<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY , 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
BROADCAST.COM INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 7375 75-2600532
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
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2914 TAYLOR STREET
DALLAS, TEXAS 75226
(214) 748-6660
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------------
TODD R. WAGNER
CHIEF EXECUTIVE OFFICER
BROADCAST.COM INC.
2914 TAYLOR STREET
DALLAS, TEXAS 75226
(214) 748-6660
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copies to:
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SEAN P. GRIFFITHS, ESQ. NEIL WOLFF, ESQ.
GIBSON, DUNN & CRUTCHER LLP WILSON SONSINI GOODRICH & ROSATI
200 PARK AVENUE PROFESSIONAL CORPORATION
NEW YORK, NEW YORK 10166 650 PAGE MILL RD
(212) 351-4000 PALO ALTO, CA 94304-1050
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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 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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $.01 par value............. $35,000,000 $10,325
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE 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 COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES
MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH
OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS (Subject to Completion)
Issued May 15, 1998
Shares
[LOGO]
(formerly AudioNet, Inc.)
COMMON STOCK
------------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC MARKET FOR THE COMMON STOCK OF
THE COMPANY. IT IS CURRENTLY ESTIMATED THAT THE INITIAL PUBLIC OFFERING PRICE
WILL BE BETWEEN $ AND $ PER SHARE. SEE "UNDERWRITERS" FOR A DISCUSSION OF
THE FACTORS TO BE CONSIDERED IN DETERMINING THE INITIAL PUBLIC OFFERING PRICE.
APPLICATION WILL BE MADE TO LIST THE SHARES OF COMMON STOCK OFFERED HEREBY ON
THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL "BCST."
------------------------
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share........................ $ $ $
Total(3)......................... $ $ $
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company and a Selling Stockholder have granted the Underwriters an
option, exercisable within 30 days of the date hereof, to purchase up to
an aggregate of additional Shares at the price to public
less underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions,
proceeds to Company and proceeds to Selling Stockholder will be $ ,
$ , $
and $ , respectively. See "Underwriters."
------------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel for the
Underwriters. It is expected that delivery of the Shares will be made on or
about , 1998, at the office of Morgan Stanley & Co.
Incorporated, New York, N.Y., against payment therefor in immediately available
funds.
------------------------
MORGAN STANLEY DEAN WITTER
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
HAMBRECHT & QUIST
, 1998.
<PAGE> 3
Computer screenshots from the broadcast.com Web site depicting the breadth
and depth of the Company's content, services, infrastructure and partnerships.
Graphics including client and partner logos and images of the client-side
software that are used to receive content on the Company's Web sites.
<PAGE> 4
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO
THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 3
The Company........................... 4
Risk Factors.......................... 5
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Financial Data............... 21
Management's Discussion and Analysis
ofFinancial Condition and Results of
Operations.......................... 22
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PAGE
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Business.............................. 30
Management............................ 47
Certain Transactions.................. 55
Principal and Selling Stockholders.... 57
Description of Capital Stock.......... 58
Shares Eligible for Future Sale....... 61
Underwriters.......................... 63
Legal Matters......................... 65
Experts............................... 65
Available Information................. 65
Index to Financial Statements......... F-1
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The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting firm
and quarterly reports containing unaudited financial data for the first three
quarters of each year.
------------------------
Broadcast.com(TM) and AudioNet(R) are trademarks of the Company. This
Prospectus also includes trademarks of companies other than the Company.
------------------------
Unless the context otherwise requires, the terms "broadcast.com" and the
"Company" refer to broadcast.com inc., a Delaware corporation. Except as
otherwise noted herein, information in this Prospectus assumes (i) no exercise
of the Underwriters' over-allotment option and (ii) the sixty-for-one split of
the Company's Common Stock effected in the form of a stock dividend in April
1997.
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THIS OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
THE COMPANY
Broadcast.com inc. (formerly AudioNet, Inc.) is the leading aggregator and
broadcaster of streaming media programming on the Web with the network
infrastructure and expertise to deliver or "stream" hundreds of live and
on-demand audio and video programs over the Internet to hundreds of thousands of
users. The Company's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming, including sports, talk and music
radio, television, business events, full-length CDs, news, commentary and
full-length audio-books. The Company broadcasts on the Internet 24 hours a day
seven days a week, and its programming includes more than 310 radio stations and
networks, 17 television stations and cable networks and game broadcasts and
other programming for over 350 college and professional sports teams. The
Company licenses such programming from content providers, in most cases under
exclusive, multi-year agreements. The Company's Business Services Group provides
cost-effective Internet and intranet broadcasting services to businesses and
other organizations. These business services include the turnkey production of
press conferences, earnings conference calls, investor conferences, trade shows,
stockholder meetings, product introductions, training sessions, distance
learning telecourses and media events. In addition to its business services, the
Company derives revenues from the sale of advertising on its Web sites,
including gateway ads with guaranteed click-thrus, channel and event
sponsorships and multimedia and traditional banner ads, as well as the sale of
radio and television ad spots the Company receives from stations in exchange for
broadcasting their programming over the Internet. In March 1998, the Company's
Web sites served a daily average of over 400,000 unique users and its principal
Web site was ranked in the top 20 among all News/Information/Entertainment sites
according to Media Metrix.
THE OFFERING
Common Stock offered.................... shares
Common Stock to be outstanding after the
offering................................ shares(1)
Use of proceeds......................... For general corporate purposes,
including capital expenditures,
working capital and strategic
acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol.................................. BCST
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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PERIOD FROM
INCEPTION THREE MONTHS ENDED
(MAY 19, 1995) YEAR ENDED DECEMBER 31, MARCH 31,
TO DECEMBER 31, --------------------------- ----------------------
1995 1996 1997 1997 1998
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STATEMENTS OF OPERATIONS DATA:
Revenues...................................... $ -- $ 1,756 $ 6,856 $ 1,087 $ 3,176
Gross profit.................................. -- 455 3,906 618 1,951
Total operating expenses...................... 268 3,520 10,593 1,742 4,948
Net operating loss............................ (268) (3,065) (6,687) (1,124) (2,997)
Net loss...................................... (268) (2,989) (6,474) (1,063) (2,722)
Basic and diluted net loss per share(2)....... $ (.04) $ (.31) $ (.55) $ (.09) $ (.19)
Shares used in the net loss per share
calculations(2)............................. 6,020 9,569 11,680 11,428 14,076
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MARCH 31, 1998
----------------------
AS
ACTUAL ADJUSTED(3)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $22,400
Total assets................................................ 30,134
Total stockholders' equity.................................. 28,306
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(1) Based on the number of shares outstanding as of March 31, 1998. Excludes (i)
2,000,973 shares of Common Stock issuable upon the exercise of options then
outstanding, with a weighted average exercise price of $5.95 per share and
(ii) 938,291 shares available for issuance under the Company's stock plans.
Also excludes (i) 218,036 shares of Common Stock subject to outstanding
warrants and (ii) an additional warrant to purchase 15,960 shares of Common
Stock which will expire upon the consummation of this offering. See
"Capitalization," "Management--Director Compensation," "--Employee Benefit
Plans" and Note 6 of Notes to Financial Statements.
(2) See Note 8 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share calculations.
(3) As adjusted to reflect the sale of shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share and
after deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by the Company. See "Use of Proceeds"
and "Capitalization."
3
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THE COMPANY
Broadcast.com inc. (formerly AudioNet, Inc.) is the leading aggregator and
broadcaster of streaming media programming on the Web with the network
infrastructure and expertise to deliver or "stream" hundreds of live and
on-demand audio and video programs over the Internet to hundreds of thousands of
users. The Company's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming, including sports, talk and music
radio, television, business events, full-length CDs, news, commentary and
full-length audio-books. The Company broadcasts on the Internet 24 hours a day
seven days a week, and its programming includes more than 310 radio stations and
networks, 17 television stations and cable networks and game broadcasts and
other programming for over 350 college and professional sports teams. The
Company licenses such programming from content providers, in most cases under
exclusive, multi-year agreements. The Company's Business Services Group provides
cost-effective Internet and intranet broadcasting services to businesses and
other organizations. These business services include the turnkey production of
press conferences, earnings conference calls, investor conferences, trade shows,
stockholder meetings, product introductions, training sessions, distance
learning telecourses and media events. In addition to its business services, the
Company derives revenues from the sale of advertising on its Web sites,
including gateway ads with guaranteed click-thrus, channel and event
sponsorships and multimedia and traditional banner ads, as well as the sale of
radio and television ad spots the Company receives from stations in exchange for
broadcasting their programming over the Internet. In March 1998, the Company's
Web sites served a daily average of over 400,000 unique users and its principal
Web site was ranked in the top 20 among all News/Information/Entertainment sites
according to Media Metrix.
Broadcasting audio and video content over the Internet offers certain
opportunities that are not generally available from traditional media. Currently
available analog technology and government regulations limit the ability of
radio and television stations to broadcast beyond certain geographic areas.
Radios and televisions are not widely used in office buildings and other
workplaces, where Internet access has become commonplace. Traditional business
communication tools such as audio conferencing and videoconferencing can be
costly, non-targeted and inconvenient. In addition, traditional broadcasters are
limited in their ability to measure or identify in real time the listeners or
viewers of a program. By using the Internet, targeted streaming media content
can be broadcast to a geographically dispersed audience of customers, suppliers,
employees and stockholders at relatively low costs. Internet users can interact
with the broadcast content by responding to online surveys, voting in polls and
obtaining additional information. In addition, Internet broadcasters can provide
highly specific information about a program's audience to content providers,
advertisers and users of Internet business services. The convergence of the
Internet's capabilities and attributes has accelerated its acceptance as a
business tool, leading to rapidly growing economic opportunities in Web-based
advertising and business service offerings, including audio conferencing,
electronic commerce and video transmission, among others.
The Company believes it has accomplished numerous Internet achievements
since its initial live broadcast in September 1995, including the Internet
broadcasts of the first live commercial radio station, first live sporting
event, first live corporate quarterly earnings call and first live stockholders'
meeting. The Company's early entrance into the Internet broadcasting market has
enabled the Company to establish strong brand recognition for its broadcasts and
services and to form relationships with a diverse range of content providers.
The Company currently offers content from a variety of sources, including radio
and television, college and professional sports teams and leagues, production
and film studios and record labels. The Company has broadcast over 11,000 live
events such as the last three NFL Super Bowls and NCAA Basketball Tournaments,
the Stanley Cup Playoffs, the entire 1997-98 season for 24 of the 26 NHL teams,
game broadcasts for the entire season of over 300 college teams, the premiere
event for the movie "Titanic," Blockbuster Rockfest '97 and backstage interviews
from the 1998 Academy Awards Webcast. The Company has also amassed over 50,000
hours of on-demand broadcast programming, including over 2,100 full-length music
CDs, sports programming, talk radio and business and media events.
Broadcast.com's business services customers include the American Bar
Association, AT&T Corporation ("AT&T"), Charles Schwab Corporation ("Charles
Schwab"), Comerica Incorporated ("Comerica"), Gartner Group, Inc.
("GartnerGroup"), Harvard University, Intel Corporation ("Intel"), Microsoft
Corporation ("Microsoft"), Motorola, Inc. ("Motorola"), PR Newswire, Texas
Instruments Incorporated ("Texas Instruments") and more than 290 other
organizations. Business services broadcasts have originated from 36 states and
nine countries.
The Company's objective is to enhance its leadership position in Internet
broadcasting by continuing to provide services that enable the delivery of a
broad range of streaming media content over the Internet and intranets. The
Company's strategy to achieve this objective includes enhancing and expanding
exclusive content offerings, further penetrating the business services market,
expanding network capacity, enhancing brand awareness and capturing and
developing emerging revenue opportunities.
Broadcast.com was incorporated in Texas in May 1995 under the name "Cameron
Audio Networks, Inc.," then reincorporated in Delaware in November 1996 under
the name "AudioNet, Inc." The Company's name was changed to "broadcast.com inc."
on May 14, 1998. The Company's headquarters is located at 2914 Taylor Street,
Dallas, Texas 75226. Its telephone number is 214.748.6660, fax number is
214.748.6657 and its principal Web site is located at http://www.broadcast.com.
Other Company Web sites include: www.homematters.com, www.jukebox.com,
www.pluggedin.com, www.policescanner.com, www.soapopera.com and
www.sportsworld.com. Information contained on the Company's Web sites is not
part of this Prospectus.
4
<PAGE> 7
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully before purchasing the
shares of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth below.
Limited Operating History; History of Losses and Anticipation of Future
Losses. The Company commenced broadcasting live audio programming on the Web in
September 1995 and live video programming in March 1997. The Company first
recognized business services revenues and Web advertising revenues in January
1996 and traditional media advertising revenues in January 1997 and has recorded
a net loss for each year since its inception. As of March 31, 1998, the Company
had an accumulated deficit of $12.5 million. Accordingly, the Company has a
limited operating history on which to base an evaluation of its business and
prospects. The Company and its prospects must be considered in light of the
risks, difficulties and uncertainties frequently encountered by companies in an
early stage of development, particularly companies in new and rapidly evolving
markets such as the market for Internet content, business services and
advertising. To achieve and sustain profitability, the Company believes it must,
among other things, (i) provide compelling and unique content to Internet users,
(ii) successfully market and sell its business services, (iii) effectively
develop new and maintain existing relationships with advertisers, content
providers, business customers and advertising agencies, (iv) continue to develop
and upgrade its technology and network infrastructure, (v) respond to
competitive developments, (vi) successfully introduce enhancements to its
existing products and services to address new technologies and standards, (vii)
effectively sell its inventory of radio and television ad spots and (viii)
attract, retain and motivate qualified personnel. The Company's operating
results are also dependent on factors outside the control of the Company, such
as the availability of compelling content and the development of broadband
networks that support multimedia streaming. There can be no assurance that the
Company will be successful in addressing these risks, and failure to do so could
have a material adverse effect on the Company's business, results of operations
and financial condition. Additionally, the limited operating history of the
Company makes the prediction of future operating results difficult or
impossible, and there can be no assurance that the Company's revenues will
increase or even continue at their current level, or that the Company will
achieve or maintain profitability or generate sufficient cash from operations in
future periods. The Company expects to continue to incur significant losses on a
quarterly and annual basis for the foreseeable future. For these and other
reasons, there can be no assurance that the Company will ever achieve
profitability or, if profitability is achieved, that it can be sustained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Unpredictability of Future Revenues; Potential Fluctuations in Quarterly
Operating Results. Because of the Company's limited operating history and the
emerging nature of the markets in which it competes, the Company is unable to
forecast accurately its revenues. The market for the Company's business services
and the long-term acceptance of Web-based advertising are uncertain. The Company
currently intends to increase substantially its operating expenses in order to,
among other things, (i) expand its distribution network capacity, (ii) fund
increased sales and marketing activities, (iii) acquire additional content, (iv)
develop and upgrade technology and (v) purchase equipment for its operations.
The Company's expense levels are based, in part, on its expectations with regard
to future revenues, and to a large extent such expenses are fixed, particularly
in the short term. To the extent the Company is unsuccessful in increasing its
revenues, the Company may be unable to appropriately adjust spending in a timely
manner to compensate for any unexpected revenue shortfall or will have to reduce
its operating expenses, causing it to forego potential revenue generating
activities, either of which could cause a material adverse effect in the
Company's business, results of operations and financial condition.
The Company's quarterly operating results may fluctuate significantly in
the future as a result of a variety of factors, many of which are outside the
Company's control. Factors that may affect the Company's quarterly operating
results include (i) the cost of acquiring and the availability of content, (ii)
the demand for the Company's business services, (iii) demand for Internet
advertising, (iv) seasonal trends in Internet and advertising placements, (v)
the advertising cycles for, or the addition or loss of, individual advertisers,
(vi) the
5
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level of traffic on the Company's Web sites, (vii) the amount and timing of
capital expenditures and other costs relating to the expansion of the Company's
operations, (viii) price competition or pricing changes in Internet broadcasting
services, such as the Company's business services, and in Internet advertising,
(ix) the seasonality of the content of the Company's broadcasts, such as
sporting and other events, (x) the level of and seasonal trends in the use of
the Internet, (xi) technical difficulties or system downtime, (xii) the cost to
acquire sufficient bandwidth or to integrate efficient broadcast technologies,
such as multicasting, to meet the Company's needs, (xiii) the mix of unicasting
and multicasting from the Company's Web sites (see "--Scalability of Number of
Users"), (xiv) the introduction of new products or services by the Company or
its competitors and (xv) general economic conditions and economic conditions
specific to the Internet, such as electronic commerce and online media. Any one
of these factors could cause the Company's revenues and operating results to
vary significantly in the future. In addition, as a strategic response to
changes in the competitive environment, the Company may from time to time make
certain pricing, service or marketing decisions or acquisitions that could cause
significant declines in the Company's quarterly operating results.
The Company expects that its revenues will be higher leading up to and
during major United States sport seasons for sports that the Company broadcasts,
such as the NHL and college football, and lower at other times of the year. The
Company believes that advertising sales in traditional media, such as
television, generally are lower in the first and third calendar quarters of each
year, and that advertising expenditures fluctuate significantly with economic
cycles. Depending on the extent to which the Internet is accepted as an
advertising medium, seasonality and cyclicality in the level of Internet
advertising expenditures could become more pronounced than it is currently. As a
result, the Company believes that its revenues from Web and traditional media
advertising sales have been affected by these cyclical factors and the Company
expects its Web and traditional media advertising sales generally to follow the
quarterly trends of traditional media advertising. The foregoing factors could
have a material adverse effect on the Company's business, results of operations
and financial condition.
Due to all of the foregoing factors, the Company believes that
period-to-period comparisons of its results of operations are not necessarily
meaningful and should not be relied upon as indications of future performance.
Furthermore, it is possible that the Company's operating results in one or more
quarters will fail to meet the expectations of securities analysts or investors.
In such event, the price of the Common Stock could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Dependence on Content Providers; License Fees Payable to Content
Providers. The Company's future success depends in large part upon its ability
to aggregate and deliver compelling content over the Internet. The Company
typically does not create its own content. Rather, the Company relies on third
party content providers, such as radio and television stations and cable
networks, businesses and other organizations, universities and record labels for
compelling and entertaining content. The Company's ability to maintain its
existing relationships with such content providers and to build new
relationships with additional content providers is critical to the success of
its business. Although many of the Company's agreements with third party content
providers are for initial terms of more than two years, the content providers
may choose not to renew such agreements or may terminate such agreements prior
to the expiration of their terms if the Company fails to fulfill its contractual
obligations. The Company's inability to secure licenses from content providers
or performance rights societies or the termination of a significant number of
content provider agreements would decrease the availability of content that the
Company can offer users. This may result in decreased traffic on the Company's
Web sites and, as a result, decreased advertising revenue, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's agreements with certain of its content providers are
nonexclusive, and many of the Company's competitors offer, or could offer,
content that is similar to or the same as that obtained by the Company from such
nonexclusive content providers. Such direct competition could have a material
adverse effect on the Company's business, results of operations and financial
condition. See "--Competition."
License fees payable to content providers and performance rights societies
and other licensing agencies may increase as the Company continues to aggregate
content and as competition for such content increases.
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There can be no assurance that the Company's content providers, performance
rights societies and other licensing agencies will enter into prospective
agreements with the Company on the same or similar terms as those currently in
effect or on terms acceptable to the Company if no agreement is in effect. If
the Company is required to pay increased licensing fees, such increased payments
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "--Government Regulation and Legal
Uncertainty."
Uncertain Acceptance of the Company's Business Services. The Company's
ability to establish and maintain a leadership position in Internet and intranet
broadcasting for businesses and in the distribution of other live and on-demand
events will depend on, among other things, (i) the Company's success in
providing quality programming at low and high bit rates over the Internet, (ii)
the Company's marketing and sales efforts, (iii) market acceptance of the
Company's current and future service offerings, (iv) the reliability of the
Company's networks and services and (v) the extent to which end users are able
to receive the Company's broadcasts at adequate bit rates to provide for high
quality services, none of which can be assured. The Company operates in a market
that is at a very early stage of development, is rapidly evolving and is
characterized by an increasing number of market entrants who have introduced or
developed competing broadcasting and distribution services. As is typical in the
case of a new and rapidly evolving industry, demand and market acceptance for
recently introduced services are subject to a high level of uncertainty and
risk. Sales of the Company's business services may require an extended sales
effort in certain cases. In addition, potential customers must accept the
Company's audio and video broadcast services as a viable alternative to
face-to-face meetings, traditional media, traditional business communications
tools, such as audio teleconferences and video conferencing, and conventional
classroom-based learning. Because the market for the Company's business services
is new and evolving, it is difficult to predict the size of this market and its
growth rate, if any. In addition, it is not known whether businesses and other
organizations will utilize the Internet to any significant degree as a means of
broadcasting business and other events. There can be no assurance that the
market for the Company's business services will continue to develop or be
sustainable. If the market fails to develop, develops more slowly than expected
or becomes saturated with competitors, or if the Company's Web sites do not
achieve or sustain market acceptance, the Company's business, results of
operations and financial condition could be materially adversely affected.
Uncertain Acceptance of Streaming Media Technology. The Company's success
depends on the market acceptance of streaming media technology provided by
companies such as RealNetworks, Inc. ("RealNetworks") and Microsoft. Prior to
the advent of streaming technology, Internet users could not initiate the
playback of audio or video clips until such content was downloaded in its
entirety, resulting in significant waiting times. As a result, live broadcasts
of audio and video content over the Internet or intranets were not possible.
Early streaming media technology suffered from poor audio quality, and video
streaming at 28.8 kbps (thousands of bits per second) currently is of lower
quality than traditional media broadcasts. In addition, congestion over the
Internet and packet loss may interrupt audio and video streams, resulting in
unsatisfying user experiences. In order to receive streamed media adequately,
users generally must have multimedia PCs with certain microprocessor
requirements and at least 28.8 kbps Internet access and streaming media
software. Users typically electronically download such software and install it
on their PCs. 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 the Company's Web
sites. Furthermore, in order for users to receive streaming media over corporate
intranets, information systems managers may need to reconfigure such intranets.
Because of bandwidth constraints on corporate intranets, some information
systems managers may block reception of streamed media. Widespread adoption of
streaming media technology depends on overcoming these obstacles, improving
audio and video quality and educating customers and users in the use of
streaming media technology. If streaming media technology fails to achieve broad
commercial acceptance or such acceptance is delayed, the Company's business,
results of operations and financial condition could be materially adversely
affected. See "--Competition."
Uncertain Acceptance of the Internet as an Advertising Medium. The market
for Internet advertising has only recently begun to develop, is rapidly evolving
and is characterized by an increasing number of market entrants. As is typical
in the case of a new and rapidly evolving industry, demand and market acceptance
for
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recently introduced products and services are subject to a high level of
uncertainty. The Company's ability to generate advertising revenue will depend
on, among other factors, (i) the development of the Internet as an advertising
medium, (ii) pricing of advertising on other Web sites, (iii) the amount of
traffic on the Company's Web sites, (iv) the Company's ability to achieve and
demonstrate user and member demographic characteristics that are attractive to
advertisers, (v) the development and expansion of the Company's advertising
sales force and (vi) the establishment and maintenance of desirable advertising
sales agency relationships. Most potential advertisers and their advertising
agencies have only limited experience with the Internet as an advertising medium
and have not devoted a significant portion of their advertising expenditures to
Web-based advertising. There can be no assurance that advertisers or advertising
agencies will be persuaded to allocate or continue to allocate portions of their
budgets to Web-based advertising or, if so persuaded, that they will find such
advertising to be effective for promoting their products and services relative
to traditional print and broadcast media. No standards have yet been widely
accepted for the measurement of the effectiveness of Web-based advertising, and
there can be no assurance that such standards will develop sufficiently to
enable Web-based advertising to become a significant advertising medium.
Acceptance of the Internet among advertisers and advertising agencies will also
depend, to a large extent, on the level of use of the Internet by consumers and
upon growth in the commercial use of the Internet. If widespread commercial use
of the Internet does not develop, or if the Internet does not develop as an
effective and measurable medium for advertising, the Company's business, results
of operations and financial condition could be materially adversely affected.
See "Business--Sales and Marketing."
Management of Growth. The Company has rapidly and significantly expanded
its operations and anticipates that significant expansion of its operations will
continue to be required in order to address potential market opportunities. The
Company expanded from fewer than 10 employees at September 30, 1995, to 170
employees at April 30, 1998, and the Company expects to increase its personnel
significantly in the near future. The Company's recent growth has placed, and is
expected to continue to place, a significant strain on its managerial,
operational and financial resources and systems. To manage its growth, the
Company must implement, improve and effectively utilize its operational,
management, marketing and financial systems and train and manage its employees.
Many of the Company's senior management have only recently joined the Company.
These individuals have not previously worked together and are in the process of
integrating as a management team. There can be no assurance that the Company
will be able to manage effectively the expansion of its operations or that the
Company's current personnel, systems, procedures and controls will be adequate
to support the Company's operations. Any failure of management to manage
effectively the Company's growth could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"--Dependence on Key Personnel; Need for Additional Personnel."
Risk of System Failure, Delays and Inadequacy; Single Site. The
performance, reliability and availability of the Company's Web sites and network
infrastructure are critical to its reputation and ability to attract and retain
users, advertisers and content providers. A large portion of the Company's
network infrastructure is located at a single, leased facility in Dallas, Texas.
The Company's systems and operations are vulnerable to damage or interruption
from fire, flood, power loss, telecommunications failure, Internet breakdowns,
break-ins, tornadoes and similar events. The Company does not presently have
redundant facilities or systems or a formal disaster recovery plan and does not
carry sufficient business interruption insurance to compensate it for losses
that may occur. Services based on sophisticated software and computer systems
often encounter development delays and the underlying software may contain
undetected errors that could cause system failures when introduced. Any system
error or failure that causes interruption in availability of content or an
increase in response time could result in a loss of potential or existing
business services customers, users, advertisers or content providers and, if
sustained or repeated, could reduce the attractiveness of the Company's Web
sites to such entities or individuals. In addition, because the Company's Web
advertising revenues are directly related to the number of advertisements
delivered by the Company to users, system interruptions that result in the
unavailability of the Company's Web sites or slower response times for users
would reduce the number of advertisements delivered and reduce revenues.
A sudden and significant increase in traffic on the Company's Web sites
could strain the capacity of the software, hardware and telecommunications
systems deployed or utilized by the Company, which could lead
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to slower response times or system failures. The Company's operations also are
dependent upon receipt of timely feeds from its content providers, and any
failure or delay in the transmission or receipt of such feeds, whether due to
system failure of the Company, its content providers, satellites or otherwise,
could disrupt the Company's operations. The Company is also dependent upon Web
browsers, Internet Service Providers ("ISPs") and online service providers
("OSPs") to provide Internet users access to the Company's Web sites. Users may
experience difficulties accessing or using the Company's Web sites due to system
failures or delays unrelated to the Company's systems. These difficulties may
negatively affect audio and video quality or result in intermittent interruption
in programming. In addition, the Company relies on third party ISPs to provide
hosting services with respect to some of the Company's content providers. Any
sustained failure or delay could reduce the attractiveness of the Company's Web
sites to business services customers, users, advertisers and content providers.
The occurrence of any of the foregoing events could have a material adverse
effect on the Company's business, results of operations and financial condition.
Security Risks. Despite the implementation of security measures, the
Company's networks may be vulnerable to unauthorized access, computer viruses
and other disruptive problems. A party who is able to circumvent security
measures could misappropriate proprietary information or cause interruptions in
the Company's Internet operations. ISPs and OSPs have in the past experienced,
and may in the future experience, interruptions in service as a result of the
accidental or intentional actions of Internet users, current and former
employees or others. The Company may be required to expend significant capital
or other resources to protect against the threat of security breaches or to
alleviate problems caused by such breaches. Although the Company intends to
continue to implement industry-standard security measures, there can be no
assurance that measures implemented by the Company will not be circumvented in
the future. Eliminating computer viruses and alleviating other security problems
may require interruptions, delays or cessation of service to users accessing the
Company's Web sites, which could have a material adverse effect on the Company's
business, results of operations and financial condition.
Dependence on Short-Term Advertising Contracts. A substantial portion of
the Company's Web advertising revenues are derived from short-term contracts.
Consequently, many of the Company's advertising customers can cease advertising
on the Company's Web sites quickly and without penalty, thereby increasing the
Company's exposure to competitive pressures. There can be no assurance that the
Company's current advertisers will continue to purchase advertisements or that
the Company will be able to secure new advertising contracts from existing or
future customers at attractive rates or at all. Any failure of the Company to
achieve sufficient advertising revenue could have a material adverse effect on
the Company's business, results of operations and financial condition.
Competition. The market for Internet broadcasting and services is highly
competitive and the Company expects that competition will continue to intensify.
The Company competes with (i) other Web sites and Internet broadcasters to
acquire and provide content to attract users, (ii) videoconferencing companies,
audio conferencing companies and Internet broadcasters, (iii) online services,
other Web site operators and advertising networks, as well as traditional media
such as television, radio and print, for a share of advertisers' total
advertising budgets and (iv) local radio and television stations and national
radio and television networks for sales of advertising spots. There can be no
assurance that the Company will be able to compete successfully or that the
competitive pressures faced by the Company, including those described below,
will not have a material adverse effect on the Company's business, results of
operations and financial condition.
Competition among Web sites that provide compelling content, including
streaming media content, is intense and is expected to increase significantly in
the future. The Company competes against a variety of businesses that provide
content through one or more mediums, such as print, radio, television, cable
television and the Internet. Traditional media companies that have not
established a significant presence on the Internet may expend resources to
establish such a presence in the future. The Company competes generally with
other content providers for the time and attention of users and for advertising
revenues. To compete successfully, the Company must license and then provide
sufficiently compelling and popular content to generate users, support
advertising intended to reach such users and attract business and other
organizations seeking Internet broadcasting and distribution services. The
Company competes with other Internet broadcasters and Web sites to acquire
Internet broadcasting rights to compelling content. The Company believes that
the principal
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competitive factors in attracting Internet users include the quality of service
and the relevance, timeliness, depth and breadth of content and services
offered. In the market for Internet distribution of radio and television
broadcasts, the Company competes with ISPs, radio and television stations and
networks that originate their own Internet broadcasts. RealNetworks and MCI
Communications Corporation ("MCI") announced a strategic alliance in August 1997
involving the introduction of a service currently called Real Broadcast Network
that delivers audio and video broadcasts over the Internet. In the area of
sports content, the Company competes with CBS SportsLine and ESPNET SportsZone.
The Company also competes for the time and attention of Internet users with
thousands of Web sites operated by businesses and other organizations,
individuals, governmental agencies and educational institutions. For example,
certain Web sites may provide a collection of links to other Web sites with
streaming media content. The Company expects competition to intensify and the
number of competitors to increase significantly in the future. In addition, as
the Company expands the scope of its content and services, it will compete
directly with a greater number of Web sites and other media companies. Because
the operations and strategic plans of existing and future competitors are
undergoing rapid change, it is extremely difficult for the Company to anticipate
which companies are likely to offer competitive services in the future.
The Company competes with videoconferencing and teleconferencing companies,
along with companies that provide Internet broadcasting services to businesses
and other organizations. Principal competitive factors include price,
transmission quality, transmission speed, reliability of service, ease of
access, ease of use, customer support, brand recognition and operating
experience. The Company's current and potential competitors may have
significantly greater financial, technical and marketing resources, longer
operating histories and greater brand recognition. Traditional videoconferencing
and teleconferencing may allow for a more interactive user experience. As prices
for videoconferencing systems decrease and transmission quality increases, the
installed base of videoconferencing systems may increase. Companies that provide
media streaming software may also enter the market for Internet broadcast
services. If media streaming technology and backbone bandwidth becomes more
readily available to companies at low prices, the Company's customers may decide
to broadcast their own programming. In particular, local exchange carriers, ISPs
and other data communication service providers may compete in the future with a
portion of or all of the Company's business services as technological
advancements facilitate the ability of these providers to offer effectively
these services. There can be no assurance that the Company will be able to
compete successfully against current or future competitors for Internet
broadcast services.
The Company also competes with online services, other Web site operators
and advertising networks, as well as traditional media such as television, radio
and print for a share of advertisers' total advertising budgets. The Company
believes that the principal competitive factors for attracting advertisers
include the number of users accessing the Company's Web sites, the demographics
of the Company's users, the Company's ability to deliver focused advertising and
interactivity through its Web sites and the overall cost-effectiveness and value
of advertising offered by the Company. 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 levels of Internet advertising that will be realized
generally or by any specific company. Any competition for advertisers among
present and future Web sites, as well as competition with other traditional
media for advertising placements, could result in significant price competition.
The Company believes that the number of companies selling Web-based advertising
and the available inventory of advertising space have recently increased
substantially. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements. Reduction in the Company's Web advertising revenues
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company competes for traditional media advertising sales with national
radio and television networks, as well as local radio and television stations.
Local radio and television content providers and national radio and television
networks may have larger and more established sales organizations than the
Company. These companies may have greater name recognition and more established
relationships with advertisers and advertising agencies than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, obtain
a more attractive inventory of ad spots, adopt more aggressive pricing policies
and devote substantially more resources to selling advertising inventory. The
Company's traditional
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media advertising sales efforts depend on the Company's ability to obtain an
inventory of ad spots across the top radio and television markets. If the
Company is unable to obtain such inventory, it could have a material adverse
effect on the Company's business, results of operations and financial condition.
Risks Associated with Traditional Media Advertising Sales. The Company is
dependent, in part, on its ability to sell its inventory of radio and television
ad spots obtained from stations in exchange for the Company's Internet broadcast
of their programming. Selling radio and television advertising is highly
competitive. The Company depends on Premiere Radio Networks, Inc. ("Premiere
Radio Networks") to sell a majority of its radio ad spots. The Company's
traditional media advertising sales efforts are focused on selling ads to
traditional national advertisers in order to avoid competing with advertising
sales efforts of its local radio and television station content providers. Sales
of ad spots to national advertisers are typically sold at a lower cost per
thousand ("CPM") than local advertising. The Company competes for traditional
media advertising sales with national radio and television networks. National
radio and television networks typically have larger and more established sales
organizations as compared to those of the Company. There can be no assurance
that Premiere Radio Networks will continue to sell effectively the Company's
inventory of ad spots or that competitive pressures with respect to traditional
media advertising sales will not have a material adverse effect on the Company's
business, results of operations and financial condition. See "--Competition."
Scalability of Number of Users. The Company's success depends on its
ability to broadcast audio and video programming to a large number of
simultaneous users. Until recently, the Company only deployed unicasting (one
user per Company originated stream) technology to broadcast audio and video
programming to users over the Internet. The Company has deployed another
broadcast technology, multicasting (multiple users per Company originated
stream), on a trial basis since September 1997 and has begun to deploy this
technology on a broader commercial basis only recently. The Company anticipates
that unicasting will continue to be used to distribute its archived and
on-demand programming and that multicasting or a similar broadcasting technology
will be used for live and other events where a large audience for the content is
expected. To increase the Company's unicast capacity, the Company will be
required to successfully expand its network infrastructure through the
acquisition and deployment of additional network equipment and bandwidth. There
can be no assurance that the Company will be successful in such expansion. The
Company believes that to be a successful Internet broadcaster it also must
successfully deploy multicasting or a similar broadcasting technology that can
deliver streaming media content to many users simultaneously through one-
to-many Internet connections. To this end, the Company has deployed
multicasting, but has not yet tested its full capacity during an actual
broadcast. The Company will be required to test, deploy and successfully scale
its multicast network infrastructure to serve mass audiences. There can be no
assurance that the Company will be successful in doing so, that multicasting
will be able to support a substantial audience or that an alternative technology
will not emerge that offers superior broadcasting technology as compared to
multicasting. In the event that multicasting technology is not successfully
deployed in a timely manner or such an alternative technology emerges, the
Company would likely be required to expend significant resources to deploy a
technology other than multicasting, which could have a material adverse effect
on the Company's results of operations during the period in which the Company
attempts such deployment. If the Company fails to scale its broadcasts to large
audiences of simultaneous users, such failure could have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on Providers of Streaming Media Products. The Company relies on
providers of streaming media products, such as RealNetworks and Microsoft, to
provide a broad base of users with streaming media software. The Company
currently licenses software products that enable the broadcast of streaming
media from such companies and others. The Company may need to acquire additional
licenses from such streaming media companies to meet its future needs. Users are
currently able to download electronically copies of the RealNetwork's RealPlayer
and Microsoft's NetShow Player software free of charge. If providers of
streaming media products substantially increase license fees charged to the
Company for the use of their products, refuse to license such products to the
Company or begin charging users for copies of their player software, such
actions could have a material adverse effect on the Company's business, results
of operations and financial condition.
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Dependence on Continued Growth in Use of the Internet and Streaming Media
Content on the Internet. Rapid growth in use of and interest in the Internet is
a recent phenomenon and there can be no assurance that acceptance and use of the
Internet will continue to develop or that a sufficient base of users will emerge
to support the Company's business. Future revenues of the Company will depend
largely on the widespread acceptance and use of the Internet as a source of
multimedia information and entertainment and as a vehicle for commerce in goods
and services. The Internet may not be accepted as a viable commercial medium for
broadcasting multimedia content, if at all, for a number of reasons, including
(i) potentially inadequate development of the necessary infrastructure, (ii)
inadequate development of enabling technologies, (iii) lack of acceptance of the
Internet as a medium for distributing streaming media content and (iv)
inadequate commercial support for Web-based advertising. To the extent that the
Internet continues to experience an increase in users, an increase in frequency
of use or an increase in the bandwidth requirements of users, there can be no
assurance that the Internet infrastructure will be able to support the demands
placed upon it, specifically the demands of delivering high-quality video
content. Furthermore, user experiences on the Internet are affected by access
speed. There is no assurance that broadband access technologies, such as xDSL
and cable modems, will become widely adopted. In addition, the Internet could
lose its viability as a commercial medium due to delays in the development or
adoption of new standards and protocols required to handle increased levels of
Internet activity, or due to increased government regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
also could result in unacceptable response times and could adversely affect use
of the Internet generally and of the Company's Web sites in particular. If use
of the Internet does not continue to grow or grows more slowly than expected, or
if the Internet infrastructure does not effectively support the growth that may
occur, the Company's business, results of operations and financial condition
could be materially adversely affected.
Risk of Technological Change. The market for Internet broadcast services is
characterized by rapid technological developments, frequent new product
introductions and evolving industry standards. The emerging character of these
products and services and their rapid evolution will require the Company to
effectively use leading technologies, continue to develop its technological
expertise, enhance its current services and continue to improve the performance,
features and reliability of its network infrastructure. Changes in network
infrastructure, transmission and content delivery methods and underlying
software platforms and the emergence of new broadband technologies, such as xDSL
and cable modems, could dramatically change the structure and competitive
dynamic of the market for streaming media solutions. In particular,
technological developments or strategic partnerships that accelerate the
adoption of broadband access technologies or advancements in streaming and
compression technologies may require the Company to expend resources to address
these developments. There can be no assurance that the Company will be
successful in responding quickly, cost effectively and sufficiently to these or
other such developments. In addition, the widespread adoption of new Internet
technologies or standards could require substantial expenditures by the Company
to modify or adapt its Web sites and services. A failure by the Company to
rapidly respond to technological developments could have a material adverse
effect on the Company's business, results of operations and financial condition.
Dependence on Key Personnel; Need for Additional Personnel. The Company's
performance and development is substantially dependent on the continued services
of certain members of senior management, including Todd R. Wagner, Chief
Executive Officer, and Mark Cuban, President, as well as on the Company's
ability to retain and motivate its other officers and key employees. The Company
does not have "key person" life insurance policies on any of its officers or
other employees. The Company's future success also depends on its continuing
ability to attract and retain highly qualified technical personnel and
management. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain its key management and
technical employees or that it will be able to attract or retain additional
qualified technical personnel and management in the future. The inability to
attract and retain the necessary technical personnel and management could have a
material adverse effect upon the Company's business, result of operations and
financial condition. See "Management--Employment Agreements."
Risks Associated with broadcast.com Name Change. On May 14, 1998, the
Company changed its name from AudioNet, Inc. to broadcast.com inc. to better
represent the diversity of its programming, service
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offerings and solutions. The Company believes that developing and strengthening
the broadcast.com brand is critical to achieving widespread acceptance of its
broadcast services and increasing traffic to its Web sites and that the
importance of brand recognition will increase as competition in the market for
Internet broadcasting increases. The Company has expended substantial resources
in establishing brand recognition of the name and Web address www.audionet.com.
Although users accessing www.audionet.com will automatically be taken to
www.broadcast.com, the name change may cause confusion among users and
customers. If the Company fails to promote and maintain its brand, if the
Company's existing or future strategic relationships fail to promote the
Company's brand or if the Company incurs excessive expenses in an attempt to
promote and maintain its brand, then the Company's business, results of
operations and financial condition could be materially adversely affected. There
can be no assurance that the Company will be able to enforce rights related to
the broadcast.com name, that it will be free to use the name in all
jurisdictions, that there will be no challenges to the use of that name or that
it will not be required to expend significant resources in defending the use of
that name.
Government Regulation and Legal Uncertainty. Although there are currently
few laws and regulations directly applicable to the Internet, it is likely that
new laws and regulations will be adopted in the United States and elsewhere
covering issues such as music licensing, broadcast license fees, copyrights,
privacy, pricing, sales taxes and characteristics and quality of Internet
services. The adoption of restrictive laws or regulations could slow Internet
growth or expose the Company to significant liabilities associated with content
available on its Web sites. The application of existing laws and regulations
governing Internet issues such as property ownership, libel and personal privacy
is also subject to substantial uncertainty. There can be no assurance that
current or new government laws and regulations, or the application of existing
laws and regulations (including laws and regulations governing issues such as
property ownership, content, taxation, defamation and personal injury), will not
expose the Company to significant liabilities, significantly slow Internet
growth or otherwise cause a material adverse effect on the Company's business,
results of operations or financial condition.
In November 1995, the Digital Performance Right in Sound Recordings Act of
1995 (the "1995 Act") was enacted. The 1995 Act provides that the owners of
sound recordings have certain exclusive performance rights in such recordings,
and, if applicable to the Company, could require the Company to pay additional
licensing fees for its broadcasts. The Company believes, however, that its
broadcasts are exempt from such fees under the 1995 Act. No assurance, however,
can be given that the Company's belief is correct, particularly because the 1995
Act has not yet been sufficiently interpreted. An interpretation of the 1995 Act
on this or other provisions of the Act that is adverse to the Company, could
have a material adverse effect on the Company's business, results of operations
and financial condition.
The Company currently does not collect sales or other taxes with respect to
the sale of services or products in states and countries where the Company
believes it is not required to do so. The Company does collect sales and other
taxes in the states it has offices and is required by law to do so. One or more
states or countries have sought to impose sales or other tax obligations on
companies that engage in online commerce within their jurisdictions. A
successful assertion by one or more states or countries that the Company should
collect sales or other taxes on products and services, or remit payment of sales
or other taxes for prior periods, could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Communications Decency Act of 1996 (the "CDA") was enacted in 1996.
Although those sections of the CDA that, among other things, proposed to impose
criminal penalties on anyone distributing "indecent" material to minors over the
Internet were held to be unconstitutional by the U.S. Supreme Court, there can
be no assurance that similar laws will not be proposed and adopted. Although the
Company does not currently distribute the types of materials that the CDA may
have deemed illegal, the nature of such similar legislation and the manner in
which it may be interpreted and enforced cannot be fully determined, and
legislation similar to the CDA could subject the Company to potential liability,
which in turn could have an adverse effect on the Company's business, financial
condition and results of operations. Such laws could also damage the growth of
the Internet generally and decrease the demand for the Company's products and
services, which could adversely affect the Company's business, results of
operations and financial condition.
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Liability for Internet Content. As a distributor of Internet content, the
Company faces potential liability for negligence, copyright, patent, trademark,
defamation, indecency and other claims based on the nature and content of the
materials that it broadcasts. Such claims have been brought, and sometimes
successfully pressed, against Internet content distributors. In addition, the
Company could be exposed to liability with respect to the content or
unauthorized duplication or broadcast of content. Although the Company maintains
general liability insurance, the Company's insurance may not cover potential
claims of this type or may not be adequate to indemnify the Company for all
liability that may be imposed. In addition, although the Company generally
requires its content providers to indemnify the Company for such liability, such
indemnification may be inadequate. Any imposition of liability that is not
covered by insurance, is in excess of insurance coverage or is not covered by an
indemnification by a content provider could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"--Government Regulation and Legal Uncertainty."
Intellectual Property. The Company regards its copyrights, trademarks,
trade secrets and similar intellectual property as critical to its success, and
the Company relies on a combination of copyright and trademark laws, trade
secret protection, confidentiality and non-disclosure agreements and contractual
provisions with its employees and with third parties to establish and protect
its proprietary rights. There can be no assurance that these steps will be
adequate, that the Company will be able to secure trademark registrations for
all of its marks in the United States or other countries or that third parties
will not infringe upon or misappropriate the Company's copyrights, trademarks,
service marks and similar proprietary rights. In addition, effective copyright
and trademark protection may be unenforceable or limited in certain countries,
and the global nature of the Internet makes it impossible to control the
ultimate destination of the Company's broadcasts. In the future, litigation may
be necessary to enforce and protect the Company's trade secrets, copyrights and
other intellectual property rights.
The Company may also be subject to litigation to defend against claims of
infringement of the rights of others or to determine the scope and validity of
the intellectual property rights of others. If competitors of the Company
prepare and file applications in the United States that claim trademarks used or
registered by the Company, the Company may oppose those applications and be
required to participate in proceedings before the United States Patent and
Trademark Office to determine priority of rights to the trademark, which could
result in substantial costs to the Company. An adverse outcome could require the
Company to license disputed rights from third parties or to cease using such
trademark. Any litigation regarding the Company's proprietary rights could be
costly and divert management's attention, result in the loss of certain of the
Company's proprietary rights, require the Company to seek licenses from third
parties and prevent the Company from selling its services, any one of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. In addition, inasmuch as the Company
licenses a substantial portion of its content from third parties, its exposure
to copyright infringement actions may increase because the Company must rely
upon such third parties for information as to the origin and ownership of such
licensed content. The Company generally obtains representations as to the
origins and ownership of such licensed content and generally obtains
indemnification to cover any breach of any such representations; however, there
can be no assurance that such representations will be accurate or that such
indemnification will adequately protect the Company. See "--Liability for
Internet Content" and "--Government Regulation and Legal Uncertainty."
In December 1997, the Company filed an application for a United States
trademark registration for "broadcast.com." There can be no assurance that the
Company will be able to secure such a registered trademark. In October 1996, the
Company was issued a United States trademark for "AudioNet." The Company intends
to pursue the registration of its trademarks based upon anticipated use
internationally. There can be no assurance that the Company will be able to
secure adequate protection for these trademarks in foreign countries. Many
countries have a "first-to-file" trademark registration system and thus the
Company may be prevented from registering its marks in certain countries if
third parties have previously filed applications to register or have registered
the same or similar marks. It is possible that competitors of the Company or
others will adopt service names similar to the Company's, thereby impeding the
Company's ability to build brand identity and possibly leading to customer
confusion. In addition, there could be potential trademark or trademark
infringement claims brought by owners of other registered trademarks or
trademarks
14
<PAGE> 17
that incorporate variations of the term broadcast.com. The inability of the
Company to protect its "broadcast.com," "AudioNet" and other marks adequately
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "--Risks Associated with broadcast.com
Name Change."
As part of its confidentiality procedures, the Company generally enters
into agreements with its employees and consultants and limits access to and
distribution of its software, documentation and other proprietary information.
There can be no assurance that the steps taken by the Company will prevent
misappropriation of its proprietary information or that agreements entered into
for that purpose would be enforceable. Notwithstanding the precautions taken by
the Company, it might be possible for a third party to copy or otherwise obtain
and use the Company's proprietary information without authorization. The laws of
some countries may afford the Company little or no effective protection of its
intellectual property.
Acquisition Risk. The Company may pursue the acquisition of new or
complementary businesses, services or technologies, although it has no present
understandings, commitments or agreements with respect to any material
acquisitions or investments. Any such future acquisitions would be accompanied
by the risks commonly encountered in acquisitions of companies, including, among
other things, the difficulty of integrating the operations and personnel of the
acquired companies, the potential disruption of the Company's ongoing business,
the inability of management to incorporate successfully acquired technology and
rights into the Company's services and content offerings, additional expense
associated with amortization of acquired intangible assets, the maintenance of
uniform standards, controls, procedures and policies, and the potential
impairment of relationships with employees, customers and strategic partners.
Control by Certain Stockholders. Upon completion of this offering, the
Company's executive officers will beneficially own approximately % of the
outstanding Common Stock (approximately % of the outstanding Common Stock
assuming full exercise of the Underwriters' overallotment option). As a result,
these stockholders, if they act as a group, will have a significant influence on
all matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions. Such control may have the
effect of delaying or preventing a change in control of the Company. See
"Principal and Selling Stockholders."
Certain Anti-Takeover Provisions. The Company's Board of Directors has the
authority to issue up to 5,000,000 shares of Preferred Stock and to determine
the price, rights, preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the stockholders
of the Company. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company, may discourage bids for the Company's Common Stock at a premium over
the market price of the Common Stock and may adversely affect the market price
of, and the other rights of the holders of, the Common Stock. The Company has no
present plans to issue shares of Preferred Stock. In addition, certain
provisions of the Company's Restated Certificate of Incorporation, as amended
(the "Restated Certificate of Incorporation") and Amended and Restated Bylaws
(the "Bylaws") will have the effect of delaying, deferring or preventing a
change of control of the Company. These provisions provide, among other things,
that the Board of Directors is divided into three classes to serve staggered
three-year terms, that stockholders may not take actions by written consent and
that the ability of stockholders to call special meetings will be restricted. In
addition, the Company is subject to the anti-takeover provisions of Section 203
of the Delaware General Corporation Law (the "DGCL"), which will prohibit the
Company 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. The Company's indemnification
agreements with directors and officers, the Company's Restated Certificate of
Incorporation and Bylaws provide that the Company will indemnify officers and
directors against losses that they may incur in investigations and legal
proceedings resulting from their services to the Company, which may be broad
enough to include services in connection with takeover defense measures. Such
provisions may have the effect of preventing changes in the management of the
Company. See "Description of Capital Stock."
15
<PAGE> 18
No Specific Use of Proceeds. The Company has not designated any specific
use for the net proceeds from the sale by the Company of the shares of Common
Stock offered hereby. Rather, the Company intends to use the net proceeds
primarily for general corporate purposes, including working capital, capital
expenditures and strategic acquisitions. The Company has no present plans or
commitments and is not currently engaged in any negotiations with respect to
strategic acquisitions. Accordingly, management will have significant
flexibility in applying the net proceeds of this offering. The failure of
management to apply such funds effectively could have a material adverse effect
on the Company's business, results of operations and financial condition. See
"Use of Proceeds."
Year 2000 Compliance. 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. The
issue is 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. The Company is in the process of working with its software vendors to
assure that the Company is prepared for the year 2000. The Company has not
verified that companies doing business with it are year 2000 compliant. The
Company does not anticipate that it 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. Any year 2000
compliance problem of either the Company or its users, customers or advertisers
could have a material adverse effect on the Company's business, results of
operations and financial condition.
No Prior Public Market. Prior to this offering, there has been no public
market for the Common Stock. The initial public offering price will be
determined by negotiation between the Company and the representatives of the
Underwriters based upon several factors. The initial public offering price may
not be indicative of future market prices. See "Underwriters" for a discussion
of the factors to be considered in determining the initial public offering
price.
Possible Volatility of Stock Price. The trading price of the Common Stock
is likely to be highly volatile and could be subject to wide fluctuations in
response to factors such as actual or anticipated variations in quarterly
operating results, announcements of technological innovations, new sales formats
or new services by the Company or its competitors, changes in financial
estimates by securities analysts, conditions or trends in Internet markets,
changes in the market valuations of other Internet companies, announcements by
the Company or its competitors of significant acquisitions, strategic
partnerships, joint ventures, capital commitments, additions or departures of
key personnel, sales of Common Stock and other events or factors, many of which
are beyond the Company's control. In addition, the stock market in general, and
the market for Internet-related and technology companies in particular, has
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of such companies. The trading
prices of many technology companies' stocks are at or near historical highs and
reflect price earnings ratios substantially above historical levels. There can
be no assurance that these trading prices and price earnings ratios will be
sustained. These broad market and industry factors may materially adversely
affect the market price of the Common Stock, regardless of the Company's
operating performance. In the past, following periods of volatility in the
market price of a company's securities, securities class-action litigation has
often been instituted against such company. Such litigation, if instituted,
could result in substantial costs and a diversion of management's attention and
resources, which could have a material adverse effect on the Company's business,
results of operations and financial condition.
Shares Eligible for Future Sale; Registration Rights. Sales of a
substantial number of shares of Common Stock in the public market following this
offering could adversely affect the market price for the Company's Common Stock.
The number of shares of Common Stock available for sale in the public market is
limited by restrictions under the Securities Act of 1933, as amended (the
"Securities Act"), and lock-up agreements under which the holders of such shares
have agreed not to sell or otherwise dispose of any of their shares for a period
of 180 days after the date of this Prospectus without the prior written consent
of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co. Incorporated, may,
however, in its sole discretion and at any time without prior notice, release
all or any portion of the Common Stock subject to these lock-up agreements. In
16
<PAGE> 19
addition to the shares of Common Stock offered hereby (assuming no exercise
of the Underwriters' overallotment option), there will be 14,383,451 shares of
Common Stock outstanding upon completion of this offering (assuming no exercise
of warrants or options), all of which are subject to lock-up agreements and/or
are "restricted shares" under the Securities Act. On the date of this
Prospectus, no shares other than the shares offered hereby will be eligible
for sale. Upon expiration of the lock-up agreements 180 days after the date of
this Prospectus, an additional 13,976,285 shares will become eligible for sale
in the public market, of which all but 3,249,300 shares shall be subject to the
volume limitations and other conditions of Rule 144 adopted under the Securities
Act ("Rule 144"). The remaining 407,166 shares will become eligible for sale in
the public market in March 1999, all of which shares shall be subject to the
volume limitations and other conditions of Rule 144. In addition, on March 31,
1998, there were outstanding warrants to purchase 322,316 shares of the
Company's Common Stock and options exercisable for 285,225 shares of the
Company's Common Stock. In addition, the Company intends to register shortly
after the date of this Prospectus a total of shares of Common Stock subject
to options outstanding or reserved for future issuance under the Company's 1996
Stock Option Plan, 1998 Stock Option Plan and 1996 Non-Employee Directors Stock
Option Plan, and shares of Common Stock reserved for issuance under the
Company's Employee Stock Purchase Plan. Upon expiration of the lock-up
agreements referred to above, holders of 4,533,631 shares of Common Stock and
holders of warrants to purchase 218,096 shares of Common Stock will have certain
rights to require the Company to register those shares of Common Stock and those
shares issuable upon the exercise of warrants under the Securities Act. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price for the Company's Common Stock. See
"Description of Capital Stock--Registration Rights," "Shares Eligible for Future
Sale" and "Underwriters."
Dilution. Purchasers of the Common Stock in this offering will experience
immediate and substantial dilution of $ per share in the net tangible book
value per share of Common Stock from the public offering price per share of the
Common Stock. Additional dilution will occur upon exercise of outstanding stock
options. See "Dilution."
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
shares of Common Stock offered by the Company hereby are estimated to be
approximately $ million (approximately $ million, if the
Underwriters' over-allotment option is exercised in full), at an assumed initial
public offering price of $ per share and after deducting estimated underwriting
discounts and commissions and estimated offering expenses payable by the
Company. The net proceeds are expected to be used for general corporate
purposes, including capital expenditures, working capital and strategic
acquisitions. The Company has no present plans or commitments and is not
currently engaged in any negotiations with respect to strategic acquisitions.
Prior to such use, the Company intends to invest the net proceeds from this
offering in short-term, interest-bearing, investment-grade securities. See "Risk
Factors--Use of Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not anticipate paying cash dividends in the foreseeable future.
18
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998, and as adjusted to give effect to the issuance and sale of the
shares of Common Stock offered by the Company (at an assumed public offering
price of $ per share after deducting estimated underwriting discounts,
commissions and estimated offering expenses payable by the Company) and the
application of the net proceeds therefrom. This table should be read in
conjunction with the Company's Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
-------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred Stock, $.01 par value; 5,000,000 shares
authorized;
no shares issued and outstanding....................... $ --
Common stock, $.01 par value; 45,000,000 shares
authorized; 14,383,451 shares issued and outstanding,
actual and shares issued and outstanding, as
adjusted(1)............................................ 90
Additional paid-in capital................................ 40,669
Accumulated deficit....................................... (12,453)
------- -------
Total stockholders' equity........................... 28,306
------- -------
Total capitalization.............................. $28,306
======= =======
</TABLE>
- ---------------
(1) Excludes (i) 2,000,973 shares of Common Stock issuable upon exercise of
options then outstanding, with a weighted average exercise price of $5.95
per share and (ii) 938,291 shares available for issuance under the Company's
stock plans. Also excludes (i) 218,036 shares of Common Stock subject to
outstanding warrants and (ii) an additional warrant to purchase 15,960
shares of Common Stock which will expire upon the consummation of this
offering. See "Management--Director Compensation," "--Employee Benefit
Plans" and Note 6 of Notes to Financial Statements.
19
<PAGE> 22
DILUTION
The net tangible book value of the Company as of March 31, 1998 was
$28,114,512 or $1.95 per share. Net tangible book value per share is equal to
the Company's total tangible assets, less its total liabilities, divided by the
number of shares of Common Stock outstanding as of March 31, 1998. After giving
effect to the issuance and sale of the shares of Common Stock offered
by the Company hereby and after deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by the Company, the as
adjusted net tangible book value of the Company as of March 31, 1998 would have
been $ or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution of approximately $ per share to new public investors purchasing
shares in this offering. The following table illustrates the per share dilution
to new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share as of March 31, 1998.... $1.95
Increase per share attributable to new public investors...
-----
As adjusted net tangible book value per share after the
offering..................................................
-----
Dilution per share to new public investors(1)...............
=====
</TABLE>
The following table summarizes on a pro forma basis, as of March 31, 1998,
the difference between the existing stockholders and the purchasers of shares of
Common Stock in this offering (before deducting underwriting discounts and
commissions and estimated offering expenses payable by the Company) with respect
to the number of shares of Common Stock purchased from the Company, the total
cash consideration paid and the average price paid per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 14,383,451 % $40,039,419 % $2.78
New public investors...................
---------- ---- ----------- ----
Total........................ % $ %
========== ==== =========== ====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of March 31, 1998 and no exercise of warrants to purchase 234,056
shares of Common Stock. As of March 31, 1998, there were options outstanding to
purchase a total of 2,000,973 shares of Common Stock with a weighted average
exercise price of $5.95 per share. To the extent that any of these options or
warrants are exercised, there will be further dilution to new public investors.
See "Capitalization," "Management--Director Compensation," "--Employee Benefit
Plans" and Note 6 of Notes to Financial Statements.
20
<PAGE> 23
SELECTED FINANCIAL DATA
The following table sets forth selected financial information for the
periods presented. The statement of operations data of the Company presented for
the period from inception (May 19, 1995) to December 31, 1995, years ended
December 31, 1996 and 1997 and the balance sheet data for the years then ended
are derived from the financial statements of the Company audited by Price
Waterhouse LLP, independent accounts and such financial statements are included
elsewhere herein and are qualified by reference to such financial statements.
The selected financial data of the Company presented for the three months ended
March 31, 1997 and 1998 were derived from the Company's unaudited financial
statements also appearing herein and which, in the opinion of Company
management, include all adjustments, consisting of normal recurring accruals and
other adjustments, necessary for the fair presentation of the financial position
and results of operations for these periods. The results of operations for the
three months ended March 31, 1998 may not be indicative of results that may be
expected for the full year ending December 31, 1998. The financial information
set forth below should be read in conjunction with, and is qualified in its
entirety by, the Financial Statements of the Company and related notes thereto
that appear elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM YEAR ENDED THREE MONTHS ENDED
INCEPTION DECEMBER 31, MARCH 31,
(MAY 19, 1995) TO ----------------- ------------------------
DECEMBER 31, 1995 1996 1997 1997 1998
----------------- ------- ------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.......................... $ -- $ 1,756 $ 6,856 $ 1,087 $ 3,176
Cost of revenues.................. -- 1,301 2,950 469 1,225
------ ------- ------- ------- -------
Gross profit...................... -- 455 3,906 618 1,951
Operating expenses
Operating and development....... -- 1,506 4,659 650 2,247
Sales and marketing............. 21 718 3,389 519 1,671
General and administrative...... 217 752 1,416 397 588
Depreciation and amortization... 30 544 1,129 176 442
------ ------- ------- ------- -------
Total operating
expenses.............. 268 3,520 10,593 1,742 4,948
------ ------- ------- ------- -------
Net operating loss...... (268) (3,065) (6,687) (1,124) (2,997)
Interest and other income......... -- 76 213 61 275
------ ------- ------- ------- -------
Net loss................ $ (268) $(2,989) $(6,474) $(1,063) $(2,722)
====== ======= ======= ======= =======
Basic and diluted net loss per
share(1)........................ $ (.04) $ (.31) $ (.55) $ (.09) $ (.19)
====== ======= ======= ======= =======
Shares used in the net loss per
share calculations(1)........... 6,020 9,564 11,680 11,428 14,076
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- MARCH 31,
1995 1996 1997 1998
----- ------ ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................. $ 142 $4,580 $21,337 $22,400
Working capital (deficit)............................. (75) 4,524 23,318 24,455
Total assets.......................................... 676 8,154 28,233 30,134
Total debt............................................ -- -- -- --
Total other liabilities............................... 320 546 1,040 1,828
Total stockholders' equity (deficit).................. (214) 7,608 27,193 28,306
</TABLE>
- ---------------
(1) See Note 8 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in per share calculations.
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Financial
Statements and Notes thereto appearing elsewhere in this Prospectus. The
following discussion contains forward-looking statements. The Company's actual
results may differ significantly from those projected in the forward-looking
statements. Factors that might cause future results to differ materially from
those projected in the forward-looking statements include, but are not limited
to, those discussed in "Risk Factors" and elsewhere in this Prospectus.
OVERVIEW
Broadcast.com (formerly AudioNet) is the leading aggregator and broadcaster
of streaming media programming on the Web with the network infrastructure and
expertise to deliver or "stream" hundreds of live and on-demand audio and video
programs over the Internet to hundreds of thousands of users. The Company's Web
sites offer a large and comprehensive selection of live and on-demand audio and
video programming, including sports, talk and music radio, television, business
events, full-length CDs, news, commentary and full-length audio-books. During
the period from the Company's inception on May 19, 1995 through December 31,
1995 (the "Inception Period"), the Company had no revenues and its operating
activities related primarily to the investment in necessary network
infrastructure and initial planning and development of the Company's Web sites
and operations. During 1996, the Company generated revenues primarily from
business services and Web advertising and the Company's operating activities
related to the continued development of the network infrastructure required for
large-scale streaming media broadcasts, continued enhancement of its Web sites
and the opening of a sales office in New York. During 1997, the Company
significantly increased revenues from business services and Web advertising and
began generating revenues from traditional media advertising. Also during 1997,
the Company continued to expand its network infrastructure, moved to a 28,000
square foot facility, continued the enhancement of its Web sites and added
qualified sales, marketing, operations and general and administrative personnel.
During 1998, the Company added television advertising sales to its traditional
media advertising revenues, expanded its customer and user base, hired sales
directors and vice presidents, opened sales offices in Los Angeles and San
Francisco and continued to expand its network infrastructure. Throughout the
Company's existence, it has expended significant resources in the aggregation of
content by obtaining Internet broadcasting rights to audio and video
programming.
The Company derives substantially all of its revenues through the sale of
business services, Web advertising and traditional media advertising. Business
services revenues are derived from the Company's Internet and intranet
broadcasts of its customers' business, educational or other programming.
Business services revenues are recognized in the month in which the service is
provided. Web advertising revenues are derived from the sale of gateway ads with
guaranteed click-thrus, channel and event sponsorships and multimedia and
traditional banner ads. Web advertising revenues are recognized over the period
in which the advertisement is displayed on one of the Company's Web pages,
except for sponsorship sales which are recognized ratably over the term of the
sponsorship. Traditional media advertising revenues are derived from the sale of
ad spots received from radio and television stations in exchange for the Company
broadcasting their programming over the Internet and the sale of prepaid
advertising. Traditional media advertising revenues are recognized in the month
in which the spots are sold. Other revenues consist of electronic commerce sales
as well as certain programming and promotional services performed by the Company
and are recognized in the month in which the product is sold or the service is
provided.
The Company has incurred significant losses since its inception, and as of
March 31, 1998 had an accumulated deficit of approximately $12.5 million. The
Company believes that its success will depend largely on its ability to extend
its leadership position as a source for streaming media programming and business
services on the Web. Accordingly, the Company intends to invest heavily in sales
and marketing, content acquisition and continued development of its network
infrastructure. The Company expects to continue to incur substantial operating
losses for the foreseeable future.
In view of the rapidly evolving nature of the Company's business and its
limited operating history, the Company believes that period-to-period
comparisons of its revenues and operating results, including its gross
22
<PAGE> 25
profit margin and operating expenses as a percentage of total net revenues, are
not necessarily meaningful and should not be relied upon as indications of
future performance. Although the Company has experienced sequential quarterly
growth in revenues, it does not believe that its historical growth rates are
necessarily sustainable or indicative of future growth.
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated as a percentage of total revenues. Data for the Inception Period is
not presented as the Company had no revenues in the Inception Period.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------- -------------------
1996 1997 1997 1998
------ ------ ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Business services.......................... 30.5% 41.1% 41.1% 35.5%
Web advertising............................ 62.1 43.1 48.9 41.6
Traditional media advertising.............. -- 13.8 8.3 16.3
Other...................................... 7.4 2.0 1.7 6.6
------ ------ ------ ------
Total revenues..................... 100.0 100.0 100.0 100.0
Cost of revenues............................. 74.1 43.0 43.2 38.6
------ ------ ------ ------
Gross profit....................... 25.9 57.0 56.8 61.4
------ ------ ------ ------
Operating expenses:
Operations and development................. 85.8 68.0 59.8 70.8
Sales and marketing........................ 40.9 49.4 47.8 52.6
General and administrative................. 42.7 20.6 36.5 18.5
Depreciation and amortization.............. 31.0 16.5 16.2 13.9
------ ------ ------ ------
Total operating expenses........... 200.4 154.5 160.3 155.8
------ ------ ------ ------
Net operating loss................. (174.5) (97.5) (103.5) (94.4)
Interest and other income.................... 4.3 3.1 5.7 8.7
------ ------ ------ ------
Net loss........................... (170.2)% (94.4)% (97.8)% (85.7)%
====== ====== ====== ======
</TABLE>
THREE MONTHS ENDED MARCH 31, 1997 AND 1998
REVENUES
Total revenues increased $2.1 million, or 192.2%, from $1.1 million to $3.2
million for the three months ended March 31, 1997 and 1998, respectively.
Business Services. Business services revenues increased $680,000, or
152.2%, from $447,000 to $1.1 million for the three months ended March 31, 1997
and 1998, respectively. Business services revenues represented 41.1% of total
revenues for the three months ended March 31, 1997 and 35.5% of total revenues
for the three months ended March 31, 1998. The increase in business services
revenues was due primarily to an increase in the number of business services
events broadcast by the Company from 125 events in the three months ended March
31, 1997 to 347 events in the three months ended March 31, 1998.
Web Advertising. Web advertising revenues increased $792,000, or 149.0%,
from $531,000 to $1.3 million for the three months ended March 31, 1997 and
1998, respectively. Web advertising revenues represented 48.9% of total revenues
for the three months ended March 31, 1997 and 41.6% of total revenues for the
three months ended March 31, 1998. Bartered Web advertising revenues increased
$24,000, or 9.2%, from $256,000 to $280,000 for the three months ended March 31,
1997 and 1998, respectively, and represented 23.6% and 8.8% of total revenues,
respectively. The Company anticipates that bartered Web advertising revenues, as
a percentage of total revenues, will continue to decline. The increase in Web
advertising revenues was due
23
<PAGE> 26
primarily to an increase in ads sold to existing and new advertisers on the
Company's Web sites, including increased sales of gateway ads, which sell at a
higher rate than traditional banner ads.
Traditional Media Advertising. Traditional media advertising revenues
increased $426,000, from $91,000 to $517,000 for the three months ended March
31, 1997 and 1998, respectively. Traditional media advertising revenues
represented 8.3% of total revenues for the three months ended March 31, 1997 and
16.3% of total revenues for the three months ended March 31, 1998. The increase
was due primarily to increased sales of ad spots acquired through the licensing
of additional radio stations.
Other. Other revenues increased $192,000, from $18,000 to $210,000 for the
three months ended March 31, 1997 and 1998, respectively, representing 1.7% and
6.6% of total revenues, respectively. The Company began selling promotional
services and electronic commerce sales increased in the first quarter of 1998.
COST OF REVENUES
Cost of revenues consists primarily of amortization of prepaid advertising,
bartered Web advertising expenses, event production costs, direct personnel
expenses associated with event production and performance license fees. Cost of
revenues increased $756,000, or 161.0%, from $469,000 to $1.2 million for the
three months ended March 31, 1997 and 1998, respectively. Of the increase,
$650,000 was due to amortization of prepaid advertising and performance license
fees. The increase was also due to added personnel and production costs required
to support the broadcast of additional live events. Excluding both the revenues
and expenses associated with bartered Web advertising transactions, cost of
revenues increased from 25.7% to 32.6% of revenues for the three month periods
presented, respectively, due primarily to the increase in amortization of
prepaid advertising and performance license fees.
OPERATING EXPENSES
Operating and Development. Operating and development expenses consist
primarily of data communications expenses, personnel expenses associated with
broadcasting, software and content license fees, operating supplies and
overhead. Operating and development expenses increased $1.6 million, from
$650,000 to $2.2 million, for the three months ended March 31, 1997 and 1998,
respectively. Approximately $1.2 million of the increase was due to increased
expenditures for data communications as user traffic increased, software license
fees as the network infrastructure expanded and operations personnel to handle
additional broadcasts as the Company obtained additional Internet broadcasting
rights to programming.
Sales and Marketing. Sales and marketing expenses consist primarily of
personnel expenses associated with the sale of the Company's business services,
Web advertising and traditional media advertising, marketing of the Company's
Web sites, graphic design costs and overhead. Sales and marketing expenses
increased $1.2 million, from $519,000 to $1.7 million for the three months ended
March 31, 1997 and 1998, respectively. Approximately $1.0 million of the
increase was due to growth in the Company's sales force and marketing staff and
increased advertising expenses.
General and Administrative. General and administrative expenses consist
primarily of administrative personnel expenses, professional fees, expenditures
for applicable facilities costs and overhead. General and administrative
expenses increased $191,000, or 48.2%, from $397,000 to $588,000 for the three
months ended March 31, 1997 and 1998, respectively. The increase was due
primarily to increased personnel expenses and professional fees necessary to
support the Company's growth.
Depreciation and Amortization. Depreciation and amortization expenses
consist of depreciation of property and equipment and amortization of intangible
assets. Depreciation and amortization expenses increased $266,000, or 150.7%,
from $176,000 to $442,000 for the three months ended March 31, 1997 and 1998,
respectively. The increase was primarily due to the addition of property and
equipment as the Company expanded its network infrastructure, incurred leasehold
improvement costs and purchased equipment necessary to support the growth in
personnel.
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<PAGE> 27
INTEREST AND OTHER INCOME
Interest and other income consist primarily of interest earnings on the
Company's cash and cash equivalents. Interest and other income increased from
$61,000 to $275,000 for the three months ended March 31, 1997 and 1998,
respectively. The increase was due to interest earned from the investment of
higher cash and cash equivalent balances derived from sales of the Company's
Common Stock in December 1997.
INCEPTION PERIOD AND YEARS ENDED DECEMBER 31, 1996 AND 1997
REVENUES
Total revenues increased $5.1 million, or 290.4%, from $1.8 million to $6.9
million in 1996 and 1997, respectively. The Company had no revenues during the
Inception Period.
Business Services. Business services revenues increased $2.3 million, from
$535,000 to $2.8 million in 1996 and 1997, respectively. Business services
revenues represented 30.5% of total revenues in 1996 and 41.1% of total revenues
in 1997. The increase in business services revenues was due primarily to an
increase in the number of business services events broadcast by the Company from
221 events in 1996 to 798 events in 1997.
Web Advertising. Web advertising revenues increased $1.9 million from $1.1
million to $3.0 million in 1996 and 1997, respectively. Web advertising revenues
represented 62.1% of total revenues in 1996 and 43.1% of total revenues in 1997.
Bartered Web advertising revenues increased $379,000, or 59.4%, from $638,000 to
$1.0 million in 1996 and 1997, respectively, and represented 36.3% and 14.8% of
total revenues, respectively. The increase in Web advertising revenues was due
primarily to an increase in ads sold to existing and new advertisers on the
Company's Web sites, including gateway ads, which the Company began selling in
the first quarter of 1997.
Traditional Media Advertising. Traditional media advertising was $942,000,
or 13.8% of total revenues in 1997, as the Company began selling its ad spots
acquired through the licensing of radio stations in the first quarter of 1997.
Other. Other revenues increased $8,000, or 6.1%, from $130,000 to $138,000
in 1996 and 1997, respectively, representing 7.4% and 2.0% of total revenues,
respectively.
COST OF REVENUES
Cost of revenues increased $1.6 million, or 126.7%, from $1.3 million to
$2.9 million in 1996 and 1997, respectively. The Company incurred no cost of
revenues during the Inception Period. The increase was primarily due to
amortization of prepaid advertising, barter expenses and production and
personnel costs required for the broadcasting of additional business services
events. Excluding both the revenues and expenses associated with bartered Web
advertising transactions, cost of revenues decreased from 59.3% to 33.1% of
revenues for the periods presented, respectively, due to revenue growth in
excess of growth in expenses.
OPERATING EXPENSES
Operating and Development. Operating and development expenses increased
$3.2 million, from $1.5 million to $4.7 million in 1996 and 1997, respectively.
The Company did not incur operating and development expenses during the
Inception Period. Approximately $2.6 million of the increase was due to
expenditures for data communications as user traffic increased, operations
personnel to handle the additional broadcasts of the Company's additional
content, and content license fees for the acquisition of additional content.
Sales and Marketing. Sales and marketing expenses increased from $21,000 in
the Inception Period to $718,000 in 1996 to $3.4 million in 1997, an increase of
$696,000 and $2.7 million, respectively. The increases were due primarily to
growth in the Company's sales force and marketing staff.
General and Administrative. General and administrative expenses increased
from $217,000 in the Inception Period to $752,000 in 1996 to $1.4 million in
1997, an increase of $535,000 and $664,000, or 247.1% and 88.4%, respectively.
The increases were due primarily to increased personnel expenses, professional
fees and building expenses necessary to support the Company's growth.
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<PAGE> 28
Depreciation and Amortization. Depreciation and amortization expenses
increased from $30,000 in the Inception Period to $544,000 in 1996 to $1.1
million in 1997, an increase of $514,000 and $585,000, respectively. The
increases were primarily due to the addition of property and equipment as the
Company expanded its network infrastructure, incurred leasehold improvement
costs and purchased equipment necessary to support the growth in personnel.
INTEREST AND OTHER INCOME
Interest and other income consist primarily of interest earnings on the
Company's cash and cash equivalents. Interest and other income increased from
$76,000 in 1996 to $213,000 in 1997. The Company had no interest and other
income in the Inception Period.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth certain unaudited quarterly statements of
operations data for the nine quarters ended March 31, 1998. This information has
been derived from the Company's unaudited financial statements, which, in
management's opinion, have been prepared on the same basis as the audited
Financial Statements, and include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented. This information should be read in conjunction with the
audited Financial Statements of the Company and the Notes thereto included
elsewhere in this Prospectus. The operating results for any quarter are not
necessarily indicative of the operating results for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Business services.............. $ 13 $ 78 $ 217 $ 226 $ 447 $ 794 $ 804 $ 776 $ 1,127
Web advertising................ 23 34 167 867 531 538 693 1,193 1,322
Traditional media
advertising.................. -- -- -- -- 91 117 360 374 517
Other.......................... 15 28 71 17 18 18 50 53 210
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues........... 51 140 455 1,110 1,087 1,467 1,907 2,396 3,176
Cost of revenues................ 45 58 207 992 469 593 995 893 1,225
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............. 6 82 248 118 618 874 912 1,503 1,951
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Operations and development..... 128 233 371 774 650 1,128 1,285 1,597 2,247
Sales and marketing............ 47 106 213 351 519 780 908 1,183 1,671
General and administrative..... 46 84 273 347 398 257 338 425 589
Depreciation and
amortization................. 119 128 142 156 176 223 315 414 442
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 340 551 999 1,628 1,743 2,387 2,846 3,619 4,949
------- ------- ------- ------- ------- ------- ------- ------- -------
Net operating loss....... (334) (469) (751) (1,510) (1,125) (1,513) (1,934) (2,116) (2,998)
Interest and other income....... 1 2 17 56 62 61 39 52 276
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................. $ (333) $ (467) $ (734) $(1,454) $(1,063) $(1,452) $(1,895) $(2,064) $(2,722)
======= ======= ======= ======= ======= ======= ======= ======= =======
Basic and diluted net loss per
share.......................... $ (.04) $ (.05) $ (.07) $ (.13) $ (.09) $ (.12) $ (.16) $ (.17) $ (.19)
======= ======= ======= ======= ======= ======= ======= ======= =======
Shares used in the net loss per
share calculations............. 7,956 9,382 10,018 10,846 11,428 11,675 11,681 11,930 14,076
</TABLE>
26
<PAGE> 29
<TABLE>
<CAPTION>
AS A PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Business services.............. 25.8% 55.9% 47.8% 20.4% 41.1% 54.1% 42.2% 32.4% 35.5%
Web advertising................ 44.1 24.4 36.7 78.1 48.9 36.7 36.3 49.8 41.6
Traditional media
advertising.................. -- -- -- -- 8.3 8.0 18.9 15.6 16.3
Other.......................... 30.1 19.7 15.5 1.5 1.7 1.2 2.6 2.2 6.6
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenues........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenues................ 88.1 41.3 45.4 89.3 43.2 40.4 52.1 37.3 38.6
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit............. 11.9 58.7 54.6 10.7 56.8 59.6 47.9 62.7 61.4
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Operations and development..... 248.3 166.9 81.7 69.7 59.8 76.9 67.4 66.6 70.8
Sales and marketing............ 91.4 75.9 46.9 31.6 47.8 53.2 47.6 49.4 52.6
General and administrative..... 89.3 60.4 60.1 31.4 36.5 17.5 17.8 17.7 18.5
Depreciation and
amortization................. 230.6 91.1 31.1 14.1 16.2 15.2 16.5 17.3 13.9
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses................ 659.6 394.3 219.8 146.8 160.3 162.8 149.3 151.0 155.8
------- ------- ------- ------- ------- ------- ------- ------- -------
Net operating loss....... (647.7) (335.6) (165.2) (136.1) (103.5) (103.2) (101.4) (88.3) (94.4)
Interest and other income....... 1.7 1.5 3.7 5.1 5.7 4.2 2.0 2.1 8.7
------- ------- ------- ------- ------- ------- ------- ------- -------
Net loss................. (646.0)% (334.1)% (161.5)% (131.0)% (97.8)% (99.0)% (99.4)% (86.2)% (85.7)%
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
FACTORS AFFECTING OPERATING RESULTS
The Company's operating results have varied on a quarterly basis during its
short operating history and may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
Factors that may affect the Company's quarterly operating results include, but
are not limited to, (i) the cost of acquiring and the availability of content,
(ii) the demand for the Company's business services, (iii) demand for Internet
advertising, (iv) seasonal trends in Internet and advertising placements, (v)
the advertising cycles for, or the addition or loss of, individual advertisers,
(vi) the level of traffic on the Company's Web sites, (vii) the amount and
timing of capital expenditures and other costs relating to the expansion of the
Company's operations, (viii) price competition or pricing changes in Internet
broadcasting services, such as the Company's Internet advertising and business
services, (ix) the seasonality of the content of the Company's broadcasts, such
as sporting and other events, (x) the level of, and seasonal trends in, the use
of the Internet, (xi) technical difficulties or system downtime, (xii) the cost
to acquire sufficient bandwidth to integrate efficient broadcast technologies,
such as multicasting, to meet the Company's needs, (xiii) the mix of unicasting
and multicasting from the Company's Web sites, (xiv) the introduction of new
products or services by the Company or its competitors and (xv) general economic
conditions and economic conditions specific to the Internet such as electronic
commerce and online media. Any one of these factors could cause the Company's
revenues and operating results to vary significantly in the future. In addition,
as a strategic response to changes in the competitive environment, the Company
may from time to time make certain pricing, service or marketing decisions or
acquisitions that could cause significant declines in the Company's quarterly
operating results.
The Company's limited operating history and the emerging nature of its
markets make prediction of future revenues difficult. The Company's expense
levels are based, in part, on its expectations with regard to future revenues,
and to a large extent such expenses are fixed, particularly in the short term.
There can be no assurance that the Company will be able to predict its future
revenues accurately and the Company may be unable to adjust spending in a timely
manner to compensate for any unexpected revenue shortfall. Accordingly, any
significant shortfall in relation to the Company's expectations could cause
significant declines in the Company's quarterly operating results.
Due to all the foregoing factors, the Company's quarterly revenues and
operating results are difficult to forecast. The Company believes that its
quarterly revenues, expenses and operating results could vary significantly in
the future, and that period-to-period comparisons should not be relied upon as
indications of future performance. Due to the foregoing factors, it is likely
that in some future quarters the Company's
27
<PAGE> 30
operating results will fall below the expectations of securities analysts and
investors, which could have a material adverse effect on the trading price of
the Common Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations through
private sales of Common Stock and warrants. Net proceeds from these sales from
inception to March 31, 1998 have totaled approximately $40.8 million. At March
31, 1998, the principal source of liquidity for the Company was approximately
$22.4 million of cash and cash equivalents. The Company has entered into an
operating lease facility which provides for up to $2.5 million for equipment, of
which the Company has utilized approximately $550,000 as of April 30, 1998. In
addition, the Company has a line of credit that provides for borrowings up to
$2.5 million for working capital needs and equipment purchases. To date, the
Company has not made any borrowings against this line of credit.
Net cash used in operating activities was $30,000, $4.3 million and $6.6
million in the Inception Period, 1996 and 1997, respectively. For the three
month period ended March 31, 1998, net cash used in operating activities was
$1.8 million. Net cash used in operating activities in all such periods was
primarily attributable to net losses, offset in part by increases in accounts
payable and accrued liabilities.
Net cash used in investing activities was $414,000, $1.3 million and $2.7
million in the Inception Period, 1996 and 1997, respectively. For the three
month period ended March 31, 1998, net cash used in investing activities was
$983,000. Net cash used in investing activities in all such periods was
primarily related to purchases of property and equipment.
Net cash provided by financing activities was $586,000, $10.0 million and
$26.1 million in the Inception Period, 1996 and 1997, respectively. For the
three month period ended March 31, 1998, net cash provided by financing
activities was $3.8 million. Net cash provided by financing activities resulted
primarily from the issuances of Common Stock.
The Company believes that the net proceeds from this offering, together
with its current cash and cash equivalents, will be sufficient to meet its
anticipated cash needs for working capital and capital expenditures for at least
the next 12 months. The Company may need to raise additional funds through
public or private financings, or other arrangements. There can be no assurance
that such additional financings, if needed, will be available on terms
attractive to the Company, if at all. Failure of the Company to raise capital
when needed could have a material adverse effect on the Company's business,
results of operations and financial condition. If additional funds are raised
through the issuance of equity securities, the percentage ownership of the
Company's then-current stockholders would be reduced. Furthermore, such equity
securities might have rights, preferences or privileges senior to those of the
Company's Common Stock.
YEAR 2000 COMPLIANCE
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. The issue is 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. The Company is in the process of
working with its software vendors to assure that the Company is prepared for the
year 2000. The Company has not verified that companies doing business with it
are year 2000 compliant. The Company does not anticipate that it 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 year 2000
compliance. Any year 2000 compliance problem of either the Company or its users,
customers or advertisers could have a material adverse effect on the Company's
business, results of operations and financial condition.
28
<PAGE> 31
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1997, the Company had available net operating loss
carryforwards totaling $10.3 million, which expire beginning in 2011. See Note 5
of Notes to the Financial Statements included elsewhere herein. The Tax Reform
Act of 1986 imposes limitations on the use of net operating loss carryforwards
if certain stock ownership changes have occurred or could occur in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income ("FAS
130"). FAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. Reclassification of financial
statements for earlier periods provided for comparative purposes is required
upon adoption. FAS 130 is effective for fiscal years beginning after December
15, 1997. The Company has adopted FAS 130 for the year ending December 31, 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosure About Segments of an
Enterprise and Related Information ("FAS 131"). FAS 131 establishes standards
for the way that public business enterprises report information about operating
segments and requires those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. FAS 131
is effective for financial statements for periods beginning after December 15,
1997. The Company will adopt the reporting requirements of FAS 131 in its
financial statements for the year ending December 31, 1998.
29
<PAGE> 32
BUSINESS
THE COMPANY
Broadcast.com inc. (formerly AudioNet, Inc.) is the leading aggregator and
broadcaster of streaming media programming on the Web with the network
infrastructure and expertise to deliver or "stream" hundreds of live and
on-demand audio and video programs over the Internet to hundreds of thousands of
users. The Company's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming, including sports, talk and music
radio, television, business events, full-length CDs, news, commentary and
full-length audio-books. The Company broadcasts on the Internet 24 hours a day
seven days a week, and its programming includes more than 310 radio stations and
networks, 17 television stations and cable networks and game broadcasts and
other programming for over 350 college and professional sports teams. The
Company licenses such programming from content providers, in most cases under
exclusive, multi-year agreements. The Company's Business Services Group provides
cost-effective Internet and intranet broadcasting services to businesses and
other organizations. These business services include the turnkey production of
press conferences, earnings conference calls, investor conferences, trade shows,
stockholder meetings, product introductions, training sessions, distance
learning telecourses and media events. In addition to its business services, the
Company derives revenues from the sale of advertising on its Web sites,
including gateway ads with guaranteed click-thrus, channel and event
sponsorships and multimedia and traditional banner ads, as well as the sale of
radio and television ad spots the Company receives from stations in exchange for
broadcasting their programming over the Internet. In March 1998, the Company's
Web sites served a daily average of over 400,000 unique users and its principal
Web site was ranked in the top 20 among all News/ Information/Entertainment
sites according to Media Metrix.
The Company believes it has accomplished numerous Internet achievements
since its initial live broadcast in September 1995, including the Internet
broadcast of the first live commercial radio station, first live sporting event,
first live corporate quarterly earnings call and first live stockholders'
meeting. The Company's early entrance into the Internet broadcasting market has
enabled the Company to establish strong brand recognition for its broadcasts and
services and to form relationships with a diverse range of content providers.
The Company currently offers content from a variety of sources including radio
and television, college and professional sports teams and leagues, production
and film studios and record labels. The Company has broadcast over 11,000 live
events such as the last three NFL Super Bowls and NCAA Basketball Tournaments,
the Stanley Cup Playoffs, the entire 1997-98 season for 24 of the 26 NHL teams,
game broadcasts for the entire season of over 300 college teams, the premiere
event for the movie "Titanic," Blockbuster Rockfest '97 and backstage interviews
from the 1998 Academy Awards Webcast. The Company has also amassed over 50,000
hours of on-demand broadcast programming, including over 2,100 full-length music
CDs, sports programming, talk radio and business and media events.
Broadcast.com's business services customers include the American Bar
Association, AT&T, Charles Schwab, Comerica, GartnerGroup, Harvard University,
Intel, Microsoft, Motorola, PR Newswire, Texas Instruments and more than 290
other organizations. Business services broadcasts have originated from 36 states
and nine countries.
In May 1998, the Company changed its name from AudioNet, Inc. to
broadcast.com inc. to better represent the diversity of its programming and
services and to continue developing the Company's brand as a complete Internet
content aggregator, broadcaster and distributor.
INDUSTRY BACKGROUND
The Internet has grown rapidly in recent years, spurred by developments
such as easy-to-use Web browsers, the availability of multimedia PCs, the
adoption of more robust network architectures and the emergence of compelling
Web-based content and commerce applications. The broad acceptance of the
Internet Protocol ("IP") standard has also led to the emergence of intranets and
the development of a wide range of non-PC devices that allow users to access the
Internet and intranets. International Data Corporation ("IDC") estimates that
the number of Web users worldwide will increase from approximately 68.7 million
at the end of 1997 to approximately 319.8 million by the end of 2002.
30
<PAGE> 33
Much of the Internet's rapid evolution towards becoming a mass medium can
be attributed to the accelerated pace of technological innovation, which has
expanded the Web's capabilities and improved users' experiences. Most notably,
the Internet has evolved from a mass of static, text-oriented Web pages and
email services to a much richer environment, capable of delivering graphical,
interactive and multimedia content. Prior to the development of streaming media
technologies, users could not play back audio and video clips until the content
was downloaded in its entirety. As a result, live Internet broadcasts were not
possible. The development of streaming media products from companies such as
Microsoft and RealNetworks enables the simultaneous transmission and playback
(i.e., the Internet broadcast) of continuous "streams" of audio and video
content over the Internet and intranets. These technologies have evolved to
deliver audio and video over widely used 28.8 kbps narrow bandwidth modems, yet
can scale in quality to take advantage of higher speed access that is expected
to be provided by xDSL, cable modems and other emerging broadband technologies.
Broadcasting audio and video content over the Internet offers certain
opportunities that are not generally available from traditional media. Currently
available analog technology and government regulations limit the ability of
radio and television stations to broadcast beyond certain geographic areas.
Radios and televisions are not widely used in office buildings and other
workplaces, where Internet access has become commonplace. Traditional business
communication tools such as audio conferencing and videoconferencing can be
costly, non-targeted, and inconvenient. In addition, traditional broadcasters
are limited in their ability to measure or identify in real time the listeners
or viewers of a program. By using the Internet, targeted streaming media content
can be broadcast to a geographically dispersed audience of customers, suppliers,
employees and stockholders at relatively low costs. Internet users can interact
with the broadcast content by responding to online surveys, voting in polls and
obtaining additional information. In addition, Internet broadcasters can provide
highly specific information about a program's audience to content providers,
advertisers and users of Internet business services. The convergence of the
Internet's capabilities and attributes has accelerated its acceptance as a
business tool, leading to rapidly growing economic opportunities in Web-based
advertising and business service offerings, including audio conferencing,
electronic commerce and video transmission, among others.
The Company believes that several challenges must be overcome to realize
cost-effective Internet broadcasting: aggregating diverse and compelling
content, scaling Internet broadcasts from small to large audiences, deploying
new transmission and streaming technologies in a timely manner and providing
multimedia advertisements and services. In order to aggregate content, Internet
broadcasters must rapidly identify and secure licensing opportunities by
demonstrating to content providers broad based distribution and the ability to
deliver associated traffic. Successful Internet broadcasters serving a large
number of simultaneous users around the clock also need to design, develop and
integrate complex network elements, which include extensive bandwidth, streaming
licenses, equipment and technical expertise. The rapid evolution of streaming
media technologies requires Internet broadcasters to support multiple vendors,
an investment which few companies have made. The Company believes, therefore,
that a successful Internet broadcaster must develop a well-branded,
highly-trafficked Web site which offers compelling content, a network capable of
streaming audio and video programming to large audiences 24 hours a day seven
days a week and an organization which can deliver quality broadcasting services
to advertisers and businesses.
THE BROADCAST.COM SOLUTION
Broadcast.com inc. (formerly AudioNet, Inc.) is the leading aggregator and
broadcaster of streaming media programming on the Web with the network
infrastructure and expertise to deliver or "stream" hundreds of live and
on-demand audio and video programs over the Internet to hundreds of thousands of
users. The Company's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming, including sports, talk and music
radio, television, business events, full-length CDs, news, commentary and
full-length audio-books. In March 1998, the Company's Web sites served an
average daily audience of over 400,000 unique users. The Company's Business
Services Group provides cost-effective Internet and intranet broadcasting
services to businesses and other organizations. These business services include
the turnkey production of press conferences, earnings conference calls, investor
conferences, trade shows, stockholder meetings, product introductions, training
sessions, distance learning telecourses and media
31
<PAGE> 34
events. Broadcast.com's network infrastructure supports multiple streaming
technologies and permits multimedia content to be broadcast efficiently and
effectively to hundreds of thousands of users. Broadcast.com believes it has
established a significant brand for its broadcasts and services on the Internet
due to its breadth of content, audience size and distribution capabilities. In
addition, the Company's Web sites provide an attractive platform for advertisers
seeking to target specific users with rich, compelling advertising solutions.
Key elements of the broadcast.com solution include:
LARGE AGGREGATION OF STREAMING MEDIA CONTENT
Broadcast.com's Web sites offer a large and comprehensive selection of live
and on-demand audio and video programming on the Internet, including sports,
talk and music radio, television, business events, full-length CDs, news,
commentary and audio-books. The Company currently has Internet broadcasting
rights for more than 310 radio stations and networks, 17 television stations and
cable networks and over 350 college and professional sports teams. The Company
has also amassed over 50,000 hours of on-demand broadcast programming, including
over 2,100 full-length music CDs, sports programming, talk radio and business
and media events. Broadcast content providers include the NFL, the NHL, Major
League Baseball, CNN, BBC World Service, SFX Broadcasting, Inc. ("SFX"),
Learfield Communications, Inc. ("Learfield Communications") and over 200 record
labels. The Company believes that its content aggregation has established
www.broadcast.com as a leading destination for Internet users seeking streaming
media content and also for multimedia content providers and advertisers seeking
to reach large online audiences. This leading position, combined with the
Company's broadcast networking capabilities and experience in establishing
content relationships, further enables broadcast.com to attract compelling
programming.
LEADING PROVIDER OF INTERNET BUSINESS SERVICES BROADCASTS
The Company leverages its network infrastructure and expertise by providing
Internet and intranet broadcasting and distribution services to businesses and
other organizations. The Company's business services enable customers to conduct
cost-effective Internet or intranet broadcasts of live and on-demand business
and educational programming, including press conferences, quarterly earnings
conference calls, investor conferences, trade shows, stockholder meetings,
product introductions, training sessions, distance learning opportunities and
media events, tailored to each such customer's needs. The Company believes that
these services differentiate its content and broaden its revenue base. The
Company's business services customers include the American Bar Association,
AT&T, Charles Schwab, Comerica, GartnerGroup, Harvard University, Intel,
Microsoft, Motorola, PR Newswire, Texas Instruments and more than 290 other
organizations. Business services broadcasts have originated from 36 states and
nine countries.
LEADING INTERNET BROADCAST NETWORK INFRASTRUCTURE
The Company's network infrastructure and expertise permits the Company to
stream hundreds of live and on-demand audio and video programs over the Internet
to hundreds of thousands of users. Broadcast.com's distribution network can
support over 500 simultaneous live events and includes approximately 580
multimedia servers that support multiple streaming technologies. These servers
are linked through direct 45 Mbps (millions of bits per second) and 155 Mbps
connections to major Internet backbone providers including GTE Internetworking
("GTEI"), MCI, Sprint Corporation ("Sprint") and UUNET Technologies, Inc.
