(iii) and a Registration Statement requested by the holders of the Series A
Preferred Stock becomes effective, the deferral period shall be a period of up
to 120 days from the date of the request by the holders of the Series A
Preferred Stock plus a period of 180 days after the effectiveness of such
registration or the closing date of any underwritten offering.
(d) The Company shall have no obligation to any Holder under this
Section 3 with respect to the Registrable Securities then outstanding of such
Holder if the Company has obtained an opinion of counsel reasonably satisfactory
to such Holder, in form and substance satisfactory to such Holder, to the effect
that all such Registrable Securities then outstanding of such Holder may be
immediately sold to the public without registration thereof, whether pursuant to
Rule 144 or otherwise.
4. Piggyback Registration.
(a) Right to Piggyback. If at any time after the Qualified
Offering the Company proposes to file a registration statement under the
Securities Act with respect to an offering of Common Stock (other than a
registration statement (i) on Form S-4 or Form S-8 or any successor forms
thereto or (ii) filed solely in connection with an exchange offer or an offering
made solely to employees of the Company), for its own account or the account of
any other Person (other than the Series A Holders), then the Company shall give
written notice of such proposed filing to the Holders at least 30 days before
the anticipated filing date. Such notice shall offer such Holders the
opportunity to register such amount of Registrable Securities as each such
Holder may request (a "Piggyback Registration"). Subject to Section 4(b) hereof,
the Company shall include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after notice has been given to the applicable
Holder (which request shall specify the intended method of distribution). The
Holders shall be permitted to withdraw all or part of the Registrable Securities
from a Piggyback Registration at any time prior to the effective date of such
Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause
the managing underwriter of a proposed underwritten offering to permit the
Holders that requested their Registrable Securities to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any other shares of Common Stock, if any, of the
Company included therein. Notwithstanding the foregoing, if the managing
underwriter
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of such underwritten offering informs such Holders that the total number or
dollar amount of securities that such Holders, the Company and any other Persons
having rights to participate in such registration, propose to include in such
offering is such as to materially and adversely affect the success of such
offering, then the amount of Common Stock to be offered (i) for the account of
Holders and (ii) for the account of all such other Persons (other than the
Series A Holders) exercising piggy back registration rights shall be reduced or
limited pro rata in proportion to the respective dollar amounts of Common Stock
requested by such persons to be included in such offering.
5. Hold-Back Agreements.
(a) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder agrees, in connection with any sale of securities by the
Company and in connection with any Registration Statement filed pursuant to
Section 2, Section 3 or Section 4 hereof, if requested (pursuant to a timely
written notice) by the Company or the managing underwriter or underwriters in an
underwritten offering, not to effect any public sale or distribution of any of
the Company's securities, including a sale pursuant to Rule 144 (except as part
of such underwritten offering), during the period beginning 10 days prior to,
and ending 180 days after, the closing date of each underwritten offering made
by the Company or pursuant to such Registration Statement.
The foregoing provisions shall not apply to any Holder if such Holder is
prevented by applicable statute or regulation from entering into any such
agreement; provided, however, that any such Holder shall undertake in its
request to participate in any such underwritten offering, not to effect any
public sale or distribution of the class of securities covered by such
Registration Statement (except as part of such underwritten offering) during
such period unless it has provided 90 days' prior written notice of such sale or
distribution to the managing underwriter or underwriters.
(b) Restrictions on Public Sale by the Company. The Company
agrees that without the written consent of the managing underwriter in an
underwritten offering of Registrable Securities covered by a Registration
Statement filed pursuant to Section 2, Section 3 or Section 4 hereof, it will
not effect any public or private sale or distribution of any of its equity
securities for its own account or for the account of the Series A Holders
pursuant to a demand registration, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
180-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement (except (i) as part of such underwritten
registration, (ii) pursuant to registrations on Form S-4 or Form S-8 or any
successor forms thereto or filed solely in connection with an offering made
solely to employees of the Company, (iii) in connection with an exchange offer
or (iv) in connection with the acquisition of assets by the Company or its
subsidiaries).
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 2, Section 3 or Section 4 hereof, the Company shall effect such
registrations to permit the sale of such
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Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(a) Prepare and file with the Securities and Exchange Commission
(the "SEC") a Registration Statement or Registration Statements on any
appropriate form under the Securities Act that shall be available for the sale
of the Registrable Securities by the Holders thereof in accordance with the
intended method or methods of distribution thereof, and use its best efforts to
cause each such Registration Statement to become effective and remain effective
as provided herein. Before filing any Registration Statement or Prospectus or
any amendments or supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall furnish or otherwise make available to the Holders of the Registrable
Securities covered by such Registration Statement, the Special Counsel and the
managing underwriters, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders, the
Special Counsel and such underwriters, if any; provided, however, that the
Company shall not be required to deliver to such Holders a copy of any such
document that has not been materially changed from a copy of such document that
was previously delivered to such Holders.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for a period of up to
six (6) months; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement as so amended or to such Prospectus as
so supplemented.
(c) Notify the selling Holders of Registrable Securities, the
Special Counsel and the managing underwriters, if any, promptly, and (if
requested by any such Person) confirm such notice in writing:
(i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC or any other Federal or
state governmental authority for amendments or supplements to a Registration
Statement or related Prospectus or for additional information (provided, that
the Company shall not be required to notify the Holders or the Special Counsel
of all comments letters or the Company's responses thereto to the Holders or the
Special Counsel unless such letters request information from or about the
Holders),
(iii) of the issuance by the SEC or any other Federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that purpose,
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(iv) if at any time the representations and warranties
of the Company contained in any agreement contemplated by Section 6(n)
(including any underwriting agreement) below cease to be true and correct,
(v) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption from
qualification of any of the Registrable Securities for sale in any jurisdiction,
or the initiation or threatening of any proceeding for such purpose,
(vi) of the happening of any event that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
or that requires the making of any changes in a Registration Statement,
Prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the Prospectus, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and
(vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction.
(e) If requested by the managing underwriters, if any, or the
Holders of a majority of the Registrable Securities being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such Holders reasonably
agree should be included therein as may be required by applicable law, (ii) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to any Registration Statement; provided,
however, that the Company shall not be required to take any actions under this
Section 6(e) that are not, in the opinion of counsel for the Company, in
compliance with applicable law.
(f) Furnish to each selling Holder of Registrable Securities, the
Special Counsel and each managing underwriter, if any, without charge, at least
one conformed copy of the Registration Statement or Statements and any
post-effective amendment thereto, including financial statements (but excluding
schedules, all documents incorporated therein by reference or deemed
incorporated therein by reference and all exhibits, unless requested in writing
by such Holder, Special Counsel or underwriter).
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(g) Deliver to each selling Holder of Registrable Securities, the
Special Counsel and the underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; and the Company hereby consents to the
use of such Prospectus or each amendment or supplement thereto by each of the
selling Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities to use
its reasonable best efforts to register or qualify or cooperate with the selling
Holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any seller or underwriter reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject.
(i) Cooperate with the selling Holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends; and enable such Registrable
Securities to be registered in such names as the managing underwriters, if any,
shall request at least two business days prior to any sale of Registrable Secu-
rities to the underwriters.
(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all respects with the
filing of such Registration Statement and the granting of such approvals, as may
be necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
6(c)(vi) or 6(c)(vii) above, prepare a supplement or post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
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<PAGE> 12
(l) Use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be (i) listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed, or (ii) authorized to be quoted on The Nasdaq Stock Market National
Market if the securities so qualify; in each case, if requested by the Holders
of a majority of shares of the Registrable Securities covered by such
Registration Statement or the managing underwriters, if any.
(m) Prior to the effective date of the Registration Statement
relating to the Registrable Securities, (i) provide the transfer agent with
printed certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number for
the Registrable Securities.
(n) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the Holders
of a majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration;
(i) make such representations and warranties to the
Holders of such Registrable Securities and the underwriters, if any, with
respect to the business of the Company and its subsidiaries, the Registration
Statement, Prospectus and documents incorporated by reference or deemed
incorporated by reference, if any, in each case, in form, substance and scope as
are customarily made by issuers to underwriters in underwritten offerings and,
if true, confirm the same if and when requested;
(ii) use its reasonable best efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the Holders of a majority of the Registrable
Securities being sold) addressed to each selling Holder of Registrable
Securities and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and underwriters,
including without limitation the matters referred to in Section 6(n)(i) above;
(iii) use its reasonable best efforts to obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each selling Holder of
Registrable Securities (unless such accountants shall be prohibited from so
addressing such letters by applicable standards of the accounting profession)
and each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and
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<PAGE> 13
(iv) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable Securities
being sold, the Special Counsel and the managing underwriters, if any, to
evidence the continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
(o) Make available for inspection by a representative of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition of Registrable Securities, if any, and any attorney or
accountant retained by such selling Holders or underwriter, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that any records, information or
documents that are designated by the Company in writing as confidential at the
time of delivery of such records, information or documents shall be kept
confidential by such Persons unless (i) such records, information or documents
are in the public domain or otherwise publicly available, (ii) disclosure of
such records, information or documents is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities or (iii)
disclosure of such records, information or documents, in the opinion of counsel
to such Person, is otherwise required by law (including, without limitation,
pursuant to the requirements of the Securities Act). Without limiting the
foregoing, no such information shall be used by such Person as the basis for any
market transactions in securities of the Company or its subsidiaries in
violation of law.
(p) Comply with all applicable rules and regulations of the SEC
and make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts underwritten offering, and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing and the Company
may exclude from such registration the Registrable Securities of any seller who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(c)(ii), 6(c)(iii),
6(c)(v), 6(c)(vi) or 6(c)(vii) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
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<PAGE> 14
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(k) hereof, or until
it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
7. Registration Expenses
All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or selling
Holders in connection with Blue Sky qualifications of the Registrable Securities
pursuant to Section 6(h) hereof)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Holders of a
majority of the Registrable Securities included in any Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of all independent certified
public accountants referred to in Section 6(n)(iii) hereof (including the
expenses of any "cold comfort" letters required by this Agreement), (vi) the
fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to Section 3 of
Schedule E to the By-laws of the National Association of Securities Dealers,
Inc. and (vii) fees and expenses of all other Persons retained by the Company.
In addition, the Company shall pay its internal expenses (including without
limitation all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Company are then listed and the fees and expenses of any Person, including
special experts, retained by the Company.
In addition, whether or not any of the Registration Statements become
effective, the Company shall pay the reasonable fees and disbursements of a
Special Counsel for the Holders, together with appropriate local counsel, if
any, not to exceed $50,000 in the aggregate, for any Long-Form Registration, and
$25,000 in the aggregate, for any Short-Form Registration.
The Company shall not be required to pay any underwriter's fees and
expenses (including discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals) relating
to the distribution of Registrable Securities.
8. Indemnification.
(a) Indemnification by the Company. The Company shall, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder of
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<PAGE> 15
Registrable Securities whose Registrable Securities are registered pursuant to
this Agreement, the officers, directors, agents and employees of each of them,
each Person who controls such Holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) and the officers, directors,
agents and employees of any such controlling person, from and against all
losses, claims, damages, liabilities, costs (including, without limitation, the
costs of preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses") to be reimbursed promptly, as incurred, arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based solely upon information furnished in
writing to the Company by such Holder expressly for use therein; provided,
however, that the Company shall not be liable to any Holder of Registrable
Securities to the extent that (A) any such Losses arise out of or are based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (i) such Holder failed to send or deliver
a copy of the Prospectus with or prior to the delivery of written confirmation
of the sale by such Holder of a Registrable Security to the person asserting the
claim from which such losses arise and (ii) the Prospectus would have corrected
in all material respects such untrue statement or alleged untrue statement or
such omission or alleged omission; or (B) any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if (x) such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in all material
respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended and supplemented, prior to or concurrently
with the sale of a Registrable Security to the Person asserting the claim from
which such Losses arise.
(b) Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, such Holder of Registrable Securities shall furnish
to the Company in writing such information relating to such Holder, as such, or
the Registrable Securities being sold by such Holder (the "Holder Information")
as the Company reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the fullest extent permitted
by law, the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any Holder
Information so furnished in writing by such Holder to the Company expressly for
use in such Registration Statement or Prospectus and that such Holder
Information was solely relied upon by the Company in preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event shall
the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such
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<PAGE> 16
Holder directly from the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company shall be entitled to receive indemnities
from underwriters, selling brokers, dealer managers and similar securities
industry professionals participating in the distribution to the same extent as
provided above with respect to information so furnished in writing by such
Persons expressly for use in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. If any Person shall
be entitled to indemnity hereunder (an "indemnified party"), such indemnified
party shall give prompt notice to the party from which such indemnity is sought
(the "indemnifying party") of any claim or of the commencement of any Proceeding
with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; provided, however, that the delay or failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such delay or failure. The indemnifying party
shall have the right, exercisable by giving written notice to an indemnified
party promptly after the receipt of written notice from such indemnified party
of such claim or Proceeding, to assume, at the indemnifying party's expense, the
defense of any such claim or Proceeding, with counsel reasonably satisfactory to
such indemnified party; provided, however, that an indemnified party shall have
the right to employ separate counsel in any such claim or Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (1) the indemnifying
party agrees to pay such fees and expenses; (2) the indemnifying party fails
promptly to assume the defense of such claim or Proceeding or fails to employ
counsel reasonably satisfactory to such indemnified party or (3) counsel for the
indemnified party advises the indemnifying party in writing that there are
issues that raise conflicts of interest between the indemnified party and the
indemnifying party requiring the use of independent counsel; in which case the
indemnified party shall have the right to employ counsel and to assume the
defense of such claim or proceeding; provided, however, that the indemnifying
party shall not, in connection with any one such claim or Proceeding or separate
but substantially similar or related claims or Proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one firm of attorneys (together
with appropriate local counsel) at any time for all of the indemnified parties,
or for fees and expenses that are not reasonable.
Whether or not such defense is assumed by the indemnifying party,
such indemnified party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
All such fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or proceeding)
shall be paid to the indemnified party, as incurred, within five days of written
notice thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). The indemnifying party shall not consent to entry of any judgment or
enter into any settlement or otherwise seek to terminate any Proceeding in which
any indemnified party is a party and as to which indemnification or contribution
could be sought by such indemnified party under this Section 8, unless such
judgment, settlement or other termination includes as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release, in form and substance reasonably satisfactory to the indemnified party,
from all
16
<PAGE> 17
liability in respect of such claim or litigation for which such indemnified
party would be entitled to indemnification hereunder.
(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable to an indemnified party under Section 8(a) or 8(b)
hereof in respect of any Losses or is insufficient to hold such indemnified
party harmless, then each applicable indemnifying party, in lieu of indemnifying
such indemnified party, shall, jointly and severally, contribute to the amount
paid or payable by such indemnified party as a result of such Losses, in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party or indemnifying parties, on the one hand, and such indemnified party, on
the other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party or indemnifying parties, on the
one hand, and such indemnified party, on the other hand, shall be determined by
reference to, among other things, whether any action in question, including any
untrue or alleged untrue statement of a material fact or omission or alleged
omission of a material fact, has been taken or made by, or relates to
information supplied by, such indemnifying party or indemnified party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include any
legal or other fees or expenses incurred by such party in connection with any
Proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a selling Holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds (after
deducting the aggregate underwriters' discount) received by such indemnifying
party from the sale of such Registrable Securities exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay
(including, without limitation, pursuant to any other indemnification or
contribution obligation such indemnifying party may have) by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 8 shall
survive so long as Registrable Securities remain outstanding, notwithstanding
any transfer of the Registrable Securities by any Holder or any termination of
this Agreement.
9. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
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<PAGE> 18
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company with the SEC, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
10. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned
(but only with all related obligations) by a Holder to (i) transferee(s) or
assignee(s) of such securities who, after such assignment or transfer, holds
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations) with an aggregate
Market Value of at least $1,000,000 or (ii) transferee(s) or assignee(s) of such
securities who, after such assignment or transfer, holds all of the Registrable
Securities of the transferring Holder, provided that the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee(s) or assignee(s) and the securities with respect
to which such registration rights are being assigned. Notwithstanding any
assignment by a Holder of its registration and other rights hereunder in
connection with its transfer of Registrable Securities, such Holder shall retain
all such registration and other rights under this Agreement in respect of those
Registrable Securities that it continues to hold.
11. No Inconsistent Agreements; Limitations on Subsequent Registration
Rights.
(a) The Company represents and warrants to the Holders that it is
not a party to any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
(b) From and after the date of this Agreement, the Company will
not, without the prior written consent of the Holders of a majority of the then
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (i) to include such securities in any registration
filed under Section 2, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included
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<PAGE> 19
or (ii) to make a demand registration which could result in such registration
statement being declared effective within 180 days of the effective date of any
registration effected pursuant to Section 2.
(c) From and after the date of this Agreement, if the Company
grants any person rights (i) to demand that the Company register securities of
the Company under the Securities Act or (ii) to have securities of the Company
included in a registration statement, which are more favorable than these
registration rights provisions in any regard (including, without limitation,
those relating to the expenses to be borne by the Company), the rights granted
herein shall be deemed to be amended to include such more favorable rights in
addition to these set forth herein.
12. Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of the Holders to include Registrable
Securities in a registration undertaken pursuant hereto. However, nothing in
this Agreement shall limit the Company's ability to register, offer and sell
securities.
13. Miscellaneous
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next day courier,
postage prepaid, to the parties as follows:
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<PAGE> 20
(x) if to a Holder of Registrable Securities, at the
most current address given by such Holder to the Company in accordance with the
provisions of this Section 13(c), which address initially is, with respect to
each Holder, the address set forth on his respective signature page attached
hereto; and
(y) if to the Company, at 2230 Broadway, Santa Monica,
California 90404, Attention: Chief Executive Officer;
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(d) Owner of Registrable Securities. The Company will maintain,
or will cause its registrar and transfer agent to maintain, a stock book with
respect to the Common Stock, in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem and
treat the person in whose name Registrable Securities are registered in the
stock book of the Company as the owner thereof for all purposes, including
without limitation, the giving of notices under this Agreement.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder of any Registrable
Securities. The Company may not assign its rights or obligations hereunder
without the prior written consent of each Holder of any Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(i) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
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<PAGE> 21
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(j) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein.
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
END OF PAGE
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"THE COMPANY"
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
-------------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
"THE HOLDERS"
CASSANDRA/DIGITAL ENTERTAINMENT
NETWORK PARTNERS, L.L.C.
By Cassandra-Chase Entertainment Partners, L.L.C.
By:
-------------------------------------------
Samuel F. Holdsworth, Member
CHASE VENTURE CAPITAL ASSOCIATES
By:
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Mitchell Blutt, Executive Partner
DELL USA L.P., a Texas limited partnership
By: Dell Gen. P. Corp., a Delaware corporation
By:
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Alex Smith, Vice President
MICROSOFT CORPORATION
By:
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Name:
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Title:
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22
<PAGE> 23
DEN PARTNERS LLC
By:
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Said Armutcuoglu, Managing Member
JAMES L. KEMPNER
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SUBSCRIBER
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Name:
------------------------------------------
Address:
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<PAGE> 1
EXHIBIT 10.42
DIGITAL ENTERTAINMENT NETWORK, INC.
SUBSCRIPTION AGREEMENT
PLEASE READ CAREFULLY BEFORE SIGNING
ALL SUBSCRIPTIONS ARE SUBJECT TO ACCEPTANCE BY THE COMPANY. ALL INFORMATION
REQUIRED TO BE PROVIDED HEREIN BY SUBSCRIBERS FOR DETERMINING PURCHASER
QUALIFICATION WILL BE KEPT STRICTLY CONFIDENTIAL.
To: Digital Entertainment Network, Inc.
2400 Broadway, Suite 230
Santa Monica, California 90404
Attention: General Counsel, Chief Administrative Officer
Telephone: (310) 828-8366
Telecopy: (310) 828-7337
Ladies and Gentlemen:
1. SUBSCRIPTION FOR SHARES. The undersigned hereby irrevocably
subscribes for shares of Series C Convertible Preferred Stock, par value $0.01
per share (the "Shares"), of Digital Entertainment Network, Inc., a Delaware
corporation (the "Company"), for $175 per Share, representing an aggregate
purchase price of $ .
2. ACCEPTANCE OF THIS SUBSCRIPTION AGREEMENT. It is understood that
this subscription is not binding on the Company until the Company accepts it,
which acceptance may be made in the Company's sole discretion. The closing of
the purchase and sale of the Shares shall take place on August 20, 1999, unless
such date is extended by the Company in its discretion.
3. REPRESENTATIONS AND WARRANTIES. To induce the Company to accept
this Subscription Agreement, the undersigned hereby represents, warrants and
covenants to the Company as follows:
A. The undersigned acknowledges that the undersigned has
been furnished with the relevant terms and conditions of this offering
(the "Offering") and such other documents, materials and information as
the undersigned deems necessary or appropriate for evaluating an
investment in the Company. The undersigned confirms that the undersigned
carefully has read and understands such materials and has made such
further investigation of the Company as the undersigned deemed
appropriate to obtain additional information to verify the accuracy of
such materials and to evaluate the merits and risks of this investment.