("UUNET"), which, in turn, connect to over 80% of the downstream ISPs. The
Company believes that direct connections to the major backbone providers help to
enhance the end-user experience by avoiding the congestion of public peering
points which can cause transmission delays or packet loss. The Company believes
that its broadcast network infrastructure provides it with the flexibility to
implement new software, hardware and system developments without incurring
substantial redesign costs or down time. See "--Network."
BRANDED DISTRIBUTION
The Company believes it has established a leading brand for streaming media
content through its Web sites, which have been ranked by Media Metrix as among
the Internet's most frequently visited destinations.
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The Company drives traffic to its sites and enhances brand awareness through
strategic relationships with key Internet companies. The Company has established
increased visibility among Internet users through its relationships with Yahoo!,
RealNetworks and Microsoft, among others. See "--Strategic Relationships."
DIFFERENTIATED, INTERACTIVE MULTIMEDIA ADVERTISING
Broadcast.com offers exclusive and comprehensive audio and video
programming that can be targeted to specific audiences and demographics.
Additionally, unlike Web sites that offer only text-based banner ads, the
Company offers multimedia packages incorporating custom audio and video
applications such as gateway ads with guaranteed click-thrus, channel and event
sponsorships and multimedia and traditional banner ads. Because the Company
receives commercial spots from its radio and television station content
providers, the Company also provides advertisers with the opportunity to bundle
Web and traditional media advertising. Finally, the Company offers advertisers
the ability to insert Internet-only commercials within existing broadcast.com
programming. See "--Sales and Marketing--Web Advertising."
STRATEGY
The Company's objective is to enhance its leadership position in Internet
broadcasting by aggregating comprehensive audio and video programming,
preferably on an exclusive basis, and providing services enabling the delivery
of a broad range of streaming media content over the Internet. Key elements of
the Company's strategy include the following:
ENHANCE AND EXPAND EXCLUSIVE CONTENT OFFERINGS
Broadcast.com seeks to provide the most comprehensive audio and video
programming on the Internet. To this end, the Company's objective is to acquire
exclusive, long-term Internet broadcast rights to streaming media content
provided by radio and television stations, networks and ownership groups,
college and professional sports teams and leagues, production and film studios,
record labels and other content providers.
FURTHER PENETRATE THE BUSINESS SERVICES MARKET
The Company's broadcast services enable businesses and other organizations
to improve communication with, and the dissemination of information to,
customers, suppliers, employees and the investment community. The Company
believes that its network infrastructure, combined with the local and global
reach of the Internet, provides business services customers with lower
transmission costs than conventional broadcast and communications systems and
enables these customers to access both large and small target audiences. The
Company intends to continue to rapidly expand, enhance and optimize its turnkey
broadcasting solutions to continue to enhance the broadcast experience for its
business services customers. See "--Sales and Marketing--Business Services."
EXPAND NETWORK INFRASTRUCTURE
Broadcast.com intends to expand its network infrastructure through the
acquisition and deployment of additional network equipment, bandwidth and
broadcast scaling technologies. As part of its network expansion strategy, the
Company is completing the testing of its multicast network which is designed to
provide streaming media content to hundreds of thousands of users simultaneously
through one-to-many Internet connections. The Company has entered into
agreements with over 30 ISPs and UUNET and is building the first large-scale
commercial multicast network, which provides the Company with access to over
400,000 dial-up multicast ports. The Company is developing software to more
efficiently handle the broadcast of hundreds of simultaneous live events and has
developed proprietary software to handle broadcast blackouts, remote monitoring
and remote server access. Although streaming video over the Internet does not
currently offer broadcast television equivalent quality to a broad base of
users, the Company believes that the quality of and demand for Internet video
broadcasts will continue to improve as broadband Internet access technologies
such as xDSL and cable modems become more commonly available. Further, the
Company believes that video is an important and essential element in the future
of Internet broadcasting. Accordingly, the broadcast.com
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network has been video enabled and supports multiple leading video streaming
technologies including RealNetwork's RealVideo and Microsoft's NetShow. See
"--Network."
ENHANCE BRAND AWARENESS
In order to maximize its broadcast audience, broadcast.com (formerly
AudioNet) seeks to co-brand its programming with other popular content providers
in addition to providing access to its programming directly through its own Web
sites. These relationships typically allow the co-branding partner to present
broadcast.com's or its partners' programming through a link on the partner's Web
site. To date, the Company has focused on co-branding its sports, music and
entertainment content and intends to expand this effort to cover its news and
business programming, talk shows and audio-books. Current co-branding
arrangements include a recent Yahoo! co-promotion agreement which gives the
Company prominent co-branded access to Yahoo!'s audience. Other co-branding
relationships include RealNetworks, Microsoft, CNN, NHL and USA Today. In
addition, the Company's radio and television content providers typically grant
the Company a certain number of weekly commercial spots, which the Company can
use for self-promotion. Radio and television stations also extend brand
awareness for broadcast.com through on-air mentions during their broadcasts.
CAPTURE AND DEVELOP EMERGING REVENUE OPPORTUNITIES
Broadcast.com intends to capture strategic revenue growth opportunities as
user demand increases and technological developments become more widely adopted.
Such opportunities are expected to include pay-per-listen/view applications,
fee-based sharing of the Company's exclusive content on other Web sites and
electronic commerce opportunities.
PROGRAMMING
The Company believes its Web sites offer a large and comprehensive
selection of live and on-demand audio and video programming on the Internet,
including live continuous broadcasts of over 310 radio stations and networks, 17
television stations and cable networks, game broadcasts of more than 350 college
and professional sports teams and over 50,000 hours of on-demand programming,
including over 2,100 full-length music CDs, sports programming, talk radio and
business and media events. The www.broadcast.com Web site is organized into
content channels. The following is a description of certain elements of
broadcast.com's programming, illustrating the breadth and depth of its content:
SPORTS
The Company believes that it provides the most comprehensive live and
on-demand broadcasting of sporting events on the Internet. The Company's early
entrance into Internet broadcasting has allowed it to establish relationships
with a broad range of sports teams and leagues. Broadcast.com has the Internet
broadcasting rights for certain sporting events, including football and
basketball in most cases, for 98 colleges and universities participating in NCAA
Division IA athletics, over 95% of which are on an exclusive basis. In addition,
the Company is the exclusive streaming media partner for 24 of the 26 NHL teams
and broadcasts on behalf of Major League Baseball most regular season and
playoff games. The Company has handled the Internet broadcast for the last three
Super Bowls, the 1998 Kentucky Derby and the Boston Marathon. In the case of
such special events, the Company often broadcasts complementary programming such
as stadium announcer press box feeds and full-length post-game press conferences
with players and coaches in lieu of, or in addition to, the game broadcast.
Broadcast.com typically archives audio game broadcasts until the next game is
played so users can access sporting events they may have missed. In addition, a
"Great Games" section contains archives of a wide variety of classic match-ups
for fans to access at any time. The Company is expanding its sports coverage to
include video programming as well, including recent arrangements with the NHL
and PGA TOUR.
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The following table illustrates the breadth of the sports content the
Company is currently broadcasting, or has broadcast.
BROADCAST.COM SPORTS PROGRAMMING
NATIONAL HOCKEY LEAGUE
Anaheim Mighty Ducks
Boston Bruins
Buffalo Sabres
Calgary Flames
Carolina Hurricanes
Colorado Avalanche
Dallas Stars
Detroit Red Wings
Edmonton Oilers
Florida Panthers
Los Angeles Kings
Montreal Canadiens
New Jersey Devils
New York Islanders
New York Rangers
Ottawa Senators
Phoenix Coyotes
Pittsburgh Penguins
San Jose Sharks
St. Louis Blues
Tampa Bay Lightning
Toronto Maple Leafs
Vancouver Canucks
Washington Capitals
MAJOR LEAGUE BASEBALL
Anaheim Angels
Arizona Diamondbacks
Baltimore Orioles
Chicago White Sox
Cincinnati Reds
Cleveland Indians
Houston Astros
New York Mets
New York Yankees
Oakland Athletics
Philadelphia Phillies
San Diego Padres
San Francisco Giants
St. Louis Cardinals
Texas Rangers
GOLF
PGA TOUR
PGA of America
Senior TOUR
USGA
Golf Majors
NIKE TOUR
MAJOR LEAGUE SOCCER
Chicago Fire
Colorado Rapids
Columbus Crew
D.C. United
NY/NJ Metrostars
Dallas Burn
Kansas City Wizards
Los Angeles Galaxy
Miami Fusion F.C.
New England Revolution
San Jose Clash
Tampa Bay Mutiny
AUTO RACING
Selected In-car radio and events:
ARCA
CART
NASCAR Winston Cup
NASCAR Busch Series
Toyota Atlantic
HORSE RACING
Belmont Stakes
Kentucky Derby
Preakness Stakes
Breeder's Cup
Keeneland
Lone Star Park Racing
Meadowlands
Oaklawn
Santa Anita
PRO BASKETBALL
1996 NBA Draft
1997 Continental Basketball
Association Finals and
All-Star Game
American Basketball League
Finals and All-Star Game
NBA Championship Press
Conferences
NCAA COLLEGES AND
UNIVERSITIES
Air Force Academy Falcons
Alabama Crimson Tide
Alaska-Fairbanks Nanooks
Arizona Wildcats
Arizona State Sun Devils
Arkansas Razorbacks
Baylor Bears
Boise State Broncos
Boston University Terriers
Brigham Young Cougars
Bucknell Bison
Cal-Berkeley Bears
Cal State Fullerton Titans
Central Florida Golden Knights
Central Michigan Chipawas
Clemson Tigers
Colorado Buffaloes
Connecticut Huskies
Cornell Big Red
Dayton Flyers
Denver Pioneers
Duke Blue Devils
East Carolina Pirates
Florida Gators
Florida State Seminoles
Fresno State Bulldogs
George Washington Colonials
Georgetown Hoyas
Georgia Bulldogs
Georgia Tech Yellow Jackets
Harvard Crimson
Hawaii Rainbows
Houston Cougars
Idaho Vandals
Illinois State Redbirds
Illinois-Chicago Flames
Indiana Hoosiers
Iowa Hawkeyes
Iowa State Cyclones
James Madison Dukes
Kansas Jayhawks
Kansas State Wildcats
Kentucky Wildcats
Lamar Cardinals
Long Beach State 49ers
Louisiana State Tigers
Louisiana Tech Bulldogs
Louisville Cardinals
Marquette Golden Eagles
Marshall Thundering Herd
Maryland Terrapins
Massachusetts Minutemen
Memphis Tigers
Miami (Florida) Hurricanes
Miami (Ohio) Redhawks
Michigan State Spartans
Mississippi Rebels
Mississippi State Bulldogs
Missouri Tigers
Naval Academy Midshipmen
UNC Tar Heels
UNC-Charlotte 49ers
Nebraska Cornhuskers
New Hampshire Wildcats
New Mexico Lobos
North Carolina St. Wolfpack
North Texas Eagles
Northern Arizona Lumberjacks
Notre Dame Fighting Irish
Ohio Bobcats
Oklahoma Sooners
Oklahoma State Cowboys
Oregon Ducks
Oregon State Beavers
Penn State Nittany Lions
Pepperdine Waves
Pittsburgh Panthers
Princeton Tigers
Purdue Boilermakers
Rhode Island Rams
Rice Owls
Rutgers Scarlet Knights
San Diego State Aztecs
San Francisco Dons
San Jose State Spartans
SE Louisiana Lions
Seton Hall Pirates
SMU Mustangs
South Carolina Gamecocks
South Florida Bulls
Southern Miss. Golden Eagles
St. John's Red Storm
St. Louis Billikens
Stanford Cardinal
SW Louisiana Cajuns
Syracuse Orangemen
TCU Horned Frogs
Tennessee Volunteers
Texas Longhorns
Texas-El Paso Miners
Texas A&M Aggies
Texas Tech Red Raiders
Toledo Rockets
Tulane Green Wave
Tulsa Hurricanes
UCLA Bruins
UNLV Rebels
USC Trojans
Utah Utes
Vanderbilt Commodores
Villanova Wildcats
Virginia Cavaliers
VA Commonwealth Rams
Virginia Tech Hokies
Wake Forest Demon Deacons
Washington Huskies
Washington State Cougars
West Virginia Mountaineers
Western Kentucky Hilltoppers
Western Michigan Broncos
William and Mary Tribe
Wisconsin Badgers
Wright State Raiders
Wyoming Cowboys
PRO FOOTBALL
1997 NFL Training Camp
Arena Football
Canadian Football League
1997 Grey Cup (CFL)
NFL Europe - Audio and Video
NFL pre- and post-game
coverage
Super Bowls XXX, XXXI
and XXXII
OTHER SPORTS COVERAGE
Boston Marathon
Continental Indoor Soccer League
HBO World Championship
Boxing: Prince Hamed
vs. Kevin Kelly
Minor League Baseball
Minor League Hockey
NBC 1996 Atlanta
Olympics Interviews
Tour de France
United States Olympic Committee Press Conferences
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RADIO
Broadcast.com is the leading Internet broadcaster of radio programming, and
has, in most cases, exclusive, multi-year rights to more than 310 stations in
over 107 cities. The Company's relationships with radio stations and networks
provide it with content from 18 of the nation's top 20 radio markets. The
Company has benefited from its ability to license radio content from ownership
groups, such as a group of over 40 stations now part of Clear Channel
Communications and a group of 72 stations which will be part of Capstar
Broadcasting Corporation ("Capstar") following completion of its acquisition of
SFX. Broadcast.com's radio programming spans all formats, from talk shows and
news programs to country music and classic rock. The Company's audience benefits
from the ability to receive local radio programming in-office and from outside
the listener's geographic area, allowing users to select from hundreds of
stations and dozens of formats. Broadcast.com archives selected talk radio
programming so users can listen to their favorite shows and hosts when unable to
listen to the live broadcast. Thousands of hours are currently available on
demand for popular nationally syndicated hosts including Dr. Laura Schlessinger
and Jim Rome. The following map illustrates the Company's national reach of
radio programming:
Map of United States with dots indicating locations of the Company's radio
station content providers.
TELEVISION
Broadcast.com has begun expanding its content aggregation strategy into
television programming. The Company currently has video Internet broadcasting
rights for 17 stations and cable networks, including Court TV and programming
originated by affiliated local television stations such as WFAA-TV Dallas, one
of ABC's top-rated local news stations. The Company provides archives of
newscasts so users can access the latest information on breaking news 24 hours a
day seven days a week from their home or office. The Company believes that the
emergence of broadband Internet access technologies such as xDSL, cable
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modems and other technologies have the potential to increase the demand for and
quality of Internet-delivered video content, leading to a convergence of the
Internet and television.
BUSINESS
The Company is a leading aggregator of audio and video media business
related content. In addition to the thousands of hours of events and special
programming offered live and on demand from the Company's business services
customers, the Company has also aggregated content from other sources to provide
a complete business content channel. The Company offers hourly stock market
updates, video interviews and features from CNBC/Dow Jones Business Video,
business shows such as "Wall Street Review" and other business programming from
its selection of radio and television content providers. Broadcast.com has
broadcast quarterly earnings conference calls from companies such as Intel,
Texaco, Texas Instruments and Yahoo!; product launches from Asymetrix, Microsoft
and Sybase; and keynote speeches from industry leaders such as Intel's Andy
Grove, Hewlett Packard's Lewis Platt, Microsoft's Bill Gates and Dell's Michael
Dell. Broadcast.com also provides supplemental data to accompany Internet
broadcasts, such as proprietary database registration services and real-time
audience measurement. See "--Business Services."
ENTERTAINMENT
The Company provides Internet broadcasting services to entertainment and
media companies, film studios, broadcast networks and other content providers.
Content providers utilize broadcast.com's distribution network, technology,
services, Web site promotions and sizable audience base to deliver and drive
traffic to high profile events. Examples include: all live and on-demand
Webcasts of 1998 Academy Awards coverage with ABC.com, including red-carpet
arrivals and backstage interviews in their entirety (which received
approximately 600,000 video views), "The ER Live" Webcast, a co-venture between
Warner Bros. Online and NBC Multimedia, Inc. for the 1997 season premiere for
their top-rated television program and numerous broadcasts of coverage from
movie premieres and parties, including "Titanic."
MUSIC
Through the broadcast.com Jukebox, the Company believes it offers the
largest selection of full-length CDs available for listening on demand over the
Internet, currently numbering over 2,100 titles. The Company has entered into
agreements with over 200 record labels to broadcast certain of their CDs in
their entirety. Interscope Records recently entered into an agreement to
establish broadcast.com as Interscope's preferred Internet broadcasting
solution. Broadcast.com will develop the Interscope Jukebox on www.broadcast.com
featuring all of their artists' full-length CDs, including No Doubt and the
Wallflowers. In addition, the Company will broadcast an Interscope Internet-only
radio station that will be available 24 hours a day and feature Interscope
artists and special events. To expand its Jukebox selections, the Company
intends to continue to form relationships with leading record companies.
Broadcast.com and College Music Journal have recently developed The Internet
Broadcast Chart, a compilation of the most frequently streamed songs from a
representative sampling of Internet broadcasters. Current customer feedback
indicates that listeners use the broadcast.com Jukebox as a way to sample new
music and, in turn, purchase CDs that they enjoy. Accordingly, the Company
believes that its Jukebox will provide an attractive platform for record labels
and musicians to promote and sell their recordings over the Internet through
broadcast.com. For example, Willie Nelson has recently teamed with broadcast.com
in a co-promotion deal with Yahoo! and CDnow to promote and sell his latest
studio recording for an exclusive period on the Internet prior to its general
public release.
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OTHER PROGRAMMING
The Company has aggregated thousands of hours of live and on-demand content
in several other channels, providing broadcast.com users with a comprehensive
selection of streaming media programming on the Company's Web sites. An
illustrative list follows:
<TABLE>
<CAPTION>
CHANNEL EXAMPLES
------- --------
<S> <C>
AudioBooks Over 360 full length audio-books including:
Charles Dickens' "The Lawyer and the Ghost"
Gore Vidal's "Kalki"
Education Distance Learning from University of Texas System and
Rutgers University
John F. Kennedy School of Government at Harvard University
University of Wisconsin Distance Learning Telecourse
News BBC World Service
CNN Audioselect
Over 47 leading news radio and television stations across
the country
Public Affairs C-SPAN
White House Millennium Series with Stephen Hawking
U.S. Department of State Daily Press Briefings
Special Interest policescanner.com
Best of Dr. Laura Schlessinger
Art Bell
Spiritual Focus on the Family with James Dobson
Family Life Today
For Faith and Family
Technology CMP Net Insider
The Computer Broadcast Network
The Silicon Alley Reporter
</TABLE>
BUSINESS SERVICES
The Company's Business Services Group provides cost-effective Internet and
intranet broadcasting services to businesses and other organizations. These
business services include turnkey production of press conferences, earnings
conference calls, investor conferences, tradeshows, stockholder meetings,
product introductions, training sessions, distance learning telecourses and
media events. Since January 1997, the Company has broadcast over 1,000 business
services events for customers such as the American Bar Association, AT&T,
Charles Schwab, Comerica, GartnerGroup, Harvard University, Intel, Microsoft,
Motorola, PR Newswire, Texas Instruments and more than 290 other organizations.
Business services broadcasts have originated from 36 states and nine countries.
The Company's broadcast services enable businesses and other organizations
to improve communication with, and the dissemination of information to,
customers, suppliers, employees and the investment community by:
COST-EFFECTIVELY REACHING THE IN-OFFICE USER
The proliferation of multimedia enabled networked personal computers and
other Internet-attached devices in the workplace has created the opportunity for
businesses to use the Internet and intranet to cost-effectively broadcast
streaming media communications to access both large and small targeted
audiences. The Company is able to broadcast events to users who can view and
listen to such broadcasts uninterrupted while continuing to perform other tasks
on their computer.
DELIVERING TURNKEY BROADCASTING SOLUTIONS
The Company delivers turnkey Internet broadcasting solutions by providing
analysis, telecommunications and, if necessary, on-site equipment and personnel
to its business services customers. Based on the expertise gained from
broadcasting more than 1,000 business services and over 10,000 other live
events, the Company
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determines the most effective way to capture the broadcast feed, whether by
satellite, coupler or on-site with a team of its engineers. Once captured, the
broadcast feed is then integrated with other sources such as Powerpoint
presentations and computer demo screens. Potential Internet congestion is
bypassed by using a private point-to-point connection to the Company's broadcast
center. The broadcast is then distributed by streaming media to the Internet
audience via the Company's distribution network, or, if desired, restricted to a
limited audience utilizing password-protected access or player authentication.
In addition, the Company can supply its customers with the total number of
devices receiving the broadcast, the length of time such devices are receiving
the broadcast and the broadcast quality. See "--Network."
The Company has initiated pay-per-view broadcasts of major conferences for
GartnerGroup, as well as the introduction of their own branded Webcast channel,
"GartnerGroup Live!" The Company broadcasts on behalf of Microsoft "DevTalk
Live," a developer seminar, and Microsoft TV, a channel offering information
technology business solutions. The Company's innovative broadcast services
provide World Championship Wrestling's Web site additional revenue opportunities
through exclusive Internet-only pay-per-view broadcasts. Broadcast.com's turnkey
solutions are being used by the University of Wisconsin (Madison) to offer
graduate level distance learning telecourses. Broadcast.com also coordinated all
of the logistics associated with the first-ever Internet broadcast from China on
behalf of Intel.
INNOVATIVELY ENHANCING THE BROADCAST EXPERIENCE
In order to provide business services customers with immediate feedback and
to enhance the users' broadcast experience, users can interact with the
broadcast content by responding to online surveys, voting in polls and obtaining
additional information. For example, the Company has broadcast over the Internet
the last three Bell & Howell Company ("Bell & Howell") annual stockholders'
meetings. Stockholders can listen to meetings over the Internet and deliver
proxies online. In addition, the effectiveness of broadcasts can be maximized by
delivering text transcriptions, graphics, presentations and other supplemental
information during the broadcasts. Broadcast.com business services broadcasts
can also provide customers with real-time user information. Utilizing the
Company's proprietary database registration services as an enhancement to the
broadcast, corporate customers can identify the users accessing their broadcasts
in real time.
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The depth and breadth of broadcast.com's experience and expertise includes
numerous other events. An illustrative selection includes:
BUSINESS AND FINANCIAL SHOWS
Calico Technology Seminar Series
Catch a Rising Stock
Charles Schwab Special Event
CNBC/Dow Jones Business Video news updates
Money Go Round
Money Talk
Tiger Investments: After Hours Trading
DISTANCE LEARNING
American Academy of Ophthalmology Events
American Bar Association Tax May Meeting
American Society of CW Web Education Network
Microsoft SQL Server in Higher Education
State Bar of Texas: New Developments in Summary Judgement
U.S. Chamber of Commerce Quality Learnings Series
UT Southwestern AIDS Research Presentation
EARNINGS ANNOUNCEMENTS/INVESTOR RELATIONS
America Online
AT&T
MicroAge
Motorola
SoftQuad
Texaco
Yahoo!
KEYNOTE SPEECHES
AT&T WorldNet Service: Former President Tom Evslin
Compaq: Tradeshow events at ISPCON '98
Dell Computer: Michael Dell at Fall Internet World
Hewlett Packard: CEO Lewis Platt at Spring Internet World
IBM: John Brisbane at the WWW7 Conference
Intel: CEO Dr. Andrew Grove
Microsoft: Bill Gates, COMDEX
PRODUCT LAUNCHES
Ameritech: Clearpath Wireless Launch
Asymetrix: Cool Tools
Bell & Howell: Scanner Division
General Motors Chevy Malibu Announcement
Microsoft: Internet Explorer 4.0 Launch and NetShow 2.0 Launch
Silicon Graphics Workstation Launch
Sybase: Adaptive Server Launch
PUBLIC RELATIONS
Chicago Tribune Interactive: George Lazarus
Communications Week: Meet the Editor
Digital & Microsoft: Delivering Enterprise Solutions
General Motors: Global Update News Conference
MSNBC: Meet the Editors
NationsBank and BankAmerica merger announcement
Wall Street Journal Media Coffee
SEMINARS
Dell: Breakfast With Dell
GartnerGroup Forums
Harvard Seminar on Internet Society
IBM: Teleconference for Internet Developers
Price Waterhouse Forums and Seminars
SAS Institute: Data Mining Forum
Texas Instruments Forum '97
TRADE SHOWS/CONFERENCES
ComNet '98
Internet World
MacWorld Expo '97
National Association of Broadcasters: '97 and '98
National Investor Relations Institute: Annual Business Meeting
NetWorld + Interop '97
SuperComm '97
SALES AND MARKETING
The Company sells business services, Web advertising and traditional media
advertising through its direct sales force and through reseller arrangements.
The Company currently maintains distinct sales departments for each of these
three revenue sources. In addition, the Company maintains a marketing and public
relations department to promote the broadcast.com brand and its services.
BUSINESS SERVICES
To date, the Company has focused its business services marketing efforts on
larger companies in varied industries. Based on the success of these direct
sales efforts, broadcast.com believes that it can successfully market its
services to medium-sized and smaller businesses as well. As a result,
broadcast.com is taking advantage of existing distribution channels through
reseller arrangements with vendors such as PR Newswire, one of the largest
global and media relations distribution networks, and Trade Show Central to
market these services to a broad range of potential customers. The Company seeks
to expand its business services customer base and broadcast offerings by
targeting industries and businesses that are early adopters of technological
advancement. The hospitality industry and the growing popularity of corporate
intranets and distance learning
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opportunities have provided new vertical markets for broadcast.com's streaming
media solutions. The Company is expanding its sales team, adding directors and
account executives in strategic regions across the United States to continue
delivering personalized service and target new and emerging market
opportunities.
WEB ADVERTISING
The Company's wide variety of content offers the ability to sell
advertising packages targeted to specific audiences and demographics.
Additionally, unlike Web sites that offer only text-based banner advertisements,
the Company offers multimedia packages incorporating custom audio and video
applications such as gateway ads with guaranteed click-thrus, channel and event
sponsorships and multimedia and traditional banner ads.
Gateway Ads with Guaranteed Click-Thrus. Broadcast.com provides
advertisers the opportunity to incorporate gateway ads into their Internet
advertising packages. Gateway ads are audio or video clips that are
inserted at the lead of selected programming, lasting from 15 to 30
seconds, that play prior to the audio or video content that has been
selected by the user. A guaranteed click-thru is a pop-down browser window
that automatically launches at the beginning of the gateway ad displaying
an advertiser's Web site or other targeted information. Gateway ads are
also available without guaranteed click-thrus. The Company currently sells
these advertisements at a higher CPM than traditional banner ads because of
their unique nature. Advertisers that have purchased gateway ads with
guaranteed click-thrus include Bell Atlantic, CompareNet and 3Com.
Channel and Event Sponsorships. The Company offers advertisers the
ability to sponsor one or more of its programming channels or events,
enabling advertisers to brand entire sections of the Company's Web sites. A
channel or event sponsorship can involve the rotating and permanent
placement of buttons, logos and Web site links, integrated gateway ads,
multimedia banner ads and mention on the broadcast.com home page, channel
home page and email newsletter (which has over 270,000 current subscribers
in over 150 countries). These sponsorships may also include promotional
advertisements utilizing broadcast.com's radio and television spot
inventory. Event sponsorships have been purchased by CBS SportsLine, RCA
and Microsoft. The Company typically sells these packages on a channel-by-
channel or event-by-event basis. See "--Traditional Media Advertising."
Multimedia and Traditional Banner Ads. The Company offers advertisers
the ability to integrate audio and video into their text and graphics
banner ads. The multimedia portion of the banner plays when the user clicks
on the banner. In addition, visitors to the Company's Web sites are able to
move to advertisers' Web sites while continuing to listen to or watch
broadcast.com audio or video programming. Because audio and video can
increase the impact of a banner ad, these packages are sold at a higher CPM
than traditional banner ads. Purchasers of multimedia or traditional banner
ads include Ford Motor Company, Citibank, N.A., Music Boulevard and Quick &
Reilly.
TRADITIONAL MEDIA ADVERTISING
As compensation for broadcasting radio and television station feeds, the
Company contractually receives on-air inventory of radio or television ad spots
or direct cash payments. The Company sells the majority of these advertising
spots to traditional radio and television advertisers. Premiere Radio Networks
is currently selling most of the radio ad spot inventory on behalf of the
Company. As of March 31, 1998, the Company had over 3,200 radio spots per week
available for sale.
MARKETING
The Company's marketing efforts promote the broadcast.com brand and the
Company's audio and video programming and business services. The Company
utilizes traditional media vehicles for marketing and promotional purposes,
including radio, television and print advertisements, as well as marketing
arrangements with other leading Web sites, gateway ads on the Company's Web
sites and email newsletters.
Radio and Television. The Company's radio and television content
providers typically grant the Company a certain amount of commercial spot
inventory. The commercial spots that the Company
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receives as part of its radio and television hosting activities can be used
by the Company for promotion of the Company's programming and services.
Radio and television stations also extend brand awareness for broadcast.com
through required on-air mentions during their broadcasts.
Print and Other Media. In exchange for Internet broadcasts of sporting
events, colleges and universities provide advertising space for
broadcast.com in various campus publications including game-day programs,
newsletters and alumni magazines. Broadcast.com has also received
advertising space in the official NCAA Basketball Tournament Final Four
program and the College Hockey Guide. In addition, the Company has received
billboard space at the NCAA Basketball Tournament Fanfest as well as at
other sporting events. Stadium public address announcements during certain
sporting events also extend the Company's brand awareness. The Company has
also placed advertisements in targeted trade magazines including
Broadcasting and Cable and Online Access.
Online Marketing. The Company exchanges banner ads with other high
traffic Web sites such as Infoseek, Tripod, Talk Cities, Go2Net, Los
Angeles Times, CBS SportsLine, Music Boulevard, Games Domain and Lycos. The
Company uses these opportunities to highlight its high profile live events
and drive traffic to revenue generating channels. The banner ads are also
used to promote business services customers' events in order to attract
larger audiences. The Company extends brand awareness on the Web by
requiring that its logo and distinctive "listen/view button" be placed
prominently on the Web pages of broadcast partners. A number of search
engines and live events guides feature broadcast.com such as CNET Events,
Yahoo! Events, NetGuide Live, Microsoft's NetShow Gallery and Your Personal
Net. Additionally, RealNetwork's Timecast Web site features broadcast.com
programming, often as the "Event of the Day."
Gateway Ads and Email Newsletters. The Company utilizes gateway ads to
promote upcoming broadcast.com content offerings. The Company also
distributes free semi-weekly email newsletters to over 270,000 registered
subscribers in 150 countries which highlight events for the upcoming week.
In addition, the Company utilizes the newsletter distribution list to alert
broadcast.com users to major breaking news stories that are being broadcast
on the Company's Web sites. The Company also distributes sports-focused and
music-focused newsletters, and is developing additional specialty
newsletters targeted to those interested in particular programming
channels.
STRATEGIC RELATIONSHIPS
Broadcast.com has entered into strategic relationships with content
providers, key Internet companies and technology and bandwidth providers.
CONTENT PROVIDERS
To expand its content offerings, broadcast.com has established
relationships with various strategic partners. The Company believes that
licensing content from third parties is preferable to creating content because
such licensed content has existing demand and is self-replenishing. Key
relationships include BBC World Service, CNN, Host Communications, Learfield
Communications, the NHL, Major League Baseball, a group of over 40 stations now
part of Clear Channel and a group of 72 stations which will be part of Capstar
following completion of its acquisition of SFX.
KEY INTERNET COMPANIES
Broadcast.com leverages its content aggregation and Internet broadcast
network through strategic relationships with key Internet companies to increase
traffic and brand awareness. Broadcast.com and Yahoo!, an equity investor in the
Company, recently agreed to establish a co-branded area on the Yahoo! Web site
at sports.yahoo.com to make available broadcast.com's programming and link to
listen/view pages on the www.broadcast.com Web site. Broadcast.com also has an
agreement with RealNetworks which provides for the placement of a link on the
drop-down menu item for RealNetworks' RealPlayer and RealPlayer Plus streaming
products to the Company's home page and five key channels on its sites. The
Company believes that RealNetworks' streaming products have been downloaded more
than 43 million times. In addition, Microsoft
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selected broadcast.com as one of 34 platinum channels on its latest Internet
Explorer Web browser, which is used by millions of people to navigate the Web.
The Company believes these platinum channels will be preset, in some form, on
all versions of the new Windows '98 Operating System.
TECHNOLOGY AND BANDWIDTH PROVIDERS
In order to scale with future audience growth, broadcast.com has entered
into an agreement with UUNET under which the Company purchased 155Mbps of
bandwidth for unicasting and additional bandwidth for multicasting which can be
configured to allow up to 500 simultaneous live events. In addition, UUNET is
part of the Company's multicasting buildout strategy. See
"--Network--Distribution."
Broadcast.com and Motorola have signed a letter of intent to create a joint
venture for the deployment of audioSENSE, a front-end audio player which is
designed to make it easier for visitors to the www.broadcast.com Web site to
navigate the Radio and Jukebox channels. For example, audioSENSE enables users
to create personal radio dials, selecting stations by location and genre. Users
can also create personal presets, similar to those on a car radio, that make it
easier to find their favorite radio stations. Through the audioSENSE player,
radio stations will be able to deliver interactive advertising products over the
Internet which the Company believes will create a new revenue stream for
broadcasters on the broadcast.com network.
NETWORK
In order to support hundreds of thousands of simultaneous streaming media
users on the Internet, the Company has developed and implemented an extensive
streaming media aggregation and distribution network, designed to ensure the
quality of the content received from broadcasters and distributed to users.
AGGREGATION
The Company aggregates content from broadcasters through satellite feeds
and direct network connections from content providers to its broadcast center
where it is monitored for quality and encoded for delivery over the Internet.
The satellite receiving system is currently comprised of 22 satellite dishes
which can receive hundreds of simultaneous feeds from traditional broadcasts and
live events. The Company also receives radio and television signals over a
private network comprised of frame relay and T1 point-to-point connections. This
private network is designed to efficiently and securely feed content directly
from broadcasters to the Company's headquarters, thus avoiding the congestion of
public peering points on the Internet which can cause transmission delays or
packet loss. The Company believes that the use of a private aggregation network
enables the Company to control the quality of the content it receives.
DISTRIBUTION
Currently, the Company employs both unicasting (one user per Company
originated stream) and multicasting (many users per Company originated stream)
technologies to distribute streaming media content to users over the Internet.
The Company's unicast network can provide content to tens of thousands of
simultaneous users through 580 multimedia servers which support multiple
streaming technologies. These servers are linked through direct 45Mbps and 155
Mbps connections to major Internet backbone providers including GTEI, MCI,
Sprint and UUNET, which, in turn, connect to over 80% of the downstream ISPs.
The Company believes that direct connections to these major backbone providers
enhances the user experience by avoiding the congestion of public peering points
which can cause transmission delays or packet loss.
Although the Company anticipates that unicasting will remain essential for
archived and on-demand applications, it believes that multicasting, or similar
scaling technology, is essential to the future of large-scale Internet
broadcasting to a mass audience. The Company believes multicasting is especially
suited to audio and video broadcasting and will be increasingly used in the
delivery of streaming media content. Currently, the Company is completing the
testing of its multicast network which is designed to provide streaming media
content to hundreds of thousands of users simultaneously through one-to-many
Internet connections. The
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Company has entered into agreements with over 30 ISPs and UUNET and is building
the first large-scale commercial multicast network which provides the Company
access to over 400,000 dial-up multicast ports.
COMPETITION
The market for Internet broadcasting and services is highly competitive and
the Company expects that competition will continue to intensify. The Company
competes with (i) other Web sites and Internet broadcasters to acquire and
provide content to attract users, (ii) videoconferencing companies, audio
conferencing companies and Internet broadcasters, (iii) online services, other
Web site operators and advertising networks, as well as traditional media such
as television, radio and print, for a share of advertisers' total advertising
budgets and (iv) local radio and television stations and national radio and
television networks for sales of advertising spots. There can be no assurance
that the Company will be able to compete successfully or that the competitive
pressures faced by the Company, including those described below, will not have a
material adverse effect on the Company's business, results of operations and
financial condition.
Competition among Web sites that provide compelling content, including
streaming media content, is intense and is expected to increase significantly in
the future. The Company competes against a variety of businesses that provide
content through one or more mediums, such as print, radio, television, cable
television and the Internet. Traditional media companies that have not
established a significant presence on the Internet may expend resources to
establish such a presence in the future. The Company competes generally with
other content providers for the time and attention of users and for advertising
revenues. To compete successfully, the Company must license and then provide
sufficiently compelling and popular content to generate users, support
advertising intended to reach such users and attract business and other
organizations seeking Internet broadcasting and distribution services. The
Company believes that the principal competitive factors in attracting Internet
users include the quality of service and the relevance, timeliness, depth and
breadth of content and services offered. In the market for Internet distribution
of radio and television broadcasts, the Company competes with ISPs, radio and
television stations and networks that originate their own Internet broadcasts.
RealNetworks and MCI announced a strategic alliance in August 1997 involving the
introduction of a service currently called Real Broadcast Network that delivers
audio and video broadcasts over the Internet. In the area of sports content, the
Company competes with CBS SportsLine and ESPNET SportsZone. The Company also
competes for the time and attention of Internet users with thousands of Web
sites operated by businesses and other organizations, individuals, governmental
agencies and educational institutions. For example, certain Web sites may
provide a collection of links to other Web sites with streaming media content.
The Company expects competition to intensify and the number of competitors to
increase significantly in the future. In addition, as the Company expands the
scope of its content and services, it will compete directly with a greater
number of Web sites and other media companies. Because the operations and
strategic plans of existing and future competitors are undergoing rapid change,
it is extremely difficult for the Company to anticipate which companies are
likely to offer competitive services in the future.
The Company competes with videoconferencing and teleconferencing companies,
along with companies that provide Internet broadcasting services to businesses
and other organizations. Principal competitive factors include price,
transmission quality, transmission speed, reliability of service, ease of
access, ease of use, customer support, brand recognition and operating
experience. The Company's current and potential competitors may have
significantly greater financial, technical and marketing resources, longer
operating histories and greater brand recognition. Traditional videoconferencing
and teleconferencing may allow for a more interactive user experience. As prices
for videoconferencing systems decrease and transmission quality increases, the
installed base of videoconferencing systems may increase. Companies that provide
media streaming software may also enter the market for Internet broadcast
services. If media streaming technology and backbone bandwidth becomes more
readily available to companies at low prices, the Company's customers may decide
to broadcast their own programming. In particular, local exchange carriers, ISPs
and other data communication service providers may compete in the future with a
portion of or all of the Company's business services as technological
advancements facilitate the ability of these providers to offer effectively
these services. There can be no assurance that the Company will be able to
compete successfully against current or future competitors for Internet
broadcast services.
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The Company also competes with online services, other Web site operators
and advertising networks, as well as traditional media such as television, radio
and print for a share of advertisers' total advertising budgets. The Company
believes that the principal competitive factors for attracting advertisers
include the number of users accessing the Company's Web sites, the demographics
of the Company's users, the Company's ability to deliver focused advertising and
interactivity through its Web sites and the overall cost-effectiveness and value
of advertising offered by the Company. 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 levels of Internet advertising that will be realized
generally or by any specific company. Any competition for advertisers among
present and future Web sites, as well as competition with other traditional
media for advertising placements, could result in significant price competition.
The Company believes that the number of companies selling Web-based advertising
and the available inventory of advertising space have recently increased
substantially. Accordingly, the Company may face increased pricing pressure for
the sale of advertisements. Reduction in the Company's Web advertising revenues
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company competes for traditional media advertising sales with national
radio and television networks, as well as local radio and television stations.
Local radio and television content providers and national radio and television
networks may have larger and more established sales organizations than the
Company. These companies may have greater name recognition and more established
relationships with advertisers and advertising agencies than the Company. Such
competitors may be able to undertake more extensive marketing campaigns, obtain
a more attractive inventory of ad spots, adopt more aggressive pricing policies
and devote substantially more resources to selling advertising inventory. The
Company's traditional media advertising sales efforts depend on the Company's
ability to obtain an inventory of ad spots across the top radio and television
markets. If the Company is unable to obtain such inventory, it could have a
material adverse effect on the Company's business, results of operations and
financial condition.
GOVERNMENTAL REGULATION
Although there are currently few laws and regulations directly applicable
to the Internet, it is likely that new laws and regulations will be adopted in
the United States and elsewhere covering issues such as music licensing,
broadcast license fees, copyrights, privacy, pricing, sales taxes and
characteristics and quality of Internet services. It is possible that
governments will enact legislation that may be applicable to the Company in
areas such as content, network security, encryption and the use of key escrow,
data and privacy protection, electronic authentication or "digital" signatures,
illegal and harmful content, access charges and retransmission activities.
Moreover, the applicability to the Internet of existing laws governing issues
such as property ownership, content, taxation, defamation and personal privacy
is uncertain. The majority of such laws were adopted before the widespread use
and commercialization of the Internet and, as a result, do not contemplate or
address the unique issues of the Internet and related technologies. Any such
export or import restrictions, new legislation or regulation or governmental
enforcement of existing regulations may limit the growth of the Internet,
increase the Company's cost of doing business or increase the Company's legal
exposure, which could have a material adverse effect on the Company's business,
financial condition and results of operations.
By distributing content over the Internet, the Company faces potential
liability for claims based on the nature and content of the materials that it
distributes, including claims for defamation, negligence or copyright, patent or
trademark infringement, which claims have been brought, and sometimes
successfully litigated, against Internet companies. The Company's general
liability insurance may not cover potential claims of this type or may not be
adequate to indemnify the Company for any liability that may be imposed. Any
liability not covered by insurance or in excess of insurance coverage could have
a material adverse effect on the Company's business, results of operations and
financial condition. See "Risk Factors--Governmental Regulation and Legal
Uncertainty."
INTELLECTUAL PROPERTY
The Company's success depends in part on its ability to protect its
intellectual property. To protect its proprietary rights, the Company relies
generally on patent, copyright, trademark and trade secret laws,
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confidentiality agreements with employees and third parties, and license
agreements with consultants, vendors and customers, although the Company has not
signed such agreements in every case. Despite such protections, a third party
could, without authorization, copy or otherwise obtain and use the Company's
content. There can be no assurance that the Company's agreements with employees,
consultants and others who participate in development activities will not be
breached, that the Company will have adequate remedies for any breach, or that
the Company's trade secrets will not otherwise become known or independently
developed by competitors.
The Company pursues the registration of certain of its trademarks and
service marks in the U.S. and in certain other countries, although it has not
secured registration of all its marks. In addition, the laws of some foreign
countries do not protect the Company's proprietary rights to the same extent as
do the laws of the U.S., and effective patent, copyright, trademark and trade
secret protection may not be available in such jurisdictions. In general, there
can be no assurance that the Company's efforts to protect its intellectual
property rights through patent, copyright, trademark and trade secret laws will
be effective to prevent misappropriation of its content, and the Company's
failure or inability to protect its proprietary rights could materially
adversely affect the Company's business, financial condition and results of
operations. See "Risk Factors--Intellectual Property."
LEGAL PROCEEDINGS
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
including claims of alleged infringement of third-party trademarks and other
intellectual property rights by the Company and its licensees. Such claims, even
if not meritorious, could result in the expenditure of significant financial and
managerial resources. The Company is not aware of any legal proceedings or
claims that it believes will have, individually or in the aggregate, a material
adverse effect on its business, financial condition or results of operations.
EMPLOYEES
As of April 30, 1998, the Company had 170 full-time employees. None of the
Company's employees is subject to a collective bargaining agreement and the
Company believes that its relations with its employees are good.
FACILITIES
The Company's executive offices are located in Dallas, Texas in a 28,000
square foot facility that the Company leases at a current monthly rent of
$3,920. The lease agreement terminates on February 1, 2002. The Company has an
option to extend the lease agreement for three additional five-year terms. The
Company also leases an office in New York, New York at a current monthly rent of
$3,083. This lease expires January 31, 2001. The Company also leases an office
in San Francisco, California at a current monthly rent of $1,155. This lease
expires September 30, 1998. The Company anticipates that it will require
additional space within the next 12 months and that suitable additional space
will be available on commercially reasonable terms, although there can be no
assurance in this regard. The Company does not own any real estate.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The following table sets forth certain information regarding the executive
officers, directors and key employees of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Executive Officers and Directors
Todd R. Wagner.................... 37 Chief Executive Officer, Vice Chairman of the Board,
Secretary and Director
Mark Cuban........................ 39 President and Chairman of the Board
Jack A. Riggs..................... 39 Chief Financial Officer, Treasurer and Director
Kevin W. Parke.................... 39 Vice President -- Operations
Joseph W. Autem(1)(2)............. 39 Director
Randall A. Battat................. 38 Director
Steven D. Leeke(1)(2)............. 36 Director
Key Employees
Henry G. Heflich.................. 47 Vice President -- Technology
Tina M. Williamson................ 47 Vice President -- Marketing
Stan M. Woodward.................. 36 Vice President -- Business Services
</TABLE>
- ------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
TODD R. WAGNER co-founded the Company in May 1995 and has served as Chief
Executive Officer, Vice Chairman of the Board, Secretary and Director since its
inception. From 1989 to 1994, Mr. Wagner worked at the law firm of Hopkins &
Sutter, where he was a partner from 1992 to 1994. Mr. Wagner became a certified
public accountant in April 1988. Mr. Wagner holds a B.S. in Accounting from
Indiana University and a J.D. from The University of Virginia School of Law.
MARK CUBAN co-founded the Company in May 1995 and has served as President
and Chairman of the Board of the Company since its inception. From 1991 to the
present, Mr. Cuban has served as President of Radical Computing, Inc., a
Dallas-based venture capital and investment company specializing in technology
companies. In 1983, Mr. Cuban founded Microsolutions, Inc., a systems
integration company that was sold to CompuServe Corporation in 1990. Mr. Cuban
holds a B.S. in Business from Indiana University.
JACK A. RIGGS has served as Chief Financial Officer and Treasurer of the
Company since August 1997 and as a Director since December 1997. From June 1996
to August 1997, Mr. Riggs served as Corporate Controller of Kitty Hawk, Inc., a
publicly traded international airfreight carrier. From 1994 to 1996 Mr. Riggs
served as Corporate Controller of DHN Enterprises, Inc., a privately held
wholesale distributor. Prior to that time, Mr. Riggs served as Regional
Controller of INACOM Corp., a computer reseller. Prior to joining INACOM, Mr.
Riggs was with Coopers & Lybrand L.L.P. Mr. Riggs became a certified public
accountant in 1990 and holds a B.S. in Accounting from Louisiana Tech
University.
KEVIN W. PARKE has served as Vice President--Operations of the Company
since May 1997 and as the Director--Operations since March 1996. From 1993 to
1996, Mr. Parke served as Vice President and General Counsel of Merritt
Marketing Group, a national integrated marketing company, where he directed the
production, finance, legal and accounting departments. From 1991 to 1993, Mr.
Parke was a partner at the law firm of Hopkins & Sutter. Mr. Parke holds a B.A.
in Economics from Vanderbilt University and a J.D. from Southern Methodist
University School of Law.
JOSEPH W. AUTEM has served as a Director of the Company since September
1996. Mr. Autem has been a partner of Vision Technology Partners, a private
investment company, since March 1997. From July 1996 to December 1996, Mr. Autem
served as Chief Financial Officer of the Company. From 1992 to 1996,
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Mr. Autem served as Vice President of Finance, Secretary, Treasurer and Chief
Financial Officer of OpenConnect Systems, Inc., a software company. Mr. Autem
became a certified public accountant in 1987 and holds a B.S. in Accounting from
Pittsburg State University.
RANDALL A. BATTAT has served as a Director of the Company since February
1998. Mr. Battat has been the Senior Vice President and General Manager for the
Information Systems Group of Motorola since February 1997. From February 1994 to
February 1997, Mr. Battat served as Corporate Vice President and General Manager
of the Wireless Data Group of Motorola. Mr. Battat joined Apple Computer, Inc.
in 1981, and held a number of positions including, most recently, Vice President
of the Macintosh Desktop and Powerbook Division. Mr. Battat holds a B.S. in
Electrical Engineering from Stanford University.
STEVEN D. LEEKE has served as a Director of the Company since October 1996.
Mr. Leeke is the Director and General Manager of Internet Content and Service
Businesses for the Messaging Information and Media Sector of Motorola, a
position he has held since September 1996. From March 1995 to September 1996,
Mr. Leeke was the Director of Strategy for Motorola New Enterprises. Prior to
joining Motorola, Mr. Leeke served in various capacities at Texas Instruments.
Mr. Leeke holds an A.B. in Physics and Math from Dartmouth College and an M.S.
and Ph.D. in Electrical Engineering from Stanford University.
HENRY G. HEFLICH has served as Vice President--Technology for the Company
since March 1998. From January 1996 to March 1998, Mr. Heflich co-founded and
served as Chief System Architect for Genuity, Inc., a national ISP. From January
1981 to December 1995, Mr. Heflich served as President and Director of
Engineering for MicroNet Research. Mr. Heflich holds an M.S. in Electrical
Engineering from Southern Methodist University and an M.B.A. from the University
of Dallas.
TINA M. WILLIAMSON has served as Vice President--Marketing for the Company
since April 1998 and as the Director --Marketing since May 1997. From October
1996 to February 1997, Ms. Williamson served as Vice President, Director of
Marketing for Deja News, Inc., an Internet search engine company, and from July
1995 to October 1996 was President and owner of TMW Group, an interactive media
and marketing consulting firm. Ms. Williamson was also Senior Vice President and
Associate Media Director at GSD&M Advertising. Ms. Williamson holds a B.S. in
Advertising from the University of Texas at Austin.
STAN M. WOODWARD has served as Vice President--Business Services for the
Company since April 1998 and served as Director--Business Services for the
Company since November 1997. From December 1993 to November 1997, Mr. Woodward
served as Director of Sales for the South Central Region for Ascend
Communications, Inc. He has also held sales and sales management positions with
AMP Communication Systems, National Semiconductor Corporation and a number of
start-up companies specializing in fiber-optic data transport. He holds a B.S.
in Electrical Engineering from Oklahoma State University.
Executive officers of the Company are appointed by the Board of Directors.
The Company's current directors will be eligible for re-election at the
Company's annual stockholder meeting in 1999 at which time the Board will be
divided into three classes. The initial term of the Class I directors will
expire at the Company's annual stockholders meeting in 2000, the initial term of
the Class II directors will expire at the Company's annual stockholder meeting
in 2001 and the initial term of the Class III directors will expire at the
Company's annual stockholder meeting in 2002. Thereafter, the term of each class
of directors will be three years. All directors hold office until the annual
stockholder meeting at which their respective class is subject to re-election
and until their successors are duly elected and qualified, or until their
earlier resignation or removal.
BOARD COMMITTEES
Compensation Committee. The Compensation Committee of the Board of
Directors reviews and makes recommendations to the Board regarding the Company's
compensation policies and all forms of compensation to be provided to executive
officers and directors of the Company, including, among other things, annual
salaries and bonuses, and stock option and other incentive compensation
arrangements. In addition, the Compensation Committee reviews bonus and stock
compensation arrangements for all other employees of the
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Company. As part of the foregoing, the Compensation Committee administers the
Company's Stock Option Plans. The current members of the Compensation Committee
are Messrs. Autem and Leeke.
Audit Committee. The Audit Committee of the Board of Directors reviews and
monitors the corporate financial reporting and the internal and external audits
of the Company, including, among other matters, the Company's control functions,
the results and scope of the annual audit and other services provided by the
Company's independent accountants, and the Company's compliance with legal
matters that have a significant impact on the Company's financial report. In
addition, the Audit Committee consults with the Company's management and
independent accountants prior to the presentation of financial statements to
stockholders and, as appropriate, initiates inquiries into aspects of the
Company's financial affairs. The Audit Committee also has the responsibility to
consider and recommend the appointment of, and to review fee arrangements with,
the Company's independent accountants. The current members of the Audit
Committee are Messrs. Autem and Leeke.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
For the year ended December 31, 1997, the Company's Stock Option Plan
Committee was comprised of Mr. Wagner, the Chief Executive Officer of the
Company, and Mark Cuban, the President of the Company. The Company's
Compensation Committee is currently comprised of Messrs. Autem and Leeke, both
of whom are Directors of the Company. No interlocking relationship exists
between any member of the Board of Directors or the Compensation Committee and
any member of the board of directors or compensation committee of any other
company, and no such interlocking relationship has existed in the past.
DIRECTOR COMPENSATION
Non-Employee Directors Stock Option Plan. Directors who are not employees
of the Company are entitled to receive stock options pursuant to the Company's
1996 Non-Employee Directors Stock Option Plan (the "Directors' Plan"). All
options granted under the Directors' Plan expire 10 years from the date of the
option grant. The exercise price for options granted under the Directors' Plan
is the fair market value of a share of Common Stock on the date of grant. No
more than 150,000 shares of Common Stock may be issued upon exercise of options
granted under the Directors' Plan, subject to adjustment for stock splits, stock
dividends, reverse stock splits and other transactions affecting the number of
outstanding shares of Common Stock. Options may be granted under the Directors'
Plan until April 15, 2006.
The Directors' Plan provides for the automatic grant of an option to
purchase 15,000 shares of Common Stock to each of the Company's non-employee
directors upon their initial election to the Board. Each non-employee director
re-elected to the Board of Directors at a subsequent annual stockholders'
meeting is granted an additional option to purchase 2,400 shares of Common Stock
immediately following such annual stockholders' meeting.
Assuming that the non-employee director optionee has remained eligible
under the Directors' Plan for the entire period, 50% of the shares subject to
his or her initial option becomes exercisable upon the earlier of (i) the first
anniversary of the date of the option grant or (ii) immediately prior to the
first annual stockholders' meeting following the date of the option grant. The
remaining 50% of the shares subject to the option vest and become exercisable
upon the earlier of (i) the second anniversary of the date of the option grant
or (ii) immediately prior to the second annual stockholders' meeting following
the date of the option grant. Assuming that such optionee has remained eligible
under the Directors' Plan for the entire period, each additional option will
become exercisable upon the earlier of (i) the first anniversary of the date of
each such grant or (ii) immediately prior to the first annual stockholders'
meeting following the date of each such grant.
In the event of a sale of substantially all of the Company's assets, the
liquidation or dissolution of the Company, or certain changes in control of the
Company or its Board of Directors, options granted under the Directors' Plan
will become immediately exercisable prior to the occurrence of such event
without regard to vesting requirements and will then terminate if not exercised
prior to the occurrence thereof.
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As of March 31, 1998, options to purchase 7,500 shares of Common Stock were
outstanding under the Directors' Plan.
Other Director Compensation. The Company has agreed to pay each
non-employee director $1,000 for each Board of Directors meeting attended, $500
for each meeting of a Committee of the Board of Directors attended and $200 for
each unanimous consent executed in lieu of a Board of Directors meeting. The
Company reimburses directors for all reasonable and documented expenses incurred
as a director. Directors who are also employees of the Company, including
Messrs. Wagner, Cuban and Riggs, are not compensated for their services as
directors.
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1997, all
compensation of the Chief Executive Officer and the other executive officers of
the Company who received compensation in excess of $100,000 in such year
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
------------
NAME AND PRINCIPAL POSITION SALARY
--------------------------- ------------
<S> <C>
Todd R. Wagner.............................................. $120,000
Chief Executive Officer
Mark Cuban.................................................. 120,000
President and Chairman of the Board
</TABLE>
The following table sets forth certain information concerning the grant of
stock options to each of the Named Executive Officers. None of such Named
Executive Officers exercised any options during the year ended December 31,
1997.
AGGREGATED OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
HELD AT DECEMBER 31, 1997(1) AT DECEMBER 31, 1997(2)
----------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Todd R. Wagner........................ 47,160 188,640 $ $
Mark Cuban............................ 57,600 230,400
</TABLE>
- ---------------
(1) Options shown were granted under the Company's 1996 Stock Option Plan. These
options become exercisable with respect to 20% of the shares covered by the
option on the first anniversary of the date of grant and with respect to an
additional 20% of these shares each year thereafter. Upon certain changes in
control of the Company, all unvested options will automatically vest. See
"--Stock Option Plans" for a description of the material terms of these
options.
(2) Based on an assumed initial public offering price of $ per share and net of
the option exercise price.
EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL CONSIDERATIONS
The Company has entered into employment agreements with Messrs. Wagner and
Cuban for a term commencing on August 1, 1996, and ending on December 31, 1998,
subject to automatic successive one-year extensions in the absence of a notice
of termination by either the Company or the employee. Each agreement provides
for an annual base salary of $120,000 for 1997, plus a bonus equal to 1.5% of
the pre-tax income of the Company, as determined by the Company's outside
accountants in accordance with generally accepted accounting principles, in
excess of certain scheduled net income thresholds. Each of the agreements has
regularly scheduled increases in such salaries through the year 2000. Under the
terms of the agreements, upon
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<PAGE> 53
consummation of this offering, the current base salaries of Messrs. Wagner and
Cuban shall each increase to $225,000, retroactively effective as of January 1,
1998.
The employment agreements provide that at any time within six months
following a Change of Control of the Company (as defined in the employment
agreements), Messrs. Wagner and Cuban can terminate their agreements. Following
such termination, the terminating employee is entitled to payment of Deferred
Compensation (as defined in the employment agreements) equal to the sum of (a)
the greater of (i) the remaining base salary payable to the employee through the
date on which the employment agreement would have expired by its terms or (ii)
150% of the employee's total compensation during the two years prior to such
termination, and (b)(i) all additional benefits owing to the terminating
employee under the agreement for the period of time which is the longer of (a)
the period through the date on which the employment agreement would have expired
by its terms or (b) one year.
Messrs. Wagner and Cuban have been granted options to purchase 235,800 and
288,000 shares of Common Stock, respectively, pursuant to the Company's stock
option plans, which plans provide for acceleration of vesting of such options so
that such options shall immediately become fully exercisable in the event of
certain changes of control.
EMPLOYEE BENEFIT PLANS
The 1996 Stock Option Plan. In April 1996, the Board of Directors adopted,
and the stockholders of the Company approved, the Company's 1996 Stock Option
Plan (the "1996 Plan"), pursuant to which officers, employees and consultants
(excluding non-employee directors) are eligible to receive options to purchase
shares of Common Stock. At the time of adoption, no more than 1,440,000 shares
of Common Stock could be issued as a result of the exercise of options granted
under the 1996 Plan. Generally, with certain exceptions, no eligible person
could receive options to purchase more than 240,000 shares of Common Stock
during any calendar year. In August 1997, the Board of Directors elected not to
grant any further options under the 1996 Plan. At such time, there were options
to purchase 1,211,360 shares of Common Stock outstanding. As of March 31, 1998,
there were options to purchase 1,125,992 shares of Common Stock outstanding
under the 1996 Plan. Options that have been forfeited under the 1996 Plan are
available to be granted pursuant to the terms of the 1998 Plan described below.
The 1998 Stock Option Plan. In August 1997, the Board of Directors adopted,
subject to stockholder approval, the Company's 1998 Stock Option Plan (the "1998
Plan"), pursuant to which directors (other than non-employee directors),
officers, employees, consultants and advisors are eligible to receive options to
purchase shares of Common Stock. Subject to adjustment for stock splits, stock
dividends, reverse stock splits and other transactions affecting the number of
outstanding shares of Common Stock effected without the receipt of consideration
by the Company, no more than 1,800,000 shares of Common Stock may be issued as a
result of the exercise of options granted under the 1998 Plan, and no eligible
person may be granted options to purchase more than 250,000 shares of Common
Stock during any calendar year. Options may be granted under the 1998 Plan until
August 19, 2007. As of March 31, 1998, there were options to purchase 867,481
shares of Common Stock outstanding.
Certain Provisions Applicable to the 1996 Stock Option Plan and the 1998
Stock Option Plan. The 1996 Plan and the 1998 Plan are being (the 1996 Plan and
the 1998 Plan may herein be referred to collectively as the "Stock Option
Plans") administered by the Compensation Committee. Under the terms of the Stock
Option Plans, as long as the Company has any class of securities registered
pursuant to Section 12 of the Exchange Act, the Committee must be composed of at
least two members of the Board of Directors of the Company, each of whom is
required to be "disinterested" within the meaning of Rule 16b-3 under the
Exchange Act. In April 1998, the Board of Directors dissolved its Stock Option
Plan Committee and authorized the Compensation Committee (consisting of Messrs.
Leeke and Autem) to administer the Stock Option Plans. Messrs. Leeke and Autem
meet the requirements of Rule 16b-3. The Compensation Committee has the
authority to interpret the Stock Option Plans; to determine the terms and
conditions of options granted under the Stock Option Plans; to prescribe, amend
and rescind the rules and regulations of the
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<PAGE> 54
Stock Options Plans; and to make all other determinations necessary or advisable
for the administration of the Stock Option Plans.
Options granted under the Stock Option Plans may be incentive stock
options, which are intended to qualify for favorable federal income tax
treatment under the provisions of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code") ("ISOs"), or non-qualified stock options, which do
not so qualify ("NSOs"; ISOs and NSOs may be referred to herein collectively as
"Options"). The Compensation Committee selects the eligible persons to whom
Options will be granted and determines the dates, amounts, exercise prices (in
no event less than the fair market value of a share of Common Stock on the date
of grant), vesting periods and other relevant terms of the Options, including
whether the Options will be ISOs or NSOs. Options are generally not transferable
during the life of the optionee.
Options vest and become exercisable as determined by the Compensation
Committee, although Options granted under the 1996 Plan may vest no earlier than
one year from the date of grant. Options may be exercised at any time after they
vest and before their expiration date as determined by the Compensation
Committee, provided, however, that no Option may be exercised more than 10 years
after its date of grant (five years after grant in the case of certain ISOs).
Options, whether or not vested, will generally terminate (i) immediately upon
termination of the optionee's employment with the Company for just cause; and
(ii) twelve months after death, permanent disability or normal retirement
(unless the Option expires earlier by its terms) under the 1996 Plan and six
months thereafter under the 1998 Plan; and 90 days after termination of
employment (180 days in the case of non-qualified Options granted thereunder)
for any other reason under the 1996 Plan and 30 days with respect to the 1998
Plan (unless the Option expires earlier by its terms), although the Compensation
Committee, in its discretion, may accelerate vesting and may extend the exercise
period of any Options. The aggregate fair market value (determined at the time
of the option grant) of the shares of Common Stock represented by ISOs that
become exercisable in any calendar year may not exceed $100,000. Options in
excess of this limit are treated as NSOs.
If the Company consummates any reorganization, merger or consolidation,
each outstanding Option will, upon exercise, entitle the optionee to receive the
same consideration received by holders of shares of Common Stock in such
reorganization or merger or consolidation, with appropriate exercise price
adjustments. In the case of certain changes of control of the Company, any
Options specified at any time by the Compensation Committee or the Board in its
discretion shall vest and become exercisable. Under the 1996 Plan, in the case
of certain changes in control involving the liquidation of the Company, the
disposition of substantially all of the Company's assets, and certain
reorganizations, mergers or consolidations of the Company, all outstanding
Options will automatically vest and become exercisable if, and to the extent
that such Options are not, in connection with the change of control, to be
cashed-out at full value, continued by the Company as the surviving corporation,
assumed by the successor corporation or parent thereof or replaced with
comparable options or other compensation programs. Under the 1998 Plan, in the
event of a "Change of Control" (as defined therein), all outstanding Options
will automatically vest and become exercisable.
As of March 31, 1998, there were options to purchase 2,000,973 shares of
Common Stock outstanding in the aggregate under the Stock Option Plans.
401(k) Plan. The Company sponsors a savings and investment plan (the
"401(k) Plan") intended to be qualified under Section 401 of the Code.
Participating employees may make pre-tax contributions, subject to limitations
under the Code, of a percentage of their total compensation. Employees become
eligible to participate in the plan after being employed by the Company for six
months. The Company, in its sole discretion, may make matching contributions for
the benefit of all participants with at least one year of service who make
pre-tax contributions. The Board of Directors has not yet determined the
matching contribution, if any, that will be made for the 1998 plan year.
Employee Stock Purchase Plan. In May 1998, the Board of Directors adopted
the Company's 1998 Employee Stock Purchase Plan (the "Stock Purchase Plan"),
subject to stockholder approval, which approval must be obtained within 12
months after the date of the Board's adoption. Subject to meeting federal and
state
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<PAGE> 55
securities law requirements and such stockholder approval, the Stock Purchase
Plan will become effective at the consummation of this offering, or as soon as
practicable thereafter.
The purpose of the Stock Purchase Plan is to maintain competitive equity
compensation programs and to provide employees of the Company with an
opportunity and incentive to acquire a proprietary interest in the Company
through the purchase of Common Stock, thereby more closely aligning the
interests of the Company's employees and shareholders. The Company has reserved
a total of 250,000 shares of Common Stock for issuance and sale under the Stock
Purchase Plan. The Stock Purchase Plan will be administered by the Compensation
Committee, members of which are not eligible to participate in the Stock
Purchase Plan. The Board, however, may from time to time in its discretion
exercise any responsibilities or authority allocated to the Compensation
Committee under the Stock Purchase Plan.
All employees of the Company who have been employees for at least six
months are eligible to participate in the Stock Purchase Plan, other than
employees whose customary employment is less than 20 hours per week or is not
for more than five months in a calendar year, or employees who are ineligible to
participate due to federal tax restrictions. There are certain restrictions on
the number of shares that a participant may purchase, including the requirement
that the fair market value of shares that may be purchased by any employee
during any calendar year may not exceed $25,000. The offering dates will be
August 15 and February 15 of each Stock Purchase Plan year, and each such
offering date will commence a new offering period, provided that the initial
offering period shall commence as soon as practicable following consummation of
this offering. The Company may alter the duration of any offering period if the
change is announced at least 15 days before the relevant offering date. Shares
purchased under the Stock Purchase Plan will be held in separate accounts for
each participant.
Eligible employees may enroll in any offering period by delivering to the
Company a subscription agreement at least five days before the first day of such
offering period. In the subscription agreement, the employee will specify a
whole number percentage from 1% to 10% of his or her annual base compensation
(including any cash bonus) to be deducted from such employee's paycheck during
the offering period. The amounts so deducted and contributed are applied to the
purchase of shares of Common Stock at 85% of the lesser fair market value of
such shares on (i) the date of purchase or (ii) the offering date.
Participants may increase or decrease their payroll deductions at any time
(subject to such limits as the Compensation Committee may impose) during an
offering period by filing with the Company a new subscription agreement
authorizing such a change in the payroll deduction rate. Participants may
withdraw from an offering period by giving written notice to the Company at
least five days before the end of such offering period. If a participant
withdraws from the Stock Purchase Plan, any contributions that have not been
used to purchase shares shall be refunded. A participant who has withdrawn may
not participate in the Stock Purchase Plan again until the next offering period.
In the event of retirement or cessation of employment for any reason, any
contributions that have not yet been used to purchase shares will be refunded to
the participant, or to the participant's designated beneficiary in the case of
death, and a certificate will be issued for the full shares in the participating
account.
The Compensation Committee may, at any time and for any reason, terminate
or amend the Stock Purchase Plan, subject to stockholder approval in certain
circumstances. Unless sooner terminated by the Committee, the Stock Purchase
Plan will continue in effect for a term of 10 years.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
The Company's Restated Certificate of Incorporation contains certain
provisions permitted under the DGCL relating to the liability of directors. The
Restated Certificate of Incorporation provides that, to the fullest extent
permitted under the DGCL, no director of the Company will be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director.
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<PAGE> 56
The Bylaws provide that (i) the Company is required to indemnify the
directors, officers and employees of the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement arising out of
any action taken by such officer or director in good faith and in a manner
reasonably believed by such officer or director to be in, or not opposed to, the
best interests of the Company, (ii) the Company is required to advance expenses
(including attorneys' fees) to its officers and directors in defending any
civil, criminal, investigative action, rent or proceeding or appeal therefrom
and (iii) the rights conferred in the Bylaws are not exclusive.
The Company has entered into indemnification agreements with each of its
current directors and executive officers to give such directors and executive
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Company's Restated Certificate of Incorporation
and the Company's Restated Bylaws and to provide additional procedural
protections. At present, there is no pending litigation or proceeding involving
a director, officer or employee of the Company regarding which indemnification
is sought, nor is the Company aware of any threatened litigation that may result
in claims for indemnification.
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<PAGE> 57
CERTAIN TRANSACTIONS
The Company sold 2,640,000 shares, 920,040 shares, 990,000 shares and
59,700 shares of Common Stock to Mr. Cuban in May 1995, December 1995, March
1996 and August 1996, respectively.
The Company sold 2,640,000 shares, 600 shares and 7,500 shares of Common
Stock to Mr. Wagner in May 1995, December 1995, and August 1996, respectively.
The Company sold 120,000 and 1,560 shares of Common Stock to Martin Woodall
in May 1995 and August 1996, respectively.
The Company entered into a Bill of Conveyance and Agreement to Assume
Liabilities effective July 1995 with Cameron Broadcasting Systems, Inc.
("Cameron") pursuant to which (i) Cameron transferred certain assets and
intangible rights to the Company, (ii) the Company assumed certain liabilities
and (iii) the Company issued 600,000 shares of Common Stock to Cameron. Cameron
has appointed Mr. Wagner as proxy to vote these 600,000 shares pursuant to a
Proxy dated as of July 1995. The Company sold 33,540 additional shares of Common
Stock to Cameron in August 1996. The Company repurchased 120,000 shares of
Company Common Stock from Cameron in June 1996.
Cameron and Messrs. Cuban and Wagner entered into a Buy-Sell Agreement
effective July 1995 (as amended in August 1996, the "Buy-Sell Agreement")
pursuant to which each party was given the right to buy a pro rata portion of
shares that any other party offered for sale and, in certain situations, the
right or obligation to co-sell shares sold by another party. The Buy-Sell
Agreement terminates upon an initial public offering of any security of the
Company.
The Company issued 735,720 shares, 9,840 shares, 5,220 shares, 21,120
shares and 1,592,356 shares of Common Stock to Motorola in September 1996,
January 1997, March 1997, April 1997 and December 1997, respectively. The
Company and Motorola entered into a Negotiation Rights Agreement in September
1996 pursuant to which the Company agreed (i) to offer Motorola a non-exclusive
license to any technology which it licenses to other parties on a non-exclusive
basis on the same or better terms, (ii) to give Motorola 30 days notice of the
Company's intention to grant a license to any technology to other parties on an
exclusive basis and (iii) to give Motorola a right of first negotiation to any
license of certain wireless distribution technology. The Company, Motorola, and
Messrs. Cuban and Wagner entered into a Stockholders Agreement (the "September
Stockholders Agreement") in September 1996, as amended in December 1996,
pursuant to which Messrs. Cuban and Wagner agreed (i) to vote their shares to
ensure that two designees of Motorola are elected to the Company's Board of
Directors (See "Description of Capital Stock--Stockholder Agreements") and (ii)
to give Motorola certain tag-along rights with respect to certain sales of
shares by Messrs. Cuban and Wagner after the date of the offering.
Steven Leeke and Randall Battat, two of the Company's directors, were
designees of Motorola pursuant to the September Stockholders Agreement. The
September Stockholders Agreement will terminate upon the earlier to occur of (i)
the third anniversary of the Company's offering and (ii) the date on which
Motorola no longer holds at least 50% of the 735,720 shares purchased by
Motorola in September 1996.
On December 16, 1997, the Company and Motorola entered into a Joint
Promotion and Advertising Sales Agreement pursuant to which the Company has
agreed to assist Motorola in monitoring and developing an end-user interface for
Internet delivery of audio content (the "audioSENSE Player"). In order for
Motorola to develop the audioSENSE Player, the Company has agreed to allow the
audioSENSE Player to reside on the Company's Web site as an interface for
accessing certain content on the Company's Web sites. Motorola is also a
customer of the Company, to whom the Company provides business services. These
relationships with Motorola have generated revenues for the Company of $10,000
and $84,000 for the twelve months ending December 31, 1997 and the three months
ending March 31, 1998, respectively. See "Business--Strategic Relationships--Key
Internet Companies."
The Company issued 294,300 shares and 530,786 shares of Common Stock to
Intel in February 1997 and December 1997, respectively. The Company sold a stock
purchase warrant to Intel in February 1997, as amended in December 1997, (the
"Intel Warrant") pursuant to which Intel was granted the right to purchase
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<PAGE> 58
an additional 147,120 shares of Common Stock at an exercise price of $6.80 per
share. Intel is also a customer of the Company, to whom the Company provides
business services, which services generated revenues for the Company of
approximately $500,000 and $84,000 for the twelve months ending December 31,
1997 and the three months ending March 31, 1998, respectively.
The Company, Messrs. Cuban and Wagner, Motorola, Intel and certain other
shareholders of the Company are parties to a stockholders agreement (the
"December Stockholders Agreement") which was originally entered into in December
1996 and amended in February 1997 and December 1997 pursuant to which Messrs.
Cuban and Wagner granted Motorola, Intel and certain other shareholders a
tag-along right with respect to certain sales of shares by Messrs. Cuban and
Wagner after the date of this offering. See "Description of Capital
Stock--Stockholder Agreements." The December Stockholders Agreement will
terminate upon the third anniversary of the Company's Initial Public Offering.
The Company, Motorola, Intel and certain other shareholders of the Company
are party to a Registration Rights Agreement, which was originally entered into
in September 1996 and amended in November 1996, December 1996, February 1997,
and December 1997 (the "Registration Rights Agreement"), pursuant to which
Motorola, Intel and certain other shareholders have rights (i) to request that
the Company effect a registration of the sale of shares held by them and (ii) to
request that the sale of shares held by them be included in registrations
conducted by the Company. See "Description of Capital Stock--Registration Rights
Agreement."
The Company has entered into employment agreements with Messrs. Cuban and
Wagner. See "Management--Employment Agreements and Change in Control
Considerations."
The Company has issued options to certain of its Directors and Officers.
The Company has entered into Indemnification Agreements with its directors and
executive officers. See "Management--Indemnification of Directors and Executive
Officers and Limitation of Liability."
Mr. Cuban has agreed to act as guarantor of the following June 1997 Company
lease obligations with Green Tree Vender Services Corporation: (i) lease of
voicemail system with monthly payments of $1,128 for a term of three years; (ii)
lease of office furniture with monthly payments of $4,333 for a term of three
years; and (iii) lease of Nortel Meridian system with monthly payments of $3,938
for a term of three years.
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<PAGE> 59
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain ownership information with respect
to the beneficial ownership of the Company's Common Stock as of March 31, 1998
(except as otherwise noted), and as adjusted to reflect the sale of shares of
Common Stock hereby, by (i) each person who is known by the Company to own
beneficially more than 5% of the Common Stock, (ii) each director of the
Company, (iii) each of the Named Executive Officers, and (iv) all directors and
executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED(1)
SHARES -----------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2)
------------------------ ------------ -------- -----------
<S> <C> <C> <C>
Mark Cuban(3)............................................... 4,724,940 32.6%
Todd R. Wagner(4)........................................... 2,742,420 18.9
Motorola, Inc.(5)........................................... 2,364,256 16.4
Intel Corporation(6)........................................ 883,946 6.1
Joseph W. Autem............................................. 19,620 *
Steven Leeke(7)............................................. 7,500 *
Kevin Parke(8).............................................. 6,000 *
All directors and executive officers as a group (9
persons)(9)............................................... 7,500,480 51.4
</TABLE>
- ------------
* Less than one percent of the Company's Common Stock.
(1) Unless otherwise indicated, and subject to community property laws where
applicable, each of the stockholders named in this table has sole voting and
investment power with respect to the shares shown as beneficially owned by
it. A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from March 31, 1998 upon the exercise
of options and warrants. Each beneficial owner's percentage ownership is
determined by assuming that options that are held by such person (but not
those held by any other person) and that are exercisable within 60 days from
March 31, 1998 have been exercised.
(2) Assumes that the Underwriter's overallotment option is not exercised.
(3) Includes an aggregate of 115,200 shares of Common Stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
March 31, 1998. Mr. Cuban is required to vote his shares to ensure
representation of Motorola on the Board of Directors. See "Description of
Capital Stock--Stockholder Agreements."
(4) Includes an aggregate of 94,320 shares of Common Stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
March 31, 1998. Mr. Wagner has granted the Underwriters an Option,
exercisable within 30 days hereof, relating to the Offering, to purchase up
to shares of Common Stock at the price offered to the public less
underwriting discounts and commissions for the purpose of covering
overallotments, if any. If the Underwriters exercise such options in full,
Mr. Wagner will beneficially own shares or % of the Common Stock
after the offering. Mr. Wagner holds voting rights with respect to an
additional 600,000 shares of Common Stock, which shares are owned by Cameron
and are subject to a proxy in favor of Mr. Wagner. See "Certain
Transactions." Mr. Wagner is required to vote his shares to ensure
representation of Motorola on the Board of Directors. See "Description of
Capital Stock--Stockholder Agreements."
(5) The address of Motorola, Inc. is 1303 E. Algonquin Road, Schaumburg,
Illinois 60196. Messrs. Wagner and Cuban are each required to vote their
shares to ensure representation of Motorola on the Board of Directors. See
"Description of Capital Stock--Stockholder Agreements." Messrs. Battat and
Leeke disclaim beneficial ownership of any shares of Common Stock
beneficially owned by Motorola.
(6) Includes an aggregate of 58,860 shares of Common Stock issuable pursuant to
warrants that are currently exercisable or are exercisable within 60 days of
March 31, 1998. The address of Intel Corporation is 2200 Mission College
Boulevard, Santa Clara, California 95052.
(7) Includes an aggregate of 7,500 shares of Common Stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
March 31, 1998. Pursuant to an agreement between Mr. Leeke and Motorola
dated March 27, 1998. Mr. Leeke can exercise his options at the sole
direction of, and for the benefit of, Motorola.
(8) Includes an aggregate of 6,000 shares of Common Stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
March 31, 1998.
(9) Includes an aggregate of 222,120 shares of Common Stock issuable pursuant to
options that are currently exercisable or are exercisable within 60 days of
March 31, 1998.
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<PAGE> 60
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized by its Restated Certificate of Incorporation, as
amended, to issue 45,000,000 shares of Common Stock, par value $0.01 per share,
of which 14,383,451 were outstanding and held of record by 33 stockholders on
May 15, 1998; and 5,000,000 shares of Preferred Stock, par value $0.01 per
share, of which no shares are outstanding (collectively, the "Capital Stock").
The Company may not subdivide or combine any shares of its Common Stock, or
pay any dividend or retire any share or make any other distribution on any share
of its Common Stock, or accord any other payment, benefit or preference to any
share of its Common Stock, except by extending such subdivision, combination,
distribution, payment, benefit or preference equally to all shares of Common
Stock.
The Common Stock does not entitle holders to any preemptive rights upon the
issuance of other securities of the Company.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by stockholders and are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally available therefore
and to share pro rata in any distribution to holders of Capital Stock. Holders
of Common Stock do not have the power to act by written consent. Actions
required or permitted to be taken by the stockholders of the Company may be
taken only at a duly called annual or special meeting of the stockholders. In
the event of a liquidation, dissolution, or winding-up of the Company, holders
of Common Stock will be entitled to share pro rata in the distribution to
holders of Capital Stock of all remaining assets of the Company after the
payment of all debts, liabilities, and obligations of the Company and the
preference distributions, if any, to holders of the Company's Preferred Stock.
Options entitling the holders thereof to purchase a total 2,000,973 shares
of common stock were outstanding under the Company's 1996 and 1998 Stock Option
Plans and the Company's Directors' Plan as of March 31, 1998.
PREFERRED STOCK
Pursuant to the Company's Restated Certificate of Incorporation, as
amended, the Board of Directors has the authority to issue up to 5,000,000
shares of Preferred Stock in one of more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights that may adversely affect the voting power or other
rights of the holders of the Company's Common Stock. In the event of issuance,
the Preferred Stock could be utilized, under certain circumstances, to
discourage, delay or prevent an acquisition or change of control of the Company.
The Company does not currently intend to issue any shares of its Preferred
Stock.
OPTIONS
As of March 31, 1998, the Company had granted options to purchase up to
2,151,517 shares of Common Stock, of which 286,285 shares were then currently
exercisable, at exercise prices ranging from $1.07 to $10.43, pursuant to the
provisions of the Company's Stock Option Plans and Directors' Plan. See
"Management--Non-Employee Directors Compensation" and "--Stock Option Plans."
Previous offerings under the Plans have been exempt from registration, and
shares issued in connection therewith are subject to resale restrictions. The
Company intends to file a Registration Statement on Form S-8 registering shares
to be issued in connection with current and future option grants. See "Shares
Eligible for Future Sale."
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<PAGE> 61
WARRANTS
As of the effective date of this Prospectus, the Company has outstanding
warrants entitling the holders thereof to purchase a total of 218,036 shares of
Common Stock of the Company with exercise prices of either $6.80 or $9.42 per
share. An additional warrant to purchase 15,960 shares of Common Stock will
expire upon the effectiveness of this Prospectus.
DIVIDENDS
The Company has never paid any cash dividends on its Capital Stock. For the
foreseeable future, the Company intends to retain all of its future earnings to
finance its operations and does not anticipate paying cash dividends.
CERTAIN PROVISIONS OF DELAWARE LAW
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL. In general, Section 203 prevents an "interested stockholder" (defined
generally as a person owning 15% or more of the Company's outstanding voting
stock) from engaging in a "business combination" (as defined in Section 203)
with the Company for three years following the date that person became an
interested stockholder unless: (i) before that person became an interested
stockholder, the Board approved the transaction in which the interested
stockholder became an interested stockholder or approved the business
combination, (ii) upon completion of the transaction that resulted in the
interested stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the Company outstanding at
the time the transaction commenced (excluding stock held by directors who are
also officers of the Company and by employee stock plans that do not provide
employees with the right to determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange offer) or (iii) on or
following the date on which that person became an interested stockholder, the
business combination is approved by the Company's Board and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
66 2/3% of the outstanding voting stock of the Company not owned by the
interested stockholder.
Under Section 203, these restrictions do not apply to certain business
combinations proposed by an interested stockholder following the announcement or
notification of one of certain extraordinary transactions involving the Company
and a person who was not an interested stockholder during the previous three
years or who became an interested stockholder with the approval of a majority of
the Company's directors, if that extraordinary transaction is approved or not
opposed by a majority of the directors (but not less than one) who were
directors before any person became an interested stockholder in the previous
three years or who were recommended for election or elected to succeed such
directors by a majority of such directors then in office.
Under Section 162 of the DGCL, the Board of Directors of the Company can,
without stockholder approval, issue authorized but unissued shares of Capital
Stock, which may have the effect of delaying, deferring or preventing a change
of control of the Company. Except as contemplated hereby, the Company has no
plan or arrangement for the issuance of any shares of Capital Stock other than
in the ordinary course pursuant to the Plans.
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Restated Certificate of Incorporation, as amended, provides
that following the consummation of an initial public offering of the Common
Stock, no action may be taken by written consent in lieu of a meeting of the
stockholders.
The Company's Restated Certificate of Incorporation, as amended, provides
that following the consummation of an initial public offering of shares of
Common Stock, the Board of Directors is to be divided into three classes. The
total number of directors is to be divided among the three classes, and the
directors will thereafter have staggered three-year terms. Directors may be
removed from office only for cause, and only upon the affirmative vote of
stockholders of the Company, voting as a single class, of not less than 67% of
the total outstanding shares entitled to vote in the election of directors. The
Restated Certificate of Incorporation,
59
<PAGE> 62
as amended, further provides that the provisions thereof pertaining to the Board
of Directors may be repealed or amended only in accordance with the DGCL and by
the affirmative vote of the stockholders of the Company, voting as a single
class, of not less than 67% of the total outstanding shares entitled to vote in
the election of directors.
REGISTRATION RIGHTS AGREEMENT
On February 24, 1997, the Company entered into that certain First Amended
and Restated Registration Rights Agreement (the "Registration Rights Agreement")
among Motorola, Premiere Radio Networks, Intel, Capitol and HMTF AudioNet
Investors (collectively, the "Holders"). Yahoo! was made a Holder under the
terms of the Registration Rights Agreement pursuant to the Addendum to First
Amended and Restated Registration Rights Agreement dated as of December 30,
1997. Under the terms of the Registration Rights Agreement, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of other security holders, the Holders are
entitled to notice of such registration and are entitled to include their shares
of Common Stock in the registration. The rights of the Holders to include shares
in a registration statement are subject to certain conditions and limitations,
among them the right of the underwriters of a registered offering to limit the
number of shares of Common Stock included in such registration. The Company has
agreed to bear all expenses incurred in connection with all registrations,
except to the extent that the Holders of the registration rights, and not the
Company, initiate the request that a registration be withdrawn prior to its
effectiveness. Pursuant to the Registration Rights Agreement, the Company has
agreed, to the extent permitted by law, to grant certain indemnification rights
for claims arising under the Securities Act in connection with material
misstatements, omissions or violations by the Company in a registration
statement effecting a registration under the Registration Rights Agreement. In
addition, each Holder has agreed to indemnify the Company, to the extent
permitted by law, for claims which arise out of any violation that occurs in
reliance upon written information furnished to the Company by such Holder
expressly for use in connection with such registration.
STOCKHOLDER AGREEMENTS
On September 4, 1996 Motorola, Todd R. Wagner and Mark Cuban entered into a
stockholders agreement (as amended, the "September Stockholders Agreement")
pursuant to which Messrs. Wagner and Cuban have agreed to vote all shares of
Common Stock owned by them in a manner that ensures that (i) at all times two
Motorola designees serve as members of the Board of Directors of the Company,
subject to removal only under limited circumstances described in the September
Stockholders Agreement, and (ii) at all times that the Board of Directors is
segregated into classes, at least one such designee is a member of the class of
directors with the longest initial term.
In the event that Mr. Cuban or Mr. Wagner proposes to sell, transfer or
otherwise dispose of shares of Common Stock representing 10% or more of the
Company's outstanding shares of Common Stock, certain shareholders, including
Intel and Motorola, have the right to co-sell a pro-rata number of shares of
Common Stock, subject to a limited number of exempt transfers.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is .
60
<PAGE> 63
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common
Stock of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to time.
Furthermore, since no shares owned prior to this offering will be available for
sale shortly after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after these restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock, assuming no exercise of any
warrants or options and no exercise of the Underwriters' over-allotment option.
Of these shares, all of the shares sold in this offering will be freely
tradeable without restriction or further registration under the Securities Act,
unless such shares are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining
14,383,451 shares of Common Stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rule
144 or 701 promulgated under the Securities Act, which rules are summarized
below. All officers, directors, stockholders and option holders of the Company
have agreed not to offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contact to sell, grant any option,
right or warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly (or enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of),
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, during the period ending 180 days after
the date of this Prospectus, without the prior written consent of Morgan Stanley
& Co. Incorporated. Morgan Stanley & Co. Incorporated may in its sole discretion
choose to release a certain number of these shares from such restrictions prior
to the expiration of such 180 day period. As a result of such contractual
restrictions and the provisions of Rule 144 and 701, the Restricted Shares will
be available for sale in the public market as follows: (i) no shares will be
eligible for immediate sale on the date of this Prospectus; (ii) 13,976,285
shares will be eligible for sale upon expiration of the contract restriction,
180 days after the date of this Prospectus, subject in the case of all but
3,249,300 shares to the volume limitations and other conditions of Rule 144
described below; and (iii) the remaining 407,166 shares will become eligible for
sale in March 1999, subject to the volume limitations and other conditions of
Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of: (i) 1% of the number of shares of Common Stock then outstanding
(which will equal approximately shares immediately after this offering); or
(ii) the average weekly trading volume of the Common Stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of an notice
on Form 144 with respect to such sale. Sales under Rule 144 are also subject to
certain manner of sale provisions and notice requirements and to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an Affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years (including the holding period of any
prior owner except an Affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144; therefore, unless otherwise restricted, shares
will quality as "144(k) shares" on the date of this Prospectus and may be sold
immediately upon the completion of this offering. Subject to certain limitations
on the aggregate offering price of a transaction and other conditions,
employees, directors, officers, consultants or advisors may rely on Rule 701
with respect to the resale of securities originally purchased from the Company
prior to the date the issuer becomes subject to the reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), pursuant
to written compensatory benefit plans or written contracts relating to the
compensation of such
61
<PAGE> 64
persons. In addition, the Securities and Exchange Commission has indicated that
Rule 701 will apply to typical stock options granted by an issuer before it
becomes subject to the reporting requirements of the Exchange Act, along with
the shares acquired upon exercise of such options (including exercises after the
date of this Prospectus). Securities issued in reliance on Rule 701 are
restricted securities and, subject to the contractual restrictions described
above, beginning 90 days after the date of this Prospectus, may be sold by
persons other than Affiliates subject only to the manner of sale provisions of
Rule 144, and by Affiliates under Rule 144 without compliance with its holding
period requirements.
Upon completion of this offering, the holders of approximately 4,751,727
shares of Common Stock currently outstanding or issuable upon exercise of
warrants, or their transferees, will be entitled to certain rights with respect
to the registration of such shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act (except for share purchases by affiliates)
immediately upon the effectiveness of such registration.
The Company intends to file registration statements under the Securities
Act covering (i) shares of Common Stock reserved or to be reserved for
issuance under the 1996 Plan, the 1998 Plan, the Directors' Plan, and the Stock
Purchase Plan, and (ii) shares subject to outstanding options under the 1996
Plan, the 1998 Plan and the Directors' Plan as of the date hereof (2,000,973 as
of March 31, 1998). See "Management--Employee Benefit Plans." Such registration
statements are expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered under
such registration statements will, subject to Rule 144 volume limitations
applicable to Affiliates, be available for sale in the open market, beginning
181 days after the date of the Prospectus, unless such shares are subject to
vesting restrictions with the Company.
62
<PAGE> 65
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the Underwriters
named below (the "Underwriters"), for whom Morgan Stanley & Co. Incorporated,
Donaldson, Lufkin & Jenrette Securities Corporation and Hambrecht & Quist LLC
are acting as Representatives (the "Representatives"), have severally agreed to
purchase, and the Company has agreed to sell to them, severally, the respective
number of shares of Common Stock set forth opposite their respective names
below:
<TABLE>
<CAPTION>
NUMBER
OF
NAME SHARES
---- --------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Donaldson, Lufkin & Jenrette Securities Corporation.........
Hambrecht & Quist LLC.......................................
--------
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the over-allotment option described below) if any such shares are
taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the initial public offering price set forth on
the cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price. Any
Underwriter may allow, and such dealers may reallow, a concession not in excess
of $ a share to other Underwriters or to certain dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company and a Selling Shareholder have granted to the Underwriters an
option, exercisable for 30 days from the date of this Prospectus, to purchase up
to an aggregate of additional shares of Common Stock at the
initial public offering price set forth on the cover page hereof, less
underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
made in connection with the offering of the shares of Common Stock offered
hereby. To the extent such option is exercised, each Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the number set forth
next to such Underwriter's name in the preceding table bears to the total number
of shares of Common Stock set forth next to the names of all Underwriters in the
preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
63
<PAGE> 66
Each of the Company and the directors, executive officers, certain other
stockholders and option holders of the Company has agreed that, without the
prior written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not during the period ending 180 days after the date of
this Prospectus (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 to purchase or otherwise transfer, lend or dispose of, directly
or indirectly, any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise, except under
certain limited circumstances. The restrictions described in this paragraph do
not apply to (a) the sale of shares of Common Stock to the Underwriters, (b) the
issuance by the Company of shares of Common Stock upon exercise of an option or
a warrant or the conversion of a security outstanding on the date of this
Prospectus of which the Underwriters have been advised in writing or (c)
transactions by any person other than the Company relating to shares of Common
Stock or other securities acquired in open market transactions after the
completion of the offering of the Shares.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to any Underwriter or a dealer for distribution of
the Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the shares of
Common Stock or any other securities of the Company. The initial public offering
price for the shares of Common Stock will be determined by negotiations between
the Company and the Representatives. Among the factors to be considered in
determining the initial public offering price will be the future prospects of
the Company and its industry in general, sales, earnings and certain other
financial and operating information of the Company in recent periods, and the
price-earnings ratios, price-sales ratios, market prices of securities and
certain financial and operating information of companies engaged in activities
similar to those of the Company. The estimated initial public offering price
range set forth on the cover page of this Prospectus is subject to change as a
result of market conditions and other factors.
64
<PAGE> 67
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Gibson, Dunn & Crutcher LLP, New York, New York. Sean P. Griffiths, a
partner of Gibson, Dunn & Crutcher LLP, currently owns 20,220 shares of Common
Stock of the Company. Certain legal matters will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The financial statements of the Company for the period from inception (May
19, 1995) to December 31, 1995 and each of the two years in the period ended
December 31, 1997, included in this Prospectus have been so included in reliance
on the report of Price Waterhouse LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act, with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock, reference is
hereby made to such Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. A copy of the Registration Statement may be
inspected by anyone without charge at the Commission's principal office in
Washington, D.C., at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048, and Citicorp Center 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and through the SEC's Web site at
http://www.sec.gov. Copies of all or any part of the Registration Statement may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W. Washington, D.C. 20549, upon payment of certain fees prescribed by
the Commission.
65
<PAGE> 68
BROADCAST.COM INC.
INDEX TO FINANCIAL STATEMENTS
THE FINANCIAL STATEMENTS REFERRED TO BELOW ARE AS OF DECEMBER 31, 1996 AND 1997
AND MARCH 31, 1998 (UNAUDITED) AND FOR THE INCEPTION PERIOD ENDED DECEMBER 31,
1995,
YEARS ENDED DECEMBER 31, 1996 AND 1997 AND THE THREE MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... 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> 69
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
broadcast.com inc.