The undersigned acknowledges that the undersigned has had the
opportunity to ask questions of, and receive answers from, the Company
and persons acting on its behalf, concerning the terms and conditions of
the Offering and the information contained in the materials reviewed or
provided, and all such questions have been answered to the undersigned's
full satisfaction.
B. The undersigned understands that neither the Securities
and Exchange Commission nor any other federal or state agency has
recommended, approved or endorsed the purchase of the Shares as an
investment or passed on the accuracy or adequacy of the information set
forth in the materials referenced in Section 3A of this Agreement or any
other documents.
1
<PAGE> 2
C. The undersigned confirms that the undersigned is
acquiring the Shares subscribed for herein solely for the undersigned's
own account, for investment, and not with a view to the distribution or
resale of such Shares.
D. The undersigned understands that: there are substantial
restrictions on the transferability of the Shares; holders of the Shares
have limited rights to require the Shares to be registered under the Act
(as hereinafter defined) or the securities laws of any state; there will
be no public market for the Shares; and it may not be possible for the
undersigned to liquidate the undersigned's investment in the Company,
and accordingly, the undersigned may have to hold the Shares, and bear
the economic risk of this investment, indefinitely.
E. If the undersigned is an individual, the undersigned has
the legal capacity and authority to execute, deliver, and perform the
undersigned's obligations under this Subscription Agreement. If the
undersigned is a corporation, partnership, trust, or other entity, the
person executing this Subscription Agreement has the full power and
authority to execute and deliver this Subscription Agreement on behalf
of the subscribing entity, and such entity is duly formed and organized,
validly existing and in good standing under the laws of its jurisdiction
of formation, and such entity has duly authorized the execution,
delivery and performance of its obligations under this Subscription
Agreement.
F. If the undersigned is an entity, it has not been
organized for the specific purpose of acquiring the Shares or, if it has
been organized for the specific purpose of acquiring Shares, each of its
beneficial owners is separately accredited as defined in Rule 501(a) of
Regulation D under the Securities Act of 1933, as amended (the "Act").
G. If the undersigned is subject to the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), in making the
proposed investment it is aware of and has taken into consideration the
applicable fiduciary standards of conduct under ERISA, including but not
limited to the prudence and diversification requirements of Section
404(a)(1) of ERISA.
H. The undersigned confirms that Shares were not offered to
the undersigned by any means of general solicitation or general
advertising, that the undersigned has received no representations,
warranties or written communications with respect to the offering of
Shares other than those contained in the Memorandum and in entering into
this transaction the undersigned is not relying upon any information
other than that contained in the Memorandum and the results of the
undersigned's own independent investigation.
I. The undersigned hereby understands and agrees that this
subscription, when accepted by the Company, is irrevocable and that the
representations and warranties set forth in this Subscription Agreement
shall survive the acceptance hereof by the Company.
J. The undersigned acknowledges that the undersigned has
been advised to consult with the undersigned's own attorney regarding
legal matters concerning the Shares and to consult with the
undersigned's tax advisor regarding the tax consequences of owning the
Shares.
4. RELIANCE ON REPRESENTATIONS AND WARRANTIES. The undersigned
understands the meaning of the representations and warranties contained in this
Subscription Agreement and in the suitability questionnaire attached hereto (the
"Suitability Questionnaire") and understands and
2
<PAGE> 3
acknowledges that the Company is relying upon the representations and warranties
contained in this Subscription Agreement and in the Suitability Questionnaire in
determining whether the Offering is eligible for exemption from the registration
requirements contained in the Act and in determining whether to accept the
subscription tendered hereby. The undersigned represents and warrants that the
information contained in this Subscription Agreement and in the Suitability
Questionnaire is true and correct as of the date hereof and agrees to notify
immediately the Company of any changes in such information (or, if there have
been any changes in the information provided to the Company by the undersigned
in the Suitability Questionnaire since the date the Suitability Questionnaire
was furnished, the undersigned has advised the Company in writing of such
changes). The undersigned hereby agrees to indemnify and hold harmless the
Company and each director, officer, stockholder, affiliate, attorney,
representative and employee thereof from and against any and all losses,
damages, costs, expenses, liabilities or attorneys' fees incurred, directly or
indirectly, from a breach of any representation or warranty of the undersigned,
whether contained in this Subscription Agreement or the Suitability
Questionnaire. Notwithstanding any of the representations, warranties,
acknowledgments or agreements made in this Subscription Agreement and in the
Suitability Questionnaire by the undersigned, the undersigned does not hereby,
thereby or in any other manner waive any rights granted to the undersigned under
federal or state securities law.
5. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. In the event that
this subscription is accepted, the undersigned agrees that the representations,
warranties and agreements set forth in this Subscription Agreement and in the
Suitability Questionnaire shall survive the acceptance of this subscription.
6. ASSIGNABILITY. The undersigned agrees not to transfer or assign
this Subscription Agreement, or any interest of the undersigned herein. This
Subscription Agreement and the representations and warranties contained herein
shall be binding upon the heirs, executors, administrators and other successors
of the undersigned and this Subscription Agreement shall inure to the benefit of
and be enforceable by the Company, and its successors and assigns. If there is
more than one signatory hereto, the obligations, representations, warranties,
and agreements of the undersigned are made jointly and severally.
7. APPLICABLE LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware, without regard to principles of
conflicts of law.
8. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof,
may be amended only by a writing executed by all of the parties and supersedes
any prior agreement between the parties with respect to the subject matter
hereof.
9. CONSENT TO REPRESENTATION. The undersigned acknowledges and
agrees that Katten Muchin & Zavis has acted as legal counsel to the Company in
connection with this offering of Shares and that such firm has in the past and
may from time to time in the future render services to the Company and its
affiliates. The undersigned further acknowledges and agrees that such firm may
also, in the future, render services to the Company with respect to activities
other than the offer and sale of Shares. The undersigned understands that Katten
Muchin & Zavis is not representing the undersigned or any other prospective
purchaser of Shares in connection with this Offering.
10. LOCK-UP AGREEMENT. The undersigned acknowledges and agrees that,
if requested by the underwriters of the Company's initial public offering of
Common Stock ("IPO"), the undersigned will not, without the prior written
consent of such underwriters, directly or indirectly, (i) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant for the sale of, or
otherwise dispose of or transfer any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock (collectively
with
3
<PAGE> 4
Common Stock, "Common Stock Equivalents") or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part, directly
or indirectly, the economic consequences of ownership of Common Stock
Equivalents, prior to and for up to 365 days after the Company's IPO.
4
<PAGE> 5
DIGITAL ENTERTAINMENT NETWORK, INC.
Subscription Agreement
SIGNATURE PAGE FOR INDIVIDUALS AND JOINT ACCOUNTS
I/we hereby subscribe for Shares, at a price of $175 per
Share, for a total subscription price of $ .
Signature Print Name Soc.Sec.No. Date
Signature Print Name Soc.Sec.No. Date
Residential Address Mailing Address
Type of Ownership (Initial One)
____ Individual
____ Tenants in Common (Both Parties Sign)
____ Joint Tenants with Right of Survivorship (Both Parties
Sign)
____ Community Property (Both Parties Sign)
5
<PAGE> 6
DIGITAL ENTERTAINMENT NETWORK, INC.
Subscription Agreement
SIGNATURE PAGE FOR ENTITIES
The undersigned entity hereby subscribes for Shares,
at a price of $175 per Share, for a total subscription price of $ .
Form of Organization: ___ Partnership, ___ Limited Liability Company, ___
Corporation, ___ Trust, ___ Other (Explain ________________________)
Full Name of Subscriber: ______________________________________________________
Tax I.D. No. _____________________
Address:
Telephone:
The undersigned warrants that he or she has full power and authority to
execute this Subscription Agreement on behalf of the above entity, and
investment in the Company is not prohibited by the governing documents of the
entity.
Name:
(Entity Name)
By:
(Signature)
(Signer's Printed Name)
Date:
6
<PAGE> 7
ACCEPTANCE
The undersigned hereby accepts the foregoing subscription this ____ day
of ______________, 1999. This subscription shall not be binding until accepted
by the Company and shall become effective as of the date of such acceptance,
upon the terms set forth in Sections 1 and 2 of the Subscription Agreement.
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
Name: Alan L. Friel
Title: General Counsel, Chief
Administrative Officer
7
<PAGE> 1
EXHIBIT 10.43
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of August __, 1999, by and among Digital Entertainment Network,
Inc., a Delaware corporation (the "Company"), and the purchaser of the Series C
Convertible Preferred Stock, par value $.01 per share (the "Convertible
Preferred Stock") of the Company (the "Holder") named on the signature page
hereto.
WHEREAS, the Holder and the Company are parties to a Subscription
Agreement of even date herewith (the "Subscription Agreement") pursuant to which
the Company has agreed to issue to the Holder, and the Holder has agreed to
purchase from the Company, shares of the Company's Convertible Preferred Stock;
WHEREAS, certain other persons (collectively with the Holder, the
"Holders") have subscribed for and purchased, or may subscribe for or purchase,
shares of the Convertible Preferred Stock;
WHEREAS, the Convertible Preferred Stock is convertible into shares of
the Company's common stock, par value $0.01 per share (the "Common Stock");
WHEREAS, to induce the Holder to enter into the Subscription Agreement
and to purchase the Convertible Preferred Stock, the Company has agreed to grant
to the Holder the registration and other rights contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the following
meanings:
Capital Stock: Any and all shares, interests, participations, or
other equivalents (however designated) of capital stock, or any and all
equivalent ownership interests.
Certificate of Designation: The Company's Certificate of
Designations, Preferences and Relative, Optional and Other Special Rights of
Series C Convertible Preferred Stock and Qualifications, Limitations and
Restrictions Thereof, filed with the Delaware Secretary of State pursuant to
Section 151 of the General Corporation Law of the State of Delaware.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holder: The Person listed on the signature page hereto and any
assignee thereof in accordance with Section 10.
<PAGE> 2
Market Value: As of any date with respect to any security, the
average of the Quoted Prices of such security for the twenty (20) consecutive
trading days (or, if such security is publicly traded but has been so traded for
less than twenty (20) consecutive trading days, such shorter period in which
such security has been publicly traded) immediately preceding such date;
provided, however, that, if an event described in Section 6(a) of the
Certificate of Designation occurs with respect to such security during the
period from the first of such consecutive trading days through the last of such
consecutive trading days, the computation of Market Value shall be appropriately
adjusted to take account of such event. "Quoted Price" of any security for any
date shall be the last reported sales price (or, in case no such sale takes
place on such date, the average of the reported closing bid and ask prices) of
such security as reported by the principal national securities exchange on which
such security is listed or traded, or as reported by the NASDAQ National Market
System, or if such security is neither so reported nor listed or traded, the
average of the last reported bid and ask prices of such security in the
over-the-counter market on such date. If such security is not listed or traded
on any national securities exchange or quoted in the over-the-counter market,
the Market Value shall be deemed an amount mutually agreed upon between the
Company and the Holders of a majority of the Registrable Securities then
outstanding, and if no agreement can be reached, then the Market Value of such
security as of any date shall be the fair market value thereof as determined by
an independent nationally recognized investment banking firm selected by
investment banking firms representing each of the Company and the Holders of a
majority of the Registrable Securities then outstanding. The Company shall pay
all costs of all determinations of fair market value by such nationally
recognized investment banking firm.
Person: Any individual, partnership, corporation, limited
liability company, trust, unit trust, unincorporated organization, government or
agency or political subdivision thereof, or any other entity.
Proceeding: An action, claim, suit or proceeding (including,
without limitation, an investigation or partial proceeding, such as a
deposition), whether commenced or threatened.
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Qualified Offering: As defined in the Certificate of Designation.
Register, registered, and registration: A registration effected
by preparing and filing a registration statement or similar document in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document
<PAGE> 3
Registrable Securities: The Common Stock and any other Capital
Stock which is part of a series or class of securities that is (i) publicly
traded or (ii) subject to a registration rights agreement, in each case issued
or issuable by the Company upon conversion of the Convertible Preferred Stock
(including shares received from the Company with respect to or in replacement of
such shares by reason of splits, dividends, combinations and recapitalizations),
and any Capital Stock into which such Common Stock or other Capital Stock may be
changed and securities of any successor or acquiring corporation in the event
the Company is acquired by or merged or consolidated with or into another
corporation, received by or distributed to the holders of such Common Stock or
other Capital Stock (such securities, together with the Company's Common Stock,
collectively, the "Common Stock"), but excluding any securities (x) which are
effectively registered under the Securities Act and disposed of in accordance
with a Registration Statement covering such shares, or (y) which may be resold
by the Holder owning such securities without restriction pursuant to Rule 144 or
other comparable provision of the Securities Act ("Rule 144"), provided that the
Company delivers an opinion of counsel reasonably satisfactory to such Holder,
in form and substance satisfactory to such Holder, that such Holder is not an
"affiliate" (as such term is defined in Rule 144) of the Company or an "issuer"
(as such term is used in Section 2(11) of the Securities Act) with respect to
securities of the Company. The "Registrable Securities then outstanding" will be
determined by the number of shares outstanding which are, and the number of
shares issuable upon conversion of then outstanding shares of Convertible
Preferred Stock which are, Registrable Securities.
Registration Statement: Any registration statement of the Company
that covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated by reference
in such registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended.
Special Counsel: Any one special counsel to the Holders, which
counsel shall be selected by the Holders of a majority of the Registrable
Securities requested to be included in the applicable registration.
underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Demand Registration
(a) If the Company receives at any time after the date that is
180 days after the effective date of the Qualified Offering, a written request
from the Holders of a majority of the
<PAGE> 4
Registrable Securities then outstanding that the Company file a Registration
Statement on Form S-1 or any similar long-form registration ("Long-Form
Registrations") under the Securities Act covering the registration of such
Holder's or Holders' Registrable Securities (the "Initiating Holders"), then the
Company will, within ten business days of the receipt thereof, give written
notice of such request to all Holders and will, subject to the limitations set
forth below and of subsection 2(b), effect as soon as practicable, and in any
event shall use its reasonable best efforts to effect within sixty (60) days of
the receipt of such request, a Registration Statement under the Securities Act
of all Registrable Securities then outstanding which the Holders request to be
registered within fifteen (15) days of the mailing of such notice by the
Company. Notwithstanding the foregoing, the Company's obligation to effect the
requested registration shall be conditioned upon the anticipated aggregate
offering price of Registrable Securities equaling or exceeding $10,000,000.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they will so advise the Company as a part of their request made pursuant to this
Section 2 and the Company will include such information in the written notice
referred to in subsection 2(a). The underwriter (the "Underwriter") will be
selected by a majority in interest of the selling stockholders (the "Selling
Holders"), subject to approval by the Company, not to be unreasonably withheld.
In such event, the right of any Holder to include such Holder's Registrable
Securities in such registration will be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Selling Holders and such Holder) to the extent
provided in this Agreement. All Holders proposing to distribute their securities
through such underwriting will (together with the Company as provided in
subsection 5(e)) enter into an underwriting agreement in customary form with the
Underwriter. Notwithstanding any other provision of this Section 2, if the
Underwriter advises the Selling Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company will so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant to this Agreement, and
the number of shares of Registrable Securities that may be included in the
underwriting will be allocated pro rata among the Holders and the holders
("Series A Holders") of the Company's Series A Convertible Preferred Stock, par
value $.01 per share (the "Series A Preferred Stock"), and the holders ("Series
B Holders") of the Company's Series B Convertible Preferred Stock, par value
$.01 per share (the "Series B Preferred Stock"), who have exercised piggyback
registration rights to participate in such offering on the basis of the number
or dollar amount of securities requested by such Holders and Series A Holders
and the Series B Holders to be included in such offering.
(c) Notwithstanding the foregoing, (i) the Company shall not be
obligated to register any Registrable Securities pursuant to this Section 2 if
such Registrable Securities may be, and the Company causes them to be,
registered pursuant to Section 3, and (ii) the Company shall be obligated to
effect only one registration pursuant to this Section 2; provided, however, that
the Company shall be deemed to fulfill its obligations pursuant to this Section
2 only (x) if the number of shares of Registrable Securities included in the
Registration Statement has not been reduced by more than 33-1/3% pursuant to
subsection 2(b) (unless such Registrable
<PAGE> 5
Securities are not so included due to the fault of the Holder), and (y) when
such registration has become effective (unless such registration has not become
effective due to the fault of the Holder) and remained effective in compliance
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Registration Statement for a period of
not less than 180 days, (unless such Registrable Securities are not disposed of
due to the fault of the Holder); and, provided further, that the Company will
pay all registration expenses in connection with any registration initiated at
the request of a Holder to the extent provided below in Section 7 (unless such
registration is not consummated due to the fault of the Holder).
(c) Notwithstanding the foregoing, the Company may postpone for
up to three (3) months the filing or the effectiveness of a Registration
Statement for any registration if (i) the Company reasonably believes that such
registration would have a material adverse effect on any proposal or plan by the
Company or any of its Subsidiaries (as defined in the Purchase Agreement) to
engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other significant
transaction pending at the time a request is made for a registration, (ii) such
registration would require the Company to disclose contract negotiations pending
at the time a request is made for a registration or other information, the
disclosure of which would, in the reasonable belief of the Company, have a
material adverse effect on the Company or (iii) the holders of the Series A
Preferred Stock or Series B Preferred Stock have previously requested a
registration. Such postponement may be effected by delivery of written notice to
the Holders within fifteen (15) business days of the Company's receipt of a
request for a registration. Failure to so notify the Holders of such a
postponement within said 15 business day period shall constitute a waiver of the
Company's right under this paragraph 2(d). During such period, the Company shall
not be entitled to file any other Registration Statement relating to the
Company's securities pursuant to any other outstanding registration rights
agreement or for any other secondary offering, other than such demand
registration previously requested by the Series A Holders or Series B Holders;
and provided further, that the Company shall not have the right to so defer such
action more than once in any three hundred sixty-five (365) day period. Upon the
expiration of the deferral period the Company shall be required to file a
Registration Statement covering the Registrable Securities requested to be
registered. Notwithstanding the foregoing, in the event that the Company has
deferred the filing of a Registration Statement pursuant to clause (iii) and a
Registration Statement requested by the holders of the Series A Preferred Stock
or Series B Preferred Stock becomes effective, the deferral period shall be a
period of up to 120 days from the date of the request by the holders of the
Series A Preferred Stock or Series B Preferred Stock plus a period of 180 days
after the effectiveness of such registration or the closing date of any
underwritten offering.
(d) The Company shall have no obligation to any Holder under this
Section 2 with respect to the Registrable Securities then outstanding of such
Holder if the Company has obtained an opinion of counsel reasonably satisfactory
to such Holder, in form and substance satisfactory to such Holder, to the effect
that all such Registrable Securities then outstanding of such Holder may be
immediately sold to the public without registration thereof, whether pursuant to
Rule 144 or otherwise.
3. S-3 Registration Undertaking.
<PAGE> 6
(a) Short-Form Registrations. In addition to the Long-Form
Registrations provided pursuant to Section 2, at any time after the date that is
180 days after the effective date of the Qualified Offering, the holders of
Registrable Securities shall be entitled to request two (2) registrations on
Form S-2 or S-3 or any similar short-form registration ("Short-Form
Registrations") under the Securities Act. If the Company at any such time
receives a written request from the Holder(s) of a majority of the Registrable
Securities then outstanding that the Company file a Short Form Registration
covering the registration of the Holder's or Holders' Registrable Securities
(the "S-3 Initiating Holders"), then the Company will, within ten business days
of the receipt thereof, give written notice of such request to all Holders and
will, subject to the limitations set forth below and of subsection 3(b), effect
as soon as practicable, and in any event shall use its reasonable best efforts
to effect within sixty (60) days of the receipt of such request, a Registration
Statement under the Securities Act of all Registrable Securities then
outstanding which the Holders request to be registered within fifteen (15) days
of the mailing of such notice by the Company. Notwithstanding the foregoing, the
Company's obligation to effect the requested registration shall be conditioned
upon the anticipated aggregate offering price of Registrable Securities equaling
or exceeding $5,000,000. Demand Registrations shall be Short-Form Registrations
whenever the Company is permitted to use any applicable short form. After the
Company has become subject to the reporting requirements of the Securities
Exchange Act, the Company shall use all commercially reasonable efforts to make
Short-Form Registrations on Form S-3 available for the sale of Registrable
Securities.