In our opinion, the accompanying balance sheets and the related statements
of operations, of stockholders' equity (deficit) and of cash flows present
fairly, in all material respects, the financial position of broadcast.com inc.
at December 31, 1996 and 1997 and the results of its operations and its cash
flows for the period from inception (May 19, 1995) to December 31, 1995 and the
years ended December 31, 1996 and 1997 in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Dallas, Texas
February 1, 1998
F-2
<PAGE> 70
BROADCAST.COM INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- MARCH 31,
1996 1997 1998
ASSETS ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $4,580,286 $21,337,116 $22,400,176
Accounts receivable, net of allowance of $34,826,
$76,240 and $141,679, respectively.............. 406,802 1,976,765 2,448,561
Prepaid expenses................................... 65,760 1,032,198 1,382,182
Other.............................................. 17,912 11,311 52,986
---------- ----------- -----------
Total current assets....................... 5,070,760 24,357,390 26,283,905
Property and equipment, net.......................... 1,186,182 2,812,971 3,289,255
Prepaid expenses..................................... 1,715,000 935,720 369,834
Intangible assets, net............................... 182,414 126,733 191,480
---------- ----------- -----------
Total assets............................... $8,154,356 $28,232,814 $30,134,474
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities........... $ 546,471 $ 1,039,876 $ 1,828,482
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized, $.01
par value, no shares issued and outstanding..... -- -- --
Common stock, 45,000,000 shares authorized, $.01
par value, 11,134,140, 13,976,285 and 14,383,451
shares issued and outstanding, respectively..... 57,341 85,763 89,835
Additional paid-in capital......................... 10,807,309 36,838,152 40,669,584
Accumulated deficit................................ (3,256,765) (9,730,977) (12,453,427)
---------- ----------- -----------
Total stockholders' equity................. 7,607,885 27,192,938 28,305,992
---------- ----------- -----------
Total liabilities and stockholders'
equity................................... $8,154,356 $28,232,814 $30,134,474
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 71
BROADCAST.COM INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(MAY 19, 1995) YEAR ENDED THREE MONTHS ENDED
TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- -------------------------
1995 1996 1997 1997 1998
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Business services............ $ -- $ 535,201 $ 2,820,449 $ 446,711 $ 1,126,515
Web advertising.............. -- 1,090,629 2,955,259 531,306 1,322,911
Traditional media
advertising............... -- -- 942,090 90,751 516,707
Other........................ -- 130,270 138,235 18,189 209,811
---------- ----------- ----------- ----------- -----------
Total revenues....... -- 1,756,100 6,856,033 1,086,957 3,175,944
Cost of revenues............... -- 1,301,253 2,949,641 469,422 1,224,957
---------- ----------- ----------- ----------- -----------
Gross profit......... -- 454,847 3,906,392 617,535 1,950,987
---------- ----------- ----------- ----------- -----------
Operating expenses:
Operating and development.... -- 1,506,449 4,659,249 649,565 2,247,141
Sales and marketing.......... 21,413 717,547 3,389,069 519,182 1,670,727
General and administrative... 216,609 751,785 1,416,276 396,832 588,179
Depreciation and
amortization.............. 29,896 544,003 1,129,120 176,463 442,456
---------- ----------- ----------- ----------- -----------
Total operating
expenses........... 267,918 3,519,784 10,593,714 1,742,042 4,948,503
---------- ----------- ----------- ----------- -----------
Net operating loss... (267,918) (3,064,937) (6,687,322) (1,124,507) (2,997,516)
Interest and other income...... -- 76,090 213,110 61,010 275,066
---------- ----------- ----------- ----------- -----------
Net loss............. $(267,918) $(2,988,847) $(6,474,212) $(1,063,497) $(2,722,450)
========== =========== =========== =========== ===========
Basic and diluted net loss per
share........................ $ (0.04) $ (0.31) $ (0.55) $ (0.09) $ (0.19)
========== =========== =========== =========== ===========
Shares used in the net loss per
share calculations........... 6,020,432 9,563,771 11,679,777 11,427,591 14,075,604
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 72
BROADCAST.COM INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE INCEPTION PERIOD ENDED DECEMBER 31, 1995, THE YEARS ENDED DECEMBER 31,
1996 AND 1997
AND THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK ADDITIONAL STOCKHOLDERS'
-------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
---------- ------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock to founders
in May 1995......................... 5,400,000 $ -- $ 1,000 $ -- $ 1,000
Issuance of Common Stock; purchase of
technology from Cameron
Broadcasting, Inc. ................. 600,000 6,000 44,000 -- 50,000
Issuance of Common Stock; payment for
services............................ 30,180 302 2,198 -- 2,500
Net loss incurred during development
stage............................... -- -- -- (267,918) (267,918)
---------- ------- ----------- ------------ -----------
BALANCES, DECEMBER 31, 1995........... 6,030,180 6,302 47,198 (267,918) (214,418)
Issuance of Common Stock.............. 5,103,960 51,039 10,760,111 -- 10,811,150
Net loss.............................. -- -- -- (2,988,847) (2,988,847)
---------- ------- ----------- ------------ -----------
BALANCES, DECEMBER 31, 1996........... 11,134,140 57,341 10,807,309 (3,256,765) 7,607,885
Issuance of Common Stock.............. 2,842,145 28,422 25,310,843 -- 25,339,265
Issuance of warrants.................. -- -- 720,000 -- 720,000
Net loss.............................. -- -- -- (6,474,212) (6,474,212)
---------- ------- ----------- ------------ -----------
BALANCES, DECEMBER 31, 1997........... 13,976,285 85,763 36,838,152 (9,730,977) 27,192,938
Issuance of Common Stock.............. 407,166 4,072 3,831,432 -- 3,835,504
Net loss.............................. -- -- -- (2,722,450) (2,722,450)
---------- ------- ----------- ------------ -----------
BALANCES, MARCH 31, 1998
(UNAUDITED)......................... 14,383,451 $89,835 $40,669,584 $(12,453,427) $28,305,992
========== ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 73
BROADCAST.COM INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD
FROM INCEPTION
(MAY 19, 1995) YEAR ENDED THREE MONTHS ENDED
TO DECEMBER 31, MARCH 31,
DECEMBER 31, ------------------------- -------------------------
1995 1996 1997 1997 1998
-------------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................... $(267,918) $(2,988,847) $(6,474,212) $(1,063,497) $(2,722,450)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation......................................... 22,936 488,037 1,060,340 162,461 427,203
Amortization......................................... 6,960 55,966 68,780 14,002 15,253
Issuance of Common Stock for services................ 2,500 -- -- -- --
Provision for doubtful accounts...................... -- 84,006 86,240 9,720 88,500
Changes in operating assets and liabilities:
Accounts receivable................................ -- (490,808) (1,656,203) (294,570) (560,296)
Prepaid expenses................................... (87,168) (1,693,592) (200,257) 13,500 215,902
Other assets....................................... (11,663) (6,559) 6,601 (372) (41,675)
Accounts payable and accrued liabilities........... 304,644 241,827 493,405 (39,936) 788,606
-------- ---------- ---------- ---------- ----------
Net cash used in operating activities............ (29,709) (4,309,970) (6,615,306) (1,198,692) (1,788,957)
-------- ---------- ---------- ---------- ----------
Cash flows from investing activities:
Purchases of intangible assets......................... -- -- -- -- (80,000)
Purchases of property and equipment.................... (414,227) (1,282,928) (2,687,129) (688,824) (903,487)
-------- ---------- ---------- ---------- ----------
Net cash used in investing activities............ (414,227) (1,282,928) (2,687,129) (688,824) (983,487)
-------- ---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from Common Stock issuances................... 1,000 10,045,790 25,339,265 3,542,940 3,835,504
Proceeds from sale of warrants......................... -- -- 720,000 120,000 --
Proceeds from stock subscription deposits.............. 570,330 -- -- -- --
Proceeds from (repayment of) stockholder loan.......... 14,980 (14,980) -- -- --
Purchase of treasury stock............................. -- (160,000) -- -- --
Proceeds from sale of treasury stock................... -- 160,000 -- -- --
-------- ---------- ---------- ---------- ----------
Net cash provided by financing activities........ 586,310 10,030,810 26,059,265 3,662,940 3,835,504
-------- ---------- ---------- ---------- ----------
Net increase in cash and cash equivalents................ 142,374 4,437,912 16,756,830 1,755,424 1,063,060
Cash and cash equivalents at beginning of period......... -- 142,374 4,580,286 4,580,286 21,337,116
-------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end of period............... $ 142,374 $ 4,580,286 $21,337,116 $ 6,335,710 $22,400,176
======== ========== ========== ========== ==========
</TABLE>
(See disclosure of noncash transactions in Notes 2 and 7)
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 74
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
Cameron Audio Networks, Inc. ("Cameron") was incorporated in Texas on May
19, 1995. On May 15, 1996, Cameron purchased the rights to the name AudioNet and
reincorporated as AudioNet, Inc. in the state of Delaware. In May 1995, the
Company filed the Articles of Incorporation (the "Articles") with the Secretary
of State of Texas. The Articles authorized the issuance of one million shares of
no par Common Stock. In December 1995, the Company filed the Articles of
Amendment to the Articles to increase the number of authorized no par shares of
Common Stock to ten million. On November 1, 1996, Cameron and AudioNet filed a
Certificate of Merger, effectively a stock-for-stock merger, whereby Cameron
merged with and into AudioNet, with AudioNet as the surviving entity. At such
time Cameron ceased to exist. Each share of common stock of Cameron was
converted to one share of Common Stock of AudioNet. Effective as of the merger
date, the number of shares authorized increased from 10,000,000 shares of Common
Stock, no par value, to 5,000,000 shares of Preferred Stock, $0.01 par value,
and 45,000,000 shares of Common Stock, $0.01 par value. The financial statements
have been retroactively restated to reflect this reincorporation, except for the
original issuance of founders' shares (see Note 7). In April 1997, the Company
declared a sixty-for-one stock split to be effected in the form of a stock
dividend to stockholders of record on April 28, 1997. Concurrent with the stock
split, the number of authorized common shares was increased from 10,000,000 to
45,000,000. As stated in Note 2, the financial statements have been adjusted
retroactively for the sixty-for-one stock split. Effective May 14, 1998, the
Company changed its name to broadcast.com inc. ("broadcast.com" or the
"Company"). (Unaudited -- See Note 10)
The Company aggregates content and is a broadcaster of streaming media
programming on the Web with the network infrastructure and expertise to deliver
or "stream" live and on-demand audio and video content on the Internet. The
Company offers a comprehensive selection of live and on-demand audio and video
programming on the Internet, including sports, talk and music radio, television,
business events, full-length music CDs, news, commentary and full-length
audio-books. The Company broadcasts on the Internet 24 hours a day seven days a
week, and its programming includes radio stations, television stations and cable
networks and game broadcasts and other programming for college and professional
sports teams. The Company licenses such programming from content providers, in
most cases under exclusive, multi-year agreements. The Company's Business
Services Group also provides Internet and intranet broadcasting services to
businesses and other organizations. These business services include turnkey
production of press conferences, earnings conference calls, stockholder
meetings, product introductions, training sessions, distance learning
telecourses and media events.
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUES
The Company generates revenues through business services, Web advertising
and traditional media advertising.
Business Services. In 1996 and 1997, the Company derived 31% and 41%,
respectively, of revenues from business services. Business services revenues are
derived by providing Internet or intranet broadcasting services to businesses
and other organizations. Business services revenues are recognized in the month
in
F-7
<PAGE> 75
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
which the service is performed, provided that no significant Company obligations
remain and collection of the resulting receivable is probable.
Web Advertising. In 1996 and 1997, the Company derived 62% and 43%,
respectively, of its revenues from the sale of Web advertisements. Web
advertising revenues are derived from the sale of gateway ads with guaranteed
click-thrus ads, channel and event sponsorships and multimedia and traditional
banner ads. Bartered Web advertising revenues are derived from transactions in
which the Company trades advertising on its Web sites in exchange for
advertisements on the Web sites of other companies. Bartered Web advertising
revenues are recognized at the fair market value of consideration received or
provided, whichever is lower. In cases where there is not substantial objective
evidence of fair market value, no revenue is recognized. All bartered Web
advertising revenues are offset by an equal amount of bartered Web advertising
expense in cost of revenues. Bartered Web advertising revenues represented 59%
and 34% of Web advertising revenues, or 36% and 15% of total revenues in 1996
and 1997, respectively. Web advertising revenues are recognized in the period in
which the advertisement is displayed on one of the Company's Web pages, except
for sponsorship sales which are recognized ratably over the term of the
sponsorship, provided that no significant Company obligations remain and
collection of the resulting receivable is probable. The duration of the
Company's advertising commitments has generally ranged from one week to one
year.
Traditional Media Advertising. In 1997, the Company derived 14% of its
revenues from traditional media advertising. Traditional media advertising
revenues are derived from the sale of ad spots received from radio and
television stations in exchange for the Company broadcasting their programming
over the Internet and the sale of prepaid advertising. Traditional media
advertising revenues are recognized in the month in which the spots are sold.
Other. Other revenues consist of electronic commerce sales as well as
certain programming and promotional services performed by the Company and are
recognized in the month the service is provided or the product is sold.
In 1996, two customers of the Company each accounted for 10% of revenues,
one of which is currently a stockholder. In 1997, no customer accounted for more
than 10% of revenues.
COST OF REVENUES
Cost of revenues consist primarily of amortization of prepaid advertising,
bartered Web advertising expenses, event production costs, direct personnel
expenses associated with event production and performance license fees.
OPERATING AND DEVELOPMENT EXPENSES
Operating and development expenses consist primarily of data communications
expenses, personnel expenses associated with broadcasting, content and software
license fees, operating supplies and overhead.
SALES AND MARKETING EXPENSES
Sales and marketing expenses consist primarily of personnel expenses
associated with the sale of the Company's business services and advertising,
marketing of the Company's Web sites, graphic design costs and overhead.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses consist primarily of administrative
personnel expenses, professional fees, expenditures for applicable facilities
costs and overhead.
F-8
<PAGE> 76
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
CASH EQUIVALENTS
The Company considers investments with original maturities dates of 90 days
or less to be cash equivalents. The carrying values of these investments are
approximately equal to their fair market values at the end of the year.
ADVERTISING EXPENSES
Advertising expenses are either charged to operations when incurred or
purchased in advance and capitalized for future use or sale. Advertising
purchased in advance is capitalized and amortized as it is used or sold. The
cost of advertising used by the Company is charged to operations while the cost
of advertising sold to customers is included in cost of revenues.
PREPAID EXPENSES
In December 1997, the Company entered into an agreement with Yahoo! Inc.
("Yahoo!"), an existing stockholder, to integrate their services and conduct
certain joint marketing activities. Amounts paid under this agreement for
prepaid advertising credits are capitalized and amortized as the advertising
credits are utilized. Amounts paid under this agreement for the use,
reproduction and display of the broadcast.com brand, page views received from
Yahoo! for banner advertising, sponsorships and promotions for the Company are
capitalized and amortized ratably over the term of the agreement, which
terminates on January 31, 1998.
In conjunction with a stock transaction with Premiere Radio Networks, Inc.
("Premiere"), the Company entered into an agreement in November 1996 to pay
Premiere $2,000,000 in exchange for an equal value of advertising credits. The
Company is required to utilize a minimum of $250,000 in each twelve-month period
over a maximum of four years. The asset has been and will continue to be
amortized in the period the advertising credits are utilized (see Advertising
expenses). In 1996 and 1997, the Company utilized approximately $285,000 and
$780,000, respectively, in advertising credits.
Prepaid advertising credits that will be utilized within the next twelve
months are classified as current assets.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and is depreciated over its
estimated useful life, ranging from one to five years. The Company provides for
depreciation of assets using the straight-line method for financial reporting
purposes and accelerated methods for income tax purposes. Prior to 1996,
capitalized software costs were being amortized over three years. However, in
1996, the Company changed the estimated life of all capitalized software costs
to one year. The effect of this change was to increase the net loss during 1996
by approximately $240,000. Leasehold improvements are amortized over the life of
the lease using the straight-line method. Expenditures for maintenance and
repairs are charged to operations in the period they are incurred.
Long-lived assets held and used by the Company, or to be disposed of, are
reviewed for impairment whenever events or changes in circumstances indicate
that the net book value of the asset may not be recoverable. An impairment loss
is recognized if the sum of the expected future cash flows (undiscounted and
before interest) from the use of the asset is less than the net book value of
the asset. The amount of the impairment loss will generally be measured as the
difference between net book value of the assets and the estimated fair value of
the related assets. Based on its most recent analysis, the Company believes that
no impairment of long-lived assets existed at December 31, 1997.
F-9
<PAGE> 77
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
INTANGIBLE ASSETS
Intangible assets consist of certain transmission agreements acquired in
the purchase of Cameron, and an agreement to purchase a license from University
Sports America, Inc. ("University Sports") (see Note 7). The transmission
agreements acquired in the purchase of Cameron are stated at cost, less
accumulated amortization of approximately $24,000 and $40,000 at December 31,
1996 and 1997, respectively, and are being amortized on a straight-line basis
over a three-year period.
The Company entered into an agreement to purchase a license from University
Sports in exchange for 390,060 shares of Common Stock. The license provides the
Company with the right to broadcast several college and university sports
programs over the Internet. The license is stated at cost, less accumulated
amortization of approximately $39,000 and $78,000 at December 31, 1996 and 1997,
respectively, and is being amortized on a straight-line basis over a five-year
period.
FINANCIAL INSTRUMENTS
As of December 31, 1996 and 1997, the fair values of the Company's accounts
receivable and accounts payable and accrued liabilities approximate the related
carrying values.
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At December 31, 1996, accounts payable and accrued liabilities included
approximately $145,000 in software license fees, approximately $61,000 in
expense reimbursements to employees, approximately $56,000 in legal fees,
approximately $51,000 for computer hardware costs, and approximately $13,000 for
leasehold improvements.
At December 31, 1997, accounts payable and accrued liabilities included
approximately $368,000 in software license fees, approximately $82,000 in
deferred revenue, and approximately $55,000 in advertising expenses.
INCOME TAXES
The Company presents income taxes pursuant to Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("FAS 109"). FAS 109
uses an asset and liability approach to account for income taxes, wherein
deferred taxes are provided for book and tax basis differences for assets and
liabilities. In the event differences between the financial reporting basis and
the tax basis of the Company's assets and liabilities result in deferred tax
assets, an evaluation of the probability of being able to realize the future
benefits indicated by such assets is required. A valuation allowance is provided
for a portion or all of the deferred tax assets when there is sufficient
uncertainty regarding the Company's ability to recognize the benefits of the
assets in future years.
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("FAS 123"), encourages, but does not require,
companies to record compensation cost for stock-based employee compensation
plans at fair value. The Company has elected to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations. Accordingly, compensation cost for stock
options issued to employees is measured as the excess, if any, of the fair
market value of the Company's Common Stock at the date of grant over the amount
the employee must pay to acquire the stock. Pro forma disclosure of net loss
based on the provisions of FAS 123 is discussed in Note 6.
F-10
<PAGE> 78
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
STOCK SPLIT
A sixty-for-one split of the Company's Common Stock was effected in the
form of a stock dividend in April 1997. All references in the financial
statements to shares, share prices, per share amounts and stock plans have been
adjusted retroactively for the sixty-for-one stock split(see Note 1).
UNAUDITED QUARTERLY FINANCIAL DATA
The quarterly financial information presented herein should be read in
conjunction with the Company's annual financial statements for the year ended
December 31, 1997. The unaudited interim financial statements reflect all
adjustments (all of which are of a normal recurring nature) which are, in the
opinion of management, necessary for a fair presentation of the results of the
interim periods. The results for the interim periods are not necessarily
indicative of the results to be expected for the year.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income ("FAS 130"), was issued. FAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. Reclassification of financial statements for earlier
periods provided for comparative purposes is required upon adoption. FAS 130 is
effective for fiscal years beginning after December 15, 1997. The Company
adopted FAS 130 for the year ending December 31, 1998. The Company had no
comprehensive income items to report for the three months ended March 31, 1998.
In June 1997, Statement of Financial Accounting Standards No. 131,
Disclosure About Segments of an Enterprise and Related Information ("FAS 131"),
was issued. FAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires those enterprises report selected information about
operating segments in interim financial reports issued to stockholders. FAS 131
is effective for financial statements for periods beginning after December 15,
1997. The Company will adopt the reporting requirements of FAS 131 in its
financial statements for the year ending December 31, 1998.
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Computer hardware........................................... $1,031,198 $2,794,395
Computer software........................................... 492,894 575,582
Furniture and equipment..................................... 66,645 222,175
Leasehold improvements...................................... 106,418 792,132
---------- ----------
1,697,155 4,384,284
Accumulated depreciation.................................... (510,973) (1,571,313)
---------- ----------
$1,186,182 $2,812,971
========== ==========
</TABLE>
Computer software represents software purchased from outside vendors for
internal use and is being amortized over one year.
F-11
<PAGE> 79
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. COMMITMENTS AND CONTINGENCIES
A summary of future minimum lease payments under operating leases for
buildings and equipment as of December 31, 1997 is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING DECEMBER 31,
-------------------------------
<S> <C>
1998.............................................. $159,806
1999.............................................. 159,806
2000.............................................. 84,629
2001.............................................. 47,040
2002.............................................. 3,920
--------
Total............................................. $455,201
========
</TABLE>
During 1995, the President and co-founder of the Company provided office
space to the Company for no cost and, therefore, there was no rental expense
recorded for the period ending December 31, 1995 (see Note 9). Rental expense of
approximately $25,000 and $178,000 was incurred during 1996 and 1997,
respectively.
Pursuant to an agreement with Capitol Radio Network, Inc. ("Capitol"), the
Company is obligated to purchase a minimum of $75,000 of advertising spots from
Capitol each year during the term of the agreement which began in February 1997
and which expires on December 31, 2000 (see Note 7).
In December 1997, the Company entered into an agreement with Yahoo! to
integrate their services and conduct certain joint marketing activities. In
December 1997, the Company paid Yahoo! $1,000,000, representing a prepaid
advertising credit (see Note 2). The Company agreed to pay Yahoo! an additional
$1,500,000 in 1998, pursuant to which Yahoo! agreed to promote broadcast.com
programming on its Web site. As of March 31, 1998, the Company had paid Yahoo!
$750,000 of such amount. The agreement terminates on January 31, 1999.
In December 1997, the Company entered into a line of credit, which provides
for borrowings of up to $2,500,000 for working capital needs and equipment
purchases. As of March 31, 1998, the Company had not made any borrowings against
this line of credit.
From time to time, the Company is subject to legal proceedings and claims
in the ordinary course of business, including claims of alleged infringement of
trademarks and other intellectual property rights. The Company is not currently
aware of any legal proceedings or claims that the Company believes will have,
individually or in the aggregate, a material adverse effect on the Company's
financial position or results of operations.
5. INCOME TAXES
As of December 31, 1997, the Company has available net operating loss
carryforwards totaling approximately $10,269,000 which expire beginning in 2011.
Utilization of net operating loss carryforwards may be limited by ownership
changes which may have occurred or could occur in the future.
Deferred taxes are provided for those items reported in different periods
for income tax and financial reporting purposes. The net deferred tax asset has
been fully reserved because of uncertainty regarding the
F-12
<PAGE> 80
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Company's ability to recognize the benefit of the asset in future years. The tax
effects of temporary differences that give rise to significant portions of the
deferred tax assets are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 1,088,606 $ 3,796,343
Intangible amortization................................. 20,984 35,231
Depreciation............................................ 88,352 127,201
Contribution carryover.................................. 370 370
Accrual to cash adjustment.............................. 3,793 --
----------- -----------
Gross deferred tax assets............................... 1,202,105 3,959,145
Deferred tax liabilities:
Accrual to cash adjustment.............................. -- 367,680
----------- -----------
Net deferred tax assets................................... 1,202,105 3,591,465
Valuation allowance....................................... (1,202,105) (3,591,465)
----------- -----------
Deferred tax balance...................................... $ -- $ --
=========== ===========
</TABLE>
The provision for income taxes is different than the amount computed using
the applicable statutory federal income tax rate with the difference for each
year summarized below:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Federal tax benefit at statutory rate....................... (34)% (34)% (34)%
State taxes, net of federal benefit......................... (4) (4) (3)
Adjustment due to increase in valuation allowance........... 38 38 37
--- --- ---
Provision for income taxes.................................. --% --% --%
=== === ===
</TABLE>
6. STOCK-BASED COMPENSATION
The Company's 1996 Stock Option Plan for employees and consultants was
approved by the Board of Directors and stockholders of the Company in April 1996
and authorizes the grant of up to 1,440,000 shares of the Company's Common Stock
in the form of incentive stock options ("ISOs") and nonqualified stock options
("NSOs"). The plan is administered by the Stock Option Committee of the Board of
Directors (the "Committee"). Options typically expire 10 years from the date of
grant, and under Committee policy become exercisable in installments of 20% per
year commencing one year from the date of grant, or over such other vesting
period determined by the Committee. Shares granted come from the Company's
authorized but unissued or reacquired Common Stock.
The Company's 1998 Stock Option Plan for employees and consultants was
approved by the Board of Directors in August 1997 and, pending stockholder
approval, authorizes the grant of up to 1,800,000 shares of the Company's Common
Stock in the form of ISOs and NSOs. The plan is administered by the Compensation
Committee of the Board of Directors (the "Compensation Committee"). Options
typically expire 10 years from the date of grant, and become exercisable in
installments of 20% per year commencing one year from the date of grant, or over
such other vesting period determined by the Compensation Committee. Shares
granted come from the Company's authorized but unissued or reacquired Common
Stock.
Under the 1996 and 1998 Stock Option Plans, the Company has issued options
to purchase a total, net of forfeitures, of 1,869,154 shares of Common Stock and
has 991,102 options available for issuance as of December 31, 1997. Effective
August 19, 1997, the Company discontinued the 1996 Stock Option Plan.
F-13
<PAGE> 81
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The Company's 1996 Stock Option Plan for Non-Employee Directors, which was
approved by the Board of Directors and the stockholders in April 1996,
authorizes the grant of up to 150,000 shares of the Company's Common Stock in
the form of ISOs and NSOs. The plan is administered by the Committee. Options
typically expire 10 years from the date of grant, and under Committee policy
become exercisable in installments of 20% per year commencing one year from the
date of grant, or over such other vesting period determined by the Committee.
Shares granted come from the Company's authorized but unissued or reacquired
Common Stock. During 1996, the Company granted to a non-employee director an
option to purchase 15,000 shares of Common Stock at an exercise price of $1.07
per share, which option was still outstanding at December 31, 1997.
There were no stock options granted prior to 1996. If compensation cost for
the Company's stock option plans been determined based on the fair value at the
grant date for awards issued in 1996 and 1997 consistent with the provisions of
FAS 123, then the Company's net loss would have been increased to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Net loss--as reported....................................... $2,988,847 $6,474,212
Net loss--pro forma......................................... 3,050,003 6,747,793
Basic and diluted net loss per share--as reported........... (0.31) (0.55)
Basic and diluted net loss per share--pro forma............. (0.32) (0.58)
</TABLE>
The weighted average fair value at date of grant for options granted during
1996 and 1997 was $0.46 and $1.10 per option, respectively. The fair value of
each option grant was estimated on the date of grant using the Black-Scholes
option pricing model with the following assumptions used:
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
Dividend yield.............................................. -- --
Expected volatility......................................... -- --
Risk-free rate of return.................................... 6.2% 5.9%
Expected life............................................... 3.0 years 3.0 years
Expected forfeiture rate.................................... -- 15.0%
</TABLE>
The following table summarizes activity under the Company's stock option
plans during the years ended December 31, 1996 and 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE PRICE
--------- ------------ ---------------
<S> <C> <C> <C>
Outstanding at December 31, 1995............. -- $ -- $ --
Granted.................................... 686,640 1.07 - 2.69 2.65
--------- ------------ -----
Outstanding at December 31, 1996............. 686,640 1.07 - 2.69 2.65
Granted.................................... 1,277,066 6.80 6.80
Forfeited.................................. (79,552) 2.69 - 6.80 5.98
--------- ------------ -----
Outstanding at December 31, 1997............. 1,884,154 1.07 - 6.80 5.32
========= ============ =====
Options exercisable at December 31, 1997..... 208,189 $1.07 - 6.80 $3.83
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER REMAINING NUMBER
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISABLE
- --------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
$1.07........................................ 15,000 8.4 years 7,500
2.69........................................ 655,688 4.6 years 140,069
6.80........................................ 1,213,466 9.5 years 60,620
</TABLE>
F-14
<PAGE> 82
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
In addition to the option activity described above, in September 1996, the
Company issued a warrant to purchase 15,960 shares of Common Stock at an
exercise price of $6.80 per share. In February and December 1997, the Company
issued 147,120 and 159,236 warrants, respectively, for the purchase of Common
Stock to two participants in private placement offerings at exercise prices of
$6.80 and $9.42, respectively (see Note 7).
7. STOCKHOLDERS' EQUITY
In May 1995, founders of the Company were issued a total of 5,400,000
shares of Common Stock for $1,000.
In May 1995, the Company issued 600,000 shares in consideration for a
purchase agreement in which the Company acquired the assets and intangible
rights and assumed the obligations and duties under certain transmission
agreements of Cameron.
In August 1995, the Company issued 30,180 shares of Common Stock in order
to satisfy a $2,500 liability for legal fees.
Between January and March 1996, the Company issued a total of 3,280,560
shares of Common Stock to new and existing stockholders of the Company for $0.50
per share or $1,640,280.
In June 1996, the Company issued 499,080 shares of Common Stock to new and
existing stockholders for $536,012 or approximately $1.07 per share.
In July 1996, the Company repurchased 120,000 shares of Common Stock from
Cameron for $1.33 per share or $160,000 and subsequently resold these shares to
new and existing stockholders for $1.33 per share.
Between September 1996 and May 1997, the Company issued a total of
1,870,680 shares of Common Stock to new and existing stockholders, including
Motorola and Intel, for approximately $6.80 per share or $12,712,830. In
connection with Motorola's investment in September 1996, the two largest
stockholders agreed to vote their shares so as to elect a nominee of Motorola to
the Board of Directors. In February 1997, the Company issued a warrant to Intel
for $120,000 representing the right to acquire 147,120 shares of the Company's
Common Stock at a price of $6.80 per share, or $1,000,416. Under the terms of
the warrant, the right to acquire 58,860 shares is exercisable immediately and
expires on February 23, 2004. However, the right to acquire the remaining 88,260
shares of the Company's Common Stock at $6.80 per share will expire upon
consummation of an initial public offering. In addition, an underwriting fee
related to certain of these transactions totalling approximately $365,000 was
recorded as a reduction in additional paid-in capital.
In December 1997, the Company issued 2,295,785 shares of Common Stock for
$21,626,294 or $9.42 per share to new and existing stockholders, including
Motorola, Intel and Yahoo! In connection with these transactions, the two
largest stockholders agreed to vote their shares so as to elect a second nominee
of Motorola to the Board of Directors and the Company issued a warrant to Yahoo!
for approximately $600,000 representing the right to purchase 159,236 shares of
the Company's Common Stock at a strike price of $9.42 per share or $1,500,000.
The warrant is exercisable immediately and expires on December 30, 2000.
In March 1998, the Company issued 407,166 shares of Common Stock to new and
existing stockholders for $3,835,504 or $9.42 per share.
The Company has granted to certain owners of Common Stock preemptive rights
that expire immediately prior to consummation of an initial public offering.
8. NET LOSS PER SHARE
Basic net loss per share has been computed in accordance with FAS 128 using
the weighted average number of common shares outstanding. The provisions and
disclosure requirements for FAS 128 were required to be adopted for interim and
annual periods ending after December 15, 1997, with restatement of EPS for all
prior periods.
F-15
<PAGE> 83
BROADCAST.COM INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Diluted net loss per share gives effect to all dilutive potential common
shares that were outstanding during the period. The Company had a net loss for
all periods presented herein; therefore, none of the options and warrants
outstanding during each of the periods presented, as discussed in Note 6, were
included in the computations of diluted earnings per share because they were
antidilutive. See Note 6 for a list of options and warrants outstanding at
December 31, 1997 that were excluded from the diluted EPS computation because
they were antidilutive. Options and warrants outstanding at March 31, 1998 which
were not included in the computation of diluted EPS because they were
antidilutive were as follows:
<TABLE>
<CAPTION>
EXERCISE
PRICE NUMBER OF EXPIRATION
PER SHARE OPTIONS/WARRANTS DATE
- --------- ---------------- ----------
<S> <C> <C> <C>
$ 1.07............................. 7,500 2006
2.69............................. 652,200 2006
6.80............................. 1,228,282 2004-2007
9.42............................. 309,650 2000-2008
10.43............................. 37,397 2008
</TABLE>
9. RELATED PARTY TRANSACTIONS
During 1995, certain computer equipment and office space owned by a
corporation wholly owned by the Company's President were provided to the Company
at no cost. The cost of these assets and rent expense were not included in the
financial statements. Additionally, certain travel and other expenses were
incurred by the president for the direct benefit of the Company. These travel
and other expenses were immaterial to the financial statements as a whole and
were not recorded in the 1995 financial statements.
10. SUBSEQUENT EVENT (UNAUDITED)
Effective May 14, 1998, the Company's name was changed from AudioNet, Inc.
to broadcast.com inc.
F-16
<PAGE> 84
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 10,325
NASD filing fee............................................. 4,000
Printing expenses...........................................
Accounting fees and expenses................................
Legal fees and expenses.....................................
NASDAQ National Market listing fee..........................
Blue Sky fees and expenses..................................
Transfer agent's fees and expenses..........................
Miscellaneous...............................................
--------
Total............................................. $
========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee
and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the DGCL provides that a Delaware corporation may
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, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation or enterprise, against expenses, judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no cause to believe his or her conduct was unlawful.
Section 145(b) of the DGCL provides that a Delaware corporation may
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 acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of DGCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsection (a) and (b) or in the defense of any
claim, issue or matter therein, such officer or director shall be indemnified
against expenses actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
such officer or director and incurred by him or her in any such
II-1
<PAGE> 85
capacity or arising out of his or her status as such, whether or not the
corporation would have the power to indemnify him or her against such
liabilities under Section 145.
As permitted by Section 102(b)(7) of the DGCL, the Company's Restated
Certificate of Incorporation, as amended, provides that a director shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director. However, such provision does not eliminate or
limit the liability of a director for acts or omissions not in good faith or for
breaching his or her duty of loyalty, engaging in intentional misconduct or
knowingly violating a law, paying a dividend or approving a stock repurchase
which was illegal, or obtaining an improper personal benefit. A provision of
this type has no effect on the availability of equitable remedies, such as
injunction or rescission, for breach of fiduciary duty.
The Company's Bylaws require the Company to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company) by reason
of the fact that he is or was a director, officer or employee of the Company, or
that being such a director, officer or employee he is or was serving at the
request of the Company as a director, officer or employee of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his 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, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, that he had
reasonable cause to believe that his conduct was unlawful.
In addition, the Company's Bylaws require the Company to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was a director, officer, employee or agent of the Company, or that being such a
director, officer or employee he is or was serving at the request of the Company
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification may be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be liable
for negligence or misconduct in the performance of his duty to the Company
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.
Any indemnification (unless ordered by a court) made by the Company may be
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct as set forth
above. Such determination must be made (i) by the Board by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding, or (ii) if such a quorum is not obtainable, or, even if obtainable,
a quorum of disinterested directors so directs, by independent legal counsel in
a written opinion, or (iii) by the stockholders.
To the extent that a director, officer, employee or agent of the Company
has been successful on the merits or otherwise in defense of any covered action,
suit or proceeding, or in defense of any covered claim, issue or matter therein,
he will be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
II-2
<PAGE> 86
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding may be paid by the Company in advance of the
final disposition of such action, suit or proceeding as authorized by the Board
in the specific case upon receipt of an undertaking by or on behalf of the
director or officer to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the Company as authorized in
the Bylaws. Such expenses incurred by other employees and agents may be so paid
upon such terms and conditions, if any, as the Board deems appropriate.
The Company presently maintains policies of directors' and officers'
liability insurance in the amount of $ million.
The Company and the Underwriters will enter into an agreement that the
Company anticipates will provide for indemnification by the Underwriters of the
Company, its directors and officers, and by the Company of the Underwriters, in
each case for certain liabilities, including liabilities arising under the Act
and affords certain rights of contribution with respect thereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant has not issued or sold securities within the past three
years pursuant to offerings that were not registered under the Securities Act,
except as follows:
In May 1995, a total of 5,400,000 shares of Common Stock were sold to the
three founding stockholders of the Company in exchange for a total founding
contribution of $1,000.
Between May and August 1995, a total of 630,180 shares of Common Stock were
sold to three investors in satisfaction of contractual obligations of the
Company.
Between January and March 1996, a total of 3,280,560 shares of Common Stock
were sold to a total of 19 investors at a price of $0.50 per share as to 18
investors and as consideration for contract rights obtained by the Company from
one investor.
In June 1996, 499,080 shares of Common Stock were sold to two investors at
a price of $1.07 per share.
In July 1996, a total of 120,000 shares of Common Stock were repurchased
from Cameron and resold to a total of twenty-three investors at a price of $1.33
per share.
Between September 1996 and May 1997, a total of 1,870,680 shares of Common
Stock were sold to a total of five investors at a price of $6.80 per share.
Between December 1997 and March 1998, a total of 2,702,951 shares of Common
Stock were sold to a total of six investors at a price of $9.42 per share.
In December 1996, the Company issued a warrant to purchase 15,960 shares of
Common Stock at an exercise price of $6.80 per share for services rendered. In
February and December 1997 the Company issued warrants to purchase 294,300 and
79,618 shares of Common Stock, respectively, at exercise prices of $6.80 and
$9.42 per share, respectively, to investors. Since May 1995, the Company has
granted stock options to employees, consultants and directors under its stock
option plans covering an aggregate of 2,474,717 shares of the Company's Common
Stock, at exercise prices ranging from $1.07 to $10.43 per share. Since May
1995, the Company has issued no shares of Common Stock to employees, consultants
and directors upon exercise of stock options.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or Rule 701 promulgated
under Section 3(b) of the Securities Act, as transactions by an issuer not
involving a public offering or transactions pursuant to compensatory benefit
plans and contracts relating to compensation as provided under such Rule 701.
The recipients of securities in each such transaction represented their
intention 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 share certificates and instruments issued in such
transactions. All recipients had adequate access, through their relationships
with the Company, to information about the Company.
II-3
<PAGE> 87
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* -- Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company, as
amended
3.2 -- Amended and Restated Bylaws of the Company
4.1* -- Form of Common Stock Certificate
5.1* -- Opinion of Gibson, Dunn & Crutcher LLP
10.1.1* -- Employment Agreement, dated as of May , 1998, between
the Company and Todd R. Wagner.
10.1.2* -- Employment Agreement, dated as of May , 1998, between
the Company and Mark Cuban.
10.2.1 -- Stock Purchase Agreement, dated as of September 4, 1996,
between the Company and Motorola, Inc.
10.2.2 -- Stock Purchase Agreement, dated as of November 15, 1996,
between the Company and Premiere Radio Networks, Inc.
10.2.3* -- Stock and Warrant Purchase Agreement, dated as of
February 24, 1997, between the Company and Intel
Corporation (with Warrant attached, as amended by
Amendment No. 1 to the Warrant, dated as of December 29,
1997).
10.2.4* -- Stock Purchase Agreement, dated as of December 19, 1997,
between the Company and Motorola, Inc.
10.2.5* -- Stock Purchase Agreement, dated as of December 29, 1997,
between the Company and Intel Corporation.
10.2.6* -- Stock and Warrant Purchase Agreement, dated as of
December 30, 1997, between the Company and Yahoo! Inc.
(with Warrant attached).
10.3 -- First Amended and Restated Registration Rights Agreement,
dated as of February 24, 1997 among the Company,
Motorola, Inc., Premiere Radio Networks, Inc., Capitol
Radio Network, Inc., Intel Corporation and HMTF AudioNet
Investors, as amended by the Addendum to First Amended
and Restated Registration Rights Agreement dated as of
December 30, 1997, among the Company, Yahoo! Inc.,
Motorola, Inc. and Intel Corporation.
10.4 -- Stockholders Agreement, dated as of September 4, 1996,
among the Company, Motorola, Inc., Todd R. Wagner and
Mark Cuban, as amended by Amendment No. 1 on December 30,
1996 and Amendment No. 2 on December 19, 1997.
10.5 -- December Stockholders Agreement, dated as of December 31,
1996, among the Company, Todd R. Wagner, Mark Cuban, HMTF
AudioNet Investors, Motorola, Inc., Premiere Radio
Networks, Inc., as amended by an Addendum to December
Stockholders Agreement dated February 24, 1997, between
Intel Corporation, the Company, Todd R. Wagner and Mark
Cuban, and as further amended by an Addendum to December
Stockholders Agreement dated December 30, 1997, between
Yahoo! Inc., the Company, Todd R. Wagner and Mark Cuban.
10.6** -- Network Radio Sales Representation Agreement dated as of
November 15, 1996, between the Company and Premiere Radio
Networks, Inc.
10.7 -- The Company's 1998 Employee Stock Purchase Plan.
10.8 -- The Company's 1996 Stock Option Plan.
10.9 -- The Company's 1998 Stock Option Plan.
</TABLE>
II-4
<PAGE> 88
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.10 -- Form of the Company's Stock Option Agreement under the
1998 Stock Option Plan.
10.11 -- The Company's 1996 Non-Employee Directors Stock Option
Plan.
10.12** -- RealNetworks License Agreement, dated as of January 1,
1998, between the Company and RealNetworks, Inc.
10.13** -- NetShow License Agreement, dated as of January 1, 1998,
between the Company and Microsoft Corporation.
10.14 -- Form of Directors and Officers Indemnification Agreement.
10.15 -- Lease Agreement, dated as of December 2, 1996, between
the Company and George W. Lollis and Daisy Lollis.
10.16 -- Master Lease of Personal Property No. 3769, dated April
15, 1998, between the Company and Charter Financial, Inc.
10.17 -- The Security and Loan Agreement (Accounts Receivable),
dated December 15, 1997, between the Company and Imperial
Bank.
10.18 -- Imperial Bank Note, dated December 15, 1997, between the
Company and Imperial Bank.
21.1* -- Subsidiary of the Company
23.1 -- Consent of Price Waterhouse LLP
23.2* -- Consent of Gibson, Dunn & Crutcher LLP (contained in
Exhibit 5.1*)
24.1 -- Power of Attorney (see Page II-8 of the Registration
Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
** Information contained in such agreement has been omitted subject to a
confidential treatment request, marked with asterisks and filed separately
with the Commission.
b) Financial Statement Schedules
Schedule II -- Valuation and Qualifying Accounts
All other Schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission have been omitted because they are not required under the
related instructions, are not applicable or the information has been
provided in the Financial Statements or the Notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(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 indemnifica-
II-5
<PAGE> 89
tion by it is against public policy as expressed in the Act and will be governed
by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(l) 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.
(2) 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> 90
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
PERIOD FROM INCEPTION (MAY 19, 1995) TO DECEMBER 31, 1995
AND THE YEARS ENDED DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT --------------------------------------
BEGINNING CHARGED TO CHARGED TO BALANCE AT
DESCRIPTION OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS(A) DEDUCTIONS END OF PERIOD
----------- ---------- ------------------ ----------------- ---------- -------------
<S> <C> <C> <C> <C> <C>
1995:
Provision for doubtful
accounts -- accounts
receivables......... $ -- $ -- $ -- $ -- $ --
Tax valuation
reserve............. -- 101,429 -- -- 101,429
---------- ---------- -------- -------- ----------
Total.......... $ -- $ 101,429 $ -- $ -- $ 101,429
========== ========== ======== ======== ==========
1996:
Provision for doubtful
accounts -- accounts
receivables......... $ -- $ 84,006 $(49,180) $ -- $ 34,826
Tax valuation
reserve............. 101,429 1,100,676 -- -- 1,202,105
---------- ---------- -------- -------- ----------
Total.......... $ 101,429 $1,184,682 $(49,180) $ -- $1,236,931
========== ========== ======== ======== ==========
1997:
Provision for doubtful
accounts -- accounts
receivables......... $ 34,826 $ 86,240 $(44,826) $ -- $ 76,240
Tax valuation
reserve............. 1,202,105 2,389,360 -- -- 3,591,465
---------- ---------- -------- -------- ----------
Total.......... $1,236,931 $2,475,600 $(44,826) $ -- $3,667,705
========== ========== ======== ======== ==========
</TABLE>
- ---------------
(a) Such amounts relate to the utilization of the valuation and qualifying
accounts to specific items for which they were established in the accounts
receivables and tax valuation reserve accounts.
II-7
<PAGE> 91
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 Dallas, State of Texas,
on May 15, 1998.
broadcast.com inc.
By: /s/ TODD R. WAGNER
----------------------------------
Name: Todd R. Wagner
Title: Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Todd R. Wagner and Jack A. Riggs and each of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to sign any registration
statement for the same offering covered by this Registration Statement that is
to be effective upon filing pursuant to Rule 462(b) promulgated under the
Securities Act of 1933, and all post-effective amendments thereto, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each said
attorneys-in-fact and agents or any of them or their or his substitute or
substitutes, may lawfully 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 capacity
indicated on May 15, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ TODD R. WAGNER Chief Executive Officer (Principal Executive
- --------------------------------------------- Officer)
Todd R. Wagner
/s/ MARK CUBAN Chairman of the Board and President
- ---------------------------------------------
Mark Cuban
/s/ STEVEN D. LEEKE Director
- ---------------------------------------------
Steven D. Leeke
/s/ RANDALL BATTAT Director
- ---------------------------------------------
Randall Battat
/s/ JOSEPH W. AUTEM Director
- ---------------------------------------------
Joseph Autem
/s/ JACK A. RIGGS Chief Financial Officer (Principal Financial
- --------------------------------------------- and Accounting Officer) and Director
Jack A. Riggs
</TABLE>
II-8
<PAGE> 92
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
1.1* -- Underwriting Agreement
3.1 -- Restated Certificate of Incorporation of the Company, as
amended
3.2 -- Amended and Restated Bylaws of the Company
4.1* -- Form of Common Stock Certificate
5.1* -- Opinion of Gibson, Dunn & Crutcher LLP
10.1.1* -- Employment Agreement, dated as of May , 1998, between
the Company and Todd R. Wagner.
10.1.2* -- Employment Agreement, dated as of May , 1998, between
the Company and Mark Cuban.
10.2.1 -- Stock Purchase Agreement, dated as of September 4, 1996,
between the Company and Motorola, Inc.
10.2.2 -- Stock Purchase Agreement, dated as of November 15, 1996,
between the Company and Premiere Radio Networks, Inc.
10.2.3* -- Stock and Warrant Purchase Agreement, dated as of
February 24, 1997, between the Company and Intel
Corporation (with Warrant attached, as amended by
Amendment No. 1 to the Warrant, dated as of December 29,
1997).
10.2.4* -- Stock Purchase Agreement, dated as of December 19, 1997,
between the Company and Motorola, Inc.
10.2.5* -- Stock Purchase Agreement, dated as of December 29, 1997,
between the Company and Intel Corporation.
10.2.6* -- Stock and Warrant Purchase Agreement, dated as of
December 30, 1997, between the Company and Yahoo! Inc.
(with Warrant attached).
10.3 -- First Amended and Restated Registration Rights Agreement,
dated as of February 24, 1997 among the Company,
Motorola, Inc., Premiere Radio Networks, Inc., Capitol
Radio Network, Inc., Intel Corporation and HMTF AudioNet
Investors, as amended by the Addendum to First Amended
and Restated Registration Rights Agreement dated as of
December 30, 1997, among the Company, Yahoo! Inc.,
Motorola, Inc. and Intel Corporation.
10.4 -- Stockholders Agreement, dated as of September 4, 1996,
among the Company, Motorola, Inc., Todd R. Wagner and
Mark Cuban, as amended by Amendment No. 1 on December 30,
1996 and Amendment No. 2 on December 19, 1997.
10.5 -- December Stockholders Agreement, dated as of December 31,
1996, among the Company, Todd R. Wagner, Mark Cuban, HMTF
AudioNet Investors, Motorola, Inc., Premiere Radio
Networks, Inc., as amended by an Addendum to December
Stockholders Agreement dated February 24, 1997, between
Intel Corporation, the Company, Todd R. Wagner and Mark
Cuban, and as further amended by an Addendum to December
Stockholders Agreement dated December 30, 1997, between
Yahoo! Inc., the Company, Todd R. Wagner and Mark Cuban.
10.6** -- Network Radio Sales Representation Agreement dated as of
November 15, 1996, between the Company and Premiere Radio
Networks, Inc.
10.7 -- The Company's 1998 Employee Stock Purchase Plan.
10.8 -- The Company's 1996 Stock Option Plan.
10.9 -- The Company's 1998 Stock Option Plan.
</TABLE>
<PAGE> 93
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.10 -- Form of the Company's Stock Option Agreement under the
1998 Stock Option Plan.
10.11 -- The Company's 1996 Non-Employee Directors Stock Option
Plan.
10.12** -- RealNetworks License Agreement, dated as of January 1,
1998, between the Company and RealNetworks, Inc.
10.13** -- NetShow License Agreement, dated as of January 1, 1998,
between the Company and Microsoft Corporation.
10.14 -- Form of Directors and Officers Indemnification Agreement.
10.15 -- Lease Agreement, dated as of December 2, 1996, between
the Company and George W. Lollis and Daisy Lollis.
10.16 -- Master Lease of Personal Property No. 3769, dated April
15, 1998, between the Company and Charter Financial, Inc.
10.17 -- The Security and Loan Agreement (Accounts Receivable),
dated December 15, 1997, between the Company and Imperial
Bank.
10.18 -- Imperial Bank Note, dated December 15, 1997, between the
Company and Imperial Bank.
21.1* -- Subsidiary of the Company
23.1 -- Consent of Price Waterhouse LLP
23.2* -- Consent of Gibson, Dunn & Crutcher LLP (contained in
Exhibit 5.1*)
24.1 -- Power of Attorney (see Page II-8 of the Registration
Statement)
27.1 -- Financial Data Schedule
</TABLE>
- ------------
* To be filed by amendment
** Information contained in such agreement has been omitted subject to a
confidential treatment request, marked with asterisks and filed separately
with the Commission.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
AUDIONET, INC.
- --------------------------------------------------------------------------------
AudioNet, Inc., (the "Corporation"), a corporation duly organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"),
DOES HEREBY CERTIFY:
FIRST, that the Board of Directors of the Corporation duly adopted
resolutions setting forth a proposed amendment to the Restated Certificate of
Incorporation of the Corporation and declaring such amendment to be advisable.
The resolution setting forth the proposed amendment was as follows:
RESOLVED, that the Restated Certificate of Incorporation of
the Corporation be amended by changing Article I, so that, as amended
in its entirety, such Article shall be and read as follows:
"The name of the corporation (hereinafter called the
"Corporation") is broadcast.com inc."
SECOND, that thereafter, pursuant to a resolution of the Board of
Directors of the Corporation, the proposed amendment was submitted to the
stockholders of the Corporation for their approval, and the stockholders
entitled to vote thereon approved the proposed amendment by a written consent
in accordance with Section 228 of the DGCL.
THIRD, that the amendment was duly adopted in accordance with the
provisions of Sections 242 of the DGCL.
FOURTH, that the amendment did not have the effect of reducing the
capital of the Corporation.
IN WITNESS WHEREOF, as the officer duly authorized to execute this
Certificate of Amendment, I have set my hand hereto this 11th day of May, 1998.
/s/ TODD WAGNER
--------------------------------------
Todd R. Wagner, Chief Executive Officer
<PAGE> 2
RESTATED CERTIFICATE OF INCORPORATION
of
AUDIONET, INC.
-------------------------------------------------
ARTICLE I
NAME OF CORPORATION
The name of the corporation (hereinafter referred to as the
"Corporation") is AudioNet, Inc.
ARTICLE II
REGISTERED OFFICE
The address, including street, number, city, and county, of the
registered office of the Corporation in the State of Delaware is 9 East
Lookerman Street, in the City of Dover, County of Kent, and the name of the
registered agent of the Corporation in the State of Delaware at such address is
National Registered Agents, Inc.
ARTICLE III
PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the Delaware General
Corporation Law.
ARTICLE IV
AUTHORIZED CAPITAL STOCK
(a) The Corporation shall be authorized to issue two classes of
shares of stock to be designated, respectively, "Common Stock" and "Preferred
Stock"; the total number of shares that the Corporation shall have the
authority to issue is 50,000,000; the total number of shares of Common Stock
shall be 45,000,000, and each such share shall have a par value of $0.01; and
the total number of share of Preferred Stock shall be 5,000,000, and each such
share shall have a par value of $0.01.
<PAGE> 3
(b) The shares of Preferred Stock may be issued from time to time
in one or more series. The Board of Directors is hereby vested with authority
to fix by resolution or resolutions the designations and the powers,
preferences, and relative, participating, optional, or other special rights,
and qualifications, limitations, or restrictions thereof, including, without
limitation, the dividend rate, conversion or exchange rights, redemption price,
and liquidation preference, of any series of shares of Preferred Stock, and to
fix the number of shares constituting any such series, and to increase or
decrease the number of shares of any such series (but not below the number of
shares thereof then outstanding). In case the number of shares of any such
series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution or
resolutions originally fixing the number of shares of such series.
ARTICLE V
BOARD POWER REGARDING BYLAWS
In the furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend, and rescind the Bylaws of the Corporation.
ARTICLE VI
ELECTION OF DIRECTORS
Elections of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE VII
SETTLEMENTS WITH CREDITORS
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors, or any class of them, and/or between the
Corporation and its stockholders, or any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code, or on the application of trustees
in dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code, order a
meeting of the creditors or class of creditors and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or
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<PAGE> 4
arrangement, said compromise or arrangement and said reorganization shall, if
sanctioned by the court to which said application has been made, be binding on
all the creditors or class of creditors and/or on all the stockholders or class
of stockholders of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE VIII
BOARD OF DIRECTORS
(a) The management of the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The number of
directors which shall constitute the whole Board of Directors shall be fixed
by, or in the manner provided in, the Bylaws. The phrase "whole Board" and the
phrase "authorized number of directors" shall be deemed to have the same
meaning, to wit, the total number of directors which the Corporation would have
if there were no vacancies.
(b) Effective at the first annual meeting held following the
consummation of the initial public offering of the Corporation's Common Stock
pursuant to a registration statement declared effective under the Securities
Act of 1933, as amended (the "Post-Public Offering Annual Meeting"), the Board
shall be divided into three classes: Class I, Class II, and Class III. Such
classes shall be as nearly equal in number of directors as possible. Each
director shall serve for a term ending at the third annual stockholders meeting
following the annual meeting at which such director was elected; provided,
however, that the directors first elected to Class I shall serve for a term
ending at the first annual meeting held after the Post-Public Offering Annual
Meeting; the directors first elected to Class II shall serve for a term ending
at the second annual meeting held after the Post-Public Offering Annual
Meeting; and the directors first elected to Class III shall serve for a term
ending at the third annual meeting held after the Post-Public Offering Annual
Meeting.
(c) At each annual election held after the Post-Public Offering
Annual Meeting, the directors chosen to succeed those whose terms then expire
shall be identified as being of the same class as the directors they succeed,
unless, by reason of any intervening changes in the authorized number of
directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality in the number of directors among the classes. When the
Board of Directors fills a vacancy resulting from the death, resignation, or
removal of a director, the director chosen to fill that vacancy shall be of the
same class as the director he succeeds, unless, by reason of any previous
changes in the authorized number of directors, the Board of Directors shall
designate the vacant directorship as a directorship of another class in order
more nearly to achieve equality in the number of directors among the classes.
(d) Notwithstanding the rule that the three classes shall be as
nearly equal in umber of directors as possible, in the event of any change in
the authorized number of directors, each director then continuing to serve as
such will nevertheless continue as a director of the class of which he is a
member, until the expiration of his current term or his earlier death,
resignation, or removal. If any
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<PAGE> 5
newly created directorship or vacancy on the Board of Directors, consistent
with the rule that the three classes shall be as nearly equal in number of
directors as possible, may be allocated to one or more classes, the Board of
Directors shall allocate it to that of the available class whose term of office
is due to expire at the earliest date following such allocation.
(e) During any period when the holders of Preferred Stock or any
one or more series thereof, voting as a class, shall be entitled to elect a
specified number of directors by reason of dividend arrearages or other
contingencies giving them the right to do so, then and during such time as such
right continues (i) the then otherwise authorized number of directors shall be
increased by such specified number of directors, and the holders of the
Preferred Stock or such series thereof, voting as a class, shall be entitled to
elect the additional directors as provided for, pursuant to the provisions of
such Preferred Stock or series; (ii) the additional directors shall be members
of those respective classes of directors in which vacancies are created as a
result of such increase in the authorized number of directors; and (iii) each
such additional director shall serve until the annual meeting at which the term
of office of his class shall expire and until his successor shall be elected
and shall qualify, or until his right to hold such office terminates pursuant
to the provisions of such Preferred Stock or series, whichever occurs earlier.
Whenever the holders of such Preferred Stock or series thereof are divested of
such rights to elect a specified number of directors, voting as a class,
pursuant to the provisions of such Preferred Stock or series, the terms of
office of all directors elected by the holders of such Preferred Stock or
series, voting as a class pursuant to such provisions, or elected to fill any
vacancies resulting from the death, resignation, or removal of directors so
elected by the holders of such Preferred Stock or series, shall forthwith
terminate and the authorized number of directors shall be reduced accordingly.
(f) Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any director, or the entire Board of
Directors, may be removed from office at any time, but only (i) for cause, and
(ii) by the affirmative vote of the holders, voting together as a single class,
of not less than 67% of the total outstanding voting power of the securities
of the Corporation which are then entitled to vote in the election of directors
of the Corporation.
(g) Notwithstanding anything to the contrary in this Restated
Certificate of Incorporation, the provisions set forth in this Article VIII may
not be repealed, amended, or otherwise modified, directly or indirectly, in any
respect (whether by amendment of this Restated Certificate of Incorporation or
the Bylaws of the Corporation or otherwise); provided, however, that the
foregoing Article may be repealed or amended in any respect if such repeal or
amendment is approved by such vote as may be required under applicable law and
in addition thereto by the affirmative vote of the holders, voting together as
a single class, of not less than 67% of the total outstanding voting power of
the securities of the Corporation which are then entitled to vote in the
election of directors of the Corporation.
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<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
AUDIONET, INC.
AMENDED AND RESTATED EFFECTIVE JULY 7, 1997
______________________________________________________
ARTICLE I
OFFICES
1.01 Registered Office. The registered office of AudioNet, Inc.
(hereinafter called the "Corporation") in the State of Delaware shall be at 9
East Lookerman Street, City of Dover, County of Kent, and the name of the
registered agent in charge thereof shall be National Registered Agents, Inc.
1.02 Other Offices. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (hereinafter called the "Board") may from
time to time determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.01 Annual Meetings. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
2.02 Special Meetings. A special meeting of the stockholders for
the transaction of any proper business may be called at any time by the Board
or by the Chief Executive Officer.
2.03 Place of Meetings. All meetings of the stockholders shall be
held at such places, within or without the State of Delaware, as may from time
to time be designated by the person or persons calling the respective meeting
and specified in the respective notices or waivers of notice thereof.
2.04 Notice of Meetings. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder of record entitled to vote at such meeting by delivering a
typewritten or printed notice thereof to him personally, or by depositing such
notice in the United States mail or in the care of an express courier, in a
postage prepaid envelope, directed to him at his post office address or other
delivery address furnished by him to the Secretary of the Corporation for such
purpose or, if he shall not have furnished to the Secretary his address for
such purpose, then at his post office address last known to the
<PAGE> 2
Secretary, or by transmitting a notice thereof to him at such address by
facsimile, telegraph, cable, or wireless. Except as otherwise expressly
required by law, no publication of any notice of a meeting of the stockholders
shall be required. Every notice of a meeting of the stockholders shall state
the place, date and hour of the meeting, and, in the case of a special meeting,
shall also state the purpose or purposes for which the meeting is called.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall have waived such notice, and such notice shall be deemed
waived by any stockholder who shall attend such meeting in person or by proxy,
except for a stockholder who shall attend such 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. Except as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time and place thereof are announced at
the meeting at which the adjournment is taken.
2.05 Quorum. Except in the case of any meeting for the election of
directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at or to act as secretary of such meeting may adjourn such meeting from time to
time. At any such adjourned meeting at which a quorum is present, any business
may be transacted which might have been transacted at the meeting as originally
called.
2.06 Voting.
(a) Each stockholder shall, at each meeting of the
stockholders, be entitled to vote, in person or by proxy, each share or
fractional share of the stock of the Corporation which shall have voting rights
on the matter in question and which shall have been held by him and registered
in his name on the books of the Corporation:
(i) on the date fixed, pursuant to Section 6.05
of these Bylaws, as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting; or
(ii) if no such record date shall have been so
fixed, then (A) at the close of business on the day next preceding the
day on which notice of the meeting shall be given; or (B) if notice of
the meeting shall be waived, at the close of business on the day next
preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation
or to another corporation, if a majority of the shares entitled to vote in the
election of directors in such other corporation is held, directly or
indirectly, by the Corporation, shall neither be entitled to vote nor be
counted for quorum purposes. Persons holding stock of the Corporation in a
fiduciary capacity shall be entitled to vote such stock. Persons whose stock
is pledged shall be entitled to vote, unless in the transfer by the pledgor on
the books of the Corporation he shall have expressly
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<PAGE> 3
empowered the pledgee to vote thereon, in which case only the pledgee or his
proxy may represent such stock and vote thereon. Stock having voting power
standing of record in the names of two or more persons or other entities,
whether fiduciaries, members of a partnership, joint tenants in common, tenants
by entirety or otherwise, or with respect to which two or more persons or other
entities have the same fiduciary relationship, shall be voted in accordance
with the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the
stockholder entitled thereto in person or by his proxy appointed by an
instrument in writing, subscribed by such stockholder or by his attorney
thereunto authorized, and delivered to the secretary of the meeting; provided,
however, that no proxy shall be voted or acted upon after three years from its
date, unless said proxy shall provide for a longer period. The attendance at
any meeting of a stockholder who may theretofore have given a proxy shall not
have the effect of revoking the same unless he shall in writing so notify the
secretary of the meeting prior to the voting of the proxy. At any meeting of
the stockholders, all matters, except as otherwise provided in the Certificate
of Incorporation, in these Bylaws or by law, shall be decided by the vote of a
majority in voting interest of the stockholders present, in person or by proxy,
and entitled to vote thereat and thereon, a quorum being present. The vote at
any meeting of the Stockholders on any question need not be by ballot, unless
so directed by the chairman of the meeting. On a vote by ballot, each ballot
shall be signed by the stockholder voting or by his proxy, if there be such
proxy, and it shall state the number of shares voted.
2.07 List of Stockholders. The Secretary of the Corporation shall
prepare and make, at least 10 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 10 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 who is present.
2.08 Judges. If at any meeting of the stockholders a vote by
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath to faithfully execute the duties of a
judge at such meeting, with strict impartiality and according to the best of
his ability. Such judges shall decide upon the qualification of the voters,
report the number of shares represented at the meeting and entitled to vote on
such question, conduct and accept the votes, and, when the voting is completed,
ascertain and report the number of shares voted, respectively, for and against
the question. Reports of judges shall be in writing, subscribed and delivered
by them to the Secretary of the Corporation. The judges need not be
stockholders of the Corporation, and any officer of the Corporation may be a
judge on any question other than a vote for or against a proposal in which he
shall have a material interest.
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<PAGE> 4
2.09 Action Without Meeting. Any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may
be taken without a meeting, without prior notice, and without a vote if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding shares of stock having not less than the
minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a
meeting, where by less than unanimous written consent, shall be given to those
stockholders who have not consented in writing.
ARTICLE III
BOARD OF DIRECTORS
3.01 General Powers. The property, business and affairs of the
Corporation shall be managed by the Board.
3.02 Number and Term of Office. The number of directors shall not
be less than one and not more than 10, as determined by the Board. Each of
the directors of the Corporation shall hold office until his successor shall
have been duly elected and shall qualify or until he shall resign or shall have
been removed in the manner hereinafter provided.
3.03 Election of Directors. The directors shall initially consist
of the persons elected as such by the incorporator and thereafter shall be
elected annually by the stockholders of the Corporation entitled to vote
thereon, and the persons receiving the greatest number of votes, up to the
number of directors to be elected, shall be the directors.
3.04 Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately
upon its receipt; unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
3.05 Vacancies. Except as otherwise provided in the Certificate of
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors or any other cause,
may be filled by vote of the majority of the remaining directors, although less
than a quorum. Each director so chosen to fill a vacancy shall hold office
until his successor shall have been elected and shall qualify or until he shall
resign or shall have been removed in the manner hereinafter provided.
3.06 Place of Meeting, Etc. The Board may hold any of its meetings
at such place or places within or without the State of Delaware as the Board
may from time to time by resolution designate or as shall be designated by the
person or persons calling the meeting or in the notice or a waiver of notice of
any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
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<PAGE> 5
3.07 First Meeting. The Board shall meet as soon as practicable
after each annual election of directors, and notice of such first meeting shall
not be required.
3.08 Regular Meetings. Regular meetings of the Board may be held
at such times as the Board shall from time to time by resolution determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day that is not a legal holiday. Except
as provided by law, notice of regular meetings need not be given.
3.09 Special Meetings. Special meetings of the Board shall be held
whenever called by the Chief Executive Officer or a majority in number of
directors then serving on the Board. Except as otherwise provided by law,
notice of the time and place of each such special meeting shall be mailed to
each director, addressed to him at his residence or usual place of business, at
least five days before the day on which the meeting is to be held or shall be
sent to him at such place by facsimile, wireless, telegraph, or cable or be
delivered personally not less than 24 hours before the time at which the
meeting is to be held.
Except where otherwise required by law or by these Bylaws, notice of
the purpose of a special meeting need not be given. Notice of any meeting of
the Board shall not be required to be given to any director who is present at
such meeting, except a director who shall attend such 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.
3.10 Quorum and Manner of Acting. Except as otherwise provided in
the Certificate of Incorporation, in these Bylaws or by law, the presence of a
majority of the authorized number of directors shall be required to constitute
a quorum for the transaction of business at any meeting of the Board, and all
matters shall be decided at any such meeting, a quorum being present, by the
affirmative votes of a majority of the directors present. In the absence of a
quorum, a majority of directors present at any meeting may adjourn the same,
from time to time, until a quorum shall be present. Notice of any adjourned
meeting need not be given. The directors shall act only as a Board, and the
individual directors shall have no power as such.
3.11 Action by Consent. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
3.12 Removal of Directors. Subject to the provisions of the
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by an affirmative vote of stockholders having a majority
of the shares entitled to elect directors of the Corporation given at a special
meeting of the stockholders called for the purpose.
3.13 Compensation. The directors shall receive only such
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse
each director for any expense incurred by him on account of his attendance at
any meetings of the Board or committees of the Board. Neither the payment of
5
<PAGE> 6
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
3.14 Committees. The Board may, by resolution passed by a majority
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. Any such committee, to the
extent provided in the resolution of the Board and except as otherwise limited
by law, shall have and may exercise all the powers and authority of the Board
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. Any such committee shall keep written minutes of its meetings and
report the same to the Board at the next regular meeting of the Board.
In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the Board to act at the meeting in the place of any such absent or
disqualified member.
ARTICLE IV
OFFICERS
4.01 Executive Officers: Number and Titles. The executive officers
of the Corporation shall consist solely of those persons elected by the Board
and designated as executive officers. The executive officers of the
Corporation shall consist of a Chairman of the Board, a Chief Executive
Officer, a President, a Secretary, a Treasurer, and, in the discretion of the
Board, a Chief Financial Officer, a Chief Operating Officer, a Chief Technical
Officer, and one or more executive vice presidents carrying such descriptive
titles, if any, as the Board may designate. Any two or more executive offices
may be held by the same person.
4.02 Election, Term of Office, and Qualifications. Notwithstanding
a multi-year employment agreement with any executive officer, the executive
officers of the Corporation shall be elected annually by the Board at the first
meeting thereof held after the annual meeting of the stockholders of the
Corporation. Each executive officer shall hold office at the pleasure of the
Board until his successor shall have been duly elected and qualified or until
his death or earlier resignation or removal from office. The election to
office shall not confer on the individual elected any contractual rights to
continued employment. Any two or more offices may be held by the same person.
No officer need be a stockholder, a director, a resident of any particular
State, or a citizen of the United States.
4.03 Subordinate Officers, Assistants, Agents, and Employees. In
addition to the executive officers specified in Section 4.01 above, the Board
may appoint other vice presidents, assistants, agents, and employees as it may
deem necessary or advisable, each of whom shall hold office for such period,
have such authority, and perform such duties as the Board may from time to time
determine. The Board may delegate to any executive officer of the Corporation
or any committee of the Board the power to appoint, remove, and prescribe the
duties of any such subordinate officers, assistants, agents, or employees.
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4.04 Removal and Suspension. Any executive officer, subordinate
officer, assistant, agent, or employee of the Corporation may be removed, with
or without cause, at any time as follows: (i) in the case of any executive
officer, only by resolution of the Board; (ii) in the case of any subordinate
officer, assistant, agent, or employee appointed by the Board, only by
resolution of the Board; and (iii) in the case of any other subordinate
officer, assistant, agent, or employee, by any executive officer of the
Corporation or committee of the Board upon whom such power of removal may have
been conferred by the Board. The removal of any executive officer, subordinate
officer, assistant, agent, or employee shall not impair or prejudice the
contractual rights, if any, of such person. The Chief Executive Officer may
suspend, with or without cause and without prior notice, any executive officer,
subordinate officer, assistant, agent, or employee, pending final action of the
Board with respect to such continued suspension, removal, or reinstatement of
such person.
4.05 Resignations. Any officer may resign at any time by giving
written notice of his resignation to the Board, the Chief Executive Office, or
the Secretary of the Corporation. Any such resignation shall take effect at
the time specified therein or, if the time is not specified, upon receipt
thereof by the Board, the Chief Executive Officer, or the Secretary, as the
case may be; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. No resignation shall
relieve the person of any contractual obligations that he may have to the
Corporation.
4.06 Vacancies. A vacancy in any office, whether because of death,
resignation, removal, disqualification, or otherwise, may be filled for the
unexpired portion of the term thereof in the manner prescribed by these Bylaws
for regular appointments or elections to such office.
4.07 The Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders, the Board, and any committee on
which he serves. The Chairman in his role as an executive officer shall not
have any authority with respect to the business, financial affairs, or
day-to-day operations of the Corporation. At the request of the Chairman, or
in case of his absence or inability to act, unless otherwise directed by the
Board, the Chief Executive Officer shall perform the duties of the Chairman
and, when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the Chairman.
4.08 The Chief Executive Officer. The Chief Executive Officer
shall be the highest ranking executive officer of the Corporation and, subject
to the supervision of the Board, shall have all authority and power with
respect to, and shall be responsible for, the general management of the
business, financial affairs, and day-to-day operations of the Corporation,
including, but not limited to, (i) the supervision and management of all other
executive officers; (ii) the development of the Corporation's long-range
strategic plan and the annual operating plan; (iii) the engagement, retention,
and termination of employees and independent contractors of the Company, the
setting of the compensation and other material terms of employment or
engagement of employees and independent contractors, and the establishment of
work rules for employees; (iv) the representation of the Corporation at any
business or financial meeting or presentation with stockholders, lenders,
affiliates, strategic or joint venture partners, financial
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institutions, underwriters, analysts, and any other entity with which the
Corporation does business; and (v) the initiation, development, and
implementation of new business, markets, and technologies. The Chief Executive
Officer shall see that all orders and resolutions of the Board are carried into
effect and shall perform such other duties and have such other authority and
powers as the Board may from time to time prescribe. At the request of the
Chief Executive Officer, or in case of his absence or inability to act, unless
otherwise directed by the Board, the President shall perform the duties of the
Chief Executive Officer and, when so acting, shall have all the powers of, and
be subject to all the restrictions upon, the Chief Executive Officer.
4.09 The President and Chief Operating Officer. Unless the Board
shall designate otherwise, the President shall be the Chief Operating Officer
of the Corporation. The President and Chief Operating Officer shall report to
the Chief Executive Officer and shall have, subject to the control of the Chief
Executive Officer and the Board, active supervision and management over the
day-to-day operations of the Corporation and over its subordinate officers,
assistants, agents, and employees. At the request of the President, or in case
of his absence or inability to act, unless otherwise directed by the Board, the
Chief Executive Officer 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.
4.10 The Treasurer and Chief Financial Officer. Unless the Board
shall designate otherwise, the Treasurer shall be the Chief Financial Officer
of the Corporation. The Treasurer and Chief Financial Officer shall report to
the Chief Executive Officer and shall have, subject to the control of the Chief
Executive Officer and the Board, the general care and custody of the funds and
securities of the Corporation and the authority and power with respect to, and
the responsibility for, the Corporation's accounting, auditing, reporting, and
financial record-keeping methods and procedures; controls and procedures with
respect the receipt, tracking, and disposition of the revenues and expenses of
the Corporation; the establishment and maintenance of depository, checking,
savings, investment, and other accounts of the Corporation; relations with
accountants, financial institutions, lenders, underwriters, and analysts; the
development and implementation of funds management and short-term investment
strategies; the preparation of financial statements and all tax returns and
filings of the Corporation; and the supervision and management of all
subordinate officers and personnel associated with the foregoing.
4.11 The Chief Technical Officer. The Chief Technical Officer
shall report to the Chief Executive Officer and shall have, subject to the
control of the Chief Executive Officer and the Board, general care, custody,
and maintenance of the Corporation's technical equipment, including, but not
limited to, its on-site and off-site computer and peripheral hardware,
software, and networks systems; Web site, Internet connectivity, broadcast
transmissions, archives, and other data storage and retrieval systems;
telephone, e-mail, and voice-mail systems; and the supervision and management
of all subordinate officers and personnel associated with the foregoing. The
Chief Technical Officer shall be responsible for tracking and recommending
technological advances; evaluating, selecting, and integrating new systems and
upgrades; and researching, defining, and developing new projects and new
platforms to support new and next-generation products of the Corporation.
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4.12 The Secretary. The Secretary shall take and transcribe the
minutes of all meetings of the Board, of any committee, and of the
stockholders, or consents in lieu thereof, shall insert such minutes and
consents in the Corporation's minute books, and shall cause notice of such
meetings to be given when requested by any person authorized to call such
meetings. The Secretary may sign with the Chief Executive Officer or
President, in the name of the Corporation, all contracts of the Corporation and
affix the seal of the Corporation thereto. The Secretary shall have charge and
custody of the Corporation's seal, minute book, stock certificate books, and
stock transfer ledger. The Secretary shall perform such other duties as may be
prescribed from time to time by the Board of Directors or as may be delegated
from time to time by the Chief Executive Officer.
4.13 The Vice Presidents. Each Executive Vice President shall have
such powers and perform such duties as the Board may from time to time
prescribe. Each Vice President shall have such powers and perform such duties
as the executive officer or committee empowered to appoint such Vice President
shall from time to time prescribe.
4.14 Compensation. The compensation of the executive officers of
the Corporation shall be fixed from time to time by the Board or a committee
thereof, or by written agreement authorized by the Board or a committee
thereof. No officer shall be prevented from receiving such compensation by
reason of the fact that he is also a director of the Corporation, provided,
however, that such person shall abstain from voting as a director on the issue
of his compensation. Nothing contained herein shall preclude any officer from
serving the Corporation, or any subsidiary corporation, in any other capacity
and receiving proper compensation therefor.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
5.01 Execution of Contracts. The Board, except as in these Bylaws
otherwise provided, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances.
5.02 Checks, Drafts, Etc. All checks, drafts, or other orders for
payment of money, notes, or other evidence of indebtedness issued in the name
of or payable to the Corporation shall be signed or endorsed by such person or
persons and in such manner as from time to time shall be determined by
resolution of the Board. Each such officer, assistant, agent or attorney shall
give such bond, if any, as the Board may require.
5.03 Deposits. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and collection
for the account of the Corporation, the Chief Executive Officer, the President,
any Vice President or the Treasurer (or any other officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of
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the Corporation who shall from time to time be determined by the Board) may
endorse, assign, and deliver checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation.
5.04 General and Special Bank Accounts. The Board may from time to
time authorize the opening and keeping of general and special bank accounts
with such banks, trust companies or other depositories as the Board may select
or as may be selected by any officer or officers, assistant or assistants,
agent or agents, or attorney or attorneys of the Corporation to whom such power
shall have been delegated by the Board. The Board may make such special rules
and regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
6.01 Certificates for Stock. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the Chief
Executive Officer, the President, or a Vice President, and by the Secretary or
an Assistant Secretary or the Treasurer or an Assistant Treasurer. Any or all
of the signatures on the certificates may be a facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, any such certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such certificate
may nevertheless be issued by the Corporation with the same effect as though
the person who signed such certificate, or whose facsimile signature shall have
been placed thereupon, were such officer, transfer agent or registrar at the
date of issue. A record shall be kept of the respective names of the persons,
firms or corporations owning the stock represented by such certificates, the
number and class of shares respectively represented by such certificates, the
respective dates thereof, and, in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be cancelled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so cancelled, except in cases provided for in Section 6.04.
6.02 Transfers of Stock. Transfers of shares of stock of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof or by his attorney thereunto authorized by power of
attorney, duly executed and filed with the Secretary, or with a transfer clerk
or a transfer agent, appointed as provided in Section 6.03, and upon surrender
of the certificate or certificates for such shares, properly endorsed, and the
payment of all taxes thereon. The person in whose name shares of stock stand
on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be so
expressed in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the transferor and the
transferee request the Corporation to do so.
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6.03 Regulations. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with these Bylaws, concerning the
issue, transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize any officer or officers to appoint,
one or more transfer clerks or one or more transfer agents and one or more
registrars and may require all certificates for stock to bear the signature or
link signatures of any of them.
6.04 Lost, Stolen, Destroyed and Mutilated Certificates. In any
case of loss, theft, destruction or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation, in
such form and in such sum as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper so to do.
6.05 Fixing Date for Determination of Stockholders of Record. 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, to
express consent to corporate action in writing without a meeting, to receive
payment of any dividend or other distribution or allotment of any rights, to
exercise any rights in respect of any other change, conversion, or exchange of
stock, or for the purpose of any other lawful action, the Board may fix, in
advance, a record date, which shall not be more than 60 nor less than 10 days
before the date of any such meeting of stockholders nor more than 60 days prior
to any other action. If, in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders or expressing consent to corporate action without a meeting, the
Board shall not fix such a record date, the record date for determining
stockholders for such purpose shall be the close of business on the day on
which the Board shall adopt the resolution relating thereto. A determination
of stockholders entitled to notice of or to vote at a meeting of stockholders
shall apply to any adjournment of such meeting; provided, however, that the
Board may fix a new record date for the adjourned meeting.
ARTICLE VII
INDEMNIFICATION
7.01 Action, Etc. Other Than by or in the Right of the Corporation.
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 he is or was a director, officer or employee of the Corporation, or
that, being such a director, officer or employee, he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (all persons
serving or having served in such capacities hereinafter referred to as
"indemnitees"), against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and, with respect to any criminal action or
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proceeding, had no reasonable cause to believe his conduct was unlawful;
provided, however, that, except as provided in Section 7.06 hereof with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with any proceeding (or part
thereof) initiated by such indemnitee only if such proceeding (or part thereof)
was authorized by two-thirds of the Board. The termination of any action, suit
or proceeding by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that the indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
7.02 Actions, Etc., by or in the Right of the Corporation. 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 he is or was an indemnitee (as defined above) against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, 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.
7.03 Indemnification for Expenses. To the extent that an
indemnitee of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Section 7.01 or 7.02,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
7.04 Determination of Right of Indemnification. Any
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation unless a determination is reasonably and promptly made
(i) by the Board by a majority vote of a quorum consisting of directors who
were not parties to such action, suit or proceeding; or (ii) if such a quorum
is not obtainable, or even if obtainable, a quorum of disinterested directors
so directs, by independent legal counsel in a written opinion; or (iii) by the
stockholders, that such person acted in bad faith and in a manner that such
person did not believe to be in or not opposed to the best interests of the
Corporation or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe that his conduct was unlawful.
7.05 Advances of Expenses. Expenses (including attorneys' fees)
incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding or any appeal
therefrom shall be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding if the Corporation shall have received an
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undertaking by or on behalf of the director or officer to repay any amounts so
advanced in the event that he is ultimately determined not to be entitled to be
indemnified by the Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the Board deems appropriate.
7.06 Right of Indemnitee to Indemnification Upon Application. Any
indemnification pursuant to Sections 7.01 and 7.04 or Sections 7.02 and 7.04 or
any advance made pursuant to Section 7.05 of this Article, shall be made
promptly (and, in any event, within 90 days, in the case of indemnification,
and 30 days, in the case of an advancement, of the receipt by the Secretary of
the Corporation of the written request of the indemnitee), unless, with respect
to applications under Sections 7.01, 7.02 or 7.05, a determination is promptly
made by the Board or by a majority vote of disinterested directors that the
indemnitee acted in a manner set forth in such Sections as to justify the
Corporation's not indemnifying or making an advance to the indemnitee. In the
event no quorum of disinterested directors is obtainable, the Board shall
promptly direct that independent legal counsel shall decide whether the
indemnitee acted in the manner set forth in such Sections as to justify the
Corporation's not indemnifying or making an advance to the indemnitee. The
right to indemnification or advances, as granted by this Article, shall be
enforceable by the indemnitee in any court of competent jurisdiction if the
Board or independent legal counsel denies the claim, whether in whole or in
part, or if no disposition of such claim is made within ninety days. The
indemnitee's costs and expenses incurred in connection with successfully
establishing his right to indemnification, whether in whole or in part, in any
such proceeding shall also be indemnified by the Corporation.
7.07 Other Rights and Remedies. The rights provided by or granted
pursuant to this Article 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 an
indemnitee's official capacity and as to action in another capacity while
vested with such official capacity. All rights provided pursuant to this
Article shall be deemed to be provided by a contract between the Corporation
and the indemnitee who serves in such official capacity at any time while these
Bylaws are in effect and are intended to be retroactive and available with
respect to actions taken in an official capacity or actions taken while vested
with such official capacity prior to the adoption hereof. Any repeal or
modification of any provisions hereof shall not affect any rights or
obligations existing at the time of such repeal or modification.
7.08 Insurance. Upon resolution passed by the Board, the
Corporation may (i) purchase and maintain insurance on behalf of any person who
is or was an indemnitee against any liability asserted against him and incurred
by him in any such capacity or arising out of his status as such, whether or
not the Corporation would have the power to indemnify him against such
liability under the provisions of this Article; or (ii) create a trust fund,
grant a security interest or use other means (including, without limitation, a
letter of credit) to ensure the payment of such sums as may become necessary to
effect indemnification as provided herein.
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7.09 Other Enterprises, Fines and Serving at the Corporation's
Request. For purposes of this Article, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan;
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, officer, employee,
or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
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.
7.10 Beneficiaries of this Article. The rights provided by, or
granted pursuant to the provisions of this Article shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VIII
MISCELLANEOUS
8.01 Fiscal Year. The fiscal year of the Corporation shall be
determined by resolution of the Board. In the absence of such resolution, the
fiscal year of the Corporation shall be the calendar year.
8.02 Seal. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
8.03 Waiver of Notices. Whenever notice is required to be given by
these Bylaws or the Certificate of Incorporation, the person entitled to said
notice may waive such notice in writing, either before or after the time stated
therein, and such waiver shall be deemed equivalent to notice.
8.04 Amendments. These Bylaws, or any of them, may be altered,
amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of a
majority of the number of directors then in office as directors acting at any
meeting of the Board; or (ii) by the stockholders holding shares of a class of
stock entitled to vote for the election of directors, at any annual meeting of
stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any bylaws made
or altered by the stockholders may be altered or repealed by either the Board
or the stockholders.
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EXHIBIT 10.2.1
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of the 4th day of September, 1996,
by and between Cameron Audio Networks, Inc., a Texas corporation maintaining its
principal office at 2929 Elm Street, Dallas Texas 75226 (the "Company"), and
Motorola, Inc., a Delaware corporation, 1303 E. Algonquin Road, Schaumburg,
Illinois 60196 ("Motorola").
WHEREAS, the Company and Motorola have reached certain agreements with regard
to the purchase of certain securities of the Company by Motorola, all upon the
terms and conditions more particularly described herein; and, inasmuch as the
parties desire to set forth their agreements and understandings in writing, in
consideration of the promises, covenants and matters hereinafter set forth, the
parties mutually covenant, contract and agree, each with the other, as follows:
1. AUTHORIZATION OF ISSUANCE OF STOCK; PURCHASE AND SALE.
(a) Authorization. The Company has authorized issuing to Motorola 12,262
shares of its Common Stock, no par value per share (the "Common Stock").
(b) Sale of Stock. Subject to the terms and conditions hereof, and in
reliance on the representations and warranties contained herein, the Company
hereby agrees to issue and sell to Motorola, and Motorola hereby agrees to
purchase from the Company, 12,262 Shares of Common Stock (the "Shares"), for the
purchase price of $407.75 per share, for a total purchase price of
$4,999,830.50.
(c) Closing. The closing shall be held on a mutually agreeable date not later
than September _, 1996 at the offices of Gibson, Dunn & Crutcher LLP, 1717 Main
Street, Suite 5400, Dallas, Texas 75201 at 9:00 am. or on such other date and at
such other time and place as the parties may mutually agree (the "Closing"). At
the Closing, Motorola shall pay the Company the full purchase price of the
Shares in cash, by certified or bank cashier's check or by wire transfer to an
account designated in writing by the Company. At the Closing, the Company shall
deliver to Motorola a stock certificate or certificates registered in Motorola's
name representing the number of Shares purchased in form and substance
acceptable to Motorola, and shall also deliver the documents described in
Section 2 hereof.
2. DELIVERIES AT CLOSING.
At or prior to the Closing, the Company shall deliver or shall have delivered
to Motorola the following:
(a) Financial Information. Such financial information relative to the
Company's financial condition which may be reasonably requested by Motorola,
which information shall include, at a minimum, the balance sheet of the Company
at June 30, 1996, together with statements of income and changes in financial
position for the period commencing January 1, 1996 and ended June 30, 1996.
<PAGE> 2
(b) Closing Documents. The following closing documents, in form and substance
satisfactory to Motorola and its counsel:
(i) This Agreement, duly executed by the Company.
(ii) Executed copy of the Registration Rights Agreement in the form
attached as Exhibit A.
(iii) Executed copy of the Shareholders Agreement in the form attached as
Exhibit B.
(iv) Executed copy of the Negotiation Rights Agreement in the form
attached as Exhibit C.
(v) Certificates representing the Shares being purchased by Motorola at
the Closing.
(vi) The opinion of Gibson, Dunn & Crutcher LLP, legal counsel for the
Company, substantially in the form of Exhibit D.
(vii) Certificate of the Comptroller of Public Accounts of the State of
Texas as to the good standing of the Company as of a date recent to the Closing
Date.
(viii) Copies of the Articles of Incorporation and Bylaws of the Company,
as amended to date, certified by the Secretary of the Company to be true,
correct and complete and in full force and effect.
(ix) Copies of resolutions of the Board of Directors of the Company
authorizing the transactions contemplated by this Agreement, which resolutions
shall have been certified by the Secretary of the Company to be true, correct
and complete and in full force and effect.
(c) Evidence that a representative of Motorola has been duly elected to the
Board of Directors of the Company, effective as of the Closing.
(d) Evidence of any and all consents, permits and waivers necessary for
consummation of the transactions contemplated by this Agreement, including, but
not limited to, any qualification of the Shares under the Texas and Illinois
securities laws.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Motorola that, except as set
forth in the Schedules attached hereto, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
(a) Organization and Good Standing; Corporate Power. The Company is a
corporation duly organized and validly existing under the laws of the State of
Texas, and is in
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good standing under such laws, and is qualified and authorized to do business
in, and in good standing as a foreign corporation in, all other states in which
such qualification or authorization is necessary for the conduct of the business
in which the Company is now engaged, and has all necessary licenses and permits
required by all governmental authorities to carry on such business, except where
the failure to be so qualified or to have obtained such licenses and permits
would not have a material adverse effect on the Company. The Company has all
requisite legal and corporate power to own, lease and operate its property and
assets, to carry on its business as presently conducted, to enter into this
Agreement, to sell and issue the Shares and to carry out and perform its
obligations under the terms of this Agreement.
(b) Affiliations. The Company has no subsidiaries and does not own or control
any shares of stock or any other investments in any other Person.
(c) Authorized and Issued Capital. The authorized capital stock of the
Company, immediately prior to the consummation of the transactions with Motorola
contemplated hereby, consists of (i) Ten Million (10,000,000) shares of Common
Stock, no par value per share, of which One Hundred Sixty Three Thousand Four
Hundred Ninety Seven (163,497) shares are validly issued and outstanding. All
such issued shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, and were issued in compliance with all
applicable federal and state laws concerning the issuance of securities. There
are no subscriptions, contracts or agreements for the issuance or purchase of
any additional shares of the Company's capital stock, either in the form of
stock option or purchase agreements, warrants, calls or convertible debentures
or other securities except as set forth on Schedule 3(c). There are no
preemptive or similar rights to purchase or otherwise acquire shares of the
Company's capital stock pursuant to any provision of law, the Articles of
Incorporation or Bylaws of the Company, or any agreement to which the Company is
a party, or otherwise except as set forth on Schedule 3(c). To the knowledge of
the Company, the outstanding shares of Common Stock and other rights described
herein and on Schedule 3(c) attached hereto are owned by the persons named on
Schedule 3(c) and, to the knowledge of the Company, such shares, contracts and
rights are not pledged to secure any indebtedness or other obligation, no other
persons have any rights to acquire or vote such securities or any other rights
thereto, and none of such shares are subject to any voting agreements or trusts.
(d) Authorization. The execution and delivery of this Agreement, the
Registration Rights Agreement, the Negotiation Rights Agreement, and the
Shareholders' Agreement, and the sale and issuance to Motorola of the Shares as
herein provided, have been duly authorized by all necessary corporate action of
the Company so that when issued and delivered against payment therefor in
accordance with the terms of this Agreement (i) the Shares will be duly and
validly authorized and issued, fully paid and non-assessable, and (ii) neither
the execution and delivery of this Agreement nor the issuance of the Shares,
will be in contravention, or result in the creation of any mortgage, lien,
charge or encumbrance upon any of the properties or assets of the Company
pursuant to, any law, or of any judgment, decree, statute, order, rule or
regulation applicable to the Company or of its Articles of Incorporation, Bylaws
or any other contract, agreement or instrument to which the Company may be a
party or to which its property is or may be subject. Each of this Agreement, the
Registration Rights Agreement and the Shareholders'
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Agreement constitute legal, valid and binding obligations of the Company
enforceable in accordance with each of their respective terms except (i) as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors, as well as general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) (ii) that the
Company is not making this representation with respect to the indemnification
provisions of Section 7 of the Registration Rights Agreement.
(e) Good Title to, and Condition of, All Properties and Assets. The Company
has good title to or a valid leasehold interest in all the properties and assets
used in its business or described in its internal financial records, and to all
patents, trademarks, trademark rights, trade names, copyrights, licenses and
other intellectual property either developed by or assigned to the Company for
its use, subject to no lien, mortgage, pledge, material reservation of rights,
restrictions, security interest, material encumbrance or material charge of any
kind. All items of the owned and leased real and tangible personal property of
the Company are in good repair and condition, subject to routine maintenance
requirements. The owned and leased real and tangible personal property of the
Company is sufficient for the conduct of the present business of the Company
subject to acquisition of additional equipment with the proceeds of this sale of
the Shares.
(f) Litigation. There is no investigation or litigation or any proceeding
before any court, commission or other administrative authority pending, or, to
the knowledge of the Company, any basis therefor or threat thereof, against the
Company, or its officers or directors which involves the possibility of any
judgment or liability in amount of at least $5,000. None of the Company's
officers or Key Personnel are subject to any contract, prohibition, non-compete,
trade secret or any other restrictive agreement which would impair his ability
to provide services to the Company. To the knowledge of the Company, no third
party may assert any valid claim under any agreements or arrangement or any laws
governing unfair competition, trade secrets or proprietary information against
the Company or its Key Personnel with respect to the use in the Company's
business, as presently conducted or proposed to be conducted, of any
information which the Company or any such officer or employee would be
prohibited from using.
(g) Tax Matters. The Company has completed and duly filed in correct form
with the appropriate United States, state and local governmental agencies and
with the appropriate foreign countries and political subdivisions thereof, all
tax returns and reports required to be filed (with respect to local and foreign
returns and reports, to the extent material to the business of the Company);
such returns and reports are accurate and complete in all material respects;
and the Company has paid in full or made adequate provisions on its financial
statements delivered to Motorola pursuant to this Agreement for all taxes,
interest, penalties, assessments or deficiencies shown to be due on such tax
returns and reports or claimed to be due by any taxing authority or otherwise
due and owing, including, without limitation, those due in respect of
properties, income, franchises, licenses, sales and payrolls. The Company has
made all payments of estimated income tax due through the date hereof and all
withholdings of tax required to be made under all applicable United States,
state and local tax regulations and such withholdings have either been paid to
the respective governmental agencies or set aside in accounts for such purpose
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or accrued, reserved against and entered upon the books of the Company.
Estimated income taxes for the Company which are not yet due to be paid to the
Internal Revenue Service have been accrued, reserved against and entered upon
the books of the Company. The Company has not executed or filed with the
Internal Revenue Service or any other taxing authority, domestic or foreign, any
agreement or other document extending, or having the effect of extending, the
period for assessment or collection of taxes. There are no tax liens (other than
liens for taxes for current and subsequent years which are not yet due and
delinquent) upon any properties or assets of the Company, whether real, personal
or mixed, tangible or intangible. The Company does not have outstanding any
power of attorney authorizing any person to represent it before the Internal
Revenue Service or before the taxing authorities of any state or subdivision
thereof with respect to any tax matter. No election under Section 341(f) of the
Internal Revenue Code of 1986 is in effect with respect to any of the assets of
the Company.
(h) Other Contracts. Listed on Schedule 3(h) attached hereto are all its
material leases, licenses, franchise and managerial contracts and agreements,
and any and all other of its material contracts and agreements, used or to be
used in connection with the conduct of its business, which includes, but is not
limited to, any written or oral:
(i) contract with any labor union;
(ii) contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of normal operating
requirements;
(iii) contract for the employment of any Key Personnel, or other Person
on a full-time basis or any contract with any Person on a consulting basis and
any noncompetition agreements between the Company and any of its officers,
directors and Key Personnel;
(iv) bonus, pension, profit-sharing, retirement, stock purchase, stock
option, hospitalization, medical insurance or similar plan, contract or
understanding in effect with respect to its employees or the employees of
others;
(v) promissory note, agreement or indenture relating to the borrowing of
money or to the mortgaging, pledging or otherwise placing a lien on any assets
of the Company;
(vi) guaranty of any obligation for borrowed money or otherwise;
(vii) lease or agreement providing for rental payments in excess of
$30,000 Dollars per year under which the Company is lessee of or holds or
operates any property, real or personal, owned by any other party;
(viii) lease or agreement providing for rental payments in excess of
$30,000 per year under which the Company is lessor of or permits any third party
to hold or operate any property, real or personal, owned by the Company;
(ix) agreement or other commitment for capital expenditures in excess of
$30,000;
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(x) contract, agreement or commitment under which the Company is
obligated to pay any broker's fees, finder's fees or any such similar fees to
any third party in connection with the transactions contemplated by this
Agreement; or
(xi) any other contract, agreement, arrangement or understanding which is
material to the business of the Company (including contracts under which there
are continuing product warranty obligations) or which is material to a prudent
investor's understanding of the business of the Company which are listed on
Schedule 3(h)(xi) attached hereto.
The Company is not a party to any other contract or agreement which may
materially or adversely affect the business, properties, assets or condition of
the Company.
Where any of the foregoing subsections provides a dollar limitation, if
any group of substantially similar contracts, leases or commitments in the
aggregate exceeds such dollar limitation, then such substantially similar
contracts, leases and commitments shall be deemed to be material if they in the
aggregate exceed the dollar limitation, notwithstanding that no individual
contract, lease or commitment exceeds the dollar limit
(i) Defaults. Except as described on Schedule 3(i), the Company is not in
default of any material contracts and agreements described in Section 3(h)
hereof The Company is capable of performing each of said contracts and
agreements in a timely manner.
(j) Articles of Incorporation and Bylaws. The Company's Articles of
Incorporation and Bylaws, copies of which and all amendments thereto have been
furnished to Motorola, are in full force and effect, without further changes,
amendments or modifications, and neither the aforementioned Articles of
Incorporation or Bylaws are violated by any of the actions or transactions
contemplated herein.