(b) If the Initiating S-3 Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they will so advise the Company as a part of their request made pursuant to this
Section 3 and the Company will include such information in the written notice
referred to in subsection 3(a). The Underwriter will be selected by a majority
in interest of the Selling Holders, subject to approval by the Company, not to
be unreasonably withheld. In such event, the right of any Holder to include such
Holder's Registrable Securities in such registration will be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Selling Holders and such Holder) to the
extent provided in this Agreement. All Holders proposing to distribute their
securities through such underwriting will (together with the Company as provided
in subsection 6(n)) enter into an underwriting agreement in customary form with
the Underwriter. Notwithstanding any other provision of this Section 3, if the
Underwriter advises the Selling Holders and the Company in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company will so advise all Holders of Registrable
Securities which would otherwise be underwritten pursuant to this Agreement, and
the number of shares of Registrable Securities that may be included in the
underwriting will be allocated pro rata among the Holders and the Series A
Holders and Series B Holders who have exercised piggyback registration rights to
participate in such offering on the basis of the number or dollar amount of
securities requested by such Holders and Series A Holders and Series B Holders
to be included in such offering.
<PAGE> 7
(c) Notwithstanding the foregoing, the Company may postpone for
up to three (3) months the filing or the effectiveness of a Registration
Statement for any registration if (i) the Company reasonably believes that such
registration would have a material adverse effect on any proposal or plan by the
Company or any of its Subsidiaries (as defined in the Purchase Agreement) to
engage in any acquisition of assets (other than in the ordinary course of
business) or any merger, consolidation, tender offer or other significant
transaction pending at the time a request is made for a registration, (ii) such
registration would require the Company to disclose contract negotiations pending
at the time a request is made for a registration or other information, the
disclosure of which would, in the reasonable belief of the Company, have a
material adverse effect on the Company or (iii) the holders of the Series A
Preferred Stock or Series B Preferred Stock have previously requested a
registration. Such postponement may be effected by delivery of written notice to
the Holders within fifteen (15) business days of the Company's receipt of a
request for a registration. Failure to so notify the Holders of such a
postponement within said 15 business day period shall constitute a waiver of the
Company's right under this paragraph 2(d). During such period, the Company shall
not be entitled to file any other Registration Statement relating to the
Company's securities pursuant to any other outstanding registration rights
agreement or for any other secondary offering, other than such demand
registration previously requested by the Series A Holders or Series B Holders;
and provided, further, that the Company shall not have the right to so defer
such action more than once in any three hundred sixty-five (365) day period.
Upon the expiration of the deferral period the Company shall be required to file
a Registration Statement covering the Registrable Securities requested to be
registered. Notwithstanding the foregoing, in the event that the Company has
deferred the filing of a Registration Statement pursuant to clause (iii) and a
Registration Statement requested by the holders of the Series A Preferred Stock
or Series B Preferred Stock becomes effective, the deferral period shall be a
period of up to 120 days from the date of the request by the holders of the
Series A Preferred Stock or Series B Preferred Stock plus a period of 180 days
after the effectiveness of such registration or the closing date of any
underwritten offering.
(c) The Company shall have no obligation to any Holder under this
Section 3 with respect to the Registrable Securities then outstanding of such
Holder if the Company has obtained an opinion of counsel reasonably satisfactory
to such Holder, in form and substance satisfactory to such Holder, to the effect
that all such Registrable Securities then outstanding of such Holder may be
immediately sold to the public without registration thereof, whether pursuant to
Rule 144 or otherwise.
4. Piggyback Registration.
(a) Right to Piggyback. If at any time after the Qualified
Offering the Company proposes to file a registration statement under the
Securities Act with respect to an offering of Common Stock (other than a
registration statement (i) on Form S-4 or Form S-8 or any successor forms
thereto or (ii) filed solely in connection with an exchange offer or an offering
made solely to employees of the Company), for its own account or the account of
any other Person (other than the Series A Holders), then the Company shall give
written notice of such proposed filing to the Holders at least 30 days before
the anticipated filing date. Such notice shall offer such Holders the
opportunity to register such amount of Registrable Securities as each such
Holder may request (a "Piggyback Registration"). Subject to Section 4(b) hereof,
<PAGE> 8
the Company shall include in each such Piggyback Registration all Registrable
Securities with respect to which the Company has received written requests for
inclusion therein within 15 days after notice has been given to the applicable
Holder (which request shall specify the intended method of distribution). The
Holders shall be permitted to withdraw all or part of the Registrable Securities
from a Piggyback Registration at any time prior to the effective date of such
Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall cause
the managing underwriter of a proposed underwritten offering to permit the
Holders that requested their Registrable Securities to be included in the
registration for such offering to include all such Registrable Securities on the
same terms and conditions as any other shares of Common Stock, if any, of the
Company included therein. Notwithstanding the foregoing, if the managing
underwriter of such underwritten offering informs such Holders that the total
number or dollar amount of securities that such Holders, the Company and any
other Persons having rights to participate in such registration, propose to
include in such offering is such as to materially and adversely affect the
success of such offering, then the amount of Common Stock to be offered (i) for
the account of Holders and (ii) for the account of all such other Persons (other
than the Series A Holders or Series B Holders) exercising piggy back
registration rights shall be reduced or limited pro rata in proportion to the
respective dollar amounts of Common Stock requested by such persons to be
included in such offering.
5. Hold-Back Agreement.
(a) Restrictions on Public Sale by Holders of Registrable
Securities. Each Holder agrees, in connection with any sale of securities by the
Company and in connection with any Registration Statement filed pursuant to
Section 2, Section 3 or Section 4 hereof, if requested (pursuant to a timely
written notice) by the Company or the managing underwriter or underwriters in an
underwritten offering, not to effect any public sale or distribution of any of
the Company's securities (except as part of such underwritten offering),
including a sale pursuant to Rule 144, during the period beginning 10 days prior
to, and ending 180 days after, the closing date of each underwritten offering
made by the Company or pursuant to such Registration Statement.
The foregoing provisions shall not apply to any Holder if such Holder is
prevented by applicable statute or regulation from entering into any such
agreement; provided, however, that any such Holder shall undertake in its
request to participate in any such underwritten offering, not to effect any
public sale or distribution of the class of securities covered by such
Registration Statement (except as part of such underwritten offering) during
such period unless it has provided 90 days' prior written notice of such sale or
distribution to the managing underwriter or underwriters.
6. Registration Procedures
In connection with the Company's registration obligations pursuant to
Section 2, Section 3 or Section 4 hereof, the Company shall effect such
registrations to permit the sale of such
<PAGE> 9
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall as expeditiously as
possible:
(a) Prepare and file with the Securities and Exchange Commission
(the "SEC") a Registration Statement or Registration Statements on any
appropriate form under the Securities Act that shall be available for the sale
of the Registrable Securities by the Holders thereof in accordance with the
intended method or methods of distribution thereof, and use its best efforts to
cause each such Registration Statement to become effective and remain effective
as provided herein. Before filing any Registration Statement or Prospectus or
any amendments or supplements thereto (including documents that would be
incorporated or deemed to be incorporated therein by reference), the Company
shall furnish or otherwise make available to the Holders of the Registrable
Securities covered by such Registration Statement, the Special Counsel and the
managing underwriters, if any, copies of all such documents proposed to be
filed, which documents will be subject to the review of such Holders, the
Special Counsel and such underwriters, if any; provided, however, that the
Company shall not be required to deliver to such Holders a copy of any such
document that has not been materially changed from a copy of such document that
was previously delivered to such Holders.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for a period of up to
six (6) months; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement during the applicable period
in accordance with the intended methods of disposition by the sellers thereof
set forth in such Registration Statement as so amended or to such Prospectus as
so supplemented.
(c) Notify the selling Holders of Registrable Securities, the
Special Counsel and the managing underwriters, if any, promptly, and (if
requested by any such Person) confirm such notice in writing:
(i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed, and, with respect to a Registration
Statement or any post-effective amendment, when the same has become effective,
(ii) of any request by the SEC or any other Federal or state
governmental authority for amendments or supplements to a Registration Statement
or related Prospectus or for additional information (provided, that the Company
shall not be required to notify the Holders or the Special Counsel of all
comments letters or the Company's responses thereto to the Holders or the
Special Counsel unless such letters request information from or about the
Holders),
(iii) of the issuance by the SEC or any other Federal or
state governmental authority of any stop order suspending the effectiveness of a
Registration
<PAGE> 10
Statement or the initiation of any proceedings for that purpose,
(iv) if at any time the representations and warranties of the
Company contained in any agreement contemplated by Section 6(n) (including any
underwriting agreement) below cease to be true and correct,
(v) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose,
(vi) of the happening of any event that makes any statement
made in such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue or that
requires the making of any changes in a Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or is necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and
(vii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) Use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement, or the
lifting of any suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction.
(e) If requested by the managing underwriters, if any, or the
Holders of a majority of the Registrable Securities being sold, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information as the managing underwriters, if any, and such Holders reasonably
agree should be included therein as may be required by applicable law, (ii) make
all required filings of such Prospectus supplement or such post-effective
amendment as soon as the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to any Registration Statement; provided,
however, that the Company shall not be required to take any actions under this
Section 5(e) that are not, in the opinion of counsel for the Company, in
compliance with applicable law.
(f) Furnish to each selling Holder of Registrable Securities, the
Special Counsel and each managing underwriter, if any, without charge, at least
one conformed copy of the Registration Statement or Statements and any
post-effective amendment thereto, including financial statements (but excluding
schedules, all documents incorporated therein by reference or deemed
incorporated therein by reference and all exhibits, unless requested in writing
by such
<PAGE> 11
Holder, Special Counsel or underwriter).
(g) Deliver to each selling Holder of Registrable Securities, the
Special Counsel and the underwriters, if any, without charge, as many copies of
the Prospectus or Prospectuses relating to such Registrable Securities
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; and the Company hereby consents to the
use of such Prospectus or each amendment or supplement thereto by each of the
selling Holders of Registrable Securities and the underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Prospectus or any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities to use
its reasonable best efforts to register or qualify or cooperate with the selling
Holders of Registrable Securities, the underwriters, if any, and their
respective counsel in connection with the registration or qualification (or
exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or Blue Sky laws of such
jurisdictions within the United States as any seller or underwriter reasonably
requests in writing; keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is required
to be kept effective and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the applicable Registration Statement; provided, however,
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it is not then so qualified or (ii) take any action that
would subject it to general service of process in any such jurisdiction where it
is not then so subject.
(i) Cooperate with the selling Holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold, which
certificates shall not bear any restrictive legends; and enable such Registrable
Securities to be registered in such names as the managing underwriters, if any,
shall request at least two business days prior to any sale of Registrable
Securities to the underwriters.
(j) Cause the Registrable Securities covered by the applicable
Registration Statement to be registered with or approved by such other
governmental agencies or authorities within the United States, except as may be
required solely as a consequence of the nature of such selling Holder's
business, in which case the Company will cooperate in all respects with the
filing of such Registration Statement and the granting of such approvals, as may
be necessary to enable the seller or sellers thereof or the underwriters, if
any, to consummate the disposition of such Registrable Securities.
(k) Upon the occurrence of any event contemplated by Section
6(c)(vi) or 6(c)(vii) above, prepare a supplement or post-effective amendment to
each Registration Statement or a supplement to the related Prospectus or any
document incorporated therein by reference, or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Securities
being sold thereunder, such Prospectus will not contain an untrue
<PAGE> 12
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(l) Use its best efforts to cause all Registrable Securities
covered by such Registration Statement to be (i) listed on each securities
exchange, if any, on which similar securities issued by the Company are then
listed, or (ii) authorized to be quoted on The NASDAQ Stock Market National
Market if the securities so qualify; in each case, if requested by the Holders
of a majority of shares of the Registrable Securities covered by such
Registration Statement or the managing underwriters, if any.
(m) Prior to the effective date of the Registration Statement
relating to the Registrable Securities, (i) provide the transfer agent with
printed certificates for the Registrable Securities in a form eligible for
deposit with The Depository Trust Company and (ii) provide a CUSIP number for
the Registrable Securities.
(n) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in underwritten
offerings) and take all such other actions in connection therewith (including
those reasonably requested by the managing underwriters, if any, or the Holders
of a majority of the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration;
(i) make such representations and warranties to the Holders
of such Registrable Securities and the underwriters, if any, with respect to the
business of the Company and its subsidiaries, the Registration Statement,
Prospectus and documents incorporated by reference or deemed incorporated by
reference, if any, in each case, in form, substance and scope as are customarily
made by issuers to underwriters in underwritten offerings and, if true, confirm
the same if and when requested;
(ii) use its reasonable best efforts to obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the Holders of a majority of the Registrable
Securities being sold) addressed to each selling Holder of Registrable
Securities and each of the underwriters, if any, covering the matters
customarily covered in opinions requested in underwritten offerings and such
other matters as may be reasonably requested by such Holders and underwriters,
including without limitation the matters referred to in Section 6(n)(i) above;
(iii) use its reasonable best efforts to obtain "cold
comfort" letters and updates thereof from the independent certified public
accountants of the Company (and, if necessary, any other certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or is required to
be, included in the Registration Statement), addressed to each selling Holder of
<PAGE> 13
Registrable Securities (unless such accountants shall be prohibited from so
addressing such letters by applicable standards of the accounting profession)
and each of the underwriters, if any, such letters to be in customary form and
covering matters of the type customarily covered in "cold comfort" letters in
connection with underwritten offerings; and
(iv) deliver such documents and certificates as may be
reasonably requested by the Holders of a majority of the Registrable Securities
being sold, the Special Counsel and the managing underwriters, if any, to
evidence the continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to evidence
compliance with any customary conditions contained in the underwriting agreement
or other agreement entered into by the Company.
(o) Make available for inspection by a representative of the
Holders of Registrable Securities being sold, any underwriter participating in
any disposition of Registrable Securities, if any, and any attorney or
accountant retained by such selling Holders or underwriter, at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries, and cause the officers, directors and employees of the Company and
its subsidiaries to supply all information reasonably requested by any such
representative, underwriter, attorney or accountant in connection with such
Registration Statement; provided, however, that any records, information or
documents that are designated by the Company in writing as confidential at the
time of delivery of such records, information or documents shall be kept
confidential by such Persons unless (i) such records, information or documents
are in the public domain or otherwise publicly available, (ii) disclosure of
such records, information or documents is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities or (iii)
disclosure of such records, information or documents, in the opinion of counsel
to such Person, is otherwise required by law (including, without limitation,
pursuant to the requirements of the Securities Act). Without limiting the
foregoing, no such information shall be used by such Person as the basis for any
market transactions in securities of the Company or its subsidiaries in
violation of law.
(p) Comply with all applicable rules and regulations of the SEC
and make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to underwriters
in a firm commitment or best efforts underwritten offering, and (ii) if not sold
to underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company, after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such Registrable Securities as the
Company may, from time to time, reasonably request in writing and the Company
may exclude from such registration the Registrable
<PAGE> 14
Securities of any seller who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
Each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(c)(ii), 6(c)(iii),
6(c)(v), 6(c)(vi) or 6(c)(vii) hereof, such Holder will forthwith discontinue
disposition of such Registrable Securities covered by such Registration
Statement or Prospectus until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 6(k) hereof, or until
it is advised in writing by the Company that the use of the applicable
Prospectus may be resumed, and has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus.
<PAGE> 15
7. Registration Expenses
All reasonable fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company
whether or not any of the Registration Statements become effective. Such fees
and expenses shall include, without limitation, (i) all registration and filing
fees (including, without limitation, fees and expenses (x) with respect to
filings required to be made with the National Association of Securities Dealers,
Inc. and (y) of compliance with securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the underwriters or selling
Holders in connection with Blue Sky qualifications of the Registrable Securities
pursuant to Section 6(h) hereof)), (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Securities in a
form eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the Holders of a
majority of the Registrable Securities included in any Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of
counsel for the Company, (v) fees and disbursements of all independent certified
public accountants referred to in Section 6(n)(iii) hereof (including the
expenses of any "cold comfort" letters required by this Agreement), (vi) the
fees and expenses of any "qualified independent underwriter" or other
independent appraiser participating in an offering pursuant to Section 3 of
Schedule E to the By-laws of the National Association of Securities Dealers,
Inc. and (vii) fees and expenses of all other Persons retained by the Company.
In addition, the Company shall pay its internal expenses (including without
limitation all salaries and expenses of its officers and employees performing
legal or accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange on which similar securities issued by the
Company are then listed and the fees and expenses of any Person, including
special experts, retained by the Company.
In addition, whether or not any of the Registration Statements become
effective, the Company shall pay the reasonable fees and disbursements of a
Special Counsel for the Holders, together with appropriate local counsel, if
any, not to exceed $50,000 in the aggregate, for any Long-Form Registration. The
Company shall not be required to pay fees or disbursements of Special Counsel
for any Short-Form Registration.
The Company shall not be required to pay any underwriter's fees and
expenses (including discounts, commissions or fees of underwriters, selling
brokers, dealer managers or similar securities industry professionals) relating
to the distribution of Registrable Securities.
8. Indemnification.
(a) Indemnification by the Company. The Company shall, without
limitation as to time, indemnify and hold harmless, to the fullest extent
permitted by law, each Holder of Registrable Securities whose Registrable
Securities are registered pursuant to this Agreement, the officers, directors,
agents and employees of each of them, each Person who controls such Holder
(within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) and the officers, directors, agents and employees of any such
controlling person, from and against all
<PAGE> 16
losses, claims, damages, liabilities, costs (including, without limitation, the
costs of preparation and reasonable attorneys' fees) and expenses (collectively,
"Losses") to be reimbursed promptly, as incurred, arising out of or based upon
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or form of Prospectus or in any amendment or
supplement thereto or in any preliminary prospectus, or arising out of or based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
except insofar as the same are based solely upon information furnished in
writing to the Company by such Holder expressly for use therein; provided,
however, that the Company shall not be liable to any Holder of Registrable
Securities to the extent that (A) any such Losses arise out of or are based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus if (i) such Holder failed to send or deliver
a copy of the Prospectus with or prior to the delivery of written confirmation
of the sale by such Holder of a Registrable Security to the person asserting the
claim from which such losses arise and (ii) the Prospectus would have corrected
in all material respects such untrue statement or alleged untrue statement or
such omission or alleged omission; or (B) any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if (x) such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in all material
respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended and supplemented, prior to or concurrently
with the sale of a Registrable Security to the Person asserting the claim from
which such Losses arise.
(b) Indemnification by Holder of Registrable Securities. In
connection with any Registration Statement in which a Holder of Registrable
Securities is participating, such Holder of Registrable Securities shall furnish
to the Company in writing such information relating to such Holder, as such, or
the Registrable Securities being sold by such Holder (the "Holder Information")
as the Company reasonably requests for use in connection with any Registration
Statement or Prospectus and agrees to indemnify, to the fullest extent permitted
by law, the Company, its directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the Securities Act
and Section 20 of the Exchange Act), and the directors, officers, agents or
employees of such controlling persons, from and against all Losses arising out
of or based upon any untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or arising out of
or based upon any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any Holder
Information so furnished in writing by such Holder to the Company expressly for
use in such Registration Statement or Prospectus and that such Holder
Information was solely relied upon by the Company in preparation of such
Registration Statement, Prospectus or preliminary prospectus. In no event shall
the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds (net of payment of all
expenses) received by such Holder directly from the sale of the Registrable
Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution to the
<PAGE> 17
same extent as provided above with respect to information so furnished in
writing by such Persons expressly for use in any Prospectus or Registration
Statement.
(c) Conduct of Indemnification Proceedings. If any Person shall
be entitled to indemnity hereunder (an "indemnified party"), such indemnified
party shall give prompt notice to the party from which such indemnity is sought
(the "indemnifying party") of any claim or of the commencement of any Proceeding
with respect to which such indemnified party seeks indemnification or
contribution pursuant hereto; provided, however, that the delay or failure to so
notify the indemnifying party shall not relieve the indemnifying party from any
obligation or liability except to the extent that the indemnifying party has
been prejudiced materially by such delay or failure. The indemnifying party
shall have the right, exercisable by giving written notice to an indemnified
party promptly after the receipt of written notice from such indemnified party
of such claim or Proceeding, to assume, at the indemnifying party's expense, the
defense of any such claim or Proceeding, with counsel reasonably satisfactory to
such indemnified party; provided, however, that an indemnified party shall have
the right to employ separate counsel in any such claim or Proceeding and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless: (1) the indemnifying
party agrees to pay such fees and expenses; (2) the indemnifying party fails
promptly to assume the defense of such claim or Proceeding or fails to employ
counsel reasonably satisfactory to such indemnified party or (3) counsel for the
indemnified party advises the indemnifying party in writing that there are
issues that raise conflicts of interest between the indemnified party and the
indemnifying party requiring the use of independent counsel; in which case the
indemnified party shall have the right to employ counsel and to assume the
defense of such claim or proceeding; provided, however, that the indemnifying
party shall not, in connection with any one such claim or Proceeding or separate
but substantially similar or related claims or Proceedings in the same
jurisdiction, arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one firm of attorneys (together
with appropriate local counsel) at any time for all of the indemnified parties,
or for fees and expenses that are not reasonable.
Whether or not such defense is assumed by the indemnifying party,
such indemnified party will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).
All such fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or proceeding)
shall be paid to the indemnified party, as incurred, within five days of written
notice thereof to the indemnifying party (regardless of whether it is ultimately
determined that an indemnified party is not entitled to indemnification
hereunder). The indemnifying party shall not consent to entry of any judgment or
enter into any settlement or otherwise seek to terminate any Proceeding in which
any indemnified party is a party and as to which indemnification or contribution
could be sought by such indemnified party under this Section 8, unless such
judgment, settlement or other termination includes as an unconditional term
thereof the giving by the claimant or plaintiff to such indemnified party of a
release, in form and substance reasonably satisfactory to the indemnified party,
from all liability in respect of such claim or litigation for which such
indemnified party would be entitled to indemnification hereunder.
(c) Contribution. If the indemnification provided for in this
Section 8 is
<PAGE> 18
unavailable to an indemnified party under Section 8(a) or 8(b) hereof in respect
of any Losses or is insufficient to hold such indemnified party harmless, then
each applicable indemnifying party, in lieu of indemnifying such indemnified
party, shall, jointly and severally, contribute to the amount paid or payable by
such indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party or
indemnifying parties, on the one hand, and such indemnified party, on the other
hand, in connection with the actions, statements or omissions that resulted in
such Losses as well as any other relevant equitable considerations. The relative
fault of such indemnifying party or indemnifying parties, on the one hand, and
such indemnified party, on the other hand, shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party as a result
of any Losses shall be deemed to include any legal or other fees or expenses
incurred by such party in connection with any Proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 8(d) were determined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provision of this Section 8(d), an indemnifying party that
is a selling Holder of Registrable Securities shall not be required to
contribute any amount in excess of the amount by which the net proceeds (after
deducting the aggregate underwriters' discount) received by such indemnifying
party from the sale of such Registrable Securities exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay
(including, without limitation, pursuant to any other indemnification or
contribution obligation such indemnifying party may have) by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity, contribution and expense reimbursement obligations of the
Company hereunder shall be in addition to any liability the Company may
otherwise have hereunder or otherwise. The provisions of this Section 8 shall
survive so long as Registrable Securities remain outstanding, notwithstanding
any transfer of the Registrable Securities by any Holder or any termination of
this Agreement.
9. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
<PAGE> 19
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirements) or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company with the SEC, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
10. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Agreement may be assigned
(but only with all related obligations) by a Holder to (i) transferee(s) or
assignee(s) of such securities who, after such assignment or transfer, holds
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations) with an aggregate
Market Value of at least $1,000,000 or (ii) transferee(s) or assignee(s) of such
securities who, after such assignment or transfer, holds all of the Registrable
Securities of the transferring Holder, provided that the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee(s) or assignee(s) and the securities with respect
to which such registration rights are being assigned. Notwithstanding any
assignment by a Holder of its registration and other rights hereunder in
connection with its transfer of Registrable Securities, such Holder shall retain
all such registration and other rights under this Agreement in respect of those
Registrable Securities that it continues to hold.
11. No Inconsistent Agreements; Limitations on Subsequent Registration
Rights.
(a) The Company represents and warrants to the Holders that it is
not a party to any agreement with respect to its securities that is inconsistent
with the rights granted to the Holders in this Agreement.
(b) From and after the date of this Agreement, the Company will
not, without the prior written consent of the Holders of a majority of the then
outstanding Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder (i) to include such securities in any registration
filed under Section 2, unless under the terms of such agreement, such holder or
prospective holder may include such securities in any such registration only to
the extent that the inclusion of his securities will not reduce the amount of
the Registrable Securities of the Holders which is included or (ii) to make a
demand registration which could result in such registration statement being
declared effective within 180 days of the effective date of any registration
effected pursuant to Section 2.
<PAGE> 20
(c) From and after the date of this Agreement, if the Company
grants any person rights (i) to demand that the Company register securities of
the Company under the Securities Act or (ii) to have securities of the Company
included in a registration statement, which are more favorable than these
registration rights provisions in any regard (including, without limitation,
those relating to the expenses to be borne by the Company), the rights granted
herein shall be deemed to be amended to include such more favorable rights in
addition to these set forth herein.
12. Adjustments Affecting Registrable Securities. The Company will not
take any action, or permit any change to occur, with respect to its securities
which would adversely affect the ability of the Holders to include Registrable
Securities in a registration undertaken pursuant hereto. However, nothing in
this Agreement shall limit the Company's ability to register, offer and sell
securities.
13. Miscellaneous
(a) Remedies. In the event of a breach by the Company of its
obligations under this Agreement, each Holder of Registrable Securities, in
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of any
of the provisions of this Agreement and hereby further agrees that, in the event
of any action for specific performance in respect of such breach, it shall waive
the defense that a remedy at law would be adequate.
(b) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of a majority of the then outstanding Registrable Securities. Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Securities whose securities are being sold pursuant to a
Registration Statement and that does not directly or indirectly affect the
rights of other Holders of Registrable Securities may be given by Holders of at
least a majority of the Registrable Securities being sold by such Holders;
provided, however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(c) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing and shall be deemed given (i) when
made, if made by hand delivery, (ii) upon confirmation, if made by telecopier or
(iii) one business day after being deposited with a reputable next day courier,
postage prepaid, to the parties as follows:
(x) if to a Holder of Registrable Securities, at the most
current address given by such Holder to the Company in accordance with the
provisions of this Section 13(c),
<PAGE> 21
which address initially is, with respect to each Holder, the address set forth
on his respective signature page attached hereto; and
(y) if to the Company, at 2230 Broadway, Santa Monica,
California 90404, Attention: Chief Executive Officer;
or to such other address as any party may have furnished to the other parties in
writing in accordance herewith.
(d) Owner of Registrable Securities. The Company will maintain,
or will cause its registrar and transfer agent to maintain, a stock book with
respect to the Common Stock, in which all transfers of Registrable Securities of
which the Company has received notice will be recorded. The Company may deem and
treat the person in whose name Registrable Securities are registered in the
stock book of the Company as the owner thereof for all purposes, including
without limitation, the giving of notices under this Agreement.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder of any Registrable
Securities. The Company may not assign its rights or obligations hereunder
without the prior written consent of each Holder of any Registrable Securities.
(f) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(h) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICT OF LAWS.
(i) Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
<PAGE> 22
(j) Entire Agreement. This Agreement is intended by the parties
as a final expression of their agreement and is intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein.
<PAGE> 23
(k) Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, or where any provision hereof is
validly asserted as a defense, the prevailing party, as determined by the court,
shall be entitled to recover reasonable attorneys' fees in addition to any other
available remedy.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
"THE COMPANY"
DIGITAL ENTERTAINMENT NETWORK, INC.
By:
Name:
Title:
"THE HOLDER"
[Print Name Above]
By:
Name:
Its:
<PAGE> 1
EXHIBIT 10.44
AGREEMENT NO. ________ EFFECTIVE DATE 3/31/99
LICENSE AGREEMENT
<TABLE>
<S> <C> <C>
BETWEEN:
Engage Technologies, Inc. AND: Legal Company Name: Digital Entertainment Network ________________
100 Brickstone Square Contact Person: Peter Luttrell ___________________________________
Andover, MA 01801 Address: 2230 Broadway, Santa Monica, CA 90404 ___________________
Telephone: (310) 998-9200 ________________________________________
("ENGAGE") Fax: (310) 998-1101 ________________________________________
email: [email protected] ________________________________________
("CUSTOMER")
</TABLE>
Customer contracts for and Engage agrees to provide, on the terms and conditions
set forth in this License Agreement ("Agreement"), the product selections
identified below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
SELECTIONS RECURRING FEE ONE-TIME FEE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BASE PRODUCTS:
Specify Tier for each: Lite, Standard, Gold Platinum or Platinum Plus (for Platinum Plus
specify Maximum Average Daily Page Requests or Ads Served)
Tier Upgrade
---- -------
/X/ [*] [*] / / [*]
/X/ [*] [*] / / [*]
/ / ____ Additional Seats of Marketing Workbench
/ / ____ Additional Seats of Business Objects
/X/ [*] (Attachment C) [*] / / [*]
LICENSE TERM:
/X/ Perpetual / / Subscription / / Pilot
Platinum Average Daily Page Requests/Ads Served not to exceed [*]
- ------------------------------------------------------------------------------------------------------------------------------------
PROFILE OPTIONS:
Specify tier for each: Lite, Standard, Gold, Platinum or Platinum Plus (for Platinum Plus
specify Maximum Average Daily Page Requests or Ads Served)
Local Declared Tier Local Behavior Tier
-------------- ---- -------------- ----
/X/ [*] [*] /X/ [*] [*]
/X/ [*] [*] /X/ [*] [*]
/X/ [*] [*] /X/ [*] [*]
Global Behavior with
Global Behavior (Attachment D) Contribution Option (Attachments D,E)
- --------------- -------------------
/ / [*] ___________ / / [*] ___________
/ / [*] ___________ / / [*] ___________
/ / [*] Usage Based Fee / / [*] Usage Based Fee See Attachment D
- ------------------------------------------------------------------------------------------------------------------------------------
SOFTWARE MAINTENANCE AND SUPPORT SERVICES (Attachment F):
/X/ Standard / / Premium [*] (ann.)
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER SERVICES (Attachment G):
/X/ Installation [*]
/X/ Training
/ / Public Class
/X/ On Site [*]
/X/ Consulting [*]
- ------------------------------------------------------------------------------------------------------------------------------------
GEOGRAPHIC USE: USA Factored Into Factored Into
NUMBER OF ENTERPRISE SERVERS OR ENGINES: [*] production engine Above Fees Above Fees
[*] server
DOMAIN NAMES: DEN.net
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Cover Page CONFIDENTIAL
<PAGE> 2
RESALE OF SOFTWARE AND SUPPORT:
<TABLE>
<S> <C> <C>
[*] [*] Concurrent Users [*]
Diagnostic Pack [*] Concurrent Users
Tuning Pack [*] Concurrent Users
Change Mgmt. Pack [*] Concurrent Users
Partitioning Option [*] Concurrent Users
[*] [*] Processor
Diagnostic Pack [*] Processor
Tuning Pack [*] Processor
Change Mgmt. Pack [*] Processor
Partitioning Option [*] Processor
[*] Level Support Annual Fee [*]
</TABLE>
- --------------------------------------------------------------------------------
Customer acknowledges that the Attachments marked with an "X" above (and only
those Attachments) are incorporated into and form part of this Agreement, and
that the General Terms and Conditions apply to all Attachments of this
Agreement. This Agreement is not valid until accepted by Engage.
Engage: SAR Customer: ALF
-------- --------
Initials Initials
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Cover Page CONFIDENTIAL
<PAGE> 3
GENERAL TERMS AND CONDITIONS
1. DEFINITIONS. Defined terms in this Agreement are capitalized and have the
meanings indicated in the Appendix attached hereto.
2. RIGHT TO USE SOFTWARE; DELIVERY. Customer's right to use the Software is
set forth in the applicable Attachment(s). On the Effective Date, Engage will
delivery or make available for downloading at an FTP site the Software.
3. RESTRICTIONS ON USE OF SOFTWARE. Customer's use of the Software is subject
to the following restrictions. Except as expressly permitted in this Agreement,
Customer shall not, and shall not permit others to, (a) use, modify, copy
(except for one back-up copy containing Engage's copyright notices and other
proprietary marks), or otherwise reproduce the Software in whole or in part;
(b) reverse engineer, decompile, disassemble, or otherwise attempt to derive
the source code form or structure of the Software; (c) distribute, sublicense,
assign, share, timeshare, sell, rent, lease, grant a security interest in, use
for Service Bureau purposes, or otherwise transfer the Software or Customer's
right to use the Software; or (d) remove any proprietary notices or labels on
the Software. All rights not expressly granted to Customer are reserved by
Engage. There are no implied rights. Customer shall install the Software only
on Enterprise Servers and/or Engines, as the case may be, located in the
country specified on the Cover Page. Customer shall be responsible for ensuring
that its Average Daily Ads served or Page Requests does not exceed the number
permitted for the Applicable Tier (an "Overage"), and Customer shall promptly
report any Overage to Engage, which shall have the right to require Customer to
upgrade its Tier on commercially reasonable terms.
4. TERMS OF AGREEMENT; TERMINATION.
(a) This Agreement shall commence upon the Effective Date and, unless
terminated in accordance with subsection (b) or (c) below, shall remain in
effect for the term specified on the Cover Page (either perpetual,
subscription, or pilot, each as defined below).
(i) Pilot Term. If pilot term is selected on the Cover Page, the
term of this License shall be from the Effective Date until thirty (30) days
thereafter.
(ii) Subscription Term. If subscription term is selected on the Cover
Page, this License shall have an initial term of 12 (twelve) months and shall
renew automatically for subsequent periods of 12 (twelve) months unless
otherwise terminated in accordance with Section 4(b) or (c) below or Engage
receives a written notice of non-renewal from Customer at least thirty (30)
days prior to the expiration of the initial term or the current renewal term.
(iii) Perpetual Term. If perpetual term is selected on the Cover Page,
the term of this License shall be perpetual with respect to the version of the
Software licensed hereunder (unless this Agreement is otherwise terminated in
accordance with Section 4(b) or (c) below).
(b) Either party may terminate this Agreement in the event of a material
breach of this Agreement by the other party that is not cured within thirty
(30) days of written notice thereof from the other party. Without limitation,
the following events shall constitute a material breach: violation by Customer
of the terms of the license granted (as set forth in Sections 2 and 3), failure
by Customer to pay any amount when due, and violation by either party of the
confidentiality duties set forth in Section 13 hereof.
5. EFFECT OF TERMINATION.
Except as expressly provided in this Agreement, upon termination of this
Agreement:
(a) Each party shall immediately surrender all rights, licenses and
privileges granted under this Agreement.
(b) Each party shall promptly pay to the other any amounts due and owing.
No termination of this Agreement shall release Customer from any obligation to
pay Engage any amount that has accrued or will accrue or become payable prior
to, at or after the date of termination.
(c) Each party shall immediately cease using and return all property in
its possession belonging to the other party, including without limitation all
Software, Documentation, and tangible embodiments of Confidential Information.
(d) The parties shall not, in advertising or otherwise, use or display
any of the other party's trademarks or any name, mark, or logo that is the same
as or similar to the other party's trademarks, represent itself to be a
licensee of the other party, or in any way identify itself with the other party.
CONFIDENTIAL
<PAGE> 4
(e) Sections 3, 5, 6(f), 7, 9, 10, 11(e), 12, 13 and 14 hereof, together
with Customers's obligation to pay outstanding amounts due Engage, will
survive termination or expiration of this Agreement.
6. PAYMENTS AND OTHER CHARGES.
(a) All fees shall be paid in U.S. dollars and shall be made to Engage at
the address set forth on the Cover Page.
(b) Customer agrees to pay all invoices within 30 days after the invoice
date. Engage shall invoice Customer for all recurring fees listed on the Cover
Page on a monthly basis in advance; provided that (i) fees for the [*] option
with either [*] or [*] shall be invoiced on a quarterly basis in advance, and
(ii) fees for the [*] option with [*] shall be invoiced on a monthly basis in
arrears based on a cost-per-thousand ("CPM") Page Request basis.
(c) A finance charge in an amount equal to one and one-half percent
(1.5%) per month or, if lower, the maximum rate allowed by law will be assessed
on payments not received by Engage on or prior to the due date.
(d) Customer agrees to pay when due (or, if necessary, reimburse Engage
for) all sales, use, property, excise, and other similar taxes resulting from
this Agreement, excluding taxes on the net income of Engage.
(e) The amount and structure of Maintenance and Support fees may be
adjusted in a commercially reasonable manner, but not to exceed the percentage
increase of the Consumer Price Index (excluding commercially reasonable
increases based on volume increases), for subsequent renewal periods if Engage
notifies Customer at least sixty (60) days prior to the annual renewal date.
(f) Customer agrees to make and maintain for a period of two (2) years
after the end of the year to which they pertain, sufficient books, records and
accounts regarding Customer's use of the Software, in order to calculate and
confirm Customer's payment obligations hereunder. Engage will have the right,
at its expense, to examine and copy such books, records, and accounts during
Customer's business hours to verify reports on the amount of payments made to
Engage under this Agreement. All such books, records, and accounts shall
constitute Confidential Information. In the event such inspection discloses an
underpayment of amounts due Engage from Customer, Customer will promptly remit
the amounts due, and if an audit discloses an underpayment of the fees payable
by Customer for the audited period of more than five percent (5%), Customer
shall pay for the expenses of the audit together with the amount of such
underpayment.
7. PROPRIETARY RIGHTS. Engage and its licensors shall have sole and exclusive
ownership of all right, title, and interest in and to the Software and
Documentation, including all associated intellectual property rights. Customer
acknowledges that the Software, including associated screen displays and menu
features, constitutes the valuable trade secrets of Engage or its licensors and
are copyrighted works owned by Engage or its licensors and protected by
federal and international copyright laws. Customer shall not permit any
personnel to remove any proprietary or other legends or restrictive notices
contained or included in any materials provided by Engage.
8. SOFTWARE MAINTENANCE AND SUPPORT SERVICES; OTHER SERVICES. Customer may
purchase Maintenance and Support Services, and installation, training, and
consulting services together with the license of any Software. If selected by
Customer on the Cover Page, all such services will be provided by Engage in
accordance with the terms set forth in Attachment F (Software Maintenance and
Support Services) or Attachment G (Other Services). Customer will be entitled
to receive Updates free of charge only if Customer is a paid-up Maintenance and
Support Services customer at the time an Update is commercially released.
Customer shall have the option to purchase Upgrades in accordance with Engage's
pricing structure in effect at the time an Upgrade is commercially released.
9. ENGAGE'S DUTY OF INDEMNIFICATION. Engage, at its expense, shall defend,
indemnify and hold harmless Customer against any action, suit or proceeding
brought against Customer which alleges that any Software or Documentation
infringes any intellectual property rights and Engage shall pay damages finally
awarded against Customer (including court costs and attorneys' reasonable
fees), provided that (a) Customer notifies Engage promptly in writing of the
claim, (b) Engage has sole control of the defense and all related settlement
negotiations, and (c) Customer provides Engage will all commercially reasonable
assistance, information and authority to perform the above at Engage's expense.
In the event that Customer's use of the Software is enjoined by a court of
competent authority, Engage shall, at its sole option and at its expense,
either: (i) procure for Customer the right to use the Software or (ii) modify
the Software to avoid infringement without material impairment of its
functionality or (iii) if neither of the foregoing remedies can be obtained
upon commercially reasonable terms, require Customer to remove and return to
Engage the Software involved and refund Customer the full price paid for the
Software. The foregoing indemnity shall not apply if the alleged infringement
is attributable to the combination of the Software and products not provided by
Engage, or if the Software is modified or altered by any person or entity other
than Engage, or if the Software is used outside the scope of this Agreement.
THIS SECTION STATES ENGAGE'S SOLE LIABILITY HEREUNDER WITH RESPECT TO
INFRINGEMENT OF ANY INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2 CONFIDENTIAL
<PAGE> 5
10. CUSTOMER'S DUTY OF INDEMNIFICATION. Customer agrees to defend and/or
settle, indemnify and hold harmless Engage from and against any claim brought by
a third party against Engage and any liability, damage or expense (including
court costs and attorneys' reasonable fees) arising from or in any manner
connected with Customer's actions or omissions in using in any manner the
Software or Profiles (excluding claims for which Engage is obligated to defend
Customer under Section 9); and Customer shall pay all costs, expenses, damages
or settlement amounts to the extent based on such a third party claim, provided
that (a) Engage notifies Customer promptly in writing of the claim, (b) Customer
has sole control of the defense and all related settlement negotiations, and (c)
Engage provides Customer with all commercially reasonable assistance,
information and authority to perform the above at Customer's expense.
11. LIMITED WARRANTY.
(a) Engage represents and warrants to Customer that Engage has full power
and authority to enter into this Agreement and to grant the license provided for
herein, and that this Agreement has been duly authorized, executed and delivered
by Engage and constitutes a valid, binding and legally enforceable agreement of
Engage.
(b) Customer represents and warrants to Engage that Customer has full
power and authority to enter into this Agreement and that this Agreement has
been duly authorized, executed and delivered by Customer and constitutes a
valid, binding and legally enforceable agreement of customer.
(c) Engage represents and warrants that it shall use best efforts to
ensure that the Software, if operated on the Specified Configuration, will
manage and manipulate data involving dates in material conformity with the
Documentation before, during and after the year 2000. Engage disclaims
responsibility for the date-related and other performance of hardware,
software, telecommunications facilities and other materials not owned or
supplied by Engage.