(k) Financial Statements. The audited financial statements at and for the
period ending December 31, 1995 attached to this Agreement in EXHIBIT E (the
"Financial Statements"). The Financial Statements are true, complete and correct
in all material respects and were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied. At December 31, 1995, (i)
the Company had no material liabilities of any nature (matured or unmatured,
fixed or contingent) which were not provided for in the Financial Statements, to
the extent required by GAAP; and (ii) all reserves set forth in the Financial
Statements were adequate for the purposes indicated therein, to the extent
required by GAAP. There are no loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board in March 1975) which are not adequately provided for
in the Financial Statements as required by said Statement No. 5. Since December
31, 1995, there has not been except as described in Schedule 3(k):
(i) any material or adverse change in the financial condition, results of
operations, properties, assets, liabilities, business or business prospects of
the Company;
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(ii) any material borrowing or agreement to borrow any funds or material
liability or obligation of any nature whatsoever (contingent or otherwise)
incurred by the Company, other than current liabilities or obligations incurred
in the ordinary course of business;
(iii) any waiver, release or compromise of any material right of the
Company, or the cancellation of any material debt or claim held by the Company;
(iv) any declaration or payment of dividends on, or other distributions
with respect to, or any direct or indirect redemption or acquisition of, any
shares of the capital stock of the Company, or any agreement or commitment
therefor;
(v) any encumbrance, mortgage, pledge, sale, assignment or transfer of
any tangible or intangible, including, but not limited to, intellectual property
rights, assets of the Company, except, with respect to tangible assets, in the
ordinary course of business;
(vi) any material loan by the Company to any officer, director, employee
(including any Key Personnel) or shareholder of the Company, or any agreement or
commitment therefor, other than travel advances and similar obligations in the
ordinary course of business;
(vii) any material increase, direct or indirect in the compensation paid
or payable or any commitment or obligation to pay a bonus or other additional
compensation to any officer, director, employee (including any Key Personnel) or
agent of the Company;
(viii) any change in the accounting methods or practices followed by the
Company;
(ix) any loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975);
(x) any change in the contingent material obligations of the Company by
way of guaranty, surety, endorsement, indemnity, warranty (other than customary
product warranties) or otherwise; or
(xi) any agreement or commitment by the Company to do any of the things
described in clauses (i) through (x) above.
(l) Offering of Stock. Neither the Company nor any agent acting on its behalf
has taken in the past or in the future will take any action which would subject
the issuance or sale of the Shares, to the provisions of Section 5 of the
Securities Act of 1933 (the "1933 Act") without complying with Section 5 of the
1933 Act or an exemption therefrom.
(m) Contents and Approvals. No consent or approval of, authorization of, or
qualification or filing with, any governmental agency or authority or any other
person or entity is required in connection with the execution, delivery or
performance of this Agreement (or any agreement or obligation contemplated
hereby) by the Company.
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(n) Untrue Statements. Neither this Agreement nor any certificate, schedule,
exhibit, or any other document required to be delivered pursuant to this
Agreement contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading, in light of the circumstances under which they were
made. There is no material fact known to the Company relating to its business,
finances, or operations that has not been disclosed to Motorola in writing by
the Company or in agreements or other documents made available to Motorola to
review. The representations contained herein shall not apply to any projections
furnished to Motorola, provided, however, that the Company represents and
warrants such projections are made in good faith and with belief in the
reasonableness of all assumptions made in connection therewith.
(o) Patents, Licenses, Trademarks, etc.
(i) The Company owns and possesses all patents, licenses, trademarks,
trade names, trademark rights and copyrights and other intellectual property
listed on Schedule 3(o) attached hereto and such listed intellectual property
constitutes all intellectual property necessary to conduct its business as now
conducted or as contemplated to be conducted, without conflict, to the best of
the Company's knowledge, with any patent, license, trademark, trade name, or
copyright of any other Person.
(ii) No royalties, fees, commissions or other payments are payable by the
Company to other Persons by reason of the ownership or use of the Intellectual
Property Rights as defined in Section 3(o)(iii) hereof; provided that this
provision shall not apply to the payment of salary to persons in connection with
the performance of services to the Company.
(iii) To the knowledge of the Company, no product manufactured, marketed
or sold by the Company will violate any license or infringe any Intellectual
Property Rights or assumed name of another. To the knowledge of the Company,
there is no pending or threatened claim or litigation against the Company (nor
to the knowledge of the Company, does there exist any basis therefor) contesting
the validity or right to use of any of the foregoing. The Company has not
received any notice that any of the Intellectual Property Rights or the
operation or proposed operation of the Company's business conflicts, or will
conflict, with the asserted rights of others, nor to the knowledge of the
Company does there exist any basis for any such conflict. "Intellectual Property
Rights" shall mean all industrial, commercial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trade names, service marks, copyrights, computer programs, software
designs, source codes and related materials, certificates of public convenience
and necessity, franchises, licenses, trade secrets, proprietary processes and
formulae.
(p) Labor Matters. The Company and all its officers, employees described in
Section 5(b) hereof and Key Personnel (as defined in Section 9 hereof) have
executed and delivered Proprietary Information Agreements in the form of EXHIBIT
F hereto, and all Key Personnel have executed and delivered Employment
Agreements in the form of EXHIBIT G hereto and such agreements remain in full
force and effect. To the knowledge of the Company, no employee of the Company is
in violation of any term of such agreement or of any employment
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<PAGE> 9
agreement. No employees of the Company are represented by a union or other labor
organization. There have been no labor disputes to which the Company has been a
party and the Company has received no notice from any union or employee setting
forth demands for representation, elections or for present or future changes in
wages, terms of employment or working conditions. All written agreements and
other documents of the Company, with or relating to any officer, director,
employee or agent of the Company, under any employment contract, noncompetition
agreement, nondisclosure agreement, consulting agreement, collective bargaining
agreement, executive compensation agreement, deferred compensation agreement,
pension plan, retirement plan, profit sharing plan, stock purchase plan, stock
option plan, group life insurance, hospitalization insurance, vacation pay,
severance pay or any other similar agreements or employee benefit plans,
arrangements or understandings with or relating to any officer, director or
employee of the Company are listed in Schedule 3(p) attached hereto, and all
material obligations of the Company pursuant to any such oral agreements are
summarized in Schedule 3(p) attached hereto. True, complete and correct copies
of all such written agreements and other documents have been delivered to
Motorola.
(q) ERISA. The Company has no Employee Benefit Plans as defined in the
Employee Retirement Income Security Act of 1974 ("ERISA"). The Company is in
compliance with the applicable provisions of ERISA and the regulations and
published interpretations thereunder and other federal and state statutes and
regulations relating to employee benefit plans and has met all applicable
minimum funding requirements under Section 302 of ERISA in respect to its plans.
No Reportable Event (as defined in Section 4043(b) of ERISA) has occurred with
respect to any Employee Benefit Plan (as defined in ERISA) and no notice of
termination has been filed by the plan administrator pursuant to Section 4041 of
ERISA or issued by the Pension Benefit Guaranty Corporation ("PBGC") pursuant to
Section 4042 of ERISA with respect to any pension plan subject to ERISA. The
present value of all benefits vested under all employee benefit plans maintained
by the Company does not exceed the value of the assets of such plans allocable
to such vested benefits. The Company (i) has not engaged in any Prohibited
Transaction (as defined in Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended), (ii) has no fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees, and (iii) has not withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multi-employer
Pension Plan Amendments Act of 1980. No event or occurrence has occurred which
would cause PBGC to institute proceedings under Title IV of ERISA to terminate
any employee benefit plan. The Company has caused to be delivered to Motorola
true and complete copies of the most recent actuarial reports relating to each
such pension benefit plan for which a report is required by Section 6059 of the
Internal Revenue Code of 1986, as amended, and such actuarial reports correctly
set forth the funding status of such plans as of such dates. The Company has
made all required contributions to all pension, profit sharing and other
employee benefit plans covering its employees.
(r) Suppliers and Customers. The Company has provided Motorola with access to
a of the Company's supplier and customer files.
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(s) Environmental Matters. The Company has obtained all federal, state and
local environmental permits necessary for carrying on its business and use of
its properties, is in full compliance with the terms and conditions of these
environmental permits, and is in full compliance, with all applicable federal,
state, and local environmental statutory and regulatory requirements. There are
no pending environmental civil, criminal, or administrative proceedings against
the Company and to the best knowledge of the Company, there are no threatened
civil, criminal, or administrative proceedings against the Company relating to
environmental matters. There is no fact or circumstance that may give rise to
any future civil, criminal, or administrative proceedings against the Company
relating to environmental matters.
(t) Compliance with Law and Other Instruments. The Company is not in
violation of any instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to it, including without limitation, federal
and state securities laws, zoning laws and ordinances, federal labor laws and
regulations, the Federal Occupational Safety and Health Act and regulations
thereunder, the Federal Employees Retirement Income Security Act, the Americans
With Disabilities Act and federal, state and local environmental protection laws
and regulations, the violation of which might have a material adverse effect on
the business, prospects, affairs, operations or condition of the Company.
(u) Brokerage Fee. Except as set forth in Schedule 3(u), there are no claims
or, to the knowledge of the Company, potential claims against the Company or any
of its officers, directors or shareholders, for brokerage commissions, finders'
fees, or other similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company or such officer, director or shareholder.
(v) No Crime. Neither the Company nor to the knowledge of the Company, any of
its current directors, officers and Key Personnel have been arrested, indicted
for or convicted of any crime, other than minor traffic offenses, during the
past ten years.
Neither the Company nor to the knowledge of the Company, any of its
current executive officers, directors or Key Personnel have since January 1,
1990:
(i) filed a petition, or had a petition filed against it or them, under
the Federal Bankruptcy laws or any state insolvency law, or had a receiver,
fiscal agent or similar officer appointed by a court for its or their business
or property, or for any partnership in which it or they were a general partner
or any corporation or business association of which it or they were an executive
officer at or within two years before such filing;
(ii) been convicted in a criminal proceeding or been named the subject of
a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(iii) been the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction
permanently or temporarily enjoining it or them from, or otherwise limiting the
following activities:
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(a) acting as an investment advisor, underwriter, broker or dealer
in securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company, or
engaging in or continuing any conduct or practice in connection with such
activity;
(b) engaging in any type of business practice; or
(c) engaging in any activity in connection with the purchase or sale
of any security or in connection with any violation of federal or state
securities law;
(iv) been the subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any federal or state authority barring,
suspending or otherwise limiting its or their right to engage in any activity
described in (iii) above, or to be associated with persons engaged in any such
activity; or
(v) been found by a court of competent jurisdiction in a civil action or
by the Securities and Exchange Commission (the "Commission") or any state
securities administrator or commissioner to have violated any federal or state
securities law, and the judgment in such civil action or finding by the
Commission or any state securities administrator or commissioner has not been
subsequently reversed, suspended or vacated.
(w) Related Transactions. Except as set forth on Schedule 3(w), the Company
has no written or oral agreements, leases, indebtedness or other commitments to
or with "Restricted Persons," and has not entered into any "Conflict of Interest
Transaction" with any "Restricted Person." For purposes of this Agreement, a
"Restricted Person" shall consist of an employee, a shareholder, director or
officer of the Company, or a relative of any such individual or any entity
controlled by any such individual, or a customer or supplier of the Company, and
a "Conflict of Interest Transaction" shall include, but not be limited to, the
sale of merchandise for less than fair market value, or the purchase of
merchandise or supplies in transactions involving rebates to or from a
Restricted Person, or the payment of fees or salaries in excess of the
legitimate and documentable fair market value of the services rendered for such
fees or salaries or any loan or guaranty.
(x) Use of Proceeds. Attached hereto as Schedule 3(x) is a detailed statement
of the purposes, including dollar amounts, to which the Company proposes to
apply the proceeds of the sale of the Shares to be issued and sold at the
Closing.
(y) Insurance. The Company has the insurance coverage described on Schedule
3(y) hereto.
4. REPRESENTATIONS AND WARRANTIES OF MOTOROLA.
Motorola hereby represents and wan-ants to the Company that, as of the date
hereof:
(a) Organization and Good Standing. Motorola is a corporation duly organized
and validly existing under the laws of the State of Delaware and is in good
standing under such laws;
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(b) Corporate Power. Motorola has all requisite corporate power to enter into
this Agreement and to carry out and perform its obligations under the terms of
this Agreement;
(c) Authorization. All corporate action on the pan of Motorola necessary for
the performance of Motorola's obligations hereunder has been taken or will be
taken prior to the Closing. This Agreement is a valid and binding obligation of
Motorola, enforceable in accordance with its terms, except as such enforcement
may be limited by bankruptcy, insolvency, reorganization, moratorium and other
laws of general application affecting the rights and remedies of creditors, as
well as general principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
(d) Securities Laws. Motorola is purchasing the Securities for its own
account for investment purposes only and not with a view to, or for resale in
connection with, any "distribution" thereof for purposes of the Securities Act.
(e) Motorola has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and of making an informed investment decision.
(f) Motorola has the capacity to protect its own interest in connection with
this transaction by reason of its prior personal or business relationships with
the Company or its officers or directors or its business or financial
experience.
(g) Accredited Investor. Motorola is an accredited investor as defined in
Rule 501(a) of Regulation D of the Commission under the Securities Act of 1933,
as amended (the "Securities Act").
4A. UNDERSTANDINGS AND AGREEMENTS OF MOTOROLA.
Motorola understands the following:
(a) There is no public market for the Shares or any of the Company's
securities and there is no certainty that such a market will ever develop. There
can be no assurance that Motorola will be able to sell or dispose of the
Shares. Moreover, no assignment, sale, transfer, exchange or other disposition
of the Shares can be made other than in accordance with all applicable
securities laws. It is understood that in order not to jeopardize the
offering's exempt status under Section 4(2) and Regulation D of the Securities
Act and the state securities law, any transferee may be required to fulfill
certain investor suitability requirements.
(b) Motorola understands and agrees that because the Shares have not been
registered under the Securities Act or applicable state securities laws,
Motorola cannot dispose of any or all of the Shares unless such Shares are
subsequently registered under the Securities Act, and/or applicable state
securities laws, or exemptions from such registration are available. Motorola
acknowledges and understands it has no right to require the Company to register
the Shares, except as provided in the Registration Rights Agreement in the form
of EXHIBIT A. Motorola is aware that the Company may not accomplish a public
offering of its stock. Motorola further
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understands that the Company, as a condition to the transfer of any of the
Shares, may require that the request for transfer be accompanied by opinion of
counsel reasonably satisfactory to the Company, in form and substance reasonably
satisfactory to the Company and preceded by prior written notice, to the effect
that the proposed transfer does not result in violation of the Securities Act or
applicable state securities laws, unless such transfer is covered by an
effective registration statement under the Securities Act and compliance with
all applicable state securities laws or an exemption or exemptions from
registration is or are available. Motorola understands that each certificate
representing the Shares and any securities issued upon conversion of the Shares
or on account of ownership thereof will bear the following legend or one
substantially similar thereto:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or
the securities laws of any state. These securities have been acquired
for investment and not with a view to distribution or resale, and may
not be sold, mortgaged, pledged, hypothecated or otherwise transferred
without an effective registration statement for such shares under the
Securities Act and applicable state securities laws, or an opinion of
counsel reasonably satisfactory to the corporation that registration is
not required under the Securities Act and applicable state securities
laws. The securities are also subject to certain rights of first
refusal of the corporation and other contractual restrictions on
transfer.
(c) Motorola is organized under the laws of the State of Delaware, its
principal offices are located in the State of Illinois and all decisions
relating to purchase of the Shares have occurred solely in Illinois.
5. AFFIRMATIVE COVENANTS OF THE COMPANY.
Until an Initial Public Offering (as defined in Section 7(a) hereof) by the
Company, the Company covenants and agrees that for so long as Motorola owns,
beneficially or of record, any of the Shares, any Common Stock or other
securities of the Company, the Company shall:
(a) Reports and Information. Furnish to Motorola the following reports:
(i) Annual Reports. As soon as available and in any event within 90 days
after the end of each fiscal year, consolidated and consolidating financial
statements of the Company including a balance sheet as of the end of such fiscal
year and statements of income and retained earnings and of sources and
applications of funds for such fiscal year, prepared in reasonable detail and in
accordance with generally accepted accounting principles consistently applied
and accompanied by the opinion thereon of a recognized firm of independent
certified public accountants as may be selected by the Board of Directors of the
Company.
(ii) Interim Reports. As soon as available, and in any event within 45
days after the end of each of the first three quarters of each of the Company's
fiscal years beginning with the quarter ending September 30, 1996, consolidated
and consolidating financial statements of the Company including a cash flow
statement, a balance sheet as of the end of such accounting period and
statements of income and retained earnings and of sources and applications of
funds
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for such accounting period and for the period from the beginning of such fiscal
yew to the end of such accounting period, and setting forth in comparative form
the figures for the corresponding periods of the preceding fiscal year, prepared
in reasonable detail and in accordance with generally accepted accounting
principles consistently applied and certified as correct by the chief executive
officer and chief financial officer of the Company.
(iii) Monthly Reports. If such reports are otherwise prepared, and in
such case as soon as available, for each month beginning after June 30, 1996,
consolidated and consolidating financial statements of the Company including a
cash flow statement and a balance sheet as of the end of the month in reasonable
detail in accordance with generally acceptable accounting principles
consistently applied and certified as correct by the chief executive officer and
chief financial officer of the Company. The management of the Company will
include with each monthly report, if any, comments on progress and problems
facing the Company.
(iv) Other. Such other financial information and data as Motorola may
from time to time reasonably request.
(v) SEC Filings, Etc. Promptly upon their becoming available (and in no
event later than the ten days after release to the public) copies (without
duplication) of all financial statements, reports, press releases, notices and
proxy statements sent by the Company to its security holders and all annual,
periodic or special reports or registration statements filed by the Company with
the Commission, and all other material communications sent by the Company to its
security holders or filed by the Company with the Commission. Notwithstanding
anything to the contrary in this Agreement, the Company shall be obligated to
deliver the items set forth in subsection (v) of this Section 5(a) following an
Initial Public Offering until Motorola has disposed of all of its Common Stock
(excluding Common Stock which it has acquired in the open market following an
Initial Public Offering.)
(b) Employee Agreements. The Company shall enter into Proprietary Information
Agreements in the form of EXHIBIT F hereto with all its employees and reasonable
confidentiality agreements with any other person or entity who is given access
to the proprietary technical information of the Company such as source code. The
Company will require all the Key Personnel to execute and deliver a Employment
Agreement in the form of EXHIBIT G hereto. The Company shall diligently enforce
all material provisions of the existing Employment Agreements, Shareholders'
Agreement, and Proprietary Information Agreements and all future similar
agreements and shall not amend any such agreements or waive any rights
thereunder without the prior written approval of the Board of Directors of the
Company, without counting the vote of any interested director. The Company shall
not enter into any transactions with its management, directors, consultants or
Key Personnel or with any member of their families or any entity controlled by
any such person, without the prior written approval of the Board of Directors of
the Company, without counting the vote of any interested director, including,
without limitation, increasing salaries above current levels, increasing
employee benefits, selling securities or granting options, warrants or other
rights to purchase securities of the Company.
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(c) Corporate Existence. Preserve and keep in full force and effect its
corporate existence, its qualification to do business and its good standing in
every state where it is or is required to be qualified to do business, except
that nothing herein shall prevent the Company from changing its state of
incorporation.
(d) Licenses, Permits and Franchisees. Maintain, preserve and protect at all
times all of its corporate and operational licenses, permits and franchises, and
comply with each and all of the terms, conditions and requirements of such
licenses, permits and franchises, except to the extent management of the Company
determines it is not in the best interest of the Company to do so.
(e) Properties. Preserve all of its assets and properties that are used in
the conduct of its business and maintain and keep these assets and properties in
good repair, working order and condition, and from time to time make or cause to
be made all needed and proper repairs, renewals, replacements, betterments and
improvements to these assets and properties to preserve and maintain their
value, normal wear and tear excepted, so that the business carried on in
connection with these assets and properties may be properly conducted at all
times, except to the extent management of the Company determines it is not in
the best interest of the Company to do so.
(f) Insurance. Maintain "all-risk" insurance at all times on all properties
(real and personal) with responsible, reputable and financially sound insurance
companies or associations approved by the Board of Directors in the full amount
of the replacement cost, and also maintain adequate (at least $1,000,000 per
occurrence and $2,000,000 in the aggregate) insurance against liability to
persons for such risks and hazards and in such amounts as are usually carried by
companies engaged in similar businesses. From time to time at the request of
Motorola, the Company shall deliver to Motorola a detailed schedule indicating
all insurance policies then in force.
(g) Records; Financial Statements. Keep at all times complete books of record
and accounts, and an accounting system, in conformity with generally accepted
accounting principles as revised from time to time, with full, true and correct
in all material respects entries of all dealings and transactions in relation to
the Company's business and affairs, and reasonably protect such books and
accounts against loss or damage. The Company shall have its books and accounts
audited and, as set forth in Section 5(a), provide Motorola with audited
financial statements showing its financial condition and the results of its
operations during the preceding fiscal year, together with any supporting
schedules, which statements will be accompanied by an opinion thereon of
independent certified public accountants selected by the Board of Directors of
the Company.
(h) Inspection. Permit Motorola, its agents and/or representatives to visit
and inspect, at reasonable times and upon prior notice, the Company's assets,
properties, books of record and accounts (including making copies thereof), and
to discuss these items and the results of such inspections with the Company's
chief operating officer.
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<PAGE> 16
(i) Payment of Taxes. Timely file or cause to be filed any and all federal,
state and local tax returns and reports and timely pay and discharge any and all
taxes and assessments, and any and all federal, state and local governmental
impositions, fees, charges and/or levies, including but not limited to, any
income taxes, municipal taxes, real estate and personal property taxes, social
security, unemployment, excise and withholding taxes, and the like imposed upon
the Company, its operations, or upon its income and profits, or upon all or any
part of its properties, real, personal or mixed, or upon its payroll, in each
case before the same becomes delinquent and before penalties accrue thereon,
except for taxes the liability of which is being contested in good faith in an
appropriate forum, and for the payment of which adequate reserve has been
established on the Company's balance sheet.
(j) Other Information. Furnish promptly to Motorola any information related
to this Agreement or any other agreements with Motorola or any other documents
executed in connection with this Agreement as Motorola may reasonably request
regarding the Company's operations, business affairs, financial condition, or
any of the Company's covenants, agreements and/or undertakings under this
Agreement or any of the other agreements or documents, provided the Company is
not restricted from doing so by law, rule, regulation or contractual
provisions.
(k) Environmental Matters. The Company shall comply in all material respects
with all applicable federal, state, and local laws and regulations pertaining to
environmental matters, and shall promptly give written notice to Motorola of the
occurrence of any event under any such laws and regulations that would require
an oral, telephonic or written notice or communication to the U.S. Environmental
Protection Agency, or any successor agency, and shall promptly forward to
Motorola copies of all orders, notices, permits, applications or other
communications and reports received, made or given in connection with any such
event, and any enforcement action taken against the Company or against any
property owned or leased by the Company.
(l) Statutory Compliance. At all times, conduct its business in accordance
with, and comply in all material respects with, all applicable statutes,
regulations, judgments, decrees, resolutions and orders of, and all applicable
restrictions imposed by, any and all governmental entities and/or authorities,
federal, state, local and non-U.S., judicial or administrative, applicable to
the conduct of the Company's businesses and activities (including environmental
and other regulatory requirements) or the ownership or operation of its
properties, licenses, permits and/or franchises, particularly those pertaining
to the business the Company currently operates.
(m) Contractual Compliance. Pay and discharge all of the Company's
indebtedness and obligations promptly and in accordance with their terms and
substantially comply with the terms and conditions of any indentures,
agreements, contracts or other instruments to which it is party or which may
affect its assets or properties or enter into mutually satisfactory agreements
with the other parties to such documents and instruments; provided, however,
that nothing herein shall prevent the Company from withholding payment or
otherwise failing to comply with any agreement, if its management determines it
to be in the best interest of the Company to do so and if such action will not
result in any material adverse effect on the Company.
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<PAGE> 17
(n) Full Compliance. Comply with each and all of the terms of this Agreement
hereof and all other agreements with Motorola.
(o) Conduct of Business. Carry on its business and activities diligently and
consistent with prudent business practice for a company of the size and
character of the Company and will use its reasonable efforts to preserve its
relationship with suppliers, customers and other having business relationships
with it subject to the reasonable business judgment of management.
(p) Matter Requiring Unanimous and Majority Approval of the Board of
Directors. A change in the number of directors constituting the full Board of
Directors to more than seven shall require the approval by more than fifty
percent (50%) of the members of the Board of Directors of the Company, including
the director elected by Motorola. Such matter may also be approved by more than
fifty percent (50%) of the members of a duly authorized committee of the Board
of Directors so long as the director elected by Motorola is a member of such
committee and the director elected by Motorola votes in favor of such approval.
(q) Press Releases. Except as provided by law, the Company will secure
advanced written approval from Motorola of the decision to issue and the content
of any statement regarding or mentioning Motorola, whether in writing or
otherwise to the public or press. This provision shall not be deemed to have
been breached if the Company acting on the advice of its securities or other
regulatory counsel makes disclosures to investors and potential investors or to
any governmental or other regulatory agency or organization.
6. NEGATIVE COVENANTS OF THE COMPANY.
Until an Initial Public Offering (as defined in Section 7(a) hereof) by the
Company, from the Closing Date, so long as Motorola owns, beneficially or of
record, any of the Shares, any Common Stock or any other securities of the
Company, the Company covenants and agrees that it shall not without the
affirmative vote of more than eighty percent (80%), for a period of 12 months
from the date hereof, and fifty percent (50%), after the expiration of such 12
month period of the members of the Board of Directors of the Company, do any of
the matters or things listed below:
(a) Properties. Sell, lease, sublease, transfer, convey, alienate or
otherwise dispose of, in any manner, all or substantially all of the Company's
assets (including licenses, receivables, trademarks, trade names, good will and
other intangible assets).
(b) Merger Consolidation. Liquidate, dissolve, reorganize, merge with or into
or consolidate with any other corporation or entity provided that, with respect
to the Company's proposed reincorporation as a Delaware corporation, the Company
shall effect such reincorporation pursuant to a merger agreement in the form set
forth in Schedule 6(b)(i), with initial certificate of incorporation and bylaws
of the surviving Delaware corporation in the forms set forth in Schedules
6(b)(ii) and 6(b)(iii), respectively.
(c) Change in, Certificate of Incorporation. Amend Articles Ten or Fourteen
of the Company's Certificate of Incorporation.
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<PAGE> 18
(d) Directors. Subject to Section 5(p), change the authorized number of
directors of the Company.
(e) Company Plan. Reserve or have reserved for issuance or issue, shares of
the Company's capital stock or any securities of the Company convertible into
the capital stock of the Company in an aggregate amount in excess of 15.5% of
the outstanding shares of capital stock of the Company and any security of the
Company convertible into the capital stock of the Company pursuant to any
Company stock bonus, pension, profit-sharing, retirement, stock purchase, stock
option or similar plan, contract or understanding with respect to Company
directors, officers, employees, or consultants, calculated using a denominator
consisting of the amount of capital stock and other securities of the Company
outstanding as of October 30, 1996, provided that such denominator shall not
include securities of the Company which are sold (i) after the date hereof with
an aggregate purchase price exceeding $7,000,000 (excluding the Shares sold
pursuant to this Agreement) or (ii) subsequent to October 30, 1996.
7. RIGHTS OF SHAREHOLDER AND TRANSFER RESTRICTIONS.
(a) Rights of Shareholder. At any time prior to the first registration under
the Securities Act of 1933 and sale of the Company's Common Stock (the "Initial
Public Offering").
(i) Motorola shall have the pre-emptive and preferential right to
purchase or subscribe for its then pro-rata percentage of any of the following
securities that are offered for sale or subscription: (i) any unissued or
treasury shares of any class of stock (whether now or hereafter authorized) of
the Company; (ii) any obligations, evidences of indebtedness, or other
securities of the Company, whether convertible into or exchangeable for, or
carrying or accompanied by any rights to purchase or subscribe for, any such
unissued or treasury shares; (iii) any right or subscription for or to receive,
or any warrant or option for the purchase of, or any of the foregoing
securities, other than warrants, options or convertible securities issued to
directors, employees and consultants approved by the Board of Directors of the
Company and permitted under Section 6(e); and (iv) any other securities that may
be issued or sold by the Company, provided, however, that Motorola shall be
required to pay for such securities at the same price and on the same terms and
conditions that such securities are offered or sold to third parties, provided
however, that such pre-emptive rights shall not be applicable in the case of
issuance of Company securities for acquisition. The Company shall give Motorola
written notice as soon as reasonably practicable of a proposed or pending
offering or sale of securities including the expiration of such offer a sale.
Motorola shall indicate in writing prior to the expiration of such offer or
sale whether it intends to exercise its pre-emptive rights. If it so elects, it
shall pay for such securities on or before the 60th day following the expiration
of such offering or sale.
(ii) If Motorola does not exercise its preemptive rights within the time
periods specified in clauses (a) above, the Company shall be free to sell up to
the quantity of such securities not agreed by Motorola to be purchased by
Motorola (or up to all such securities in the event such offer is rejected or is
not accepted within applicable time periods after it has been made by the
Company), at a price no less favorable to the Company than that specified in
such offer and on payment terms no less favorable to the Company than those
specified in such offer.
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<PAGE> 19
However, if such sale is not consummated within ninety (90) days after the date
an offer pursuant to this subsection 7(a) was made, the Company shall not sell
such securities without gain complying with this Section.
(iii) The rights provided to Motorola in Section 7(a) above are
exerciseable at the same time and are in parity with respect to preference as
the pre-emptive and preferential rights granted by the Company to Cameron
Broadcasting Systems, Inc. ("CBS") pursuant to a Bill of Conveyance and
Agreement to Assume Liabilities dated October 25, 1995, until such rights
granted to CBS terminate.
(iv) The rights provided to Motorola in this Section 7(a) shall not apply
with respect to (A) the Company's initial strategic investor financings, to the
extent such financings (1) occur prior to October 30, 1996 and (2) involve the
sale of Common Stock for an aggregate purchase price not to exceed $7,000,000 on
terms no more favorable to the investors than those provided to Motorola in this
Agreement and (B) shares of Common Stock pursuant to the terms of the
Contribution Agreement, dated as of January 1, 1996, between the Company and
University Sports America, Inc.
(b) Rights of the Company. In the event Motorola desires to sell or otherwise
transfer any shares of Stock, at any time prior to an Initial Public Offering by
the Company, Motorola shall first notify the Company in writing of the identity
of the purchaser or other transferee and the material terms and conditions of
sale, including the number of securities to be sold, price and payment terms.
If within thirty (30) days after the notice of sale or other transfer is
received by the Company, the Company determines the purchaser or other
transferee is a competitor of the Company, which determination shall be made by
the Board of Directors of the Company, the Company may prohibit the proposed
sale or transfer to such purchaser or other transferee. Any determination made
by the Board of Directors in good faith shall be final and binding.
If within thirty (30) days after the notice of sale or transfer is
received by the Company, the Company notifies Motorola in writing it desires to
purchase all the securities to be sold or transferred by Motorola, Motorola
shall sell such shares to the Company on the same terms and conditions as
specified in the notice sent to the Company by Motorola. The Company shall
complete such purchase within sixty (60) days after receipt of notice of sale or
transfer by the Company.
In the event within thirty (30) days after receipt by the Company of the
notice of sale or transfer, the Company neither (i) notifies Motorola in writing
the purchaser or transferee has been deemed to be a competitor of the Company,
nor (ii) notifies Motorola in writing the Company desires to purchase all the
securities to be sold or transferred, Motorola shall be free to sell or transfer
the securities on the terms and conditions specified in its notice to the
Company to the Person specified in such notice subject to compliance with
applicable securities laws and regulations or pursuant to an exemption therefrom
and Section 4A of this Agreement. If such sale or transfer is not consummated
within ninety (90) days after the Company received notice of
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<PAGE> 20
the proposed sale or transfer from Motorola, Motorola may not sell or transfer
such securities without again complying with this Section.
The Company shall have no right to purchase Shares to be sold or
transferred to any Person that, directly or indirectly, owns or controls, or is
owned or controlled by, or is under common control with, Motorola or to any
Subsidiary of Motorola (a "Motorola Affiliate").
Any purchaser or transferee of Shares shall agree as a condition to
consummation of such sale or transfer that any subsequent sale or transfer of
the Stock shall be subject to the rights of the Company set forth in this
Section 7.
The restrictions on transfer of securities contained herein are in
addition to, and not in lieu of, restrictions pursuant to applicable law.
8. GENERAL.
The parties hereto further warrant, covenant, contract and agree each with
the other as follows:
(a) Entire Agreement. This Agreement, the Exhibits and Schedules hereto and
other documents referred to herein constitute the entire understanding among the
parties with respect to the subject matter hereof and they supersede all prior
negotiations, understandings, correspondence, undertakings, promises,
representations and agreements, whether oral or written, in connection with the
subject matter hereof.
(b) Survival of Agreements and Representations and Warranties. All
agreements, representations and warranties contained herein or made in writing
in connection herewith, to the extent applicable, shall survive the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, regardless of any investigation made by Motorola or on its
behalf, and shall continue until all Shares cease to be outstanding unless
specifically limited to a shorter time by the terms of this Agreement.
(c) Binding Effect. All covenants, representations, warranties and other
stipulations in this Agreement, the Proprietary Information Agreements, and the
Employment Agreements, given by or on behalf of any of the parties hereto, shall
bind and inure to the benefit of the respective successors, heirs, personal
representatives and permitted assigns of the parties hereto.
(d) Cumulative Powers. No remedy herein conferred upon a party to this
Agreement is intended to be exclusive of any other remedy, and each such remedy
shall be cumulative and in addition to every other remedy given hereunder or now
or hereafter existing at law, or in equity or by statute or otherwise.
(e) Loss of Securities. Upon:
(i) receipt of evidence satisfactory to the Company of loss, theft,
mutilation or destruction of the certificate(s) representing the Shares, and
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<PAGE> 21
(ii) in the case of any such loss, theft, or destruction, upon delivery
of indemnity in such form and amount as shall be reasonably satisfactory to the
Company, or in the event of such mutilation, upon surrender and cancellation of
such certificates representing the Shares, the Company will make and deliver a
new certificate representing the Shares, of like tenor, in lieu of such lost,
stolen, mutilated or destroyed stock certificate upon receipt of an appropriate
indemnification agreement executed by Motorola and reasonably satisfactory to
the Company. In addition, upon request of Motorola, and upon surrender of such
certificate representing the Shares or other securities to the Company and
compliance with any restrictive legends, the Company will reissue, in lesser
denominations to parties designated by Motorola, certificates representing the
Shares, or other securities in the equivalent amounts of such other securities
surrendered.
(f) Notices. Except in cases where oral or other notice is permitted by this
Agreement, all notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been given (i) when hand
delivered, including delivery by messenger or courier service (or if delivery is
refused, at the time of refusal), to the address set forth below, (ii) when
received or refused as evidenced by the postal receipt if sent by United States
mail as Certified Mail, Return Receipt Requested, with proper postage prepaid,
addressed as set forth below or (iii) when received as evidenced by the
transmission report of the telefax machine of the transmitting party
acknowledging a good transmission if sent by telefax to the number set forth
below:
a. If to Motorola:
Motorola, Inc.
1303 E. Algonquin Road
Schaumburg, IL 60196
Attn: New Enterprises
Telefax Number: 847/576-7185
b. If to the Company:
Cameron Audio Networks, Inc.
2929 Elm Street
Dallas, Texas 75226
Attn: Todd Wagner
Telefax Number: 214/748-6657
c. With a copy to:
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attn: Sean P. Griffiths, Esq.
Telefax Number: 212/351-4035
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Any of the parties may change its mailing address or telecopy number, by
giving notice to the other party pursuant to this Section 9(f) as long as the
mailing address and telecopy number is within the United States of America.
(g) Governing Law. This Agreement shall be governed in all respects by the
laws of the State of New York.
(h) Heading. The descriptive section headings herein have been inserted for
convenience only and shall not be deemed to limit or otherwise affect the
construction of any provisions hereof.
(i) Multiple Originals. The Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
(j) Assignment. Neither this agreement, nor any interest herein or any
rights hereunder, shall be assigned by either party without the prior written
consent of the other party; provided, however, that Motorola may assign its
rights and delegate its obligations and responsibilities hereunder to any 50%
(or greater) owned subsidiary, direct or indirect, without the Company's
consent.
(k) Waiver. Failure or delay on the part of either party to exercise any
right, remedy, power, privilege or option hereunder which is not subject to
an express time limitation with respect to exercise shall not operate or be
construed to operate as a waiver thereof. A waiver, to be effective, must be in
writing and be signed by the party making the waiver. No written waiver of any
term or condition of this Agreement shall operate or be construed to operate as
a waiver of any other term or condition, nor shall any written waiver of any
breach or default operate or be construed to operate as a waiver of any other
breach or default or of the same type of breach or default on a subsequent
occasion or operate or be construed to operate as a continuing waiver.
(l) Amendment. This Agreement may not be modified, altered nor amended in any
manner whatsoever, except by another written agreement executed by the parties.
(m) Severability. If any of the articles, paragraphs, sections and/or clauses
of this Agreement is declared by judicial interpretation or construction or
otherwise to be null, void and/or unenforceable in any respect, such article,
paragraph, section and/or clause shall be deemed to be eliminated from this
Agreement, but the other parts of this Agreement shall remain in full force and
effect; provided, however, if the elimination of any part of this Agreement
materially affects any right, benefit, option or privilege of either party, the
parties agree to negotiate in good faith to replace such part with a substitute
valid and enforceable part that achieves the intent and purpose of the
eliminated part.
9. DEFINITIONS.
For the purpose of this Agreement, the following terms shall have the
following meanings:
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<PAGE> 23
(a) "Key Personnel" shall mean Mark Cuban and Todd Wagner. This list may be
amended from time to time by action of the Board of Directors.
(b) "Person" shall include both the singular and the plural and shall mean
any individual, partnership, corporation, trust, unincorporated organization, or
government or department or agency thereof.
(c) "Shares" shall mean the shares of Common Stock sold pursuant to this
Agreement and all other securities of the Company issued on account of ownership
thereof.
(d) "Subsidiary" shall mean any corporation with respect to which Motorola or
the Company, as the case may be, owns, directly or indirectly, a majority of the
voting shares, or shares or other interest entitling Motorola or the Company, as
the case may be, to elect a majority of the Board of Directors.
(e) to the extent not specifically defined herein, any accounting term used
herein shall have the meaning ordinarily accorded to it under generally accepted
accounting principles consistently applied.
* * * * *
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<PAGE> 24
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
MOTOROLA, INC. CAMERON AUDIO NETWORKS, INC.
By: /s/ ROBERT A. BURTON By: /s/ TODD R. WAGNER
-------------------------------------- -------------------------------
Title: Vice President and General Manager Title: CEO
---------------------------------- ----------------------------
Motorola New Enterprises
24
<PAGE> 1
Exhibit 10.2.2
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into as of the 15th of November, 1996,
by and between AudioNet, Inc., a Delaware corporation maintaining its principal
office at 2929 Elm Street, Dallas Texas 75226 (the "Company"), and Premiere
Radio Networks, Inc. a Delaware corporation maintaining its principal office at
15260 Ventura Boulevard, Suite 500, Sherman Oaks, California 91403 ("Premiere").
WHEREAS, the Company and Premiere have reached certain agreements with
regard to the purchase of certain securities of the Company by Premiere, all
upon the terms and conditions more particularly described herein; and, inasmuch
as the parties desire to set forth their agreements and understandings in
writing, in consideration of the promises, covenants and matters hereinafter set
forth, the parties mutually covenant, contract and agree, each with the other,
as follows:
1. AUTHORIZATION OF ISSUANCE OF STOCK; PURCHASE AND SALE.
(a) Authorization. The Company has authorized issuing to Premiere 9,810
shares of its Common Stock, $0.01 par value per share (the "Common Stock").
(b) Sale of Stock. Subject to the terms and conditions hereof, and in
reliance on the representations and warranties contained herein, the Company
hereby agrees to issue and sell to Premiere, and Premiere hereby agrees to
purchase from the Company, 9,810 shares of Common Stock (the "Shares"), for
the purchase price of $407.75 per share, for a total purchase price of
$4,000,027.50.
(c) Closing. The closing shall be held on a mutually agreeable date not
later than November , 1996 at the offices of Gibson, Dunn & Crutcher LLP 1717
Main Street, Suite 5400, Dallas, Texas 75201 at 9:00 a.m. or on such other date
and at such other time and place as the parties may mutually agree (the
"Closing"). At the Closing, Premiere shall pay the Company the full purchase
price of the Shares in cash, by certified or bank cashier's check or by wire
transfer to an account designated in writing by the Company. At the Closing, the
Company shall deliver to Premiere a stock certificate or certificates registered
in Premiere's name representing the number of Shares purchased in form and
substance acceptable to Premiere, and shall also deliver the documents described
in Section 2 hereof.
2. DELIVERIES AT CLOSING.
At or prior to the Closing, the Company shall deliver or shall have
delivered to Premiere the following:
(a) Financial Information. Such financial information relative to the
Company's financial condition winch may be reasonably requested by Premiere,
which information shall include, at a minimum, the balance sheet of the Company
at June 30, 1996, together with statements of income and changes in financial
position for the period commencing January 1, 1996 and ended June 30, 1996.
(b) Closing Documents. The following closing documents, in form and
substance satisfactory to Premiere and its counsel:
(i) This Agreement, duly executed by the Company;
(ii) Executed copy of an Addendum to the Registration Rights Agreement
in the form attached as Exhibit A;
<PAGE> 2
(iii) Executed copy of the Advertising Purchase Agreement in the form
attached as Exhibit B;
(iv) Executed copy of the Internet Services Agreement in the form
attached as Exhibit C;
(v) Executed copy of the Network Sales Representation Agreement in the
form attached as Exhibit D;
(vi) Certificates representing the Shares being purchased by Premiere
at the Closing;
(vii) The opinion of Gibson, Dunn & Crutcher LLP, legal counsel for the
Company, substantially in the form of Exhibit E;
(viii) Certificate of the Secretary of State of the State of Delaware
as to the good standing of the Company as of a date recent to the Closing Date;
(ix) Copies of the Certificate of Incorporation and Bylaws of the
Company, as amended to date, certified by the Secretary of the Company to be
true, correct and complete and in full force and effect;
(x) Copies of resolutions of the Board of Directors of the Company
authorizing the transactions contemplated by this Agreement, which resolutions
shall have been certified by the Secretary of the Company to be true, correct
and complete and in full force and effect;
(c) Evidence of any and all consents, permits and waivers necessary for
consummation of the transactions contemplated by this Agreement, including, but
not limited to, any qualification of the Shares under the Texas and California
securities laws.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to Premiere that, except as set
forth in the Schedules attached hereto, which exceptions shall be deemed to be
representations and warranties as if made hereunder:
(a) Organization and Good Standing; Corporate Power. The Company is a
corporation duly organized and validly existing under the laws of the State of
Delaware, and is in good standing under such laws, and, except as set forth in
Schedule 3(a), is qualified and authorized to do business in, and in good
standing as a foreign corporation in, all other states in which such
qualification or authorization is necessary for the conduct of the business in
which the Company is now engaged, and has all necessary licenses and permits
required by all governmental authorities to carry on such business, except where
the failure to be so qualified or to have obtained such licenses and permits
would not have a material adverse effect on the Company. The Company has all
requisite legal and corporate power to own, lease and operate its property and
assets, to carry on its business as presently conducted, to enter into this
Agreement, to sell and issue the Shares and to carry out and perform its
obligations under the term of this Agreement.
(b) Affiliations. The Company has no subsidiaries and does not own or
control any shares of stock or any other investments in any other Person.
(c) Authorized and Issued Capital. The authorized capital stock of the
Company, immediately prior to the consummation of the transactions with Premiere
contemplated hereby, consists of (i)
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<PAGE> 3
50,000,000 shares of Common Stock, no par value per share, and 5,000,000 shares
of preferred stock,.01 par value of which 175,759 shares of common stock are
validly issued and outstanding. All such issued shares of Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable, and were
issued in compliance with all applicable federal and state laws concerning the
issuance of securities. There are no subscriptions, contracts or agreements for
the issuance or purchase of any additional shares of the Company's capital
stock, either in the form of stock option or purchase agreements, warrants,
calls or convertible debentures or other securities except as set forth on
Schedule 3(c). There are no preemptive or similar rights to purchase or
otherwise acquire shares of the Company's capital stock pursuant to any
provision of law, the Certificate of Incorporation or Bylaws of the Company, or
any agreement to which the Company is a party, or otherwise except as set forth
on Schedule 3(c). To the knowledge of the Company, the outstanding shares of
Common Stock and other rights described herein and on Schedule 3(c) attached
hereto are owned by the persons named on Schedule 3(c) and, to the knowledge of
the Company, such shares, contracts and rights are not pledged to secure any
indebtedness or other obligation, no other persons have any rights to acquire or
vote such securities or any other rights thereto, and none of such shares are
subject to any voting agreements or trusts.
(d) Authorization. The execution and delivery of this Agreement and the
Addendum to the Registration Rights Agreement and the sale and issuance to
Premiere of the Shares as herein provided, have been duly authorized by all
necessary corporate action of the Company so that when issued and delivered
against payment therefor in accordance with the terms of this Agreement (i) the
Shares will be duly and validly authorized and issued, fully paid and
non-assessable, and (ii) neither the execution and delivery of this Agreement
nor the issuance of the Shares, will be in contravention, or result in the
creation of any mortgage, lien, charge or encumbrance upon any of the properties
or assets of the Company pursuant to, any law, or of any judgment, decree,
statute, order, rule or regulation applicable to the Company or of its
Certificate of Incorporation, Bylaws or any other contract, agreement or
instrument to which the Company may be a party or to which its property is or
may be subject. Each of this Agreement, the Addendum to the Registration Rights
Agreement, the Advertising Purchase Agreement and the Internet Services
Agreement constitute legal, valid and binding obligations of the Company
enforceable in accordance with each of their respective terms except (i) as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors, as well as general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) (ii) that the
Company is not making this representation with respect to the indemnification
provisions of Section 7 of the Registration Rights Agreement.
(e) Good Title to, and Condition of, All Properties and Assets. The Company
has good title to or a valid leasehold interest in all the properties and assets
used in its business or described in its internal financial records, and to all
patents, trademarks, trademark rights, trade names, copyrights, licenses and
other intellectual property either developed by or assigned to the Company for
its use, subject to no lien, mortgage, pledge, material reservation of rights,
restrictions, security interest, material encumbrance or material charge of any
kind. All items of the owned and leased real and tangible personal property of
the Company are in good repair and condition, subject to routine maintenance
requirements. The owned and leased real and tangible personal property of the
Company is sufficient for the conduct of the present business of the Company
subject to acquisition of additional equipment with the proceeds of this sale of
the Shares.
(f) Litigation. There is no investigation or litigation or any proceeding
before any court, commission or other administrative authority pending, or, to
the knowledge of the Company, any basis therefor or threat thereof, against the
Company, or its officers or directors which involves the possibility of any
judgment or liability in amount of at least $5,000. None of the Company's
officers are subject to any
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contract, prohibition, non-compete, trade secret or any other restrictive
agreement which would impair his ability to provide services to the Company. To
the knowledge of the Company, no third party may assert any valid claim under
any agreements or arrangement or any laws governing unfair competition, trade
secrets or proprietary information against the Company with respect to the use
in the Company's business, as presently conducted or proposed to be conducted,
of any information which the Company or any such officer or employee would be
prohibited from using.
(g) Tax Matters. The Company has completed and duly filed in correct form
with the appropriate United States, state and local governmental agencies and
with the appropriate foreign countries and political subdivisions thereof, all
tax returns and reports required to be filed (with respect to local and foreign
returns and reports, to the extent material to the business of the Company):
such returns and reports are accurate and complete in all material respects; and
the Company has paid in full or made adequate provisions on its financial
statements delivered to Premiere pursuant to this Agreement for all taxes,
interest, penalties, assessments or deficiencies shown to be due on such tax
returns and reports or claimed to be due by any taxing authority or otherwise
due and owing, including, without limitation, those due in respect of
properties, income, franchises, licenses, sales and payrolls. The Company has
made all payments of estimated income tax due through the date hereof and all
withholdings of tax required to be made under all applicable United States,
state and local tax regulations and such withholdings have either been paid to
the respective governmental agencies or set aside in accounts for such purpose
or accrued, reserved against and entered upon the books of the Company.
Estimated income taxes for the Company which are not yet due to be paid to the
Internal Revenue Service have been accrued, reserved against and entered upon
the books of the Company. The Company has not executed or filed with the
Internal Revenue Service or any other taxing authority, domestic or foreign, any
agreement or other document extending, or having the effect of extending, the
period for assessment or collection of taxes. There are no tax liens (other than
liens for taxes for current and subsequent years which are not yet due and
delinquent) upon any properties or assets of the Company, whether real, personal
or mixed, tangible or intangible. The Company does not have outstanding any
power of attorney authorizing any person to represent it before the Internal
Revenue Service or before the taxing authorities of any state or subdivision
thereof with respect to any tax matter. No election under Section 341(f) of the
Internal Revenue Code of 1986 is in effect with respect to any of the assets of
the Company.
(h) Other Contracts. Listed on Schedule 3(h) attached hereto are all its
material leases, licenses, franchise and managerial contracts and agreements,
and any and all other of its material contracts and agreements, used or to be
used in connection with the conduct of its business, which includes, but is not
limited to, any written or oral:
(i) contract with any labor union;
(ii) contract for the future purchase of fixed assets or for the future
purchase of materials, supplies or equipment in excess of normal operating
requirements;
(iii) contract for the employment of any Person on a full-time basis or
any contract with any Person on a consulting basis and any noncompetition
agreements between the Company and any of its officers or directors;
(iv) bonus, pension, profit-sharing, retirement, stock purchase, stock
option, hospitalization, medical insurance or similar plan, contract or
understanding in effect with respect to its employees or the employees of
others;
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(v) promissory note, agreement or indenture relating to the borrowing
of money or to the mortgaging, pledging or otherwise placing a lien on any
assets of the Company;
(vi) guaranty of any obligation for borrowed money or otherwise;
(vii) lease or agreement providing for rental payments in excess of
$30,000 Dollars per year under which the Company is lessee of or holds or
operates any property, real or personal, owned by any other party;
(viii) lease or agreement providing for rental payments in excess of
$30,000 per year under which the Company is lessor of or permits any third party
to hold or operate any property, real or personal, owned by the Company;
(ix) agreement or other commitment for capital expenditures in excess
of $30,000;
(x) contract, agreement or commitment under which the Company is
obligated to pay any broker's fees, finder's fees or any such similar fees to
any third party in connection with the transactions contemplated by this
Agreement; or
(xi) any other contract, agreement, arrangement or understanding which
is material to the business of the Company (including contracts under which
there are continuing product warranty obligations) or which is material to a
prudent investor's understanding of the business of the Company which are listed
on Schedule 3(h)(xi) attached hereto.
The Company is not a party to any other contract or agreement which may
materially or adversely affect the business, properties, assets or condition of
the Company.
Where any of the foregoing subsections provides a dollar limitation, if any
group of substantially similar contracts, leases or commitments in the aggregate
exceeds such dollar limitation, then such substantially similar contracts,
leases and commitments shall be deemed to be material if they in the aggregate
exceed the dollar limitation, notwithstanding that no individual contract, lease
or commitment exceeds the dollar limit.
(i) Defaults. Except as described on Schedule 3(i), the Company is not in
default of any material contracts and agreements described in Section 3(h)
hereof. The Company is capable of performing each of said contracts and
agreements in a timely manner.
(j) Certificate of Incorporation and Bylaws. The Company's Certificate of
Incorporation and Bylaws, copies of which and all amendments thereto have been
furnished to Premiere, are in full force and effect, without further changes,
amendments or modifications, and neither the aforementioned Certificate of
Incorporation or Bylaws are violated by any of the actions or transactions
contemplated herein.
(k) Financial Statements. The audited financial statements at and for the
period ending December 31, 1995 attached to this Agreement in EXHIBIT E (the
"Financial Statements"). The Financial Statements are true, complete and correct
in all material respects and were prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied. At December 31, 1995, (i)
the Company had no material liabilities of any nature (matured or unmatured,
fixed or contingent) which were not provided for in the Financial Statements, to
the extent required by GAAP; and (ii) all reserves set forth in the Financial
Statements were adequate for the purposes indicated therein, to the extent
required by GAAP. There are no loss contingencies (as such term is used in
Statement of Financial Accounting
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Standards No. 5 issued by the Financial Accounting Standards Board in March
1975) which are not adequately provided for in the Financial Statements as
required by said Statement No. 5. Since December 31, 1995, there has not been
except as described in Schedule 3(k):
(i) any material or adverse change in the financial condition, results
of operations, properties, assets, liabilities business or business prospects of
the Company;
(ii) any material borrowing or agreement to borrow any funds or
material liability or obligation of any nature whatsoever (contingent or
otherwise) incurred by the Company, other than current liabilities or
obligations incurred in the ordinary course of business;
(iii) any waiver, release or compromise of any material right of the
Company, or the cancellation of any material debt or claim held by the Company;
(iv) any declaration or payment of dividends on, or other distributions
with respect to, or any direct or indirect redemption or acquisition of, any
shares of the capital stock of the Company, or any agreement or commitment
therefor;
(v) any encumbrance, mortgage, pledge, sale, assignment or transfer of
any tangible or intangible, including, but not limited to, intellectual property
rights, assets of the Company, except, with respect to tangible assets, in the
ordinary course of business;
(vi) any material loan by the Company to any officer, director,
employee or shareholder of the Company, or any agreement or commitment therefor,
other than travel advances and similar obligations in the ordinary course of
business;
(vii) any material increase, direct or indirect, in the compensation
paid or payable or any commitment or obligation to pay a bonus or other
additional compensation to any officer, director, employee or agent of the
Company;
(viii) any change in the accounting methods or practices followed by
the Company;
(ix) any loss contingencies (as such term is used in Statement of
Financial Accounting Standards No. 5 issued by the Financial Accounting
Standards Board in March 1975);
(x) any change in the contingent material obligations of the Company
by way of guaranty, surety, endorsement, indemnity, warranty (other than
customary product warranties) or otherwise; or
(xi) any agreement or commitment by the Company to do any of the
things described in clauses (i) through (x) above.
(1) Offering of Stock. Neither the Company nor any agent acting on its
behalf has taken in the past or in the future will take any action which would
subject the issuance or sale of the Shares, to the provisions of section 5 of
the Securities Act of 1933 (the "1933 Act") without complying with Section 5 of
the 1933 Act or an exemption therefrom.
(m) Consents and Approvals. No consent or approval of, authorization of, or
qualification or filing with, any governmental agency or authority or any other
person or entity is required in connection
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with the execution, delivery or performance of this Agreement (or any agreement
or obligation contemplated hereby) by the Company.
(n) Untrue Statements. Neither this Agreement nor any certificate,
schedule, exhibit, or any other document required to be delivered pursuant to
this Agreement contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained herein
and therein not misleading, in light of the circumstances under which they were
made. There is no material fact known to the Company relating to its business,
finances, or operations that has not been disclosed to Premiere in writing by
the Company or in agreements or other documents made available to Premiere to
review. The representations contained herein shall not apply to any projections
furnished to Premiere, provided, however, that the Company represents and
warrants such projections are made in good faith and with belief in the
reasonableness of all assumptions made in connection therewith.
(o) Patents, Licenses, Trademarks. etc.
(i) The Company owns and possesses all patents, licenses, trademarks,
trade names, trademark rights and copyrights and other intellectual property
listed on Schedule 3(o) attached hereto and such listed intellectual property
constitutes all intellectual property necessary to conduct its business as now
conducted or as contemplated to be conducted, without conflict, to the best of
the Company's knowledge, with any patent, license, trademark, trade name, or
copyright of any other Person.
(ii) No royalties, fees, commissions or other payments are payable by
the Company to other Persons by reason of the ownership or use of the
Intellectual Property Rights as defined in Section 3(o)(iii) hereof; provided
that this provision shall not apply to the payment of salary to persons in
connection with the performance of services to the Company.
(iii) To the knowledge of the Company, no product manufactured,
marketed or sold by the Company will violate any license or infringe any
Intellectual Property Rights or assumed name of another. To the knowledge of the
Company, there is no pending or threatened claim or litigation against the
Company (nor to the knowledge of the Company, does there exist any basis
therefor) contesting the validity or right to use of any of the foregoing. The
Company has not received any notice that any of the Intellectual Property Rights
or the operation or proposed operation of the Company's business conflicts, or
will conflict, with the asserted rights of others, nor to the knowledge of the
Company does there exist any basis for any such conflict. "Intellectual Property
Rights" shall mean all industrial, commercial and intellectual property rights,
including, without limitation, patents, patent applications, patent rights,
trademarks, trade names, service marks, copyrights, computer programs, software
designs, source codes and related materials, certificates of public convenience
and necessity, franchises, licenses, trade secrets, proprietary processes and
formulae.
(p) Labor Matters. The Company and all its officers, employees described in
Section 5(b) hereof have executed and delivered Proprietary Information
Agreements in the form of EXHIBIT F hereto, and Mark Cuban and Todd Wagner have
executed and delivered Employment Agreements in the form of EXHIBIT G hereto and
such agreements remain in full force and effect. To the knowledge of the
Company, no employee of the Company is in violation of any term of such
agreement or of any employment agreement. No employees of the Company are
represented by a union or other labor organization. There have been no labor
disputes to which the Company has been a party and the Company has received no
notice from any union or employee setting forth demands for representation,
elections or for present or future changes in wages, terms of employment or
working conditions. All written agreements and other documents of the Company,
with or relating to any officer, director, employee or agent of the
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Company, under any employment contract, noncompetition agreement, nondisclosure
agreement, consulting agreement, collective bargaining agreement, executive
compensation agreement, deferred compensation agreement, pension plan,
retirement plan, profit sharing plan, stock purchase plan, stock option plan,
group life insurance, hospitalization insurance, vacation pay, severance pay or
any other similar agreements or employee benefit plans, arrangements or
understandings with or relating to any officer, director or employee of the
Company are listed in Schedule 3(p) attached hereto, and all material
obligations of the Company pursuant to any such oral agreements are summarized
in Schedule 3(p) attached hereto. True, complete and correct copies of all such
written agreements and other documents have been delivered to Premiere.
(q) ERISA. The Company has no Employee Benefit Plans as defined in the
Employee Retirement Income Security Act of 1974 ("ERISA"). The Company is in
compliance with the applicable provisions of ERISA and the regulations and
published interpretations thereunder and other federal and state statutes and
regulations relating to employee benefit plans and has met all applicable
minimum funding requirements under Section 302 of ERISA in respect to its plans.
No Reportable Event (as defined in Section 4043(b) of ERISA) has occurred with
respect to any Employee Benefit Plan (as defined in ERISA) and no notice of
termination has been filed by the plan administrator pursuant to Section 4041 of
ERISA or issued by the Pension Benefit Guaranty Corporation ("PBGC") pursuant
to Section 4042 of ERISA with respect to any pension plan subject to ERISA. The
present value of all benefits vested under all employee benefit plans maintained
by the Company does not exceed the value of the assets of such plans allocable
to such vested benefits. The Company (i) has not engaged in any Prohibited
Transaction (as defined in Section 406 of ERISA and Section 4975 of the Internal
Revenue Code of 1986, as amended), (ii) has no fiduciary responsibility for
investments with respect to any plan existing for the benefit of persons other
than employees, and (iii) has not withdrawn, completely or partially, from any
multi-employer pension plan so as to incur liability under the Multi-employer
Pension Plan Amendments Act of 1980. No event or occurrence has occurred which
would cause PBGC to institute proceedings under Title IV of ERISA to terminate
any employee benefit plan. The Company has caused to be delivered to Premiere
true and complete copies of the most recent actuarial reports relating to each
such pension benefit plan for which a report is required by Section 6059 of the
Internal Revenue Code of 1986, as amended, and such actuarial reports correctly
set forth the funding status of such plans as of such dates. The Company has
made all required contributions to all pension, profit sharing and other
employee benefit plans covering its employees.
(r) Suppliers and Customers. The Company has provided Premiere with access
to all of the Company's supplier and customer files.
(s) Environmental Matters. The Company has obtained all federal, state and
local environmental permits necessary for carrying on its business and use of
its properties, is in full compliance with the terms and conditions of these
environmental permits, and is in full compliance with all applicable federal,
state, and local environmental statutory and regulatory requirements. There are
no pending environmental civil, criminal, or administrative proceedings against
the Company and to the best knowledge of the Company, there are no threatened
civil, criminal, or administrative proceedings against the Company relating to
environmental matters. There is no fact or circumstance that may give rise to
any future civil, criminal, or administrative proceedings against the Company
relating to environmental matters.
(t) Compliance with Law and Other Instruments. The Company is not in
violation of any instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to it, including without limitation federal
and state securities laws, zoning laws and ordinances, federal labor laws and
regulations, the Federal Occupational Safety and Health Act and regulations
thereunder, the Federal
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Employees Retirement Income Security Act, the Americans With Disabilities Act
and federal, state and local environmental protection laws and regulations, the
violation of which might have a material adverse effect on the business,
prospects, affairs, operations or condition of the Company.
(u) Brokerage Fees. Except as set forth in Schedule 3(u), there are no
claims or, to the knowledge of the Company, potential claims against the Company
or any of its officers, directors or shareholders, for brokerage commissions,
finders' fees, or other similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement made by or
on behalf of the Company or such officer, director or shareholder.
(v) No Crimes. Neither the Company nor to the knowledge of the Company, any
of its current directors or officers have been arrested, indicted for or
convicted of any crime, other than minor traffic offenses, during the past ten
years.
Neither the Company nor to the knowledge of the Company, any of its current
executive officers or directors have since January 1, 1990:
(i) filed a petition, or had a petition filed against it or than, under
the Federal Bankruptcy laws or any state insolvency law, or had a receiver,
fiscal agent or similar officer appointed by a court for its or their business
or property, or for any partnership in which it or they were a general partner
or any corporation or business association of which it or they were an executive
officer at or within two years before such filing;
(ii) been convicted in a criminal proceeding or been named the subject
of a pending criminal proceeding (excluding traffic violations and other minor
offenses);
(iii) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any court of competent
jurisdiction permanently or temporarily enjoining it or them from or otherwise
limiting the following activities:
(a) acting as an investment advisor, underwriter, broker or
dealer in securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company, or
engaging in or continuing any conduct or practice in connection with such
activity;
(b) engaging in any type of business practice; or
(c) engaging in any activity in connection with the purchase or
sale of any security or in connection with any violation of federal or state
securities law;
(iv) been the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting its or their right to engage in any
activity described in (iii) above, or to be associated with persons engaged in
any such activity; or
(v) been found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission (the "Commission") or any state
securities administrator or commissioner to have violated any federal or state
securities law, and the judgment in such civil action or finding by the
Commission or any state securities administrator or commissioner has not been
subsequently reversed, suspended or vacated.
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(w) Related Transactions. Except as set forth on Schedule 3(w), the Company
has no written or oral agreements, leases, indebtedness or other commitments to
or with "Restricted Persons," and has not entered into any "Conflict of Interest
Transaction" with any "Restricted Person." For purposes of this Agreement, a
"Restricted Person" shall consist of an employee, a shareholder, director or
officer of the Company, or a relative of any such individual or any entity
controlled by any such individual, or a customer or supplier of the Company, and
a "Conflict of Interest Transaction" shall include, but not be limited to, the
sale of merchandise for less than fair market value, or the purchase of
merchandise or supplies in transactions involving rebates to or from a
Restricted Person, or the payment of fees or salaries in excess of the
legitimate and documentable fair market value of the services rendered for such
fees or salaries or any loan or guaranty.
(x) Use of Proceeds. Attached hereto as Schedule 3(x) is a detailed
statement of the purposes, including dollar amounts, to which the Company
proposes to apply the proceeds of the sale of the Shares to be issued and sold
at the Closing.
(y) Insurance. The Company has the insurance coverage described on Schedule
3(y) hereto.
4. REPRESENTATIONS AND WARRANTIES OF PREMIERE.
Premiere hereby represents and warrants to the Company that, as of the date
hereof:
(a) Organization and Good Standing. Premiere is a corporation duly
organized and validly existing under the laws of the State of Delaware and is in
good standing under such laws;
(b) Corporate Power. Premiere has all requisite corporate power to enter
into this Agreement and to carry out and perform its obligations under the terms
of this Agreement;
(c) Authorization. All corporate action on the part of Premiere
necessary for the performance of Premiere's obligations hereunder has been taken
or will be taken prior to the Closing. This Agreement is a valid and binding
obligation of Premiere, enforceable in accordance with its terms, except as such
enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies of
creditors, as well as general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) Securities Laws. Premiere is purchasing the Securities for its own
account for investment purposes only and not with a view to, or for resale in
connection with, any "distribution" thereof for purposes of the Securities Act.
(e) Premiere has such knowledge and experience in financial and business
matters that it is capable of evaluating the merits and risks of investment in
the Company and of making an informed investment decision.
(f) Premiere has the capacity to protect its own interest in connection
with this transaction by reason of its prior personal or business relationships
with the Company or its officers or directors or its business or financial
experience.
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(g) Accredited Investor. Premiere is an accredited investor as defined in
Rule 501(a) of Regulation D of the Commission under the Securities Act of 1933,
as amended (the "Securities Act").
4A. UNDERSTANDINGS AND AGREEMENTS OF PREMIERE.
Premiere understands the following:
(a) There is no public market for the Shares or any of the Company's
securities and there is no certainty that such a market will ever develop. There
can be no assurance that Premiere will be able to sell or dispose of the Shares.
Moreover, no assignment, sale, transfer, exchange or other disposition of the
Shares can be made other than in accordance with all applicable securities laws.
It is understood that in order not to jeopardize the offering's exempt status
under Section 4(2) and Regulation D of the Securities Act and the state
securities law, any transferee may be required to fulfill certain investor
suitability requirements.
(b) Premiere understands and agrees that because the Shares have not been
registered under the Securities Act or applicable state securities laws,
Premiere cannot dispose of any or all of the Shares unless such Shares are
subsequently registered under the Securities Act, and/or applicable state
securities laws, or exemptions from such registration are available. Premiere
acknowledges and understands it has no right to require the Company to register
the Shares, except as provided in the Registration Rights Agreement. Premiere is
aware that the Company may not accomplish a public offering of its stock.
Premiere further understands that the Company, as a condition to the transfer of
any of the Shares, may require that the request for transfer be accompanied by
opinion of counsel reasonably satisfactory to the Company, in form and substance
reasonably satisfactory to the Company and preceded by prior written notice, to
the effect that the proposed transfer does not result in violation of the
Securities Act or applicable state securities laws, unless such transfer is
covered by an effective registration statement under the Securities Act and
compliance with all applicable state securities laws or an exemption or
exemptions from registration is or are available. Premiere understands that each
certificate representing the Shares and any securities issued upon conversion of
the Shares or on account of ownership thereof will bear the following legend or
one substantially similar thereto:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), or the
securities laws of any state. These securities have been acquired for
investment and not with a view to distribution or resale, and may not be
sold, mortgaged, pledged, hypothecated or otherwise transferred without an
effective registration statement for such shares under the Securities Act
and applicable state securities laws, or an opinion of counsel reasonably
satisfactory to the corporation that registration is not required under the
Securities Act and applicable state securities laws. The securities are
also subject to certain rights of first refusal of the corporation and
other contractual restrictions on transfer.
(c) Premiere is organized under the laws of the State of Delaware, its
principal offices are located in the State of California and all decisions
relating to purchase of the Shares have occurred solely in California.
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5. AFFIRMATIVE COVENANTS OF THE COMPANY.
Until an Initial Public Offering (as defined in Section 7(a) hereof) by the
Company, the Company covenants and agrees that for so long as Premiere owns,
beneficially or of record, any of the Shares, any Common Stock or other
securities of the Company, the Company shall:
(a) Reports and Information. Furnish to Premiere the following reports:
(i) Annual Reports. As soon as available and in any event within 90
days after the end of each fiscal year, consolidated and consolidating financial
statements of the Company including a balance sheet as of the end of such fiscal
year and statements of income and retained earnings and of sources and
applications of funds for such fiscal year, prepared in reasonable detail and in
accordance with generally accepted accounting principles consistently applied
and accompanied by the opinion thereon of a recognized firm of independent
certified public accountants as may be selected by the Board of Directors of the
Company.
(ii) Interim Reports. As soon as available, and in any event within 45
days after the end of each of the first three quarters of each of the Company's
fiscal years beginning with the quarter ending September 30, 1996, consolidated
and consolidating financial statements of the Company including a cash flow
statement, a balance sheet as of the end of such accounting period and
statements of income and retained earnings and of sources and applications of
funds for such accounting period and for the period from the beginning of such
fiscal year to the end of such accounting period, and setting forth in
comparative form the figures for the corresponding periods of the preceding
fiscal year, prepared in reasonable detail and in accordance with generally
accepted accounting principles consistently applied and certified as correct by
the chief executive officer and chief financial officer of the Company.
(iii) Monthly Reports. If such reports are otherwise prepared, and in
such case as soon as available, for each month beginning after June 30, 1996,
consolidated and consolidating financial statements of the Company including a
cash flow statement and a balance sheet as of the end of the month in reasonable
detail in accordance with generally acceptable accounting principles
consistently applied and certified as correct by the chief executive officer and
chief financial officer of the Company. The management of the Company will
include with each monthly report, if any, comments on progress and problems
facing the Company.
(iv) Other. Such other financial information and data as Premiere may
from time to time reasonably request.
(v) SEC Filings, Etc. Promptly upon their becoming available (and in no
event later than the ten days after release to the public) copies (without
duplication) of all financial statements, reports, press releases, notices and
proxy statements sent by the Company to its security holders and all annual,
periodic or special reports or registration statements filed by the Company with
the Commission, and all other material communications sent by the Company to its
security holders or filed by the Company with the Commission. The Company shall
not enter into any transactions with its management, directors or consultants or
with any member of their families or any entity controlled by any such person,
without the prior written approval of the Board of Directors of the Company,
without counting the vote of any interested director, including, without
limitation, increasing salaries above current levels, increasing employee
benefits, selling securities or granting options, warrants or other rights to
purchase securities of the Company.
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(b) Employee Agreements The Company shall diligently enforce all material
provisions of the existing Employment Agreements and Proprietary Information
Agreements and all future similar agreements and shall not amend any such
agreements or waive any rights thereunder without the prior written approval of
the Board of Directors of the Company.
(c) Corporate Existence. Preserve and keep in full force and effect its
corporate existence, its qualification to do business and its good standing in
every state where it is or is required to be qualified to do business, except
that nothing herein shall prevent the Company from changing its state of
incorporation.
(d) Licenses, Permits and Franchises. Maintain, preserve and protect at all
times all of its corporate and operational licenses, permits and franchises and
comply with each and all of the terms, conditions and requirements of such
licenses, permits and franchises, except to the extent management of the Company
determines it is not in the best interest of the Company to do so.
(e) Properties. Preserve all of its assets and properties that are used in
the conduct of its business and maintain and keep these assets and properties in
good repair, working order and condition, and from time to time make or cause to
be made all needed and proper repairs, renewals, replacements, betterments and
improvements to these assets and properties to preserve and maintain their
value, normal wear and tear excepted, so that the business carried on in
connection with these assets and properties may be properly conducted at all
times, except to the extent management of the Company determines it is not in
the best interest of the Company to do so.
(f) Insurance. Maintain "all-risk" insurance at all times on all properties
(real and personal) with responsible, reputable and financially sound insurance
companies or associations approved by the Board of Directors in the full amount
Of the replacement cost, and also maintain adequate (at least $1,000,000 per
occurrence and $2,000,000 in the aggregate) insurance against liability to
persons for such risks and hazards and in such amounts as are usually carried by
companies engaged in similar businesses.
(g) Records. Financial Statements. Keep at all times complete books of
record and accounts, and an accounting system, in conformity with generally
accepted accounting principles as revised from time to time, with full, true
and correct in all material respects entries of all dealings and transactions in
relation to the Company's business and affairs, and reasonably protect such
books and accounts against loss or damage. The Company shall have its books and
accounts audited arid, as set forth in Section 5(a), provide Premiere with
audited financial statements showing its financial condition and the results of
its operations during the preceding fiscal year, together with any supporting
schedules, which statements will be accompanied by an opinion thereon of
independent certified public accountants selected by the Board of Directors of
the Company.
(h) Inspection. Permit Premiere, its agents and/or representatives to visit
and inspect, at reasonable times and upon prior notice, the Company's assets,
properties, books of record and accounts (including making copies thereof), and
to discuss these items and the results of such inspections with the Company's
chief operating officer.
(i) Payment of Taxes. Timely file or cause to be filed any and all federal,
state and local tax returns and reports and timely pay and discharge any and all
taxes and assessments, and any and all federal, state and local governmental
impositions, fees, charges and/or levies, including but not limited to, any
income taxes, municipal taxes, real estate and personal property taxes, social
security, unemployment excise and withholding taxes, and the like imposed upon
the Company, its operations, or upon its income and profits, or upon all or any
part of its properties, real, personal or mixed, or upon its payroll, in each
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case before the same becomes delinquent and before penalties accrue thereon,
except for taxes the liability of which is being contested in good faith in an
appropriate forum, and for the payment of which adequate reserve has been
established on the Company's balance sheet.
(j) Other Information. Furnish promptly to Premiere any Information related
to this Agreement or any other agreements with Premiere or any other documents
executed in connection with this Agreement as Premiere may reasonably request
regarding the Company's operations, business affairs, financial condition, or
any of the Company's covenants, agreements and/or undertakings under this
Agreement or any of the other agreements or documents, provided the Company is
not restricted from doing so by law, rule, regulation or contractual provisions.
(k) Environmental Matters. The Company shall comply in all material
respects with all applicable federal, state, and local laws and regulations
pertaining to environmental matters, and shall promptly give written notice to
Premiere of the occurrence of any event under any such laws and regulations that
would require an oral, telephonic or written notice or communication to the U.S.
Environmental Protection Agency, or any successor agency, and shall promptly
forward to Premiere copies of all orders, notices, permits, applications or
other communications and reports received, made or given in connection with any
such event, and any enforcement action taken against the Company or against any
property owned or leased by the Company.
(1) Statutory Compliance. At all times, conduct its business in accordance
with, and comply in all material respects with, all applicable statutes,
regulations, judgments, decrees, resolutions and orders of, and all applicable
restrictions imposed by, any and all governmental entities and/or authorities,
federal, state, local and non-U.S., judicial or administrative, applicable to
the conduct of the Company's businesses and activities (including environmental
and other regulatory requirements) or the ownership or operation of its
properties, licenses, permits and/or franchises, particularly those pertaining
to the business the Company currently operates.
(m) Contractual Compliance. Pay and discharge all of the Company's
indebtedness and obligations promptly and in accordance with their terms and
substantially comply with the terms and conditions of any indentures,
agreements, contracts or other instruments to which it is party or which may
affect its assets or properties or enter into mutually satisfactory agreements
with the other parties to such documents and instruments; provided, however,
that nothing herein shall prevent the Company from withholding payment or
otherwise failing to comply with any agreement, if its management determines it
to be in the best interest of the Company to do so and if such action will not
result in any material adverse effect on the Company.
(n) Full Compliance. Comply with each and all of the terms of this
Agreement hereof and all other agreements with Premiere.
(o) Conduct of Business. Carry on its business and activities diligently
and consistent with prudent business practice for a company of the size and
character of the Company and will use its reasonable efforts to preserve its
relationship with suppliers, customers and others having business relationships
with it subject to the reasonable business judgment of management.
(p) Attendance of Board Meetings. As long as Premiere owns 75% of the
Shares, the Company shall give Premiere adequate notice of and shall permit a
member of Premiere's board of directors to attend as an observer (at Premiere's
expense) all meetings of the Board of Directors of the Company; provided,
however, that the Company reserves the right to exclude such representative from
access to any
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<PAGE> 15
material or meeting or any portion thereof if the Company reasonably believes
that such exclusion is necessary to preserve the attorney-client privilege or to
protect highly confidential proprietary information. Premiere shall be entitled
to receive all written materials and other information given to directors in
connection with any meeting of the Board of Directors of the Company as soon as
practicable after such materials and other information have been given to the
directors.
(q) Press Releases. Except as provided by law, the Company will secure
advanced written approval from Premiere of the decision to issue and the content
of any statement regarding or mentioning Premiere, whether in writing or
otherwise to the public or press. This provision shall not be deemed to have
been breached if the Company acting on the advice of its securities or other
regulatory counsel makes disclosures to investors and potential investors or to
any governmental or other regulatory agency or organization.
6. NEGATIVE COVENANTS OF THE COMPANY.
Until an Initial Public Offering (as defined in Section 7(a) hereof) by the
Company, from the Closing Date, so long as Premiere owns, beneficially or of
record, any of the Shares, any Common Stock or any other securities of the
Company, the Company covenants and agrees that it shall not without the
affirmative vote of more than eighty percent (80%), for a period of 12 months
from the date hereof, and fifty percent (50%) after the expiration of such 12
month period of the members of the Board of Directors of the Company, do any of
the matters or things listed below:
(a) Properties. Sell, lease, sublease, transfer, convey, alienate or
otherwise dispose of, in any manner, all or substantially all of the Company's
assets (including licenses, receivables, trademarks, trade names, good will and
other intangible assets).
(b) Merger Consolidation. Liquidate, dissolve, reorganize, merge with or
into or consolidate with any other corporation or entity.
(c) Directors. Change the authorized number of directors of the Company.
(d) Company Plans. Reserve or have reserved for issuance or issue, shares
of the Company's capital stock or any securities of the Company convertible into
the capital stock of the Company in an aggregate amount in excess of 15.5% of
the outstanding shares of capital stock of the Company and any security of the
Company convertible into the capital stock of the Company pursuant to any
Company stock bonus, pension, profit-sharing, retirement, stock purchase, stock
option or similar plan, contract or understanding with respect to Company
directors, officers, employees, or consultants, calculated using a denominator
consisting of the amount of capital stock and other securities of the Company
outstanding as of October 30, 1996, provided that such denominator shall not
include securities of the Company which are sold (i) after the date hereof with
an aggregate purchase price exceeding $7,000,000 (excluding the Shares sold
pursuant to this Agreement) or (ii) subsequent to December 31, 1996.
7. RIGHTS OF SHAREHOLDER AND TRANSFER RESTRICTIONS.
(a) Rights of Shareholders. At any time prior to the first registration
under the Securities Act of 1933 and sale of the Company's Common Stock (the
"Initial Public Offering").
(i) Premiere shall have the pre-emptive and preferential right to
purchase or subscribe for its then pro-rata percentage of any of the following
securities that are offered for sale or subscription: (i) any unissued or
treasury shares of any class of stock (whether now or hereafter authorized) of
the
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<PAGE> 16
Company; (ii) any obligations, evidences of indebtedness, or other securities of
the Company, whether convertible into or exchangeable for, or carrying or
accompanied by any rights to purchase or subscribe for, any such unissued or
treasury shares; (iii) any right or subscription for or to receive, or any
warrant or option for the purchase of, or any of the foregoing securities, other
than warrants, options or convertible securities issued to directors, employees
and consultants approved by the Board of Directors of the Company and permitted
under Section 6(e); and (iv) any other securities that may be issued or sold by
the Company, provided, however, that Premiere shall be required to pay for such
securities at the same price and on the same terms and conditions that such
securities are offered or sold to third parties, provided however, that such
pre-emptive rights shall not be applicable in the case of issuance of Company
securities for acquisition. The Company shall give Premiere written notice as
soon as reasonably practicable of a proposed or pending offering or sale of
securities including the expiration of such offer a sale. Premiere shall
indicate in writing prior to the expiration of such offer or sale whether it
intends to exercise its preemptive rights. If it so elects, it shall pay for
such securities on or before the 60th day following the expiration of such
offering or sale.
(ii) If Premiere does not exercise its preemptive rights within the
time periods specified in clauses (a) above, the Company shall be free to sell
up to the quantity of such securities not agreed by Premiere to be purchased by
Premiere (or up to all such securities in the event such offer is rejected or is
not accepted within applicable time periods after it has been made by the
Company), at a price no less favorable to the Company than that specified in
such offer and on payment terms no less favorable to the Company than those
specified in such offer.
However, if such sale is not consummated within ninety (90) days after the
date an offer pursuant to this subsection 7(a) was made, the Company shall not
sell such securities without again complying with this Section.
(iii) The rights provided to Premiere in Section 7(a) above are
exercisable at the same time and are in parity with respect to preference as the
pre-emptive and preferential rights granted by the Company to Cameron
Broadcasting Systems, Inc. ("CBS") pursuant to a Bill of Conveyance and
Agreement to Assume Liabilities dated October 25, 1995, until such rights
granted to CBS terminate.
(iv) The rights provided to Premiere in this Section 7(a) shall not
apply with respect to (A) the Company's initial strategic investor financings,
to the extent such financings (1) occur prior to December 31, 1996 and (2)
involve the sale of Common Stock for an aggregate purchase price not to exceed
$7,000,000 on terms no more favorable to the investors than those provided to
Premiere in this Agreement and (B) shares of Common Stock pursuant to the terms
of the Contribution Agreement, dated as of January 1, 1996, between the Company
and University Sports America, Inc.
(b) Rights of the Company. In the event Premiere desires to sell or
otherwise transfer any shares of Stock, at any time prior to an Initial Public
Offering by the Company, Premiere shall first notify the Company in writing of
the identity of the purchaser or other transferee and the material terms and
conditions of sale, including the number of securities to be sold, price and
payment terms.
If within thirty (30) days after the notice of sale or other transfer is
received by the Company, the Company determines the purchaser or other
transferee is a competitor of the Company, which determination shall be made by
the Board of Directors of the Company, the Company may prohibit the proposed
sale or transfer to such purchaser or other transferee. Any determination made
by the Board of Directors in good faith shall be final and binding.
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<PAGE> 17
If within thirty (30) days after the notice of sale or transfer is received
by the Company, the Company notifies Premiere in writing it desires to purchase
all the securities to be sold or transferred by Premiere, Premiere shall sell
such shares to the Company on the same terms and conditions as specified in the
notice sent to the Company by Premiere. The Company shall complete such purchase
within sixty (60) days after receipt of notice of sale or transfer by the
Company.
In the event within thirty (30) days after receipt by the Company of the
notice of sale or transfer, the Company neither (i) notifies Premiere in writing
the purchaser or transferee has been deemed to be a competitor of the Company,
nor (ii) notifies Premiere in writing the Company desires to purchase all the
securities to be sold or transferred, Premiere shall be free to sell or transfer
the securities on the terms and conditions specified in its notice to the
Company to the Person specified in such notice subject to compliance with
applicable securities laws and regulations or pursuant to an exemption therefrom
and Section 4A of this Agreement. If such sale or transfer is not consummated
within ninety (90) days after the Company received notice of the proposed sale
or transfer from Premiere, Premiere may not sell or transfer such securities
without again complying with this Section.
Any purchaser or transferee of Shares shall agree as a condition to
consummation of such sale or transfer that any subsequent sale or transfer of
the Stock shall be subject to the rights of the Company set forth in this
Section 7.
The restrictions on transfer of securities contained herein are in addition
to, and not in lieu of, restrictions pursuant to applicable law.
8. GENERAL.
The parties hereto further warrant, covenant, contract and agree each with
the other as follows:
(a) Entire Agreement. This Agreement, the Exhibits and Schedules hereto
and other documents referred to herein constitute the entire understanding among
the parties with respect to the subject matter hereof and they supersede all
prior negotiations, understandings, correspondence, undertakings, promises,
representations and agreements, whether oral or written, in connection with the
subject matter hereof.
(b) Survival of Agreements and Representations and Warranties. An
agreements, representations and warranties contained herein or made in writing
in connection herewith, to the extent applicable, shall survive the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby, regardless of any investigation made by Premiere or on its
behalf, and shall continue until all Shares cease to be outstanding unless
specifically limited to a shorter time by the terms of this Agreement.
(c) Binding Effect. All covenants, representations, warranties and
other stipulations in this Agreement, given by or on behalf of any of the
parties hereto, shall bind and inure to the benefit of the respective
successors, heirs, personal representatives and permitted assigns of the parties
hereto.
(d) Cumulative Powers. No remedy herein conferred upon a party to this
Agreement is intended to be exclusive of any other remedy, and each such remedy
shall be cumulative and in addition to every other remedy given hereunder or now
or hereafter existing at law, or in equity or by statute or otherwise.
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(e) Loss of Securities. Upon:
(i) receipt of evidence satisfactory to the Company of loss, theft,
mutilation or destruction of the certificate(s) representing the Shares, and
(ii) in the case of any such loss, theft, or destruction, upon
delivery of indemnity in such form and amount as shall be reasonably
satisfactory to the Company, or in the event of such mutilation, upon surrender
and cancellation of such certificates representing the Shares, the Company will
make and deliver a new certificate representing the Shares, of like tenor, in
lieu of such lost, stolen, mutilated or destroyed stock certificate upon receipt
of an appropriate indemnification agreement executed by Premiere and reasonably
satisfactory to the Company. In addition, upon request of Premiere, and upon
surrender of such certificate representing the Shares or other securities to the
Company and compliance with any restrictive legends, the Company will reissue,
in lesser denominations to parties designated by Premiere, certificates
representing the Shares, or other securities in the equivalent amounts of such
other securities surrendered.
(f) Notices. Except in cases where oral or other notice is permitted by
this Agreement, all notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been given (i) when
hand delivered, including delivery by messenger or courier service (or if
delivery is refused, at the time of refusal), to the address set forth below,
(ii) when received or refused as evidenced by the postal receipt if sent by
United States mail as Certified Mail, Return Receipt Requested, with proper
postage prepaid, addressed as set forth below or (iii) when received as
evidenced by the transmission report of the telefax machine of the transmitting
party acknowledging a good transmission if sent by telefax to the number set
forth below:
a. If to Premiere:
Premiere Radio Networks, Inc.
15260 Ventura Boulevard
Suite 500
Sherman Oaks, CA 91403
Attn: Steve Lehman, President
b. If to the Company:
AudioNet, Inc.
2929 Elm Street
Dallas, Texas 75226
Attn: Todd Wagner
Telefax Number: 214/748-6657
c. With a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attn: Sean P. Griffiths, Esq.
Telefax Number: 212/351-4035
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Any of the parties may change its mailing address or telecopy number, by
giving notice to the other party pursuant to this Section 9(f) as long as the
mailing address and telecopy number is within the United States of America.
(g) Governing Law. This Agreement shall be governed in all respects by the
laws of the State of New York.
(h) Headings. The descriptive section headings herein have been inserted
for convenience only and shall not be deemed to limit or otherwise affect the
construction of any provisions hereof.
(i) Multiple Originals. The Agreement may be executed simultaneously in one
or more counterparts, each of which shall be deemed an original, and it shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
(j) Assignment. Neither this agreement, nor any interest herein or any
rights hereunder, shall be assigned by either party without the prior written
consent of the other party.
(k) Waiver. Failure or delay on the part of either party to exercise any
right, remedy, power, privilege or option hereunder which is not subject to an
express time limitation with respect to exercise shall not operate or be
construed to operate as a waiver thereof. A waiver, to be effective, must be In
writing and be signed by the party making the waiver. No written waiver of any
term or condition of this Agreement shall operate or be construed to operate as
a waiver of any other term or condition, nor shall any written waiver of any
breach or default operate or be construed to operate as a waiver of any other
breach or default or of the same type of breach or default on a subsequent
occasion or operate or be construed to operate as a continuing waiver.
(1) Amendment. This Agreement may not be modified, altered nor amended in
any manner whatsoever, except by another written agreement executed by the
parties.
(m) Severability. If any of the articles, paragraphs, sections and/or
clauses of this Agreement is declared by judicial interpretation or construction
or otherwise to be null, void and/or unenforceable in any respect, such article,
paragraph, section and/or clause shall be deemed to be eliminated from this
Agreement, but the other parts of this Agreement shall remain in full force and
effect; provided, however, if the elimination of any part of this Agreement
materially affects any right, benefit, option or privilege of either party, the
parties agree to negotiate in good faith to replace such part with a substitute
valid and enforceable pan that achieves the intent and purpose of the eliminated
part.
9. DEFINITIONS.
For the purpose of this Agreement, the following terms shall have the
following meanings:
(a) "Person" shall include both the singular and the plural and shall mean
any individual, partnership, corporation, trust, unincorporated organization or
government or department or agency thereof.
(b) "Shares" shall mean the shares of Common Stock sold pursuant to this
Agreement and all other securities of the Company issued on account of ownership
thereof.
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(c) "Subsidiary" shall mean any corporation with respect to which Premiere
or the Company, as the case may be, owns, directly or indirectly, a majority of
the voting shares, or shares or other interest entitling Premiere or the
Company, as the case may be, to elect a majority of the Board of Directors.
(d) To the extent not specifically defined herein, any accounting term used
herein shall have the meaning ordinarily accorded to it under generally accepted
accounting principles consistently applied.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
PREMIERE NETWORKS INC. AUDIONET, INC.
By: /s/ STEVE LEHMAN By: /s/ TODD WAGNER
------------------------------ ---------------------------
Title: President/CEO Title: CEO
-------------------------- ------------------------
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<PAGE> 1
EXHIBIT 10.3
FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this
"Agreement") is made and entered into this 24th day of February, 1997, by and
between AudioNet, Inc., a Delaware corporation (the "Company") and each of the
Investors listed on Schedule A hereto.
WHEREAS, the Company and Motorola, Inc, Premiere Radio Networks, Inc.,
HMTF AudioNet Investors and Capitol Radio Network, Inc. (collectively, the
"Initial Investors") are parties to the Registration Rights Agreement dated as
of September 4, 1996 (the "Initial Registration Rights Agreement");
WHEREAS, the Company and the Initial Investors desire to amend and
restate the Initial Registration Rights Agreement as hereinafter set forth and
the Company desires to grant to the Investors the registration rights contained
herein;
WHEREAS, in consideration of the promises, covenants and matters
hereinafter set forth, the parties hereto mutually covenant, contract and
agree, each with the other, as follows:
1. Certain Definitions. As used in this Agreement, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock of the Company, $0.01 par
value per share.
"Registrable Securities" shall mean (i) the shares of Common Stock of
the Company purchased by the Investors pursuant to the terms of purchase
agreements between the Company and such Investors (the "Investor PA's") and
(ii) any other shares of Common Stock or other securities of the Company which
such Investors acquire (other than shares acquired by such Investors in the
open market at any time following the Company's first registration under the
Securities Act and sale of the Common Stock (the "Initial Public Offering"));
provided, however, that shares of Common Stock of the Company which are
Registrable Securities shall cease to be Registrable Securities upon any sale
or transfer in any manner to any person or entity, including, but not limited
to, sales pursuant to a registration statement, Rule 144 sales or otherwise,
but excluding any sale or transfer in connection with which the rights of the
Investors hereunder are assignable pursuant to Section 9.
"Investor or Investors" shall mean the investors listed on Schedule A
hereto and their permitted successor and assigns pursuant to Section 9 hereof
who hold Registrable Securities, and any other holder of Common Stock of the
Company who by amendment has been granted registration rights under this
Agreement by the Company with the consent of Investors holding a majority of
the Registrable Securities.
<PAGE> 2
"Initiating Investors" shall mean holders of not less than a majority
of the Registrable Securities who make a request for registration pursuant to
Section 2(a) hereof.
The terms "register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with this
Agreement, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, fees and disbursements of counsel for the Investors (not in
excess of $10,000), blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Investors and, except as set forth above, all fees and disbursements of
counsel for the Investors.
2. Requested Registration.
(a) Request for Registration. In case the Company shall receive
from the Initiating Investors a written request that the Company effect any
registration, qualification or compliance:
(i) with respect to Registrable Securities that are
expected to have an aggregate offering value of Five Million Dollars
($5,000,000) or more and such request is any time at least six months after the
closing of the Initial Public Offering; or
(ii) with respect to Registrable Securities on a Form S-3
or any similar short form registration statement under the Securities Act;
the Company will, as soon as practicable, use its reasonable best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate the sale
and distribution of all or such portion of such Registrable Securities as are
specified in such request; provided, however, that the Company shall not be
obligated to take any action to effect any such registration, qualification or
compliance pursuant to this Section 2:
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required
by the Securities Act, nor in any jurisdiction in which the Company would be
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<PAGE> 3
required to subject itself to taxation by such act or to conform the
composition of its assets at the time to the securities or blue sky laws of any
jurisdiction;
(B) With respect to the registration right set forth in
clauses (i) and (ii) above, during the period starting with the date sixty (60)
days prior to the Company's estimated date of filing of, and ending on the date
six (6) months immediately following the effective date of, any registration
statement (or ending on the date three (3) months immediately following the
effective date, in the event the Company shall then be eligible to effect a
registration statement, for shares to be sold generally to the public, on Form
S-3 or any successor form) pertaining to securities of the Company (other than
a registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan), provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective (and provided, further, that the Company cannot pursuant to this
Section 2(a)(B) delay implementation of a demand for registration more than
once in any 9-month period);
(C) After the Company has effected a total of (1) one
such registration under the Securities Act on Form S-3 or any similar short
form registration statement pursuant to Section 2(a)(ii), (2) one other
registration pursuant to Section 2(a)(i), and (3) in the event that the
Initiating Investors still hold at least 25% of the shares of Common Stock (as
adjusted) which such Investors acquired, directly or indirectly, pursuant to
the Investor PA's following the registrations described in Sections 2(a)(C)(1)
and (2), one other registration on Form S-3 or any similar short form
registration statement pursuant to Section 2(a)(ii), with it being understood
that (i) the number of registrations is subject to adjustment under Sections 2
and 5, and (ii) such registrations have been declared or ordered effective;
(D) If the Company shall furnish to the Initiating
Investors a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors it would be
seriously detrimental to the Company or its shareholders for a registration
statement to be filed in the near future, then the Company's obligation to use
its reasonable best efforts to register, qualify or comply under this Section
2(a) shall be deferred once (with respect to any demand for registration
hereunder) for a period not to exceed 180 days from the date of receipt of
written request from the Initiating Investors.
(E) If the Company shall furnish to the Initiating
Investors a certified statement from an underwriter or investment banker chosen
to manage the public offering that the timing is inappropriate for the filing
of a registration statement due to adverse market conditions or the terms of
the proposed offering or for other specified substantive reasons affecting the
marketability of the securities, then the Company's obligation under Section
2(a) shall be deferred once (with respect to any demand for registration
hereunder). The period of deferral hereunder shall not exceed 180 days from the
date of receipt of written request from the Initiating Investors.
(F) The Company shall not be obligated to effect a
registration, qualification or compliance if such registration, qualification
or compliance would result in a violation of the Securities Act.
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<PAGE> 4
Subject to the foregoing clauses (A) through (F), the Company shall
give prompt written notice (the "Notice of Demand Request") of the Initiating
Investors' request to all Investors and, thereupon, the Company shall, as
expeditiously as possible, use its reasonable best efforts to effect the
registration under the Securities Act of (i) the Registrable Securities which
the Company has been so requested to register in the registration request, for
disposition in accordance with the intended method of disposition stated in the
registration statement and (ii) all other Registrable Securities the holders of
which shall have made a written request to the Company for registration thereof
within 30 days after the giving of the Notice of Demand Request, all to the
extent necessary to permit the sale or other disposition by the holders of the
securities to be registered. Whenever a requested registration is for a firmly
underwritten offering, if the managing underwriter for such offering determines
that the number of shares of Common Stock requested to be included that are to
be sold by Investors is limited due to market conditions, the Investors
(including both Investors who are and who are not Initiating Investors)
proposing to sell their Registrable Securities in such underwriting and
registration shall share pro rata in the available portion of the registration
statement in question, such sharing to be based upon the number of Registrable
Securities then held by such Investors, respectively. If any Investor
disapproves of the terms of the underwriting, such Investor may elect to
withdraw therefrom by written notice to the Company, the managing underwriter
and the Initiating Investors. The Registrable Securities so withdrawn shall
also be withdrawn from the registration; provided, however, that, if by such
withdrawal the Registrable Securities held by other Investors may be included
in such registration (up to the maximum of any limitation imposed by the
underwriter), then the Company shall offer to all Investors who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used in determining the foregoing
limitation.