(d) If Customer has elected a perpetual license term on the Cover Page,
Engage warrants that for a period of thirty (30) days following delivery of the
Software to Customer ("Warranty Period"), Engage will use commercially
reasonable efforts to resolve programming errors in the Software or
Documentation to make the Software function in material conformity with the
Documentation, provided that the Software is operated on the Specified
Configuration and in accordance with the Documentation and provided further
that Engage receives a written claim from Customer under this limited warranty
within the Warranty Period. This Warranty does not apply if Customer or any
third party changes or modifies the Software without the authorization of
Engage. Engage warrants that the services provided by Engage in connection with
this Agreement will be rendered by qualified personnel and consistent with
commercial practices standard in the industry. The foregoing shall be Engage's
entire liability and Customer's sole and exclusive remedy under this warranty.
(e) THE EXPRESS WARRANTIES GRANTED UNDER THIS AGREEMENT ARE THE ONLY
WARRANTIES MADE BY ENGAGE WITH RESPECT TO THE SOFTWARE AND SERVICES, EXPRESS OR
IMPLIED, AND THEY ARE MADE IN LIEU OF ALL OTHER WARRANTIES OR REMEDIES. ENGAGE
HEREBY EXPRESSLY DISCLAIMS ALL IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT, AND WARRANTIES ARISING BY STATUTE
OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE, AS TO ANY
MATTER, INCLUDING BUT NOT LIMITED TO, FEATURES OR CAPABILITIES OF THE SOFTWARE,
ENGAGE'S COMPUTERS AND SERVERS, INFORMATION, REPORTS OR OTHER MATTERS PRODUCED
OR PROVIDED IN CONNECTION WITH THIS AGREEMENT. IN ADDITION TO AND WITHOUT
LIMITATION OF THE FOREGOING, ENGAGE SPECIFICALLY DOES NOT WARRANT, GUARANTEE,
OR MAKE ANY REPRESENTATIONS OTHER THAN AS SET FORTH IN SECTION 11(d) REGARDING
THE USE, OR THE RESULTS OF THE USE, OF ANY SOFTWARE OR FEATURE OR CAPABILITY OF
THE SOFTWARE, IN TERMS OF CORRECTNESS, ACCURACY, RELIABILITY, CURRENTNESS,
SECURITY, OR OTHERWISE. ENGAGE EXPRESSLY DISCLAIMS ANY WARRANTY WITH RESPECT TO
THE QUALITY OR CONTINUITY OF THIRD-PARTY TELECOMMUNICATION OR INFORMATION
SYSTEMS OR SERVICES, SERVER CONNECTION SPEEDS, OR THE FUNCTIONALITY,
OPERABILITY, OR RELIABILITY OF ANY THIRD PARTY'S DATA SECURITY FEATURES OR
SYSTEMS. THIS DISCLAIMER OF WARRANTY CONSTITUTES AN ESSENTIAL PART OF THIS
AGREEMENT.
12. LIMITATION OF LIABILITY. CUSTOMER'S SOLE REMEDY AND ENGAGE'S SOLE
OBLIGATION WITH RESPECT TO ANY CLAIMS, WHETHER IN CONTRACT, TORT (INCLUDING
NEGLIGENCE AND PRODUCT LIABILITY) OR OTHERWISE, ARISING OUT OF, CONNECTED WITH,
OR RESULTING FROM THIS AGREEMENT SHALL BE GOVERNED BY THIS AGREEMENT, AND IN
ALL CASES CUSTOMER'S REMEDY SHALL BE LIMITED TO MONEY DAMAGES NOT EXCEEDING THE
SOFTWARE LICENSE FEES PAID TO ENGAGE BY CUSTOMER DURING THE TERM OF THIS
AGREEMENT. IT IS EXPRESSLY AGREED THAT IN NO EVENT SHALL EITHER PARTY OR ITS
SUPPLIERS OR ANYONE ELSE WHO HAS BEEN INVOLVED IN THE PERFORMANCE OF THIS
AGREEMENT ON BEHALF OF SUCH PARTY, INCLUDING ITS EMPLOYEES, AGENTS, PARTNERS,
REPRESENTATIVES, OR SUBCONTRACTORS, BE LIABLE FOR ANY (A) DAMAGES CAUSED BY
THE OTHER PARTY'S FAILURE TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT, (B)
INDIRECT, INCIDENTAL, SPECIAL, RELIANCE, INCIDENTAL, EXEMPLARY, COVER OR
CONSEQUENTIAL DAMAGES, INCLUDING BUT NOT LIMITED TO LOST PROFITS OR REVENUE,
LOST BUSINESS OPPORTUNITIES, LOST SAVINGS, LOST
3 CONFIDENTIAL
<PAGE> 6
DATA, LOSSES CAUSED BY DELAY OR THE DOWNTIME OF ENGAGE COMPUTERS OR SERVERS, OR
LOSSES FROM INTERRUPTION, TERMINATION, OR FAILED OPERATION OF THE INTERNET OR
THIRD-PARTY TELECOMMUNICATION SERVICES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, (C) CLAIMS AGAINST THE OTHER PARTY BY ANY THIRD
PARTY EXCEPT AS PROVIDED IN SECTION 9 OR 10, OR (D) DAMAGES, INCLUDING PRODUCT
LIABILITY DAMAGES, CAUSED BY ANY NON-ENGAGE PRODUCT. THE FOREGOING LIMITATIONS
SHALL NOT APPLY TO A PARTY'S DUTY OF INDEMNIFICATION UNDER THIS AGREEMENT. THE
PARTIES RECOGNIZE THAT THE FEES HEREUNDER ARE BASED IN PART ON THE LIMITED
WARRANTY AND LIMITATION OF LIABILITY AND REMEDIES SET FORTH HEREIN.
13. CONFIDENTIALITY. Each party acknowledges that by reason of its
relationship to the other party under this Agreement it may have access to
Confidential Information. Each party agrees to maintain in confidence and use
only as expressly permitted in this Agreement all Confidential Information
received from the other, both orally and in writing, provided that the parties'
obligations of non-disclosure under this Agreement shall not apply to
Confidential Information which the receiving party can demonstrate: (i) is or
becomes a matter of public knowledge through no fault of the receiving party;
(ii) was rightfully in the receiving party's possession prior to disclosure by
the disclosing party; (iii) subsequent to disclosure, is rightfully obtained by
the receiving party from a third party in lawful possession of such
Confidential Information; (iv) is independently developed by the receiving
party without reference to Confidential Information; or (v) is required to be
disclosed by law. Each party may seek equitable relief (as well as money
damages) to protect its interests under this Section.
14. MISCELLANEOUS.
(a) ASSIGNMENT. Neither party may sublicense, assign (by operation of law
or otherwise) or otherwise transfer this Agreement or any license or any right,
duty or obligation under this Agreement to any person or entity other than a
Permitted Transferee (as defined below) without the other party's prior written
consent, and any attempt to do so shall be null and void. For purposes of this
Agreement, a "Permitted Transferee" of a party means an affiliate, a party's
successor in connection with a merger, acquisition or consolidation, or the
purchaser in connection with the sale of all or substantially all of Customer's
assets. Subject to the foregoing limitations, this Agreement will mutually
benefit and be binding upon the parties, their successors and assigns.
(b) EXPORT CONTROL. Customer acknowledges that the export of any Software
is or may be subject to export or import control and Customer agrees that any
Software or the direct or indirect product thereof will not be exported (or
re-exported from a country of installation) directly or indirectly, unless
Customer obtains all necessary licenses from the U.S. Department of Commerce or
other agency as required by law.
(c) U.S. GOVERNMENT RESTRICTED RIGHTS. Use, duplication, or disclosure of
the Software by the U.S. government is subject to the restrictions set forth in
subparagraph (C)(1)(ii) of the Rights in Technical Data and Computer Software
clause at DFARS 252.227-7013, and subparagraphs (C)(1) and (2) of the
Commercial Computer Software-Restricted Rights at 48 CFR 52.227-19, as
applicable.
(d) LICENSE SUBJECT TO LICENSOR'S RIGHTS. Customer acknowledges that
portions of the Software may have been licensed to Engage by one or more third
parties. All rights and obligations provided by Engage to Customer under this
Agreement shall be limited to the extent that such underlying rights and
obligations have been provided to Engage.
(e) INDEPENDENT CONTRACTORS. Nothing in this Agreement shall be construed
to imply a joint venture, partnership or agency relationship between the
parties; Engage shall be considered an independent contractor when performing
any services in connection with this Agreement.
(f) NOTICES. Any notice required to be provided pursuant to this
Agreement shall be in writing and shall be deemed given (a) if by hand
delivery, upon receipt thereof or (b) if mailed, three (3) days after deposit
in the U.S. mails, postage prepaid, registered or certified mail, return
receipt requested. A facsimile shall be deemed to be received upon completion
of transmission, as verified by a printout showing satisfactory transmission,
except that should a facsimile be sent on a non-business day, receipt shall be
deemed to occur on the next business day. All notices shall be addressed to the
parties at the respective addresses indicated herein. If Customer is located in
a country other than the U.S., all notices shall be sent by facsimile. Each
party shall promptly notify the other party of any address change.
(g) WAIVER. A failure or delay by either party to enforce any right under
this Agreement shall not at any time constitute a waiver of such right or any
other right, and shall not modify the rights or obligations of either party
under this Agreement. Any waiver by either party of any right under this
Agreement shall not constitute a waiver of such right in the future. All rights
and remedies evidenced hereby are in addition to and cumulative to rights and
remedies available at law or equity or otherwise available under any other
contract.
4 CONFIDENTIAL
<PAGE> 7
(h) SEVERABILITY. If any provision or portion of this Agreement is held
to be unenforceable or invalid, the remaining provisions and portions shall
nevertheless be given full force and effect, and the parties agree to
negotiate, in good faith, a substitute valid provision which most nearly
effects the parties' intent in entering this Agreement.
(i) FORCE MAJEURE. Excluding the payment of money, neither party will be
deemed in default of any obligation hereunder nor be liable for any failure or
delay in performance which results directly or indirectly from any cause beyond
its reasonable control, including without limitation, "Acts of God," delays or
failures in the Internet or related carriers and third-party equipment, acts of
civil or military authority, strikes, fire, theft, delays by suppliers, or
action or inaction by the other party or any third party.
(j) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the Commonwealth of Massachusetts, without regard to
principles or conflicts of laws. Application of the U.N. Convention of
Contracts for the International Sale of Goods is expressly excluded.
(k) ENTIRE AGREEMENT. This Agreement, including the Appendix and all
Attachments, is the entire agreement of the parties, and supersedes all prior
agreements and communications, whether oral or in writing, between the parties
with respect to the subject matter of this Agreement. Except as expressly
provided herein, no amendment or modification of this Agreement shall be
effective unless made in writing and signed by Engage and Customer. If there is
any conflict between the provisions of the General Terms and Conditions and any
Attachment, the provisions of the Attachment shall control.
(l) COMPLIANCE WITH LAW. Customer is solely responsible for ensuring that
its use of the Software and Profiles is in compliance with all foreign, federal
(including without limitation the Children's Online Privacy Protection Act),
state, local laws, regulations, as well as the guidelines of the Children's
Advertising Review Unit of the Council of Better Business Bureaus. Customer
represents and warrants to Engage that it will comply with this subsection, and
will indemnify, defend and hold harmless Engage from and against any liability,
damage or expense related to a breach or alleged breach to do so.
(m) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
5 CONFIDENTIAL
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives.
Engage Technologies, Inc.
By: /s/ STEPHEN A. ROYAL By: /s/ ALAN L. FRIEL
------------------------------ ------------------------------
Signature Signature
Stephen A. Royal Alan L. Friel
------------------------------ ------------------------------
Printed Name Printed Name
General Counsel
CFO Executive VP Operations
------------------------------ ------------------------------
Title Title
CONFIDENTIAL
<PAGE> 9
APPENDIX
DEFINITIONS
"[*]" means the software-automated process performed by [*] which results in
the insertion of an [*] into a page at a Customer Site.
"[*]" means the release (in object code form) of Engage's [*] software that is
current as of the Effective Date, any Updates thereto, and related
Documentation.
"AGREEMENT" means this License Agreement, together with the Appendix and all
Attachments designated on the Cover Page.
"APPLICABLE TIER" means the Tier selected by Customer on the Cover Page.
"AVERAGE DAILY ADS SERVED" means the total number of Ad Insertions in a given
month divided by the number of calendar days in such month.
"AVERAGE DAILY PAGE REQUESTS" means the total number of Page Requests
initiated by users visiting Customer Sites in a given month divided by the
number of calendar days in such month.
"BUSINESS OBJECTS" means the release (in object code form) of the Business
Objects Reporter and Explorer software licensed by Engage that is current as of
the Effective Date, any Updates thereto, and related Documentation.
"CONFIDENTIAL INFORMATION" means the Documentation, information about the
Software, the terms of this Agreement, and any other non-public information or
materials that, if disclosed in written form, is labeled "confidential" or, if
disclosed orally, is identified as confidential prior to disclosure and
submitted to the other party within thirty (30) days in a writing labeled
"confidential."
"COVER PAGE" means the first two pages of this Agreement.
"CUSTOMER SITE" means the collection of pages operated by or under the control
of Customer within the Domain Name(s).
"DATA" means the past, present and future compilation of "clickstream" data
generated by user activity on the web, as well as such data itself, within the
Data Repository.
"DATA REPOSITORY" means the proprietary global repository of Data compiled and
maintained by Engage.
"DOCUMENTATION" means end user materials, in any form or medium, provided by
Engage for use with the Software.
"DOMAIN NAME" means the alphanumeric phrase used by Customer to designate a
particular site on the Internet or an intranet and identified on the Cover Page.
"DOWNTIME" means the interruption or failed initiation of services caused by
the operational failure of a computer, or of a system transmitting or receiving
information from a computer.
"DSSERVER" means the release (in object code form) of Engage's
DecisionSupportServer software that is current as of the Effective Date, any
Updates thereto, and related Documentation.
"EFFECTIVE DATE" means the effective date indicated on the Cover Page.
"ENGINE" means the single processing system consisting of either a single or
multiple processor unit and its associated RAM memory and disk storage units,
regardless of platform or operating environment, on which Customer will load,
execute, and use AdManager.
"ENTERPRISE SERVER" means a computer server used by Customer to collect or
combine information form one or more Local Servers.
"GLOBAL BEHAVIOR PROFILE" means a unique record, resident in the Data
Repository, that characterizes the behavior of a web browser on the worldwide
web.
"LOCAL BEHAVIOR PROFILE" means a unique record characterizing the behavior of a
Customer Site visitor, as created by ProfileServer.
"LOCAL DECLARED PROFILE" means a unique record containing information provided
by a Customer Site visitor who has completed a registration form.
"LOCAL SERVER" means a computer server used by Customer to host one or more
Customer Sites.
"MAINTENANCE AND SUPPORT SERVICES" means the services provided to Customer by
Engage in accordance with the terms set forth in Attachment F.
"MARKETING WORKBENCH" means the release (in object code form) of the Marketing
Workbench software licensed by Engage that is current as of the Effective Date,
any Updates thereto, and related Documentation.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
APPENDIX-1 CONFIDENTIAL
<PAGE> 10
"PAGE REQUEST" means the request for part or all of a web page (including the
request for a new frame) that results from a user action such as the input of a
URL, a click on a link, a "refresh" command, or navigation. The automatic
presentation of images or content without any additional action by the user
does not constitute a Page Request.
"PERMITTED ENGINES" means the number of Engines specified on the Cover Page.
"PERMITTED ENTERPRISE SERVERS" means the number of Enterprise Servers specified
on the Cover Page.
"PERSONAL INFORMATION" means the name, phone number, mailing address, and
social security number of a person, or any other number assigned by an
organization that can be correlated with a person's personal identity.
"PROFILE" means a set of Data associated with a unique web browser, which Data
provides a demographic and/or interest description of such web browser.
"[*]" means any of the [*], [*], or [*] options, as selected by Customer on the
Cover Page, to be used in conjunction with the Software.
"[*]" means the release (in object code from) of Engage's [*] software that is
current as of the Effective Date, any Updates thereto, and related
Documentation.
"SEATS" means the maximum number of concurrent users authorized to access the
Software at a given time, as designated on the Cover Page.
"SERVICE BUREAU" means a person or entity that uses the Software to deliver a
data profile, report or other services to a third party where such person or
entity receives directly or indirectly in return anything of value.
"SOFTWARE" means one or more of the following software products, as specified
on the Cover Page: AdManager, DSServer, Business Objects, Marketing Workbench,
and ProfileServer.
"SPECIFIED CONFIGURATION" means the software products specified in Attachment
H. Engage may change the Specified Configuration as required for operation of
an Update. Any such change shall be set forth in the release notes accompanying
an Update.
"TIER" means the level of usage by Customer that corresponds to the Average
Daily Ads Served (for an AdManager license) or Average Daily Page Requests (for
a DSServer or ProfileServer license) set forth opposite such Tier in the
following table:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
AVERAGE DAILY
ADS SERVED OR PAGE REQUESTS
(FOR ALL PRODUCTS OTHER THAN PROFILESERVER WITH
TIER GLOBAL BEHAVIOR PROFILE OPTION)
- ----------------------------------------------------------------------------
<S> <C>
Lite Up to 74,999
- ----------------------------------------------------------------------------
Standard 75,000 to 749,999
- ----------------------------------------------------------------------------
Gold 750,000 to 1,999,999
- ----------------------------------------------------------------------------
Platinum 2,000,000 to 3,999,999
- ----------------------------------------------------------------------------
Platinum Plus As specified on Cover Page
- ----------------------------------------------------------------------------
</TABLE>
"UPDATE" means any update, version, release, revision, patch, bug fix or
modified form of the Software that Engage, in its sole discretion, elects to
make available at no additional charge to licensees of the Software that have
purchased Maintenance and Support Services.
"UPGRADE" means an improved and enhanced version of the Software released by
Engage subsequent to the version licensed by Customer hereunder that Engage may
make available to licensees of the Software for an additional fee.
"VISITOR DATA" means any data generated by a web browser's http requests and
posts within a Customer Site that is collected by Customer using the Software.
"WARRANTY PERIOD" has the meaning set forth in Section 11(d).
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
APPENDIX-2 CONFIDENTIAL
<PAGE> 11
ATTACHMENT A
[*]
A-1. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement,
Engage grants Customer a royalty-free, perpetual, nonexclusive, nontransferable
(except as otherwise provided in this Agreement or for temporary transfer for
the limited duration of a CPU malfunction), worldwide license to use [*] with
the [*] Option, if any, on the Permitted Engines solely for the purpose of
operating the Customer Sites, provided that the Average Daily Ads Served does
not exceed the maximum number permitted for the Applicable Tier, and provided
further that Customer may use the Profile Option solely for purposes of [*].
ACCEPTED BY: ACCEPTED BY:
Engage: Customer: ALF
--------------------- -------------------
Initials Initials
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Attachment A-1 CONFIDENTIAL
<PAGE> 12
ATTACHMENT B
[*]
B-1. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement,
Engage grants Customer a royalty-free, perpetual, nonexclusive, nontransferable
(except as otherwise provided in this Agreement or for temporary transfer for
the limited duration of a CPU malfunction), worldwide license to use (a) [*]
with the [*] Option, if any, on the Permitted Enterprise Servers, provided that
the Average Daily Page Requests does not exceed the maximum number permitted for
the Applicable Tier, and (b) Marketing Workbench and Business Objects for one
Seat plus the number of Additional Seats specified on the Cover Page, in each
solely for the purpose of operating the Customer Sites.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer: ALF
---------------------- -------------------
Initials Initials
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Attachment B-1 CONFIDENTIAL
<PAGE> 13
ATTACHMENT C
[*]
C-1. GRANT OF RIGHTS. Subject to the terms and conditions of this Agreement,
Engage grants Customer a royalty-free, perpetual, nonexclusive, nontransferable
(except as otherwise provided in this Agreement or for temporary transfer for
the limited duration of a CPU malfunction), worldwide license to use [*] with
the [*] Option, if any, on the Permitted Enterprise Servers solely for the
purpose of operating the Customer Sites, provided that the Average Daily Page
Requests does not exceed the maximum number permitted for the Applicable Tier.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer: ALF
------------------ --------------------
Initials Initials
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Attachment C-1 CONFIDENTIAL
<PAGE> 14
ATTACHMENT F
SOFTWARE MAINTENANCE AND SUPPORT SERVICES
F-1. MAINTENANCE AND SUPPORT SERVICES. Engage will provide Customer with the
Software maintenance and support services set forth in the table below at either
the Standard or Premium level as indicated on the Cover Page for the most
current release of the Software and the most current previous release of the
Software ("Maintenance and Support Services"). The Maintenance and Support
Services shall apply only the Software licensed by Customer as specified on the
Cover Page; Engage is not responsible for the configuration, maintenance or
correction of third-party software, hardware or communications facilities.
Engage shall not be obligated to provide Maintenance and Support Services if
such services are required as a result of (a) Customer's neglect or misuse of
the Software, (b) modification of the Software by a person or entity than other
than Engage without the prior written consent of Engage, (c) Customer's failure
to implement and use the Specified Configuration, or (d) any other cause beyond
the reasonable control of Engage. Engage shall not be obligated to respond to
requests for support from any person or entity other than a representative of
Customer who has attended a training session provided by Engage. Engage shall
have no liability to any third party with respect to the Maintenance and Support
Services.
F-2. UPDATES. Upon commercial release of an Update, Engage shall provide such
Update to paid-up Maintenance and Support Services Customers.
F-3. ERROR CORRECTION. Customer may call to report an "Error" in the Software
(i.e., a failure of the Software to function in material conformity with the
Documentation) during the hours specified in the table below and shall provide
Engage all information necessary for diagnosis of the Error. Engage shall
verify receipt of such requests and assign an appropriate Severity Level
classification. Depending on the classification, Engage will use commercially
reasonable efforts to either: provide a software solution or workaround;
provide an avoidance procedure; address the request in the next
revision/iteration; or discuss with Customer possible custom professional
services to resolve Customer's request. Telephone support during the hours
specified in the table below is unlimited in any given month.
F-4. TELEPHONE SUPPORT. If a support call is made outside the specified hours
and is not of Severity Level 1, Customer shall pay $125 for each such call for
the first hour (or any part of such hour). Each additional hour will be billed
at a rate of $125 per hour. Customer shall cooperate with Engage to allow the
Software to automatically communicate its status to Engage via Email.
F-5. TERM. The initial term of Maintenance and Support Services shall be one
year (the "Term") commencing on the expiration of the Warranty Period if
Customer has elected a perpetual term on the Cover Page, and commencing on the
Effective Date if Customer has elected a subscription term on the Cover Page.
Maintenance and Support Services shall automatically renew for successive Terms
unless Customer elects not to renew by providing Engage with written notice at
least thirty (30) days prior to the expiration of a Term; Engage may elect to
not renew Maintenance and Support Services only if it has discontinued the
marketing of a Software product, in which case it shall notify Customer in
writing of the date of discontinuation and make Maintenance and Support
available for such product for a period of six (6) months after the first
renewal date following the date of discontinuation. Termination or expiration
of the Maintenance and Support Services shall not affect any other term of
this Agreement. In the event that Customer elects to reinstate Maintenance and
Support Services following termination of such services by Customer, Customer
shall first pay Engage all fees that would have been paid had Customer not
cancelled such services.
F-6. PAYMENT. Fees for the initial Term of Maintenance and Support Services
shall be billed upon the Effective Date. Fees for renewal Terms shall be billed
forty-five (45) days prior to the expiration of the then-current Term.
F-7. ENGAGE PERSONNEL. In the performance of the Maintenance and Support
Services, Engage reserves the right to determine the assignment of qualified
Engage personnel, to replace or reassign such personnel and to subcontract with
qualified third persons for part or all of the services. No person performing
services on behalf of Engage hereunder shall be restricted or prevented from
performing services for others that are similar to the services provided under
this Agreement.
F-8. ON-SITE VISITS. For purposes of performing the Maintenance and Support
Services, Customer shall permit authorized Engage service engineers to inspect
periodically during normal business hours Customer's computer systems operating
the Software. If Engage is unable by remote telephone support to address an
Error, then Engage shall dispatch a software engineer to Customer's site to
address the Error. The travel and other reasonably-incurred expenses of such
on-site assistance (excluding the personnel cost) shall be borne by Customer.
Dispatch shall be within twenty four (24) hours after Engage has determined in
its reasonable discretion that telephone assistance is not sufficient. If
Customer requests an on-site software support visit and Engage reasonably
determines that the reported problem is not the responsibility of Engage,
Customer shall reimburse Engage for the cost of such personnel (at Engage's
then-current consulting rate) as well as the costs reasonably incurred by the
Engage personnel in making such visit.
Attachment F-1 CONFIDENTIAL
<PAGE> 15
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DELIVERABLE STANDARD LEVEL SUPPORT PREMIUM LEVEL SUPPORT
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Support Provided Toll-Free Phone Support during Support Hours Toll Free Phone Support during Support Hours
- ------------------------------------------------------------------------------------------------------------------------
Support Hours Monday - Friday 6 A.M. to 8 P.M. Eastern time Monday - Friday 6 A.M. to 8 P.M. Eastern time
Severity Levels 1-4 Severity Levels 1-4
24 x 7 Beeper support (only Severity 1 and 2)
- ------------------------------------------------------------------------------------------------------------------------
Staff Access to technical support staff Named Account Manager
- ------------------------------------------------------------------------------------------------------------------------
Diagnostics Remote diagnostics available Remote diagnostics available
- ------------------------------------------------------------------------------------------------------------------------
Customer Feedback Quarterly Product Enhancement Ballot Quarterly Product Enhancement Ballot
- ------------------------------------------------------------------------------------------------------------------------
Customer Quarterly Newsletter Quarterly Newsletter
Communication
- ------------------------------------------------------------------------------------------------------------------------
Web site Access to technical support web site 24 x 7 for: Access to technical support web site 24 x 7 for:
o Problem reporting and tracking via the web o Problem reporting and tracking via the web
o Web accessible knowledge base o Web accessible knowledge base
o Patches and fixes available for download o Patches and fixes available for download
o Web based books such as Release Notes, o Web based books such as Release Notes,
Installation Guides, etc. Installation Guides, etc.
- ------------------------------------------------------------------------------------------------------------------------
Proactive Support: o Proactive Patch Reporting o Proactive Patch Reporting
o Notification of known problems and fixes o Notification of known problems and fixes
o Monthly "Wellness Check" and call review o Monthly "Wellness Check" and call review
o O/S upgrade impact planning o O/S upgrade impact planning
o Site scans on primary URL address o Site scans on up to 15 URL address
o Quarterly review of operations
o One site visit by a support rep at least
once per year.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Severity Levels Defined:
Severity 1 - Critical Business Impact. The Service or Software, regardless of
the environment or product usage, has
complete loss of service or resources
for which no workaround exists and
Customer's work cannot reasonably
continue.
Severity 2 - Serious Business Impact. The Service or Software, regardless of
the environment or product usage is
causing significant or degraded loss
of Customer's service or resources. A
major product flaw with a workaround,
or a minor product flaw without a
workaround.
Severity 3 - Minor Business Impact. The Service or Software, regardless of
the environment or product usage, has
minor loss of Customer's service or
resources. A minor product flaw with a
workaround.
Severity 4 - No Business Impact. The Service or Software is in full
working mode; Customer's work is not
being impeded at this time.
Information is requested or reported.
A minor irritant.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer: ALF
-------------- ----------
Initials
Attachment F-2 CONFIDENTIAL
<PAGE> 16
ATTACHMENT G
OTHER SERVICES
G-1. INSTALLATION
Engage will provide the number of days indicated below of on-site service
with the purchase of either a Perpetual or Subscription license for the
Software as specified by Customer on the Cover Page. Customer shall reimburse
Engage travel costs and expenses in accordance with Engage's expense policy.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
ADMANAGER DOMESTIC ON-SITE
DSSERVER DAYS OF SERVICE INTERNATIONAL ON-SITE
PROFILESERVER PROVIDED DAYS OF SERVICE PROVIDED
-----------------------------------------------------------------------
<S> <C> <C>
Lite 2 4
-----------------------------------------------------------------------
Standard 2 4
-----------------------------------------------------------------------
Gold 4 6
-----------------------------------------------------------------------
Platinum 4 6
-----------------------------------------------------------------------
</TABLE>
G-2. TRAINING.
a. Public Class. From time to time, Engage in its discretion may offer a
two-day training class for one or more Software products. Engage shall notify
Customer of the times and locations of such classes. The cost of attendance is
[*] per person, and Customer is responsible for all travel and living expenses.
The size of each class is limited; accordingly, admission is on a first-come
first served basis.
b. On Site. If customer has elected on-site training on the Cover Page,
Engage shall provide a two-day training for the Software product specified by
Customer at a location specified by Customer. The cost of such attendance is as
follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
NUMBER OF COST
ATTENDEES
-----------------------------------------------------------------
<S> <C>
1-3 [*]
-----------------------------------------------------------------
4-7 [*]
-----------------------------------------------------------------
7-12 [*]
-----------------------------------------------------------------
</TABLE>
In addition, Customer shall reimburse Engage training personnel for travel and
living expenses in accordance with Engage's expense policy.
G-3. CONSULTING SERVICES.
a. Statement of Services.
1. Scope of Work. Subject to the following terms and conditions,
Engage shall provide Customer with consulting services ("Consulting Services"),
if elected by Customer on the Cover Page, in accordance with the written work
order(s) agreed to by the parties (each a "Work Order"). Attached hereto as
Schedule A is the first such Work Order. Each additional Work Order shall set
forth the respective obligations of the parties and parameters of the project in
a fashion substantially similar to Schedule A. Upon execution by an authorized
representative of each of Engage and Customer, a Work Order shall be deemed
fully incorporated herein by reference. In the event of any conflict between
this Section G-3 and any Work Order, this Section G-3 shall control; in the
event of any conflict between two or more Work Orders, the most recently
executed Work Order shall control.
2. Estimated Completion Dates. Each Work Order may specify an
estimated completion date for completion of the Consulting Services and Engage
shall exercise commercially reasonable efforts to complete the Consulting
Services on or before such date. At Customer's request, Engage shall use
reasonable efforts to estimate such a due date based on Engage's then-current
understanding of the requirements involved in performing the Consulting
Services. Any such estimated completion date is made for project planning
purposes only and is not a guarantee; Engage may revise an estimated completion
date at any time should events beyond Engage's control or the assumptions upon
which Engage relied in calculating its initial estimate change the scope or
magnitude of the Consulting Services.
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Attachment G-1 CONFIDENTIAL
<PAGE> 17
b. Duties of Engage. The Consulting Services shall be performed in a
workmanlike and professional manner by personnel assigned by Engage having a
level of skill in the area commensurate with the requirements of the Consulting
Services to be performed. Engage alone shall control the manner, means and
method by which Engage performs the Consulting Services. Engage shall designate
a project manager who shall have the primary responsibility and authority for
Engage's performance under this Agreement. Engage shall have sole responsibility
for payment of compensation to its personnel. Engage shall have the right to
qualified engage contractors, temporary employees, consultants, vendors, and
suppliers at its discretion to assist in delivering or performing the
Consulting Services. In such event, any such individuals or entities shall be
subject to confidentiality provisions consistent with those set forth in the
Agreement, and Engage shall remain primarily liable to Customer for the
performance of Engage's obligations hereunder.
c. Duties of Customer. Customer shall fully cooperate with and assist
Engage in the performance of the Consulting Services and shall undertake the
responsibilities specified in this Section G-3 and any additional
responsibilities specified in a Work Order at its own expense. Customer shall
appoint a qualified project manager who shall be authorized to make binding
decisions for Customer regarding this Agreement, and who shall review all
specifications, technical materials and other documents submitted by Engage,
request necessary corrections, and approve such documents; provide to Engage
requested Customer information and data and assume responsibility for the
accuracy of the same; advise Engage of Customer's requirements; and upon
request, provide access to Customer's staff, facilities and hardware and
software as necessary for Engage to perform the Consulting Services.
d. Dependencies on Customer. Engage shall have no liability to Customer
for Customer's damages, expenses or costs from delays or failures in Engage's
performance of the Consulting Services under this Agreement resulting from
Customer "change orders" (i.e., work not specified in the Work Order), failure
of Customer to perform its responsibilities, or failure of Customer to provide
accurate and complete data and instructions in accordance with the procedures
set forth in a Work Order. Any such Customer changes or delays in performance by
Customer may result in a reasonable corresponding extension in the time periods
for performance by Engage and/or adjustment to the fees specified in the Work
Order. Engage's sole liability to Customer or to any third party for claims,
regardless of the form of such claims (e.g., contract, negligence, or other),
arising out of any delay in the performance of the Consulting Services for any
reason shall be to use commercially reasonable efforts to provide the Consulting
Services as promptly as reasonably practicable thereafter.
e. Compensation. Unless otherwise specified in a Work Order, the
Consulting Services shall be rendered on a time and materials basis at the rate
stated in each Work Order. In addition, Customer shall reimburse Engage for
out-of-pocket expenses incurred in connection with the Consulting Services in
accordance with Engage's reasonable expense policy. Estimates of total fees for
projects may be provided in a Work Order solely for project planning purposes.
Unless otherwise stated in a specific Work Order, Engage does not guarantee
such estimates. Engage shall, however, notify Customer if it becomes aware that
its completion of the Consulting Services will exceed the estimate, and
Customer may then terminate the Work Order and pay only for the Consulting
Services actually rendered.
f. Term and Termination. The Consulting Services shall become effective
on the Effective Date and shall continue in effect through the earlier of (a)
completion of all Consulting Services to be rendered under this Section G-3,
(b) termination of the Agreement, or (c) termination of Consulting Services by
either party as permitted below. Either party may terminate the Consulting
Services generally or the applicable Work Order in the event that the other
party materially breaches a provision of this Section G-3 and fails to cure
such breach within thirty (30) days of receiving written notice of such breach
from the other party. Termination of the Consulting Services shall terminate
all Work Orders but shall not affect any other provision of the Agreement;
termination of a Work Order shall not affect any provision of this Section G-3
or of the Agreement. Customer may terminate a Work Order at any time by giving
Engage no less than sixty (60) days prior written notice.
g. Proprietary Rights.
1. Engage Ownership; Customer License. Except as provided in
Section G-3(g)(2) below, the Consulting Services and related documentation,
together with all other data and materials, all software codes, trade secrets,
design concepts, discoveries, ideas, enhancements, improvements and inventions
related thereto ("Proprietary Information") supplied by Engage to Customer
pursuant to this Agreement: (i) are the exclusive property of Engage and shall
remain so; and (ii) are confidential and proprietary trade secrets of Engage,
protected by law, and of substantial value to Engage, and may not be used or
disclosed without the written consent of Engage. Customer shall retain in
strict confidence the Proprietary Information, shall not disclose the
Proprietary Information to others, and may use the Proprietary Information
solely in connection with this Agreement. The Consulting Services shall only be
used by Customer for the purposes set forth in this Agreement. Engage hereby
grants Customer a license, under the same terms and conditions in the Agreement
governing the Software to which the Consulting Services pertain, to use the
elements of the work product identified expressly on the applicable Work Order
("Licensed Materials"). If the Licensed Materials consist of computer code,
Engage hereby grants Customer a royalty-free, perpetual license to use the
source code form of the Licensed Materials solely for purposes of performing
error correction, modifications and enhancements subject to the other terms and
conditions of this Agreement.
Attachment G-2 CONFIDENTIAL
<PAGE> 18
2. Customer Ownership. In the event that Proprietary Information,
in whole or in part, is not included in the base form of any Engage product or
service and will not be so included in the future in the sole judgment
of Engage, the applicable Work Order shall indicate that the Proprietary
Information shall be owned by Customer; provided, however, that as between
Engage and Customer, Engage shall own all pre-existing and pre-owned elements
of the Proprietary Information and shall have the right to commercialize any
such materials for any purpose. All Proprietary Information that is not
identified expressly in a Work Order as owned by Customer shall be owned by
Engage.
h. Support. For a period of thirty (30) days following delivery of the
work product under a Work Order, Engage will use commercially reasonable
efforts to address Severity Level 1 and 2 Errors (as defined in Attachment F,
Section F-3). Customer shall be solely responsible for maintenance and support
of the work product in all other respects; Maintenance and Support Services do
not apply to work product delivered to Customer under this Section G-3.
Notwithstanding the foregoing, upon the request of Customer Engage (or its
designee) shall provide commercially reasonably maintenance and support for the
work product on commercially reasonable terms.
ACCEPTED BY: ACCEPTED BY:
Engage: Customer: ALF
----------------- -----------------
Initials Initials
Attachment G-3 CONFIDENTIAL
<PAGE> 19
SCHEDULE A
WORK ORDER FOR CONSULTING SERVICES
This Work Order sets forth certain terms and conditions regarding the
performance of Consulting Services by Engage and shall be incorporated by
reference into Section G-3 of the Agreement between Engage and Customer
("Agreement"). Capitalized terms used but not defined herein shall have the
meaning set forth in the Agreement. The parties acknowledge and agree that the
terms and conditions of the Agreement fully apply to the Consulting Services
and to this Work Order, and that each party has reviewed such terms and
conditions and agrees to be bound thereby.
1. Services to be Provided by Engage:
Commercially reasonable integration of Engage products and Vignette
products, including but not limited to user registration and dynamic generation
of content based on user profile. The parties may mutually agree upon a more
detailed description of the services to be provided by Engage within 30 days of
the Effective Date.
2. Ownership of Work Product (if owned by Engage, indicate materials licensed
to Customer):
Owned by Engage. All deliverables licensed to Customer.
3. Milestones/Dates and Estimated Completion Date:
To be mutually determined by the parties within 30 days of the Effective
Date.
4. Commencement Date of Consulting Services:
Within 30 days of the Effective Date.
5. Consulting Services Site(s):
Appropriate sites for commercially reasonable completion of services.
6. Compensation:
[*] (flat fee not based on time and materials; not merely an estimate).
7. Customer Responsibilities:
To be mutually agreed upon by the parties within 30 days of the Effective
Date.
IN WITNESS WHEREOF, the parties have caused this Work Order to be executed
by their respective duly authorized officers and attached to the Agreement this
31st day of March 1999.
Engage Technologies, Inc. Customer:
By: By: /s/ ALAN L. FRIEL
--------------------------- ----------------------------------------
Signature Signature
ALAN L. FRIEL
--------------------------- ----------------------------------------
Printed Name Printed Name
General Counsel Executive VP Operations
--------------------------- ----------------------------------------
Title Title
Engage project manager: to be determined.
Customer Project Manager:
------------------
Telephone:
---------------------------------
Fax:
---------------------------------------
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Attachment G-4
<PAGE> 20
ATTACHMENT H
SPECIFIED CONFIGURATION
[*]
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------
[*] [*]
- ---------------------------------------------------------------------------------------
[*] [*]
- ---------------------------------------------------------------------------------------
</TABLE>
[*]
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------
Operating System/Clients [*]
- ---------------------------------------------------------------------------------------
Web Server Plug-Ins [*]
- ---------------------------------------------------------------------------------------
Client Libraries [*]
- ---------------------------------------------------------------------------------------
Databases [*]
- ---------------------------------------------------------------------------------------
</TABLE>
ACCEPTED BY: ACCEPTED BY:
ENGAGE: _________ CUSTOMER: _________
Initials Initials
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
Attachment H-1 CONFIDENTIAL
<PAGE> 21
email:____________________________________________
Billing Information (if different from Cover Page):_____________________________
Attachment G-5 CONFIDENTIAL
<PAGE> 22
[ORACLE LOGO]
QUOTE
Quote #: 272692
Page: 1 of 2
Effective Date: 20-FEB-99
Customer: DIGITAL ENTERTAINMENT
Location: 2230 Broadway
SANTA MONICA, CA 90404
Contact: RICHARD MARKLE
Phone: 310-998-9200
Fax:
End User: DIGITAL ENTERTAINMENT
2230 BROADWAY
SANTA MONICA, CA 90404
Contact: RICHARD MARKLE
================================================================================
ORACLE CONTRACT INFORMATION
[ ] Agreement Effective Date:
DESIGNATED SYSTEM
Make/Model: [*] Media Type: CD
Operating System: [*] CSI Number:
<TABLE>
<CAPTION>
Qty License Quantity &
shipped Level Programs License Type List Each Disc. Extended Net
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 Full Use Change Management Pack [*] CONCURRENT [*] [*] [*]
USERS
1 Full Use Change Management Pack [*] PROCESSORS [*] [*] [*]
1 Full Use Diagnostics Pack [*] CONCURRENT [*] [*] [*]
USERS
1 Full Use Diagnostics Pack [*] PROCESSORS [*] [*] [*]
1 Full Use [*] [*] CONCURRENT [*] [*] [*]
USERS
1 Full Use [*] [*] PROCESSORS [*] [*] [*]
1 Full Use [*] [*] CONCURRENT [*] [*] [*]
USERS
1 Full Use Tuning Pack [*] PROCESSORS [*] [*] [*]
1 Full Use Tuning Pack [*] CONCURRENT [*] [*] [*]
USERS
1 Web Specific [*] [*] PROCESSORS [*] [*] [*]
----------
Sub Total [*]
Initial 1 Year [*] Annual Technical Support [*] [*] [*]
Total License Fee Due: [*]
Total Technical Support Fee Due: [*]
Total Additional Fees Due: [*]
=========================
Total Fees Due: [*]
</TABLE>
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
<PAGE> 23
[ORACLE LOGO] QUOTE Quote #: 272692
Page: 2 of 2
Effective Date: 20-FEB-99
Customer DIGITAL ENTERTAINMENT
Oracle shall deliver to the Customer Location, for use in the United States,
the number of copies specified above of the software media and Documentation
(CD-ROM or bound, whichever is generally available) ("Master Copy") for each
Program currently available in production release as of the Effective Date for
use on the Designated Systems. Customer shall have the right to make up to 1
copy of the Program(s), including Documentation, for each license of the
Program(s) and Customer shall be responsible for installation of the software.