(b) Underwriting. In the event that a registration pursuant to
Section 2 is for a registered public offering involving an underwriting, the
Company and the Investors including Registrable Securities in such registration
shall enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by the Company, but subject to the
Initiating Investors' reasonable approval.
(c) Form of Registration. Notwithstanding anything to the
contrary herein, if at any time after the first anniversary of the Company's
Initial Public Offering the Company is not eligible to use a Form S-3 or any
similar short form registration statement because of the Company's failure to
file with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Securities Exchange
Act of 1934, as amended, any references in this Agreement to registrations on
Form S-3 or any similar short form registration statement shall be deemed to be
references to registrations on Form S-l or any similar long form registration
statement which the Company is then eligible to use.
3. Company Registration.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders, other than (i) a
registration relating solely to employee benefit plans, (ii) a
4
<PAGE> 5
registration relating solely to a Commission Rule 145 transaction, or (iii) the
Initial Public Offering, the Company will:
(i) promptly give to the Investors written notice
thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after receipt of such written notice from the
Company, by the Investors, provided, however, if any registration pursuant to
this Section 3 involves an underwritten offering and the managing underwriter
shall advise the Company that, in its view, the number of securities requested
to be included in such registration exceeds the number that can be sold in an
orderly manner in such offering within a price range acceptable to the Company,
the Company shall include in such offering (i) first, all the securities the
Company proposes to register for its own account, and (ii) second, the
Registrable Securities, with each Investor proposing to sell Registrable
Securities participating in such registration on a pro rata basis, such
participation to be based upon the number of Registrable Securities then held
by such Investors, respectively. If any Investor disapproves of the terms of
the underwriting, such Investor may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. The Registrable Securities
so withdrawn shall also be withdrawn from the registration; provided, however,
that, if by such withdrawal, the Registrable Securities held by other Investors
may be included in such registration (up to the maximum of any limitation
imposed by the underwriter), then the Company shall offer to all Investors who
have included Registrable Securities in the registration the right to include
additional Registrable Securities in the same proportion used in determining
the foregoing limitation.
(b) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 3 prior to the effectiveness of such registration whether or not the
Investors have elected to include Registrable Securities in such registration.
Each Investor who holds Registrable Securities included in the registration
agrees that, upon receipt of notice from the Company that the Company has
determined to withdraw any registration statement pursuant to this subsection,
such Investor will discontinue its disposition of securities pursuant to such
registration statement and, if so directed by the Company, will deliver to the
Company (at the Company's expense) all copies, other than permanent file
copies, then in such Investor's possession of the prospectus covering
securities which was in effect at the time of such notice.
4. Limitations on Subsequent Registration Rights. From and after
the Closing Date, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities that would allow such holder or
prospective holder to (a) include such securities in any registration filed
under Section 2 hereof, 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 its securities will not reduce the amount
of the Registrable Securities of the Investors which is included, or (b) make a
requested registration which could result in such registration statement being
declared effective prior to the date set forth in Section 2(a)(i) or within 120
days of the effective date of any
5
<PAGE> 6
registration effected pursuant to Section 2, unless any such agreement is
consented to in writing by Investors holding a majority of the Registrable
Securities.
5. Expenses of Registration. All Registration Expenses incurred
in connection with all registrations shall be borne by the Company, except to
the extent that the Initiating Investors alone, but not the Company, initiates
the request that a registration be withdrawn prior to its effectiveness, and if
the Initiating Investors elect not to have such registration counted as a
registration requested under Section 2 in which case all Registration Expenses
incurred in connection with that registration shall be borne by the Initiating
Investors on a pro rata basis. All Selling Expenses relating to securities
registered on behalf of the Investors shall be borne by the Investors.
6. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep the Investors advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. The Company will:
(a) use its reasonable best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof and pursuant thereto the Company will as
expeditiously as possible;
(b) prepare and file with the Commission a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective (provided
that before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel selected by the
Initiating Investors copies of all such documents proposed to be filed);
(c) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than 120 days and comply with the provisions
of the Securities Act with respect to the disposition of all securities covered
by such registration statement during such period in accordance with the
intended methods of disposition by the sellers thereof set forth in such
registration statement;
(d) during the period in which the Company is required
under the provisions hereof to keep a registration statement effective, furnish
to the seller of Registrable Securities such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such seller;
(e) subject to Section 2(a)(A) - (F) herein, use its
reasonable best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may
be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller (provided that the Company will
6
<PAGE> 7
not be required to (i) qualify generally to do business in any jurisdiction
where it would not otherwise be required to qualify but for this subparagraph,
(ii) subject itself to taxation in any such jurisdiction or (iii) consent to
general service of process in any such jurisdiction);
(f) notify the seller of such Registrable Securities, any
time the Company becomes aware a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in such registration statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of such seller, the
Company will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus will not contain an untrue statement of a material fact or omit to
state any fact necessary to make the statements therein not misleading;
(g) use its reasonable best efforts to cause all such
Registrable Securities to be listed on each securities exchange on which
similar securities issued by the Company are then listed and, if not so listed,
to be listed on the NASD automated quotation system and, if listed on the NASD
automated quotation system, use its reasonable best efforts to secure
designation of all such Registrable Securities covered by such registration
statement as a Nasdaq "national market system security" within the meaning of
Rule 11Aa2-1 of the Commission or, failing that, use its best efforts to secure
Nasdaq authorization for such Registrable Securities;
(h) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(i) enter into such customary agreements (including
underwriting agreements in customary form, provided that such underwriting
agreement shall be reasonably satisfactory to the Company) and take all such
other actions as the holders of a majority of the Registrable Securities being
sold or the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including, without
limitation, (i) effecting a stock split or a combination of shares, (ii) not
effecting any public sale or distribution of its equity securities, or any
securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and during the 180-day period beginning on the
effective date of any underwritten registration (except as part of such
underwritten registration or pursuant to registrations on Form S-8 or any
successor form), unless the underwriters managing the registered public
offering otherwise agree, and (iii) causing Mark Cuban, Todd R. Wagner, and
using its reasonable efforts to cause each other holder of its Common Stock, or
any securities convertible into or exchangeable or exercisable for Common
Stock, purchased from the Company at any time after the date of this Agreement
(other than in a registered public offering) to agree not to effect any public
sale or distribution (including sales pursuant to Rule 144) of any such
securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree);
(j) upon receipt and execution of such confidentiality
agreements as the Company may reasonably request from parties who are not
otherwise subject to confidentiality obligations because of the nature of their
profession (e.g., underwriters, attorneys and accountants), make available for
inspection by the seller of Registrable Securities, any underwriter
7
<PAGE> 8
participating in any disposition pursuant to such registration statement and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such seller, underwriter, attorney, accountant or agent in
connection with such registration statement;
(k) otherwise use its reasonable best efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least 12 months beginning with the first
day of the Company's first full calendar quarter after the effective date of
the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(l) if any such registration or comparable statement
refers to any holder by name or otherwise as the holder of any securities of
the Company and if its sole and exclusive judgment, such holder is or might be
deemed to be a controlling person of the Company, such holder shall have the
right to require (i) the insertion therein of language, in form and substance
satisfactory to such holder and presented to the Company in writing, to the
effect that the holding by such holder of such securities is not to be
construed as a recommendation by such holder of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
such holder will assist in meeting any future financial requirements of the
Company, or (ii) in the event that such reference to such holder by name or
otherwise is not required by the Securities Act or any similar federal statute
then in force, the deletion of the reference to such holder; provided that with
respect to this clause (ii) such holder shall furnish to the Company an opinion
of counsel to such effect, which opinion and counsel shall be reasonably
satisfactory to the Company; and
(m) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of such order.
7. Indemnification.
(a) The Company agrees to indemnify, to the extent permitted by
law, each holder of Registrable Securities, its officers and directors and each
person who controls such holder (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities and expenses caused by any
untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or contained in any
affidavits or written information supplied or withheld from the Company
relating to such holder's ownership of Registrable Securities or as otherwise
required under the Securities Act furnished by such holder expressly for use in
such registration statement or by such holder's failure
8
<PAGE> 9
to deliver a copy of the registration statement or prospectus or any amendments
or supplements thereto after the Company has furnished such holder with the
number of copies of the same reasonably requested by such holder.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing such information and affidavits relating to
such holder's ownership of Registrable Securities or as otherwise required
under the Securities Act as the Company reasonably requests for use in
connection with any such registration statement or prospectus and, to the
extent permitted by law, will indemnify the Company, its directors and officers
and each person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses resulting
from any untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, but only to the extent that such untrue statement or omission
is contained in any information or affidavit so furnished in writing by such
holder which was expressly provided for use in such registration statement and
was included in such registration statement in reliance on and in conformity
with such written information or affidavit.
(c) Any person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed or not
defended because of a conflict of interest pursuant to clause (ii) of the
preceding sentence, the indemnifying party will not be subject to any liability
for any settlement made by the indemnified party without its consent (but such
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other of such indemnified parties
with respect to such claim.
(d) The indemnification provided for under this Agreement will
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling person
of such indemnified party and will survive the transfer of securities. The
Company also agrees to make such provisions, as are reasonably requested by any
indemnified party, for contribution to such party in the event the Company's
indemnification is unavailable for any reason.
8. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its reasonable best efforts to:
9
<PAGE> 10
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Securities Exchange Act of
1934, as amended.
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended (at any time after it has
become subject to such reporting requirements).
(c) So long as any Investor owns any Registrable
Securities to furnish to such Investor forthwith upon request a written
statement by the Company as to its compliance with the reporting requirements
of Rule 144 (at any time after 90 days after the effective date of the first
registration statement filed by the Company for an offering of its securities
to the general public) and of the Securities Act and the Securities Exchange
Act of 1934 (at any time after it has become subject to such reporting
requirements) a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as
such Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing such Investor to sell any such securities
without registration.
9. Transfer of Registration Rights. The rights granted to the
Investors hereunder may be assigned to a transferee or assignee in connection
with any transfer or assignment of Registrable Securities by an Investor
provided that: (i) such transfer may otherwise be effected in accordance with
applicable securities laws, (ii) such Investor notifies the Company in writing
of the transfer or assignment and the assignee or transferee agrees in writing
to be bound by the provisions of this Agreement, and (iii) not less than 25% of
the transferring Investor's Registrable Securities are transferred.
10. Termination of Registration Rights. The Company's obligations
pursuant to Sections 2, 3 and 4 shall expire when all Registrable Securities
held by the Investors or any assignee have been sold or transferred in any
manner to any person or entity, including, but not limited to, sales pursuant
to a registration statement, Rule 144 sales or otherwise, but excluding any
sale or transfer in connection with which the rights of the Investor hereunder
are assigned pursuant to Section 9.
11. Stand-Off Agreement. So long as the Company's obligations
pursuant to Sections 2, 3 and 4 have not expired, each Investor, if requested
by the Company and an underwriter of Common Stock or other securities of the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company (except as otherwise
permitted by agreements) held by such Investor for a specified period of time
(not to exceed 180 days) following the effective date of a registration
statement; provided, that such agreement shall only apply to the first such
registration statement covering Common Stock of the Company to be sold on its
behalf to the public in an underwritten offering; and that such agreement shall
be in a form satisfactory to the Company and such underwriter. The Company may
impose stop-transfer instructions with respect to the Registrable Securities or
other securities subject to the foregoing restriction until the end of the
stand-off period.
10
<PAGE> 11
12. Confidentiality. Each Investor (other than parties which are
bound by a mutual non-disclosure agreement with the Company) hereby agrees that
it shall maintain in confidence, and shall not use or disclose without the
prior written consent of the Company, any information identified as
confidential that is furnished to it by the Company in connection with this
Agreement, including (without limitation) all financial statements, budget and
other information delivered or provided to such Investor. This obligation of
confidentiality shall not apply, however, to any information (a) in the public
domain through no unauthorized act or failure to act by such Investor, (b)
lawfully disclosed to such Investor by a third party who possessed such
information without any obligation of confidentiality, or (c) known previously
by such Investor or lawfully developed by such Investor independent of any
disclosure by the Company. Each Investor further agrees that it shall return to
the Company all tangible materials containing such information upon request by
the Company.
13. Miscellaneous.
13.1 Governing Law. This Agreement shall be governed in all
respects by the internal laws of the State of New York.
13.2 Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investors
and the closing of the transactions contemplated hereby.
13.3 Successors and Assigns. The provisions hereof shall inure to
the benefit of, and be binding upon, the successors, permitted assigns, heirs,
executors and administrators of the parties hereto, including as specifically
provided by Section 9 hereof.
13.4 Entire Agreement; Amendment. This Agreement, its attachments
and the other documents delivered pursuant hereto at the Closing constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof. Except as expressly provided herein, neither
this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the Company and
Investors holding at least 67% of the Registrable Securities.
13.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
13.6 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement to
any party.
13.7 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
13.8 Adjustments Affecting Registrable Securities. The Company
will not take any action, or permit any change, with respect to the terms of
its securities which would materially and adversely affect the ability of the
Investors to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or which would materially and adversely affect the
marketability of said Registrable Securities in any such registration
(including, without limitation, effecting a stock split or combination of
shares).
11
<PAGE> 12
IN WITNESS WHEREOF, the parties below have executed this Agreement all
as of the date first written above.
AUDIONET, INC.
By: TODD WAGNER
----------------------------
Title: CEO
-------------------------
MOTOROLA, INC.
By: STEVEN R. LEEKE
----------------------------
Title: DIRECTOR & GM, INTERNET
CONTENT & SERVICE
BUSINESS
-------------------------
PREMIERE RADIO NETWORKS, INC.
By: STEVEN LEHMAN
----------------------------
Title: PRESIDENT & CEO
-------------------------
HMTF AUDIONET INVESTORS
By: PATRICK MCGEE
----------------------------
Title: GENERAL PARTNER
-------------------------
CAPITOL RADIO NETWORK, INC.
By: JOHN M. BRENNAN
----------------------------
Title: VICE PRESIDENT
-------------------------
INTEL CORPORATION
By: ARVINO SODHANI
----------------------------
Title: VICE PRESIDENT &
TREASURER
-------------------------
12
<PAGE> 13
SCHEDULE A
SCHEDULE OF INVESTORS
Motorola, Inc.
Premiere Radio Networks, Inc.
HMTF AudioNet Investors
Capitol Radio Network, Inc.
Intel Corporation
A-1
<PAGE> 14
ADDENDUM TO FIRST AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This Addendum (the "Addendum") to the First Amended and Restated
Registration Rights Agreement (attached hereto as Exhibit A) (the "Registration
Rights Agreement") is made and entered into as of the 30th day of December 1997
by and among AudioNet Inc. (the "Company"), Intel Corporation ("Intel"),
Motorola, Inc. ("Motorola") and Yahoo! Inc. ("Yahoo").
Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the Registration Rights Agreement.
WHEREAS, pursuant to the terms of a Stock and Warrant Purchase Agreement,
dated as of the date hereof, between the Company and Yahoo (the "Stock Purchase
Agreement") Yahoo desires to purchase 79,618 shares of common stock of the
Company and a warrant to purchase additional shares of common stock of the
Company (the "Warrant").
WHEREAS, a condition to Yahoo's obligation to purchase the shares of
common stock and the Warrant pursuant to the Stock Purchase Agreement is that
Yahoo shall be entitled to all of the rights and bound by all of the
obligations of an "Investor" under the Registration Rights Agreement.
WHEREAS, the Company, in order to induce Yahoo to enter into the Stock
Purchase Agreement, desires to grant rights to Yahoo as an Investor under the
Registration Rights Agreement.
NOW, THEREFORE in consideration of the agreements set forth herein, the
parties hereto agree as follows:
1. Upon execution of this Addendum, Yahoo shall be entitled to all of the
rights of an Investor under the Registration Rights Agreement, subject to and
bound by all of the terms, conditions, and covenants contained within the
Registration Rights Agreement effective as of the date hereof.
2. Each of the Company, Motorola, Inc. and Intel Corporation hereby
acknowledges that Yahoo is an Investor for purposes of the Registration Rights
Agreement effective as of the date hereof.
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
First Amended and Restated Registration Rights Agreement effective as of the
date first written above.
AudioNet, Inc.
By: /s/ TODD WAGNER
-----------------------------------------
Name: Todd Wagner
Title: CEO
Yahoo! Inc.
By: /s/ T. G. KOOGLE
-----------------------------------------
Name: Tim Koogle
Title: President & CEO
Consented and agreed to pursuant to Section 1
of the First Amended and Restated
Registration Rights Agreement, dated as of
February 24, 1997, by and between AudioNet,
Inc. and each of the Investors listed on
Schedule A thereto.
Motorola, Inc.
By: /s/ ROBERT A. BURTON
-----------------------------------------
Name: Robert A. Burton
Title: Vice President and General Manager
Motorola New Enterprises
Intel Corporation
----------- By: /s/ SATISH RISHI
LEGAL OK -----------------------------------------
----------- Name: Satish Rishi
[ILLEGIBLE] Title: Assistant Treasurer
-----------
2
<PAGE> 1
EXHIBIT 10.4
STOCKHOLDERS AGREEMENT
This Stockholders Agreement ("Agreement") is made and entered into
this 4th day of September, 1996 by and among Motorola, Inc., a Delaware
corporation whose principal place of business is located at 1303 E. Algonquin
Road, Schaumburg, Illinois 60196 ("Motorola" or "Buyer"), Cameron Audio
Networks, Inc., a Texas corporation whose principal place of business is
located at 2929 Elm Street, Dallas Texas 75226 (the "Company"), and certain
Stockholders of the Company who have signed this Agreement (individually a
"Stockholder" and collectively the "Stockholders").
Whereas, the Stockholders currently own, beneficially and of record,
in the aggregate 129,694 shares of the outstanding Shares of the Company (on a
fully diluted basis). Schedule A hereto sets forth a true and correct list of
the number of Shares of the Company owned by each Stockholder. The term
"Shares" used herein shall mean shares of Common Stock, no par value ("Common
Stock"), all securities convertible, directly or indirectly, into Common Stock
and all other equity securities of the Company.
Whereas, Motorola agreed to purchase 12,262 shares of Common Stock
pursuant to a Stock Purchase Agreement between the Company and Motorola dated
September 4, 1996 ("Purchase Agreement").
Whereas, a condition to Motorola's obligation to purchase such Common
Stock pursuant to the Purchase Agreement is that the Company, Stockholders and
Motorola enter into an agreement relating to, among other things, the election
of Directors of the Company.
NOW THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, the parties agree as follows:
1. Board of Directors; Charter Amendments
1.1 Each Stockholder hereby agrees with Motorola, on behalf of
itself and any person to whom it transfer any Shares, to vote all Shares of the
Company (and other Company securities which it directly or indirectly controls)
now or hereafter owned by it and take such other actions (whether in the
capacity as a stockholder, director or officer of the Company) as are
reasonably requested by Motorola to ensure the membership on the Company's
Board of Directors (the "Board of Directors"), at all times, of one person
designated by Motorola (the "Motorola Designee") and so that the Company
complies with, and takes all desirable actions within its control in order to
assure it complies with, its agreements contained in the Stock Purchase
Agreement dated as of the date hereof between Motorola and the Company. Each of
the Stockholders hereby further agrees with Motorola, on behalf of itself and
any person to whom it transfer any Shares, to vote all Shares of the Company
(and other Company securities which it directly or indirectly controls) now or
hereafter owned by it and take such other actions (whether in the capacity as a
stockholder, director or officer of the Company) as are reasonably requested by
Motorola to ensure that at any time that the Company shall have a classified
Board of
<PAGE> 2
Directors, the Motorola Designee shall be a member of the class of directors
with the longest initial term.
1.2 The removal from the Board (with or without cause) of any
representative of Motorola (the "Motorola Designee") shall be at the written
request of Motorola. but only upon such written request and under no other
circumstances; provided if "cause" (as defined below) exists to remove such
director, Motorola shall make such request if a majority of the Board makes a
request for Motorola to do so. Notwithstanding anything to the contrary herein,
removal from the Board of the Motorola Designee for any reason shall not affect
Motorola's ability to appoint a successor to the board effective immediately
upon the removal of the preceding representative. For purposes of this section,
"cause" shall mean (1) any act or acts of dishonesty by the Motorola Designee
constituting a felony and resulting or intended to result, directly or
indirectly, in an improper gain to or personal enrichment of the Motorola
Designee at the Company's expense, or (2) the willful and continued failure by
the Motorola Designee to substantially perform his duties as a director of the
Company (other than any such failure resulting from the Motorola Designee's
disability), after written demand for substantial performance is delivered by
the Company to the Motorola Designee specifically identifying the manner in
which the Company believes the Motorola Designee to be not substantially
performing his duties. For purposes of this paragraph, no act, or failure to
act, on the Motorola Designee's part, shall be considered "willful" unless
done, or not done, as the case may be, by him in bad faith and without
reasonable belief that his action or omission was in the best interest of the
Company. The parties agree that the provisions of this Section 1.2 shall not be
utilized in any manner by the Company to avoid, negate or frustrate application
of the provisions of Section 1.1 of this Agreement.
1.3 Each Stockholder hereby agrees, on behalf of itself and any
person to whom it transfers Shares, that it will not vote any Shares (or any
other Company securities which it directly or indirectly controls) now or
hereafter owned by it in favor of any amendment to Article Fourteen of the
Company's Articles of Incorporation; provided, however, that each such
Stockholder shall be permitted to vote in favor of the merger agreement in the
form set forth in Schedule 6(b)(i) to the Purchase Agreement with the initial
certificate of incorporation and bylaws of the surviving Delaware corporation
in the forms set forth in Schedules 6(b)(ii) and 6(b)(iii) to the Purchase
Agreement.
2. Conditional Irrevocable Proxy; Conflicting Agreements
2.1 In order to secure each Stockholder's obligations to vote its
Shares in accordance with Section 1, each Stockholder hereby irrevocably
appoints the Chief Financial Officer of Motorola, or his or her designee, as
its true and lawful proxy and attorney-in-fact, with full power of
substitution, to so vote its Shares in the event such Stockholder fails to
comply with Section 1 hereof. The proxy and powers granted by each of the
Stockholders pursuant to this Section 2 are coupled with an interest and are
given to secure the performance of its duties under this Agreement. The proxy
granted herein, if any of the Stockholders is an individual, will survive the
death, incompetency and disability of such stockholder or any other individual
holder
2
<PAGE> 3
\of its Shares and, if any of the Stockholders is an entity other than an
individual, will survive the merger and dissolution of such stockholder or any
other entity holding any Shares.
2.2 Each Stockholder represents that he or it has not granted and
is not a party to any proxy, voting trust or other agreement which is
inconsistent with or conflicts with the provisions of this Agreement and no
Stockholder shall grant any proxy or become party to any voting trust or other
agreement which is inconsistent with or conflicts with any provision of the
Agreement.
3. Term. The provisions of Sections 1 and 2 of this Agreement
will terminate and cease to be effective upon the earlier of (i) the third
anniversary of the Initial Public Offering (as defined in Section 7(a) of the
Purchase Agreement) by the Company) or (ii) the date on which Motorola no
longer holds at least 50% of the Shares of the Company purchased pursuant to
the Purchase Agreement (as adjusted for subsequent changes to the Shares,
including stock dividends and stock splits).
4. Expenses. The Company shall reimburse Motorola for the
reasonable out-of-pocket expenses incurred by the Director designated by it in
connection with the attendance at meetings by such Director designee or
carrying out any other duties by such Director designee that may be specified
by the Board of Directors; pay such Director designee the same directors' fees
paid to the other non-employee directors of the Company; and maintain as part
of its Articles of Incorporation or Bylaws provisions for the indemnification
and limitation on liability of Directors to the full extent permitted by law.
5. Meetings. The Company agrees, as a general practice, to hold a
meeting of its Board of Directors at least once every three months, and during
each year to hold its annual meeting of Stockholders on or approximately on the
date provided by its Bylaws.
6. Legend. Each certificate evidencing Shares of each Stockholder
("Stockholder Shares") and each certificate issued in exchange for or upon the
transfer of any Stockholder Shares shall be stamped or otherwise imprinted with
a legend in substantially the following form:
"The securities represented by this certificate are subject to
a Stockholders Agreement dated September [ ], 1996 among the issuer
of such securities (the "Company") and certain of the Company's
stockholders. A copy of such Stockholders Agreement will be furnished
without charge by the Company to the holder hereof upon written
request made to the Secretary of the Company."
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof.
7. Transfer.
7.1 Transfer by Stockholder.
(a) Pre-Initial Public Offering.
3
<PAGE> 4
(i) Prior to an Initial Public Offering, if a Stockholder desires
to sell, encumber or otherwise dispose of all or any part of
his Shares pursuant to an offer from a bona fide purchaser or
lender, he shall give Motorola written notice of his
intention, which notice shall state the name and address of
the proposed purchaser or lender, the number of shares
proposed to be purchased or encumbered, and the price, terms
of payment and conditions of such proposed purchase,
encumbrance or disposition. Motorola shall have the right to
purchase all, but not less than all of the Shares covered by
such notice relating to a sale or other disposition at such
price or upon such terms and conditions as shall have been
stated in such notice. In the event of a proposed encumbrance
of such Shares, it shall be a condition of such encumbrance
that Stockholder receive a written acknowledgement from the
lender that such lender's disposition of the Shares upon the
occurrence of default is subject to Motorola's right to
purchase pursuant to this Section 7. Motorola must notify the
Stockholder or lender in writing of Motorola's election to
exercise its right to purchase such shares within 20 business
days of receipt of notice from Stockholder or lender. Any
purchase pursuant to this Section 7 must take place within 15
business days of notification to the Stockholder of Motorola's
election to purchase. Any Shares offered for sale pursuant to
this Section 7 which Motorola does not elect to purchase, or
which are not purchased by Motorola within the permitted 15
business day period, may be sold, encumbered or otherwise
disposed of to the third party named in the notice required by
this Section 7 for a period of 60 days after the expiration of
the time allowed for notice or purchase, as the case may be,
but at a price no lower, or on terms no less favorable to the
Stockholder, than those set forth in such notice.
(b) Post-Initial Public Offering.
(i) Subsequent to an Initial Public Offering, if a Stockholder
proposes to effect a sale, transfer or other disposition in
any one transaction or series of transactions (a "Sale") to
any person or group of persons (the "Buyer") of any amount of
the Shares (including, for this purpose, Shares issuable upon
exercise or conversion of options, convertible securities, or
warrants proposed to be sold, transferred or disposed of)
representing 10% or more of the outstanding Shares (the
"Purchase Offer"), such Stockholder shall offer to Motorola,
the opportunity to sell to the Buyer the Tag-Along Portion (as
hereinafter defined) of Motorola's Shares for the same
consideration per share and otherwise on the same terms and
conditions (except to the extent set forth in Section
7.1(b)(iv)) upon which such Stockholder sells its Shares;
provided, however, that the provisions of this Section
7.1(b)(i) shall not apply to a Sale to any affiliate of any
Stockholder, but it shall be a condition to any such Sale that
such affiliate assume all of the obligations of the
transferring Stockholder hereunder. The "Tag-Along Portion"
shall be that number of Shares held by Motorola, as the case
may be, which is equal to (x) the total number of Shares held
by Motorola as of the date that the Tag-Along Notice (as
defined below) is provided in accordance with paragraph (ii)
below multiplied by (y) a fraction the numerator of which is
the aggregate number of Shares that
4
<PAGE> 5
the Stockholders propose to sell as set forth in such
Tag-Along Notice and the denominator of which is the total
number of Shares held by the Stockholders as of such date.
(ii) The applicable Stockholder shall cause the Purchase Offer to
be reduced to writing and shall provide a written notice (the
"Tag-Along Notice") of the Purchase Offer to Motorola. The
Tag-Along Notice shall contain written notice of such
Stockholder's offer to Motorola to sell the Tag-Along Portion
of its Shares setting forth the consideration per share to be
paid by the Buyer and the other terms and conditions of the
Purchase Offer. Motorola shall have twenty (20) business days
to elect to participate in the Sale, which election shall be
made by giving notice to such Stockholder at its address
specified in the Tag-Along Notice, and if Motorola elects to
participate in the Sale, Motorola shall use all reasonable
efforts in a timely manner, to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary,
proper or advisable, under applicable laws and regulations
(including, without limitation, to ensure that all
appropriate legal and other requirements are met and all
consents of third persons are obtained), to consummate the
sale of its Shares pursuant to the proposed transactions
contemplated by this Section 7.1(b)(ii).
(iii) At the closing of the Sale of Shares pursuant to this Section
7.1(b), the consideration with respect to Shares of Motorola
sold pursuant hereto shall be paid directly to Motorola
pursuant to written instructions of Motorola. The applicable
Stockholder shall furnish such other evidence of the
completion and time of completion of such Sale and the terms
thereof as shall be reasonably requested by Motorola.
(iv) No provision in this Section 7.1(b), shall require Motorola
to make any representation (other than as to title, lack of
encumbrances, due authorization, power, no conflicts with
Motorola's instruments, and enforceability and information
relating solely to Motorola) or provide any indemnification in
any such agreement and no right or obligation of Motorola
shall be conditioned upon the making of such representation or
the provision of such indemnification.
7.2 Transfer by Motorola. Any proposed transfer of Shares owned
by Motorola shall be governed by Section 7(b) of the Purchase Agreement.
7.3 Excluded Transfers. The foregoing restrictions contained in
this Section 7 shall not apply with respect to any transfer of Stockholder
Shares by any Stockholder pursuant to applicable laws of descent and
distribution or among such Stockholder's Family Group. Any attempted transfer
or other act in violation of this Section 7 shall be of no effect and the
attempted transferee or other party shall receive no rights in the Stockholder
Shares, and the Company agrees that it will not transfer any such Stockholder
Share on the stock transfer records of the Company. For purposes of this
Section 7, "Family Group" means a Stockholder's spouse and descendants (whether
natural or adopted) and any trust solely for the benefit of the
5
<PAGE> 6
Stockholder and/or the Stockholder's spouse and/or descendants. In the event
of, and prior to, any sale or disposition permitted under this Section 7, the
transferring party shall cause the prospective transferee to execute and
deliver to the Company, Motorola and the other Stockholders a counterpart of
this Agreement.
7.4 Waiver of Previous Buy-Sell Arrangement. Each of the
Stockholders hereby represents and warrants that he has, prior to the date of
this Agreement, received a waiver from Cameron Broadcasting Systems, Inc.
("CBS"), pursuant to which CBS has subordinated its right to purchase the
Stockholders' Shares pursuant to the Buy-Sell Agreement, dated October 25,
1995, among CBS, Todd R. Wagner, and Mark Cuban, to any and all rights which
Motorola has with respect to the Stockholders Shares.
8. Miscellaneous
8.1 Successors and Assigns. This Agreement and the terms and
conditions contained herein are binding upon, and will inure to the benefit of,
the parties hereto and their respective representatives, executors,
administrators, heirs, successors and permitted assigns. Motorola may assign
its rights and delegate its obligations and responsibilities hereunder to any
50% (or greater) owned subsidiary, direct or indirect, without the Company's
consent, but neither this Agreement nor any rights or obligations hereunder may
be assigned, directly, indirectly, voluntarily or involuntarily, by the Company
or any Stockholders.
8.2 Governing Law; Severability. This Agreement shall be governed
by and construed in accordance with the laws of the State of Texas, excluding
that body of law pertaining to conflict of laws; provided, however, that
immediately upon and subsequent to the effectiveness of the Company's merger
into a Delaware corporation, this Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, excluding that body of
law pertaining to conflict of laws. If any provision of this Agreement is found
to be invalid, illegal or unenforceable in any respect, such provision will be
enforced to the maximum extent possible and the remaining provisions of this
Agreement will continue unaffected.
8.3 Waivers. No waiver by any party hereto of any term or
condition of this Agreement will be effective unless set forth in a writing
signed by such party. No waiver of any provision of this Agreement will be
deemed a waiver of any other provision. No failure or delay on the part of any
party in exercising any right, remedy, power or privilege under this Agreement
will operate as a waiver thereof, nor will a single or partial exercise thereof
preclude any other or further exercise of any rights, remedies, powers or
privileges.
8.4 Entire Agreement; Modifications. This Agreement, including the
Schedule attached hereto, which is incorporated herein by reference,
constitutes the full Agreement among the parties hereto pertaining to the
subject matter hereof and supersedes in its entirety all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, with respect to the subject matter hereof. No
supplement, modification or amendment to this Agreement will be binding unless
executed in writing by the party or parties against whom enforcement is sought.
6
<PAGE> 7
8.5 Counterparts and Expenses. This Agreement may be executed in
any number of counterparts. Each party shall be responsible for its own
expenses and fees incurred in connection with the negotiation, execution and
performance of the Agreement, and related documents, including counsel fees,
except as otherwise stated. The Company shall not pay, or reimburse the
Stockholders for the expenses and fees of the Stockholders incurred in
connection with this Agreement.
8.6 Survival of Representations and Warranties. All
representations, warranties, covenants and other agreements contained herein
shall survive the Closing Date.
8.7 Notices. All notices which are permitted or required under
this Agreement shall be in writing and delivered personally or sent by
registered, certified, overnight or regular mail, postage prepaid, addressed as
follows, or to such other person or address as may be designated by notice to
the other party:
If to Motorola:
1303 E. Algonquin Road
Schaumburg, IL 60196
Attn: Corporate Secretary
cc: New Enterprises
Attn: Bob Burton
If to the Stockholders:
c/o Mark Cuban
Todd Wagner
Cameron Audio Networks, Inc.
2929 Elm Street
Dallas, Texas 75226
If to the Company:
Cameron Audio Networks, Inc.
2929 Elm Street
Dallas, Texas 75226
Attn: Todd Wagner
With a copy to::
Gibson, Dunn & Crutcher
200 Park Avenue
New York, New York 10166
Attn: Sean Griffiths, Esq.
7
<PAGE> 8
Notices shall be deemed delivered when delivered personally or
received by telecopy or after being mailed by prepaid certified or registered
mail with return receipt requested or by such other method (including air
courier) which provides for a signed receipt upon delivery. The addresses and
numbers set forth above shall be conclusive for all purposes unless and until
written notice of a change of address shall be sent to the parties herein.
8.8 Further Action. Each party hereto shall take such further
action and shall execute and deliver such further documents as reasonably may
be requested by any other party in order to carry out the provisions and
purposes of this Agreement.
8
<PAGE> 9
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MOTOROLA, INC. CAMERON AUDIO NETWORKS, INC.
By: /s/ ROBERT A. BURTON By: /s/ TODD WAGNER
------------------------------ -------------------------------
Title: Vice President and General Title: CEO
--------------------------- ----------------------------
Manager, Motorola New Enterprises
STOCKHOLDERS
/s/ MARK CUBAN /s/ TODD R. WAGNER
- --------------------------------- -------------------------------
Mark Cuban Todd R. Wagner
9
<PAGE> 10
AMENDMENT NO. 1
TO
STOCKHOLDERS AGREEMENT
This AMENDMENT NO. 1 to that Stockholders Agreement (the
"Agreement"), dated as of September 4, 1996, by and among Motorola, Inc.
("Motorola"), AudioNet Inc. (as successor in interest to Cameron Audio
Networks, Inc.) (the "Company"), and certain stockholders of the Company who
signed the Stockholders Agreement (individually a "Stockholder" and
collectively the "Stockholders") is entered into by and among Motorola, the
Company and the Stockholders as of the 30th day of December, 1996. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
RECITALS
A. Motorola, the Company and the Stockholders previously
entered into the Stockholders Agreement, which grants Motorola certain rights
with respect to the Company's Board of Directors and certain rights upon a
proposed transfer of the shares of the Company owned by the Stockholders.
B. Motorola, the Company and the Stockholders desire to
amend certain provisions of the Stockholders Agreement pursuant to Section 8.4
thereof.
Accordingly, the parties hereto agree as follows:
I. ACKNOWLEDGMENTS
1.1 December Stockholders Agreement. Motorola hereby
acknowledges that the Stockholders have entered into the December Stockholders
Agreement, dated as of December 31, 1996 by and among HMTF AudioNet Investors
("HMTF"), Premiere Radio Networks, Inc. ("Premiere", collectively with HMTF,
the "Investors"), Motorola, the Company and the Stockholders pursuant to
Section 1.1 of which the Stockholders have agreed to allow certain parties to
participate in any sale of such Stockholders Shares.
1.2 Stockholders Shares. Motorola hereby acknowledges
that the Shares to be purchased by Motorola from the Stockholders pursuant to
Section 7.1 of the Agreement may be reduced in accordance with the provisions
of the December Stockholders Agreement.
II. TITLE
2.1 Amendment of Title. The Stockholders Agreement shall
be renamed the "September Stockholders Agreement"
<PAGE> 11
III. TRANSFER BY STOCKHOLDER
3.1 Amendment of Section 7.1. The following paragraph
shall be added immediately after Section 7.1 (a)(i) of the Stockholders
Agreement:
"(ii) Prior to an Initial Public Offering, if a Stockholder desires
to sell, encumber or otherwise dispose of all or any part of his
Shares pursuant to an offer from a bona fide purchaser or lender, he
shall give Motorola written notice of his intention, which notice
shall state the name and address of the proposed purchaser or lender,
the number of shares proposed to be purchased or encumbered, and the
price, terms of payment and conditions of such proposed purchase,
encumbrance or disposition. Subject to the immediately following
sentence, Motorola shall have the right to purchase all, but not less
than all of the Shares covered by such notice relating to a sale or
other disposition at such price or upon such terms and conditions as
shall have been stated in such notice. If Motorola elects to exercise
its right to purchase such Shares, the number of Shares to be
purchased by Motorola from the Stockholder shall be reduced by the
number of Shares the Investors may include in such sale pursuant to
the exercise of their "Tag-Along Rights" as set forth in Section 1.1
of the December Stockholders Agreement. If the Investors elect to
exercise such "Tag-Along Rights", Motorola shall purchase from the
Investors that number of Shares, as determined in accordance with
Section 1.1 of the December Stockholders Agreement, that may be
included by the Investors in the sale of the Stockholder Shares.
In the event of a proposed encumbrance of such Shares, it
shall be a condition of such encumbrance that Stockholder receive a
written acknowledgment from the lender that such lender's disposition
of the Shares upon the occurrence of default is subject to Motorola's
right to purchase pursuant to this Section 7. Motorola must notify the
Stockholder or lender in writing of Motorola's election to exercise
its right to purchase such shares within 20 business days of receipt
of notice from Stockholder or lender. Any purchase pursuant to this
Section 7 must take place within 15 business days of notification to
the Stockholder of Motorola's election to purchase. Any Shares offered
for sale pursuant to this Section 7 which Motorola does not elect to
purchase, or which are not purchased by Motorola within the permitted
15 business day period, may be sold, encumbered or otherwise disposed
of to the third party named in the notice required by this Section 7
for a period of 60 days after the expiration of the time allowed for
notice or purchase, as the case may be, but at a price no lower, or on
terms no less favorable to the Stockholder, than those set forth in
such notice."
IV. MISCELLANEOUS
4.1 Effect of this Amendment. All references to the
Stockholders Agreement in the Stockholders Agreement and each of the other
agreements and instruments executed by the parties hereto shall be deemed to
include the Stockholders Agreement and this Amendment No. 1 to Stockholders
Agreement.
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<PAGE> 12
4.2 Agreement. Except as expressly amended, modified or waived
hereby, all terms and provisions of the Stockholders Agreement shall continue in
full force and effect in accordance with the provisions thereof.
IN WITNESS WHEREOF, the parties have caused this Amendment No.
1 to Stockholders Agreement to be executed as of the date first written above.
MOTOROLA, INC.
By: /s/ STEVEN D. LEEKE
---------------------------
Name: Steven D. Leeke
Title: Director
AUDIONET, INC.
By: /s/ TODD R. WAGNER
--------------------------
Name:
Title:
STOCKHOLDERS
/s/ TODD R. WAGNER
----------------------------
Todd R. Wagner
/s/ MARK CUBAN
----------------------------
Mark Cuban
3
<PAGE> 13
AMENDMENT NO. 2
TO
SEPTEMBER STOCKHOLDERS AGREEMENT
This AMENDMENT NO. 2 to the September Stockholders Agreement,
dated as of September 4, 1996 by and among Motorola, Inc. ("Motorola"),
AudioNet, Inc. (the "Company") and certain stockholders of the Company
(individually a "Stockholder" and collectively the "Stockholders"), as amended
on December 30, 1996, by Amendment No. 1 to Stockholders Agreement (as so
amended, the "September Stockholders Agreement"), is entered into by and among
Motorola, the Company and the Stockholders as of December 19, 1997. Capitalized
terms used but not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Agreement.
RECITALS
A. Motorola, the Company and the Stockholders previously
entered into the September Stockholders Agreement, which grants Motorola
certain rights with respect to the Company's Board of Directors and certain
rights upon a proposed transfer of the shares of Common Stock owned by the
Stockholders.
B. Motorola, the Company and the Stockholders desire to
amend certain provisions of the September Stockholders Agreement pursuant to
Section 8.4 thereof.
NOW THEREFORE, in consideration of the mutual promises,
covenants and agreements contained herein, the parties hereto agree as follows:
1. Acknowledgement.
(a) Motorola, the Company and the Stockholders hereby
acknowledge that the Stockholders have entered into an Addendum to the December
Stockholders Agreement (the "December Stockholders Agreement"), dated as of
December 31, 1996, by and among HMTF AudioNet Investors, Premiere Radio
Networks, Inc., Motorola (collectively, the "Investors"), the Company and the
Stockholders, with Intel Corporation ("Intel"), dated as of February 24, 1997,
pursuant to which the Stockholders have agreed to allow Intel to participate in
any sale of such Stockholders' Shares.
(b) Motorola hereby acknowledges that the number of
Shares that may be purchased by Motorola from the Stockholders pursuant to
Section 7.1 of the September Stockholders Agreement may be reduced in
accordance with the provisions of the December Stockholders Agreement to the
extent any Investor (as defined therein) elects to participate in such sale;
provided, however, that the total number of Shares being purchased by Motorola
shall not be reduced.
2. Amendment of Section 1.1. Section 1.1 of the
Agreement is deleted in its entirety and replaced with the following:
<PAGE> 14
" 1.1 Each Stockholder hereby agrees with Motorola,
on behalf of itself and any person to whom it transfers any
Shares, to vote all Shares of the Company (and other Company
securities which it directly or indirectly controls) now or
hereafter owned by it and take such other actions (whether in
the capacity as a stockholder, director or officer of the
Company) as are reasonably requested by Motorola to ensure the
membership on the Company's Board of Directors (the "Board of
Directors"), at all times, of two persons designated by
Motorola (the "Motorola Designees") and so that the Company
complies with, and takes all desirable actions within its
control in order to assure it complies with, its agreements
contained in the Stock Purchase Agreements dated as of
September 4, 1996 and December 19, 1997 between Motorola and
the Company. Each of the Stockholders hereby further agrees
with Motorola, on behalf of itself and any person to whom it
transfers any Shares, to vote all Shares of the Company (and
other Company securities which it directly or indirectly
controls) now or hereafter owned by it and take such other
actions (whether in the capacity as a stockholder, director or
officer of the Company) as are reasonably requested by
Motorola to ensure that at any time that the Company shall
have a classified Board of Directors, that at least one of the
Motorola Designees shall be a member of the class of directors
with the longest initial term."
3. Amendment of Section 1.2. Section 1.2 of the Agreement is
deleted in its entirety and replaced with the following:
" 1.2 The removal from the Board (with or without
cause) of either Motorola Designee shall be at the written
request of Motorola, but only upon such written request and
under no other circumstances; provided if "cause" (as defined
below) exists to remove such director, Motorola shall make
such request if a majority of the Board makes a request for
Motorola to do so. Notwithstanding anything to the contrary
herein, removal from the Board of a Motorola Designee for any
reason shall not affect Motorola's ability to appoint a
successor to the board effective immediately upon the removal
of the preceding representative. For purposes of this section,
"cause" shall mean (1) any act or acts of dishonesty by a
Motorola Designee constituting a felony and resulting or
intended to result, directly or indirectly, in an improper
gain to or personal enrichment of a Motorola Designee at the
Company's expense, or (2) the willful and continued failure by
a Motorola Designee to substantially perform his duties as a
director of the Company (other than any such failure resulting
from such Motorola Designee's disability), after written
demand for substantial performance is delivered by the Company
to such Motorola Designee specifically identifying the manner
in which the Company believes such Motorola Designee to be not
substantially performing his duties. For purposes of this
paragraph, no act, or failure to act, on a Motorola Designee's
part, shall be considered "willful" unless done, or not done,
as the case may be, by him in bad faith and without reasonable
belief that his action or omission was in the best interest of
the Company. The parties agree that the provisions of this
Section 1.2 shall not be utilized in any manner by the Company
2
<PAGE> 15
to avoid, negate or frustrate application of the provisions of Section
1.1 of this Agreement."
4. Miscellaneous.
(a) Effect of this Amendment. All references to the
Stockholders Agreement in the Stockholders Agreement and each of the other
agreements and instruments executed by the parties hereto shall be deemed to
include the Stockholders Agreement, the Amendment No. 1 to the Stockholders
Agreement and this Amendment No. 2 to September Stockholders Agreement.
(b) Agreement. Except as expressly amended, modified or
waived hereby, all terms and provisions of the September Stockholders Agreement
shall continue in full force and effect in accordance with the provisions
thereof.
IN WITNESS WHEREOF, the parties have caused this Amendment No. 2
to September Stockholders Agreement to be executed as of the date first written
above.
MOTOROLA, INC.
By: /s/ ROBERT A. BURTON
---------------------------
Name: Robert A. Burton
Title: Vice President and
General Manager
Motorola New
Enterprises
AUDIONET, INC.
By: /s/ TODD R. WAGNER
--------------------------
Name:
Title:
STOCKHOLDERS
/s/ TODD R. WAGNER
----------------------------
Todd R. Wagner
/s/ MARK CUBAN
----------------------------
Mark Cuban
<PAGE> 1
EXHIBIT 10.5
DECEMBER STOCKHOLDERS AGREEMENT
This Stockholders Agreement ("Agreement") is made and entered into
this 31st day of December, 1996 by and among HMTF AudioNet Investors, a Texas
general partnership whose principal place of business is located at 200
Crescent Court, Suite 1600, Dallas Texas, 75201-6950 ("HMTF"), Motorola, Inc.,
a Delaware corporation maintaining its principal place of business at 1303 E.
Algonquin Road, Schaumbeurg, Illinois 60196 ("Motorola"), Premiere Radio
Networks, Inc., a Delaware corporation maintaining its principal office at
15260 Ventura Boulevard, Suite 500, Sherman Oaks, California 91403 ("Premiere"
and collectively with HMTF and Motorola, the "Investors"), AudioNet, Inc., a
Delaware corporation whose principal place of business is located at 2929 Elm
Street, Dallas, Texas 75226 (the "Company"), and certain Stockholders of the
Company who have signed this Agreement (individually a "Stockholder" and
collectively the "Stockholders").
Whereas, the Stockholders currently own, beneficially and of record,
in the aggregate 129,694 shares of the outstanding Shares of the Company (on a
fully diluted basis). Schedule A hereto sets forth a true and correct list of
the number of Shares of the Company owned by each Stockholder. The term
"Shares" used herein shall mean shares of Common Stock, $0.01 par value
("Common Stock"), all securities convertible, directly or indirectly, into
Common Stock and all other equity securities of the Company.
Whereas, HMTF agreed to purchase 2,306 shares of Common Stock pursuant
to a Stock Purchase Agreement between the Company and HMTF dated as of the date
hereof ("Purchase Agreement").
Whereas, Motorola and Premiere have purchased 12,262 and 9,810 shares,
respectively, of Common Stock pursuant to stock purchase agreements with the
Company.
Whereas, a condition to HMTF's obligation to purchase such Common
Stock pursuant to the Purchase Agreement is that the Company, Stockholders and
Investors enter into this Agreement relating to the transfer of Shares by the
Stockholders.
Whereas, the Company desires that Premiere shall be a party to any
such agreement.
NOW THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, the parties agree as follows:
1. Transfer by Stockholder.
1.1 Pre-Initial Public Offering.
(a) Prior to an Initial Public Offering, if a Stockholder
proposes to effect a sale, transfer or other
disposition in any one transaction or series of
transactions (a "Sale") to any one or more persons or
group of persons (the "Buyer") of any amount of the
Shares (including, for this purpose, Shares issuable
upon exercise or conversion of options, convertible
securities, or
<PAGE> 2
warrants proposed to be sold, transferred or disposed
of) representing 10% or more of the outstanding
Shares (the "Purchase Offer"), such Stockholder shall
(i) offer to the Investors the opportunity to sell to
the Buyer the Tag-Along Portion (as hereinafter
defined) of such Investor's Shares for the same
consideration per share and otherwise on the same
terms and conditions (except to the extent set forth
in Section 1.1(d)) upon which such Stockholder sells
its Shares; provided, however, that the provisions of
this Section 1.1(a) shall not apply to a Sale to any
affiliate of any Stockholder, but it shall be a
condition to any such Sale that such affiliate assume
all of the obligations of the transferring
Stockholder hereunder. The "Tag-Along Portion" with
respect to any Investor shall be that number of
Shares held by such Investor, as the case may be,
which is equal to the product of (x) the total number
of Shares held by such Investor as of the date that
the Tag-Along Notice (as defined below) is provided
in accordance with paragraph (b) below multiplied by
(y) a fraction the numerator of which is the
aggregate number of Shares that the Stockholders
propose to sell as set forth in such Tag- Along
Notice and the denominator of which is the total
number of Shares held by the Stockholders as of such
date.
(b) The applicable Stockholder shall cause the Purchase
Offer to be reduced to writing and shall provide a
written notice (the "Tag-Along Notice") of the
Purchase Offer to the Investors. The Tag-Along
Notice shall contain written notice of such
Stockholder's offer to the Investors to sell the
Tag-Along Portion of their respective Shares setting
forth the consideration per share to be paid by the
Buyer and the other terms and conditions of the
Purchase Offer. Each Investor shall have fifteen
(15) business days to elect to participate in the
Sale, which election shall be made by giving notice
to such Stockholder at its address specified in the
Tag-Along Notice, and if an Investor elects to
participate in the Sale, such Investor shall use all
reasonable efforts in a timely manner, to take, or
cause to be taken, all action and to do, or cause to
be done, all things necessary, proper or advisable,
under applicable laws and regulations (including,
without limitation, to ensure that all appropriate
legal and other requirements are met and all consents
of third persons are obtained), to consummate the
sale of its Shares pursuant to the proposed
transactions contemplated by this Section 1.1.
(c) At the closing of the Sale of Shares pursuant to this
Section 1.1, the consideration with respect to Shares
of any Investor sold pursuant hereto shall be paid
directly to such Investor pursuant to such Investor's
written instructions. The applicable Stockholder
shall furnish such other evidence of the completion
and time of completion of such Sale and the terms
thereof as shall be reasonably requested by any
selling Investor.
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<PAGE> 3
(d) No provision in this Section 1.1 shall require any
Investor to make any representation (other than as to
title, lack of encumbrances, due authorization,
power, no conflicts with such Investors instruments,
and enforceability and information relating solely to
such Investor) or provide any indemnification in any
such agreement and no right or obligation of any of
the Investors shall be conditioned upon the making of
such representation or the provision of such
indemnification.
1.2 Post Initial Public Offering.
(a) Subsequent to an Initial Public Offering, if a
Stockholder proposes to effect a sale, transfer or
other disposition in any one transaction or series of
transactions (a "Sale") to any one or more persons or
group of persons (the "Buyer") of any amount of the
Shares (including, for this purpose, Shares issuable
upon exercise or conversion of options, convertible
securities, or warrants proposed to be sold,
transferred or disposed of) representing 10% or more
of the outstanding Shares (the "Purchase Offer"),
such Stockholder shall (i) offer to the Investors the
opportunity to sell to the Buyer the Tag-Along
Portion (as hereinafter defined) of such Investor's
Shares for the same consideration per share and
otherwise on the same terms and conditions (except to
the extent set forth in Section 1.2(d)) upon which
such Stockholder sells its Shares; provided, however,
that the provisions of this Section 1.2(a) shall not
apply to a Sale to any affiliate of any Stockholder,
but it shall be a condition to any such Sale that
such affiliate assume all of the obligations of the
transferring Stockholder hereunder. The "Tag-Along
Portion" with respect to any Investor shall be that
number of Shares held by such Investor, as the case
may be, which is equal to the product of (x) the
total number of Shares held by such Investor as of
the date that the Tag-Along Notice (as defined below)
is provided in accordance with paragraph (b) below
multiplied by (y) a fraction the numerator of which
is the aggregate number of Shares that the
Stockholders propose to sell as set forth in such
Tag- Along Notice and the denominator of which is the
total number of Shares held by the Stockholders as of
such date.
(b) The applicable Stockholder shall cause the Purchase
Offer to be reduced to writing and shall provide a
written notice (the "Tag-Along Notice") of the
Purchase Offer to the Investors. The Tag-Along
Notice shall contain written notice of such
Stockholder's offer to the Investors to sell the
Tag-Along Portion of their respective Shares setting
forth the consideration per share to be paid by the
Buyer and the other terms and conditions of the
Purchase Offer. Each Investor shall have twenty (20)
business days to elect to participate in the Sale,
which election shall be made by giving notice to such
Stockholder at its address specified in the Tag-Along
Notice, and if an Investor elects to participate in
the Sale, such Investor shall use all reasonable
efforts in a timely manner, to take, or cause to be
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<PAGE> 4
taken, all action and to do, or cause to be done, all
things necessary, proper or advisable, under
applicable laws and regulations (including, without
limitation, to ensure that all appropriate legal and
other requirements are met and all consents of third
persons are obtained), to consummate the sale of its
Shares pursuant to the proposed transactions
contemplated by this Section 1.2.
(c) At the closing of the Sale of Shares pursuant to this
Section 1.2, the consideration with respect to Shares
of any Investor sold pursuant hereto shall be paid
directly to such Investor pursuant to such Investor's
written instructions. The applicable Stockholder
shall furnish such other evidence of the completion
and time of completion of such Sale and the terms
thereof as shall be reasonably requested by any
selling Investor.
(d) No provision in this Section 1.2 shall require any
Investor to make any representation (other than as to
title, lack of encumbrances, due authorization,
power, no conflicts with such Investors instruments,
and enforceability and information relating solely to
such Investor) or provide any indemnification in any
such agreement and no right or obligation of any of
the Investors shall be conditioned upon the making of
such representation or the provision of such
indemnification.
1.3 Transfer by the Investors. Any proposed transfer of
Shares owned by the Investors shall be governed by Section 7(b) of their
respective stock purchase agreements.
1.4 Excluded Transfers. The foregoing restrictions
contained in this Section 1 shall not apply with respect to any transfer of
Stockholder Shares by any Stockholder pursuant to applicable laws of descent
and distribution or among such Stockholder's Family Group. Any attempted
transfer or other act in violation of this Section 1 shall be of no effect and
the attempted transferee or other party shall receive no rights in the
Stockholder Shares, and the Company agrees that it will not transfer any such
Stockholder Share on the stock transfer records of the Company. For purposes
of this Section 1, "Family Group" means a Stockholder's spouse and descendants
(whether natural or adopted) and any trust solely for the benefit of the
Stockholder and/or the Stockholder's spouse and/or descendants. In the event
of, and prior to, any sale or disposition permitted under this Section 1, the
transferring party shall cause the prospective transferee to execute and
deliver to the Company, HMTF, Premiere, Motorola and the other Stockholders a
counterpart of this Agreement.
2. Legend. Each certificate evidencing Shares of each
Stockholder ("Stockholder Shares") and each certificate issued in exchange for
or upon the transfer of any Stockholder Shares shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The securities represented by this certificate are subject to
a Stockholders Agreement dated December 31, 1996 among the issuer of
such securities (the "Company") and certain of the Company's
stockholders. A copy of such Stockholders Agreement will be furnished
without charge by the Company to the holder hereof upon written
request made to the Secretary of the Company."
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<PAGE> 5
The Company shall imprint such legend on certificates evidencing Stockholder
Shares outstanding prior to the date hereof.
3. Term. Section 1.1 of this Agreement shall terminate and cease
to be effective on the earlier of (i) the later of (x) the third anniversary
date of this Agreement or (y) when the Stockholders no longer own more than 50%
of the shares entitled to vote for the election of the board of directors of
the Company or (ii) immediately prior to the consummation of the Initial Public
Offering (as defined in Section 7(a) of the Purchase Agreement). This
Agreement (except as provided above) shall terminate and cease to be effective
upon the third anniversary of the Initial Public Offering (as defined in
Section 7(a) of the Purchase Agreement).
4. Miscellaneous.
4.1 Successors and Assigns. This Agreement and the terms
and conditions contained herein are binding upon, and will inure to the benefit
of, the parties hereto and their respective representatives, executors,
administrators, heirs, successors and permitted assigns. The Investors may
assign their rights and delegate their obligations and responsibilities
hereunder to any 50% (or greater) owned subsidiary, direct or indirect or any
general partner of HMTF or any 50% (or greater) owned subsidiary, direct or
indirect of Premiere or Motorola, without the Company's consent, but neither
this Agreement nor any rights or obligations hereunder may be assigned,
directly, indirectly, voluntarily or involuntarily, by the Company or any
Stockholders.
4.2 Governing Law; Severability. This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware,
excluding that body of law pertaining to conflict of laws. If any provision of
this Agreement is found to be invalid, illegal or unenforceable in any respect,
such provision will be enforced to the maximum extent possible and the
remaining provisions of this Agreement will continue unaffected.
4.3 Waivers. No waiver by any party hereto of any term
or condition of this Agreement will be effective unless set forth in a writing
signed by such party. No waiver of any provision of this Agreement will be
deemed a waiver of any other provision. No failure or delay on the part of any
party in exercising any right, remedy, power or privilege under this Agreement
will operate as a waiver thereof, nor will a single or partial exercise thereof
preclude any other or further exercise of any rights, remedies, powers or
privileges.
4.4 Entire Agreement; Modifications. This Agreement,
including the Schedule attached hereto, which is incorporated herein by
reference, constitutes the full Agreement among the parties hereto pertaining
to the subject matter hereof and supersedes in its entirety all prior and
contemporaneous agreements, understandings, negotiations and discussions of the
parties, whether oral or written, with respect to the subject matter hereof.
No supplement, modification or amendment to this Agreement will be binding
unless executed in writing by the party or parties against whom enforcement is
sought.
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<PAGE> 6
4.5 Counterparts and Expenses. This Agreement may be
executed in any number of counterparts. Each party shall be responsible for
its own expenses and fees incurred in connection with the negotiation,
execution and performance of the Agreement, and related documents, including
counsel fees, except as otherwise stated. The Company shall not pay or
reimburse the Stockholders for the expenses and fees of the Stockholders
incurred in connection with this Agreement.
4.6 Survival of Representations and Warranties. All
representations, warranties, covenants and other agreements contained herein
shall survive the Closing Date.
4.7 Notices. All notices which are permitted or required
under this Agreement shall be in writing and delivered personally or sent by
registered, certified, overnight or regular mail, postage prepaid, addressed as
follows, or to such other person or address as may be designated by notice to
the other party:
If to HMTF AudioNet Investors:
c/o Thomas O. Hicks
Patrick K. McGee
HMTF AudioNet Investors
200 Crescent Court
Suite 1600
Dallas Texas 75201-6950
with a copy to
Weil, Gotshal & Manges LLP
100 Crescent Court
Suite 1300
Dallas, Texas 75201
Attn: Glenn D. West
Telefax Number: 214/746-7777
If to Motorola
Motorola, Inc.
1303 E. Algonquin Road
Schaumburg, IL 60196
Attn: New Enterprises
Telefax Number: 214/746-7777
If to Premiere:
Premiere Radio Networks, Inc.
15260 Ventura Boulevard
Suite 500
Sherman Oaks, CA 91403
Attn: Steve Lehman, President
6
<PAGE> 7
If to the Stockholders:
c/o Mark Cuban
Todd Wagner
AudioNet, Inc.
2929 Elm Street
Dallas, Texas 75226
If to the Company:
AudioNet, Inc.
2929 Elm Street
Dallas, Texas 75226
Attn: Todd Wagner
With a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attn: Sean Griffiths, Esq.
Notices shall be deemed delivered when delivered personally or
received by telecopy or after being mailed by prepaid certified or registered
mail with return receipt requested or by such other method (including air
courier) which provides for a signed receipt upon delivery. The addresses and
numbers set forth above shall be conclusive for all purposes unless and until
written notice of a change of address shall be sent to the parties herein.
4.8 Further Action. Each party hereto shall take such further
action and shall execute and deliver such further documents as reasonably may
be requested by any other party in order to carry out the provisions and
purposes of this Agreement.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
HMTF AudioNet Investors
By: /s/ PATRICK McGEE
-------------------------
Name: Patrick McGee
Title: General Partner
AudioNet, Inc.
By: /s/ TODD WAGNER
----------------------------
Name: Todd Wagner
Title: CEO
Motorola, Inc.
By: /s/ STEVEN D. LEEKE 12/30/96
----------------------------
Name: Steven D. Leeke
Title: Dir. & GM ICS
Premiere Radio Networks, Inc.
By: /s/ HAROLD WROBEL
-------------------------
Name: Harold Wrobel
Title: Sr. Vice President
STOCKHOLDERS
/s/ MARK CUBAN
-----------------------------------
Mark Cuban
/s/ TODD R. WAGNER
-----------------------------------
Todd R. Wagner
8
<PAGE> 9
ADDENDUM TO DECEMBER STOCKHOLDERS AGREEMENT
This Addendum (the "Addendum") to December Stockholders Agreement
(attached hereto as Exhibit A) (the "December Agreement") is made and entered
into as of the 24th day of February 1997 by and among AudioNet Inc., a Delaware
corporation maintaining its principal office at 2929 Elm Street, Dallas, Texas
(the "Company"), Intel Corporation, a Delaware corporation maintaining its
principal office at 2200 Mission College Boulevard, Santa Clara, California
95052-8119 ("Intel"), and the Stockholders of the Company who have signed this
Addendum (individually a "Stockholder" and collectively the "Stockholders").
Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the December Agreement.
WHEREAS, the Stockholders currently own, beneficially and of record,
in the aggregate 129,694 shares of the outstanding Shares of the Company (on a
fully diluted basis).
WHEREAS, pursuant to the terms of a Stock Purchase and Warrant
Agreement, dated as of the date hereof, between the Company and Intel (the
"Stock and Warrant Purchase Agreement") Intel desires to purchase 4,905 shares
of common stock of the Company and a warrant to purchase shares of common stock
of the Company.
WHEREAS, a condition to Intel's obligation to purchase the shares of
common stock and warrant pursuant to the Stock and Warrant Purchase Agreement
is that Intel shall be entitled to all of the rights and bound by all of the
obligations of an "Investor" under the December Agreement.
WHEREAS, the Stockholders, in order to induce Intel to enter into the
Stock and Warrant Purchase Agreement, desire to grant rights to Intel as an
Investor under the December Agreement.
NOW, THEREFORE in consideration of the agreements set forth herein,
the parties hereto agree as follows:
1. Upon execution of this Addendum, Intel shall be entitled to all of
the rights of an Investor under the December Agreement, subject to and bound by
all of the terms, conditions, and covenants contained within the December
Agreement effective as of the date hereof
2. Each Stockholder hereby acknowledges that Intel is an Investor for
purposes of the December Agreement effective as of the date hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
effective as of the date first written above.
<PAGE> 10
AudioNet, Inc.
By: /s/ TODD WAGNER
------------------------------------
Name: TODD WAGNER
Title: CEO
Intel Corporation ------------
LEGAL OK
------------
PJT 2/22/97
------------
By: /s/ ARVIND SODHANI
------------------------------------
Name: ARVIND SODHANI
Title: Vice President and Treasurer
STOCKHOLDERS
/s/ MARK CUBAN
----------------------------------------
Mark Cuban
/s/ TODD R. WAGNER
----------------------------------------
Todd R. Wagner
2
<PAGE> 11
ADDENDUM TO DECEMBER STOCKHOLDERS AGREEMENT
This Addendum (the "Addendum") to December Stockholders Agreement
(attached hereto as Exhibit A) (the "December Agreement") is made and entered
into as of the 30th day of December 1997 by and among AudioNet Inc., a Delaware
corporation maintaining its principal office at 2929 Elm Street, Dallas, Texas
(the "Company"), Yahoo! Inc., a California corporation maintaining its
principal office at 3400 Central Expressway, Suite 201, Santa Clara, CA, 95951
("Yahoo"), and the Stockholders of the Company who have signed this Addendum
(individually a "Stockholder" and collectively the "Stockholders").
Capitalized terms used herein and not otherwise defined shall have the
meanings given to them in the December Agreement.
WHEREAS, the Stockholders currently own, beneficially and of record,
in the aggregate 7,257,840 shares of the outstanding Shares of the Company (on
a fully diluted basis).
WHEREAS, pursuant to the terms of a Stock Purchase Agreement, dated as
of the date hereof, among the Company, Yahoo, Motorola, Inc. and Intel
Corporation (the "Stock Purchase Agreement") Yahoo desires to purchase 79,618
shares of common stock of the Company.
WHEREAS, a condition to Yahoo's obligation to purchase the shares of
common stock pursuant to the Stock Purchase Agreement is that Yahoo shall be
entitled to all of the rights and bound by all of the obligations of an
"Investor" under the December Agreement.
WHEREAS, the Stockholders, in order to induce Yahoo to enter into the
Stock Purchase Agreement, desire to grant rights to Yahoo as an Investor under
the December Agreement.
NOW, THEREFORE in consideration of the agreements set forth herein,
the parties hereto agree as follows:
1. Upon execution of this Addendum, Yahoo shall be entitled to all of
the rights of an Investor under the December Agreement, subject to and bound by
all of the terms, conditions, and covenants contained within the December
Agreement effective as of the date hereof
2. Each Stockholder hereby acknowledges that Yahoo is an Investor for
purposes of the December Agreement effective as of the date hereof
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
December Stockholders Agreement effective as of the date first written above.
AudioNet, Inc.
By: /s/ TODD WAGNER
------------------------------------
Name: Todd Wagner
Title: CEO
Yahoo! Inc.
By: /s/ TIM KOOGLE
------------------------------------
Name: Tim Koogle
Title: President and CEO
STOCKHOLDERS
/s/ MARK CUBAN
---------------------------------------
Mark Cuban
/s/ TODD WAGNER
---------------------------------------
Todd R. Wagner
2
<PAGE> 1
EXHIBIT 10.6
NETWORK RADIO SALES REPRESENTATION AGREEMENT
THIS AGREEMENT made and entered into this 15th day of November 1996, between
AudioNet, Inc., a Delaware corporation ("Supplier) and Premiere Radio Networks,
Inc., a Delaware corporation ("Representative").
APPOINTMENT AND TERM
1. Supplier appoints Representative as its [*] representative for the sale of
network radio broadcast time ("Inventory") to [*] acquired by Supplier
from its Internet services provided to radio stations, [*]. This Agreement
shall be for a period of [*] Qualified Inventory shall be defined as
contiguous blocks of at least seven minutes per week of non-preemptible
6:00 a.m. to 12:00 midnight radio station commercial inventory. [*]
SCOPE OF SERVICES
2. Representative shall use commercially reasonable efforts to effect national
sales and sell radio broadcast time on the Inventory on terms subject to
the approval of Supplier prior to booking. Supplier agrees to cooperate to
the extent necessary
* Confidential Treatment Requested
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<PAGE> 2
with Representative and to supply Representative with all current
information relating to Supplier, including its staff, radio station
affiliations and similar matters necessary to effect such sales.
Representative shall cooperate with Supplier and provide Supplier with
services, facilities and personnel to carry out the terms of this
Agreement.
AREA OF SERVICE
3. Representative shall function under this Agreement in the radio markets of
[*].
COMPENSATION
4. Supplier shall pay Representative a commission for all sales of the
Inventory made by the Representative during the term hereof, including any
extension of this Agreement. The commission paid to Representative shall be
[*] of net revenues provided that in the event of barter sales, (i.e.
non-cash), the commission paid to Representative shall be [*] of the net
barter revenues actually collected by Representative on behalf of the
Supplier from sales of Inventory. Supplier shall have the option to not
participate in any barter sales. "Net revenues" shall be defined as
[*]. The term "net barter revenues" shall mean the [*]. Commissions payable
with respect to net revenues shall be paid in cash; commissions payable
with respect to net barter revenues shall be paid in barter.
Representative shall bill and collect on behalf of Supplier, and send
Supplier by the fifteenth of each month following the broadcast month, a
detailed statement of actual commercials broadcast in that broadcast month
along with all amounts collected and accounts receivable credited that are
applicable to the Inventory. Representative shall first deduct from said
collected amounts the commissions due to Representative as determined under
Section 4 above and shall then pay to Supplier an amount equal to the
remainder.
5. [*] Any Commission paid or payable to Representative or any agency with
respect to the sale of such Inventory shall be appropriately adjusted
such that Supplier pays no commissions with respect to the rebates,
credits or refunds.
6. Supplier acknowledges that the network radio inventory is sold in packages
encompassing several programs and services together. Supplier agrees that
the Inventory will be sold in conjunction (packaged) with other program
and/or services inventory. The valuation allocated to the Inventory shall
be based on
* Confidential Treatment Requested
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<PAGE> 3
its Arbitron Average Quarter Hour ("AQH") audience contribution to the
package as compared to the audience level of the other inventory packaged
along with it. For example, if the AQH audience level of the Inventory
represents 20% of the total audience of the network on a particular
advertiser buy, then the Inventory shall be allocated 20% of that network
buy. Example: if the Inventory is packaged with PNI inventory, and the
Inventory represents 200,000 of the 1,000,000 total AQH, then the Inventory
shall be allocated 20% of the revenues on that particular buy.
[*]
OTHER PROVISIONS
7. Supplier shall have the right to audit Representative's financial records
concerning this Agreement twice in any twelve month period, upon one week's
written notice, and provided that said audit is conducted during normal
business hours. Representative shall cooperate fully with such audit and
shall make its officers and employees available to the Company's auditors.
8. No waiver by Representative or Supplier shall be effective unless made in
writing and signed by it. No representations are made except as expressly
set forth herein. This is the only Agreement concerning the subject matter
hereof between the parties. It may not be changed or terminated except in
writing signed by both parties.
9. This Agreement shall be binding upon and inure to the benefit of all
successors and assigns of the parties hereto; provided, however, that
neither party shall assign their rights and/or obligations hereunder to any
third party without the prior written consent of the other except for
assignments to entities controlling, controlled by or under common control
with such party, and except in connection with a sale of substantially all
of the assets of the assigning party.
10. This Agreement shall be construed and enforced in accordance with the laws
of the State of New York as if this Agreement were made and to be performed
entirely within New York.
11. The terms of this Agreement shall be held strictly confidential and may not
be disclosed without the prior written consent of both parties.
12. (a) All disputes between the Supplier and Representative arising out of or
in connection with the execution, interpretation and performance of this
Agreement (including the validity, scope and enforceability of this
arbitration provision) shall
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<PAGE> 4
be solely and finally settled by arbitration. The arbitration proceedings
shall be held in New York, New York and shall be conducted in accordance
with the commercial arbitration rules of the American Arbitration
Association ("AAA Rules"). The arbitration shall be governed by the
provisions of the Federal Arbitration Act unless otherwise provided herein,
and shall be conducted by a sole arbitrator appointed by the American
Arbitration Association (the "Arbitrator"). In case of conflict between the
AAA Rules and this Agreement, the provision of this Agreement shall govern.
All arbitrations commenced with respect to this Agreement shall be
consolidated for hearing before a sole Arbitrator as prescribed herein.
(b) If a party hereto determines to submit a dispute for arbitration
pursuant to this Paragraph 12, such party (the "Petitioner") shall furnish
the party with whom it has the dispute (the "Respondent") with a dated,
written statement (the "Arbitration Notice") indicating (i) such party's
intent to commence arbitration proceedings, (ii) such nature, with
reasonable detail, of the dispute, and (iii) the remedy such party will
seek. A copy of the Arbitration Notice shall be concurrently provided to
the AAA along with a copy of this Agreement and a request to appoint an
Arbitrator.
(c) At any time within 40 days after the date of the Arbitration Notice,
the Petitioner and Respondent can make discovery requests of the other in
any form permitted under the United States Federal Rules of Civil
Procedure. The recipient of a discovery request shall have 10 days after
the receipt of such request to object to any or all portions of such
request and shall respond to any portions of such request not so objected
to within 20 days of the receipt of such request. All objections shall be
in writing and shall indicate the reasons for such objections. The
objecting party shall insure that all objections and responses are received
by other parties within the above time periods. Any party seeking to compel
discovery following receipt of an objection shall file with the other
parties and the Arbitrator a motion to compel, including a copy of the
initial request and the objection. The Arbitrator shall allow five days for
responses to the motion to come before ruling. Claims of privilege and
other objections shall be determined as they would be in United States
federal court in a case applying New York law.
(d) Hearings must commence no later than the 83rd day following the date of
the Arbitration Notice and such hearings shall be conducted for no more
than five days, unless otherwise agreed by the parties or ordered by the
Arbitrator.
(e) Each of the Petitioner and Respondent shall submit a brief, outlining
each party's claim for relief or defense to any claim, to the other and to
the Arbitrator on or before the 10th day following the last day of the
hearing. Reply briefs must be exchanged and submitted to the Arbitrator on
or before the 20th day following the last day of the hearing. The
Arbitrator shall render the decision that, in its judgment, is most
consistent with the terms of this Agreement and applicable law.
(f) The foregoing time periods and procedural steps may be modified or
extended by agreement of the parties or by the Arbitrator in its discretion
to the extent it deems necessary to prevent fundamental unfairness;
provided that at all times the Arbitrator shall be mindful of the parties'
desire for the most expeditious possible
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<PAGE> 5
resolution of their disputes; and provided further, that a final decision
of the Arbitrator shall be rendered within 120 days of the Arbitration
Notice.
(g) To the extent permissible under applicable law, the parties hereto
agree that the award of the Arbitrator shall be final and shall be subject
only to the judicial review permitted by the Federal Arbitration Act.
Judgment on the arbitration award may be entered and enforced in any court
having jurisdiction over the parties or their assets. It is the intent of
the parties that the arbitration provisions hereof be enforced to the
fullest extent permitted by applicable law. In no event shall any demand
for arbitration be made after the date that institution of legal or
equitable proceedings based upon the claim, dispute or other matter would
be barred by the applicable statute of limitations or otherwise barred by
this Agreement.
(h) The Arbitrator may not award punitive damages and the parties hereby
irrevocably waive any right to punitive damages.
13. Notices shall be sent to each party as follows:
TO SUPPLIER TO REPRESENTATIVE
AudioNet, Inc. Premiere Radio Networks, Inc.
Attention: Todd Wagner Attention: Steve Lehman, President
2929 Elm Street 15260 Ventura Boulevard, Suite 500
Dallas, Texas 75226 Sherman Oaks, CA 91403
With a copy to:
Gibson, Dunn & Crutcher LLP
Attention: Sean P. Griffiths, Esq.
200 Park Avenue
New York, New York 10166
Agreed to and Accepted:
AudioNet, Inc. Premiere Radio Networks, Inc.
By /s/ MARK CUBAN By /s/ STEVE LEHMAN
----------------------------------- --------------------------------
Mark Cuban, Chief Executive Officer Steve Lehman, President
5
<PAGE> 6
EXHIBIT A
[PREMIERE LETTERHEAD]
[*]
* Confidential Treatment Requested
<PAGE> 1
EXHIBIT 10.7
BROADCAST.COM INC
1998 EMPLOYEE STOCK PURCHASE PLAN
The following constitutes the provisions of the broadcast.com inc 1998
Employee Stock Purchase Plan (the "PLAN").
1. PURPOSE.
The purpose of the Plan is to maintain competitive equity compensation
programs and to provide employees of broadcast.com inc. (the "COMPANY") with an
opportunity and incentive to acquire a proprietary interest in the Company
through the purchase of the Company's Common Stock, thereby more closely
aligning the interests of the Company's employees and shareholders. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended
("Section 423"). Accordingly, the provisions of the Plan shall be construed to
extend and limit participation consistent with the requirements of SECTION 423.
2. DEFINITIONS.
Capitalized terms used in this Plan and not otherwise defined have the
meanings set forth below.
"ADMINISTRATOR" means the Compensation Committee, or the Board if the
Board asserts administrative authority over the Plan pursuant to Section 13.
"BOARD" means the Board of Directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMON STOCK" shall mean the Common Stock of the Company.
"COMPENSATION" means with respect to each participant for each pay
period, the full base salary or hourly compensation and any cash bonus paid to
such participant. Except as otherwise determined by the Compensation Committee
for all participants, "Compensation" does not include (i) commissions, overtime
pay or shift premiums, (ii) any amount contributed on behalf of a participant to
any pension plan or plan of deferred compensation, (iii) any automobile or
relocation allowances (or reimbursement for any such expenses), (iv) any amounts
realized as compensation from the exercise of qualified or nonqualified stock
options, (v) any amounts paid as a starting bonus or finder's fee, (vi) any
amounts paid to a participant in the form of fringe benefits, such as health and
welfare, hospitalization, and group life insurance benefits, or perquisites, or
paid in lieu of such benefits, such as cash-out credits generated under a plan
qualified under Code Section 125 or (vii) other similar forms of extraordinary
compensation.
"COMPENSATION COMMITTEE" means a committee of members of the Board
meeting the qualifications described in Section 12 and appointed by the Board to
administer the Plan.
"ELIGIBLE EMPLOYEE" means an Employee who has been an Employee for at
least six months.
<PAGE> 2
"EMPLOYEE" means any individual who is customarily employed for at
least twenty (20) hours per week and more than five (5) months in a calendar
year by the Company or a Subsidiary that is permitted to participate in the Plan
under Section 15(b). For purposes of the Plan, the employment relationship shall
be treated as continuing while the individual is on sick leave or other leave of
absence approved by the Company, except that when the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
"ENROLLMENT DATE" means the first day of each Offering Period.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXERCISE DATE" means the last day of each Offering Period, i.e. March
31, 1997 and each September 30 and March 31 thereafter for the duration of the
Plan.
"FAIR MARKET VALUE" of the Common Stock on any date means the value of
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including, without limitation, the Nasdaq
National Market, its Fair Market Value shall be the closing sales price for such
stock (or the closing bid, if no sales were reported), as quoted on such
exchange or system (or the exchange or system with the greatest volume of
trading in the Common Stock) on the date of such determination (or, if such date
is not a Trading Day, then on the next preceding Trading Day), as reported in
the Wall Street Journal or such other source as the Administrator deems
reliable; or
(2) If the Common Stock is quoted on the National Association
of Securities Dealers Automated Quotation System (but not on the Nasdaq National
Market) or is regularly quoted by a recognized securities dealer but selling
prices are not reported, its Fair Market Value shall be the mean between the
high and low asked prices for the Common Stock on the date of such determination
(or, if such date is not a Trading Day, then on the next preceding Trading Day),
as reported in the Wall Street Journal or such other source as the Administrator
deems reliable; or
(3) In the absence of an established market for the Common
Stock, the Fair Market Value of the Common Stock shall be determined in good
faith by the Administrator.
"OFFERING PERIOD" means each period of six (6) months, either (i)
commencing on August 15, 1998 and each August 15 thereafter for the duration of
the Plan and terminating on the February 14 six (6) months later, or (ii)
commencing on February 15, 1998 and each February 15 thereafter for the duration
of the Plan and terminating on the August 14 six (6) months later, provided that
the initial Offering Period shall commence as soon as practicable following
consummation of the Company's initial public offering. The Administrator shall
have the power to change the duration of Offering Periods without shareholder
approval as set forth in Section 11 or if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first Offering Period
to be affected.
"OPTION" means the option granted to each participant pursuant to
Section 4 upon enrollment in an Offering Period.
"PERIODIC EXERCISE LIMIT" has the meaning set forth in Section 4(a).
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<PAGE> 3
"PLAN ACCOUNT" means an account maintained by the Company for each
participant in the Plan, to which are credited the payroll deductions made for
such participant pursuant to Section 5 and from which are debited amounts paid
for the purchase of shares upon exercise of such participant's Option pursuant
to Section 6.
"PURCHASE PRICE" as of any Exercise Date means an amount equal to 85%
of the Fair Market Value of a share of Common Stock on the Exercise Date or on
the Enrollment Date for the Offering Period in which such Exercise Date occurs,
whichever is lower.
"RESERVES" means the number of shares of Common Stock covered by each
Option that have not yet been exercised and the number of shares of Common Stock
that have been authorized for issuance under the Plan, but not yet placed under
Option.
"RULE 16b-3" means Rule 16b-3 under the Exchange Act and any successor
provision.
"SUBSIDIARY" has the meaning as set forth under Section 424(f) of the
Code.
"TRADING DAY" means a day on which national stock exchanges and the
National Association of Securities Dealers Automated Quotation System are open
for trading.
3. OFFERING PERIODS AND PARTICIPATION.
The Plan shall be implemented through a series of consecutive Offering
Periods. An Eligible Employee may enroll in an Offering Period by delivering a
subscription agreement in the form of Exhibit A hereto to the Company's payroll
office at least five (5) business days prior to the Enrollment Date for that
Offering Period. A subscription agreement in effect for a Plan participant for a
particular Offering Period shall continue in effect for subsequent Offering
Periods if the participant remains an Eligible Employee and has not withdrawn
pursuant to Section 7.
4. OPTIONS.
(a) Grants. On the Enrollment Date for each Offering Period, each
Eligible Employee participating in such Offering Period shall be granted an
Option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to that number of shares of Common Stock
determined by dividing $12,500 by the Fair Market Value of a share of Common
Stock on the Enrollment Date (such number of shares being the "Periodic Exercise
Limit"). The Option shall expire immediately after the Exercise Date of the
Offering Period.
(b) Grant Limitations. Any provisions of the Plan to the contrary
notwithstanding, no participant shall be granted an Option under the Plan:
(i) if, immediately after the grant, such participant (taking
into account stock held by other persons that is attributed to such
Employee pursuant to Section 424(d) of the Code) would own stock and/or
hold outstanding options to purchase stock possessing five percent (5%)
or more of the total combined voting power or value of all classes of
stock of the Company or of any Subsidiary (as determined under Treasury
Regulations Section 1.423-2(d)); or
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<PAGE> 4
(ii) which permits such participant's rights to purchase stock
under all employee stock purchase plans of the Company and its
Subsidiaries to accrue at a rate that exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the Fair Market Value
of the shares at the time such Option is granted) in any calendar year.
(c) No Rights in Respect of Underlying Stock. The participant will have
no interest or voting right in shares covered by an Option until such Option has
been exercised.
5. PAYROLL DEDUCTIONS.
(a) Participant Designations. The subscription agreement applicable to
an Offering Period shall designate payroll deductions to be made on each payday
during the Offering Period as a whole number percentage not exceeding ten
percent (10%) of such Eligible Employee's Compensation for the pay period
preceding such payday, provided that the aggregate of such payroll deductions
during the Offering Period shall not exceed ten percent (10%) of the
participant's Compensation during said Offering Period.
(b) Plan Account Balances. The Company shall make payroll deductions as
specified in each participant's subscription agreement on each payday during the
Offering Period and credit such payroll deductions to such participant's Plan
Account. A participant may not make any additional payments into such Plan
Account. No interest will accrue on any payroll deductions. All payroll
deductions received or held by the Company under the Plan may be used by the
Company for any corporate purpose, and the Company shall not be obligated to
segregate such payroll deductions.
(c) Participant Changes. A participant may discontinue his or her
participation in the Plan as provided in Section 7, or may increase or decrease
(subject to such limits as the Administrator may impose) the rate of his or her
payroll deductions during any Offering Period by filing with the Company a new
subscription agreement authorizing such a change in the payroll deduction rate.
The change in rate shall be effective with the first full payroll period
following five (5) business days after the Company's receipt of the new
subscription agreement, unless the Company elects to process a given change in
participation more quickly.
(d) Decreases. Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 4(b) herein, a
participant's payroll deductions may be decreased to 0% at such time during any
Offering Period that is scheduled to end during a calendar year (the "Current
Purchase Period") when the aggregate of all payroll deductions previously used
to purchase stock under the Plan in a prior Offering Period which ended during
that calendar year plus all payroll deductions accumulated with respect to the
Current Purchase Period equal $21,250. Payroll deductions shall recommence at
the rate provided in such participant's subscription agreement at the beginning
of the first Offering Period that is scheduled to end in the following calendar
year, unless terminated by the participant as provided in Section 7.
(e) Tax Obligations. At the time of each exercise of a participant's
Option, and at the time any Common Stock issued under the Plan to a participant
is disposed of, the participant must adequately provide for the Company's
federal, state, or other tax withholding obligations, if any, that arise upon
the exercise of the Option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable
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<PAGE> 5
withholding obligations, including any withholding required to make available to
the Company any tax deductions or benefit attributable to sale or early
disposition of Common Stock by the Employee.
(f) Statements of Account. The Company shall maintain each
participant's Plan Account and shall give each Plan participant a statement of
account at least annually. Such statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any, for the period covered.
6. EXERCISE OF OPTIONS.
(a) Automatic Exercise on Exercise Dates. Unless a participant
withdraws as provided in Section 7, his or her Option for the purchase of shares
will be exercised automatically on the Exercise Date of the Offering Period in
which such participant is enrolled for the maximum number of shares of Common
Stock, including fractional shares, as can then be purchased at the applicable
Purchase Price with the payroll deductions accumulated in such participant's
Plan Account and not yet applied to the purchase of shares under the Plan,
subject to the Periodic Exercise Limit. During a participant's lifetime, a
participant's Options to purchase shares hereunder are exercisable only by the
participant.
(b) Delivery of Shares. As promptly as practicable after each Exercise
Date on which a purchase of shares occurs, the Company shall arrange the
delivery to each participant, as appropriate, of a certificate or book entry
transfer representing the shares purchased upon exercise of his or her Option,
provided that the Company may in its discretion hold fractional shares for the
accounts of the participants pending aggregation to whole shares.
(c) Compliance with Law. Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant thereto comply with all applicable provisions of law, domestic
or foreign, including, without limitation, the Securities Act of 1933, as
amended, the Exchange Act, the rules and regulations promulgated thereunder, and
the requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance. As a condition to the exercise of an Option, the
Company may require the participant for whom an Option is exercised to represent
and warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute such
shares if, in the opinion of counsel for the Company, such a representation is
required by any of the aforementioned applicable provisions of law. Shares
issued upon purchase under the Plan may be subject to such transfer restrictions
and stop-transfer instructions as the Administrator deems appropriate.
(d) Excess Plan Account Balances. If, due to application of the
Periodic Exercise Limit, there remains in a participant's Plan Account
immediately following exercise of such participant's Option on an Exercise Date
any cash accumulated during the Purchase Period immediately preceding such
Exercise Date and not applied to the purchase of shares under the Plan, such
cash shall promptly be returned to the participant.
7. WITHDRAWAL: TERMINATION OF EMPLOYMENT.
(a) Voluntary Withdrawal. Subject to Section 15(g), a participant may
withdraw from an Offering Period by giving written notice to the Company's
payroll office at least five (5) business days prior to the Exercise Date. Such
withdrawal shall be effective beginning five business days after receipt by the
Company's payroll office of notice thereof. On or promptly
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<PAGE> 6
following the effective date of any withdrawal, all (but not less than all) of
the withdrawing participant's payroll deductions credited to his or her Plan
Account and not yet applied to the purchase of shares under the Plan will be
paid to such participant, and on the effective date of such withdrawal such
participant's Option for the Offering Period will be automatically terminated,
and no further payroll deductions for the purchase of shares will be made during
the Offering Period. If a participant withdraws from an Offering Period, payroll
deductions will not resume at the beginning of any succeeding Offering Period
unless the participant delivers to the Company a new subscription agreement with
respect thereto.
(b) Termination of Employment. Promptly after a participant's ceasing
to be an Employee for any reason the payroll deductions credited to such
participant's Plan Account and not yet applied to the purchase of shares under
the Plan will be returned to such participant or, in the case of his or her
death, to the person or persons entitled thereto under Section 9, and such
participant's Option will be automatically terminated, provided that, if the
Company does not learn of such death more than five (5) business days prior to
an Exercise Date, payroll deductions credited to such participant's Plan account
may be applied to the purchase of shares under the Plan on such Exercise Date.
8. TRANSFERABILITY.
Neither payroll deductions credited to a participant's Plan Account nor
any rights with regard to the exercise of an Option or to receive shares under
the Plan may be assigned, transferred, pledged or otherwise disposed of by the
participant in any way other than by will, the laws of descent and distribution
or as provided in Section 9 hereof. Any such attempt at assignment, transfer,
pledge or other disposition shall be without effect, except that the
Administrator may treat such act as an election to withdraw from an Offering
Period in accordance with Section 7. The Administrator may, in its discretion
and consistent with applicable law, restrict the transfer of shares purchased
under the Plan by imposing a holding period not to exceed one year from the date
of issuance.
9. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to
receive any cash from the participant's Plan Account in the event of such
participant's death and any shares purchased for the participant upon exercise
of his or her Option but not yet issued. If a participant is married and the
designated beneficiary is not the spouse, spousal consent may be required for
such designation to be effective. A designation of beneficiary may be changed by
a participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
10. STOCK.
The maximum number of shares of the Company's Common Stock that shall
be made available for sale under the Plan shall be 250,000 shares, subject to
adjustment upon changes in capitalization of the Company as provided in Section
11. If on a given Enrollment Date or Exercise Date the number of shares with
respect to which Options are to be granted or exercised
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<PAGE> 7
exceeds the number of shares then available under the Plan, the Administrator
shall make a pro rata allocation of the shares remaining available for purchase
in as uniform a manner as shall be practicable and as it shall determine to be
equitable. Shares of Common Stock subject to unexercised Options that expire,
terminate or are cancelled will again become available for the grant of further
Options under the Plan.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the Reserves as well as the Purchase Price,
Periodic Exercise Limit, and other characteristics of the Options, shall be
appropriately and proportionately adjusted for any increase or decrease or
exchange in the issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, exchange or any other increase or decrease in the number of shares
of Common Stock effected without receipt of consideration by the Company;
provided, however, that conversion of any convertible securities of the Company
shall not be deemed to have been "effected without receipt of consideration."
Such adjustment shall be made by the Administrator, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option. The Administrator may, if it so determines
in the exercise of its sole discretion, provide for adjusting the Reserves, as
well as the Purchase Price, Periodic Exercise Limit, and other characteristics
of the Options, in the event the Company effects one or more reorganizations,
recapitalizations, rights offerings or other increases or reductions of shares
of its outstanding Common Stock.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the pending Offering Period will
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Administrator, and all Plan Account balances will be
paid to participants as appropriate consistent with applicable law.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger or other
combination (the "TRANSACTION") of the Company with or into another entity, each
Option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor entity or a parent or subsidiary of such successor
entity, unless the Administrator determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Exercise Date (the "NEW
EXERCISE DATE"). If the Administrator shortens the Offering Period then in
progress in lieu of assumption or substitution, the Administrator shall notify
each participant in writing, at least ten (l0) days prior to the New Exercise
Date, that the Exercise Date for such participant's Option has been changed to
the New Exercise Date and that such participant's Option will be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 8
(provided that, in such case, the participant's withdrawal shall be effective if
notice thereof is delivered to the Company's payroll office at least two (2)
business days prior to the New Exercise Date). For purposes of this Section, an
Option granted under the Plan shall be deemed to be assumed if, following the
Transaction, the Option confers the right to purchase at the Purchase Price
(provided that for such purposes the Fair Market Value of the Common Stock on
the New Exercise Date shall be the value per share of the consideration paid in
the Transaction), for each share of stock subject to the Option immediately
prior to the Transaction, the consideration (whether stock, cash or other
securities or property) received in the Transaction by holders of
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Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the Transaction was not solely common equity of the successor entity or its
parent (as defined in Section 424(e) of the Code), the Administrator may, with
the consent of the successor entity and the participant, provide for the
consideration to be received upon exercise of the Option to be solely common
equity of the successor entity or its parent equal in fair market value to the
per share consideration received by holders of Common Stock in the Transaction.
12. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee, which
shall have the authority to construe, interpret and apply the terms of the Plan
and any agreements defining the rights and obligations of the Company and
participants under the Plan, to prescribe, amend, and rescind rules and
regulations relating to the Plan, to determine eligibility and to adjudicate all
disputed claims filed under the Plan, and to make all other determinations
necessary or advisable for the administration of the Plan. The Administrator
may, in its discretion, delegate ministerial responsibilities under the Plan to
the Company. Every finding, decision and determination made by the Compensation
Committee shall, to the full extent permitted by law, be final and binding upon
all parties. Any action of the Compensation Committee shall be taken pursuant to
a majority vote or by the unanimous written consent of its members. The
Compensation Committee shall consist of three or more members of the Board, each
of whom shall be disinterested within the meaning of Rule 16b-3, provided,
however, that the number of members of the Compensation Committee may be reduced
or increased from time to time by the Board to the number required or allowed by
Rule 16b-3. The Board may from time to time in its discretion exercise any
responsibilities or authority allocated to the Compensation Committee under the
Plan. No member of the Compensation Committee or any designee thereof will be
liable for any action or determination made in good faith with respect to the
Plan or any transaction arising under the Plan.
13. AMENDMENT OR TERMINATION.
(a) Administrator's Discretion. The Administrator may, at any time and
for any reason, terminate or amend the Plan. Except as provided in Section 11,
no such termination can affect Options previously granted, provided that an
Offering Period may be terminated by the Administrator on any Exercise Date if
the Administrator determines that such termination is in the best interests of
the Company and its shareholders. Except as provided herein, no amendment may
make any change in any Option theretofore granted that adversely affects the
rights of any participant. To the extent necessary to comply with and qualify
under Rule 16b-3 or under Section 423 (or any successor rule or provision or any
other applicable law or regulation), the Administrator shall obtain shareholder
approval of amendments to the Plan in such a manner and to such a degree as
required.
(b) Administrative Modifications. Without shareholder consent (except
as specifically required by applicable law or regulation) and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Administrator shall be entitled to amend the Plan to the extent
necessary to comply with and qualify under Rule 16b-3 and Section 423, change
the duration of the Offering Period, limit the frequency and/or number of
changes in payroll deductions during an Offering Period, establish the exchange
ratio applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a participant
to adjust for delays or mistakes in the
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Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Administrator determines in its sole discretion to be advisable and which
are consistent with the Plan.
14. TERM OF PLAN.
The Plan shall become effective upon the first Enrollment Date after
its approval by the shareholders of the Company and shall continue in effect for
a term of ten (10) years unless sooner terminated pursuant to Section 13.
15. MISCELLANEOUS.
(a) Notices. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
(b) Subsidiaries. The Administrator may from time to time in its
discretion permit Employees of any Subsidiary to participate in the Plan on the
same terms as Eligible Employees hereunder.
(c) Shareholder Approval. The Plan shall be subject to approval by the
shareholders of the Company within twelve months before or after the date the
Board adopts the Plan. If such shareholder approval is not obtained, the Plan
and all rights to the Common Stock purchased under the Plan shall be null and
void and shall have no effect.