All fees due under this Order Form shall be due and payable net 30 days from
date of invoice, and shall be noncancelable and the sums paid nonrefundable.
Customer agrees to pay applicable sales/use tax, media and shipping charges.
The following shipping terms shall apply: FOB Destination, Prepaid and Add.
These terms shall also apply to any options exercised by Customer. If Customer
loses or damages the media containing a Program licensed hereunder, upon
Customer's written notice Oracle will provide a replacement copy thereof, under
Oracle's then-current Technical Support policies, for a media and shipping
charge.
TECHNICAL SUPPORT
Annual Technical Support services ordered by Customer will be provided under
Oracle's Technical Support policies and pricing in effect on the date Technical
Support is ordered and shall be effective upon shipment (or upon Order Form
Effective Date for products not requiring shipment); first year Technical
Support is quoted above, if ordered. Fees for Technical Support are due and
payable annually in advance.
Thank you for your interest in Oracle. If you have any questions please
contact Jennifer Mackler, your Oracle Sales Representative, at (650)
506-7000.
Customer and Oracle agree that the terms and pricing of this Quote shall
not be disclosed without prior written consent of the other party.
This Quote is valid through March 31, 1999 and shall become binding upon
execution by Customer and acceptance by Oracle.
This Quote includes the Price List Definitions attachment.
<PAGE> 24
[ORACLE LOGO]
PRICE LIST DEFINITIONS
"Concurrent Devices" (or "Concur Dev"): is the maximum number of input devices
accessing the Programs at any given point in time. If multiplexing software or
hardware (e.g. a TP monitor, webserver product) is used, this number must be
measured at the multiplexing front-end.
"Named User" (or "Named") or "Developer": is defined as an individual who is
authorized by Customer to use the Oracle Programs, regardless of whether the
individual is actively using Programs at any given time.
"Casual User" is defined as an individual authorized by the Customer to only
run queries or reports against Oracle Applications Programs. Casual Users are
licensed to use any of the above Oracle Applications Programs for which
Customer has acquired Named User licenses.
"Primary Usage" is defined as each licensed user being counted only once as a
designated Named or Casual User of the Oracle Application he will use most.
However, a licensed Named or Casual User may access all Oracle Applications
licensed under the Agreement which have been licensed under the same licensing
methodology, regardless of the designated Oracle Application of primary use.
"Mailbox" is defined as a point from which to send or receive electronic mail.
It is created when a user account or application is created in Oracle Office.
"Computer": licensed for use on a single specified computer.
"Processor": shall be defined as the actual number of processors installed in
the licensed Computer and running the Oracle Programs, regardless of the number
of processors which the Computer is capable of running.
"Client": a computer which (1) is used by only one person at a time, and (2)
executes Oracle software in local memory or stores the software on a local
storage device.
"Full Use Programs" are unaltered versions of the Programs with all functions
intact.
"Deployment Programs" may be used only to execute existing applications or
reports. They may not be used to build or modify reports or applications.
Deployment Programs are to be generated by Customer from Full Use Programs.
"Application Specific Programs" (or "App Specific"): shall mean Programs which
are limited to use solely for Customer's application software defined on the
Order Form. Application Specific Programs are to be generated by Customer from
Full Use programs.
"Web Specific Program(s)" (or "Web Specific"): shall mean Program licenses
which may only be accessed by Clients via Internet networking protocols.
Notwithstanding any use restrictions in the Agreement or Oracle Program License
Terms, Customer's applications may only allow third party web access to a
licensed Web Specific Program for viewing, querying, or adding data only, so
long as such use is in accordance with the other terms of the Agreement.
For Oracle Human Resources and Oracle Training Administration, "Employee" is
defined as an individual who is actively managed by the Programs. The term
"Employee" includes, without limitation, Customer employees, contractors,
retirees, and COBRA dependents.
For Oracle Payroll, "Employee" is defined as an individual whose payment or
payment calculations, are generated by the Programs. The term "Employee"
includes, without limitation, Customer employees, contractors, retirees, and
employees covered by workers compensation laws or regulations.
For Oracle Time Management, "Employee" is defined as an individual who submits
timecards or other time records for payroll processing.
For Oracle Self-Service Human Resources, Oracle Self-Service Purchasing, and
Oracle Self-Service Expenses, "Employee" is defined as an active employee of
Customer.
"Foundation Services": This is limited support, and any license for which it is
purchased is not a Supported Program License.
An "Education Unit" entitles Customer to acquire education products and
services as specified in the Oracle Education catalogue in effect at the time
an Education Unit is utilized. Education Units are only valid for 12 months
from the Effective Date of the Order or as specifically stated in the
applicable Order. Education Units may only be used in the country where the
Education Units were acquired or within the Territory defined in the applicable
Order. Customer may be required to execute standard Oracle ordering materials
in conjunction with utilizing Education Units.
"Organizational Change Management Services" are services for assisting
Customers in managing change in their organizations. Customer's discounts for
consulting or training do not apply to such Organizational Change Management
Services.
A "Suite" consists of all of the functional software components described in
the Documentation.
"Module": shall mean a functional software component of a Suite or bundle.
<PAGE> 25
ATTACHMENT
to
QUOTE #272692
between
DIGITAL ENTERTAINMENT
and
ORACLE CORPORATION
Notwithstanding anything to the contrary on the Quote specified above, the
following changes are made to this Order Form as of its Effective Date.
1. Payment. The Customer's payment obligations to Oracle under this Order
Form as of the Effective Date shall be satisfied by Engage Technologies
("Payor") as authorized pursuant to a distribution agreement executed between
Payor and Oracle ("Payor Agreement"). Oracle shall receive payments directly
from Payor under the terms of the Payor Agreement. This payment obligation is
noncancelable and the sum paid is nonrefundable. The financial obligations of
Customer to Payor shall be specified in a separate agreement. Licenses that are
modified or added to this Order Form after the Effective Date shall be at terms
and fees as determined when such licenses are acquired. Applicable sales tax
shall be charged to Payor based on the point of delivery of the Master Copy and
paid under the terms of the Payor Agreement. Payor is responsible for payment
of any use or other tax arising from use of the Programs in any other location.
________________________________________________________________________________
Customer and Oracle agree that the terms in this Order Form shall not be
disclosed without prior written consent of the other party. This quote is valid
through _________ and shall become binding upon execution by Customer and
acceptance by Oracle.
DIGITAL ENTERTAINMENT ENGAGE TECHNOLOGIES
Signature: /s/ ALAN L. FRIEL Signature:
------------------------- -------------------------
Name: Alan L. Friel Name:
------------------------------ ------------------------------
General Counsel
Title: Executive VP Operations Title:
----------------------------- -----------------------------
ORACLE CORPORATION
Signature:
-------------------------
Name:
------------------------------
Title:
-----------------------------
Effective Date:
--------------------
________________________________________________________________________________
<PAGE> 26
ATTACHMENT ONE
to the
QUOTE #272692
between
DIGITAL ENTERTAINMENT
and
ORACLE CORPORATION
This document ("Attachment One") amends Quote #272692, dated March 24, 1999,
and all amendments and addenda thereto (the "Quote #272692") between Digital
Entertainment ("Customer") and Oracle Corporation ("Oracle"). The parties
hereby agree to amend the Quote as follows:
1. With respect to each of the Program licenses ordered under Quote
#272692, Customer shall have the right to install and use such
Programs on a backup computer of the same make and model as the
Designated System for the purpose of temporary disaster recovery and
testing. Customer shall have the right to maintain a "hot" or "live"
copy of the Programs on such backup computer at all times for
immediate production use only in the case of a primary computer
malfunction that renders the Programs inoperable on the applicable
Designated System. At no time shall Customer have the right to use the
Programs on the Designated System and the backup computer
simultaneously.
Subject to the modifications herein, the Order Form shall remain in full force
and effect.
The Effective Date of this Attachment One is
---------------------.
DIGITAL ENTERTAINMENT ORACLE CORPORATION
By: /s/ ALAN L. FRIEL By:
-------------------------- -------------------------
Name: Alan L. Friel
-------------------------- Name:-----------------------
General Counsel
Title: Executive VP Operations Title:
------------------------- ----------------------
<PAGE> 1
EXHIBIT 10.45
STORYSERVER(TM) SOFTWARE SCHEDULE
LICENSE SCHEDULE. This Schedule supplements and amends the Corporate Master
Agreement or the End User License Agreement, as applicable (the "Agreement"),
by and between Vignette Corporation ("Vignette") and the party identified
below ("Client") to license the Software and purchase the services specified
herein and to incorporate the additional terms set forth below. If the parties
have not entered into a Corporate Master Agreement, the terms of Vignette's
standard End User License Agreement shall apply to the license below. All of
the terms and conditions of the relevant Agreement shall continue in full force
and effect except as supplemented and/or amended by the terms of this Schedule.
Client: Digital Entertainment Network, Inc.
Shipping Address:
2230 Broadway, Santa Monica, CA 90404
Attn: Peter Luttrell 310-998-9200
Billing Address:
Same
1. LICENSES PURCHASED:
By executing this License Schedule, Client agrees to purchase and pay for the
following licenses:
<TABLE>
<CAPTION>
Product Product Code Product Description Fee Qty. Total
- ------- ------------ ------------------- ---- ---- -----
<S> <C> <C> <C> <C> <C>
[*] [*] Fee for use of one copy of [*] [*] [*] [*]
[*] software with a [*] server
Server License
[*] [*] Fee for use of one copy of [*] [*] [*] [*]
[*] [*] software for [*] does not depend
Server License on type of hardware used.
[*] [*] License allows serving of up to [*] [*] [*]
License [*] [*] in a calendar day.
[*] [*] Allows [*] to use the [*] functions [*] [*] [*]
[*]
License
</TABLE>
<TABLE>
<S> <C>
LICENSE FEE SUBTOTAL: [*]
DISCOUNT* [*]
DISCOUNT: [*] [*]
TOTAL LICENSE FEES DUE UNDER THIS SCHEDULE: [*]
</TABLE>
*In consideration of this discount, Client agrees to reduce the number of
[*] permitted under the [*] License listed above to [*] instead of the
listed [*].
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
1
<PAGE> 2
2. SERVICES PURCHASED.
By executing this License Schedule, Client agrees to purchase the services
listed below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
PRODUCT PRODUCT CODE PRODUCT DESCRIPTION FEE QTY TOTAL
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
UPDATES AND [*] Includes web-based electronic [*] of list [*] [*]
WEB-BASED technical support and all product price
SUPPORT* Updates for one year from date of
delivery of Software.
PHONE SUPPORT* [*] Allows one named user telephone- [*] [*] [*]
based support for the licenses
purchased under this Schedule, Monday
through Friday, [*] hours per day.
Requires SS-SM to be purchased as
well.
TRAINING [*] Developing StoryServer Software [*] [*] [*]
Content Delivery Applications -- per
person -- 2 days
TRAINING [*] Developing StoryServer Software [*] [*] [*]
Content Management Applications --
per person -- 2 days
- --------------------------------------------------------------------------------------------------------------
</TABLE>
MAINTENANCE AND OTHER FEES DUE UNDER THIS SCHEDULE [*]
Annual Maintenance fees are equal to [*] of the then-current list price for all
licenses listed above.
TOTAL FEES DUE UNDER THIS SCHEDULE: [*]
3. Functional Area Restrictions. The Software is comprised of three primary
functional areas: [*]. Each functional area is separately licensed by [*], and
Client may use only the functionality that Client has specifically licensed and
for which Client has paid the license fees as agreed.
a. [*] License. A [*] is a server used to [*]. A [*] License grants
Client the right to use the Software in [*] only to [*] based on the Software's
templates and content wholly controlled by Client to be published through
Client's [*] Server for one or more Internet, intranet or extranet sites wholly
owned and controlled by Client. A [*] License does not grant Client the right to
use the Software for [*] and/or [*] or to use the other functions of the
Software.
b. [*] License. A [*] Server is a server that is not used to [*], but is
used for [*] purposes. A [*] Server License grant Client the right to use the
Software only to [*] based on the Software's templates and content wholly
controlled by Client. However, the [*] License does not grant Client the right
to [*] through Client's [*] for any Internet, intranet or extranet sites. In
addition, in order to use the features and functions of the [*] license, Client
must purchase a [*].
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
2
<PAGE> 3
c. [*] License. A [*] License grants Client the right to permit the
maximum number of authorized users specified on the applicable Schedule to
create or modify templates for use with the Software. This license does not
permit Client to use any functions of the Software other than the [*] functions.
4. Server Type Restrictions. The Software also is licensed by server type. If
the price schedule above specifies a particular server type (Entry Level,
Departmental or Enterprise), Client is restricted to using the Software on the
server types specified, as they are defined in [*] then-current Server Type List
(available on request).
5. Page View Restrictions:
a. The Software also is licensed with Page View restrictions. If Page
View limits are included in the license terms specified above, Client may use
the relevant license(s) only within the bounds of the Page Views specified (the
Allowable Page Views) for such license. The license granted allows serving of up
to the Allowable Page Views per day across all servers on which a copy of [*]
software licensed with a page view restriction is installed. The highest number
of page views purchased with this or any prior or subsequent license will govern
all licenses purchased with Page View restrictions.
b. Client shall monitor its Page Views on each of its servers each
calendar day. If Client exceeds the specified Page Views for all [*]
software-served sites, Client shall notify Vignette of such fact in writing
within 10 calendar days. By exceeding the Allowable Page Views in any defined
time limit for any particular license. Client shall, as of the date such
Allowable Page Views were exceeded, be deemed to have purchased a Page View
License Extension for such license and shall be obligated to pay for such Page
View License Extension. (A Page View License Extension is a license to serve the
number of Allowable Page Views for the appropriate increment of Allowable Page
Views specified above.) Unless otherwise specified, such purchase of a Page View
License Extension shall be at Vignette's then-current list price for such
License Extensions.
c. A "Page View" is defined as a Request (via HTTP GET, HTTP POST or
successor methods) for an Object of mime-type text or html. A "Request" is a
message sent over TCP/IP using the HTTP (or successor) protocol to ask for
delivery of an Object from a web server. An "Object" is any element on a web
server's file system that can be Requested.
6. Unless otherwise specified, terms defined in this Schedule apply
throughout this Agreement. All applicable license terms and restrictions
specified above are cumulative and apply to all applicable licenses purchased
pursuant to this Schedule unless otherwise specified. If a fixed fee for
Maintenance is specified above, Vignette may raise such fixed fee by no more
than [*] per year for the duration of Maintenance service. Client shall have
the right to discontinue all or part of the Maintenance service after the
initial one-year term.
7. Client shall place the Vignette "Powered by Vignette" or similar type of
logo ("Logo") and hot link provided by Vignette in the credits section of
relevant video streams or technology partner page or page(s), the size,
placement and prominence of which shall be negotiated in good faith within 90
days of execution of this Schedule and shall be subject to the trademark
license terms contained in the Corporate Master Agreement to be negotiated
between the parties.
8. Other Special Terms and Conditions:
a. The pricing and other consideration reflected in this Schedule are
contingent upon Client's execution of this Schedule by 6:00pm Central Time on
March 22, 1999.
b. Client agrees to participate in preparing and releasing a joint press
release with Vignette describing Client's decision to use the Software within
30 days after execution of this Schedule. Client further agrees to participate
in preparing and releasing a joint press
* Certain information on this page has been omitted and filed separately with
the Commission. Confidential treatment has been requested with respect to the
omitted portions.
3
<PAGE> 4
release with Vignette describing Client's use and application of the
Software within 15 days after the "live" launch of major portions of
Client's Internet, intranet and extranet sites for which the Software
is used. Neither party shall issue a release or make a public
statement regarding the foregoing until an initial press release is
mutually approved.
c. Vignette shall invoice Client for the fees and other charges due
hereunder 30 days after execution of this Schedule. Client shall pay
all fees and other charges due under this Schedule within 30 days
after receipt of Vignette's applicable invoice.
d. Vignette and Client agree to negotiate in good faith the terms of a
Corporate Master Agreement.
Agreed to by:
VIGNETTE CORPORATION CLIENT
By [Signature Illegible] By /s/ ALAN L. FRIEL
--------------------------------- ---------------------------------
(Signature) (Signature)
Alan L. Friel
- ------------------------------------ ------------------------------------
(Name Typed or Printed) (Name Typed or Printed)
General Counsel
Legal Counsel Executive VP Operations
- ------------------------------------ ------------------------------------
(Title) (Title)
3/22/99 3/21/99
- ------------------------------------ ------------------------------------
(Date) (Date)
4
<PAGE> 1
EXHIBIT 10.46
[CISCO SYSTEMS LOGO]
Master Lease No. 2352
================================================================================
THIS MASTER AGREEMENT TO LEASE EQUIPMENT (this "AGREEMENT") is entered
into as of APRIL 8, 1999 by and between CISCO SYSTEMS CAPITAL CORPORATION
("LESSOR"), having its principal place of business at 170 West Tasman Drive,
San Jose, California 95134 and DIGITAL ENTERTAINMENT NETWORK, INC., a Delaware
Corporation ("LESSEE"), having a principal place of business at 2400 Broadway,
Suite 230, Santa Monica, CA 90404.
================================================================================
1.1 LEASE OF EQUIPMENT. In accordance with the terms and conditions of
this Agreement, Lessor shall lease to Lessee, and Lessee shall lease from
Lessor, the personal property, including all substitutions, replacements,
repairs, parts and attachments, improvements and accessions thereto and therein
(the "EQUIPMENT"), described in the lease schedule(s) (each, a "LEASE") to be
entered into from time to time into which this Agreement is incorporated. Each
Lease shall constitute a separate, distinct, and independent lease and
contractual obligation of Lessee. Lessor or its assignee shall at all times
retain the full legal title to the Equipment, it being expressly agreed by both
parties that each Lease is an agreement of lease only.
1.2 TERM OF LEASE. The original term (the "ORIGINAL TERM") of the
Equipment shall commence on the Commencement Date and, subject to Sections 3.3
and 3.5 below, shall terminate on the date specified in the Lease.
Notwithstanding the foregoing, the Original Term for the Equipment shall
automatically extend for successive 30-day periods after its expiration (each,
an "EXTENDED TERM") unless either party gives the other party written notice,
at least thirty (30) days prior to the expiration of the Original Term or any
Extended Term, as the case may be, of its intent not to so extend the
applicable Lease. Except as specifically provided in this Section 1.2, no Lease
may be terminated by Lessor or Lessee, for any reason whatsoever, prior to the
end of the Original Term or any Extended Term (collectively, the "LEASE TERM").
Notwithstanding any provision to the contrary contained in this Agreement,
Lessee shall be deemed to accept the Equipment on the Commencement Date (as
specified in each Lease).
1.3 RENTAL PAYMENTS. Lessee shall pay Lessor rent ("RENT") for the
Equipment in the amounts and at the times specified in the Lease. All Rent and
other amounts payable by Lessee to Lessor hereunder shall be paid to Lessor at
the address specified above, or at such other place as Lessor may designate in
writing to Lessee from time to time.
1.
<PAGE> 2
1.4 RETURN OF EQUIPMENT. Upon expiration of the Lease Term of the
Equipment, Lessee shall immediately return the Equipment to Lessor as provided
in Section 3.3 below. If Lessee fails to return any of the Equipment upon
demand therefor by Lessor, Lessee shall pay Lessor, as the measure of Lessor's
damages, the Casualty Value (as defined in the applicable Lease) of such
Equipment.
II. DISCLAIMERS AND WARRANTIES; INTELLECTUAL PROPERTY
2.1 DISCLAIMERS; WARRANTIES. Lessee represents and acknowledges that the
Equipment is of a size, design, capacity and manufacture selected by it, and
that it is satisfied that the Equipment is suitable for its purposes. LESSOR
LEASES THE EQUIPMENT AS IS, AND, NOT BEING THE MANUFACTURER OF THE EQUIPMENT,
THE MANUFACTURER'S AGENT OR THE SELLER'S AGENT, MAKES NO WARRANTY OR
REPRESENTATION, EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, FITNESS
FOR ANY PARTICULAR PURPOSE, DESIGN OR CONDITION OF THE EQUIPMENT, LESSOR SHALL
NOT BE RESPONSIBLE FOR ANY LOSS OR DAMAGE RESULTING FROM THE INSTALLATION,
OPERATION OR OTHER USE, OR DEINSTALLATION OF THE EQUIPMENT, INCLUDING, WITHOUT
LIMITATION, ANY DIRECT, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGE OR LOSS.
Lessee shall look solely to the manufacturer or the supplier of the Equipment
for correction of any problems that may arise with respect thereto, and,
provided no Event of Default (as defined in Section 4.1) has occurred and is
continuing, all warranties made by the manufacturer or such supplier are, to the
degree possible, hereby assigned to Lessee for the Lease Term. To the extent any
such warranty requires performance of any kind by the beneficiary of the
warranty, Lessee shall perform in accordance therewith.