(d) Expenses. All costs and expenses incurred in administering the Plan
shall be paid by the Company, except that any stamp duties or transfer taxes
applicable to participation in the Plan may be charged to the account of such
participant by the Company. Any brokerage fees for the purchase of shares by a
participant shall be paid by the Company, but any brokerage fees for the sale of
shares by a participant shall be borne by the participant.
(e) Equal Rights and Privileges. All Employees of the Company (or of
any Subsidiary that is permitted to participate in the Plan under Section 15(b))
shall have equal rights and privileges under the Plan so that the Plan qualifies
as an "employee stock purchase" within the meaning of Section 423 (or any
successor provision of the Code) and the Treasury regulations thereunder. Any
provision of the Plan which is inconsistent with Section 423 (or any successor
provision of the Code) or applicable Treasury regulations shall, without further
act or amendment by the Company or the Board, be reformed to comply with the
requirements of Section 423 (or any successor provision of the Code) or
applicable Treasury regulations. This Section 15(e) shall take precedence over
all other provisions of the Plan.
(f) Exclusion From Retirement and Fringe Benefit Computation. To the
extent not prohibited by statutory law, no portion of the award of Options under
this Plan shall be taken into account as "wages," "salary," or other
"compensation" for any purpose, whether in determining eligibility, benefits, or
otherwise, under (i) any pension, retirement, profit sharing or other qualified
or nonqualified plan of deferred compensation, (ii) any employee welfare or
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fringe benefit plan including, but not limited to, group insurance,
hospitalization, medical, and disability, or (iii) any form of extraordinary
pay including but not limited to, bonuses, sick pay, and vacation pay.
(g) Additional Restrictions of Rule 16b-3. The terms and conditions of
Options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such Options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions. Without limitation of the foregoing, the election
by a person subject to Section 16 of the Exchange Act to enroll in an Offering
Period may be made irrevocable for specific Purchase Period within the Offering
Period.
(h) No Employment Rights. The Plan does not, directly or indirectly,
create any right for the benefit of an employee or class of employees to
purchase any shares under the Plan, or create in any employee or class of
employees any right with respect to continuation of employment by the Company,
and it shall not be deemed to interfere in any way with the Company's right to
terminate, or otherwise modify, an employee's employment at any time.
(i) Applicable Law. The laws of the State of California shall govern
all matters relating to the Plan, except to the extent (if any) superseded by
the laws of the United States.
(j) Headings. Headings used herein are for convenience of reference
only and do not affect the meaning or interpretation of the Plan.
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BROADCAST.COM INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. The undersigned hereby elects to participate in the broadcast.com 1998
Employee Stock Purchase Plan (the "Plan") and subscribes to purchase
shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount
of ____% (not to exceed 10%) of my Compensation (as defined in the
Plan) on each payday during the Offering Period in accordance with the
Plan. (Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Plan. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions
will be used to automatically exercise my Option on the Exercise Date
of the Offering Period.
4. I have received a copy of the complete Plan. I understand that my
participation in the Plan is in all respects subject to the terms of
the Plan, that capitalized terms used herein have the same meanings as
ascribed thereto in the Plan, and that in case of any inconsistency
between this Subscription Agreement and the Plan, the Plan shall
govern. I understand that the grant of the Option by the Company under
this Subscription Agreement is subject to shareholder approval of the
Plan.
5. Shares purchased for me under the Plan should be issued in the name(s)
of (employee and/or spouse only):
----------------------------------
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6. I understand that if I dispose of any shares received by me pursuant
to the Plan within two years after the Enrollment Date (the first day
of the Offering Period during which I purchased such shares) or within
one year after the Exercise Date (the date I purchased such shares), I
will be treated for federal income tax purposes as having received
ordinary income at the time of such disposition in an amount equal to
the excess of the fair market value of the shares at the time such
shares were delivered to me over the price which I paid for the shares.
I hereby agree to notify the Company in writing within 30 days after
the date of any disposition of my shares, and I will make adequate
provision for Federal, State or other tax withholding obligations, if
any, which arise upon the disposition of the Common Stock. The Company
may, but will not be obligated to, withhold from my Compensation or
other amounts payable to me the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make
available to the Company any tax deductions or benefits attributable to
sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the one-year and two-year
holding periods described above, I understand that I will be treated
for federal income tax purposes as having received income only at the
time of such disposition, and that such income will be taxed as
ordinary income only to the extent of an amount equal to the lesser of
(a) the excess of the fair market value of the shares at the time of
such disposition over the purchase price which I paid for the shares,
or (b) 15% of the fair
<PAGE> 12
market value of the shares on the first day of the Offering Period. The
remainder of the gain, if any, recognized on such disposition will be
taxed as capital gain. I understand that this tax summary is only a
summary for general information purposes and is subject to change and I
agree to consult with my own tax advisors for definitive advice
regarding the tax consequences to me of participation in the Plan and
sale of shares purchased thereunder.
7. I agree to be bound by the terms of the Plan. The effectiveness of this
Subscription Agreement is dependent upon my eligibility to participate
in the Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive (in proportion to the percentages listed
below) all payments and shares due me under the Plan (use additional
sheets to add beneficiaries):
NAME: (Please print)
-----------------------------------------------
(First) (Middle) (Last)
------------------------------ ---------------------------------
Relationship
Percentage:
----------- ---------------------------------
(Address)
NAME: (Please print)
-----------------------------------------------
(First) (Middle) (Last)
------------------------------ ---------------------------------
Relationship
Percentage:
------------ ---------------------------
(Address)
Employee's Social
Security Number:
--------------------------
Employee's Address:
--------------------------
--------------------------
--------------------------
--------------------------
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:
-------------------------- -------------------------------------
Signature of Employee
--------------------------------------
Spouse's Signature (If beneficiary
other than spouse)
2
<PAGE> 1
EXHIBIT 10.8
AUDIONET, INC.
1996 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF FEBRUARY 1, 1997)
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Plan and not otherwise defined
shall have the meanings set forth below:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Commission" shall mean the Securities and Exchange
Commission.
(c) "Committee" shall mean the committee appointed by the
Board to administer the Plan and consisting of two Board members, each of whom,
during such time as one or more Eligible Persons may be subject to Section l6 of
the Exchange Act, shall be disinterested within the meaning of Rule 16b-3 under
the Exchange Act; provided however, that the number of members of the Committee
may be reduced or increased from time to time by the Board to the number
required or allowed by Rule 16b-3 under the Exchange Act, as then in effect.
(d) "Common Stock" shall mean the Common Stock, $0.01 par
value, of the Company.
(e) "Company" shall mean AudioNet, Inc., a Delaware
corporation, and, when appropriate in context, its subsidiaries and/or
affiliates.
(f) "Eligible Person" shall mean any officer, employee, or
consultant of the Company (as determined by the Committee) other than
non-employee directors of the Company and members of the Committee; provided,
however, that an Eligible Person may be a member of the Committee until such
time as the Common Stock becomes registered pursuant to Section 12 of the
Exchange Act.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(h) "Fair Market Value" of a share of the Common Stock as of a
particular date shall be: (i) if the stock is listed on an established stock
exchange or exchanges, the mean between the highest and lowest sale prices of
the stock quoted for such date in the Transactions Index of each such exchange
as averaged with such mean price as reported on any and all other
<PAGE> 2
exchanges, as published in "The Wall Street Journal" and determined by the
Committee, or, if no sale price was quoted in any such Index for such date, then
as of the next preceding date on which such a sale price was quoted, provided
that the mean on such preceding date is not less than 100% of the fair market
value of the stock on the date the Option is granted; or (ii) if the stock is
not then listed on an exchange, the average of the closing bid and asked prices
per share for the stock in the over-the-counter market as quoted on the Nasdaq
system on such date; or (iii) if the stock is not then listed on an exchange or
quoted in the over-the-counter market, an amount determined in good faith by the
Committee. The fair market value of rights or property other than stock shall be
determined by the Committee on the basis of such factors as it may deem
appropriate.
(i) "Incentive Stock Option" shall mean an option to purchase
Common Stock granted under this Plan that qualifies as an incentive stock option
under Section 422 of the Internal Revenue Code.
(j) "Internal Revenue Code" shall mean the Internal Revenue
Code of 1986, as amended from time to time.
(k) "Just Cause Dismissal" shall mean a termination of a
Participant's employment for any of the following reasons: (i) the Participant
violates any reasonable rule or regulation of the Board or the Participant's
superiors or the Chief Executive Officer or President of the Company that
results in damage to the Company or which the Participant fails to correct
within a reasonable time after written notice; (ii) any willful misconduct or
gross negligence by the Participant in the responsibilities assigned to him or
her; (iii) any willful failure to perform his or her job as required to meet
Company objectives; (iv) any wrongful conduct of a Participant which has an
adverse impact on the Company or which constitutes a misappropriation of Company
assets; (v) the Participant's performing services for any other person or entity
which competes with the Company while he or she is employed by the Company,
without the written approval of the Chief Executive Officer or President of the
Company; or (vi) any other conduct that the Board or Committee determines
constitutes Just Cause for Dismissal.
(l) "Nonqualified Stock Option" shall mean an option to
purchase Common Stock granted under this Plan that is not an Incentive Stock
Option.
(m) "Option" shall mean an option to purchase Common Stock
granted under this Plan, and can be an Incentive Stock Option or a Nonqualified
Stock Option.
(n) "Parent" means a "parent corporation" as that term is
defined in Section 424(e) of the Internal Revenue Code.
(o) "Participant" shall mean an Eligible Person who has been
granted an Option.
(p) "Permanent Disability" shall mean that the Participant
becomes physically or mentally incapacitated or disabled so that he or she is
unable to perform substantially the same services as he or she performed prior
to incurring such incapacity or disability (the Company, at
<PAGE> 3
its option and expense, being entitled to retain a physician to confirm the
existence of such incapacity or disability, and the determination of such
physician to be binding upon the Company and the Participant), and such
incapacity or disability continues for a period of three consecutive months or
six months in any 12-month period or such other period(s) as may be determined
by the Committee with respect to any Option, provided that for purposes of
determining the period during which an Incentive Stock Option may be exercised
pursuant to Section 3.07(b)(ii) hereof, Permanent Disability shall mean
"permanent and total disability" as defined in Section 22(e) of the Internal
Revenue Code.
(q) "Plan" shall mean this Cameron Audio Networks, Inc. 1996
Stock Option Plan.
(r) "Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
(s) "Subsidiary" means a "subsidiary corporation" as that term
is defined in Section 424(f) of the Internal Revenue Code.
ARTICLE II
GENERAL
2.01 Adoption. This Plan has been adopted by the Board and approved by
the shareholders of the Company and is effective as of May 15, 1996.
2.02 Purpose. The Plan is designed to promote the interests of the
Company and its shareholders by using investment interests in the Company to
attract and retain key personnel and to encourage and reward their contributions
to the performance of the Company.
2.03 Administration. The Plan shall be administered by the Committee,
which, subject to the express provisions of the Plan, shall have the power to
construe the Plan and any agreements or memoranda defining the rights and
obligations of the Company and Participants thereunder, to determine all
questions arising thereunder, to adopt and amend such rules and regulations for
the administration thereof as it may deem desirable, and otherwise to carry out
the terms of the Plan and such agreements and confirming memoranda. The
interpretation and construction by the Committee of any provisions of the Plan
or of any Option granted under the Plan shall be final. Any action taken by, or
inaction of, the Committee relating to this Plan or Options shall be within the
absolute discretion of the Committee and shall be conclusive and binding upon
all persons. No member of the Committee shall be liable for any such action or
inaction except in circumstances involving bad faith of himself or herself.
Subject only to compliance with the express provisions hereof, the Committee may
act in its absolute discretion in matters related to this Plan or Options.
Subject to the requirements of Section 1.01(c), the Board may from time to time
increase or decrease the number of members of the Committee, remove from
membership on the Committee all or any portion of its members, and appoint such
person or persons as it desires to fill any vacancy existing on the Committee,
whether caused by removal, resignation or otherwise.
<PAGE> 4
2.04 Participation. A person shall be eligible to receive grants of
Options under this Plan if, at the time of the Option's grant, he or she is an
Eligible Person.
2.05 Shares of Common Stock Subject to the Plan and Grant Limit. The
shares that may be issued upon exercise of Options granted under the Plan shall
be authorized and unissued shares of Common Stock or previously issued shares of
Common Stock reacquired by the Company. The aggregate number of shares that may
be issued upon exercise of Options granted under the Plan shall not exceed
24,000 shares of Common Stock, subject to adjustment in accordance with Article
IV. The maximum number of shares of Common Stock for which options may be
granted to any one Eligible Person during any calendar year shall be 4,000,
subject to adjustment in accordance with Article IV.
2.06 Amendments. The Company's Board of Directors or the Committee may,
insofar as permitted by law, from time to time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever (including, without limitation,
to comply with or take advantage of the rules promulgated under Section 16 of
the Exchange Act or under the Internal Revenue Code), except that the Committee
may not amend Section 4.03 and except that no such amendment shall alter or
impair or diminish any rights or obligations under any Option theretofore
granted under the Plan without the consent of the person to whom such Option was
granted. In addition, if an amendment to the Plan would increase the number of
shares subject to the Plan or the maximum number of shares for which Options may
be granted to each Eligible Person during any calendar year (as adjusted under
Article IV), materially modify the requirements as to eligibility for
participation in the Plan, extend the final date upon which Options may be
granted under the Plan, or otherwise materially increase the benefits accruing
to participants under the Plan in a manner not specifically contemplated herein
or affect the Plan's compliance with Rule 16b-3 under the Exchange Act or
applicable provisions of the Internal Revenue Code, the amendment shall be
approved by the Company's shareholders to the extent required to comply with
Rule 16b-3 under the Exchange Act or applicable provisions of or rules under the
Internal Revenue Code.
2.07 Term of Plan. Options may be granted under the Plan until the
tenth anniversary of the effective date of the Plan, whereupon the Plan shall
terminate. No Options may be granted during any suspension of this Plan or after
its termination. Notwithstanding the foregoing, each Option properly granted
under the Plan shall remain in effect until such Option has been exercised or
terminated in accordance with its terms and the terms of the Plan.
2.08 Restrictions. All Options granted under the Plan shall be subject
to the requirement that, if at any time the Company shall determine, in its
discretion, that the listing, registration or qualification of the shares
subject to Options granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such an Option or the issuance, if any, or purchase of
shares in connection therewith, such Option may not be exercised in whole or in
part unless such listing, registration, qualification, consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Company. Unless the shares of stock to be issued upon exercise of an Option
granted under the Plan have
<PAGE> 5
been effectively registered under the Securities Act, the Company shall be under
no obligation to issue any shares of stock covered by any Option unless the
person who exercises such Option, in whole or in part, shall give a written
representation and undertaking to the Company satisfactory in form and scope to
counsel to the Company and upon which, in the opinion of such counsel, the
Company may reasonably rely, that he or she is acquiring the shares of stock
issued to him or her pursuant to such exercise of the Option for his or her own
account as an investment and not with a view to, or for sale in connection with,
the distribution of any such shares of stock, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act, or any other
applicable law, and that if shares of stock are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued, and the Company may order its transfer agent to stop transfers of such
shares.
2.09 Nonassignability. No Option granted under the Plan shall be
assignable or transferable except (a) by will or by the laws of descent and
distribution, or (b) subject to the final sentence of this Section 2.09, upon
dissolution of marriage pursuant to a qualified domestic relations order or, in
the discretion of the Committee and under circumstances that would not adversely
affect the interests of the Company, pursuant to a nominal transfer that does
not result in a change in beneficial ownership. During the lifetime of a
Participant, an Option granted to him or her shall be exercisable only by the
Participant (or the Participant's permitted transferee) or his or her guardian
or legal representative. Notwithstanding the foregoing, (i) no Option owned by a
Participant subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3 thereunder, and (ii)
Incentive Stock Options may not be assigned or transferred in violation of
Section 422(b)(5) of the Internal Revenue Code (or any comparable or successor
provision) or the Treasury Regulations thereunder, and nothing herein is
intended to allow such assignment or transfer.
2.10 Withholding Taxes. Whenever shares of stock are to be issued upon
exercise of an Option granted under the Plan or subsequently transferred, the
Committee shall have the right to require the Participant to remit to the
Company an amount sufficient to satisfy any federal, state and local withholding
tax requirements prior to the delivery of any certificate or certificates for
such shares. The Committee may, in the exercise of its discretion, allow
satisfaction of tax withholding requirements by accepting delivery of stock of
the Company or by withholding a portion of the stock otherwise issuable upon
exercise of an Option.
2.11 Rights of Eligible Persons and Participants. A Participant or a
permitted transferee of an Option shall have no rights as a shareholder with
respect to any shares issuable or issued upon exercise of the Option until the
date of the receipt by the Company of all amounts payable in connection with
exercise of the Option, including the exercise price and any amounts required by
the Company pursuant to Section 2.10. Status as an Eligible Person shall not be
construed as a commitment that any Option will be granted under this Plan to an
Eligible Person or to Eligible Persons generally. Nothing contained in this Plan
(or in option agreements or confirming memoranda or in any other documents
related to this Plan or to Options granted hereunder) shall confer upon any
Eligible Person or Participant any right to continue in the employ of the
Company or constitute any contract or agreement of employment, or interfere in
any way with the right of the Company to reduce such person's compensation or
other benefits or to terminate
<PAGE> 6
the employment of such Eligible Person or Participant, with or without cause,
but nothing contained in this Plan or any document related hereto shall affect
any other contractual right of any Eligible Person or Participant. No person
shall have any right, title or interest in any fund or in any specific asset
(including shares of capital stock) of the Company by reason of any Option
granted hereunder. Neither this Plan (or any documents related hereto) nor any
action taken pursuant hereto shall be construed to create a trust of any kind or
a fiduciary relationship between the Company and any person. To the extent that
any person acquires a right to receive an Option hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Company.
2.12 Other Compensation Plans. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and the Plan shall not preclude the Company from establishing
any other forms of incentive compensation for employees, directors or advisors
of the Company.
ARTICLE III
STOCK OPTIONS
3.01 Grants of Options. Subject to the express provisions of this Plan,
the Committee shall from time to time in its discretion select from the class of
Eligible Persons those individuals to whom Options shall be granted, and shall
determine the terms of such Options (which need not be identical) and the number
of shares of Common Stock for which each may be exercised. Each Option shall be
subject to the terms and conditions of the Plan and such other terms and
conditions established by the Committee as are not inconsistent with the purpose
and provisions of the Plan. One or more Options may be granted to any Eligible
Person. Options may be Incentive Stock Options or Nonqualified Stock Options.
3.02 Exercise Price.
(a) Setting the Exercise Price. The exercise price for each
Option shall be determined by the Committee at the date such Option is granted
at the Fair Market Value of the Common Stock subject to the Option; provided
that in the case of a recipient of an Incentive Stock Option who at the time of
grant owns more than 10% of the combined voting power of the Company (after
application of the constructive ownership rules of Section 424(d) of the
Internal Revenue Code), or any Parent or Subsidiary, the exercise price for such
Incentive Stock Option shall not be less than 110% of the Fair Market Value of
the Common Stock on the date of grant. The Committee, with the consent of the
Participant, may, subject to compliance with statutory or administrative
requirements applicable to Incentive Stock Options, amend the terms of any
Option to provide that the exercise price of the shares remaining subject to the
Option shall be reestablished at a price not less than 100% of the Fair Market
Value of the Common Stock on the effective date of the amendment, or effect a
reduction in exercise price by cancellation of an existing option and grant of a
replacement option at an exercise price not less than 100% of the Fair Market
Value of the Common Stock on the effective date of the grant. No modification
<PAGE> 7
of any other term or provision of any Option which is amended in accordance with
the foregoing shall be required, although the Committee may, in its discretion,
make such further modifications of any such Option as are not inconsistent with
the Plan.
(b) Payment of the Exercise Price. The exercise price shall be
payable upon the exercise of an Option in legal tender of the United States or
such other consideration as the Committee may deem acceptable, including without
limitation stock of the Company delivered by or on behalf of the person
exercising the Option or retained by the Company from the stock otherwise
issuable upon exercise or surrender of other options previously granted to the
Participant (in either case valued at fair market value as of the exercise
date), provided, however, that the Committee may, in the exercise of its
discretion, (i) allow exercise of an Option in a broker-assisted or similar
transaction in which the exercise price is not received by the Company until
promptly after exercise, and/or (ii) allow the Company to loan the exercise
price to the person entitled to exercise the Option, if the exercise will be
followed by a prompt sale of some or all of the underlying shares and a portion
of the sales proceeds is dedicated to full payment of the exercise price and
amounts required by the Company pursuant to Section 2.10.
3.03 Option Period and Vesting.
(a) Initial Determination. Options granted hereunder shall
vest and may be exercised as determined by the Committee, except that no Option
may vest and become exercisable at any time prior to one year from the date the
Option is granted (other than pursuant to Section 3.03(b) or Section 4.02, and
except that exercise of Options after termination of the Participant's
employment shall be subject to Section 3.07. Each Option granted hereunder and
all rights or obligations thereunder shall expire on such date as shall be
determined by the Committee, but not later than ten years after the date the
Option is granted, or five years after the date of grant in the case of a
recipient of an Incentive Stock Option who at the time of grant owns more than
10% of the combined voting power of the Company (after application of the
constructive ownership rules of Section 424(d) of the Internal Revenue Code), or
any Parent or Subsidiary, and shall be subject to earlier termination as herein
provided.
(b) Acceleration and Extension. The Committee may in its
discretion at any time and from time to time after the grant of an Option with
the consent of the Participant accelerate or extend the vesting or exercise
period of the Option in whole or part.
3.04 Exercise of Options. Except as otherwise provided herein, an
Option may become exercisable, in whole or in part, on the date or dates
specified by the Committee and thereafter shall remain exercisable until the
expiration or earlier termination of the Option. No Option shall be exercisable
except in respect of whole shares, and fractional share interests shall be
disregarded. Not less than 10 shares of stock (or such other amount as is set
forth in the applicable option agreement or confirming memorandum) may be
purchased at one time unless the number purchased is the total number at the
time available for purchase under the terms of the Option. An Option shall be
deemed to be exercised when the Secretary of the Company receives written notice
of such exercise from the Participant, together with payment of the exercise
price made in accordance with Section 3.02 and any amounts required under
Section 2.10. Notwithstanding any other provision of this Plan, the Committee
may impose, by
<PAGE> 8
rule or in option agreements or confirming memoranda, such conditions upon the
exercise of Options (including, without limitation, conditions limiting the time
of exercise to specified periods) as may be required to satisfy applicable
regulatory requirements, including without limitation Rule 10b-5 or Rule 16b-3
(or any successor rule) under the Exchange Act and any applicable section of or
rule under the Internal Revenue Code.
3.05 Limitation on Exercise of Incentive Stock Options. The aggregate
fair market value (determined as of the respective date or dates of grant) of
the stock for which one or more Options granted to any recipient under the Plan
(or any other option plan of the Company or any of its subsidiaries or
affiliates) may for the first time become exercisable as Incentive Stock Options
under the federal tax laws during any one calendar year shall not exceed
$100,000. Any Options granted as Incentive Stock Options pursuant to the Plan in
excess of such limitation shall be treated as Nonqualified Stock Options.
3.06 Option Agreements. Each Option granted under the Plan shall be
evidenced by an option agreement duly executed on behalf of the Company and by
the Participant or, in the Committee's discretion, a confirming memorandum
issued by the Company to the Participant, stating the number of shares of Common
Stock issuable upon exercise of the Option, the exercise price, the time or
times during which the Option is exercisable and the time or times at which the
Option vests and becomes exercisable. Such option agreements or confirming
memoranda may but need not be identical and shall comply with and be subject to
the terms and conditions of the Plan, a copy of which shall be provided to each
Option recipient and incorporated by reference into each option agreement or
confirming memorandum. Any option agreement or confirming memorandum may contain
such other terms, provisions and conditions not inconsistent with the Plan as
may be determined by the Committee.
3.07 Termination of Employment.
(a) Termination for Cause. Except as otherwise provided in a
written agreement between the Company and a Participant, which may be entered
into at any time before or after termination, in the event of a Just Cause
Dismissal of the Participant, all of the Participant's unexercised Options,
whether or not vested, shall expire and become unexercisable as of the date of
such Just Cause Dismissal.
(b) Termination other than Just Cause Dismissal. Subject to
subsection (a) above and subsection (c) below, and except as otherwise provided
in a written agreement between the Company and the Participant or a confirming
memorandum issued by the Company to the Participant with the Participant's
consent, which may be entered into or delivered at any time before or after
termination, in the event of a Participant's termination of employment for:
(i) any reason other than Just Cause Dismissal, death
or Permanent Disability, the Participant's unexercised Options, whether
or not vested, shall expire and become unexercisable as of the earlier
of (A) the date such Options would expire in accordance with their
terms if the Participant remained employed or (B) three months after
the date of termination, in the case of Incentive Stock Options, or six
months after the date of termination, in the case of Nonqualified Stock
Options.
<PAGE> 9
(ii) death or Permanent Disability, the Participant's
unexercised Options, whether or not vested, shall expire and become
unexercisable as of the earlier of (A) the date such Options would
expire in accordance with their terms if the Participant remained
employed or (B) 12 months after the date of termination.
(c) Alteration of Vesting and Exercise Periods.
Notwithstanding anything to the contrary in Sections 3.07(a) or (b), the
Committee may in its discretion pursuant to Section 3.03(b) designate shorter or
longer periods to exercise Options following a Participant's termination of
employment. Options shall be exercisable by a Participant (or his or her
successor in interest) following such Participant's termination of employment
only to the extent that installments thereof had become exercisable on or prior
to the date of such termination unless the vesting period is extended beyond the
termination date pursuant to Section 3.03(b).
3.08 Unused Option Shares. In the event that any outstanding Option
under the Plan expires by reason of lapse of time or is otherwise terminated
without exercise for any reason, then the shares of stock subject to any such
Option that have not been issued upon exercise of the Option shall again become
available in the pool of shares of stock for which Options may be granted under
the Plan.
ARTICLE IV
CORPORATE TRANSACTIONS
4.01 Anti-dilution Adjustments. The number of shares of Common Stock
available for issuance upon exercise of Options granted under the Plan, the
maximum number of shares for which Options granted under the Plan may be
exercised by any individual, the number of shares for which each Option (issued
and unissued) can be exercised and the exercise price per share of Options
(issued and unissued) shall be appropriately and proportionately adjusted for
any increase or decrease in the number of issued and outstanding shares of
Common Stock resulting from a subdivision or consolidation of shares or the
payment of a stock dividend or any other increase or decrease in the number of
issued and outstanding shares of Common Stock effected without receipt of
consideration by the Company. No fractional interests will be issued under the
Plan resulting from any such adjustments. The preceding sentence shall not
result in an adjustment to the terms of an Incentive Stock Option unless such
adjustment either (a) would not cause the Option to lose its status as an
Incentive Stock Option or (b) is agreed to in writing by the Committee and the
Participant.
4.02 Mergers; Changes in Control. Subject to the other provisions of
this Section 4.02, if the Company shall consummate any reorganization or merger
or consolidation, each outstanding Option shall be exercisable for the
securities and/or other consideration that a holder of the same number of shares
of Common Stock as are subject to that Option would have been entitled to
receive in such reorganization or merger or consolidation, and appropriate
adjustments shall be made to the exercise price thereof. Immediately prior to
the effective time of any Change
<PAGE> 10
in Control (as defined below), any Options specified at any time by the
Committee or the Board in its discretion shall vest and become exercisable, and
all conditions to exercise thereof shall be deemed to have been met. In the case
of a Change in Control described in item (c) or (d) below, (x) all outstanding
Options not accelerated by the Committee or Board pursuant to the second
sentence of this Section 4.02 shall automatically vest and become exercisable
immediately prior to the effective time of the Change in Control, if and to the
extent that such Options are not, in connection with the Change in Control, to
be cashed-out at full value, continued by the Company as the surviving
corporation in a reorganization or merger or consolidation, assumed by the
successor corporation or parent thereof, or replaced with comparable options to
purchase shares of the capital stock of the successor corporation or its parent
or other compensation programs conferring comparable benefits; and (y) the
determination of such full value or comparability shall be made by the Committee
and its determination shall be final, binding and conclusive. Options not
exercised prior to a Change in Control shall continue in effect, subject to the
first sentence of this Section 4.02 and to cash-out, assumption or replacement
as described in the preceding sentence. For purposes hereof, a "Change in
Control" means the following and shall be deemed to occur if any of the
following events occur:
(a) Except as provided by subparagraph (c) hereof, the
acquisition (other than from the Company) by any person, entity or group, within
the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act (excluding, for
this purpose, the Company or its subsidiaries, or any employee benefit plan of
the Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of Common Stock or other voting
securities of the Company such that such person, entity or group owns 40% or
more of either the then outstanding shares of Common Stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote generally in the election of directors; or
(b) Individuals who, as of the effective date of the Plan,
constitute the Board of Directors of the Company (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board of Directors of
the Company, provided that any person becoming a director subsequent to the
effective date hereof whose election, or nomination for election by the
Company's shareholders, is or was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board (other than an election or
nomination of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election of the
directors of the Company, as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) shall be, for purposes of this Plan,
considered as though such person were a member of the Incumbent Board; or
(c) Consummation by the Company of the sale or other
disposition by the Company of all or substantially all of the Company's assets
or a reorganization or merger or consolidation with any other person, entity or
corporation, other than:
<PAGE> 11
(i) a reorganization or merger or consolidation that
would result in the voting securities of the Company outstanding
immediately prior thereto (or, in the case of a reorganization or
merger or consolidation that is preceded or accomplished by an
acquisition or series of related acquisitions by any person, entity, or
group, by tender or exchange offer or otherwise, of voting securities
representing 5% or more of the combined voting power of all securities
of the Company, immediately prior to such acquisition or the first
acquisition in such series of acquisitions) continuing to represent
(either by remaining outstanding or by being converted into voting
securities of another entity) more than 50% of the combined voting
power of the voting securities of the Company or such other entity
outstanding immediately after such reorganization or merger or
consolidation (or series of related transactions involving such a
reorganization or merger or consolidation), or
(ii) a reorganization or merger or consolidation
effected to implement a recapitalization or reincorporation of the
Company (or similar transaction) that does not result in a material
change in beneficial ownership of the voting securities of the Company
or its successor; or
(d) Approval by the shareholders of the Company of a plan of
complete liquidation of the Company.
Notwithstanding the preceding provisions of this Section 4.02, a Change
in Control shall not be deemed to have occurred (l) if the "person" described in
the preceding provisions is an underwriter or underwriting syndicate that has
acquired the ownership of the Company's voting securities solely in connection
with a public offering of the Company's securities or (2) if the "person"
described in the preceding provisions is an employee stock ownership plan or
other employee benefit plan maintained by the Company that is qualified under
the provisions of the Employee Retirement Income Security Act of 1974, as
amended.
4.03 Determination by the Committee. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments shall
be made by the Committee, whose determination in that respect shall be final,
binding and conclusive. The grant of an Option pursuant to the Plan shall not
affect in any way the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge or to consolidate or to dissolve, liquidate or sell, or
transfer all of any part of its business or assets.
<PAGE> 1
EXHIBIT 10.9
AUDIONET, INC.
1998 STOCK OPTION PLAN
AUGUST 19, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PURPOSE OF PLAN . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II EFFECTIVE DATE AND TERM OF PLAN . . . . . . . . . . . . . . . . 1
2.1 Term of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 Effect on Stock Options . . . . . . . . . . . . . . . . . . . . . 1
2.3 Stockholder Approval . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE III SHARES SUBJECT TO PLAN . . . . . . . . . . . . . . . . . . . . 1
3.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.2 Source of Shares . . . . . . . . . . . . . . . . . . . . . . . . . 1
3.3 Availability of Unused Shares . . . . . . . . . . . . . . . . . . 2
3.4 Adjustment Provisions . . . . . . . . . . . . . . . . . . . . . . 2
3.5 Reservation of Shares . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE IV ADMINISTRATION OF PLAN . . . . . . . . . . . . . . . . . . . . . 3
4.1 Administering Body . . . . . . . . . . . . . . . . . . . . . . . . 3
4.2 Authority of Administering Body . . . . . . . . . . . . . . . . . 3
4.3 No Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.4 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.5 Other Compensation Plans . . . . . . . . . . . . . . . . . . . . . 5
4.6 Plan Binding on Successors . . . . . . . . . . . . . . . . . . . . 5
4.7 References to Successor Statutes, Regulations and Rules . . . . . 5
4.8 Issuances for Compensation Purposes Only . . . . . . . . . . . . . 5
4.9 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . 5
4.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE V GENERAL AWARD PROVISIONS . . . . . . . . . . . . . . . . . . . . 6
5.1 Participation in the Plan . . . . . . . . . . . . . . . . . . . . 6
5.2 Stock Option Documents . . . . . . . . . . . . . . . . . . . . . . 6
5.3 Exercise of Stock Options . . . . . . . . . . . . . . . . . . . . 6
5.4 Payment for Stock Options . . . . . . . . . . . . . . . . . . . . 7
5.5 No Employment Rights . . . . . . . . . . . . . . . . . . . . . . . 7
5.6 Restrictions Under Applicable Laws and Regulations . . . . . . . . 8
5.7 Additional Conditions . . . . . . . . . . . . . . . . . . . . . . 9
5.8 No Privileges of Stock Ownership . . . . . . . . . . . . . . . . . 9
5.9 Nonassignability . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.10 Information to Recipients . . . . . . . . . . . . . . . . . . . . 10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
5.11 Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Legends on Stock Options and Stock Certificates . . . . . . . . . 10
5.13 Effect of Termination of Employment on Stock Options . . . . . . 11
5.14 Limits on Stock Options to Certain Eligible Persons . . . . . . . 12
ARTICLE VI STOCK OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.1 Nature of Stock Options . . . . . . . . . . . . . . . . . . . . . 12
6.2 Option Exercise Price . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Option Period and Vesting . . . . . . . . . . . . . . . . . . . . 12
6.4 Special Provisions Regarding Incentive Stock Options . . . . . . . 13
ARTICLE VII REORGANIZATIONS . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Corporate Transactions Not Involving a Change in Control . . . . . 13
7.2 Corporate Transactions Involving a Change in Control . . . . . . . 13
ARTICLE VIII DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
ii
<PAGE> 4
AUDIONET, INC.
1998 STOCK OPTION PLAN
-----------------------------------
ARTICLE I
PURPOSE OF PLAN
The Company has adopted this Plan to promote the interests of the
Company and its stockholders by using investment interests in the Company to
attract, retain and motivate its management and other persons, to encourage and
reward their contributions to the performance of the Company and to align their
interests with the interests of the Company's stockholders. Capitalized terms
not otherwise defined herein shall have the meanings ascribed to them in
Article VIII.
ARTICLE II
EFFECTIVE DATE AND TERM OF PLAN
2.1 TERM OF PLAN. This Plan became effective as of the Effective
Date and shall continue in effect until the Expiration Date, at which time this
Plan shall automatically terminate.
2.2 EFFECT ON STOCK OPTIONS. Stock Options may be granted during
the Plan Term, but no Stock Options may be granted after the Plan Term.
Notwithstanding the foregoing, each Stock Option properly granted under this
Plan during the Plan Term shall remain in effect after termination of this Plan
until such Stock Option has been exercised, terminated or expired in accordance
with its terms and the terms of this Plan.
2.3 STOCKHOLDER APPROVAL. This Plan shall be approved by the
Company's stockholders within 12 months after the Effective Date. The
effectiveness of any Stock Options granted prior to such stockholder approval
shall be subject to such stockholder approval.
ARTICLE III
SHARES SUBJECT TO PLAN
3.1 NUMBER OF SHARES. The maximum number of shares of Common
Stock that may be issued pursuant to Stock Options granted under this Plan
shall be 1,800,000, subject to adjustment as set forth in Section 3.4.
3.2 SOURCE OF SHARES. The Common Stock to be issued under this
Plan will be made available, at the discretion of the Board, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company, including without limitation shares
purchased on the open market.
<PAGE> 5
3.3 AVAILABILITY OF UNUSED SHARES. Shares of Common Stock subject
to unexercised portions of any Stock Option granted under this Plan that
expire, terminate or are canceled, and shares of Common Stock issued pursuant
to Stock Options under this Plan that are reacquired by the Company pursuant to
the terms of the Stock Options under which such shares were issued, will again
become available for the grant of further Stock Options under this Plan.
3.4 ADJUSTMENT PROVISIONS.
(a) If (i) the outstanding shares of Common Stock of the
Company are increased, decreased or exchanged for a different number or kind of
shares or other securities, or if additional shares or new or different shares
or other securities are distributed in respect of such shares of Common Stock
(or any stock or securities received with respect to such Common Stock),
through merger, consolidation, sale or exchange of all or substantially all of
the assets of the Company, reorganization, recapitalization, reclassification,
stock dividend, stock split, reverse stock split, spin-off or other
distribution with respect to such shares of Common Stock (or any stock or
securities received with respect to such Common Stock), or (ii) the value of
the outstanding shares of Common Stock of the Company is reduced by reason of
an extraordinary cash dividend, an appropriate and proportionate adjustment may
be made in (1) the maximum number and kind of shares subject to this Plan as
provided in Section 3.1, (2) the number and kind of shares or other securities
subject to then outstanding Stock Options and/or (3) the price for each share
or other unit of any other securities subject to then outstanding Stock
Options.
(b) No fractional interests will be issued under this
Plan resulting from any adjustments.
(c) To the extent any adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Administering
Body, whose determination in that respect shall be final, binding and
conclusive.
(d) The grant of Stock Options pursuant to this Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve, liquidate or
sell, or transfer all or any part of its business or assets.
(e) No adjustment to the terms of an Incentive Stock
Option shall be made unless such adjustment either (i) would not cause such
Option to lose its status as an Incentive Stock Option or (ii) is agreed to in
writing by the Administering Body and the Recipient.
3.5 RESERVATION OF SHARES. The Company will at all times reserve
and keep available such number of shares of Common Stock as shall equal at
least the number of shares of Common Stock subject to then outstanding Stock
Options issuable in shares of Common Stock under this Plan.
2
<PAGE> 6
ARTICLE IV
ADMINISTRATION OF PLAN
4.1 ADMINISTERING BODY.
(a) Subject to the provisions of Section 4.1(b)(ii), this
Plan shall be administered by the Board or by the Stock Option Plan Committee
of the Board appointed pursuant to Section 4.1(b).
(b) (i) The Board in its sole discretion may from
time to time appoint a Stock Option Plan Committee of not less than two Board
members to administer this Plan and, subject to applicable law, to exercise all
of the powers, authority and discretion of the Board under this Plan. The
Board may from time to time increase or decrease (but not below two) the number
of members of the Stock Option Plan Committee, remove from membership on the
Stock Option Plan Committee all or any portion of its members, and/or appoint
such person or persons as it desires to fill any vacancy existing on the Stock
Option Plan Committee, whether caused by removal, resignation or otherwise.
The Board may disband the Stock Option Plan Committee at any time and revest in
the Board the administration of this Plan.
(ii) Notwithstanding the foregoing provisions of
this Section 4.1(b) to the contrary, upon becoming and so long as the Company
remains an Exchange Act Registered Company, (1) the Board shall appoint the
Stock Option Plan Committee, (2) this Plan shall be administered by the Stock
Option Plan Committee and (3) each member of the Stock Option Plan Committee
shall be a Non-employee Director, and, in addition, if Stock Options are to be
made to persons subject to Section 162(m) of the IRC and such Stock Options are
intended to constitute Performance-Based Compensation, then each member of the
Stock Option Plan Committee shall, in addition to being a Non-employee
Director, be an Outside Director.
(iii) The Stock Option Plan Committee shall report
to the Board the names of Eligible Persons granted Stock Options, the number of
shares of Common Stock covered by each Stock Option and the terms and
conditions of each such Stock Option.
4.2 AUTHORITY OF ADMINISTERING BODY.
(a) Subject to the express provisions of this Plan, the
Administering Body shall have the power to interpret and construe this Plan and
any Stock Option Documents or other documents defining the rights and
obligations of the Company and Optionees hereunder and thereunder, to determine
all questions arising hereunder and thereunder, to adopt and amend such rules
and regulations for the administration hereof and thereof as it may deem
desirable, and otherwise to carry out the terms of this Plan and such Stock
Option Documents and other documents. The interpretation and construction by
the Administering Body of any provisions of this Plan or of any Stock Option
shall be conclusive and binding. Any action taken by, or inaction of, the
Administering Body relating to this Plan or any Stock Options shall be within
the absolute discretion of the Administering Body and shall be conclusive and
binding upon all persons. Subject only to compliance with the express
provisions hereof, the Administering Body may act in its absolute discretion in
matters related to this Plan and any and all Stock Options.
3
<PAGE> 7
(b) Subject to the express provisions of this Plan, the
Administering Body may from time to time in its discretion select the Eligible
Persons to whom, and the time or times at which, Stock Options shall be
granted, the nature of each Stock Option, the number of shares of Common Stock
that make up or underlie each Stock Option, the period for the exercise of each
Stock Option, and such other terms and conditions applicable to each individual
Stock Option as the Administering Body shall determine. The Administering Body
may grant at any time new Stock Options to an Eligible Person who has
previously received Stock Options whether such prior Stock Options are still
outstanding, have previously been exercised as a whole or in part, or are
canceled in connection with the issuance of new Stock Options. The
Administering Body may grant Stock Options singly, in combination or in tandem
with other Stock Options, as it determines in its discretion. Any and all
terms and conditions of the Stock Options, including exercise price, may be
established by the Administering Body without regard to existing Stock Options.
(c) Any action of the Administering Body with respect to
the administration of this Plan shall be taken pursuant to a majority vote of
the authorized number of members of the Administering Body or by the unanimous
written consent of its members; provided, however, that (i) if the
Administering Body is the Stock Option Plan Committee and consists of two
members, then actions of the Administering Body must be unanimous and (ii) if
the Administering Body is the Board, actions taken at a meeting of the Board
shall be valid if approved by directors constituting a majority of the required
quorum for such meeting.
4.3 NO LIABILITY. No member of the Board or the Stock Option Plan
Committee or any designee thereof will be liable for any action or inaction
with respect to this Plan or any Stock Option or any transaction arising under
this Plan or any Stock Option, except in circumstances constituting bad faith
of such member.
4.4 AMENDMENTS.
(a) The Administering Body may, insofar as permitted by
applicable law, rule or regulation, from time to time suspend or discontinue
this Plan or revise or amend it in any respect whatsoever, and this Plan as so
revised or amended will govern all Stock Options hereunder, including those
granted before such revision or amendment; provided, however, that no such
revision or amendment shall alter, impair or diminish any rights or obligations
under any Stock Option previously granted under this Plan, without the written
consent of the Optionee. Without limiting the generality of the foregoing, the
Administering Body is authorized to amend this Plan to comply with or take
advantage of amendments to applicable laws, rules or regulations, including
amendments to the Securities Act, Exchange Act or the IRC or any rules or
regulations promulgated thereunder. No stockholder approval of any amendment
or revision shall be required unless (i) such approval is required by
applicable law, rule or regulation or (ii) an amendment or revision to this
Plan would materially increase the number of shares subject to this Plan (as
adjusted under Section 3.4), materially modify the requirements as to
eligibility for participation in this Plan, extend the final date upon which
Stock Options may be granted under this Plan, or otherwise materially increase
the benefits accruing to Recipients in a manner not specifically contemplated
herein, or affect this Plan's compliance with Rule 16b-3 or applicable
4
<PAGE> 8
provisions of or regulations under the IRC, and stockholder approval of the
amendment or revision is required to comply with Rule 16b-3 or applicable
provisions of or rules under the IRC.
(b) The Administering Body may, with the written consent
of an Optionee, make such modifications in the terms and conditions of a Stock
Option as it deems advisable. Without limiting the generality of the
foregoing, the Administering Body may, in its discretion with the written
consent of Optionee, at any time and from time to time after the grant of any
Stock Option accelerate or extend the vesting or exercise period of any Stock
Option as a whole or in part, and adjust or reduce the exercise price of Stock
Options held by such Optionee by cancellation of such Stock Options and
granting of Stock Options at lower or exercise prices or by modification,
extension or renewal of such Stock Options. In the case of Incentive Stock
Options, Recipients acknowledge that extensions of the exercise period may
result in the loss of the favorable tax treatment afforded incentive stock
options under Section 422 of the IRC.
(c) Except as otherwise provided in this Plan or in the
applicable Stock Option Document, no amendment, revision, suspension or
termination of this Plan will, without the written consent of the Optionee,
alter, terminate, impair or adversely affect any right or obligation under any
Stock Option previously granted under this Plan.
4.5 OTHER COMPENSATION PLANS. The adoption of this Plan shall not
affect any other stock option, incentive or other compensation plans in effect
for the Company, and this Plan shall not preclude the Company from establishing
any other forms of incentive or other compensation for employees, directors,
advisors or consultants of the Company, whether or not approved by
stockholders.
4.6 PLAN BINDING ON SUCCESSORS. This Plan shall be binding upon
the successors and assigns of the Company.
4.7 REFERENCES TO SUCCESSOR STATUTES, REGULATIONS AND RULES. Any
reference in this Plan to a particular statute, regulation or rule shall also
refer to any successor provision of such statute, regulation or rule.
4.8 ISSUANCES FOR COMPENSATION PURPOSES ONLY. This Plan
constitutes an "employee benefit plan" as defined in Rule 405 promulgated under
the Securities Act. Stock Options to eligible employees or directors shall be
granted for any lawful consideration, including compensation for services
rendered, promissory notes or otherwise. Stock Options to consultants and
advisors shall be granted only in exchange for bona fide services rendered by
such consultants or advisors and such services must not be in connection with
the offer and sale of securities in a capital-raising transaction.
4.9 INVALID PROVISIONS. In the event that any provision of this
Plan is found to be invalid or otherwise unenforceable under any applicable
law, such invalidity or unenforceability shall not be construed as rendering
any other provisions contained herein invalid or unenforceable, and all such
other provisions shall be given full force and effect to the same extent as
though the invalid and unenforceable provision were not contained herein.
5
<PAGE> 9
4.10 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the internal laws of the State of Delaware,
without giving effect to the principles of the conflicts of laws thereof.
ARTICLE V
GENERAL AWARD PROVISIONS
5.1 PARTICIPATION IN THE PLAN.
(a) A person shall be eligible to receive grants of Stock
Options under this Plan if, at the time of the grant of the Stock Option, such
person is an Eligible Person.
(b) Incentive Stock Options may be granted only to
Eligible Persons meeting the employment requirements of Section 422 of the IRC.
(c) Notwithstanding anything to the contrary herein, the
Administering Body may, in order to fulfill the purposes of this Plan, modify
grants of Stock Options to Recipients who are foreign nationals or employed
outside of the United States to recognize differences in applicable law, tax
policy or local custom.
5.2 STOCK OPTION DOCUMENTS.
(a) Each Stock Option granted under this Plan shall be
evidenced by an agreement duly executed on behalf of the Company and by the
Recipient or, in the Stock Option Plan Committee's discretion, a confirming
memorandum issued by the Company to the Recipient, setting forth such terms and
conditions applicable to the Stock Option as the Stock Option Plan Committee
may in its discretion determine. Stock Option Documents may but need not be
identical and shall comply with and be subject to the terms and conditions of
this Plan, a copy of which shall be provided to each Recipient and incorporated
by reference into each Stock Option Document. Any Stock Option Document may
contain such other terms, provisions and conditions not inconsistent with this
Plan as may be determined by the Stock Option Plan Committee.
(b) In case of any conflict between this Plan and any
Stock Option Document, this Plan shall control.
5.3 EXERCISE OF STOCK OPTIONS. No Stock Option shall be
exercisable except in respect of whole shares, and fractional share interests
shall be disregarded. Not less than 100 shares of Common Stock (or such other
amount as is set forth in the applicable Stock Option Documents) may be
purchased at one time and Stock Options must be exercised in multiples of 100
unless the number purchased is the total number at the time available for
purchase under the terms of the Stock Option. A Stock Option shall be deemed
to be exercised when the Secretary or other designated official of the Company
receives written notice of such exercise from the Optionee, together with
payment of the exercise price made in accordance with Section 5.4 and any
amounts required under Section 5.11. Notwithstanding any other provision of
this Plan, the Administering Body may impose, by rule and/or in Stock Option
Documents, such conditions
6
<PAGE> 10
upon the exercise of Stock Options (including without limitation conditions
limiting the time of exercise to specified periods) as may be required to
satisfy applicable regulatory requirements, including without limitation Rule
16b-3 and Rule 10b-5 under the Exchange Act, and any amounts required under
Section 5.12 or other applicable section of or regulation under the IRC.
5.4 PAYMENT FOR STOCK OPTIONS.
(a) The exercise price or other payment for a Stock
Option shall be payable upon the exercise of a Stock Option pursuant to a Stock
Option granted hereunder by delivery of legal tender of the United States or
payment of such other consideration as the Administering Body may from time to
time deem acceptable in any particular instance.
(b) The Company may assist any person to whom Stock
Options are granted hereunder (including without limitation any officer or
director of the Company) in the payment of the exercise price or other amounts
payable in connection with the receipt or exercise of that Stock Option, by
lending such amounts to such person on such terms and at such rates of interest
and upon such security (if any) as shall be approved by the Administering Body.
(c) In the discretion of the Administering Body, Stock
Options may be exercised by capital stock of the Company delivered in transfer
to the Company by or on behalf of the person exercising the Stock Option and
duly endorsed in blank or accompanied by stock powers duly endorsed in blank,
with signatures guaranteed in accordance with the Exchange Act if required by
the Administering Body, or retained by the Company from the stock otherwise
issuable upon exercise or surrender of vested and/or exercisable Stock Options
previously granted to the Recipient and being exercised (if applicable) (in
either case valued at Fair Market Value as of the exercise date); or such other
consideration as the Administering Body may from time to time in the exercise
of its discretion deem acceptable in any particular instance; provided,
however, that the Administering Body may, in the exercise of its discretion,
(i) allow exercise of Stock Options in a broker-assisted or similar transaction
in which the exercise price is not received by the Company until promptly after
exercise, and/or (ii) allow the Company to loan the exercise price to the
Optionee, if the exercise will be followed by a prompt sale of some or all of
the underlying shares and a portion of the sale proceeds is dedicated to full
payment of the exercise price and amounts required pursuant to Section 5.11.
5.5 NO EMPLOYMENT RIGHTS. Nothing contained in this Plan (or in
Stock Option Documents or in any other documents related to this Plan or to
Stock Options granted hereunder) shall confer upon any Eligible Person or
Recipient any right to continue in the employ of the Company or any Affiliated
Entity or constitute any contract or agreement of employment or engagement, or
interfere in any way with the right of the Company or any Affiliated Entity to
reduce such person's compensation or other benefits or to terminate the
employment or engagement of such Eligible Person or Recipient, with or without
cause. Except as expressly provided in this Plan or in any statement
evidencing the grant of Stock Options pursuant to this Plan, the Company shall
have the right to deal with each Recipient in the same manner as if this Plan
and any such statement evidencing the grant of Stock Options pursuant to this
Plan did not exist, including without limitation with respect to all matters
related to the hiring, discharge,
7
<PAGE> 11
compensation and conditions of the employment or engagement of the Recipient.
Any questions as to whether and when there has been a termination of a
Recipient's employment or engagement, the reason (if any) for such termination,
and/or the consequences thereof under the terms of this Plan or any statement
evidencing the grant of Stock Options pursuant to this Plan shall be determined
by the Administering Body and the Administering Body's determination thereof
shall be final and binding.
5.6 RESTRICTIONS UNDER APPLICABLE LAWS AND REGULATIONS.
(a) All Stock Options granted under this Plan shall be
subject to the requirement that, if at any time the Company shall determine, in
its discretion, that the listing, registration or qualification of the shares
subject to Stock Options granted under this Plan upon any securities exchange
or under any federal, state or foreign law, or the consent or approval of any
government regulatory body, is necessary or desirable as a condition of, or in
connection with, the granting of such Stock Options or the issuance, if any, or
purchase of shares in connection therewith, such Stock Options may not be
exercised as a whole or in part unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained free of
any conditions not acceptable to the Company. During the term of this Plan,
the Company will use its reasonable efforts to seek to obtain from the
appropriate regulatory agencies any requisite qualifications, consents,
approvals or authorizations in order to issue and sell such number of shares of
its Common Stock as shall be sufficient to satisfy the requirements of this
Plan. The inability of the Company to obtain from any such regulatory agency
having jurisdiction thereof the qualifications, consents, approvals or
authorizations deemed by the Company to be necessary for the lawful issuance
and sale of any shares of its Common Stock hereunder shall relieve the Company
of any liability in respect of the nonissuance or sale of such stock as to
which such requisite authorization shall not have been obtained.
(b) The Company shall be under no obligation to register
or qualify the issuance of Stock Options or underlying shares under the
Securities Act or applicable state securities laws. Unless the issuance of
Stock Options and underlying shares have been registered under the Securities
Act and qualified or registered under applicable state securities laws, the
Company shall be under no obligation to issue any Stock Options or underlying
shares of Common Stock covered by any Stock Options unless the Stock Options
and underlying shares may be issued pursuant to applicable exemptions from such
registration or qualification requirements. In connection with any such exempt
issuance, the Administering Body may require the Optionee to provide a written
representation and undertaking to the Company, satisfactory in form and scope
to the Company and upon which the Company may reasonably rely, that such
Optionee is acquiring such Stock Options and underlying shares for such
Optionee's own account as an investment and not with a view to, or for sale in
connection with, the distribution of any such shares of stock, and that such
person will make no transfer of the same except in compliance with any rules
and regulations in force at the time of such transfer under the Securities Act
and other applicable law, and that if shares of stock are issued without such
registration, a legend to this effect (together with any other legends deemed
appropriate by the Administering Body) may be endorsed upon the securities so
issued. The Company may also order its transfer agent to stop transfers of
such shares. The Administering Body may also
8
<PAGE> 12
require the Optionee to provide the Company such information and other
documents as the Administering Body may request in order to satisfy the
Administering Body as to the investment sophistication and experience of the
Optionee and as to any other conditions for compliance with any such exemptions
from registration or qualification.
5.7 ADDITIONAL CONDITIONS. Any Stock Option may also be subject
to such other provisions (whether or not applicable to any other Stock Option
or Optionee) as the Administering Body determines appropriate including without
limitation provisions to assist the Optionee in financing the purchase of
Common Stock through the exercise of Stock Options, provisions for the
forfeiture of or restrictions on resale or other disposition of shares of
Common Stock acquired under any form of benefit, provisions giving the Company
the right to repurchase shares of Common Stock acquired under any form of
benefit in the event the Optionee elects to dispose of such shares, and
provisions to comply with federal and state securities laws and federal and
state income tax withholding requirements.
5.8 NO PRIVILEGES OF STOCK OWNERSHIP. Except as otherwise set
forth herein, an Optionee shall have no rights as a stockholder with respect to
any shares issuable or issued in connection with the Stock Option until the
date of the receipt by the Company of all amounts payable in connection with
exercise of the Stock Option and performance by the Optionee of all obligations
thereunder. Status as an Eligible Person shall not be construed as a
commitment that any Stock Option will be granted under this Plan to an Eligible
Person or to Eligible Persons generally. No person shall have any right, title
or interest in any fund or in any specific asset (including shares of capital
stock) of the Company by reason of any Stock Option granted hereunder. Neither
this Plan (or any documents related hereto) nor any action taken pursuant
hereto shall be construed to create a trust of any kind or a fiduciary
relationship between the Company and any person. To the extent that any person
acquires a right to receive Stock Options hereunder, such right shall be no
greater than the right of any unsecured general creditor of the Company.
5.9 NONASSIGNABILITY. No Stock Option granted under this
Plan shall be assignable or transferable except (a) by will or by the laws of
descent and distribution, or (b) subject to the final sentence of this Section
5.9, upon dissolution of marriage pursuant to a qualified domestic relations
order or, in the discretion of the Administering Body and under circumstances
that would not adversely affect the interests of the Company, pursuant to a
nominal transfer that does not result in a change in beneficial ownership;
provided, however, that the Administering Body may in the applicable Stock
Option Document evidencing Stock Options granted hereunder or at any time
thereafter provide that Stock Options granted hereunder may be transferred
without consideration by the Recipient, subject to such rules as the
Administering Body may adopt to preserve the purposes of the Plan, to one or
more Permitted Transferees; provided further, that the Recipient gives the
Administering Body advance written notice describing the terms and conditions
of the proposed transfer and the Administering Body notifies the Recipient in
writing that such transfer would comply with the requirements of the Plan and
any applicable Stock Option Document. The terms of any Stock Option
transferred to Permitted Transferees in accordance with the immediately
preceding sentence shall apply to the Permitted Transferee, except that (a)
Permitted Transferees shall not be entitled to transfer any Stock Options,
other
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than by will or the laws of descent and distribution; and (b) Permitted
Transferees shall not be entitled to exercise any transferred Stock Options
unless there shall be in effect a registration statement on an appropriate form
covering the shares of Common Stock to be acquired pursuant to the exercise of
such Stock Option if the Administering Body determines that such a registration
statement is necessary or appropriate. During the lifetime of an Optionee,
Stock Options shall be exercisable only by the Optionee or such person's
guardian or legal representative.
Notwithstanding the foregoing, (a) no Stock Option owned by an
Optionee subject to Section 16 of the Exchange Act may be assigned or
transferred in any manner inconsistent with Rule 16b-3, and (b) Incentive Stock
Options (or other Stock Options subject to transfer restrictions under the IRC)
may not be assigned or transferred in violation of Section 422(b)(5) of the IRC
(or any comparable or successor provision) or the regulations thereunder, and
nothing herein is intended to allow such assignment or transfer.
5.10 INFORMATION TO OPTIONEES.
(a) The Administering Body in its sole discretion shall
determine what, if any, financial and other information shall be provided to
Optionees and when such financial and other information shall be provided after
giving consideration to applicable federal and state laws, rules and
regulations, including without limitation applicable federal and state
securities laws, rules and regulations.
(b) The furnishing of financial and other information
that is confidential to the Company shall be subject to the Optionee's
agreement that the Optionee shall maintain the confidentiality of such
financial and other information, shall not disclose such information to third
parties, and shall not use the information for any purpose other than
evaluating an investment in the Company's securities under this Plan. The
Administering Body may impose other restrictions on the access to and use of
such confidential information and may require an Optionee to acknowledge the
Optionee's obligations under this Section 5.10(b) (which acknowledgment shall
not be a condition to the Optionee's obligations under this Section 5.10(b)).
5.11 WITHHOLDING TAXES. Whenever the granting, vesting or exercise
of any Stock Option granted under this Plan, or the transfer of any shares
issued upon exercise of any Stock Option, gives rise to tax or tax withholding
liabilities or obligations, the Administering Body shall have the right to
require the Optionee to remit to the Company an amount sufficient to satisfy
any federal, state and local withholding tax requirements prior to issuance of
such shares. The Administering Body may, in the exercise of its discretion,
allow satisfaction of tax withholding requirements by accepting delivery of
stock of the Company or by withholding a portion of the stock otherwise
issuable in connection with Stock Options.
5.12 LEGENDS ON STOCK OPTIONS AND STOCK CERTIFICATES. Each Stock
Option Document and each certificate representing shares acquired upon or
exercise of Stock Options shall be endorsed with all legends, if any, required
by applicable federal and state securities and other laws to be placed on the
Stock Option Document and/or the certificate. The determination
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of which legends, if any, shall be placed upon Stock Option Documents or the
certificates shall be made by the Administering Body in its sole discretion and
such decision shall be final and binding.
5.13 EFFECT OF TERMINATION OF EMPLOYMENT ON STOCK OPTIONS.
(a) TERMINATION FOR JUST CAUSE. Subject to
Section 5.13(c), and except as otherwise provided in a written agreement
between the Company and the Optionee which may be entered into at any time
before or after termination of employment of the Recipient, in the event of a
Just Cause Dismissal of a Recipient, all of the Optionee's unexercised Stock
Options, whether or not vested, shall expire and become unexercisable as of the
date of such Just Cause Dismissal.
(b) TERMINATION OTHER THAN FOR JUST CAUSE
DISMISSAL. Subject to Section 5.13(c) and except as otherwise provided in a
written agreement between the Company and the Optionee, which may be entered
into at any time before or after termination of employment, in the event of a
Recipient's termination of employment for:
(i) any reason other than for Just Cause
Dismissal, death, Permanent Disability or normal retirement,
the Optionee's Stock Options, whether or not vested, shall
expire and become unexercisable as of the earlier of (A) the
date such Stock Options would expire in accordance with their
terms had the Recipient remained employed and (B) 30 days
after the date of employment termination.
(ii) death, Permanent Disability or
normal retirement, the Optionee's unexercised Stock Options
shall, whether or not vested, expire and become unexercisable
as of the earlier of (A) the date such Stock Options would
expire in accordance with their terms had the Recipient
remained employed and (B) six months after the date of
employment termination.
(c) ALTERATION OF VESTING AND EXERCISE PERIODS.
Notwithstanding anything to the contrary in Section 5.13(a) or Section 5.13(b),
the Administering Body may in its discretion designate shorter or longer
periods to exercise Stock Options following a Recipient's termination of
employment; provided, however, that any shorter periods determined by the
Administering Body shall be effective only if provided for in the instrument
that evidences the grant to the Optionee of such Stock Options or if such
shorter period is agreed to in writing by the Optionee. Notwithstanding
anything to the contrary herein, Stock Options shall be exercisable by a an
Optionee following such Optionee's termination of employment only to the extent
that installments thereof had become exercisable on or prior to the date of
such termination; and provided, further, that the Administering Body may, in
its discretion, elect to accelerate the vesting of all or any portion of any
Stock Options that had not become exercisable on or prior to the date of such
termination.
(d) LEAVE OF ABSENCE. In the case of any
employee on an approved leave of absence, the Administering Body may make such
provision respecting continuance of Stock Options as the Administering Body in
its discretion deems appropriate, except that in no event shall a Stock Option
be exercisable after the date such Stock Option would expire in accordance with
its terms had the Recipient remained continuously employed.
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5.14 LIMITS ON STOCK OPTIONS TO ELIGIBLE PERSONS. Notwithstanding
any other provision of this Plan, in order for the compensation attributable to
Stock Options hereunder to qualify as Performance-Based Compensation, no one
Eligible Person shall be granted any Stock Options with respect to more than
250,000 shares of Common Stock in any one calendar year. The limitation set
forth in this Section 5.14 shall be subject to adjustment as provided in
Section 3.4 or under Article VII, but only to the extent such adjustment would
not affect the status of compensation attributable to Stock Options hereunder
as Performance-Based Compensation.
ARTICLE VI
STOCK OPTIONS
6.1 NATURE OF STOCK OPTIONS. Stock Options may be Incentive Stock
Options or Non-qualified Stock Options.
6.2 OPTION EXERCISE PRICE. The exercise price for each Stock
Option shall be determined by the Administering Body as of the date such Stock
Option is granted. The exercise price shall be no less than the Fair Market
Value of the Common Stock subject to the Option. The Administering Body may,
with the consent of the Optionee and subject to compliance with statutory or
administrative requirements applicable to Incentive Stock Options, amend the
terms of any Stock Option to provide that the exercise price of the shares
remaining subject to the Stock Option shall be reestablished at a price not
less than 100% of the Fair Market Value of the Common Stock on the effective
date of the amendment. No modification of any other term or provision of any
Stock Option that is amended in accordance with the foregoing shall be
required, although the Administering Body may, in its discretion, make such
further modifications of any such Stock Option as are not inconsistent with
this Plan.
6.3 OPTION PERIOD AND VESTING. Stock Options granted hereunder
shall vest and may be exercised as determined by the Administering Body, except
that exercise of such Stock Options after termination of the Recipient's
employment shall be subject to Section 5.13. Each Stock Option granted
hereunder and all rights or obligations thereunder shall expire on such date as
shall be determined by the Administering Body, but not later than 10 years
after the date the Stock Option is granted and shall be subject to earlier
termination as provided herein or in the Stock Option Document. The
Administering Body may, in its discretion at any time and from time to time
after the grant of a Stock Option, accelerate vesting of such Option as a whole
or in part by increasing the number of shares then purchasable, provided that
the total number of shares subject to such Stock Option may not be increased.
Except as otherwise provided herein, a Stock Option shall become exercisable,
as a whole or in part, on the date or dates specified by the Administering Body
and thereafter shall remain exercisable until the expiration or earlier
termination of the Stock Option.
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6.4 SPECIAL PROVISIONS REGARDING INCENTIVE STOCK OPTIONS.
(a) Notwithstanding anything in this Article VI to the contrary,
the exercise price and vesting period of any Stock Option intended to qualify
as an Incentive Stock Option shall comply with the provisions of Section 422 of
the IRC and the regulations thereunder. As of the Effective Date, such
provisions require, among other matters, that (i) the exercise price must not
be less than the Fair Market Value of the underlying stock as of the date the
Incentive Stock Option is granted, and not less than 110% of the Fair Market
Value as of such date in the case of a grant to a Significant Stockholder; and
(ii) that the Incentive Stock Option not be exercisable after the expiration of
five years from the date of grant in the case of an Incentive Stock Option
granted to a Significant Stockholder.
(b) The aggregate Fair Market Value (determined as of the
respective date or dates of grant) of the Common Stock for which one or more
Options granted to any Recipient under this Plan (or any other option plan of
the Company or any of its subsidiaries or affiliates) may for the first time
become exercisable as Incentive Stock Options under the federal tax laws during
any one calendar year shall not exceed $100,000.
(c) Any Options granted as Incentive Stock Options pursuant to
this Plan that for any reason fail or cease to qualify as such shall be treated
as Non-qualified Stock Options.
ARTICLE VII
REORGANIZATIONS
7.1 CORPORATE TRANSACTIONS NOT INVOLVING A CHANGE IN CONTROL. If
the Company shall consummate any Reorganization not involving a Change in
Control in which holders of shares of Common Stock are entitled to receive in
respect of such shares any securities, cash or other consideration (including
without limitation a different number of shares of Common Stock), each Stock
Option outstanding under this Plan shall thereafter be exercisable, in
accordance with this Plan, only for the kind and amount of securities, cash
and/or other consideration receivable upon such Reorganization by a holder of
the same number of shares of Common Stock as are subject to that Stock Option
immediately prior to such Reorganization, and any adjustments will be made to
the terms of the Stock Option in the sole discretion of the Administering Body
as it may deem appropriate to give effect to the Reorganization.
7.2 CORPORATE TRANSACTIONS INVOLVING A CHANGE IN CONTROL. As of
the effective time and date of any Change in Control, this Plan and any then
outstanding Stock Options (whether or not vested) shall automatically terminate
unless (a) provision is made in writing in connection with such transaction for
the continuance of this Plan and for the assumption of such Stock Options, or
for the substitution for such Stock Options of new awards covering the
securities of a successor entity or an affiliate thereof, with appropriate
adjustments as to the number and kind of securities and exercise prices, in
which event this Plan and such outstanding Stock Options shall continue or be
replaced, as the case may be, in the manner and under the terms so provided; or
(b) the Board otherwise shall provide in writing for such adjustments as it
deems appropriate in the terms and conditions of the then-outstanding Stock
Options (whether or not vested), including without limitation (i) accelerating
the vesting of outstanding Stock Options
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and/or (ii) providing for the cancellation of Stock Options and their automatic
conversion into the right to receive the securities, cash or other
consideration that a holder of the shares underlying such Stock Options would
have been entitled to receive upon consummation of such Change in Control had
such shares been issued and outstanding immediately prior to the effective date
and time of the Change in Control (net of the appropriate option exercise
prices). If, pursuant to the foregoing provisions of this Section 7.2, this
Plan and the Stock Options shall terminate by reason of the occurrence of a
Change in Control without provision for any of the actions described in clause
(a) or (b) hereof, then any Optionee holding outstanding Stock Options shall
have the right, at such time immediately prior to the consummation of the
Change in Control as the Board shall designate, to exercise the Optionee's
Stock Options to the full extent not theretofore exercised, including any
installments which have not yet become vested.
ARTICLE VIII
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined shall
have the meanings set forth below:
"ADMINISTERING BODY" shall mean the Board as long as no Stock Option
Plan Committee has been appointed and is in effect and shall mean the Stock
Option Plan Committee as long as the Stock Option Plan Committee is appointed
and in effect.
"AFFILIATED ENTITY" means any Parent Corporation or Subsidiary
Corporation.
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the following and shall be deemed to occur
if any of the following events occur:
(a) Any Person becomes after the Effective Date the
beneficial owner (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of thirty percent (30%) or more of either the then
outstanding shares of Common Stock or the combined voting power of the
Company's then outstanding securities entitled to vote generally in
the election of directors; or
(b) Individuals who, as of the effective date hereof,
constitute the Board of Directors of the Company (the INCUMBENT
BOARD") cease for any reason to constitute at least a majority of the
Board of Directors of the Company, provided that any individual who
becomes a director after the effective date hereof whose election, or
nomination for election by the Company's stockholders, is approved by
a vote of at least a majority of the directors then comprising the
Incumbent Board shall be considered to be a member of the Incumbent
Board unless that individual was nominated or elected by any Person
having the power to exercise, through beneficial ownership, voting
agreement and/or proxy, twenty percent (20%) or more of either the
outstanding shares of Common Stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote
generally in the election of directors, in which case that individual
shall not be
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considered to be a member of the Incumbent Board unless such
individual's election or nomination for election by the Company's
stockholders is approved by a vote of at least two-thirds of the
directors then comprising the Incumbent Board; or
(c) Consummation by the Company of the sale or other
disposition by the Company of all or substantially all of the Company's
assets or a reorganization or merger or consolidation of the Company
with any other person, entity or corporation, other than
(i) a reorganization or merger or consolidation
that would result in the voting securities of the Company
outstanding immediately prior thereto (or, in the case of a
reorganization or merger or consolidation that is preceded or
accomplished by an acquisition or series of related
acquisitions by any Person, by tender or exchange offer or
otherwise, of voting securities representing five percent (5%)
or more of the combined voting power of all securities of the
Company, immediately prior to such acquisition or the first
acquisition in such series of acquisitions) continuing to
represent, either by remaining outstanding or by being
converted into voting securities of another entity, more than
fifty percent (50%) of the combined voting power of the voting
securities of the Company or such other entity outstanding
immediately after such reorganization or merger or
consolidation (or series of related transactions involving
such a reorganization or merger or consolidation), or
(ii) a reorganization or merger or consolidation
effected to implement a recapitalization or reincorporation of
the Company (or similar transaction) that does not result in a
material change in beneficial ownership of the voting
securities of the Company or its successor; or
(d) Approval by the stockholders of the Company or any
order by a court of competent jurisdiction of a plan of liquidation of
the Company.
Notwithstanding the foregoing, a Change in Control of the type described in
paragraph (b), (c) or (d) shall be deemed to be completed on the date it
occurs, and a Change in Control of the type described in paragraph (a) shall be
deemed to be completed as of the date the entity or group attaining thirty
percent (30%) or greater ownership has elected its representatives to the
Company's Board of Directors and/or caused its nominees to become officers of
the Company with the authority to terminate or alter the terms of employee's
employment.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the common stock of the Company, par value $0.01
per share, as constituted on the Effective Date of this Plan, and as thereafter
adjusted as a result of any one or more events requiring adjustment of
outstanding Stock Options under Section 3.4 above.
"COMPANY" means AudioNet, Inc., a Delaware corporation.
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"EFFECTIVE DATE" means August 19, 1997, which is the date this Plan
was adopted by the Board.
"ELIGIBLE PERSON" shall include directors (other than non-employee
directors of the Company), officers, employees, consultants and advisors of the
Company or of any Affiliated Entity.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE ACT REGISTERED COMPANY" means that the Company has any class
of any equity security registered pursuant to Section 12 of the Exchange Act.
"EXPIRATION DATE" means the tenth anniversary of the Effective Date.
"FAIR MARKET VALUE" of a share of the Company's capital stock as of a
particular date shall be: (a) if the stock is listed on an established stock
exchange or exchanges (including for this purpose, the Nasdaq National Market),
the average of the highest and lowest sale prices of the stock quoted for such
date as reported in the Transactions Index of each such exchange, as published
in The Wall Street Journal and determined by the Administering Body, or, if no
sale price was quoted in any such Index for such date, then as of the next
preceding date on which such a sale price was quoted; or (b) if the stock is
not then listed on an exchange or the Nasdaq National Market, the average of
the closing bid and asked prices per share for the stock in the
over-the-counter market as quoted on The Nasdaq Small Cap Market on such date
(in the case of (a) or (b), subject to adjustment as and if necessary and
appropriate to set an exercise price not less than 100% of the Fair Market
Value of the stock on the date an option is granted); or (c) if the stock is
not then listed on an exchange or quoted in the over-the-counter market, an
amount determined in good faith by the Administering Body; provided, however,
that (i) when appropriate, the Administering Body, in determining Fair Market
Value of capital stock of the Company, may take into account such other factors
as it may deem appropriate under the circumstances and (ii) if the stock is
traded on the Nasdaq Small Cap Market and both sales prices and bid and asked
prices are quoted or available, the Administering Body may elect to determine
Fair Market Value under either clause (i) or (ii) above. Notwithstanding the
foregoing, the Fair Market Value of capital stock for purposes of grants of
Incentive Stock Options shall be determined in compliance with applicable
provisions of the IRC.
"IMMEDIATE FAMILY" means the Recipient's spouse, children or
grandchildren (including adopted and stepchildren and grandchildren).
"INCENTIVE STOCK OPTION" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC, or any successor statute
thereto.
"IRC" means the Internal Revenue Code of 1986, as amended.
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"JUST CAUSE DISMISSAL" shall mean a termination of a Recipient's
employment for any of the following reasons: (a) the Recipient violates any
reasonable rule or regulation of the Board, the Company's Chief Executive
Officer or the Recipient's superiors that results in damage to the Company or
which, after written notice to do so, the Recipient fails to correct within a
reasonable time; (b) any willful misconduct or gross negligence by the
Recipient in the responsibilities assigned to the Recipient; (c) any willful
failure to perform the Recipient's job as required to meet Company objectives;
(d) any wrongful conduct of a Recipient which has an adverse impact on the
Company or which constitutes a misappropriation of Company assets; (e) the
Recipient's performing services for any other person or entity which competes
with the Company while the Recipient is employed by the Company, without the
written approval of the Chief Executive Officer of the Company; or (f) any
other conduct that the Administering Body determines constitutes Just Cause for
Dismissal; provided, however, that if a Recipient is party to an employment
agreement with the Company providing for just cause dismissal (or some
comparable notion) of Recipient from Recipient's employment with the Company,
"Just Cause Dismissal" for purposes of this Plan shall have the same meaning as
ascribed thereto or to such comparable notion in such employment agreement.
"NON-EMPLOYEE DIRECTOR" means any director of the Company who
qualifies as a "non-employee director" within the meaning of Rule 16b-3.
"NON-QUALIFIED STOCK OPTION" means a Stock Option that is not an
Incentive Stock Option.
"OPTIONEE" means a Recipient or the Recipient's successor in interest.
"OUTSIDE DIRECTOR" means an "outside director" as defined in the
regulations adopted under Section 162(m) of the IRC.
"PARENT CORPORATION" means any Parent Corporation as defined in
Section 424(e) of the IRC.
"PERFORMANCE-BASED COMPENSATION" means performance-based compensation
as described in Section 162(m) of the IRC. If the amount of compensation an
Eligible Person will receive under any Stock Option is not based solely on an
increase in the value of Common Stock after the date of grant or award, the
Stock Option Plan Committee, in order to qualify Stock Options as
performance-based compensation under Section 162(m) of the IRC, can condition
the grant, award, vesting, or exercisability of such Stock Options on the
attainment of a preestablished, objective performance goal. For this purpose,
a preestablished, objective performance goal may include one or more of the
following performance criteria: (a) cash flow; (b) earnings per share
(including earning before interest, taxes, and amortization); (c) return on
equity; (d) total stockholder return; (e) return on capital; (f) return on
assets or net assets; (g) income or net income; (h) operating income or net
operating income; (i) operating margin; (j) return on operating revenue; (k)
attainment of stated goals related to the Company's capitalization, costs,
financial condition or results of operations; and (l) any other similar
performance criteria.
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"PERSON" means any person, entity or group, within the meaning of
Section 13(d) or 14(d) of the Exchange Act, but excluding (a) the Company and
its subsidiaries, (b) any employee stock ownership or other employee benefit
plan maintained by the Company that is qualified under ERISA and (c) an
underwriter or underwriting syndicate that has acquired the Company's
securities solely in connection with a public offering thereof.
"PERMANENT DISABILITY" shall mean that the Recipient becomes
physically or mentally incapacitated or disabled so that the Recipient is
unable to perform substantially the same services as the Recipient performed
prior to incurring such incapacity or disability (the Company, at its option
and expense, being entitled to retain a physician to confirm the existence of
such incapacity or disability, and the determination of such physician to be
binding upon the Company and the Recipient), and such incapacity or disability
continues for a period of three consecutive months or six months in any
12-month period or such other period(s) as may be determined by the Stock
Option Plan Committee with respect to any Stock Option, provided that for
purposes of determining the period during which an Incentive Stock Option may
be exercised pursuant to Section 5.13(b)(ii) hereof, Permanent Disability shall
mean "permanent and total disability" as defined in Section 22(e) of the IRC.
"PERMITTED TRANSFEREE" means (a) the Recipient's Immediate Family; (b)
a trust solely for the benefit of the Recipient and/or his or her Immediate
Family; or (c) a partnership or limited liability company the partners or
shareholders of which are limited to the Recipient and his or her Immediate
Family.
"PLAN" means this 1997 Stock Option Plan of the Company.
"PLAN TERM" means the period during which this Plan remains in effect
(commencing on the Effective Date and ending on the Expiration Date).
"RECIPIENT" means a person who has received Stock Options under this
Plan.
"REORGANIZATION" means any merger, consolidation or other
reorganization.
"RULE 16b-3" means Rule 16b-3 under the Exchange Act.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SIGNIFICANT STOCKHOLDER" is an individual who, at the time a Stock
Option is granted to such individual under this Plan, owns more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company or of any Parent Corporation or Subsidiary Corporation (after
application of the attribution rules set forth in Section 424(d) of the IRC).
"STOCK OPTION" means a right to purchase stock of the Company granted
under Article VI of this Plan to an Eligible Person.
"STOCK OPTION DOCUMENT" means the agreement or confirming memorandum
setting forth the terms and conditions of Stock Options.
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"STOCK OPTION PLAN COMMITTEE" means the committee appointed by the
Board to administer this Plan pursuant to Section 4.1.
"SUBSIDIARY CORPORATION" means any Subsidiary Corporation as defined
in Section 425(f) of the IRC.
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EXHIBIT 10.10
STOCK OPTION AGREEMENT
PURSUANT TO THE
AUDIONET, INC. 1998 STOCK OPTION PLAN
This STOCK OPTION AGREEMENT (the "Agreement") is made and entered into
by and between AUDIONET, INC., a Delaware corporation (the "Company"), and
EMPLOYEE (the "Optionee"), effective as of March 31, 1998 (the "Effective
Date").
1. Grant of Option. The Company hereby grants to the Optionee and the
Optionee hereby accepts, subject to the terms and conditions hereof, a stock
option (the "Option") to purchase up to Number of Shares shares of the Company's
Common Stock at the Exercise Price per share set forth in Section 4. The Option
is intended to qualify as an "incentive stock option" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended, to the extent
permissible thereunder.
2. Governing Plan. This Option is granted pursuant to the Company's
1998 Stock Option Plan (the "Plan"), a copy of which is attached hereto.
Capitalized terms used but not otherwise defined herein have the meanings set
forth in the Plan. The Optionee agrees to be bound by the terms and conditions
of the Plan, which are incorporated herein by reference and which control in
case of any conflict with this Agreement.
3. Expiration of the Option. The Option (to the extent not earlier
exercised or terminated due to cessation of the Optionee's employment or
otherwise in accordance with the Plan) will expire at the end of business on
March 30, 2008. The Option may terminate sooner under certain circumstances,
including, without limitation, termination of the Optionee's employment or a
change in control of the Company, as set forth in Sections 5.13, 7.1, and 7.2 of
the Plan. The Option may not be exercised after its expiration or termination.
4. Exercise Plan. The "Exercise Price" of the Option is $9.42 per share
of Common Stock. The Exercise Price is subject to adjustment as set forth in
Article III of the Plan.
5. Vesting. On each Measurement Date set forth in Column 1 below, the
Option shall vest and become exercisable for the corresponding number of shares
of Common Stock set forth in Column 2 below if the Optionee's employment has not
terminated. The "Vested Portion" of the Option as of any particular date shall
be the cumulative total of all shares for which the Option has become
exercisable as of that date.
<PAGE> 2
<TABLE>
<CAPTION>
- ---------------------------------------- ----------------------------------------
COLUMN 1 COLUMN 2
Measurement Date Shares Vesting on
Measurement Date
- ---------------------------------------- ----------------------------------------
<S> <C>
First Anniversary of the Effective Date First Anniversary
- ---------------------------------------- ----------------------------------------
Second Anniversary of the Effective Date Second Anniversary
- ---------------------------------------- ----------------------------------------
Third Anniversary of the Effective Date Third Anniversary
- ---------------------------------------- ----------------------------------------
Fourth Anniversary of the Effective Date Fourth Anniversary
- ---------------------------------------- ----------------------------------------
Fifth Anniversary of the Effective Date Fifth Anniversary
- ---------------------------------------- ----------------------------------------
</TABLE>
6. Exercise of the Option. The Vested Portion (as herein defined) of
the Option may be exercised, to the extent not previously exercised, in whole or
in part, at any time or from time to time prior to the expiration or termination
of the Option, except that no Option shall be exercisable except in respect to
whole shares, and not less than 100 shares may be purchased at one time unless
the number purchased is the total number at the time available for purchase
under the terms of the Option. Exercise shall be accomplished by providing the
Company with written notice in the form of Exhibit I hereto, which notice shall
be irrevocable when delivered and effective upon payment in full of the Exercise
Price in accordance with Section 5.4 of the Plan, any amounts required in
accordance with Section 5.11 of the Plan, and the satisfaction of all other
conditions to exercise imposed under the Plan.
7. Payment of Option Price. Upon any exercise of the Option, the
exercise price for the number of shares for which the Option is then being
exercised shall be paid in full to the Company in cash or in such other form as
the Plan administrator may deem acceptable.
8. Nontransferability of Option. The Option shall not be transferable
or assignable by the Optionee, other than in accordance with Section 5.9 of the
Plan or by will or the laws of descent and distribution (or as otherwise
permitted by the Plan administrator in its sole discretion), and shall be
exercisable during the Optionee's lifetime only by him or her or by his or her
legal representative(s) or guardian(s).
9. Administration. The Plan and this Agreement shall be administered
and may be definitively interpreted by a committee of the Board of Directors of
the Company, and the Optionee agrees to accept and abide by the decisions of
such committee concerning administration and interpretation of the Plan and this
Agreement.
<PAGE> 3
IN WITNESS WHEREOF, this Agreement has been executed on behalf of the
Company by its duly authorized officer, and by the Optionee in acceptance of the
above-mentioned Option, subject to the terms and conditions of the Plan and of
this Agreement, all as of the day and year first above written.
AUDIONET, INC.
-------------------------------------------
By: Todd R. Wagner, Chief Executive Officer
OPTIONEE
-------------------------------------------
Employee
<PAGE> 4
EXHIBIT I TO AUDIONET, INC. 1998 STOCK OPTION PLAN AND STOCK OPTION AGREEMENT
NOTICE OF EXERCISE
UNDER
STOCK OPTION AGREEMENT
PURSUANT TO THE
AUDIONET, INC. 1998 STOCK OPTION PLAN
To: AudioNet, Inc. ("AudioNet" or the "Company")
From: Employee
Date: ______________________
Pursuant to the AudioNet, Inc. 1998 Stock Option Plan and Stock Option
Agreement between and AudioNet and myself effective March 31, 1998 (the
"Agreement"), I hereby exercise my Option as follows:
<TABLE>
<S> <C>
- --------------------------------------------- ----------------------
Number of shares of Common Stock I wish to
purchase under the Option _____________
- --------------------------------------------- ----------------------
Exercise Price per share $____________
- --------------------------------------------- ----------------------
Total Exercise Price $____________
- --------------------------------------------- ----------------------
"Vested Portion" of Option (see definition in
Section 5 of the Agreement) _____________
- --------------------------------------------- ----------------------
Number of shares I have previously
purchased by exercising the Option _____________
- --------------------------------------------- ----------------------
Expiration Date of the Option 3/30/08
- --------------------------------------------- ----------------------
</TABLE>
I hereby represent, warrant, and covenant to AudioNet that:
a. I am acquiring the Common Stock for my own account, for investment,
and not for distribution or resale, and I will make no transfer of such Common
Stock except in compliance with applicable federal and state securities laws.
b. I can bear the risk of the investment in such Common Stock resulting
from this exercise of the Option, including a total loss thereof.
<PAGE> 5
c. I have had complete access to all financial and other information
with respect to the Company in connection with the exercise of the Option.
d. I am experienced in business and financial matters and am capable of
(i) evaluating the merits and risks of an investment in the Company, (ii) making
an informed investment decision regarding exercise of the Option, and (iii)
protecting my interests in connection therewith.
------------------------------
Employee
<PAGE> 1
EXHIBIT 10.11
AUDIONET, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF JUNE 1, 1997)
ARTICLE I
GENERAL
1.01 ADOPTION. This AudioNet, Inc. 1996 Non-Employee Directors
Stock Option Plan (the "Plan") has been adopted by the Board of Directors and
approved by the stockholders of AudioNet, Inc., a Delaware corporation and the
successor in interest to Cameron Audio Networks, Inc., a Texas corporation (the
"Company"), effective as of May 15, 1996, to promote the interests of the
Company and its stockholders by using investment interests in the Company to
attract and retain highly qualified independent directors.
1.02 ADMINISTRATION. The Plan shall be administered by the
Company, which, subject to the express provisions of the Plan, shall have the
power to construe the Plan and any agreements or memoranda defining the rights
and obligations of the Company and option recipients, to determine all
questions arising thereunder, to adopt and amend such rules and regulations for
the administration thereof as it may deem desirable, and otherwise to carry out
the terms of the Plan and such agreements or memoranda. The interpretation and
construction by the administrator of any provisions of the Plan or of any
option granted under the Plan shall be final. Notwithstanding the foregoing,
the administrator shall have no authority or discretion as to the selection of
persons eligible to receive options granted under the Plan, the number of
shares covered by options granted under the Plan, the timing of such grants, or
the exercise price of options granted under the Plan, which matters are
specifically governed by the provisions of the Plan.
1.03 ELIGIBLE DIRECTORS. A person shall be eligible to receive
grants of options under this Plan (an "Eligible Director") if, at the time of
the option's grant, he or she is a duly elected or appointed member of the
Company's Board of Directors, but is not and has not since the beginning of the
Company's most recently completed fiscal year been (a) granted or awarded any
equity securities of the Company (including, without limitation, stock options
and stock appreciation rights); or (b) an employee of the Company or any of its
affiliates or otherwise eligible for selection as a person to whom equity
securities of the Company (including, without limitation, stock options and
stock appreciation rights) may be allocated or granted pursuant to any plan of
the Company or any of its affiliates (other than this Plan) entitling
participants therein to acquire stock, stock options, or stock appreciation
rights of the Company or any of its affiliates.
1.04 SHARES OF COMMON STOCK SUBJECT TO THE PLAN AND GRANT LIMIT.
The shares that may be issued upon exercise of options granted under the Plan
shall be authorized and unissued shares of the Company's common stock, $0.01
par value per share (the "Common Stock"), or previously issued shares of Common
Stock reacquired by the Company. The
<PAGE> 2
aggregate number of shares that may be issued upon exercise of options granted
under the Plan shall not exceed 150,000 shares of Common Stock, subject to
adjustment in accordance with Article III.
1.05 AMENDMENT OF THE PLAN. The Company's Board of Directors may,
insofar as permitted by law, from time to time suspend or discontinue the Plan
or revise or amend it in any respect whatsoever that would not compromise the
ability of Eligible Directors to serve as disinterested administrators of the
Company's other employee benefit plans under Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
promulgated thereunder, except that no such amendment shall alter or impair or
diminish any rights or obligations under any option theretofore granted under
the Plan without the consent of the person to whom such option was granted. In
addition, if an amendment to the Plan would increase the number of shares
subject to the Plan (as adjusted under Article III), increase the number of
shares for which an option or options may be granted to any optionee (as
adjusted under Article III), change the class of persons eligible to receive
options under the Plan, provide for the grant of options having an exercise
price per option share less than the exercise price specified in the Plan,
extend the final date upon which options may be granted under the Plan, or
otherwise materially increase the benefits accruing to participants in a manner
not specifically contemplated herein or affect the Plan's compliance with Rule
16b-3 under the Exchange Act, the amendment shall be approved by the Company's
stockholders to the extent required to comply with Rule 16b-3 under the
Exchange Act. Under no circumstances may the provisions of the Plan that
provide for the amounts, price, and timing of option grants be amended more
than once every six months, other than to comport with changes in the Internal
Revenue Code of 1986, as amended (the "Code"), the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), or the rules thereunder. Subject
to the foregoing, the administrator may amend the Plan to comply with or take
advantage of changes in the rules promulgated by the Securities and Exchange
Commission or its staff under Section 16 of the Exchange Act.
1.06 TERM OF PLAN. Options may be granted under the Plan until the
10th anniversary of the effective date of the Plan, whereupon the Plan shall
terminate. No options may be granted during any suspension of this Plan or
after its termination. Notwithstanding the foregoing, each option properly
granted under the Plan shall remain in effect until such option has been
exercised or terminated in accordance with its terms and the terms of the Plan.
1.07 RESTRICTION. All options granted under the Plan shall be
subject to the requirement that, if at any time the Company shall determine, in
its discretion, that the listing, registration, or qualification of the shares
subject to options granted under the Plan upon any securities exchange or under
any state or federal law, or the consent or approval of any government
regulatory body, is necessary or desirable as a condition of, or in connection
with, the granting of such an option or the issuance, if any, or purchase of
shares in connection therewith, such option may not be exercised in whole or in
part unless such listing, registration, qualification, consent, or approval
shall have been effected or obtained free of any conditions not acceptable to
the Company. Unless the shares of stock to be issued upon exercise of an
option granted under the Plan have been effectively registered under the
Securities Act of 1933, as amended (the "Securities Act"), as now in force or
hereafter amended, the Company shall be
2
<PAGE> 3
under no obligation to issue any shares of stock covered by any option unless
the person who exercises such option, in whole or in part, shall give a written
representation and undertaking to the Company satisfactory in form and scope to
rely, that he or she is acquiring the shares of stock issued to him or her
pursuant to such exercise of the option for his or her own account as an
investment and not with a view to, or for sale in connection with, the
distribution of any such shares of stock, and that he or she will make no
transfer of the same except in compliance with any rules and regulations in
force at the time of such transfer under the Securities Act, or any other
applicable law, and that if shares of stock are issued without such
registration, a legend to this effect may be endorsed upon the securities so
issued and the Company may order its transfer agent to stop transfer of such
shares.
1.08 NONASSIGNABILITY. No option granted under the Plan shall be
assignable or transferable by the grantee except by will or by the laws of
descent and distribution or, in the discretion of the administrator and under
circumstances that would not adversely affect the interests of the Company, as
otherwise permitted by rule or interpretation of the Securities and Exchange
Commission or its staff as an exception to the general proscription on transfer
of derivative securities set forth in Rule 16b-3 (or any successor rule) under
the Exchange Act. During the lifetime of the optionee, the option shall be
exercisable only by the optionee (or the optionee's permitted transferee) or
his or her guardian or legal representative.
1.09 WITHHOLDING TAXES. Whenever shares of stock are to be issued
upon exercise of an option granted under the Plan, the administrator shall have
the right to require the optionee to remit to the Company an amount sufficient
to satisfy any federal, state, and local withholding tax requirements prior to
such issuance. The administrator may, in the exercise of its discretion, allow
satisfaction of tax withholding requirements by accepting delivery of stock of
the Company or by withholding a portion of the stock otherwise issuable upon
exercise of an option.
1.10 DEFINITION OF "FAIR MARKET VALUE." For purposes of the Plan,
the "fair market value" of a share of stock as of a particular date shall be:
(a) if the stock is listed on an established stock exchange or exchanges, the
mean between the highest and lowest sale prices of the stock quoted for such
date in the Transactions Index of each such exchange as averaged with such mean
price as reported on any and all other exchanges, as published in The Wall
Street Journal and determined by the Company, or, if no sale price was quoted
in any such Index for such date, then as of the next preceding date on which
such a sale price was quoted (subject to adjustment as and if necessary and
appropriate to set an exercise price not less tan 100% of the fair market value
of the stock on the date an option is granted); or (b) if the stock is not then
listed on an exchange, the average of the closing bid and asked prices per
share for the stock in the over-the-counter market as quoted on the NASDAQ
system on such date; or (c) if the stock is not then listed on an exchange or
quoted in the over-the-counter market, an amount determined in good faith by
the administrator. The fair market value of rights or property other than
stock shall be determined by the administrator on the basis of such factors as
it may deem appropriate.
1.11 RIGHTS AS A STOCKHOLDER. An optionee or a permitted
transferee of an option shall have no rights as a stockholder with respect to
any shares issuable or issued upon exercise of the option until the date of the
receipt by the Company of all amounts payable in connection with exercise of
the option, including the exercise price and any amounts required pursuant to
Section 1.09.
3
<PAGE> 4
ARTICLE II
STOCK OPTIONS
2.01 GRANTS OF INITIAL OPTIONS. Each Eligible Director shall, upon
first becoming an Eligible Director, receive a one-time grant of an option to
purchase up to 15,000 shares of Common Stock at an exercise price per share
equal to the fair market value of Common Stock on the date of grant, subject to
(a) vesting as set forth in Section 2.03; and (b) adjustment as set forth in
Article III. Options granted under this Section 2.01 are "Initial Options" for
purposes hereof.
2.02 GRANTS OF ADDITIONAL OPTIONS. Immediately following the
annual meeting of stockholders of the Company next following an Eligible
Director's election to the Board, and immediately following each subsequent
annual meeting of stockholders of the Company, if the Eligible Director has
served as a director since his or her election and has been re-elected as a
director at such annual meeting, such Eligible Director shall automatically
receive an option to purchase up to 2,400 shares of the Company's Common Stock
(an "Additional Option"). In addition to the Additional Options described
above, an individual who was previously an Eligible Director and received an
Initial Option, who then ceased to be a director for any reason, and who then
again becomes an Eligible Director, shall upon again becoming an Eligible
Director automatically receive an Additional Option. The exercise price per
share for all Additional Options shall be equal to the fair market value of the
Company's Common Stock on the date of grant, subject to (a) vesting as set
forth in Section 2.03; and (b) adjustment as set forth in Article III.
2.03 VESTING. Initial Options shall vest and become exercisable
(a) 50% upon the earlier of (i) the first anniversary of the grant date; or
(ii) immediately prior to the first annual meeting of stockholders of the
Company following the grant date, if the optionee has remained an Eligible
Director for the entire period from the date of grant to such earlier date; and
(b) 50% upon the earlier of (i) the second anniversary of the grant date; or
(ii) immediately prior to the second annual meeting of stockholders of the
Company following the grant date, if the optionee has remained an Eligible
Director for the entire period from the date of grant to such earlier date.
Additional Options shall vest and become exercisable upon the earlier of (y)
the first anniversary the grant date; or (z) immediately prior to the annual
meeting of stockholders of the Company next following the grant date, if the
optionee has remained an Eligible Director for the entire period from the date
of grant to such earlier date. Notwithstanding the foregoing, however, Initial
Options and Additional Options that have not become exercisable at the time the
optionee ceases to be a director will terminate.