2.2 INTELLECTUAL PROPERTY. Except as otherwise expressly provided in
each Lease, LESSOR MAKES NO WARRANTIES OR REPRESENTATIONS WHATSOEVER WITH
RESPECT TO THE INTELLECTUAL PROPERTY RIGHTS, INCLUDING, WITHOUT LIMITATION, ANY
PATENT, COPYRIGHT AND TRADEMARK RIGHTS, OF ANY THIRD PARTY WITH RESPECT TO THE
EQUIPMENT, WHETHER RELATING TO INFRINGEMENT OR OTHERWISE. Lessor shall, when
requested in writing by Lessee and at Lessee's cost and expense, exercise
rights of indemnification, if any, for patent, copyright or other intellectual
property infringement obtained from the manufacturer under any agreement for
purchase of the Equipment. If notified promptly in writing of any action
brought against Lessee based on a claim that the Equipment infringes a United
States patent, copyright or other intellectual property right, Lessor shall
promptly notify the manufacturer thereof for purposes of exercising, for the
benefit of Lessee, Lessor's rights with respect to such claim under any such
agreement.
2.
<PAGE> 3
3.1 PAYMENTS UNCONDITIONAL; TAX BENEFITS; ACCEPTANCE. EACH LEASE SHALL BE
A NET LEASE, AND LESSEE'S OBLIGATION TO PAY ALL RENT AND OTHER SUMS THEREUNDER,
AND THE RIGHTS OF LESSOR IN AND TO SUCH PAYMENTS, SHALL BE ABSOLUTE AND
UNCONDITIONAL, AND SHALL NOT BE SUBJECT TO ANY ABATEMENT, REDUCTION, SETOFF,
DEFENSE, COUNTERCLAIM, INTERRUPTION, DEFERMENT OR RECOUPMENT, FOR ANY REASON
WHATSOEVER. It is the intent of Lessor, and an inducement to Lessor, to enter
into each Lease, to claim all available tax benefits of ownership with respect
to the Equipment subject thereto. Lessee's acceptance of the Equipment subject
to a Lease shall be conclusively and irrevocably evidenced by Lessee executing
an Acceptance Certificate with respect to such Equipment, and upon acceptance,
such Lease shall be noncancellable for the Lease Term unless otherwise agreed to
in writing by Lessor. Any nonpayment of Rent or other amounts payable under any
Lease shall result in Lessee's obligation to promptly pay Lessor as additional
Rent on such overdue payment, for the period of time during which it is overdue
(without regard to any grace period), interest at a rate equal to the lessor of
(a) fourteen percent (14%) per annum, or (b) the maximum rate of interest
permitted by law.
3.2 USE OF EQUIPMENT. Lessee shall use the Equipment solely in the
conduct of its business, in a manner and for the use contemplated by the
manufacturer thereof, and in compliance with all laws, rules and regulations of
every governmental authority having jurisdiction over the Equipment or Lessee
and with the provisions of all policies of insurance carried by Lessee pursuant
to Section 3.6 below. Lessee shall pay all costs, expenses, fees and charges
incurred in connection with the use and operation of the Equipment.
3.3 DELIVERY; INSTALLATION; RETURN; MAINTENANCE AND REPAIR; INSPECTION.
Lessee shall be solely responsible, at its own expense, for (a) the delivery of
the Equipment to Lessee, (b) the packing, rigging and delivery of the Equipment
back to Lessor, upon expiration or termination of the Lease Term, in good
repair, condition and working order, ordinary wear and tear excepted, at the
location(s) within the continental United States specified by Lessor, and (c)
the installation, de-installation, maintenance and repair of the Equipment.
During the Lease Term, Lessee shall ensure that the Equipment is covered by a
maintenance agreement, to the extent available, with the manufacturer of the
Equipment or such other party, reasonably acceptable to Lessor. Lessee shall, at
its expense, keep the Equipment in good repair, condition and working order,
ordinary wear and tear excepted, and, at the expiration or termination of the
Lease Term, or any renewal term, with respect to any of the Equipment, have
such Equipment inspected and certified acceptable for maintenance service by
the manufacturer. In the event any of the Equipment, upon its return to Lessor,
is not in good repair, condition and working order, ordinary wear and tear
excepted, Lessee shall be obligated to pay Lessor for the out-of-pocket
expenses Lessor incurs in bringing such Equipment up to such status, but not in
excess of the Casualty Value (as defined in the applicable Lease) for such
Equipment, promptly after its receipt of an invoice for such expenses. Lessor
shall be entitled to inspect the Equipment at Lessee's location at reasonable
times.
3.
<PAGE> 4
3.4 TAXES. Lessee shall be obligated to pay, and hereby indemnifies
Lessor and its successor and assigns against, and holds each of them harmless
from, all license fees, assessments, and sales, use, property, excise and other
taxes and charges, other than those measured by Lessor's net income, now and
hereafter imposed by any governmental body or agency upon or with respect to
any of the Equipment, or the possession, ownership, use or operation thereof,
or any Lease or the consummation of the transactions contemplated in any Lease
or this Agreement. Notwithstanding the foregoing, Lessor shall file all
required personal property tax returns, and shall pay all personal property
taxes payable, with respect to the Equipment, Lessee shall pay to Lessor, as
additional Rent, the amount of all such personal property taxes within fifteen
(15) days of its receipt of an invoice for such taxes.
3.5 LOSS OF EQUIPMENT. Lessee shall bear the entire risk of the Equipment
being lost, destroyed or otherwise permanently unfit or unavailable for use
from any cause whatsoever (an "EVENT OF LOSS") after it has been delivered to
common carrier for shipment to Lessee. If an Event of Loss shall occur with
respect to any item of Equipment, Lessee shall promptly notify Lessor thereof
in writing. On the rental payment date following Lessor's receipt of such
notice, Lessee shall pay to Lessor an amount equal to the rental payment or
payments due and payable with respect to such item of Equipment on or prior to
such date, plus a sum equal to the Casualty Value of such item of Equipment as
of the date of such payment as set forth in such Lease. Upon the making of such
payment by Lessee regarding any item of Equipment, the Rent for such item of
Equipment shall cease to accrue, the term of this Lease as to such item of
Equipment shall terminate and (except in the case of loss, theft or complete
destruction) Lessor shall be entitled to recover possession of such item of
Equipment in accordance with the provisions of Section 3.3 above. Provided that
Lessor has received the Casualty Value of any item of Equipment, Lessee shall
be entitled to the proceeds of any recovery in respect of such item of
Equipment from insurance or otherwise.
3.6 INSURANCE. Lessee shall obtain and maintain for the Lease Term at its
own expense, property damage and liability insurance and insurance against loss
or damage to the Equipment (including so-called extended coverage), as a result
of theft and such other risks of loss as are normally maintained on equipment
of the type leased hereunder by company's carrying on the business in which
Lessee is engaged, in such amounts, in such form and with such insurers as
shall be satisfactory to Lessor. Each insurance policy will name Lessee as
insured and Lessor as an additional insured and loss payee thereof as Lessor's
interests may appear, and shall provide that it may not be canceled or altered
without at least thirty (30) days prior written notice thereof being given to
Lessor or its successor and assigns.
4.
<PAGE> 5
3.7 INDEMNITY. Except with respect to the gross negligence or willful
misconduct of Lessor, Lessee hereby indemnifies, protects, defends and holds
harmless Lessor and its successors and assigns, from and against any and all
claims, liabilities (including negligence, tort and strict liabilities),
demands, actions, suits, and proceedings, losses, costs, expenses and damages,
including without limitation, reasonable attorneys' fees and costs
(collectively, "CLAIMS"), arising out of, connected with, or resulting from
this Agreement, any Lease or any of the Equipment, including, without
limitation, the manufacture, selection, purchase, delivery, possession,
condition, use, operation, or return of the Equipment. Each of the parties
shall give the other prompt written notice of any Claim of which it becomes
aware. The provisions of this Section 3.7 shall survive the expiration or
termination of this Agreement or any Lease.
3.8 PROHIBITIONS RELATED TO LEASE AND EQUIPMENT. Without the prior
written consent of Lessor, which consent as it pertains to subsections (b) and
(d) below shall not be unreasonably withheld, Lessee shall not: (a) assign,
transfer, pledge, encumber, hypothecate or otherwise dispose of this Lease or
any rights or obligations thereunder; (b) sublease any of the Equipment; (c)
create or incur, or permit to exist, any lien or encumbrance with respect to any
of the Equipment, or any part thereof; (d) move any of the Equipment from the
location at which it is first installed; or (e) permit any of the Equipment to
be moved outside the continental limits of the United States.
3.9 IDENTIFICATION. Lessee shall place and maintain permanent markings
provided by Lessor on the Equipment evidencing ownership, security and other
interests therein, as specified from time to time by Lessor.
3.10 ALTERATIONS AND MODIFICATIONS. Lessee shall not make any additions,
attachments, alterations or improvements to the Equipment without the prior
written consent of Lessor. Any addition, attachment, alteration or improvement
to any item of Equipment shall belong to and become the property of Lessor
unless, at the request of Lessor, it is removed prior to the return of such
item of Equipment by Lessee. Lessee shall be responsible for all costs relating
to such removal and shall restore such item of Equipment to its operating
condition that existed at the time it became subject to the applicable Lease.
3.11 EQUIPMENT TO BE PERSONAL PROPERTY. Lessee acknowledges and
represents that the Equipment shall be and remain personal property,
notwithstanding the manner in which it may be attached or affixed to realty,
and Lessee shall do all acts and enter into all agreements necessary to ensure
that the Equipment remains personal property.
3.12 FINANCIAL STATEMENTS. Lessee shall promptly furnish to Lessor such
financial or other statements respecting the condition and operations of
Lessee, and information respecting the Equipment, as Lessor may from time to
time reasonably request.
5.
<PAGE> 6
3.13 LESSEE REPRESENTATIONS. Lessee hereby represents that, with respect
to this Agreement and each Lease: (a) the execution, delivery and performance
thereof by Lessee have been duly authorized by all necessary corporate action;
and (b) the individual executing such document is duly authorized to do so; (c)
such document constitutes a legal, valid and binding obligations of Lessee,
enforceable in accordance with its terms.
IV. DEFAULT AND REMEDIES
4.1 EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an "Event of Default" hereunder: (a) Lessee shall fail to pay any
Rent or other payment due hereunder within five (5) days after it becomes due
and payable; (b) any representation or warranty of Lessee made in this
Agreement, any Lease, or in any document furnished pursuant to the provisions of
this Agreement or otherwise, shall prove to have been false or misleading in any
material respect as of the date when it was made; (c) Lessee shall fail to
perform any covenant, condition or agreement made by it under any Lease, and
such failure shall continue for twenty (20) days after its receipt of notice
thereof; (d) bankruptcy, receivership, insolvency, reorganization, dissolution,
liquidation or other similar proceedings shall be instituted by or against
Lessee or all or any part of its property under the Federal Bankruptcy Code or
other law of the United States or of any other competent jurisdiction, and, if
such proceeding is brought against Lessee, it shall consent thereto or shall
fail to cause the same to be discharged within thirty (30) days after it is
filed; (e) Lessee shall default under any agreement with respect to the purchase
or installation of any of the Equipment; or (f) Lessee or any guarantor of
Lessee's obligations under any Lease shall default under any other agreement
with Lessor or Cisco Systems, Inc.
4.2 REMEDIES. If an Event of Default hereunder shall occur and be
continuing, Lessor may exercise any one or more of the following remedies: (a)
terminate any or all of the Leases and Lessee's rights thereunder; (b) proceed,
by appropriate court action or actions, to enforce performance by Lessee of the
applicable covenants of any or all of the Leases or to recover damages for the
breach thereof; (c) recover from Lessee an amount equal to the sum of (i) all
accrued and unpaid Rent and other amounts due under any or all of the Leases
(ii) as liquidated damages for loss of a bargain and not as a penalty, the
present value of (A) the balance of all Rent and other amounts under any or all
of the Leases discounted at a rate of five percent (5%) per annum, and (B)
Lessor's estimated fair market value of the Equipment at the expiration of the
Original Term (d) personally, or by its agents, take immediate possession of any
or all of the Equipment from Lessee and, for such purpose, enter upon Lessee's
premises where any of the Equipment is located with or without notice or process
of law and free from all claims by Lessee; and (e) require the Lessee to
assemble the Equipment and deliver the Equipment to Lessor at a location which
is reasonably convenient to Lessor and Lessee. The exercise of any of the
foregoing remedies by Lessor shall not constitute a termination of any Lease or
this Agreement unless Lessor so notifies Lessee in writing.
6.
<PAGE> 7
4.3 DISPOSITION OF EQUIPMENT. In the event, upon the occurrence of an
Event of Default, Lessor repossesses any of the Equipment, Lessor may sell or
lease any or all of such Equipment, at one or more public or private sales. The
proceeds of (i) any rental of the Equipment for the balance of the Original Term
(discounted to present value at the rate of five percent (5%) per annum) or (ii)
any sale of the Equipment shall be applied to the payment of (A) all costs and
expenses (including, without limitation, reasonable attorney's fees) incurred by
Lessor in retaking possession of, and removing, storing, repairing, refurbishing
and selling or leasing such Equipment and (B) the obligations of Lessee to
Lessor pursuant to this Agreement. Lessee shall remain liable to Lessor for any
deficiency.
5.1 PERFORMANCE OF LESSEE'S OBLIGATIONS. Upon Lessee's failure to pay Rent
(or any other sum due hereunder) or perform any obligation hereunder when due,
Lessor shall have the right, but shall not be obligated, to pay such sum or
perform such obligation, whereupon such sum or cost of such performance shall
immediately become due and payable hereunder as additional Rent, with interest
thereon at the highest legal rate from the date such payment or performance was
made.
5.2 QUIET ENJOYMENT. So long as no Event of Default shall have occurred
and be continuing, neither Lessor nor its assignee shall interfere with Lessee's
right of quiet enjoyment and use of the Equipment.
5.3 FURTHER ASSURANCES. Lessee shall, upon the request of Lessor, from
time to time, execute and deliver such further documents and do such further
acts as Lessor may reasonably request in order fully to effect the purpose of
any Lease and Lessor's rights thereunder. Lessor is authorized to file a
financing statement, signed only by Lessor in accordance with the Uniform
Commercial Code or signed by Lessor as Lessee's attorney in fact, with respect
to any of the Equipment.
5.4 RIGHT AND REMEDIES. Each and every right and remedy granted to Lessor
under any Lease shall be cumulative and in addition to any other right or remedy
therein specifically granted or now or hereafter existing in equity, at law, by
virtue of statute or otherwise, and may be exercised by Lessor from time to time
concurrently or independently and as often and in such order as Lessor may deem
expedient. Any failure or delay on the part of Lessor in exercising any such
right or remedy, or abandonment or discontinuance of steps to enforce the same
shall not operate as a waiver thereof or affect Lessor's right thereafter to
exercising the same. Waiver of any right or remedy on one occasion shall not be
deemed to be a waiver of any other right or remedy or of the same right or
remedy on any other occasion.
7.
<PAGE> 8
5.5 NOTICES. Any notice, request, demand, consent, approval or other
communication provided for or permitted hereunder shall be in writing and shall
be conclusively deemed to have been received by a party hereto on the day it is
delivered to such party at its address set forth above (or at such other
addresses such party shall specify to the other party in writing), or if sent
by registered or certified mail, return receipt requested, on the fifth day
after the day on which it is mailed, postage prepaid, addressed to such party.
5.6 SECTION HEADINGS; COUNTERPARTS. Section headings are inserted for
convenience of reference only and shall not affect any construction or
interpretation of this Agreement. This Agreement and each Lease may be executed
in counterparts, and when so executed each counterpart shall be deemed to be an
original, and such counterparts together shall constitute one and the same
instrument.
5.7 ENTIRE LEASE. This Agreement and each Lease constitute the entire
agreement between Lessor and Lessee with respect to the lease of the Equipment.
No amendment of, or any consent with respect to, any provision of this
Agreement or any Lease shall bind either party unless set forth in a writing,
specifying such waiver, consent, or amendment, signed by both parties. TO THE
EXTENT PERMITTED BY APPLICABLE LAW AND NOT OTHERWISE SPECIFICALLY PROVIDED TO
LESSEE IN THIS AGREEMENT, LESSEE HEREBY WAIVES ANY AND ALL RIGHTS OR REMEDIES
CONFERRED UPON A LESSEE UNDER THE CALIFORNIA COMMERCIAL CODE, AND ANY OTHER
APPLICABLE SIMILAR CODE OR STATUTES OF ANOTHER JURISDICTION, WITH RESPECT TO A
DEFAULT BY LESSOR UNDER THIS AGREEMENT OR ANY LEASE.
5.8 SEVERABILITY. Should any provision of this Agreement or any Lease be
or become invalid, illegal, or unenforceable under applicable law, the other
provisions of this Agreement and such Lease shall not be affected and shall
remain in full force and effect.
5.9 ATTORNEYS' FEES. Should either party institute any action or
proceeding to enforce this Agreement or any Lease, the prevailing party shall
be entitled to receive from the other party all reasonable out-of-pocket costs
and expenses, including, without limitation, attorneys' fees.
5.10 GOVERNING LAW AND JURISDICTION. THIS LEASE SHALL BE GOVERNED IN ALL
RESPECTS BY THE LAWS OF THE STATE OF CALIFORNIA WITH RESPECT TO AGREEMENTS
ENTERED INTO, AND TO BE PERFORMED, ENTIRELY IN CALIFORNIA. LESSOR AND LESSEE
WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY LITIGATION ARISING FROM THIS AGREEMENT
OR ANY LEASE. LESSEE CONSENTS TO THE NON-EXCLUSIVE JURISDICTION OF THE STATE
COURTS OF CALIFORNIA, AND THE FEDERAL COURTS SITTING IN THE STATE OF
CALIFORNIA, FOR THE RESOLUTION OF ANY DISPUTES HEREUNDER.
8.
<PAGE> 9
5.11 SURVIVAL. All obligations of Lessee to make payments to Lessor
under any Lease or to indemnify Lessor, pursuant to Section 3.4 or 3.7 above,
with respect to a Lease, and all rights of Lessor hereunder with respect to a
Lease, shall survive the termination of such Lease.
LESSEE, BY THE SIGNATURE BELOW OF ITS AUTHORIZED REPRESENTATIVE, ACKNOWLEDGES
THAT IT HAS READ THIS LEASE, UNDERSTANDS IT, AND AGREES TO BE BOUND BY ITS
TERMS AND CONDITIONS.
LESSOR: LESSEE:
CISCO SYSTEMS CAPITAL DIGITAL ENTERTAINMENT
CORPORATION NETWORK, INC.
By: /s/ SAM ZAIDINA By: /s/ H. JAMES RITTS III
---------------------------- ----------------------------
(Authorized Signature) (Authorized Signature)
MANAGER, CUSTOMER SERVICE
& OPERATIONS CHIEF EXECUTIVE OFFICER
---------------------------- ----------------------------
(Name/Title) (Legal Name/Title)
JUNE 16, 1999 APRIL 13, 1999
---------------------------- ----------------------------
(Date) (Date)
9.
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
Subsidiary State of Incorporation
---------- ----------------------
<S> <C> <C>
1. MarCh Productions California
2. Prompt Productions, Inc. California
3. >en. music California
4. >en.3 California
5. DEN Administrative Services, Inc. California
6. DEN Marketing Services, Inc. California
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our report dated April 30, 1999 (except Note 8, as to
which the date is September 17, 1999), included herein to our Firm and to the
reference to our Firm under the heading "Experts" in the prospectus.
KPMG LLP
Los Angeles, California
The foregoing consent is in the form that will be signed upon the completion of
the stock split described in Note 8 to the financial statements.
/s/ KPMG LLP
Los Angeles, California
September 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 5,879,000 18,585,000
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0<F1> 0<F1>
<CURRENT-ASSETS> 5,879,000 19,608,000
<PP&E> 314,000 3,441,000
<DEPRECIATION> 39,000 373,000
<TOTAL-ASSETS> 7,284,000 25,076,000
<CURRENT-LIABILITIES> 7,107,000 12,720,000
<BONDS> 0 0
0 0
1,000 4,000
<COMMON> 67,000 75,000
<OTHER-SE> 7,807,000 39,867,000
<TOTAL-LIABILITY-AND-EQUITY> 7,284,000 25,076,000
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 6,890,000 19,901,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 200,000 146,000
<INCOME-PRETAX> 7,090,000 20,047,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 7,090,000 20,047,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7,090,000 20,047,000
<EPS-BASIC> (0.99) (2.68)
<EPS-DILUTED> (0.99) (2.68)
<FN>
<F1>Production costs totaling $943,000 and $1,680,000 at December 31, 1998 and
June 30, 1999, respectively, are not classified as inventory.
</FN>
</TABLE>