2.04 EXERCISE. No option shall be exercisable except in respect of
whole shares, and fractional share interest shall be disregarded. Not less
than 10 shares of stock (or such other amount as is set forth in the applicable
option agreement or confirming memorandum) may be purchased at one time unless
the number purchased is the total number at the time available for purchase
under the terms of the option. An option shall be deemed to be exercised when
the
4
<PAGE> 5
Secretary of the Company receives written notice of such exercise from or on
behalf of the optionee, together with payment of the exercise price. The
option exercise price shall be payable upon the exercise of an option in legal
tender of the United States or such other consideration as the administrator
may deem acceptable, including, without limitation, stock of the Company
delivered by or on behalf of the person exercising the option or retained by
the Company from the stock otherwise issuable upon exercise or surrender of
other options previously granted to the recipient, (in either case valued at
fair market value as of the exercise date), provided, however, that the
administrator may, in the exercise of its discretion, (a) allow exercise of an
option in a broker-assisted or similar transaction in which the exercise price
is not received by the Company until promptly after exercise; and/or (b) allow
the Company to loan the exercise price to the person entitled to exercise the
option, if the exercise will be followed by a prompt sale of some or all of the
underlying shares and a portion of the sales proceeds is dedicated to full
payment of the exercise price.
2.05 OPTION AGREEMENTS. Each option granted under the Plan shall
be evidenced by an option agreement duly executed on behalf of the Company and
by the Eligible Director to whom such option is granted or, in the
administrator's discretion, a confirming memorandum issued by the Company to
the recipient, stating the number of shares of stock issuable upon exercise of
the option and the exercise price, and setting forth explicitly or by reference
to the Plan the time during which the option is exercisable and the times at
which the options vest and become exercisable. Such option agreements or
confirming memoranda may but need not be identical and shall comply with and be
subject to the terms and conditions of the Plan, a copy of which shall be
provided to each option recipient and incorporated by reference into each
option agreement or confirming memorandum. Any option agreement or confirming
memorandum may contain such other terms, provisions, and conditions not
inconsistent with the Plan as may be determined by the administrator.
2.06 TERM OF OPTIONS AND EFFECT OF TERMINATION. Notwithstanding
any other provision of the Plan, no options granted under the Plan shall be
exercisable after the expiration of 10 years from the effective date of their
grant. In the event that any outstanding option under the Plan expires by
reason of lapse of time or is otherwise terminated without exercise for any
reason, then the shares of Common Stock subject to any such option that have
not been issued upon exercise of the option shall again become available in the
pool of shares of Common Stock for which options may be granted under the Plan.
In the event that the recipient of any options granted under this Plan shall
cease to be a director of the Company, (a) all Initial Options granted under
this plan to such recipient shall be exercisable, to the extent already
exercisable at the date such recipient ceases to be a director and regardless
of the reason the recipient ceases to be a director, for a period of 365 days
after that date (or, if sooner, until the expiration of the option according to
its terms), and shall then terminate; and (b) all Additional Options granted
under this Plan to such recipient shall be exercisable, to the extent already
exercisable at the date such recipient ceases to be a director, for a period of
365 days after that date (or, if sooner, until the expiration of the option
recording to its terms) if he or she ceases to be a director because of death
or permanent disability, or for a period of 90 days after that date (or, if
sooner, until the expiration of the option according to its terms) if he or she
ceases to be a director for any other reason, and shall then terminate. In the
event of the death of an optionee while such optionee is a
5
<PAGE> 6
director of the Company or within the period after termination of such status
during which he or she is permitted to exercise an option, such option may be
exercised by any person or persons designated by the optionee on a Beneficiary
Designation Form adopted by the administrator for such purpose or, if there is
no effective Beneficiary Designation Form on file with the Company, by the
executors or administrators of the optionee's estate or by any person or
persons who shall have acquired the option directly from the optionee by his or
her will or the applicable laws of descent and distribution.
ARTICLE III
CORPORATE TRANSACTIONS
3.01 ANTI-DILUTION ADJUSTMENTS. The number of shares of Common
Stock available for issuance upon exercise of options granted under the Plan,
the maximum number of shares for which options granted under the Plan may be
exercised by any individual, the number of shares for which each outstanding
option can be exercised, and the exercise price per share of options (issued
and unissued) shall be appropriately and proportionately adjusted for any
increase or decrease in the number of issued and outstanding shares of Common
Stock resulting from a subdivision or consolidation of shares or the payment of
a stock dividend or any other increase or decrease in the number of issued and
outstanding shares of Common Stock effected without receipt of full
consideration by the Company. No fractional interests will be issued under the
Plan resulting from any such adjustments.
3.02 MERGERS; CHANGES IN CONTROL. Subject to the other provisions
of this Section 4.02 if the Company shall consummate any reorganization,
merger, or consolidation, each outstanding option shall be exercisable for the
securities and/or other consideration that a holder of the same number of
shares of Common Stock as are subject to that option would have been entitled
to receive in such reorganization, merger, or consolidation, and appropriate
adjustments shall be made to the exercise price thereof. A Change in Control
of the Company shall cause the Plan and each outstanding option to terminate,
provided that each optionee shall have the right immediately prior to or upon
such Change in Control to exercise his or her option or options in whole or in
part without regard to any vesting requirements. For purposes hereof, a
"Change in Control" means the following and shall be deemed to occur if any of
the following events occurs:
(a) Except as provided by subparagraph (c) hereof, the
acquisition (other than from the Company) by any person, entity, or
group, within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act (excluding, for this purpose, the Company or its
subsidiaries, or any employee benefit plan of the Company or its
subsidiaries that acquires beneficial ownership of voting securities
of the Company), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of Common Stock or other
voting securities of the Company such that such person, entity, or
group owns 40% or more of either the then outstanding shares of Common
Stock or the combined voting power of the Company's then outstanding
voting securities entitled to vote generally in the election of
directors; or
6
<PAGE> 7
(b) Individuals who, as of the effective date of the
Plan, constitute the Board of Directors of the Company (the "Incumbent
Board") cease for any reason to constitute at least a majority of the
Board of Directors of the Company, provided that any person becoming a
director subsequent to the effective date hereof whose election, or
nomination for election by the Company's stockholders, is or was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is in connection
with an actual or threatened election contest relating to the election
of the directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for
purposes of this Plan, considered as though such person were a member
of the Incumbent Board; or
(c) Consummation by the Company of the sale or other
disposition by the Company of all or substantially all of the
Company's assets or a reorganization, merger, or consolidation with
any other person, entity, or corporation, other than
(i) a reorganization, merger, or consolidation
that would result in the voting securities of the Company
outstanding immediately prior thereto (or, in the case of a
reorganization, merger, or consolidation that is preceded or
accomplished by an acquisition or series of related
acquisitions by any person, entity, or group, by tender or
exchange offer or otherwise, of voting securities representing
5% or more of the combined voting power of all securities of
the Company, immediately prior to such acquisition or the
first acquisition is such series of acquisition) continuing to
represent (either by remaining outstanding or by being
converted into voting securities of another entity) more than
50% of the combined voting power of the voting securities of
the Company or such other entity outstanding immediately after
such reorganization, merger, or consolidation (or series of
related transaction involving such a reorganization, merger,
or consolidation); or
(ii) a reorganization, merger, or consolidation
effected to implement a recapitalization or reincorporation of
the Company (or similar transaction) that does not result in a
material change in beneficial ownership of the voting
securities of the Company or its successor; or
(d) Approval by the stockholders of the Company of a plan
of complete liquidation of the Company.
Notwithstanding the preceding provisions of this Section 3.02, a
Change in Control shall not be deemed to have occurred (1) if the "person"
described in the preceding provisions is an underwriter or underwriting
syndicate that has acquired the ownership of the Company's voting securities
solely in connection with a public offering of the Company's securities; or (2)
if the "person" described in the preceding provisions is an employee stock
ownership plan or other employee benefit plan maintained by the Company that is
qualified under the provisions of ERISA.
7
<PAGE> 8
3.03 DETERMINATION BY THE COMPANY. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the administrator, whose determination in that
respect shall be final, binding, and conclusive. The grant of an option
pursuant to the Plan shall not affect in any way the right or power of the
Company to make adjustments, reclassifications, reorganizations, or changes of
its capital or business structure or to merge, consolidate, dissolve, or
liquidate or to sell or transfer all or any part of its business or assets.
8
<PAGE> 1
EXHIBIT 10.12
REALNETWORKS LICENSE AGREEMENT
THIS REALNETWORKS LICENSE AGREEMENT (this "Agreement" or the "RN
License Agreement") is made and entered into as of the 1st day of January,
1998 (the "Effective Date"), by and between AudioNet, Inc., a Delaware
corporation and RealNetworks, Inc., a Washington corporation ("RN").
WHEREAS, RN is the owner of certain server technology and software
[*] [*] (as so described, the "RN Software"). The RN Software shall include [*]
WHEREAS, AudioNet is the business of, among other things, the support,
implementation, deployment and delivery of AudioNet's current and future
Internet-based products and services; and
WHEREAS, AudioNet desires to use the RN Software in connection with
[*]
NOW, THEREFORE, AudioNet and RN have reached certain agreements with
respect to the licensing of the RN Software by AudioNet upon the terms and
conditions more particularly described herein; and, inasmuch as the parties
desire to set forth their agreements and understandings in writing, in
consideration of the promises, covenants and matters hereinafter set forth, the
parties mutually covenant, contract and agree, each with the other, as follows:
1. LICENSE.
(a) License to RN Software. RN hereby grants to AudioNet, for the
Term (as defined in Section 9(a)), a [*] license to:
(i) reproduce and install up to [*] copies of the RN
Software and associated "Documentation," on AudioNet servers (the
"AudioNet Servers") for the purpose of [*]; [*]
(ii) deliver up to [*] simultaneous "User-Streams"
[*]
* Confidential Treatment Requested
<PAGE> 2
(iii) [*] AudioNet agrees to inform RN of the mechanisms it
intends to implement for monitoring its use of the RN Software and
delivery of User-Streams to ensure that it does not exceed authorized
User-Stream or RN Software counts, and will cooperate with RN to ensure
that such mechanism is acceptable to RN; and
(iv) [*]
Under no circumstances may AudioNet: [*]
(b) [*]. RN hereby grants [*]
(c) [*]. RN hereby grants to AudioNet [*]
(d) Delivery of Upgrades, Etc. RN shall promptly (and in no event
later than RN makes the following available to RN hosting customers) deliver to
AudioNet any upgrades, updates, enhancements, additions, improvements,
successor versions, modifications, maintenance releases, bug fixes and
corrections to the RN Software licensed hereunder and the associated
Documentation commercially released during the Term. RN shall also provide
AudioNet with the technical assistance and support as set forth on Exhibit B.
(e) No Reverse Engineering. AudioNet shall not attempt to reverse
engineer, disassemble or decompile the RN Software, or create derivative works
based thereon, or otherwise seek to reconstruct the source code of RN Software.
(f) Ownership. RN shall retain all right, title and interest
(including all copyrights, patents, service marks, trademarks and other
intellectual property rights) in the RN Software. Except as expressly
* Confidential Treatment Requested
2
<PAGE> 3
licensed to AudioNet in this Section 1, AudioNet shall not acquire any interest
in the RN Software or any other RN software and technologies, or any copies or
portions thereof
(g) Records. AudioNet shall keep accurate records relating to the
RN Software to the extent necessary to determine compliance with restrictions on
the use of the RN Software contained herein. [*]. Upon not less than fifteen
(15) days prior written notice, such records shall be made available for
inspection to RN in AudioNet's offices during normal business hours.
(h) RN SDKs. Upon the execution of this Agreement, the parties
agree to engage in good faith negotiations with regard to the terms and
conditions pursuant to which RN may grant a license to AudioNet to use RN's
SDKs to integrate RN software and technologies with non-RN software and
technologies.
* Confidential Treatment Requested
3
<PAGE> 4
2. TRADEMARKS.
(a) Notices. For so long as AudioNet is using the RN Software,
AudioNet shall place notices on the AudioNet web site in locations reasonably
requested by RN which notice shall read substantially as follows: "The
RealServer is included under license from RealNetworks, Inc. RealAudio,
RealVideo and the Real logo are trademarks or registered trademarks of
RealNetworks, Inc. RealPlayer, RealServer, and other marks are trademarks of
RealNetworks, Inc. Copyright 1995-1998. RealNetworks, Inc. All rights
reserved." AudioNet shall place one or more RN Marks on each of its web sites
in reasonably prominent locations or other locations reasonably requested by RN
and agreed to by AudioNet and shall display such marks any time files link to
AudioNet Content that has been encoded in RN formats.
(b) License to RN Marks. AudioNet acknowledges that RN, RealAudio,
RealVideo, the Real logo, RealPlayer, RealServer, and other marks used by RN
(the "RN Marks") are trademarks of RN. RN hereby grants to AudioNet for the
Term a nonexclusive, nontransferable, non-assignable, license to use, and
AudioNet agrees to, the RN Marks in connection with the advertising, marketing,
promotion and rendering of the AudioNet Services when using or referencing the
RN Software AudioNet's use of the RN Marks shall be in accordance with RN's
policies regarding advertising and trademark usage as set forth on Exhibit C
hereto and on RN's website at http://www.real.com/corporate/logos, as updated
from time to time. AudioNet acknowledges that its use of any of the RN Marks
in connection with this Agreement shall not create any right, title or
interest, in or to the RN Marks (except as expressly licensed to AudioNet in
this Section 2(b)) and that all goodwill associated with the RN Marks shall
inure to the benefit of RN.
3. LICENSE FEE.
(a) Calculation of License Fee. In consideration for the license
granted hereunder, AudioNet agrees to pay RN during the Term the greater of:
(a) [*]
(b) Payment. The License Fee shall be payable once each calendar
quarter within 45 days of the end of the calendar quarters ending on March 31,
June 30 and September 30 and within 90 days of the end of the calendar quarter
ending on December 31. AudioNet's financial statements shall be audited yearly
by a nationally recognized firm of accountants and the License Fee payable for
the calendar quarter ending December 31 shall be adjusted for AudioNet's net
revenue as set forth in the audited financial statements for the year then
ended.
(c) Audit. RN shall have the right to have an inspection and audit
[*] for one year from the expiration or termination of this Agreement. Such
audit shall be conducted at RNs expense (subject to the last sentence hereof)
during regular business hours at AudioNet's offices and, for purposes of
inspecting the RN Software, at other locations where AudioNet owns, leases or
provides servers on which the RN Software may reside in such a manner as to not
interfere with AudioNet's normal business activities. In no event shall audits
be made hereunder more frequently than every year. [*]
4. OTHER RN OBLIGATIONS.
* Confidential Treatment Requested
4
<PAGE> 5
(a) Support. During the Term, RN shall provide AudioNet with
reasonable support consistent with the support levels provided by RN to direct
hosting and/or large scale broadcast customers as set forth on Exhibit B. [*]
(b) [*]
(c) Training by RN. RN shall provide, without charge, up to three
(3) days of training in the use of the RN Software to AudioNet personnel at
RN's headquarters in Seattle, Washington, and two (2) days of training at
AudioNet's headquarters in Dallas, Texas, on dates to be mutually agreed upon.
RN shall also provide to AudioNet, at AudioNet's request and cost, at RN's
facility, and on dates to be mutually agreed upon, additional training in the
use of the RN Software. AudioNet may also attend general training sessions that
RN provides to the public, provided that AudioNet shall provide RN reasonable
notice of its intent to attend such training and shall limit attendance to no
more than four (4) AudioNet personnel at any one general training session.
AudioNet may send additional personnel to such training at the cost of $200 per
person. AudioNet shall be responsible for all travel, lodging and other
personal out-of-pocket expenses incurred by its personnel in connection with
any training. If AudioNet desires to receive additional training at AudioNet's
facilities, it shall provide reasonable notice to RN for coordination of
mutually acceptable dates, shall pay RN's current standard rate for on-site
training, and shall reimburse RN for its travel, lodging and other personal
out-of-pocket expenses incurred by its personnel in connection with such
training.
(d) [*]
(e) Regular Communications. The parties shall engage in regular
communications to discuss matters of ongoing importance under this Agreement.
The parties shall meet in person at least once per quarter, and shall have
frequent telephone conversations as needed.
5. RN SOFTWARE WARRANTY.
(a) Limited RN Software Warranty. RN warrants, solely for the
benefit of AudioNet, that for a period of ninety (90) days from the Effective
Date (or the date of delivery to AudioNet for future released versions, if any,
of RN Software made during the term hereof): (i) the final or "Gold" version of
the RN Software, if operated as directed, will substantially achieve the
functionality described in the Documentation; and (ii) that the media
containing the Gold version of the RN Software, if provided by RN, is free in
material respects from defects in material and workmanship; provided, however,
that the foregoing warranty is expressly contingent (and shall be otherwise
void) upon: (A) the use of the RN Software strictly in accordance with the
instructions and Documentation therefor; (B) the absence of misuse or damage
thereto; and (C) the absence of any alteration or modification thereto. RN
makes no warranty that AudioNet's use of the RN Software will be uninterrupted
or that the operation of the RN Software will be error-free or secure. In no
case will RN be liable for any representation or warranty made to any third
party by AudioNet. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, RN AND
ITS SUPPLIERS DISCLAIM ALL OTHER WARRANTIES, EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTIBILITY AND
FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO THE RN SOFTWARE.
* Confidential Treatment Requested
5
<PAGE> 6
(b) Remedies. RN's sole liability for any failure of the warranty
contained in Section 5(a) shall be, in RN's sole discretion: (i) to replace
AudioNet's defective media with fully functioning media; or (ii) to advise
AudioNet how to achieve substantially the same functionality with the RN
Software as described in the Documentation through a procedure different from
that set forth in the Documentation. Only if AudioNet informs RN of the problem
with the RN Software during the applicable warranty period will RN be obligated
to honor this limited warranty.
6. INDEMNITY
[*]
6
<PAGE> 7
7. REPRESENTATIONS AND WARRANTIES OF AUDIONET.
AudioNet hereby represents and warrants to RN that, as of the date
hereof:
(a) Organization and Good Standing; Corporate Power. AudioNet is a
corporation duly organized and validly existing under the laws of the State of
Delaware, and is in good standing under such laws, and has all necessary
licenses and permits required by all governmental authorities to carry on its
business, except where the failure to have obtained such licenses and permits
would not have a material adverse effect on AudioNet. AudioNet has all
requisite legal and corporate power to own, lease and operate its property and
assets, to carry on its business as presently conducted, to enter into this
Agreement and to carry out and perform its obligations under the terms of this
Agreement.
(b) Authorization. The execution and delivery of this Agreement
and the performance of its obligations hereunder, has been duly authorized by
all necessary corporate action of AudioNet. This Agreement constitutes a legal,
valid and binding obligation of AudioNet enforceable in accordance with its
terms except as such enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting the
rights and remedies of creditors, as well as general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law).
8. REPRESENTATIONS AND WARRANTIES OF RN.
RN hereby represents and warrants to AudioNet that, as of the date
hereof:
(a) Organization and Good Standing; Corporate Power. RN is a
corporation duly organized and validly existing under the laws of the State of
Washington, and is in good standing under such laws, and has all necessary
licenses and permits required by all governmental authorities to carry on its
business, except where the failure to be so qualified or to have obtained such
licenses and permits would not have a material adverse effect on RN. RN has all
requisite legal and corporate power to own, lease and operate its property and
assets, to carry on its business as presently conducted, to enter into this
Agreement and to carry out and perform its obligations under the terms of this
Agreement.
(b) Authorization. The execution and delivery of this Agreement
and the performance of its obligations hereunder, has been duly authorized by
all necessary corporate action of RN. This Agreement constitutes a legal, valid
and binding obligation of RN enforceable in accordance with its terms except as
such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors, as well as general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
9. TERM AND TERMINATION.
(a) Term. [*]
(b) Termination for Breach. This Agreement may be terminated by
either party only for cause immediately by written notice upon the occurrence
of any of the following events: (i) if the other ceases to do business, or
otherwise terminates its business; (ii) if the other breaches any material
provision of this Agreement [*] and fails to fully cure such breach within
forty-five (45) days' of written notice describing the breach; or (iii) if the
other becomes insolvent or seeks protection under any bankruptcy, receivership,
trust, deed, creditor's arrangement, or comparable proceeding, or if any such
proceeding is instituted against the other and not dismissed within forty-five
(45) days.
* Confidential Treatment Requested
7
<PAGE> 8
(c) Effect of Termination.
(i) Expiration. Upon the expiration of the Term, AudioNet shall
have the following options:
(a) [*]
(b) [*]
(c) [*]
(ii) AudioNet's Breach. Immediately upon termination of this
Agreement for AudioNet's material breach of this Agreement, all rights and
licenses under this Agreement shall immediately terminate, and AudioNet shall
immediately return all copies of the RN Software licensed under this Agreement.
If AudioNet elects to acquire replacement software from RN's site, or from
another distributor or value-added reseller, it shall be bound by the terms of
the "shrinkwrap" licenses distributed therewith.
* Confidential Treatment Requested
8
<PAGE> 9
(iii) RN's Breach. Immediately upon termination of this Agreement for RN's
material breach of this Agreement [*], AudioNet shall have a fully paid-up
license to the RN Software consistent with the terms of Sections 1(a) hereof but
for a perpetual term, and only to the released version thereof and any released
beta versions thereof in existence on the date of termination, and RN shall
provide support and maintenance to AudioNet for the remainder of the initial
Term. Thereafter, RN shall provide support and maintenance to AudioNet pursuant
to the terms of RN's standard price list for support and maintenance of the RN
Software for RN's direct hosting and/or large scale broadcast customers.
(d) Non-RN Supplied Software. If AudioNet acquires replacement,
updated, or additional software from RN's site, or from another distributor or
value-added reseller, either during or after the Term, it shall be bound by the
terms of the "shrinkwrap" licenses distributed therewith.
(e) No Waiver. RN's licensing of RN Software to AudioNet or any
other of act of either party after termination of this Agreement shall not be
construed as a renewal of this Agreement for any further term nor as a waiver
of the termination or of any other rights or claims that the terminating party
may have as against the other party because of the breach of this Agreement.
Any termination of this Agreement shall not act as a release of either party
hereto from any liability for breach of such party's obligations under this
Agreement.
10. CONFIDENTIAL INFORMATION.
(a) Confidential Information. "Confidential Information" shall
mean information about the disclosing party's business or activities that are
proprietary or confidential, which shall include all business, financial,
technical and other information of a party marked or designated by such party
as "confidential" or "proprietary"; or information which, by the nature of the
circumstances surrounding the disclosure, ought in good faith to be treated as
confidential, including without limitation information relating to the RN
Software; and the fact that the parties are in negotiation and the proposed
offer, terms and conditions of this Agreement; provided that information shall
not be considered Confidential Information of a party if it can be shown that
such information: (i) is known to the recipient on the Effective Date directly
or indirectly from a source other than one having an obligation of
confidentiality to the providing party; (ii) hereafter becomes known
(independently of disclosure by the providing party) to the recipient from a
source other than one having an obligation of confidentiality to the providing
party; or (iii) becomes publicly known or otherwise ceases to be confidential,
except through a breach of this Agreement by the recipient.
(b) Protection of Confidential Information. RN and AudioNet
recognize that, in connection with the performance of this Agreement, each of
them may disclose to the other its Confidential Information, including the
creation of materials and the development of technology and techniques that are
not generally known in the industry. The party receiving any Confidential
Information of the other party agrees to maintain the confidential status of
such Confidential Information and not to use any such Confidential Information
for any purpose other than the purposes for which it was originally disclosed
to the receiving party, and not to disclose any of such Confidential
Information to any third party. In addition, each party agrees not to
disassemble, decompile, or otherwise reverse engineer the products or
technology of the other party or otherwise attempt to learn the source code,
structure or algorithms or ideas underlying such products or technology or any
Confidential Information. The parties' obligations set forth in this section
shall survive any expiration or termination of this Agreement.
(c) Permitted Disclosure. RN and AudioNet acknowledge and agree
that each may disclose any given Confidential Information: (i) as required by
law; (ii) to their respective directors, officers, employees, attorneys,
accountants and other advisors or independent contractors, who are under an
obligation of confidentiality, on a "need-to-know" basis; (iii) to investors or
joint venture partners, who are under an obligation of confidentiality, on a
"need-to-know" basis; or (iv) in connection with any arbitration
*Confidential Treatment Requested
9
<PAGE> 10
or litigation between the parties involving such Confidential Information and
each party shall endeavor to limit disclosure to that purpose.
(d) Applicability. The foregoing obligations of confidentiality
shall apply to directors, officers, employees and representatives of the
parties and any other person to whom the parties have delivered copies of, or
permitted access to, such Confidential Information in connection with the
performance of this Agreement, and each party shall advise each of the above of
the obligations set forth in this Section 10.
11. RESOLUTION OF DISPUTES.
(a) Dispute Resolution. Any dispute arising out of or relating to
this Agreement shall be resolved in accordance with the procedures specified in
this Section 11, which shall be the sole and exclusive procedures for the
resolution of any such dispute.
(b) Executive Negotiations. The parties shall attempt in good
faith to resolve any dispute relating to this Agreement promptly by negotiation
between executives who have authority to settle the controversy. In the event a
dispute cannot be resolved, either party may give the other party written
notice of any dispute not resolved in the normal course of business. Within
fifteen (15) days after delivery of such a notice, the receiving party shall
submit to the other a written response. The notice and response shall include a
statement of each party's position and a summary of arguments supporting that
position. Within thirty (30) days after delivery of the disputing party's
notice, the senior executive officers of AudioNet and RN shall meet at a
mutually acceptable time and place, and thereafter as often as they reasonably
deem necessary, to attempt to resolve the dispute. All reasonable requests for
information made by one party to the other will be honored. All negotiations
pursuant to this Section 11 are confidential and shall be treated as compromise
and settlement negotiations for purposes of the Federal Rules of Evidence and
any state rules of evidence.
(c) Arbitration. If any dispute relating to this Agreement shall
not have been resolved through the use of the non-binding procedures specified
in Section 11 within one hundred (100) days of the initial notice of either
party to the other of a dispute, such dispute shall be settled by binding
arbitration; provided, however, that if one party has requested the other to
participate in the non-binding procedure specified in Section 11 and the other
has failed to participate, the requesting party may initiate arbitration before
expiration of the above stated period. Arbitration shall be governed by AAA
Rules, with arbitrators to be mutually agreed upon by the parties. Arbitration
shall take place in Los Angeles County, California and the arbitrators shall
apply, to the greatest extent possible, the laws of the State of California
without giving regard to its conflict of laws principles. The arbitrators shall
not be empowered to award damages in excess of compensatory damages, and each
party hereby irrevocably waives any right to recover such damages with respect
to any dispute or disagreement resolved by arbitration.
(d) Provisional Remedies. A party, without prejudice to the
mandatory procedures of this Section 11, may file a complaint for statute of
limitations or venue reasons, or seek a preliminary injunction or other
provisional judicial relief, if in its sole judgment such action is necessary
to avoid irreparable damage or to preserve the status quo. Notwithstanding such
action, the parties will continue to participate in good faith in the
procedures specified in this Section 11.
12. GENERAL.
(a) Independent Contractor. The relationship created by this
Agreement is one of independent contractors, and not partners, franchisees or
joint venturers. No employees, consultants, contractors or agents of one party
are employees, consultants, contractors or agents of the other party, nor do
they have any authority to bind the other party by contract or otherwise to any
obligation, except as expressly set forth herein. Neither party will represent
to the contrary, either expressly, implicitly or otherwise.
10
<PAGE> 11
(b) Export Licenses. The parties acknowledge that the laws and
regulations of the United States may restrict the export and re-export of
certain commodities and technical data of United States origin. Each party
agrees that it will not export or re-export the RN Software in any form without
the appropriate United States or foreign government licenses. In particular but
without limitation, none of the RN Software, Documentation or underlying
information or technology may be exported or re-exported (i) into (or to a
national or resident of) Cuba, Iraq, Libya, Yugoslavia (Serbia and Montenegro),
North Korea, Iran, Angola, Sudan, Syria or any other country to which the U.S.
has embargoed goods; or (ii) to anyone on the U.S. Treasury Department's list
of Specially Designed Nationals or the U.S. Commerce Department's Table of
Deny Orders.
(c) Miscellaneous. This Agreement, and the Exhibits attached
hereto and made a part hereof, [*] constitute the
complete and exclusive agreement between RN and AudioNet and supersedes all
prior oral or written understandings or agreements not specifically
incorporated herein. This Agreement may not be modified except in a writing
duly signed by an authorized officer of RN and AudioNet. If any provision of
this Agreement is held to be unenforceable for any reason, such provision shall
be reformed only to the extent necessary to make it enforceable, and such
decision shall not affect the enforceability of such provision under other
circumstances, or of the remaining provisions hereof under all circumstances.
Headings shall not be considered in interpreting this Agreement.
(d) Governing Law. This Agreement shall be governed by the laws of
the State of California, United States of America, excluding that body of law
known as conflicts of law. This Agreement shall not be governed by the United
Nations Convention of Contracts for the International Sale of Goods, the
application of which is hereby expressly excluded.
(e) Survival of Agreements and Representations and Warranties. All
agreements, representations and warranties contained herein or made in writing
in connection herewith, to the extent applicable, shall survive the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. In addition, the following provisions shall survive the
termination of this Agreement for any reason.: 1(e), (f) and (g), 2(a) and
(d), 3(d), 6, 9(c), 10, 11 and 12(d), (e) and (l).
(f) Binding Effect. All covenants, representations, warranties and
other stipulations in this Agreement, given by or on behalf of any of the
parties hereto, shall bind and inure to the benefit of the respective
successors and permitted assigns of the parties hereto.
(g) Cumulative Powers. No remedy herein conferred upon a party to
this Agreement is intended to be exclusive of any other remedy, and each such
remedy shall be cumulative and in addition to every other remedy given
hereunder or now or hereafter existing at law, or in equity or by statute or
otherwise.
(h) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
given (i) when hand delivered, including delivery by messenger or courier
service (or if delivery is refused, at the time of refusal), to the address set
forth below, (ii) when received or refused as evidenced by the postal receipt
if sent by United States mail as Certified Mail, Return Receipt Requested, with
proper postage prepaid, addressed as set forth below or (iii) when received as
evidenced by the transmission report of the telecopy machine of the
transmitting party acknowledging a good transmission if sent by telecopy to the
number set forth below:
A. If to RN:
RealNetworks, Inc.
1111 Third Avenue, Suite 2900
Seattle, WA 98101
Attn: Bruce Jacobsen
*Confidential Treatment Requested
11
<PAGE> 12
Telephone No.: 206.674.
Telecopy No.: 206.674.
E-mail: [email protected]
With a copy to:
RealNetworks, Inc.
1111 Third Avenue, Suite 2900
Seattle, WA 98101
Attn: Kelly Jo MacArthur
Telephone No.: 206.674.2213
Telecopy No.: 206.674.2695
E-mail: [email protected]
B. If to AudioNet:
AudioNet, Inc.
2914 Taylor Street
Dallas, Texas 75226
Attn: Todd R. Wagner
Telephone No.: 214.748.6657
Telecopy No.: 214.748.6660
E-mail: [email protected]
With a copy to:
Gibson, Dunn & Crutcher LLP
200 Park Avenue
New York, New York 10166
Attn: Sean P. Griffiths, Esq.
Telephone No.: 212.351.3872
Telecopy No.: 212.351.4035
E-mail: [email protected]
Any party may change its mailing address or telecopy number, by giving
notice to the other party pursuant to this Section 12(h) as long as the mailing
address and telecopy number is within the United States of America.
(i) Multiple Originals. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
(j) Assignment. Neither this Agreement, nor any interest herein or
any rights hereunder, shall be assigned by either party without the prior
written consent of the other party.
(k) Waiver. Failure or delay on the part of either party to
exercise any right, remedy, power, privilege or option hereunder which is not
subject to an express time limitation with respect to exercise shall not
operate or be construed to operate as a waiver thereof. A waiver, to be
effective, must be in writing and be signed by the party making the waiver. No
written waiver of any term or condition of this Agreement shall operate or be
construed to operate as a waiver of any other term or condition, nor shall any
written waiver of any breach or default operate or be construed to operate as a
waiver of any other breach or default or of the same type of breach or default
on a subsequent occasion or operate or be construed to operate as a continuing
waiver.
12
<PAGE> 13
(l) Limitation of Liability. UNDER NO CIRCUMSTANCES AND UNDER NO
LEGAL THEORY, WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL EITHER PARTY BE
LIABLE TO THE OTHER, OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER ARISING OUT OF THIS AGREEMENT
INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK STOPPAGE,
COMPUTER FAILURE OR MALFUNCTION, EVEN IF SUCH PARTY SHALL HAVE BEEN INFORMED OF
THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. IN
ADDITION, THE LIABILITY OF EACH PARTY UNDER SECTION 6 ABOVE SHALL BE LIMITED TO
A SUM TOTAL OF TWO MILLION DOLLARS ($2,000,000).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
REALNETWORKS, INC. AUDIONET, INC.
By: /s/ BRUCE JACOBSEN By: /s/ TODD R. WAGNER
------------------------ ------------------------
TITLE: President TITLE: CEO
--------------------- ---------------------
13
<PAGE> 14
EXHIBIT A
DESCRIPTION OF REALSYSTEM PROFESSIONAL SERVER SYSTEM
HOSTING SKU (THE "RN SOFTWARE")
[*]
*Confidential Treatment Requested
14
<PAGE> 15
ATTACHMENT A
UPGRADE AND SUPPORT OBLIGATIONS
This Attachment A (this "Attachment") to the RN License Agreement (the
"Agreement") between RealNetworks, Inc. ("RN") and AudioNet, Inc. ("AudioNet")
sets forth the upgrade and support obligations of RN and related obligations of
AudioNet.
1. DEFINITIONS.
1.1 In addition to the capitalized terms defined elsewhere in this
Attachment, the following terms used herein shall have the meanings ascribed to
them below:
(a) "Level 1 Error" shall mean any condition that
precludes core functions of the Real Server (e.g. complete system hang
or unrecoverable loss of data) from being performed due to suspected
or actual Errors in the Real Server, for which no Workaround solution
is available, and which (i) in the case of an Error in the RealAudio
Server, affects more than 25% of the Real Players, or (ii) in the case
of an Error in the Real Player, affects more than 25% of the Real
Players. All other Errors which preclude core functions in the Real
Server from being performed shall be Level 2 Errors.
(b) "Error" shall mean any instance in which the Real
Server do not materially conform to the Documentation; provided,
however, than an Error shall not include any material nonconformance
that is due to hardware, software, or other equipment not referred to
in the Documentation as being compatible with the Real Server.
(c) "First Level Support" shall consist of accepting and
handling end user calls and troubleshooting to the point of verifying
that there is an Error and that the Error, if any, is in the Real
Server.
(d) "Level 3 Error" shall mean any condition that results
in a significant loss or degradation of functionality of the Real
Server due to suspected or actual Errors in the Real Server.
(e) "Level 4 Error" shall mean any condition (i) that
precludes one or more nonessential functions of the Real Server from
being performed due to suspected or actual Errors in the Real Server;
or (ii) in which AudioNet's technical support personnel need
reasonable assistance or information regarding the Real Server.
(f) "AudioNet Contact" shall mean an individual
designated in writing by AudioNet who is authorized to contact the
Support Center. AudioNet may substitute AudioNet Contacts at any time
or from time to time upon written notice thereof to RN.
(g) "Level 2 Error" shall mean any condition that
precludes one or more major functions of the Real Server (e.g.
intermittent system hang or temporary loss of data) from being
performed due to suspected or actual Errors in the Real Server, and
which (i) in the case of an Error in the RealAudio Server, affects
more than 25% of the Real Players, or (ii) in the case of an Error in
the Real Player, affects more than 25% of the Real Players. All other
Errors which preclude one or more major functions in the Real Server
from being performed shall be Level 3 Errors.
<PAGE> 16
(h) "Second Level Support" shall consist of telephone and
remote diagnostic support to AudioNet (not directly to end users or
other third parties) with regard to the operation and utilization of
the Real Server a maintenance modifications, error corrections or bug
fixes necessary to bring the Real Server into conformance with the
Documentation therefor.
(i) "Support Center" shall mean the RN facility or
facilities from which support obligations are to provided hereunder.
As of the Effective Date, RN's Support Center is located at 1111 Third
Avenue, Suite 290 Seattle, Washington 98101.
(k) "Upgrades" shall mean all maintenance releases, error
corrections, bug fixes, updates, upgrade and enhancements to the RN
Software that RN makes generally available; provided that Upgrades
shall not include any software developed by RN exclusively for, or
specially commissioned under, a specific license, or any versions of
the Real Player that are licensed for a fee.
(k) "Workaround" shall mean: (i) a modification to the
Real Server; (ii) an alteration to configuration of the end user's
computer or software; or (iii) a change in the way the end user
accomplishes a using the Real Server; any of which may be of a
temporary nature, to help avoid the Error.
1.2 All other capitalized terms used in this Attachment and not
otherwise defined herein shall have the meanings ascribed to them in the
Agreement.
2. AUDIONET OBLIGATIONS
2.1 AudioNet shall be responsible for providing First Level
Support for the Real Server. RN shall not be required to have direct contact
with AudioNet's distributors or end users with regard to Real Server support.
2.2 AudioNet shall ascertain the nature of each reported Error,
and the circumstances under which such Error occurs. AudioNet shall use
reasonable commercial efforts to provide RN with information, traces, server
access or documentation sufficient for RN to duplicate the Error. Upon RN's
duplication of such Error, the parties shall mutually determine in good faith
the reasonable classification of such Error.
2.3 AudioNet shall designate a reasonable number of AudioNet
Contacts, not to exceed three (3) individuals at any given time, for
communication with RN's representatives at the Support Center and shall make
reasonable efforts to minimize redundancy in support requests. All AudioNet
support requests must come through an AudioNet Contact. Each AudioNet Contact
shall have adequate technical expertise, training and experience to fulfill his
or her responsibilities. AudioNet shall immediately provide RN with the name,
title and 24-hour contact information for each AudioNet Contact.
2.4 AudioNet agrees that when requesting support services, it
shall follow the following procedures: (i) AudioNet shall first contact the
Support Center through standard support channels. (ii) If AudioNet does not
receive a response from the Support Center within the requisite time frame set
forth in Section 3.2 below, it shall contact the technical support server lead
and the technical support manager, from whom RN will provide contact
information.
2.5 AudioNet agrees that it will provide its end users up-to-date
technical support information through a link to RN's technical support site
(Http://service.real.com), and the Frequently Asked Questions pages for the
most current version of the Real Server and Real Player. AudioNet
<PAGE> 17
agrees that it will remove all other RN technical support information from its
site within five (5) days of the Effective Date, and will not post any further
information without RN's prior written consent.
3. RN SUPPORT OBLIGATIONS.
3.1 Support Center personnel shall be available for telephone
contact Monday through Friday (7:00 AM - 5:00 PM) PST time at the Support
Center, exclusive of RN's local holidays. RN shall ensure that AudioNet has the
ability to contact a Support Center technician 24 hours per day, 7 days per
week, with regard to Level 1 Errors, through pager support. RN shall also
provide AudioNet with a means of reporting Errors to RN by priority electronic
mail, voice mail, fax or telephonic recording capability. AudioNet shall have
access to RN's toll-free support line at 888-768-4327 (888-rntechs).
3.2 RN shall provide Second Level Support to AudioNet in
connection with the Real Server as follows: (i) assist AudioNet Contacts in
determining the cause of Errors encountered by AudioNet or end users in the use
of Real Server; (ii) make commercially reasonable efforts to classify and
correct in accordance with the time frame set forth in the chart below, all
Errors that a AudioNet Contact identifies, classifies and reports to RN and
that RN can substantiate; and (iii) provide an Upgrade if appropriate. RN shall
not be required to correct any Error caused by any failure to implement any
Upgrades to the Real Server that are provided by RN to AudioNet.
<TABLE>
<CAPTION>
Type of Error RN to assign Patch work- Upgrade within:
technician to investigate around or temporary
Error within: fix within:
<S> <C> <C> <C>
Level 1 thirty (30) minutes 4 business days 30 days
from having been alerted from assignment
of technician
Level 2 four (4) business hours 15 business days from 60 days
from having been alerted assignment of
technician
Level 3 eight (8) business 45 days from the next scheduled
hours from having assignment of Upgrade
been alerted (or, in technician
the case of technical
personnel requiring
assistance or
information, RN to
provide such
assistance or
information within
eight (8) business
hours)
Level 4 two (2) business days 90 days from the next
from having been alerted assignment of scheduled Upgrade
technician
</TABLE>
<PAGE> 18
3.3 If AudioNet desires to receive on-site technical support at
any of its locations, it shall pay RN based on RN's standard list prices for
such support or consulting services, and shall pay all direct RN expenses
associated therewith, including transportation, accomodations and meals.
3.4 For the avoidance of doubt, RN shall not have any support
obligations with respect to beta versions of Real Server.
3.5 RN shall provide to AudioNet all Upgrades for the Real Server.
Such Upgrades shall be provided to AudioNet electronically unless AudioNet
requests other or additional means of delivery, together with applicable
Documentation and instructions for installation, use and duplication. RN shall
deliver to AudioNet the beta and final release of each Upgrade as and at the
same time as such versions are generally made available.
3.6 With respect to training, RN shall provide to AudioNet with
generally available training materials, if any, for the Real Server. RN
authorizes AudioNet to copy such training material for AudioNet's internal use,
provided that: (i) all copies made by AudioNet shall include all trademarks,
proprietary rights and copyright notices supplied by RN; and (ii) such copies
shall be used only by AudioNet employees for the purpose of providing support
for the Real Server. RN grants to AudioNet, solely for the purpose of providing
training on Real Server to AudioNet support personnel, a limited, nonexclusive,
nontransferable, worldwide license and right to duplicate, distribute, and
incorporate into AudioNet training materials, the RN training materials
provided to AudioNet, provided that all copies (in whole or in part and in any
form) shall include all trademarks, proprietary rights and copyright notices
supplied by RN. All other training obligations shall be as set forth in the RN
License Agreement.
<PAGE> 19
(l) Limitation of Liability. UNDER NO CIRCUMSTANCES AND UNDER NO
LEGAL THEORY, WHETHER IN TORT, CONTRACT OR OTHERWISE, SHALL EITHER PARTY BE
LIABLE TO THE OTHER, OR ANY OTHER PERSON FOR ANY INDIRECT, SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES OF ANY CHARACTER ARISING OUT OF THIS AGREEMENT
INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF GOODWILL, WORK STOPPAGE,
COMPUTER FAILURE OR MALFUNCTION, EVEN IF SUCH PARTY SHALL HAVE BEEN INFORMED OF
THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY. IN
ADDITION, THE LIABILITY OF EACH PARTY UNDER SECTION 6 ABOVE SHALL BE LIMITED TO
A SUM TOTAL OF TWO MILLION DOLLARS ($2,000,000).
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first above written.
REALNETWORKS, INC. AUDIONET, INC.
BY: BY:
----------------------- ----------------------------
Bruce Jacobsen Todd R. Wagner
TITLE: President TITLE: President
-------------------- -------------------------
<PAGE> 1
EXHIBIT 10.13
NETSHOW LICENSE AGREEMENT
This NetShow License Agreement (the "Agreement") is entered into and effective
as of August 5, 1997 (the "Effective Date") by and between MICROSOFT
CORPORATION, a Washington corporation located at One Microsoft Way, Redmond, WA
98052 ("Microsoft") and AUDIONET, INC., a Delaware corporation located at 2914
Taylor Street, Dallas, TX 75226 ("AudioNet").
RECITALS
Microsoft is the owner and/or authorized licensor of a line of Internet
streaming audio and video client and server technology known as NetShow.
Under this Agreement, Microsoft wishes to grant, and AudioNet wishes to
receive, a license [*]
The parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "AudioNet Services Support" means [*]
1.2 "AudioNet Services" means [*]
1.3 "Beta Quality" means software which passes system testing, contains
substantially all of the intended core features, is ready for
production testing and contains a limited number of significant
errors.
1.4 "Confidential Information" means: (i) any source code of Microsoft
Software; and (ii) 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 at the time
of disclosure and is not subject to restriction; (c) is independently
developed or learned by the receiving party; (d) is lawfully obtained
from a third party that has, to the knowledge of the receiving party,
the right to make such disclosure; or (e) is made generally available
by the disclosing party without restriction on disclosure.
1.5 "Microsoft Software" means NetShow, [*]
1.6 "NetShow" means [*]
1.7 [*]
* Confidential Treatment Requested
Confidential & Proprietary Page 1 of 11
<PAGE> 2
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
1.8 "Production Quality" means software which has either no significant
errors or only significant errors which are documented and mutually
agreed to be rare or remote in likelihood of occurrence, and which has
passed mutual, reasonable acceptance criteria during beta testing in a
production environment.
1.9 "Term" [*]
1.10 "Third Party Contractor" means a third party company or other entity
under written agreement with AudioNet to perform AudioNet Services
Support, where such written agreement is consistent with the terms and
conditions of this Agreement including, but not limited to, Sections 3
and 6.
1.11 "Updates" means, as to any Microsoft Software, all subsequent public
releases (including maintenance releases) thereof by Microsoft during
the Term, including public releases of error corrections, upgrades,
enhancements, additions, improvements, extensions, modifications and
successor versions, for which Microsoft has the right to license to
AudioNet.
1.12 [*]
2. DELIVERY
2.1 NetShow. Microsoft shall deliver to AudioNet, on such media as AudioNet
reasonably requests, a copy of [*] within five (5) days after the
Effective Date. Updates of NetShow which are separate release versions
shall be delivered to AudioNet as follows:
BETA QUALITY [*]
---------------------------------------------------------------
PRODUCTION QUALITY [*]
2.2 [*]
2.3 [*]
3. OBJECT CODE LICENSE GRANTS
3.1 License Grant - NetShow [*]. Microsoft hereby grants to
AudioNet a [*]
license to use [*]
* Confidential Treatment Requested
Confidential & Proprietary Page 2 of 11
<PAGE> 3
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
[*]
3.2 License Grant - [*]. Microsoft hereby grants to AudioNet a
[*]
3.3 Ownership. Except as expressly licensed to AudioNet in Sections 3.1
and 3.2, Microsoft retains all right, title and interest in and to the
Microsoft Software.
3.4 No Distribution/Other Rights. AudioNet agrees that this Agreement does
not grant to it any distribution or resale rights to the Microsoft
Software, in any form (except solely with respect to the rent and/or
reuse of connections or streams or the sublicense rights to Third
Party Contractors, as provided in Sections 3.1 and 3.2, respectively).
Except as expressly granted in this Agreement, AudioNet shall have no
other rights in the Microsoft Software. Under no circumstances will
the license grant set forth in Sections 3.1 and 3.2 be construed as
granting, by implication, estoppel or otherwise, a license to any
Microsoft technology other than the Microsoft Software.
4. NONEXCLUSIVE
Nothing in this Agreement will be construed as restricting Microsoft's ability
to license, develop, sublicense, manufacture, deploy or distribute Microsoft
Software or any other technology, for itself or for or to any third party.
5. CONSIDERATION
As partial consideration for the licenses under this Agreement, AudioNet shall,
[*], pay Microsoft the license fee set forth in Exhibit B.
6. CONFIDENTIALITY
6.1 The confidentiality provisions of this Agreement shall only apply to
disclosures regarding the terms, conditions and existence of this
Agreement. All other disclosures of Confidential Information shall be
pursuant a separate, confidentiality agreement between the parties
executed as of the Effective Date. 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. Each party will use its best
efforts not to disclose to third parties the other's Confidential
Information without the prior written consent of the other party.
Except as expressly provided in this Agreement, no ownership or
license rights is granted in any Confidential Information.
6.2 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 Treatment Requested
Confidential & Proprietary Page 3 of 11
<PAGE> 4
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
Confidential Information. Further, either party shall be free to use
for any purpose the residuals 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 rightful and good faith
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.
6.3 Microsoft hereby consents to the following limited disclosures of
Microsoft Confidential Information: (i) AudioNet may disclose the
existence of this Agreement; (ii) AudioNet may disclose the terms of
this Agreement to third party customers, suppliers and current and
prospective investors solely as provided in Exhibit C; and (iii)
AudioNet may disclose this Agreement as required by applicable law,
rule or regulation, including without limitation the Securities Act of
1933, as amended, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and the rules and regulations promulgated by the
Securities and Exchange Commission (the "SEC") thereunder; provided
that, AudioNet shall (a) give written notice to Microsoft prior to
such disclosure and shall comply with any protective order or
equivalent that Microsoft obtains and (b) cooperate with Microsoft in
structuring a SEC Rule 406 request for confidential treatment with
respect to as many of the terms of this Agreement as may reasonably be
achieved.
7. WARRANTIES
7.1 Microsoft warrants and represents that the Microsoft Software, to the
best of its knowledge, does not infringe any third party copyright,
patent or trade secret.
7.2 AudioNet warrants and represents that the AudioNet Services, to the
best of its knowledge, shall not infringe any third party copyright,
patent or trade secret.
8. DISCLAIMER OF FURTHER WARRANTIES
EXCEPT AS EXPRESSLY WARRANTED IN SECTION 7.1, THE MICROSOFT SOFTWARE IS
PROVIDED TO AUDIONET "AS IS" WITHOUT FURTHER WARRANTY OF ANY KIND. MICROSOFT
DISCLAIMS ALL FURTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, TITLE AND NONINFRINGEMENT.
EXCEPT AS EXPRESSLY WARRANTED IN SECTION 7.2, THE AUDIONET SERVICES ARE
PROVIDED "AS IS" WITHOUT FURTHER WARRANTY OF ANY KIND. AUDIONET DISCLAIMS ALL
FURTHER WARRANTIES, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO,
THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
TITLE AND NONINFRINGEMENT.
9. INDEMNITY
9.1 By Microsoft.
(a) Microsoft shall, at its expense and AudioNet's request, defend
any claim or action brought against AudioNet, or any of
AudioNet's subsidiaries, affiliates, directors, officers,
employees,
Confidential & Proprietary Page 4 of 11
<PAGE> 5
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
agents and independent contractors, to the extent such claim
or action is based upon a claim (i) that the Microsoft
Software infringes or violates any patent, copyright,
trademark, trade secret or other proprietary right of a third
party or (ii) that Microsoft does not have the rights to grant
AudioNet the rights granted in Section 3 ("Microsoft Claims"),
and Microsoft will indemnify and hold AudioNet harmless from
and against any costs, damages and fees reasonably incurred by
AudioNet, including but not limited to fees of attorneys and
other professionals, as a result of such Microsoft Claims.
AudioNet shall: (i) provide Microsoft reasonably prompt notice
in writing of any such Microsoft Claims and permit Microsoft,
through counsel mutually acceptable to AudioNet and Microsoft,
to answer and defend such Microsoft Claims; and (ii) provide
Microsoft information, assistance and authority, at
Microsoft's expense, to help Microsoft to defend such
Microsoft Claims. Microsoft will be responsible for any
settlement made by AudioNet only if Microsoft's written
permission has been obtained, which permission will not be
unreasonably withheld.
(b) Microsoft may not settle any Microsoft Claim under this
Section 9.1 on AudioNet's behalf without first obtaining
AudioNet's written permission, which permission will not be
unreasonably withheld. In the event AudioNet and Microsoft
agree to settle a Microsoft Claim, Microsoft agrees not to
publicize the settlement without first obtaining AudioNet's
written permission, which permission will not be unreasonably
withheld.
(c) The obligations of this Section 9.1 shall be AudioNet's
exclusive remedy for any breach of Microsoft's warranties
under Section 7.
(d) Notwithstanding anything to the contrary in this Section 9.1,
Microsoft shall have no obligation to indemnify and hold
AudioNet harmless with respect to any breach of contract claim
made against AudioNet under a contract between AudioNet and
any third party.
9.2 By AudioNet.
(a) [*]
(b) AudioNet may not settle any AudioNet Claim under this Section
9.2 on Microsoft's behalf without first obtaining Microsoft's
written permission, which permission will not be unreasonably
withheld. In the event Microsoft and AudioNet agree to settle
an AudioNet Claim, AudioNet agrees not to publicize the
settlement without first obtaining Microsoft's written
permission, which permission will not be unreasonably
withheld.
(c) The obligations of this Section 9.2 shall be Microsoft's
exclusive remedy for any breach of AudioNet's warranties under
Section 7.2.
Confidential & Proprietary Page 5 of 11
<PAGE> 6
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
10. TERMINATION
10.1 Term. Unless earlier terminated in accordance with Section 10.2, this
Agreement shall commence upon the Effective Date and continue in full
force and effect through the Term.
10.2 Termination By Either Party For Cause. 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 6, and fails to cure that
breach within sixty (60) days after written notice thereof; or
(b) The other party is in material breach of Section 6 and fails
to cure that breach within five (5) business days after
written notice thereof.
10.3 Effect of Termination.
(a) Neither party shall be liable to the other for damages of any
sort resulting solely from terminating this Agreement in
accordance with its terms.
(b) Should the Term of this Agreement expire or should this
Agreement be terminated by AudioNet for Microsoft's material
breach AudioNet's license grant under Section 3 shall survive
in perpetuity but only with respect to the then current
version of Microsoft Software in AudioNet's possession as of
the effective date of termination.
(c) Should this Agreement be terminated due to AudioNet's material
breach (other than a material breach of Sections 3 and 6),
AudioNet's license grants under Section 3 shall survive in
perpetuity, but only with respect to the versions of the
Microsoft Software in AudioNet's possession as of the
effective date of termination.
(d) Should this Agreement be terminated due to AudioNet's material
breach of Sections 3 or 6), AudioNet's license grants under
Section 3 shall not survive termination. Nothing in this
Section 11.3 shall limit Microsoft's ability to enforce its
rights and AudioNet's obligations under Sections 3 or 6 by
equitable relief such as injunction or specific performance.
10.4 Survival. In the event of termination or expiration of this Agreement
for any reason, Sections 4, 6, 8, 9, 11 and 12 shall survive
termination.
11. LIMITATION OF LIABILITIES
IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY CONSEQUENTIAL, INDIRECT,
INCIDENTAL, PUNITIVE OR SPECIAL DAMAGES WHATSOEVER, INCLUDING WITHOUT
LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS
OF BUSINESS INFORMATION, AND THE LIKE, ARISING OUT OF THIS AGREEMENT OR THE USE
OF OR INABILITY TO USE THE MICROSOFT SOFTWARE OR EITHER PARTY'S CONFIDENTIAL
INFORMATION, EVEN IF A PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
THIS SECTION SHALL NOT APPLY TO SECTIONS 6 AND 9.
Confidential & Proprietary Page 6 of 11
<PAGE> 7
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
12. GENERAL PROVISIONS
12.1 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,
and addressed as follows:
TO AUDIONET: TO MICROSOFT:
AudioNet, Inc. Microsoft Corporation
2914 Taylor Street One Microsoft Way
Dallas, TX 75226 Redmond, WA 98052-6399
Attention: Todd R. Wagner, CEO Attention:
[email protected]
Phone: (214) 748-6656 Phone: (425) 882-8080
Fax: (214) 748-6657 Fax: (425) 936-7329
Copy to: Copy to:
Sean P. Griffiths Microsoft Corporation
Gibson Dunn & Crutcher One Microsoft Way
200 Park Avenue Redmond, WA 98052-6399
New York, NY 10012 Attention: Law & Corporate Affairs
[email protected]
Phone: (212) 351-3872 Phone: (425) 882-8080
Fax: (212) 351-4035 Fax: (425) 936-7409
or to such other address as a party may designate pursuant to this
notice provision.
12.2 Independent Parties. Nothing in this Agreement shall be construed as
creating an employer-employee relationship, a partnership, or a joint
venture between the parties.
12.3 Governing Law. This Agreement shall be governed by the laws of the
State of Washington.
12.4 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 attorneys' fees.
12.5 Assignment. This Agreement shall be binding upon and inure to the
benefit of each party's respective successors and lawful assigns;
provided, however, that AudioNet may not assign its rights under this
Agreement, in whole or in part, to any third party without the prior
written approval of Microsoft. For purposes of this Agreement, a
merger, consolidation, or other corporate reorganization in which
AudioNet is not the surviving entity, the sale of all or substantially
all of AudioNet's assets or the sale in a single transaction or a
series of related transactions of more than 50% of the securities of
AudioNet entitled to vote in the election of directors to a person or
"group" (as such term is defined in the Exchange Act) other than any
such group that may exist or be deemed to exist as of the date hereof,
shall be deemed to be an assignment of this Agreement.
12.6 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.
Confidential & Proprietary Page 7 of 11
<PAGE> 8
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
12.7 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 AudioNet 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 AUDIONET, INC.
/s/ JIM DURKIN /s/ MARK CUBAN
- ----------------------------- -----------------------------
By (Sign) By (Sign)
Jim Durkin Mark Cuban
- ----------------------------- -----------------------------
Name (Print) Name (Print)
Product Unit Manager President
- ----------------------------- -----------------------------
Title Title
8/5/97 August 5, 1997
- ----------------------------- -----------------------------
Date Date
Confidential & Proprietary Page 8 of 11
<PAGE> 9
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
EXHIBIT A
DESCRIPTION OF MICROSOFT SOFTWARE
[*]
Confidential & Proprietary Page 9 of 11
* Confidential Treatment Requested
<PAGE> 10
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
EXHIBIT B
CONSIDERATION
[*]
Confidential & Proprietary Page 10 of 11
* Confidential Treatment Requested
<PAGE> 11
AudioNet/Microsoft
NetShow License Agreement
August 5, 1997
EXHIBIT C
LIMITED THIRD PARTY DISCLOSURE
AudioNet may disclose the following in communications to its third party
customers, suppliers and current and prospective investors:
To be mutually agreed upon by the parties within five (5) days of the Effective
Date.
Confidential & Proprietary Page 11 of 11
<PAGE> 1
EXHIBIT 10.14
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of May __, 1998, is
made by and between broadcast.com inc., a Delaware corporation (the
"Corporation"), and the person whose name, address and position at the
Corporation and/or any of the direct or indirect subsidiaries of the Corporation
appear on the signature page hereto ("Indemnitee").
RECITALS
A. Indemnitee is currently serving as, or is assuming the
position of, a director and/or officer of the Corporation and/or, at the
Corporation's request, a director, officer, employee and/or agent of another
corporation, partnership, joint venture, trust or other enterprise, and the
Corporation wishes Indemnitee to continue in such capacity(ies);
B. The Corporation and Indemnitee recognize that the present
state of the law is too uncertain to provide the Corporation's directors and
officers with adequate and reliable advance knowledge or guidance with respect
to the legal risks and potential liabilities to which they may become personally
exposed as a result of performing their duties for the Corporation;
C. The Restated Certificate of Incorporation (the
"Certificate") and the Amended and Restated Bylaws (the "Bylaws") of the
Corporation each provide that the Corporation may indemnify, to the fullest
extent permitted by law, certain persons, including directors, officers,
employees or agents of the Corporation, against specified expenses and losses
arising out of certain threatened, pending or completed actions, suits or
proceedings;
D. Section 145(f) of the Delaware General Corporation Law (the
"DGCL") expressly recognizes that the indemnification provided by the other
subsections of Section 145 of the DGCL shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in an official capacity
and as to action in another capacity while holding such office;
E. Indemnitee has indicated that he may not be willing to
serve, or continue to serve, as a director and/or officer of the Corporation
and/or, at the Corporation's request, as a director, officer, employee and/or
agent of another corporation, partnership, joint venture, trust or other
enterprise in the absence of an indemnification agreement of the Corporation;
F. The Board of Directors of the Corporation has concluded
that, to retain and attract talented and experienced individuals to serve as
directors and officers of the Corporation and to encourage such individuals to
take the business risks necessary for the success of the Corporation, it is
necessary for the Corporation to contractually indemnify them, and to assume for
itself liability for expenses and damages in connection with claims against them
in connection with their service to the Corporation, and has further concluded
that the failure to provide such contractual indemnification could result in
great harm to the Corporation and its stockholders.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, the Corporation and Indemnitee agree as
follows:
1. Definitions.
(a) "Expenses" means, for the purposes of this Agreement, all
direct and indirect costs of any type or nature whatsoever (including, without
limitation, any fees and disbursements of Indemnitee's counsel, accountants and
other experts and other out-of-pocket costs) actually and reasonably incurred by
Indemnitee in connection with the investigation, preparation, defense or appeal
of a Proceeding; provided, however, that Expenses shall not include judgments,
fines, penalties or amounts paid in settlement of a Proceeding unless such
matters may be indemnified under applicable provisions of the DGCL.
(b) "Proceeding" means, for the purposes of this Agreement,
any threatened, pending or completed action, suit or proceeding whether civil,
criminal, administrative or investigative (including actions, suits or
proceedings brought by or in the right of the Corporation) in which Indemnitee
may be or may have been involved as a party or otherwise, by reason of the fact
that Indemnitee is or was a director or officer of the Corporation, by reason of
any action taken by him or of any inaction on his part while acting as such
director or officer or by reason of the fact that he is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise, or was a director and/or officer of the foreign or domestic
corporation which was a predecessor corporation to the Corporation or of another
enterprise at the request of such predecessor corporation, whether or not he is
serving in such capacity at the time any liability or expense is incurred for
which indemnification or reimbursement can be provided under this Agreement.
2. Indemnification.
(a) Third Party Proceedings. To the fullest extent permitted
by law, the Corporation shall indemnify Indemnitee against Expenses and
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, penalties, and amounts paid in settlement (if the settlement is approved
in advance by the Corporation)) actually and reasonably incurred by Indemnitee
in connection with a Proceeding (other than a Proceeding by or in the right of
the Corporation) if Indemnitee acted in good faith and in a manner Indemnitee
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 Indemnitee's conduct was unlawful. The termination
of any Proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption
that Indemnitee did not act in good faith and in a manner that Indemnitee
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, or, with respect to any criminal Proceeding, had reasonable cause
to believe that Indemnitee's conduct was unlawful. Notwithstanding the
foregoing, no indemnification shall be made in any criminal proceeding where
Indemnitee has been adjudged guilty unless a disinterested majority of the
directors determines that Indemnitee did not receive, participate in or share in
any pecuniary benefit to the detriment of the Corporation and, in view of all
the circumstances of the case, Indemnitee is fairly and reasonably entitled to
indemnity for Expenses or liabilities.
(b) Proceedings by or in the Right of the Corporation. To the
fullest extent permitted by law, the Corporation shall indemnify Indemnitee
against Expenses actually
2
<PAGE> 3
and reasonably incurred by Indemnitee in connection with the defense or
settlement of a Proceeding by or in the right of the Corporation to procure a
judgment in its favor if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in, or not opposed to, the best interests
of the Corporation. Notwithstanding the foregoing, no indemnification shall be
made in respect of any claim, issue or matter as to which Indemnitee shall have
been adjudged to be liable to the Corporation in the performance of Indemnitee's
duty to the Corporation unless and only to the extent that the court in which
such Proceeding is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for Expenses and then only to the extent that the court
shall determine.
(c) Scope. Notwithstanding any other provision of this
Agreement other than Sections 3 and 13, the Corporation shall indemnify
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically authorized by other provisions of this
Agreement, the Certificate, the Bylaws or statute.
3. Limitations on Indemnification. Any other provision herein
to the contrary notwithstanding, the Corporation shall not be obligated pursuant
to the terms of this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts
or omissions or transactions from which a director may not be relieved of
liability under Section 102(b)(7) of the DGCL; or
(b) Claims Initiated by Indemnitee. To indemnify or advance
Expenses to Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as required under
Section 145 of the DGCL, but such indemnification or advancement of Expenses may
be provided by the Corporation in specific cases if a majority of the
disinterested directors has approved the initiation or bringing of such suit; or
(c) Lack of Good Faith. To indemnify Indemnitee for any
Expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for Expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines or penalties, and amounts paid in settlement) which have been paid
directly to or on behalf of Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Corporation or
any other policy of insurance maintained by the Corporation or Indemnitee; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for
Expenses and the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
4. Determination of Right to Indemnification. Upon receipt of
a written claim addressed to the Board of Directors for indemnification pursuant
to Section 2 of this Agreement, the Corporation shall determine by any of the
methods set forth in Section 145(d)
3
<PAGE> 4
of the DGCL whether Indemnitee has met the applicable standards of conduct that
make it permissible under applicable law to indemnify Indemnitee. If a claim
under Section 2 of this Agreement is not paid in full by the Corporation within
ninety days after such written claim has been received by the Corporation,
Indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, unless such action is dismissed by
the court as frivolous or brought in bad faith, Indemnitee shall be entitled to
be paid also the expense of prosecuting such claim. Neither the failure of the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to make a determination prior to the commencement of such action
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct under applicable law, nor
an actual determination by the Corporation (including its Board of Directors,
independent legal counsel or its stockholders) that Indemnitee has not met such
applicable standard of conduct, shall create a presumption that Indemnitee has
not met the applicable standard of conduct. The court in which such action is
brought shall determine whether Indemnitee or the Corporation shall have the
burden of proof concerning whether Indemnitee has or has not met the applicable
standard of conduct.
5. Advancement and Repayment of Expenses. The Expenses
incurred by Indemnitee in defending and investigating any Proceeding shall be
paid by the Corporation prior to the final disposition of such Proceeding within
thirty days after receiving from Indemnitee copies of invoices presented to
Indemnitee for such Expenses and an undertaking by or on behalf of Indemnitee to
the Corporation to repay such amount to the extent it is ultimately determined
that Indemnitee is not entitled to indemnification. In determining whether or
not to make an advance hereunder, the ability of Indemnitee to repay shall not
be a factor. Notwithstanding the foregoing, in a proceeding brought by the
Corporation directly, in its own right (as distinguished from an action brought
derivatively or by any receiver or trustee), the Corporation shall not be
required to make the advances called for hereby if a majority of the
disinterested directors determine that it does not appear that Indemnitee has
met the standards of conduct that made it permissible under applicable law to
indemnify Indemnitee and that the advancement of Expenses would not be in the
best interests of the Corporation and its stockholders.
6. Partial Indemnification. If Indemnitee is entitled under
any provision of this Agreement to indemnification or advancement by the
Corporation of some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties, and
amounts paid in settlement) incurred by him in the investigation, defense,
settlement or appeal of a Proceeding, but is not entitled to indemnification or
advancement of the total amount thereof, the Corporation shall nevertheless
indemnify or pay advancements to Indemnitee for the portion of such Expenses or
liabilities to which Indemnitee is entitled.
7. Notice to Corporation by Indemnitee. Indemnitee shall
notify the Corporation in writing of any matter with respect to which Indemnitee
intends to seek indemnification hereunder as soon as reasonably practicable
following the receipt by Indemnitee of written notice thereof; provided that any
delay in so notifying the Corporation shall not constitute a waiver by
Indemnitee of his rights hereunder. The written notification to the Corporation
shall be addressed to the Board of Directors and shall include a description of
the nature of the Proceeding and the facts underlying the Proceeding and be
accompanied by copies of any documents filed with the court, if any, in which
the Proceeding is pending. In addition, Indemnitee shall give the Corporation
such information and cooperation as it may reasonably require and as shall be
within Indemnitee's power.
4
<PAGE> 5
8. Defense of Claim. In the event that the Corporation shall
be obligated under Section 5 hereof to pay the Expenses of any Proceeding
against Indemnitee, the Corporation, if appropriate, shall be entitled to assume
the defense of such Proceeding, with counsel approved by Indemnitee, which
approval shall not be unreasonably withheld, upon the delivery to Indemnitee of
written notice of its election to do so. After delivery of such notice, approval
of such counsel by Indemnitee and the retention of such counsel by the
Corporation, the Corporation will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Proceeding; provided that (i) Indemnitee shall have the
right to employ his own counsel in any such Proceeding at Indemnitee's expense,
and (ii) if (A) the employment of counsel by Indemnitee has been previously
authorized by the Corporation, or (B) Indemnitee shall have reasonably concluded
that there may be a conflict of interest between the Corporation and Indemnitee
in the conduct of such defense or (C) the Corporation shall not, in fact, have
employed counsel to assume the defense of such Proceeding, then the fees and
expenses of Indemnitee's counsel shall be paid by the Corporation.
9. Attorneys' Fees. If any legal action is necessary to
enforce the terms of this Agreement, the prevailing party shall be entitled to
recover, in addition to other amounts to which the prevailing party may be
entitled, actual attorneys' fees and court costs as may be awarded by the court.
10. Continuation of Obligations. All agreements and
obligations of the Corporation contained herein shall continue during the period
Indemnitee is a director or officer of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, fiduciary, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, and shall continue thereafter so long as Indemnitee shall be subject
to any possible Proceeding by reason of the fact that Indemnitee served in any
capacity referred to herein.
11. Successors and Assigns. This Agreement establishes
contract rights that shall be binding upon, and shall inure to the benefit of,
the successors, assigns, heirs and legal representatives of the parties hereto.
12. Non-exclusivity.
(a) The provisions for indemnification and advancement of
expenses set forth in this Agreement shall not be deemed to be exclusive of any
other rights that Indemnitee may have under any provision of law, the
Certificate or Bylaws, the vote of the Corporation's stockholders or
disinterested directors, other agreements or otherwise, both as to action in his
official capacity and action in another capacity while occupying his position as
a director or officer of the Corporation.
(b) In the event of any changes, after the date of this
Agreement, in any applicable law, statute, or rule that expand the right of a
Delaware corporation to indemnify its directors and officers, Indemnitee's
rights and the Corporation's obligations under this Agreement shall be expanded
to the fullest extent permitted by such changes. In the event of any changes in
any applicable law, statute or rule, that narrow the right of a Delaware
corporation to indemnify a director and officer, such changes, to the extent not
otherwise required by such law, statute or rule to be applied to this Agreement,
shall have no effect on this Agreement or the parties' rights and obligations
hereunder.
5
<PAGE> 6
13. Effectiveness of Agreement. This Agreement shall be
effective as of the date set forth on the first page and may apply to acts or
omissions of Indemnitee that occurred prior to such date if Indemnitee was a
director or officer of the Corporation or its predecessor, or was serving at the
request of the Corporation or its predecessor as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, at the time such act or omission occurred.
14. Severability. Nothing in this Agreement is intended to
require or shall be construed as requiring the Corporation to do or fail to do
any act in violation of applicable law. The Corporation's inability, pursuant to
court order, to perform its obligations under this Agreement shall not
constitute a breach of this Agreement. The provisions of this Agreement shall be
severable as provided in this Section 14. If this Agreement or any portion
hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee to
the fullest extent permitted by any applicable portion of this Agreement that
shall not have been invalidated, and the balance of this Agreement not so
invalidated shall be enforceable in accordance with its terms.
15. Governing Law. This Agreement shall be interpreted and
enforced in accordance with the laws of the State of Delaware without regard to
its rules pertaining to conflicts of laws. To the extent permitted by applicable
law, the parties hereby waive any provisions of law that render any provision of
this Agreement unenforceable in any respect.
16. Notice. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given (i) if delivered by hand and receipted for by the party addressed, on the
date of such receipt, or (ii) if delivered by facsimile transmission to the
recipient followed by a copy sent by mail on the same date as the facsimile
transmission, on the date of receipt of such facsimile transmission, or (iii) if
mailed by certified or registered mail with postage prepaid, on the third
business day after the mailing date. Addresses for notice to either party are as
shown on the signature page of this Agreement, or as subsequently modified by
written notice.
17. Mutual Acknowledgment. Both the Corporation and Indemnitee
acknowledge that in certain instances, federal law or applicable public policy
may prohibit the Corporation from indemnifying its directors and officers under
this Agreement or otherwise. Indemnitee understands and acknowledges that the
Corporation has undertaken or may be required in the future to undertake with
the Securities and Exchange Commission to submit the question of indemnification
to a court in certain circumstances for a determination of the Corporation's
right under public policy to indemnify Indemnitee.
18. Counterparts. This Agreement may be executed in several
counterparts, each of which shall constitute an original.
19. Amendment and Termination. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless in
writing signed by both parties hereto.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year set forth above.
BROADCAST.COM INC.,
a Delaware corporation
By:
---------------------------------------
Title:
------------------------------------
Address:
2914 Taylor Street
Dallas, Texas 75226
Tel: 214.748.6660
Attn: Todd R. Wagner
INDEMNITEE:
- -------------------------------
Address:
- -------------------------------
- -------------------------------
- -------------------------------
Tel:
---------------------------
Attn:
--------------------------
7
<PAGE> 1
EXHIBIT 10.15
<TABLE>
<CAPTION>
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT
=================================================================================================================================
TENANT INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TENANT'S NAME: AUDIONET, INC. TYPE OF ENTITY: DELAWARE CORPORATION
- ---------------------------------------------------------------------------------------------------------------------------------
REPRESENTATIVE NAME: DAN STRICKFADEN PRINCIPAL PLACE OF BUSINESS: DALLAS, TEXAS
- ---------------------------------------------------------------------------------------------------------------------------------
ADDRESS: 2914 TAYLOR STREET, DALLAS, TEXAS 75226 TAX I.D. #:
- ---------------------------------------------------------------------------------------------------------------------------------
REGISTERED AGENT NAME AND ADDRESS: PHONE: (214) 748-6660
FAX: (214) 748-6657
- ---------------------------------------------------------------------------------------------------------------------------------
LANDLORD INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
LANDLORD'S NAMES: GEORGE W. LOLLIS AND DAISY LOLLIS RELATIONSHIP TO EACH OTHER: MOTHER AND SON HOLDING THE
PREMISES JOINTLY
- ---------------------------------------------------------------------------------------------------------------------------------
HOME ADDRESS OF GEORGE W. LOLLIS AND ADDRESS FOR PAYMENT DAY PHONE: (972) 661-1131 OR (214) 750-2005 PAGER AND
OF RENT: 6103 SHADY CLIFF, DALLAS, TX 75240 VOICEMAIL: (214) 626-6500
HOME PHONE: (214) 523-7717
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC LEASE AGREEMENT INFORMATION
- ---------------------------------------------------------------------------------------------------------------------------------
EFFECTIVE DATE: DECEMBER 2, 1996 COMMENCEMENT DATE: THE EARLIER OF FEBRUARY 1, 1997, OR
COMPLETION OF IMPROVEMENTS BY TENANT AS DESCRIBED HEREIN.
- ---------------------------------------------------------------------------------------------------------------------------------
INITIAL BASIC MONTHLY RENT: $3,920 LEASE TYPE: "TRIPLE NET" - TENANT PAYS INSURANCE, TAXES,
UTILITIES, AND MOST REPAIRS
- ---------------------------------------------------------------------------------------------------------------------------------
PREMISES: ALL OF THE LAND AND IMPROVEMENTS RELATING TO 2914 LEASE TERM: 5 YEARS, WITH OPTIONS TO EXTEND THREE (3) FIVE (5)
TAYLOR STREET, DALLAS COUNTY, DALLAS, TEXAS 75226 AS FURTHER YEAR TERMS AS PROVIDED HEREIN.
DEFINED HEREIN.
- ---------------------------------------------------------------------------------------------------------------------------------
PERMITTED USE OF PREMISES: TENANT MAY USE THE PREMISES FOR ANY INSURANCE CARRIER, POLICY NUMBER, AMOUNTS TENDERED WITH
LAWFUL USE OR PURPOSE, EXCLUDING, HOWEVER, USE AS A AND COVERAGE DATE WITH THE AGREEMENT:
RESTAURANT, A RETAIL STORE, OR MANUFACTURING PLANT. FOLLOWING MINIMUM AMOUNTS:
DEATH/BODILY INJURY: $1,000,000 SECURITY DEPOSIT: $7,840
REAL PROPERTY: $2,000,000 FIRST MONTH'S RENT: $3,920
NAME::
POLICY NUMBER:
EFFECTIVE DATE OF COVERAGE:
- ---------------------------------------------------------------------------------------------------------------------------------
EACH PARTY ACKNOWLEDGES THAT THEY HAVE READ AND UNDERSTAND THIS AGREEMENT, INCLUDING THE ADDENDUM, AND ALL EXHIBITS, IF ANY. EACH
PARTY ACKNOWLEDGES THAT EXCEPT AS OTHERWISE EXPLICITLY CONTAINED IN THIS AGREEMENT, THERE IS NO REPRESENTATION AND WARRANTY,
WRITTEN OR ORAL, DIRECT OR INDIRECT, MADE IN CONNECTION WITH OR PRIOR TO THIS AGREEMENT AS AN INDUCEMENT TO ENTER INTO THIS
AGREEMENT. THE BALANCE OF THIS AGREEMENT FOLLOWS THIS SIGNATURE AND COVER SHEET. THIS AGREEMENT IS SIGNED AND DELIVERED AS OF THE
EFFECTIVE DATE.
- ---------------------------------------------------------------------------------------------------------------------------------
TENANT NAME, TITLE, AND SIGNATURE: GEORGE W. LOLLIS.
TODD R. WAGNER, CEO /s/ TODD WAGNER /s/ GEORGE W. LOLLIS
- ---------------------------------------------------------------------------------------------------------------------------------
THIS INSTRUMENT WAS ACKNOWLEDGED BEFORE ME ON DECEMBER 3, THIS INSTRUMENT WAS ACKNOWLEDGED BEFORE ME ON DECEMBER 2,
1996, BY TODD R. WAGNER, CEO. 1996, BY GEORGE W. LOLLIS.
[SEAL] /s/ CAROL J. COX [SEAL] /s/ SUE BUTLER
NOTARY PUBLIC, STATE OF TEXAS AND COUNTY OF DALLAS NOTARY PUBLIC, STATE OF TEXAS AND COUNTY OF DALLAS
- ---------------------------------------------------------------------------------------------------------------------------------
DAISY O. LOLLIS: THIS INSTRUMENT WAS ACKNOWLEDGED BEFORE ME ON DECEMBER 2,
1996, BY DAISY O. LOLLIS.
/s/ DAISY O. LOLLIS
[SEAL] /s/ SUE BUTLER
NOTARY PUBLIC, STATE OF TEXAS AND COUNTY OF DALLAS
=================================================================================================================================
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 1 OF 9
</TABLE>
<PAGE> 2
================================================================================
TERMS OF 2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT
================================================================================
NOW THEREFORE, as of the Effective Date, for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
1. DEFINITION OF TERMS: The terms used in this Lease are described on
page 1, and/or are defined as follows:
a. Commencement Date - that date indicated on page 1.
b. consent - any approval or consent required or permitted in
this Lease shall be in writing, in advance of the requested
act, and said consent shall not, unless it is expressly stated
to the contrary, be unreasonably withheld or delayed.
c. Effective Date - that date indicated on page 1.
d. Landlord - George W. Lollis, and Daisy O. Lollis, and their
successors and/or assigns.
e. Lease - this 2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT
between Landlord and Tenant, and the Addendum attached to this
Lease.
f. Lease Term - that period of time from the Commencement Date to
the Termination Date as indicated on page 1, and as further
modified, expanded, and limited herein.
g. notice - any notice required or permitted in this Lease, or
service of process, shall be in writing and may be given by
personal service, confirmed received telefaxes, or by
depositing same in the United States mail, postage prepaid,
certified, return receipt requested to the address of the
party receiving notice as appears on the page 1 of this Lease,
or as changed through notice to the other party.
h. Premises - the Real Property described and indicated on page
1, with all the improvements, all appurtenant rights and
easements, and the right to use all areas of the real property
for parking, signage, access, ingress and egress together with
a building containing approximately 26,880 square feet of
floor space and the entire rooftop of the entire Building,
which property is more particularly described as Being Lots 7,
8, 9, 10 and the East 40 feet of Lot 11, in Block 15/198, of
CROWDUS AND AKARD ADDITION, an Addition to the City of Dallas,
Dallas County, Texas, according to the Map thereof recorded in
Volume W, Page 625, Map Records of Dallas County, Texas.
i. Rent - base rent indicated on page 1 plus any other sums of
money due Landlord by Tenant.
j. Security Deposit - that amount indicated on page 1.
k. Tenant - the Tenant listed on page 1 as the contracting party
with Landlord, and its permitted successors and assigns as
provided herein.
l. Termination Date - the end of the Lease Term.
2. ENVIRONMENTAL STUDY: Before the Commencement Date of the Lease Term,
Landlord and Tenant shall select, and shall engage at Tenant's
expense, an environmental expert to inspect the Premises for
environmental purposes, and if, upon said inspection, said expert
determines and reports in writing to Landlord and to Tenant, any
hazardous materials exist within the Premises that need to be removed
to accommodate Tenant's intended use of the Premises as provided
herein, Landlord shall, at Landlord's sole discretion, either remove
the hazardous materials, at Landlord's expense, or permit Tenant to
remove the hazardous materials at Tenant's expense.
a. If Landlord chooses to remove the hazardous materials and has
not substantially completed the removal by February 1, 1997,
Landlord shall then abate the Rent on a prorated basis for
each day after February 1, 1997 until Landlord's removal has
been substantially completed. If Landlord has not
substantially completed the removal of the hazardous materials
by April 1, 1997, Tenant may terminate this Lease.
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 2 OF 9
December 2, 1996 FINAL EDITION
<PAGE> 3
b. If Landlord chooses to permit Tenant to remove the hazardous
materials at Tenant's expense and Tenant chooses to remove the
hazardous materials, Tenant shall timely provide notice to
Landlord of its choice to remove materials at Tenant's
expense.
c. If Tenant does not provide timely notice to Landlord of its
choice to remove the hazardous materials, the Lease shall
terminate.
d. Termination of the Lease as provided in this section means the
Lease shall be null and void with no further obligation to
Landlord and to Tenant, except to Landlord for the return of
Tenant's Security Deposit, and the first month's Rent.
3. LEASE: Landlord leases to Tenant, and Tenant leases from Landlord the
exclusive use and control of the Premises for the initial Lease Term
of five (5) years in exchange for the base monthly Rent of $3,920,
together with other costs, terms and conditions under this Lease.
Payment of Rent shall commence on the Commencement Date.
4. REPRESENTATIONS AND WARRANTIES: In order to induce each other into
this Lease, Landlord and Tenant hereby represent and warrant:
a. Landlord and Tenant each are duly organized and qualified to
do business in the State of Texas and each has full power and
authority to enter into this Lease. Any individual executing
this Lease on behalf of Landlord has the full power and
authority to do so and to bind Landlord.
b. That the execution, delivery and performance of this Lease
will not conflict with, be inconsistent with, or result in any
breach or default of any of the terms, covenants, conditions
or provisions of any indenture, mortgage, deed of trust,
lease, ground lease, instrument, document, agreement or
contract of any kind or nature to which Landlord or Tenant is
a party or by which Landlord, Tenant, or the Premises may be
bound.
c. That Landlord is the sole fee simple owner of the Premises and
has good and indefeasible title to the Premises subject only
to those exceptions set forth in EXHIBIT B attached to the
Addendum.
d. Tenant's financial condition as presented and represented to
Landlord by Tenant in Tenant's unaudited financial statement
dated November 1996 is true, complete, and accurate.
5. MUTUAL INDEMNIFICATION: Except as otherwise specifically provided in
this Lease and the Addendum:
a. Landlord indemnifies and holds Tenant and its agents, harmless
of and from any and all claims, injuries, losses, damages,
demands, actions or causes of action brought or suffered by
any person, including but not limited to, payments of
contribution or indemnity and/or comparative causation to
other parties, court costs, attorney's fees or other expenses
of litigation which are recovered by any third person or
entity against Tenant as the result of Landlord's default
under the Lease, negligence, fraud, criminal misconduct,
and/or intentional and willful misconduct, or any other act,
if any.
b. Tenant indemnifies and holds Landlord and its agents, harmless
of and from any and all claims, injuries, losses, damages,
demands, actions or causes of action brought or suffered by
any person, including but not limited to, payments of
contribution or indemnity and/or comparative causation to
other parties, court costs, attorney's fees or other expenses
of litigation which are recovered by any third person or
entity against Landlord as the result of Tenant's default
under the Lease, negligence, fraud, criminal misconduct,
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 3 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 4
and/or intentional and willful misconduct, or any other act,
if any.
6. TENANT AFFIRMATIVE COVENANTS: Tenant agrees to:
a. Lease the Premises for the Lease Term beginning on the
Commencement Date and ending on the Termination Date.
b. Deliver a certified copy of a board resolution confirming, and
ratifying the Lease before December 31, 1996.
c. Deliver to Landlord after the Commencement Date EXHIBIT A to
the Addendum, the Lease Term Commencement Date Acknowledgement
which Landlord shall execute.
d. Accept the Premises in their present condition "AS IS", the
Premises being currently suitable for Tenant's intended use,
subject to Tenant's forty five (45) day inspection period
before it occupies the Premises as further described in the
Addendum.
e. Obey all laws, ordinances, orders, and rules and regulations
applicable to the use, renovation, condition, and occupancy of
the Premises.
f. Pay monthly, in advance, on the first day of the month, the
full base Rent to Landlord at Landlord's address, or pro rated
base Rent if the Commencement Date and/or the Termination Date
fall on a day other than the first day or last day,
respectively, of the applicable month.
g. Pay, as additional Rent, all other sums due under this Lease.
h. Pay a late charge of five (5%) percent of any Rent not
received by Landlord by the tenth day of the month in which it
is due.
i. Pay all utilities directly for all utility services relating
to the Premises, including but not limited to, water, sewer,
sanitation, electric, gas, water, and telephone.
j. Pay any and all premiums for real property casualty and
liability insurance described on page 1 with Landlord and
Tenant named as co-insureds, and if this is not permitted
under the applicable insurance policy, Landlord shall be at
least referred to as an additional insured.
k. Pay all ad valorem taxes assessed against the Property (aka
real property taxes), including city, county, school district,
and hospital district property taxes ("Taxes"). Nothing
contained in this Lease shall require Tenant to pay any
franchise, corporate, estate, inheritance, succession, capital
levy, transfer, income, revenue or excess profits tax imposed,
levied or assessed upon Landlord, or any other tax,
assessment, charge, or levy upon the Rent payable by Tenant
under this Lease. Any and all tax abatements, deferrals or
reductions granted or awarded, whether to Landlord or Tenant,
in connection with the Premises shall be for the benefit of,
and for the account of, the party obligated hereunder to pay
the Taxes (the "Obligated Party"). Tenant may, but shall not
be obligated to, contest in good faith the Taxes, including,
without limitation, all valuations and assessments. The
Obligated Party shall enjoy the benefits of any and all
adjustments to the Taxes resulting from the efforts made by
Tenant or otherwise.
l. Notify the Dallas Central Appraisal District, and any other
appropriate authorities, that Tenant is to receive a copy of
all assessments and tax statements relating to the Taxes at
Landlord's request and pursuant to this Lease.
m. Allow Landlord, with prior notice, to enter the Premises to
perform Landlord's obligations, inspect the Premises, and show
the Premises to prospective purchasers or Tenants.
n. Repair, replace, and maintain in good and working order any
and all parts of the Premises, normal wear excepted, except
for, the foundation, and structural and weight-bearing walls
unless such foundation and/or walls are damaged by Tenant, and
its agents, and contractors.
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 4 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 5
o. Maintain public liability insurance for the Premises and the
conduct of Tenant's business, naming Landlord as an additional
insured, in the amounts stated on page 1 of this Lease.
p. Maintain insurance on Tenant's personal property.
q. Deliver certificates of insurance to Landlord before the
Commencement Date and thereafter when requested.
r. Vacate the Premises broom clean and return all keys to the
Premises on Termination Date.
s. On request, execute an estoppel certificate that states the
Commencement Date and Termination Date of the Lease,
identifies any amendments to the Lease, describes any rights
to extend the Lease Term or purchase rights, lists defaults by
Landlord, and provides any other information reasonably
requested.
t. Timely and fully report to Landlord of any material adverse
change in Tenant's financial condition as presented and
represented to Landlord by Tenant in Tenant's unaudited
financial statement dated November 1996 which financial
statement was made and delivered by Tenant to Landlord as an
inducement for Landlord to enter into this Lease.
7. TENANT NEGATIVE COVENANTS: Tenant agrees not to:
a. Use the Premises for any purpose other than is stated on page
1.
b. Create a nuisance, permit any waste, or use the Premises in
any way that is extra hazardous, would increase insurance
premiums, or would void insurance on the building.
c. Provide a key to the Premises' lock system at Landlord's
request.
d. Alter the Premises, except as otherwise provided herein.
e. Allow a lien to be placed on the Premises.
8. LANDLORD'S AFFIRMATIVE COVENANTS: Landlord agrees to:
a. To provide to Tenant written evidence in form reasonably
satisfactory to Tenant that any and all leases, other than
this Lease, concerning the Premises have been properly
terminated.
b. Lease to Tenant the Premises for the entire term beginning on
the Commencement Date and ending on the Termination Date.
c. To permit Tenant to lawfully, peaceably and quietly have,
hold, occupy and enjoy the Premises and any appurtenant rights
granted to Tenant under this Lease during this Lease Term
without hindrance or ejection by Landlord or the successors or
assigns of Landlord or anyone acting by, through or under the
Landlord, including, without limitation, any mortgagee of
Landlord.
d. Return the Security Deposit to Tenant, less itemized
deductions, if any, within thirty days after the termination
of this Lease.
e. Cause any successor in interest to take title to the Premises
subject to the terms of the Lease, and that Tenant's occupancy
shall not be disturbed except in accordance with the Lease.
f. Landlord agrees to fully cooperate with Tenant and to assist
Tenant, if required, in any efforts made by Tenant to contest
the Taxes, and to execute any necessary documentation in
connection therewith.
g. Repair, replace, and maintain in good and working order,
normal wear excepted, only, the foundation, and structural and
weight-bearing walls unless such foundation and/or walls are
damaged by Tenant, and its agents, and contractors.
h. To permit, Tenant, in the event of an emergency, to undertake
Landlord's limited obligation to repair Tenant, without any
prior notice to Landlord.
i. To reimburse Tenant for undertaking Landlord's limited
obligation to repair in the event of an emergency, within ten
(10) days after receipt of Tenant's bill provided that it does
not exceed more than $12,000 per annum, and to permit Tenant
to deduct said cost and expense from the Rent next becoming
due after
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 5 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 6
the expiration of said ten (10) day period.
9. LANDLORD'S NEGATIVE COVENANTS: Landlord agrees not to as long as
Tenant is not in material default:
a. Interfere with Tenant's possession of the Premises.
b. Not to make any change, alteration, or addition to the
Premises including, without limitation, parking layout and
marking pattern, methods of ingress and egress, traffic,
lighting, curbing, building heights and stories, without the
Tenant consent as determined in Tenant's sole and unfettered
discretion.
c. Not to build or otherwise erect any structures, of whatsoever
kind or nature, on the Premises.
d. Unreasonably withhold consent to a proposed assignment or
sublease which shall not be considered unreasonable for
Landlord to condition their consent on splitting with Tenant
of any subtenant's rentals that exceed the Rent as set forth
in the Addendum.
10. ALTERATIONS: Any physical additions or improvements to the Premises
made by Tenant will become the property of Landlord. Landlord may
require that Tenant, at termination of this Lease and at Tenant's
expense, to remove any signs and any unauthorized physical additions
and improvements, normal wear excepted.
11. ABATEMENT: Tenant's covenant to pay Rent and Landlord's covenants are
independent of each other. Except as otherwise specifically provided
in this Lease, Tenant shall not be entitled to abate Rent for any
reason.
12. RELEASE OF CLAIMS/SUBROGATION: Landlord and Tenant release each other
from any claim, by subrogation or otherwise, for any damage to the
Premises, the building, the parking facility, if any, or personal
property within the building, by reason of fire or the elements,
regardless of cause, including negligence of Landlord or Tenant. This
release applies only to the extent that it is permitted by law, the
damage is covered by insurance proceeds, and the release does not
adversely affect any insurance coverage.
13. NOTICE TO INSURANCE COMPANIES: Landlord and Tenant will notify the
issuing insurance companies of the release set forth in the preceding
paragraph and will have the insurance policies endorsed, if necessary,
to prevent invalidation of the insurance coverage.
14. UNIFORM COMMERCIAL CODE: Tenant grants Landlord a security interest in
Tenant's personal property now or subsequently located on the
Premises; provided, however that, Landlord shall agree to only
subordinate its secured interest in Tenant's personal property to
Tenant's secured creditors that agree to pay and reimburse Landlord
for the cost, including attorney's fees, incurred in connection with
removal and storage of Tenant's personal property upon Landlord
entering and taking possession of the Premises. This Lease is a
security agreement under the Uniform Commercial Code. Landlord may
file a memorandum of this Lease as a financing statement.
15. DEFAULT BY LANDLORD/EVENTS: Defaults by Landlord are failing to comply
with any provision of this Lease within thirty days after written
notice.
16. DEFAULT BY LANDLORD/TENANT'S REMEDIES: Tenant's remedies for
Landlord's default are to sue for damages, sue for specific
performance, deduct up to $12,000 per annum from the Rent next
becoming due for repairs done and paid for by Tenant with respect to
the foundation,
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 6 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 7
and structural and weight-bearing walls, and/or to enforce termination
of the Lease.
17. DEFAULT BY TENANT/EVENTS: Defaults by Tenant are:
a. failing to pay timely Rent within ten (10) days notice of
non-payment by Landlord; and/or
b. for defaults other than set forth in (a) above, failing to
comply within thirty (30) days written notice with any
provision of this Lease or such longer time as may be
reasonably required to cure because of the nature of the
default (provided Tenant must have diligently undertaken
procedures to cure the default within such thirty (30) day
period and thereafter diligently pursues such effort to
completion).
18. DEFAULT BY TENANT/LANDLORD'S REMEDIES: Landlord's remedies for
Tenant's default are to:
a. enter and take possession of the Premises, after which
Landlord may relet the Premises on behalf of Tenant and
receive the Rent directly by reason of the reletting, and
Tenant agrees to reimburse Landlord for any expenditures made
in order to relet;
b. enter the Premises and perform Tenant's obligations; and/or
c. terminate this Lease by written notice and sue for damages.
Landlord may enter and take possession of the Premises by
self-help, by picking or changing locks if necessary, and may
lock out Tenant or any other person who may be occupying the
Premises, until the default is cured, without being liable for
damages.
19. SECURITY DEPOSIT: If Tenant defaults, Landlord may use the Security
Deposit to pay arrears of Rent, to repair any damage or injury, normal
wear excepted, or to pay any expense or liability reasonably incurred
by Landlord as a result of the default.
20. HOLDOVER: If Tenant does not vacate the Premises following termination
of this Lease, Tenant shall be a tenant at will, shall pay Rent of one
hundred fifty percent (150%) of the then most recent Rent amount
before termination, and shall vacate the Premises on receipt of notice
from Landlord. No holding over by Tenant, whether with or without the
consent of Landlord, will extend the term.
21. ABANDONED PROPERTY: Landlord may retain, destroy, or dispose of any
property left on the Premises at the end of the Lease Term.
22. COMPLIANCE: Tenant, at its expense, is solely responsible for
complying with any and all applicable City, County, State and Federal
statutes and regulatory requirements in connection with Tenant's
intended use, and its use of the Premises, including but not limited
to the following matters: building permits; parking; and satellite
receivers and transmitters.
23. NO OTHER WARRANTIES: EXCEPT AS TO ENVIRONMENTAL MATTERS AS PROVIDED IN
THIS LEASE, AND EXCEPT AS TO REPRESENTATION OF OWNERSHIP IN FEE SIMPLE
BY LANDLORD, THE PREMISES IS TAKEN "AS IS, WHERE IS" WITH NO IMPLIED
WARRANTY (OR CONDITION) AS TO THE QUALITY OR PERFORMANCE OF THE
PREMISES IS GIVEN BY LANDLORD TO TENANT, AND ALL SUCH WARRANTIES ARE
EXPRESSLY DISCLAIMED. EXCEPT FOR THOSE CERTAIN PROVISIONS HEREIN
CONTAINED REGARDING INDEMNIFICATION OF TENANT, NEITHER LANDLORD, NOR
ITS AGENTS, ATTORNEYS AND INSURERS ARE RESPONSIBLE FOR
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 7 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 8
THE LOSS OR REVENUE OR PROFITS, EXPENSE OR INCONVENIENCE, OR FOR ANY
OTHER SPECIAL INCIDENTAL OR CONSEQUENTIAL DAMAGES CAUSED BY THE USE,
MISUSE OR INABILITY TO BENEFIT FROM ANY SERVICES, AND/OR THE PREMISES,
WHETHER ON ACCOUNT OF NEGLIGENCE OR OTHERWISE, OR BY FAILURE TO
CONFORM TO ANY EXPRESS OR IMPLIED WARRANTIES OR CONDITIONS.
24. GOVERNING LAW; VENUE AND ARBITRATION:
a. Texas law shall control and govern this Lease.
b. The parties agree that any declarative action, injunctive
action or injunctive proceeding arising out of or related in
any way to this Lease, including forcible entry and detainer
actions, shall be brought solely in a court of competent
jurisdiction sitting in Dallas, Texas.
c. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of any such court and hereby irrevocably and
unconditionally waives any defense of an inconvenient forum to
the maintenance of any action or proceeding in any such court,
any objection to venue with respect to any such action or
proceeding any right of jurisdiction on account of the place
of residence or domicile of any party thereto. The parties
hereby irrevocably and unconditionally waives the right to a
jury trial in connection with any claim arising out of or
related to this Lease and/or guaranty of this Lease.
d. Any claim or controversy, other than declarative and/or
injunctive relief, shall be resolved through binding
arbitration under the auspices of the American Arbitration
Association in Dallas, Texas pursuant to the Commercial Rules
of Arbitration.
e. The prevailing party to any dispute shall be entitled to
attorney's fees, pre and post judgment interest at the rate of
ten percent (10%), costs, and damages, if any.
f. This agreement to arbitrate shall survive the Termination Date
by a period of four (4) years.
25. BINDING EFFECT: The Lease is binding on the parties and their
respective successor and assigns as permitted provided herein.
26. DEFAULT/WAIVER/MITIGATION: It is not a waiver of default if the
nondefaulting party fails to declare immediately a default or delays
in taking any action. Pursuit of any remedies set forth in this Lease
does not preclude pursuit of other remedies in this Lease or provided
by law. Landlord and Tenant have a duty to mitigate damages.
27. INTERPRETATION OF LEASE: Any rule of law or legal decision that would
require interpretation of any ambiguities in this Lease against the
party that has drafted it is not applicable and is waived. The
provisions of this Lease shall be interpreted in a REASONABLE MANNER to
effect the purpose, sum and substance of this Lease. By way of
illustration, and not by limitation, discretionary matters are to be
reasonably exercised, and nonmonetary defaults are to be enforced if
they are material, and not hypertechnical.
28. SEVERABILITY: If any provision of this Lease, or the applicability of
such provision to any person or circumstance, shall be determined to
be invalid by any court of competent jurisdiction, then such
determination shall not effect any other provisions of this Lease, all
of which provisions all remain in effect and, if the provisions is
capable of two constructions, one of which would render it valid, the
provisions shall have the meaning which render it valid.
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 8 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 9
29. NO JOINT VENTURE OR PARTNERSHIP: Landlord and Tenant hereby agree that
nothing contained herein or in any document executed in connection
herewith shall be constructed as making Tenant and Landlord joint
ventures or partners, or anything but, landlord and tenant.
30. HEADINGS AND FUTURE COOPERATION ON SUBSEQUENT DOCUMENTS: The heading,
captions, and arrangements used in this Lease are for convenience
only. The parties agree to cooperate at all times from and after the
date hereof with respect to the supplying of any information requested
by the other regarding any of the matters described in this Lease, and
each agrees to execute such further permits, licenses, resolutions,
charters, estoppel letters, subordination, non-disturbance and
attornment agreements, assignments, amendments to this Lease, or any
other such documents as may be reasonably requested and appropriate
for the purpose of giving effect to the transactions undertaken.
31. TIME IS OF THE ESSENCE: Time shall be of the essence for all matters
under this Lease and this Addendum.
32. SUBMISSION OF LEASE: The submission of this Lease for examination does
not constitute an offer, and this Lease becomes effective only upon
execution hereof by all parties.
33. ADDENDUM: This 2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT between
Landlord and Tenant, includes the Addendum attached to this Lease, and
by this reference incorporated fully herein for all purposes. All
references to "this Lease" shall include the Addendum attached to this
Lease.
[BALANCE OF THIS PAGE IS BLANK]
2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT PAGE 9 OF 9
DECEMBER 2, 1996 FINAL EDITION
<PAGE> 10
ADDENDUM TO THAT CERTAIN 2914 TAYLOR STREET REAL ESTATE LEASE AGREEMENT
THIS ADDENDUM TO THAT CERTAIN 2914 TAYLOR STREET REAL ESTATE LEASE
AGREEMENT is by and between Landlord and Tenant and is hereinafter referred to
as the "Addendum." The 2914 Taylor Street Real Estate Lease Agreement is
hereinafter referred to as the "Lease." Any and all references in the Lease to
the Addendum shall mean this Addendum. This Addendum is hereby attached to the
Lease and made a part of the Lease for all purposes. All capitalized terms used
herein and not otherwise defined herein, shall have the meanings given such
capitalized terms in the Lease.
EXHIBITS
The following exhibits are attached hereto and made a part of this
Lease for all purposes:
1. EXHIBIT A Lease Term Commencement Date Acknowledgement
2. EXHIBIT B Permitted Exceptions
3. EXHIBIT C Subordination, Non-Disturbance and Attornment Agreement
4. EXHIBIT D Memorandum of Lease and Notice of Right of First Refusal
1. EXTENSIONS OF LEASE TERM. If this Lease is still in full force and
effect, and if Tenant shall not be in default beyond applicable notice and cure
periods under the terms of this Lease, Tenant shall have the sole and absolute
option, in Tenant's sole and absolute discretion, but without any obligation,
to extend this Lease Term for up to three (3) additional successive periods of
five (5) years each (individually, an "Extension Term"), provided written
notice of the election of each such option shall be sent to Landlord not less
than ninety (90) days prior to the expiration of the then current term of this
Lease. If an option is duly exercised, the term of this Lease shall be
automatically extended for a period of five (5) years, without the requirement
of any further instrument, upon all of the same terms, provisions and
conditions set forth in this Lease; provided, however, that the Rent for the
first Extension Term shall be equal to $5600.00 per month for each month during
the first Extension Term, and the Rent for each Extension Term after the first
Extension Term shall be at the fair market rate.
2. PREPARATION OF THE PREMISES.
2.1 Tenant Renovations. Tenant, at its sole cost and expense but
subject to that certain reimbursement by Landlord as set forth below, shall
perform all work on the Premises required or necessary, in Tenant's sole and
absolute judgment, to complete the Premises to a condition ready for the
conduct of business therein (the "Tenant's Renovations"). Tenant's Renovations
shall be at a cost to Tenant of not less than $350,000.00. All of Tenant's
Renovations shall be deemed to be improvements made to the Premises by Tenant
(the "Tenant Improvements") and shall become the property of Landlord. All
work undertaken by Tenant shall be done to Tenant's specifications and in a
first class workmanlike manner. Tenant's Renovations shall include, without
limitation, the renovation of, the replacement of, the installation of, the
construction of, the maintenance of, and/or the repair of, interior flooring,
ceilings, walls, plumbing, rest rooms, kitchen areas, loading dock and
adjoining areas, HVAC systems, electrical systems, conference rooms, computer
rooms, doors, windows, and other parts of the Building. To the extent possible,
Tenant agrees at the expiration or earlier termination of this Lease to assign
to Landlord all warranties
<PAGE> 11
and guaranties regarding the Tenant Improvements. Landlord agrees to fully
cooperate with Tenant and to assist Tenant in obtaining all required building
permits for Tenant's Renovations in Landlord's name, and to assist in obtaining
an unconditional permanent certificate of occupancy, or the local equivalent
thereof, and to execute any necessary documentation in connection with the
renovations and possession of the Premises, provided that Landlord shall not be
required to incur any costs in connection therewith. Prior to Tenant's
commencement of Tenant's Renovations, Tenant shall obtain Landlord's prior
written approval of Tenant's plans, specifications, budget, permits, and
construction insurance coverage. Landlord's approval shall not be unreasonably
withheld or delayed. In the event that Landlord fails to approve or disapprove
in writing the plans for Tenant's Renovations within seven (7) days following
receipt of the same from Tenant, then Landlord shall be deemed to have approved
the plans for Tenant's Renovations for all purposes. Landlord has the right to
inspect the construction of the Tenant's Renovations at any time during the
construction process. Tenant shall remove or bond around any liens placed
against the Premises as a result of the Tenant Renovations.
2.2 Satellite Receivers and Rooftop Installations. Tenant, at its sole
cost and expense, may locate and install various telecommunications equipment,
including, without limitation, multiple satellite dishes, satellite down-link
dishes, and down-link receivers, on the rooftop of the Building. Tenant is
hereby leasing the entire Building, and the entire rooftop of the entire
Building, and may utilize the entire rooftop of the Building for its business
operations. Tenant may locate and install HVAC equipment on the rooftop of the
Building in Tenant's sole and absolute discretion.
2.3 Reimbursement by Landlord for Certain Renovations. Landlord shall
reimburse Tenant for costs and expenses incurred by Tenant for the repair and
renovation of the structural components and infrastructure of the Building,
including, without limitation, the roof and related insulation, in the form of
a one time payment equal to the lesser of (i) the actual cost of the roof
repair and renovation, or (ii) $40,000.00. Landlord shall reimburse Tenant up
to said amount upon the substantial completion of the Tenant Renovations and
upon receipt by Landlord of an invoice regarding said repairs and renovations,
or Landlord may, at Landlord's option, fully abate Tenant's Rent for the first
ten (10) months following this Lease Term Commencement Date.
2.4 Tenant Improvements. All Tenant Improvements, but not Tenant's
Property (hereinafter defined), including, without limitation, the HVAC and
electrical systems installed by Tenant at the Premises, shall become a part of
the Premises.
3. INTENTIONALLY DELETED
4. ENVIRONMENTAL PROVISIONS.
4.1 Definitions.
4.1.1 Hazardous Materials. Hazardous Material means any substance:
(a) the presence of which requires investigation, notice, or
remediation under any federal, state, or local statute, regulation, ordinance,
order, action, policy, or common law; or
(b) which is or becomes defined as a "hazardous material," "hazardous
waste," "hazardous materials," "regulated substance," "pollutant" or
"contaminant" under any federal, state, or local statute, regulation, rule or
ordinance or amendments thereto including, without
2
<PAGE> 12
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act (42 U.S.C. Sections 9601 et seq.), Toxic Substances Control Act
(15 U.S.C. Sections 2601 et seq.), the Texas Water Code (Sections 1.002 et
seq.), and/or the Resource Conservation and Recovery Act (42 U.S.C. Sections
6901 et seq.); or
(c) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency, or instrumentality of the United States, the State of Texas or any
political subdivision thereof; or
(d) the presence of which on the Premises causes or threatens to cause
a nuisance upon the Premises or to adjacent properties or poses or threatens to
pose a hazard to the health or safety of persons on or about the Premises; or
(e) which contains gasoline, diesel fuel, or other petroleum
hydrocarbons; or
(f) which contains polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde foam insulation; or
(g) radon gas.
4.1.2 Environmental Requirements. Environmental Requirements means all
applicable present and future statutes, regulations, rules, ordinances, codes,
licenses, permits, orders, approvals, plans, authorizations, concessions,
franchises, and similar items, of all governmental agencies, departments,
commissions, boards, bureaus, or instrumentalities of the United States,
states, and political subdivisions thereof, and all applicable judicial,
administrative, and regulatory decrees, judgments, and orders relating to the
protection of human health or the environment, including, without limitation:
(a) All requirements relating to reporting, licensing, permitting,
investigation, and remediation of emissions, discharges, releases, or
threatened releases of Hazardous Materials, whether solid, liquid, or gaseous
in nature, into the air, surface water, groundwater, or land; or relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of Hazardous Materials; and
(b) All requirements pertaining to the protection of the health and
safety of employees or the public.
4.1.3 Environmental Damages. Environmental Damages means all claims,
judgments, damages, losses, penalties, fines, liabilities (including strict
liability), encumbrances, liens, costs, and expense of investigation and
defense of any claim, whether or not such claim is ultimately defeated, and of
any good faith settlement or judgment, of whatever kind or nature, contingent
or otherwise, matured or unmatured, foreseeable or unforeseeable, including
without limitation, reasonable attorneys' fees and disbursements and reasonable
consultant and witness fees, any of which are incurred as a result of the
existence of Hazardous Material upon, about, or beneath the Premises, or the
migration or threatened migration to or from the Premises, or the existence of
a violation of Environmental Requirements pertaining to the Premises, including
without limitation:
3
<PAGE> 13
(a) Damages for personal injury, or injury to property or natural
resources occurring upon or off of the Premises, foreseeable or unforeseeable,
including, without limitation, lost profits, consequential damages, the cost of
demolition and rebuilding of any improvements on real property, interest, and
penalties excluding, however, claims brought by or on behalf of employees of
Tenant or Landlord;
(b) Reasonable fees incurred for the services of attorneys,
consultants, contractors,experts, and laboratories and all other reasonable
costs incurred in connection with the investigation or remediation of such
Hazardous Materials or violation of Environmental Requirements including, but
not limited to, the preparation of any feasibility studies or reports or the
performance of any cleanup, remediation, removal, response, abatement,
containment, closure, restoration, or monitoring work required by any federal,
state, or local governmental agency or political subdivision or court, or
reasonably necessary to make full economic use of the Premises and any other
property in a manner consistent with its intended use or otherwise expended in
connection with such conditions, and including without limitation any
reasonable attorneys' fees, costs, and expenses incurred in enforcing this
agreement or collecting any sums due hereunder; and
(c) Liability to any third person or governmental agency to indemnify
such person or agency for costs expended in connection with the items
referenced herein.
4.2 Representations and Warranties of Tenant.
4.2.1 Compliance with Environmental Requirements. Tenant shall not
cause a material violation of any Environmental Requirements upon, about or
beneath the Premises or any portion thereof.
4.2.2 Notification. If Tenant becomes aware of or receives notice or
other communication concerning any actual, alleged or suspected violation of
Environmental Requirements, or liability of Tenant or Landlord for
Environmental Damages in connection with the Premises for past or present
activities of any person thereon, then Tenant shall deliver to Landlord, within
10 days of the receipt of such notice or communication, a written description
of said violation or liability, together with copies of any such notice or
communication.
4.2.3 Tenant's Obligation to Indemnity. Tenant, and its successors and
assigns, agree to indemnify, defend, reimburse and hold harmless the following
persons from and against any and all Environmental Damages occurring on the
Premises which are caused by the activities of Tenant:
(a) Landlord, and
(b) the directors, officers, shareholders, employees, partners, and
agents of the Landlord.
This obligation shall include, but not be limited to, the burden and
expense of the indemnified parties in (1) defending all claims, suits, and
administrative proceedings, including reasonable attorneys' fees and reasonable
expert witness and consulting fees, (2) in conducting all negotiations of any
description, (3) in paying and discharging, when and as the same comes due, any
and all judgments, penalties, or other sums due against such indemnified
persons, and (4) for all such expenses incurred in enforcing the obligation to
indemnify. Tenant, at its sole expense, may employ additional counsel of its
choice to associate with counsel representing Landlord.
4
<PAGE> 14
4.3 Representations and Warranties of Landlord.
4.3.1 Compliance with Environmental Requirements.
(a) To the best of Landlord's knowledge, the Premises and the Real
Property in their prior uses comply and have at all times complied with all
Environmental Requirements. To the best of Landlord's knowledge, the Premises
and the Real Property in their existing uses have at all times from and after
the date which Landlord took fee simple title to the Premises and the Real
Property, complied with all Environmental Requirements. Landlord is, and to the
best of Landlord's knowledge any previous owners and tenants of the Real
Property and the Premises are, not in violation of and have not violated any
Environmental Requirement in connection with the ownership, use, maintenance or
operation of the Real Property and the Premises. Landlord has, and to the best
of Landlord's knowledge any previous owners and tenants or the Real Property
and the Premises have, not accrued and are not accruing any liabilities
pursuant to any Environmental Requirement, specifically including, but not
limited to, any potential liability pursuant to the Comprehensive Environmental
Response, Compensation and Liability Act.
(b) To the best of Landlord's knowledge, no Hazardous Materials have
been released deposited, discharged, placed, disposed of on the Real Property
and the Premises or have migrated unto or off of the Real Property and the
Premises. To the best of Landlord's knowledge, the Real Property and the
Premises have not been used at any time by any person as a landfill or waste
disposal site. To the best of Landlord's knowledge, there have never been any
and there are currently no monitoring wells, drinking water wells, or
underground or above ground storage tanks of any kind on the Real Property and
the Premises.
4.3.3 Notification. If Landlord becomes aware of or receives notice or
other communication concerning any actual, alleged, or suspected violation of
Environmental Requirements, or liability of Landlord or Tenant for
Environmental Damages in connection with the Real Property or the Premises for
past or present activities of any person thereon or the migration onto the Real
Property or the Premises of Hazardous Materials, then Landlord shall deliver to
Tenant, within 10 days of the receipt of such notice or communication, a
written description of said violation or liability, together with copies of any
such notice or communication. Receipt of such notice shall not be deemed to
create any independent obligation on the part of Tenant to defend or otherwise
respond to any such notification or communication.
4.3.4 Landlord's Obligation to Indemnify. Landlord, and its successors
and assigns, agree to indemnify, defend, reimburse, and hold harmless the
following persons from and against any and all Environmental Damages arising
from all prior use or occupancy of the Premises, all activities of Landlord or
its employees, agents, contractors, subcontractors, or guests, licensees or
invitees, or from and against any and all Environmental Damages which (1)
result in or from the presence of, or from the previous existence of, Hazardous
Materials upon, about or beneath the Real Property or the Premises; (2) result
in or from the violation of any Environmental Requirements pertaining to the
Real Property or the Premises and the activities thereon; or (3) result from
the migration of Hazardous Materials to or from the Real Property or the
Premises:
(a) Tenant;
(b) the directors, officers, shareholders, employees,
partners, agents, contractors, subcontractors,
experts, licensees, affiliates, lessees, mortgagees,
trustees, heirs, devisees, successors, assigns and
invitees of Tenant.
5
<PAGE> 15
This obligation shall include, but not be limited to, the burden and
expense of the indemnified parties (1) in defending all claims, suits, and
administrative proceedings, including reasonable attorneys' fees and reasonable
expert witness and consulting fees, (2) in conducting all negotiations of any
description, (3) in paying and discharging, when and as the same comes due, any
and all judgments, penalties, or other sums due against such indemnified
persons, and (4) for all such expenses incurred in enforcing the obligation to
indemnify. Landlord at its sole expense, may employ additional counsel of its
choice to associate with counsel representing Tenant.
4.4 Tenant's Right to Environmental Inspection. Tenant will, at
Tenant's sole cost, have the right to conduct environmental audits and testing
of the Premises and/or the Real Property, including, without limitation, the
taking of soil borings and samples and installation of monitoring wells. Tenant
will restore any property damaged by such testing to substantially the condition
of the affected property immediately proceeding such testing. Tenant will have
the right to terminate this Lease by giving written notice of such termination
to Landlord at any time on or before sixty (60) days from the date of execution
of this Lease if Tenant is, in its sole discretion, dissatisfied with the
results of such testing, the Security Deposit shall be returned to Tenant
promptly by Landlord, and Tenant shall have no further obligations or
liabilities under or pursuant to this Lease. Landlord shall deliver, to the
extent available, to Tenant copies of any and all environmental studies and
reports concerning the Premises. Tenant shall deliver to Landlord a copy of any
environmental studies and reports conducted on behalf of Tenant.
4.5 Survival of Environmental Obligations. The obligations of Landlord
and Tenant to notify and to indemnify, defend and hold harmless as set forth
above shall survive termination of this Lease.
4.6 Limited Exception. Notwithstanding anything herein to the
contrary, Landlord shall not be required to indemnify Tenant for Environmental
Damages resulting from claims which are made against Tenant by Tenant's
employees.
5. ASSIGNMENT AND SUBLETTING.
5.1 Tenant shall not assign, transfer, pledge and/or hypothecate this
Lease or sublease any portion of the Premises without Landlord's prior written
consent, which consent shall not be unreasonably withheld or delayed. In the
event that Tenant assigns this Lease or subleases the Premises at any time
during the initial Lease Term to a third party ("Tenant's Sublessee"), then
Tenant shall share with Landlord that portion of the rent received by Tenant
from Tenant's Sublessee which exceeds the Rent payable under this Lease by
Tenant to Landlord pursuant to the following allocation: 75% to Tenant; and 25%
to Landlord. In the event that Tenant assigns this Lease or subleases the
Premises at any time other than during the initial Lease Term to Tenant's
Sublessee, then Tenant shall share with Landlord that portion of the rent
received by Tenant from Tenant's Sublessee which exceeds the Rent then payable
under this Lease by Tenant to Landlord pursuant to the following allocation:
50% to Tenant; and 50% to Landlord.
5.2 Sale of Tenant Exception. Notwithstanding anything to the contrary
in this Lease or in this Addendum, the sale of all or substantially all of the
capital stock of Tenant, whether by merger, consolidation or otherwise, shall
not be deemed to be (i) an assignment or in any manner a transfer of this Lease
or any estate or interest therein, (ii) a sublease of the Premises or any part
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thereof, (iii) a change in control or ownership of Tenant or (iv) a breach or
default under this Lease or an event which, with the passage of time, the
giving of notice or both, would constitute a breach or default under this
Lease, which breach or default would permit Landlord to terminate this Lease.
5.3 Financing. Notwithstanding anything to the contrary in this Lease
or in this Addendum, the issuance by Tenant of equity securities, and changes
in percentage ownership, if any, of Tenant's equity securities resulting
therefrom, as part of a second or subsequent round of institutional financing
shall not be deemed to be (i) an assignment or in any manner a transfer of this
Lease or any estate or interest therein, (ii) a sublease of the Premises or any
part thereof, (iii) a change in control or ownership of Tenant or (iv) a breach
or default under this Lease or an event which, with the passage of time, the
giving of notice or both, would constitute a breach or default under this
Lease, which breach or default would permit Landlord to terminate this Lease.
5.4 Public Offering. Notwithstanding anything to the contrary in this
Lease or in this Addendum, any law or any provisions contained in this Lease
deeming a change in ownership or a change in control of Tenant to be (i) an
assignment or in any manner a transfer of this Lease or any estate or interest
therein, (ii) a sublease of the Premises or any part thereof, or (iii) a breach
or default under this Lease or an event which, with the passage of time, the
giving of notice or both, would constitute a breach or default under this
Lease, which breach or default would permit Landlord to terminate this Lease,
shall be inapplicable (i) if such change in ownership or change in control
results from the public offering of Tenant's equity securities and (ii)
subsequent to any public offering of Tenant's equity securities.
5.5 Permitted Subleases and Assignments. Notwithstanding anything to
the contrary in this Lease or in this Addendum, Tenant may assign this Lease or
sublet all or any portion of the Premises to any affiliate or to any holder of
the majority of shares of Tenant's stock.
5.6 Sale of Assets. Notwithstanding anything to the contrary contained
in this Lease or in this Addendum, a sale of all or substantially all of the
assets of Tenant shall not constitute (i) an assignment or in any manner a
transfer of this Lease or any estate or interest therein, (ii) a sublease of
the Premises or any part thereof, (iii) a change in control or ownership of
Tenant or (iv) a breach or default under this Lease or an event which, with the
passage of time, the giving of notice or both, would constitute a breach or
default under this Lease, which breach or default would permit Landlord to
terminate this Lease.
6. DAMAGE AND DESTRUCTION; CONDEMNATION.
6.1 Fire or Other Casualty.
6.1.1 Partial Damage. If during this Lease Term the Premises shall be
partially damaged (as distinguished from "substantially damaged," as that term
is hereinafter defined) by fire or other casualty, Tenant shall forthwith
proceed to repair such damage and restore the Premises to substantially their
condition at the time of such damage.
6.1.2 Substantial Damage Termination by Tenant. If during this Lease
Term the Premises shall be substantially damaged or destroyed by fire or other
casualty, then Tenant may, at its option in Tenant's sole and absolute
discretion, terminate this Lease as of the date of the substantial damage or
destruction (the "Date of Damage"). Such option to terminate may be exercised
by Tenant by giving written notice to Landlord within fifteen (15) days after
the Date of Damage, and upon delivery of such notice to Landlord, Landlord
shall refund any Rent paid in
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advance which covers a period subsequent to the Date of Damage, and Tenant
shall have no further obligations or liabilities under or pursuant to this
Lease.
6.1.3 Substantial Damage; Restoration by Tenant. In the event Tenant
does not terminate this Lease as provided for in Section 6.1.2, Tenant shall,
at its sole cost and expense but with the benefit of the insurance proceeds,
commence and diligently pursue the full and complete restoration of the
Premises to as near to its condition prior to such substantial damage or
destruction as is reasonably possible, and, during the course of such
restoration, there shall be a full abatement of all Rent, taking into account
the extent to which Tenant shall be required to close down all or a portion of
its operations until restoration has been completed. It is understood and
agreed that, at Tenant's election, the term of this Lease shall be extended by
up to the number of days, if any, during which business shall have been
interrupted in the Premises by reason of such restoration work.
6.1.4 General. If the provisions of Section 6.1.1 or Section 6.1.3
shall become applicable, the Rent shall be abated or reduced proportionately
during any period in which, by reason of such damage or destruction, there is
interference with the operation of the business of Tenant in the Premises,
giving due regard to the extent to which Tenant may be required to discontinue
its business in the Premises, and such abatement or reduction shall continue
for the period commencing with such destruction or damage and ending with: (i)
the completion by Tenant of such work or repair and/or restoration as Tenant
undertakes to do; and (ii) the expiration of a period of 30 days thereafter to
enable Tenant to refixture the Premises and reopen for business, but said 30
day period shall be deemed to have ended if Tenant shall reopen for business
prior to the expiration thereof. In the event of the termination of this Lease
pursuant to this paragraph, then this Lease, and the term hereof, shall cease
and come to an end as of the date of such damage or destruction. All Rent, the
Security Deposit, and any other charges paid in advance by Tenant shall be
promptly refunded by Landlord. It is further understood and agreed that, at
Tenant's election, this Lease Term shall be extended by up to the number of
days, if any, during which business shall have been interrupted in the Premises
by reason of such damage or destruction.
6.1.5 The terms "substantially damaged" and "substantial damage," as
used in this provision, shall have reference to damage of such a character as
cannot reasonably be expected to be repaired or such that the Premises cannot
be restored within ninety (90) days.
6.1.6 Insurance Proceeds. Notwithstanding anything herein to the
contrary, the parties hereto hereby agree to take whatever steps are necessary
to assign any and all applicable insurance proceeds to the party making the
repairs and renovations following an event of fire or other casualty.
6.2 Condemnation; Eminent Domain.
6.2.1 If, after the execution and before the termination of this
Lease: (i) any part of the Premises is taken by condemnation proceedings,
eminent domain or conveyed in lieu thereof; or (ii) the number of full-sized
automobile parking spaces is reduced within the Premises to a number which
produces a parking ratio less than that required by law, as a result of a
taking by condemnation proceedings, eminent domain or of a conveyance in lieu
thereof; then, in all of the foregoing events, this Lease Term shall, at the
option of Tenant, in Tenant's sole and absolute discretion, cease and terminate
as of the day possession shall be taken by the acting governmental or
quasi-governmental authority (the "Date of Taking"). Such option to terminate
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shall be exercisable by Tenant giving written notice to Landlord within thirty
(30) days after the Date of Taking, which notice shall provide for a
termination date (the "Termination Date") not later than ninety (90) days after
the Date of Taking and Tenant shall pay rent up to the Termination Date, and
Landlord shall refund the Security Deposit and such Rent as shall have been
paid in advance and which covers a period subsequent to the Termination Date,
and Tenant shall have no further obligations or liabilities under or pursuant
to this Lease. In the event Tenant does not terminate this Lease, Tenant shall,
at Tenant's sole cost and expense but with the benefit of condemnation awards
and proceeds related to the leasehold interest, promptly and diligently restore
the Premises to as near to their condition prior to such taking or conveyance
as is reasonably possible, and, during the course of such restoration, there
shall be a fair and equitable abatement of all Rent and other charges, taking
into account the extent to which Tenant shall be required to close down all or
a portion of its operations until restoration has been completed; and, after
such restoration, there shall be a fair and equitable abatement of rent and
other charges on a permanent basis, taking into account the reduction in the
size of the Premises, reduction in parking areas, and the like. It is
understood and agreed that, at Tenant's election, the term of this Lease shall
be extended by up to the number of days, if any, during which business shall
have been interrupted in the Premises by reason of such restoration work.
6.2.2 During any period of time that, by reason of such taking, there
is any interference with access to the Premises, there shall be a fair and
equitable abatement of the Rent and all other charges payable hereunder, taking
into account the extent to which Tenant's operations may thereby be interfered
with; and, if it is impracticable for Tenant to remain open for business, in
the reasonable exercise of Tenant's business judgment, and Tenant elects to
close down until restoration or removal of rubble, etc., has been accomplished,
then there shall be a full abatement of Rent and all other charges payable
hereunder until completion of the restoration work. It is understood and agreed
that, at Tenant's election, the term of this Lease shall be extended by up to
the number of days, if any, during which business shall not have been conducted
in the Premises by reason of such restoration work.
6.2.3 Nothing herein contained shall prevent Landlord and Tenant from
prosecuting claims in any condemnation proceedings for the value of their
respective interests. Landlord shall be entitled to the condemnation award
attributable to the fee interest in the Real Property only, and Tenant shall be
entitled to the condemnation award attributable to its interest in the Premises
and its leasehold interest in the Real Property and for the value of the
unamortized portion of the improvements on the Real Property, including,
however, without limitation, the full value of its fixtures and equipment,
leasehold improvements, relocation expenses, goodwill, leasehold estate, loss
of business or other award.
6.2.4 Notwithstanding anything herein to the contrary, the parties
hereto hereby agree to take whatever steps are necessary to assign any and all
applicable condemnation awards, or other proceeds paid as a result of any
taking, to the party making the repairs and renovations following an event of
condemnation or other taking.
7. RIGHT OF FIRST REFUSAL TO PURCHASE THE PREMISES.
7.1 Grant of Right of First Refusal to Purchase the Premises. Provided
Tenant shall not be in material default beyond applicable notice and cure
periods under the terms of this Lease, Tenant shall have a right of first
refusal to purchase the Premises upon the following terms and conditions.
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7.2 Tenant's Option. If Landlord, or any successor or assign of
Landlord, receives a bona fide offer for the purchase of the Premises which
Landlord intends to accept (subject to Tenant's rights herein), then Landlord
shall give notice (the "Right of First Refusal Notice") to Tenant specifying
all of the terms and conditions of such bona fide offer, and Tenant shall have
the option, but not the obligation, to purchase the Premises upon the same
terms and conditions as were set forth in the Right of First Refusal Notice.
7.3 Exercise of Tenant's Option. Tenant must deliver actual notice of
its intent to exercise such right of first refusal no later than ten (10)
business days following the day on which Tenant receives the Right of First
Refusal Notice from Landlord. If Tenant fails to timely exercise its right of
first refusal with regard to the purchase of the Premises, then Landlord shall
be free to sell the Premises to such prospective purchaser, and Tenant shall
thereafter have no further right of first refusal with regard to the Premises
as to that specific purchaser; provided, however, if (a) the prospective
purchaser offering to purchase the Premises does not execute a contract of
purchase and sale covering the Premises within forty-five (45) days of the
Right of First Refusal Notice to Tenant, or if (b) another third party
purchaser offers to purchase the Premises, then Tenant's rights hereunder shall
be revived, and Tenant shall continue to have a right of first refusal with
respect to the Premises. Landlord shall not be precluded from making changes to
the bona fide offer during contract negotiations so long as such changes are
the result of arms-length negotiations between Landlord and such prospective
purchaser.
7.4 Binding Effect. The right of first refusal granted to Tenant
hereunder shall bind and encumber the Real Property and the Premises, shall be
a covenant running with the land, shall bind Landlord's successors and assigns
and all future and subsequent owners of the fee interest in the Premises.
Evidence of this right of first refusal, in the form of EXHIBIT F, shall be
filed of record in the appropriate land records of Dallas County, Texas.
8. TENANT'S RIGHT OF TERMINATION DUE TO UNACCEPTABLE CONDITION OF THE
PREMISES.
8.1 NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, AND
NOTWITHSTANDING ANY OTHER PROVISION CONTAINED HEREIN, TENANT MAY TERMINATE THIS
LEASE AT ANY TIME ON OR BEFORE JANUARY 16,1997, IN TENANT'S SOLE AND ABSOLUTE
DISCRETION FOR ANY OR NO REASON, INCLUDING, WITHOUT LIMITATION, ANY TAX
ABATEMENT MATTERS, IN THE EVENT THAT TENANT IS NOT FULLY AND COMPLETELY
SATISFIED WITH ALL ASPECTS OF THE PREMISES, THE REAL PROPERTY, OR THE BUILDING.
8.2 If Tenant elects to terminate this Lease as provided for above,
the Tenant shall deliver to Landlord written notice of such termination (the
"Termination Notice") on or before January 16, 1997. Upon Tenant's delivery of
the Termination Notice, this Lease (i) shall automatically and immediately
terminate and become null and void and be of no force and effect, (ii) Tenant
shall be relieved of and from any and all further liability or obligation to
Landlord under and pursuant to this Lease, (except for any obligations, if any,
of Tenant to indemnify Landlord for claims by third parties related to Tenant's
inspection of the Premises) and (iii) Landlord shall immediately return to
Tenant all amounts previously delivered to Landlord by Tenant, including,
without limitation, Rent and the Security Deposit.
9. MISCELLANEOUS PROVISIONS.
9.1 Brokerage. Landlord and Tenant acknowledge that Delphi Group Inc.
("Broker") has been retained by Landlord in connection with the Premises and
this Lease, and Landlord hereby agrees that Landlord shall pay to the Broker
the total brokerage commission due and payable to the Broker.
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9.2 Brokerage Indemnities. Except as described in Section 9.1 above,
Landlord and Tenant hereby represent and warrant, each to the other, that they
have not disclosed this Lease or the subject matter hereof to, and have not
otherwise dealt with, any broker, finder or any other person, firm, corporation
or other legal entity so as to create any legal right or claim of whatsoever
kind or nature for a commission or similar fee or compensation with respect to
the Premises or this Lease. Landlord and Tenant hereby indemnify each other
against, and agree to hold each other harmless from, any liability or claim
(and all expenses, including attorneys' fees, incurred in defending any such
claim or in enforcing this indemnity) for a real estate brokerage commission or
similar fee or compensation arising out of or in any way connected with any
claimed dealings with the indemnitor and relating to the Premises or this
Lease. The provisions of this Section shall survive the expiration or sooner
termination of this Lease.
9.3 Subordination, Non-Disturbance and Attornment.
(a) On or before thirty (30) days from the date hereof, Landlord
covenants to obtain from each lender the security for whose loan encumbers the
Premises or the Real Property (and each lessor whose interest in the Real
Property and/or the Premises is paramount to Landlord's ("Overlessor")) at the
time of execution hereof, or at any time prior to the recordation of the
Memorandum of Lease and Notice of Right of First Refusal specified in Section
9.7 or from any future lender, an executed nondisturbance agreement assuring
Tenant that, notwithstanding any default by Landlord to the lender or
Overlessor or any foreclosure or deed in lieu thereof (or Overlessor's
termination proceedings), Tenant's rights under this Lease shall continue in
full force and effect and its possession of the Premises shall remain
undisturbed (including, without limitation, permission for insurance proceeds
and eminent domain awards to be applied as required hereunder), except in
accordance with the provisions of this Lease, so long as Tenant is not in
default hereunder so as to permit Lease termination. Such agreement(s) shall be
substantially in form and content as EXHIBIT C attached hereto. If Landlord
breaches its obligation(s) hereunder, Tenant may terminate this Lease by
written notice to Landlord at any time prior to Tenant's receipt of all
required nondisturbance agreements.
(b) Tenant shall, upon Landlord's request, subordinate this Lease in
the future to any first lien placed by Landlord upon the Premises with an
Institutional First Mortgage (hereinafter defined), provided that such lender
executes a nondisturbance agreement providing that if Tenant is not then in
default under this Lease (after any applicable notice and cure period), this
Lease shall not terminate as a result of the foreclosure of such lien, or
conveyance in lieu thereof, and Tenant's rights under this Lease shall continue
in full force and effect and its possession shall be undisturbed, except in
accordance with the provisions of this Lease. As used herein, "Institutional
First Mortgage" shall mean any commercial bank, federal or state savings and
loan association, life insurance company, pension fund, real estate investment
trust, or any affiliate, subsidiary, successor or assignee of any of the
foregoing, holding a first mortgage on the Real Property. Tenant will, upon
request of the lienholder, be a party to such an agreement, and will agree
that, if such lienholder succeeds to the interest of Landlord, Tenant will
recognize said lienholder (or successor in interest of the lienholder) as its
landlord under the terms of this Lease. Such agreement shall be substantially
in form and content as EXHIBIT C attached hereto.
9.4 Estoppel Certificates. Landlord and Tenant agree at any time and
from time to time, upon not less than ten (10) days prior written request by
either of them to the other, to execute,
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acknowledge and deliver to the requesting party a statement in writing
certifying that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the same is in full force and effect as
modified, and stating the modifications), and the date to which the rental and
other charges have been paid in advance, if any, and whether or not any
violations of this Lease are in existence as of the date of said statement, it
being intended that any such statement delivered pursuant to this section may
be relied upon by any prospective purchaser of the fee, or leasehold, or
mortgagee or assignee of any mortgage upon the fee or leasehold interest in the
Premises, or by any assignee of Tenant. The failure of either party to deliver
an estoppel as called for herein, shall constitute a default hereunder.
9.5 Applicable Law; Construction; Amendment. This Lease shall be
governed by and construed in accordance with the laws of the State of Texas. If
any provisions of this Lease shall be to any extent deemed invalid by a court
of competent jurisdiction, then there automatically shall be added hereto a
provision as similar to the invalid provision as possible so as to achieve the
intended effect of the invalid provision, and, in all events, the remainder of
this Lease shall not be affected thereby. There are no oral or written
agreements between Landlord and Tenant affecting this Lease. This Lease may be
amended only by instruments in writing executed by Landlord and Tenant. The
titles and headings of the several paragraphs and sections contained herein are
for convenience only and shall not be considered in construing this Lease.
Unless repugnant to the context, the words "Landlord" and "Tenant" appearing in
this Lease shall be construed to mean those named above and their respective
heirs, personal representatives, administrators, successors and assigns, and
those claiming through or under them, respectively.
9.6 Binding Effect of Lease. The covenants, agreements and obligations
herein contained, except as herein otherwise specifically provided, shall
extend to, be binding upon, and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, administrators, successors
and assigns. Landlord may assign this Lease to an entity controlled by Landlord
provided that Landlord's assignee expressly assumes in writing all of the
obligations of Landlord contained in this Lease.
9.7 Memorandum of Lease and Notice of Right of First Refusal. This
Lease shall not be recorded. However, a memorandum of this Lease and the right
of first refusal herein contained in the form attached hereto as EXHIBIT D
shall be executed, in recordable form, by both parties concurrently herewith
and recorded by Tenant, at Landlord's expense, with the official charged with
recordation duties in the County of Dallas, Texas, with directions that it be
returned to Tenant.
9.8 Effect of Unavoidable Delays. If either party to this Lease, as
the result of any (i) strikes, lockouts or labor disputes, (ii) inability to
obtain labor or materials or reasonable substitutes therefor, (iii) acts of
God, governmental action, condemnation, or civil commotion, or (iv) other
conditions similar to those enumerated in this Section beyond the reasonable
control of the party obligated to perform, fails punctually to perform any
obligations on its part to be performed under this Lease (except for Tenant's
obligation to pay Rent, unless such failure by Tenant to pay Rent is pursuant
to a provision contained in this Lease providing for abatement of Rent) then
such failure shall be excused and not be a breach of this Lease by the party in
question, but only to the extent occasioned by such event. If any right or
option of either party to take any action under or with respect to this Lease
is conditioned upon the same being exercised within any prescribed period of
time or at or before a named date, then such prescribed period of time and such
named date shall be deemed to be extended or delayed, as the case may be, for a
period equal to the period of the delay occasioned by any event described
above.
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9.9 Tenant's Property. As used herein, the term "Tenant's Property"
shall include, without limitation, all equipment, machinery, fixtures and
furniture, now or hereinafter place on or at the Premises, including, without
limitation, computers, terminals, servers, switches, modems, splitters,
routers, communications systems, telecommunications systems, satellite dishes
and receivers, fiber optic systems, software, files, documents, trade and
service marks, logos, intellectual property, and proprietary property and
information without regard to the manner in which any of the foregoing is
attached to the Premises. Tenant shall at all times own and retain the fee
interest in Tenant's Property. Landlord agreed to subordinate its security
interest in Tenant's personalty from time to time and to execute and deliver
such instruments reasonably requested by Tenant from time to time to evidence
such subordination.
9.10 No Express or Implied Covenant of Continuous Operation.
Notwithstanding anything contained or set forth in this Lease to the contrary,
nothing set forth in this Lease shall be construed, in any manner whatsoever,
as an implied covenant of continuous operation on the part of Tenant, and
Landlord specifically acknowledges that there is no covenant of continuous
operation on the part of Tenant, express or implied. In the event that Tenant
elects to cease its business operations at the Premises, such cessation shall
not be deemed to be an event of default hereunder, nor shall such cessation
relieve Tenant of any of its liabilities or obligations under and pursuant to
this Lease; provided, however, that Tenant shall notify Landlord in writing not
fewer than fifteen (15) days prior to the date that Tenant intends to cease its
business operations at the Premises and Landlord shall have the option of
recapturing the Premises. If Landlord elects to recapture the Premises,
Landlord shall provide Tenant with written notice of such election within
fifteen (15) days following Landlord's receipt of Tenant's Notice. Said notice
from Landlord to Tenant shall provide for a date of termination of this Lease,
which date shall be: (a) thirty (30) days from the date Landlord receives
Tenant's Notice, or (b) thirty (30) days from the date that Tenant ceases its
business operations at the Premises, whichever event shall first occur, and
upon such termination, Tenant shall be relieved of and from any and all further
liability or obligation to Landlord under and pursuant to this Lease.
9.11 Exterior and Interior Signage. Tenant shall have the absolute and
unconditional right to place its sign at any location on the Real Property,
including the exterior or interior of the Building, and the exterior or
interior of the Premises, in Tenant's sole and absolute discretion. Any such
sign shall be of the size, design and style designated by Tenant in its sole
and absolute discretion. At the expiration or earlier termination of this
Lease, Tenant shall remove its signs at its sole cost and expense.
9.12 Covenants. All of the covenants, conditions and restrictions
contained in this Lease are for the benefit of the Premises, its easement and
appurtenances, and shall run with and in or to and pass with the Real Property,
and are intended to the binding on any and all successor owners of the Real
Property or any portion thereof.
9.13 Conflicts. In the event that any provision in this Addendum shall
be in conflict with any provision in this Lease, then, and in all such
instances, the provisions of this Addendum shall control for all purposes.
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IN WITNESS WHEREOF, the parties have executed this instrument on the
2nd day of December, 1996.
LANDLORD:
/s/ GEORGE W. LOLLIS
- --------------------
GEORGE W. LOLLIS
/s/ DAISY O. LOLLIS
- -------------------
DAISY O. LOLLIS
TENANT:
AUDIONET, INC., a Delaware corporation
By: /s/ TODD WAGNER
- ----------------------
Name: Todd R. Wagner
Title: CEO
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, duly authorized to administer
oaths and take acknowledgments, personally appeared George W. Lollis an
individual, and acknowledged that he executed the foregoing instrument in his
individual capacity on this 2nd day of December, 1996.
/S/ SUE BUTLER
-------------------------------
Notary Public, State of Texas
My Commission Expires: 3-7-2000
--------
[NOTARY SEAL OF SUE BUTLER]
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STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, duly authorized to administer
oaths and take acknowledgments, personally appeared Daisy 0. Lollis, an
individual, and acknowledged that she executed the foregoing instrument in her
individual capacity on this 2nd day of December, 1996.
/s/ SUE BUTLER
-------------------------------
Notary Public, State of Texas
[NOTARY SEAL OF SUE BUTLER] My Commission Expires: 3-7-2000
--------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
BEFORE ME, the undersigned authority, duly authorized to administer
oaths and take acknowledgments, personally appeared Todd R. Wagner, CEO of
AudioNet, Inc., a Delaware corporation, and acknowledged the foregoing in his
capacity as same for the purposes herein described on behalf of the
corporation, this 3rd day of December, 1996.
/s/ CAROL J. COX
-------------------------------
Notary Public, State of Texas
[NOTARY SEAL OF CAROL J. COX] My Commission Expires: 6-24-98
--------
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EXHIBIT 10.16
MASTER LEASE OF PERSONAL PROPERTY NO. 3769
LESSEE: AudioNet, Inc. LESSOR: Charter Financial, Inc.
2914 Taylor Street 153 East 53rd Street
Dallas, TX 75226 New York, NY 10022
In consideration of the mutual covenants set forth herein, the above named
Lessee and the above named Lessor hereby enter into this Master Lease of
Personal Property and agree to the terms and conditions set forth herein. Each
Rental Schedule executed by Lessee and Lessor from time to time pursuant to this
Master Lease of Personal Property shall be deemed a separate lease incorporating
all of the terms and conditions of this Master Lease of Personal Property.
References in this Master Lease of Personal Property to "Lease", "hereunder" and
"herein" shall mean a Rental Schedule which incorporates this Master Lease of
Personal Property.
1. DEFINITIONS. The following terms shall have the following
meanings for all purposes of this lease:
(a) "Acquisition Cost" of Equipment is an amount equal to the
sum of the vendor's delivered price, dealer's delivery and handling charges, the
cost of any original equipment which may be added, excise tax on the Equipment,
and sales and use taxes, expenses of installation and freight, and other
expenses required to effect delivery of the Equipment to Lessee.
(b) "Term" shall mean the number of months set forth in a
Rental Schedule.
(c) "Equipment" means the personal property described in an
equipment schedule attached to a Rental Schedule together with all
substitutions, replacements, parts, repairs, improvements, additions and
accessories thereto.
(d) "Lease Commencement Date" with respect to Equipment under
a Rental Schedule means the date of the commencement of the applicable Rental
Schedule as set forth in such Rental Schedule.
(e) "Rental Schedule" means a schedule to be executed by
Lessor and Lessee, substantially in the form attached hereto and labeled "Rental
Schedule" including a schedule describing the Equipment which is subject thereto
and setting forth its location, Acquisition Cost, the amount of rent payable by
Lessee with respect thereto, the lease term thereof, the Lease Commencement Date
with respect thereto, and such other details as Lessor and Lessee may desire.
2. AGREEMENT FOR LEASE OF EQUIPMENT. Lessor shall lease to Lessee
and Lessee shall lease from Lessor Equipment in the manner and upon the terms
and conditions specified in this Lease, provided that the Equipment can be
obtained. Lessee shall evidence its agreement to lease particular Equipment
hereunder by executing and delivering a Rental Schedule for such Equipment to
Lessor. Lessee's execution of such Rental Schedule shall obligate Lessee to
lease the Equipment described therein from Lessor upon the acceptance of such
Equipment by Lessee for lease hereunder. Anything to the contrary
notwithstanding, Lessor shall have no obligation to accept any Rental Schedule
from Lessee or to acquire and lease to Lessee the Equipment described therein if
(i) such Equipment is not acceptable to Lessor; or (ii) Lessee has not submitted
to Lessor by December 31, 1998 a Rental Schedule covering such Equipment; or
(iii) such Equipment has not been accepted by Lessee for lease hereunder by
December 31, 1998 or Lessor has determined the scheduled dates for delivery and
installation of such Equipment makes acceptance of the Equipment by such date
impossible; or (iv) an Event of Default (or any other event which, after a lapse
of time, or notice, or both, would become an Event of Default) has occurred and
is continuing hereunder; or (v) Lessor
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determines that Lessee's financial condition or business operation (or that of
any Guarantor,) has suffered any material adverse change from the condition
reported in, or in conjunction with, any credit application. Notwithstanding any
trade-in or down payment by Lessee or on its behalf with respect to the
Equipment, Lessee shall have no right, title or interest therein or thereto
except as to the use thereof subject to the terms and/or conditions of this
Lease. In the event that for any reason specified or referred to in clauses (i)
through (v) of this Section 2, Lessor submits a written request to a vendor for
the cancellation, in whole or in part, of any purchase order or other purchase
commitment issued by Lessor to such vendor for the Equipment described on a
Rental Schedule, (a) Lessee shall promptly pay Lessor the full amount of any
restocking, cancellation and other charge or penalty which such vendor may
require Lessor to pay for such cancellation, and (b) Lessee shall promptly pay
Lessor an amount equal to the total Acquisition Cost of all Equipment as to
which such vendor is unwilling, in Lessor's sole judgment, to permit such
cancellation on terms acceptable to Lessor and (c) upon Lessor's receipt of such
payment from Lessee, Lessor shall convey to Lessee whatever right, title and
interest Lessor may have in and to such Equipment on an as-is, where-is basis
without representations or warranties of any kind whatsoever.
3. LEASE TERM. The lease term of Equipment under a Rental
Schedule shall be the Term and shall commence on the Lease Commencement Date set
forth on such Rental Schedule.
4. RENTAL. Lessee agrees to pay to Lessor or its assignee during
the term applicable to any Equipment the rent payments shown on each Rental
Schedule with the first rent payment due on the Lease Commencement Date shown
therein. Lessee hereby authorizes Lessor to insert the Lease Commencement Date
in the space provided therein. The rent payments shown therein together with any
and all additional payments to be made by Lessee to Lessor under this Lease are
hereinafter referred to as "Rental". All Rental shall be paid without notice or
demand and without abatement, deduction or set off of any amount whatsoever, at
such address and to such person or persons as Lessor or its assignee shall
direct. Any nonpayment of Rental when due shall result in the obligation on the
part of Lessee promptly to pay also an amount equal to five per cent (5%) (or
the maximum rate permitted by law, whichever is less) of the amounts overdue.
5. DISCLAIMER OF WARRANTIES; LESSEE'S OBLIGATIONS. LESSEE
ACKNOWLEDGES THAT: LESSOR IS NOT THE MANUFACTURER OF THE EQUIPMENT NOR THE
MANUFACTURER=S AGENT NOR A DEALER THEREIN; THE EQUIPMENT IS OF A SIZE, DESIGN,
CAPACITY, DESCRIPTION AND MANUFACTURE SELECTED BY THE LESSEE; LESSEE HAS
SELECTED THE EQUIPMENT PRIOR TO HAVING REQUESTED LESSOR TO PURCHASE THE SAME FOR
LEASING TO LESSEE; LESSEE IS SATISFIED THAT THE EQUIPMENT IS SUITABLE AND FIT
FOR ITS PURPOSES; AND LESSOR HAS NOT MADE AND DOES NOT MAKE ANY WARRANTY OR
REPRESENTATION WHATSOEVER, EITHER EXPRESS OR IMPLIED, AS TO THE FITNESS,
CONDITION, MERCHANTABILITY, DESIGN OR OPERATION OF THE EQUIPMENT, ITS FITNESS
FOR ANY PARTICULAR PURPOSE, THE QUALITY OR CAPACITY OF THE MATERIALS IN THE
EQUIPMENT OR WORKMANSHIP OF THE EQUIPMENT, LESSOR=S TITLE TO THE EQUIPMENT, NOR
ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER. LESSOR SHALL NOT BE LIABLE TO
LESSEE FOR ANY LOSS, DAMAGE, OR EXPENSE OF ANY KIND OR NATURE CAUSED, DIRECTLY
OR INDIRECTLY, BY ANY EQUIPMENT LEASED HEREUNDER OR THE USE OR MAINTENANCE
THEREOF OR THE FAILURE OR OPERATION THEREOF, OR THE REPAIR, SERVICE OR
ADJUSTMENT THEREOF, OR BY ANY DELAY OR FAILURE TO PROVIDE ANY SUCH MAINTENANCE,
REPAIRS, SERVICE OR ADJUSTMENT, OR BY ANY INTERRUPTION OF SERVICE OR LOSS OF USE
THEREOF OR FOR ANY LOSS OF BUSINESS HOWSOEVER CAUSED. LESSOR SHALL NOT BE LIABLE
FOR DAMAGES OF ANY KIND INCLUDING ANY CONSEQUENTIAL DAMAGES AS THAT TERM IS USED
IN THE UNIFORM COMMERCIAL CODE OR OTHERWISE. No defect or unfitness of the
Equipment, nor any failure on the part of the manufacturer or the shipper of the
Equipment to deliver the Equipment or any part thereof to Lessee, shall relieve
Lessee of the obligation to pay Rental or any other obligation under this Lease.
Lessor shall have no obligation in respect of the Equipment and shall have no
obligation to install, erect, test, adjust or service the Equipment. Lessor
agrees, so long as there shall
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not have occurred or be continuing any Event of Default hereunder or event which
with lapse of time or notice, or both, might become an Event of Default
hereunder, that Lessor will permit Lessee to enforce in Lessee's own name and at
Lessee's sole expense any supplier's or manufacturer's warranty or agreement in
respect of the Equipment to the extent that such warranty or agreement is
assignable. The parties agree that this Lease is a "Finance Lease" as defined in
Article 2A of the Uniform Commercial Code. Lessee acknowledges either (a) that
Lessee has reviewed and approved the purchase order, supply contract or purchase
agreement ("Supply Contract") covering the Equipment purchased from the vendor
or supplier thereof for lease to Lessee or (b) that Lessor has informed or
advised Lessee in writing, either previously or by this Lease, of the following:
(i) the identity of the supplier/vendor; (ii) that the Lessee may have rights
under the Supply contract; and (iii) that the Lessee may contact the
supplier/vendor for a description of any such rights Lessee may have under the
Supply Contract. In the event that a court of competent jurisdiction shall
determine that this Lease is a "lease intended as security" then Lessee hereby
grants a security interest in and to the Equipment as a security for all
Lessee's obligations to Lessor of every kind and nature.
6. ASSIGNMENT BY LESSOR. This Lease, any Rental Schedule
hereunder and Lessor's interest in the Equipment shall be assignable by Lessor
and by its assigns without notice to or the consent of Lessee, but Lessee shall
not be obligated to any assignee of Lessor except upon written notice of such
assignment from Lessor or such assignee. The obligation of Lessee to pay Rental
to such assignee and perform all other obligations hereunder shall be absolute,
irrevocable, independent and unconditional and shall not be affected by any
circumstances whatsoever, and such payments shall be made without interruption,
deduction, offset or abatement notwithstanding any event or circumstance
whatsoever, including, without limitation the late delivery, non-delivery,
destruction or damage of or to the Equipment, the deprivation or limitation of
the use of the Equipment, the bankruptcy or insolvency of Lessor or Lessee or
any disaffirmance of this Lease by or on behalf of Lessee, and notwithstanding
any defense, setoff, recoupment or counterclaim or any other right whatsoever,
whether by reason of breach of this Lease or otherwise which Lessee may now or
hereafter have against Lessor and whether any such event shall be by reason of
any act or omission of Lessor or otherwise; provided, however, that nothing
herein contained shall affect any right of Lessee to enforce against Lessor any
claim which Lessee may have against Lessor in any manner other than by
abatement, attachment, or recoupment of, interference with, or set-off,
counterclaim or defense against, the aforementioned payments. Lessee's
undertaking herein to pay the Rental to and to perform the other obligations of
Lessee hereunder for the benefit of an assignee of Lessor shall constitute a
direct, independent and unconditional obligation of Lessee to said assignee.
Lessee also acknowledges and agrees that any assignee of Lessor's interest in
this Lease shall have the right to exercise all rights, privileges and remedies
(either in its own name or in the name of Lessor) which by the terms of this
Lease are permitted to be exercised by Lessor. Lessee acknowledges that any
assignment or transfer by Lessor shall not materially change Lessee's duties or
obligations under this Lease nor materially increase the burdens or risks
imposed on Lessee. Lessee agrees that Lessor shall have the absolute right to
assign this Lease.
7. DAMAGE TO OR LOSS OF THE EQUIPMENT; REQUISITION. No loss or
damage to the Equipment or any part thereof shall affect any obligation of
Lessee under this Lease which shall continue in full force and effect. Lessee
shall advise Lessor in writing promptly of any item of Equipment lost or damaged
and of the circumstances and extent of such damage. If the Equipment under a
Rental Schedule is totally destroyed, irreparably damaged, lost, stolen or title
thereto shall be requisitioned or taken by any governmental authority under the
power of eminent domain or otherwise, Lessee shall, at the option of the Lessor,
replace the same with like equipment in good repair, condition and working order
and such replacement shall be deemed to be Equipment subject the terms hereof
and such Rental Schedule, or pay to Lessor the present value of all Rental due
and to become due under this Lease discounted at a rate equal to six percent
(6%), less the net amount of the recovery, if any, actually received by Lessor
from insurance or otherwise for such destruction, damage, loss, theft,
requisition or taking, and upon such payment, title to such Equipment shall pass
to Lessee and Lessee shall be subrogated to Lessor's rights with respect to such
casualty. Whenever the Equipment is destroyed or damaged and, in the sole
discretion of the Lessor, such destruction or damage can
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be repaired, Lessee shall, at its expense, promptly effect such repairs as
Lessor shall deem necessary for compliance with Section 8(a) below. Any proceeds
of insurance received by Lessor with respect to such reparable damage to the
Equipment shall, at the election of Lessor, be applied either to the repair of
the Equipment by payment by Lessor directly to the party completing the repairs,
or to the reimbursement of Lessee for the cost of such repairs; provided,
however, that Lessor shall have no obligation to make such payment or any part
thereof until receipt of such evidence as Lessor shall deem satisfactory that
such repairs have been completed and further provided that Lessor may apply such
proceeds to the payment of any Rental or other sum due or to become due
hereunder if at the time such proceeds are received by Lessor there shall have
occurred and be continuing any Event of Default hereunder or any event which
with lapse of time or notice, or both, would become an Event of Default. Lessee
shall when and as requested by Lessor, undertake, by litigation or otherwise, in
Lessee's name, the collection of any claim against any person for such
destruction, damage, loss, theft, requisition or taking, but Lessor shall not be
obligated to undertake, by litigation or otherwise, the collection of any claim
against any person for such destruction, damage, loss, theft, requisition or
taking.
8. AFFIRMATIVE COVENANTS OF LESSEE. Lessee shall (a) cause the
Equipment to be kept in good condition and use the Equipment only in the manner
for which it was designed and intended so as to subject it to only ordinary wear
and tear and cause to be made all needed and proper repairs, renewals, and
replacements thereto; (b) maintain at all times property damage, fire theft and
comprehensive insurance for the greater of the full replacement value or the
present value of all Rental due and to become due under this Lease discounted at
a rate equal to six percent (6%), with loss payable provisions in favor of
Lessor and any assignee of Lessor as their interests may appear, and maintain
general liability insurance in amounts satisfactory to Lessor naming Lessor and
any assignee of Lessor as insureds with all of said insurance and loss payable
provisions to be in form, substance and amount and written by companies approved
by Lessor, and deliver policies thereof, or duplicates thereof, to Lessor; (c)
pay or reimburse Lessor for any and all taxes, assessments and other
governmental charges of whatever kind or character, however designated (together
with any penalties, fines or interest thereon) levied or based upon or with
respect to the Equipment or the Rental or upon the manufacture, purchase,
ownership, delivery, leasing possession, use, storage, operation, maintenance,
repair, return or other disposition of the Equipment, or for titling or
registering the Equipment, or upon the income or other proceeds received with
respect to the Equipment or this Lease provided, however, that Lessee shall pay
taxes on or measured by the net income of Lessor and franchise taxes of Lessor
only to the extent that such net income taxes or franchise taxes are levied or
assessed in lieu of such other taxes, assessments or other governmental charges;
(d) pay all shipping and delivery charges and other expenses incurred in
connection with the Equipment and pay all lawful claims, whether for labor,
materials, supplies, rent or services, which might or could if unpaid become a
lien on the Equipment; (e) comply with all governmental laws, regulation,
requirements and rules, all manufacturer's instructions and warranty
requirements, and with the conditions and requirements of all policies of
insurance with respect to the Equipment and this Lease; (f) mark and identify
the Equipment with all information and in such manner as Lessor or its assigns
may request from time to time and replace promptly any such markings or
identification which are removed, defaced or destroyed; (g) at any and all times
during business hours, grant Lessor free access to enter upon the premises
wherein the Equipment shall be located or used and permit Lessor to inspect the
Equipment; (h) reimburse Lessor for all charges, costs and expenses (including
attorneys' fees), incurred by Lessor in defending or protecting its interest in
the Equipment, in the attempted enforcement or enforcement of the provisions of
this Lease or in the attempted collection or collection of any Rental under this
Lease; (i) indemnify and hold Lessor harmless from and against all claims,
losses, liabilities (including negligence, tort and strict liability), damages,
judgments, suits, and all legal proceedings, and any and all costs and expenses
in connection therewith (including attorneys' fees) arising out of or in any
manner connected with the manufacture, purchase, financing, ownership, delivery,
rejection, non-delivery, transportation, possession, use, storage, operation,
maintenance, repair, return or other disposition of the Equipment or with this
Lease, including without limitation, claims for injury to or death of persons
and for damage to property, and give Lessor prompt notice of any such claim or
liability; (j) except as otherwise expressly provided herein, upon the
expiration of the Term
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of a Rental Schedule, or upon sooner termination of a Rental Schedule as
provided for herein, at its own cost and expense, deliver possession of the
Equipment to Lessor in the condition in which it is required to be maintained by
Lessee hereunder, at a location within the United States designated by the
Lessor; (k) except as otherwise expressly provided herein, upon the expiration
of the Term of a Rental Schedule, or upon sooner termination of a Rental
Schedule as provided for herein, upon request of Lessor, provide suitable and
adequate storage space at the place where the Equipment is to be located
hereunder, and permit Lessor to store the Equipment in such storage space free
of charge for a period not to exceed ninety (90) days, during which period
Lessor will be allowed reasonable access thereto; and (l) maintain a system of
accounts established and administered in accordance with generally accepted
accounting principles and practices consistently applied; and within thirty (30)
days after the end of each fiscal quarter, deliver to Lessor a balance sheet as
at the end of such quarter and statement of operations for such quarter, and
within one hundred and twenty (120) days after the end of each fiscal year,
deliver to Lessor a balance sheet as at the end of such year and statement of
operations for such year, in each case prepared in accordance with generally
accepted accounting principles and practices consistently applied and certified
by Lessee's chief financial officer as fairly presenting the financial position
and results of operations of Lessee, and, in the case of year end financial
statements, certified, by an independent accounting firm acceptable to Lessor.
9. NEGATIVE COVENANTS OF LEASE. Lessee shall not (a) voluntarily
or involuntarily create, incur, assume or suffer to exist any mortgage, lien,
pledge or other encumbrance or attachment of any kind whatsoever upon, affecting
or with respect to the Equipment or this Lease or any of Lessee's interests
thereunder; (b) make any changes or alterations in or to the Equipment except as
necessary for compliance with Section 8(a) above; (c) permit the name of any
person, association or corporation other than the Lessor to be placed on the
Equipment as a designation that might be interpreted as a claim of ownership or
security interest; (d) part with possession or control of or suffer or allow to
pass out of its possession or control any item of the Equipment or change the
location of the Equipment or any part thereof from the address shown above; (e)
ASSIGN OR IN ANY WAY DISPOSE OF ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS
UNDER THIS LEASE OR ENTER INTO ANY SUBLEASE OF ALL OR ANY PART OF THE EQUIPMENT;
(f) change its name or address from that set forth above unless it shall have
given Lessor or its assigns no less than thirty (30) days' prior written notice
thereof; (g) sell any shares of its capital stock or transfer any ownership
interest in the Lessee to any person, persons, entity or entities (whether in
one single transaction or in multiple transactions) which results in a transfer
or a majority interest in the ownership and/or the control of the Lessee from
the person, persons, entity or entities who hold ownership and/or control of the
Lessee as of the date of this Lease; or (h) consolidate with or merge into or
with any other entity, or purchase or otherwise acquire all or substantially all
of the assets or stock or other ownership interest of any person or entity or
sell, transfer, lease or otherwise dispose of all or substantially all of
Lessee's assets to any person or entity.
10. USE OF EQUIPMENT; EQUIPMENT PERSONALTY. So long as no Event of
Default shall have occurred, Lessee shall be entitled to possession and use of
the Equipment for the applicable Term in its lawful business in accordance with
the provisions of this Lease. The Equipment is, and shall at all times be and
remain, personal property notwithstanding that the Equipment or any part thereof
may now be, or hereafter become, in any manner affixed or attached to, or
imbedded in, or permanently resting upon, real property or any building thereon,
or attached in any manner to real property by cement, plaster, nails, bolts,
screws, wires, pipes or otherwise. If requested by Lessor with respect to any
item of the Equipment, Lessee will obtain and deliver to Lessor waivers of
interest or liens in recordable form, satisfactory to Lessor, from all persons
claiming any interest in the real property on which such item of the Equipment
is installed or located.
11. EVENTS OF DEFAULT AND REMEDIES. If any one or more of the
following events ("Events of Default") shall occur; (a) Lessee shall fail to
make any payment hereunder, when due, whether for rent or otherwise; or (b) any
certificate, statement, representation, warranty or financial report heretofore
or hereafter furnished by or on behalf of Lessee or any guarantor of any of
Lessee's obligations hereunder proves to have been false in any material respect
at the time as of which the facts therein set forth were stated or certified or
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has omitted any material contingent or unliquidated liability or claim against
Lessee or any such guarantor; or (c) Lessee or any guarantor of Lessee's
obligations shall fail to perform or observe any covenant (including, without
limitation, the covenant to keep the Equipment free from any mortgage, lien,
pledge, encumbrance or attachment of any kind whatsoever), condition or
agreement to be performed or observed by it hereunder; or (d) Lessee or any
guarantor of any of Lessee's obligations hereunder shall be in breach of or in
default in the payment and performance of any obligation owing to Lessor whether
or not related to this Lease and howsoever arising, whether by operation of law
or otherwise, present or future, contracted for or acquired, and whether joint,
several, absolute, contingent, secured, unsecured, matured and unmatured; or (e)
Lessee or any guarantor of any of Lessee's obligations hereunder shall be in
breach of or in default in the payment or performance of any obligation owing to
any bank, lender, lessor or financial institution, howsoever arising, present or
future, contracted for or acquired, and whether joint, several, absolute,
contingent, secured, unsecured, matured or unmatured; (f) Lessee or any
guarantor of any of Lessee's obligations hereunder shall cease doing business as
a going concern, make an assignment for the benefit of creditors, admit its
inability to pay its debts as they become due, file a petition commencing a
voluntary case under any chapter of Title 11 of the United States Code entitled
"Bankruptcy" (the "Bankruptcy Code"), be adjudicated as insolvent, file a
petition seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar arrangement under any present
or future statute, law rule or regulation or file an answer admitting the
material allegations of a petition filed against it in any such proceeding,
consent to the filing of such a petition or acquiesce in the appointment of a
trustee, receiver or liquidator of it or of all or any part of its assets or
properties, or take any action looking to its dissolution or liquidation; (g) an
order for relief against Lessee or any guarantor of any of Lessee's obligations
hereunder shall have been entered under any chapter of the Bankruptcy Code or a
decree or order by a court having jurisdiction in the premises shall have been
entered approving as properly filed a petition seeking reorganization,
arrangement, readjustment, liquidation, dissolution or similar relief against
Lessee or any guarantor of any of Lessee's obligations hereunder under any
present or future statute, law, rule or regulation, or within thirty (30) days
after the appointment without Lessee's or such guarantor's consent or
acquiescence of any trustee, receiver or liquidator of it or such guarantor or
of all or any part of its or such guarantor's assets and properties, such an
appointment shall not be vacated, or an order, judgment, or decree shall be
entered against Lessee or such guarantor by a court of competent jurisdiction
and shall continue in effect for any period of ten (10) consecutive days without
a stay of execution or any execution or writ or process shall be issued under
any action or proceeding against Lessee whereby the Equipment or its use may be
taken or restrained; or (h) Lessee shall suffer an adverse material change in
its financial condition from the date hereof, and as a result thereof Lessor
deems itself or any of the Equipment to be insecure; then and in any such event,
Lessor may (but is not obligated to), at the sole discretion of Lessor, without
notice or demand, take any one or more of the following steps: (1) immediately
terminate Lessee's rights hereunder; (2) require Lessee, at its expense,
promptly to return all or any portion of the Equipment to the possession of the
Lessor at such place within the United States as Lessor may designate, with or
without process of law, directly or acting through agents, without liability to
Lessor, enter upon the premises of Lessee or other premises where all or any
portion of the Equipment may be and take immediate possession of all or any
portion of the Equipment, and thenceforth hold, possess, and enjoy the same free
from any right of the Lessee to the possession and use of the Equipment for any
purpose whatsoever in which event Lessee hereby expressly waives all further
rights to possession of the Equipment and all claims for injuries suffered
through or caused by any such repossession; or (3) sue for and seek to recover
from Lessee all rent and other sums then past due pursuant to the terms and
provisions of this Lease; or (4) declare immediately due and payable and sue for
and seek to recover, all payments of rent, whether or not accrued, and all other
amounts payable hereunder, provided, however, upon the occurrence of any of the
events specified in subparagraphs (f) and (g) above, all sums as specified in
this subparagraph (4) shall immediately be due and payable without notice to
Lessee (the date on which Lessor declares all rent and other amounts to be due
and payable is hereinafter referred to as the "Declaration Date"); or (5) sell
or re-lease any or all of the Equipment at a public or private sale on such
terms and notice as Lessor shall deem reasonable and recover from Lessee
damages, not as penalty, but herein liquidated for all purposes and in an amount
equal to the sum of (i) any accrued and unpaid rent as of the later of (A) the
date of default or (B) the
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date that Lessor has obtained possession of the Equipment (the "Computation
Date"); (ii) the present value of all future rent reserved in this Lease and
contracted to be paid over the unexpired term of this Lease as of the
Computation Date, discounted at a rate equal to six percent (6%); (iii) all
commercially reasonable costs and expenses incurred by Lessor in any
repossession, recovery, storage, repair, sale, re-lease or other disposition of
the Equipment including reasonable attorneys' fees and costs incurred in
connection with or otherwise resulting from the Lessee's default; and (iv) any
indemnity, if then determinable, plus interest at one and one-half percent
(1.5%) per month; LESS the amount received by Lessor upon such public or private
sale or re-lease of such items of Equipment, if any (with any excess of the
amount received from such sale or re-lease over and above the amounts set forth
in clauses (i) through (iv) to be paid to Lessee); or (6) with or without
terminating this Lease, recover from Lessee damages, not as a penalty, but
herein liquidated for all purposes in an amount equal to the sum of (i) any
accrued and unpaid rent as of the Declaration Date plus interest at the rate of
one and one-half percent (1.5%) per month; (ii) the present value of all future
rent reserved in this Lease and contracted to be paid over the unexpired term of
this Lease discounted at a rate equal to six percent (6%); (iii) all
commercially reasonable costs and expenses incurred by Lessor in any
repossession, recovery, storage, repair, sale, re-lease, or other disposition of
the Equipment including reasonable attorneys' fees and costs incurred in
connection therewith or otherwise resulting from the Lessee's default; and (iv)
any indemnity, if then determinable, plus interest at one and one-half percent
(1.5%) per month, and upon such payment, title to the Equipment shall pass to
Lessee; or (7) exercise any other right or remedy which may be available under
the Uniform Commercial Code or any other applicable law or proceed by
appropriate court action or actions, at law or in equity, either to enforce
performance by Lessee of the applicable covenants of this Lease or to recover
damages for the breach thereof or of any warranty or representation herein
contained, or in aid of the exercise of any power, right or remedy granted
herein. Lessee shall be liable for all costs and expenses, including reasonable
attorneys' fees and disbursements, incurred by reason of the occurrence of any
Event of Default or the exercise by Lessor of remedies with respect thereto. Any
personalty in or attached to the Equipment when repossessed may be held by
Lessor without any liability arising with respect thereto, and any and all
claims in connection with such personalty shall be deemed to have been waived
unless notice of such claim is made by certified or registered mail upon Lessor
within three business days after repossession. A termination of this Lease after
the occurrence of an Event of Default shall occur only upon notice by Lessor and
only as to such items of Equipment as Lessor specifically elects to terminate
and this Lease shall continue in full force and effect as to the remaining
items, if any. If this Lease is deemed at any time to be one intended as
security, Lessee agrees that the Equipment shall secure, in addition to the
indebtedness set forth herein, any other indebtedness at any time owing by
Lessee to Lessor.
12. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to
perform or comply with any of its agreements contained herein, Lessor may
perform or comply with such agreements and the amount of any payments and
expenses of Lessor incurred in connection with such performance or compliance,
together with interest thereon at the rate provided in Section 16 below, shall
be deemed Rental payable by Lessee upon demand.
13. FURTHER ASSURANCES. Lessee will cooperate with Lessor for the
purpose of protecting the interests of Lessor in the Equipment, this Lease and
the sums due under this Lease, including, without limitation the execution of
all Uniform Commercial Code financing statements requested by Lessor. Lessor and
any assignee of Lessor is authorized if permitted by applicable law to file one
or more Uniform Commercial Code financing statements disclosing any security
interest in the Equipment, this Lease and the sums due under this Lease without
the signature of Lessee or signed by Lessor or any assignee of Lessor as
attorney-in-fact for Lessee. Lessee will pay all costs of filing any financing,
continuation or termination statements with respect to this Lease including,
without limitation, any documentary stamp taxes relating thereto. Lessee will do
whatever may be necessary to have a statement of the interest of Lessor and any
assignee of Lessor in the Equipment noted on any certificate of title relating
to the Equipment and will deposit said certificate with Lessor or such assignee.
Lessee shall execute and deliver to Lessor upon request such other instruments
and assurances as Lessor deems necessary or advisable for the implementation,
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effectuation, confirmation or perfection of this Lease and any rights of Lessor
hereunder.
14. NON-WAIVER. No course of dealing between Lessor and Lessee or
any delay or omission on the part of Lessor in exercising any rights hereunder
shall operate as a waiver of any rights of Lessor. A waiver on any one occasion
shall not be construed as a bar to or waiver of any right or remedy on any
future occasion. No waiver or consent shall be binding upon Lessor unless it is
in writing and signed by Lessor. To the extent permitted by applicable law,
Lessee hereby waives the benefit and advantage of, and covenants not to assert
against Lessor, any valuation, inquisition, stay, appraisement, extension or
redemption laws now existing or which may hereafter exist which, but for this
provision, might be applicable to any sale or re-leasing made under the
judgment, order or decree of any court or under the powers of sale and
re-leasing conferred by this Lease or otherwise. To the extent permitted by
applicable law, Lessee hereby waives any and all rights and remedies conferred
upon a Lessee by Article 2A-508 through 2A-522 of the Uniform Commercial Code,
including but not limited to Lessee's rights to: (i) cancel this Lease; (ii)
repudiate this Lease; (iii) reject the Equipment; (iv) revoke acceptance of the
Equipment; (v) recover damages from Lessor for any breaches of warranty or for
any other reason; (vi) claim a security interest in the Equipment in Lessee's
possession or control for any reason; (vii) deduct all or any part of any
claimed damages resulting from Lessor's default, if any, under this Lease;
(viii) accept partial delivery of the Equipment; (ix) "cover" by making any
purchase or lease of or contract to purchase or lease Equipment in substitution
of Equipment identified to this Lease; (x) recover any general, special,
incidental, or consequential damages, for any reason whatsoever; and (xi)
specific performance, replevin, detinue, sequestration, claim, delivery or the
like for any Equipment identified to this Lease. To the extent permitted by
applicable law, Lessee also hereby waives any rights now or hereafter conferred
by statute or otherwise which may require Lessor to sell, lease or otherwise use
any Equipment in mitigation of Lessor's damages as set forth in Section 11 or
which may otherwise limit or modify any of Lessor's rights or remedies under
Section 11.
15. ENTIRE AGREEMENT; SEVERABILITY; ETC. This instrument and the
Rental Schedules (including the Equipment Schedules and Amortization Schedules
thereto) constitute the entire agreement between Lessor and Lessee relating to
the Equipment and all conversations, agreements or representations relating to
this Lease or to the Equipment are integrated herein. Lessee acknowledges and
agrees that neither the manufacturer, supplier, shipper, dealer or vendor
("Supplier") nor any salesman, representative or other agent of Supplier, is an
agent of Lessor. No salesman, representative or agent of Supplier is authorized
to bind Lessor or to waive or alter any term of condition to this Lease and no
representation as to the Equipment or any other matter by a Supplier shall in
any way affect Lessee's duty to pay Rental and perform its other obligations as
set forth in this Lease. If any provision hereof or any remedy herein provided
for shall be invalid under applicable law, such provision or remedy shall be
inapplicable and deemed omitted, but the remaining provisions and remedies
hereunder shall be given effect in accordance with the intent hereof. Neither
this Lease nor any term hereof may be changed, discharged, terminated or waived
except by an instrument in writing signed by the party against which enforcement
of the change, discharge, termination or waiver is sought. THIS LEASE SHALL BE
DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK BY VIRTUE OF LESSOR HAVING
SIGNED AND ACCEPTED THIS LEASE IN THE STATE OF NEW YORK, REGARDLESS OF THE ORDER
IN WHICH THE SIGNATURES OF THE PARTIES SHALL BE AFFIXED HERETO, SHALL BE DEEMED
TO BE PERFORMED IN THE STATE OF NEW YORK AND SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS
OF LAW OR CHOICE OF LAW, AND AS PART OF THE CONSIDERATION OF THE LESSOR
EXECUTING THIS LEASE, LESSEE HEREBY AGREES THAT ALL ACTIONS OR PROCEEDINGS
ARISING DIRECTLY OR INDIRECTLY FROM THIS LEASE SHALL BE LITIGATED ONLY IN COURTS
HAVING SITUS WITHIN THE STATE OF NEW YORK AND LESSEE HEREBY CONSENTS TO THE
JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF
NEW YORK AND WAIVES THE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE LESSEE
HEREIN, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED
8
<PAGE> 9
MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE LESSEE AT THE ADDRESS SHOWN ON
THE FACE HEREOF AND SERVICE SO MADE SHALL BE COMPLETE TWO (2) DAYS AFTER THE
SAME SHALL HAVE BEEN POSTED AS AFORESAID. LESSEE HEREBY WAIVES ANY RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY MATTER ARISING UNDER OR IN CONNECTION WITH THIS
LEASE. The captions in this Lease are for convenience for reference only and
shall not define or limit any of the terms or provisions hereof. This Lease
shall inure to the benefit of and be binding upon Lessor and Lessee and their
respective successors and assigns, subject, however, to the limitations set
forth in this Lease with respect to Lessee's assignment hereof. No right or
remedy referred to in this Lease is intended to be exclusive but each shall be
cumulative and in addition to any other right or remedy referred to in this
Lease or otherwise available to Lessor at law or in equity, and shall be in
addition to the provisions contained in any instrument referred to herein and
any instrument in supplement hereto. TIME IS OF THE ESSENCE WITH RESPECT TO THE
OBLIGATIONS OF LESSEE UNDER THIS LEASE.
16. NO PREPAYMENT; INTEREST. Lessee may not prepay this Lease, in
whole or in part, at any time. However, in the event Lessor declares all rents
and other amounts payable hereunder to be due and payable pursuant to paragraph
11 above, Lessee shall, upon demand, be required to pay the full amount demanded
pursuant to said paragraph 11. All amounts due and payable under this Lease
(including past due installments of rent) shall bear interest from and after
their respective due dates, at the lesser of one and one-half (1.5%) per month
or the highest rate permitted by applicable law, provided, however, that Lessee
shall have no obligation to pay any interest on interest except to the extent
permitted by applicable law.
17. NOTICES. Notices hereunder shall be deemed given if served
personally or by certified or registered mail, return receipt requested, to
Lessor and Lessee at their respective addresses set forth at the head of this
Lease. Any party hereto may from time to time by written notice to the other
change the address to which notices are sent to such party.
18. NO PURCHASE OPTION. Except as may be provided in a purchase
option agreement executed by Lessor and Lessee with regard to a Rental Schedule,
Lessee shall have no option to purchase or otherwise acquire title to or
ownership of any of the Equipment and shall have only the right to use the same
under and subject to the terms and provisions of this Lease.
IN WITNESS WHEREOF, Lessor and Lessee by their duly authorized
representatives have executed this Master Lease of Personal Property as of the
date set forth below.
AUDIONET, INC. CHARTER FINANCIAL, INC.
By: /s/ JACK RIGGS By: /s/ TODD SPENER
-------------------------- -------------------------
Title: CFO Title: Vice President
-------------------------- -------------------------
Date: April 15, 1998 Accepted On: April 27, 1998
-------------------------- -------------------
9
<PAGE> 1
EXHIBIT 10.17
IMPERIAL BANK
MEMBER FDIC
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
This Agreement is entered into between AUDIONET INC., a Delaware corporation
therein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided make loans to Borrower from time to time in such amounts as may be
determined by Bank up to, but not exceeding in the aggregate unpaid
principal balance, the following Borrowing Base:
80% of Eligible Accounts
and in no event more than $1,000,000.00
2. The amount of each loan made by Bank to Borrower hereunder shall be debited
to the loan ledger account of Borrower maintained by Bank (herein called
"Loan Account") and Bank shall credit the Loan Account with all loan
repayments made by Borrower. Borrower promises to pay Bank (a) the unpaid
balance of Borrower's Loan Account [RIDER 2(i)] and (b) on or before the
tenth day of each month, interest on the average daily unpaid balance of
the Loan Account during the immediately preceding month at the rate of
one-quarter percent (.250) per annum in excess of the rate of interest
which Bank has announced as its prime lending rate ("Prime Rate") which
shall vary concurrently with a change in such Prime Rate. Interest shall
be computed at the above rate on the basis of the actual number of days
during which the principal balance of the loan account is outstanding
divided by 360, which shall for interest computation purposes be
considered one year. Such notice may be given verbally in writing and
should be effective upon receipt by Borrower. The amount of interest
payable each month by Borrower shall not be less than a minimum monthly
charge of $ 0.00 . Bank is hereby authorized to charge Borrower's
deposit account(s) with Bank for all sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by Borrower
in a form satisfactory to Bank and shall contain a certification setting
forth matters referred to in Section 1, which shall disclose that Borrower
is entitled to the amount of loan being requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or leased, or to
be sold or to be leased, or for services rendered or to be rendered no
matter how evidenced, including accounts receivable, contract rights,
chattel paper, instruments, purchase orders, notes, drafts,
acceptances, general intangibles and other forms of obligations and
receivables.
B. "Collateral" means any and all personal property of Borrower which is
assigned or hereafter is assigned to Bank as security or in which Bank
now has or hereafter acquires a security interest.
C. "Eligible Accounts" means all of Borrower's Accounts excluding [RIDER
4.C.(i)].
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and
security therefore and hereby grants to Bank a continuing security
interest in all moneys in the Collateral Account referred to in Section 6
hereof, as security for any and all obligations of Borrower to Bank,
whether now owing or hereafter incurred and whether direct, indirect,
absolute or contingent. So long as Borrower is indebted to Bank or Bank is
committed to extend credit to Borrower, Borrower will execute and deliver
to Bank such assignments, including Bank standard forms of Specific or
General Assignment covering individual Accounts, notices, financing
statements, and other documents and papers as Bank may require in order to
affirm, effectuate or further assure the assignment to Bank of the
Collateral or to give any third party, including the account debtors
obligated on the Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10. Borrower will collect with diligence all Borrower's Accounts,
providing that no legal action shall be maintained thereon or in connection
therewith without Bank's prior written consent. Any collection of Accounts
by Borrower, whether in the form of cash, checks, notes, or other
instruments for the payment of money (properly endorsed or assigned where
required to enable Bank to collect same), shall be in trust for Bank, and
Borrower shall keep all such collections separate and apart from all other
funds and property so as to be capable of identification as the property of
Bank and deliver said collections daily to Bank in the identical form
received. The proceeds of such collections when received by Bank may be
applied by Bank directly to the payment of Borrower's Loan Account or any
other obligation secured hereby. Any credit given by Bank upon receipt of
said proceeds shall be conditional credit subject to collection. Returned
items at Bank's option may be charged to Borrower's general account. All
collections of the Accounts shall be set forth on an itemized schedule,
showing the name of the account debtor, the amount of each payment and such
other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts pursuant to
paragraph 10, Borrower may continue its present policies with respect to
returned merchandise and adjustments. However, Borrower shall immediately
notify Bank of all cases involving [RIDER 7(i)] returns, repossessions, and
loss or damage of or to merchandise represented by the Accounts and of any
credits, adjustments or disputes arising in connection with the goods or
services represented in the Accounts and, in any of such events, Borrower
will immediately pay to Bank from its own funds (and not from the proceeds
of accounts or inventory) for application to Borrower's Loan Account or any
other obligation secured hereby the amount of any credit for such returned
or repossessed merchandise and adjustments made to any of the Accounts.
8. Borrower represents and warrants to Bank: (i) If Borrower is a corporation,
that Borrower is duly organized and existing in the State of its
incorporation and the execution, delivery and performance hereof are
within Borrower's corporate powers, have been duly authorized and are not
in conflict with laws or the terms of any charter, by-law or other
incorporation papers, or of any indenture, agreement or undertaking to
which Borrower is a party or by which Borrower is found or affected; (ii)
Borrower is, or at the time the collateral becomes subject to Bank's
security interest will be, the true and lawful owner of and has, or at the
time the Collateral becomes subject to Bank's security interest will have,
good and clear title to the Collateral, subject only to Bank's rights
therein; (iii) Each Account is, or at the time the Account comes into
existence will be, a true and correct statement of a bona fide
indebtedness incurred by the debtor named therein in the amount of the
Account for either merchandise sold or delivered (or being held subject to
Borrower's delivery instructions) to, or services rendered, performed and
accepted by, the account debtor; (iv) That there are or will be no defense
counterclaims, or setoffs which may be asserted against the Accounts; and
(v) any and all financial information, including information relating to
the Collateral, submitted by Borrower to Bank, whether previously or in
the future, is or will be true and correct.
Page 1 of 2
<PAGE> 2
9. Borrower will: (i) Furnish Bank such financial statements and information
[RIDER 9(i)]; (iii) [RIDER 9(ii)] Permit representatives of Bank to inspect
the Borrower's books and records relating to the Collateral and make
extracts therefrom at any reasonable time and to arrange for verification
of the Accounts, under reasonable procedures, acceptable to Bank, directly
with the account debtors or otherwise at Borrower's expense; (iv) Promptly
notify Bank of any attachment or other legal process leveled against any of
the Collateral and any information received by Borrower relative to the
Collateral including the Accounts, the account debtors or other persons
obligated in connection therewith, which may in any way affect the value of
the Collateral or the rights and remedies of Bank in respect thereto; (v)
Reimburse Bank upon demand for any and all legal costs, including
reasonable attorney's fees and other expense incurred in collecting any
sums payable by Borrower under Borrower's Loan Account or any other
obligation secured hereby enforcing any term or provision of this Security
Agreement or otherwise or in the checking, handling and collection of the
Collateral and the preparation and enforcement of any agreement relating
thereto; (vi) Notify Bank of each location and of each office of Borrower
at which records of Borrower relating to the Accounts are kept; (vii)
Provide, maintain and deliver to Bank policies insuring the Collateral
against loss or damage by such risks and such amounts, forms and companies
as Bank may require and with loss payable solely to Bank, and, in the event
Bank takes possession of the Collateral the insurance policy or policies
and any unearned or returned premium thereon shall at the option of Bank
become the sole property of Bank, such policies and the proceeds of any
other insurance covering or in any way relating to the Collateral, whether
now in existence or hereafter obtained, being hereby assigned to Bank;
(viii) in the event the unpaid balance of Borrower's Loan Account shall
exceed the maximum amount of outstanding loans which Borrower is entitled
under Section 1 hereof, Borrower shall immediately pay to Bank, from its
own funds and not from the proceeds of Collateral for credit to Borrower's
Loan Account the amount of such excess.
10. [RIDER 10(i)] Bank may at any time, without prior notice to Borrower,
collect the Accounts and may give notice of assignment to any and all
account debtors, and Borrower does hereby make, constitute and appoint Bank
its irrevocable, true and lawful attorney with power to receive, open and
dispose of all mail addressed to Borrower, to endorse the name of Borrower
upon any checks or other evidences of payment that may come into the
possession of Bank upon the Accounts to endorse the name of the undersigned
upon any document or instrument relating to the Collateral; in its name or
otherwise, demand, sue for, collect and give acquittances for any and all
moneys due or to become due upon the Accounts; to compromise, prosecute or
defer any action, claim or proceeding with respect thereto; and to do any
and all things necessary and proper to carry out the purpose herein
contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank, or
execute any financing statements covering the Collateral in favor of any
secured party or person other than Bank.
12. Should: (i) Default. [RIDER 12(i)], Bank may, at its option and without
demand first made and without notice to Borrower, do any one or more of the
following: (a) Terminate its obligation to make loans to Borrower as
provided in Section 1 hereof; (b) Declare all sums secured hereby
immediately due and payable; (c) immediately take possession of the
Collateral wherever it may be found, using all necessary force so to do, or
require Borrower to assemble the Collateral and make it available to Bank
at a place designated by Bank which is reasonably convenient to Borrower
and Bank, and Borrower waives all claims for damages due to or arising from
or connected with any such taking; (d) Proceed in the foreclosure of Bank's
security interest and sale of the Collateral in any manner permitted by
law, or provided for herein; (e) Sell, lease or otherwise dispose of the
Collateral at public or private sale, with or without having the Collateral
at the place of sale, and upon terms and in such manner as Bank may
determine, and Bank may purchase same at any such sale; (f) Retain the
Collateral in full satisfaction of the obligations secured thereby; (g)
Exercise any remedies of a secured party under the Uniform Commercial
Code. Prior to any such disposition, Bank may, at as option, cause any of
the Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by Bank
shall be repaid by Borrower and secured hereby. Bank shall have the right
to enforce one or more remedies hereunder successively or concurrently, and
any such action shall not estop or prevent Bank from pursuing any further
remedy which it may have hereunder or by law. If a sufficient sum is not
realized from any such disposition of Collateral to pay all obligations
secured by this Security Agreement. Borrower hereby promises and agrees to
pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process be
issued against any property of Borrower, or if any assessment for taxes
against Borrower, other than real property, is made by the Federal or State
government or any department thereof, the obligation of Bank to make loans
to Borrower as provided in Section 1 hereof shall immediately terminate and
the unpaid balance of the Loan Account, all other obligations secured
hereby and all other sums due hereunder shall immediately become due and
payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transaction contemplated herein at any time subsequent
to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: Subject to the Conditions, Restrictions and
Limitations contained in the Credit Terms and Conditions dated November 18,
1997. See attached Reference Provision. A default under any obligation of
the undersigned to Bank shall be a default hereunder. In the event of a
conflict between this agreement and the commitment letter dated October 22,
1997, the terms of the Commitment letter shall supersede the terms of this
agreement.
Executed this 15th day of December, 1997
AUDIONET INC. a Delaware Corporation
---------------------------------------------
(Name of Borrower)
IMPERIAL BANK BY: /s/ JACK RIGGS CFO
------------------------------------------
(Authorized Signature and Tile)
BY: /s/ TONY SCHELL Asst. VP BY:
----------------------------- ------------------------------------------
Title (Authorized Signature and Title)
<PAGE> 3
RIDERS TO SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE)
BY AUDIONET, INC.
IN FAVOR OF IMPERIAL BANK
DATED AS OF DECEMBER 15, 1997
RIDER 2(i): at the earlier of an event of default or maturity of the loan.
RIDER 4.C.(i): the accounts designated as excluded in paragraph 5.A. of the
Commitment Letter dated October 22, 1997 executed by Bank and
Borrower and such other accounts as Bank reasonably determines
should be excluded.
RIDER 7(i): material
RIDER 9(i): pursuant to paragraph 4 of the Credit Terms & Conditions dated
December 15, 1997 (hereafter referred to as "CTC"); (ii) Furnish
Bank periodically, in such form and detail and at such times as
Bank may require, statements showing aging and reconciliation of
the Accounts and collections thereon
RIDER 9(ii): per paragraph 6.A. of the Commitment Letter dated 22, 1997
executed by Bank and Borrower,
RIDER 10(i): Upon Default (as defined in the CTC),
RIDER 12(i): (as defined in the CTC)
<PAGE> 1
EXHIBIT 10.18
[IMPERIAL BANK LOGO]
MEMBER FDIC
NOTE
$1,500,000.00 San Jose, California, December 15, 1997
On December 15, 2000, and as hereinafter provided, for value received, the
undersigned promises to pay to IMPERIAL BANK ("Bank"), a California banking
corporation, or order, at its Santa Clara Valley Regional office, the principal
sum of $1,500,000.00 MAXIMUM or such sums up to the maximum if so stated, as
the Bank may now or hereafter advance to or for the benefit of the undersigned
in accordance with the terms hereof, together with interest from date
of disbursement or N/A, whichever is later, on the unpaid principal balance [ ]
at the rate of _____ % per year [X] at the rate of 0.250% per year in excess of
the rate of interest which Bank has announced as its prime lending rate (the
"Prime Rate"), which shall vary concurrently with any change in such Prime
Rate, or $0.00, whichever is greater. Interest shall be computed at the above
rate on the basis of the actual number of days during which the principal
balance is outstanding, divided by 360, which shall, for interest computation
purposes, be considered one year.
Interest shall be payable [X] monthly [ ] quarterly [ ] included with principal
[X] in addition to principal [ ] beginning January 30, 1998, and if not so paid
shall become a part of the principal. All payments shall be applied first to
interest and the remainder, if any, on principal. [X] (if checked), Principal
shall be payable in installments of $ *, or more, each installment on the 30th
day of each month, beginning January 30, 1999. Advances not to exceed any
unpaid balance owing at any one time equal to the maximum amount specified
above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should [Rider (i)] or demand, the entire balance of
principal and accrued interest then remaining unpaid shall (a) become
immediately due and payable, and (b) thereafter bear interest, until paid in
full, at the increased rate of 5% per year in excess of the rate provided for
above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the maker(s)
to pay principal or interest when due; the filing as to each person obligated
hereon, whether as maker, co-maker, endorser or guarantor (individually or
collectively referred to as the "Obligor") of a voluntary or involuntary
petition under the provisions of the Federal Bankruptcy Act; the issuance of
any attachment or execution against any asset of any Obligor; the death of any
Obligor, or any deterioration of the financial condition of any Obligor which
results in the holder hereof considering itself, in good faith, insecure.
[X] If any installment payment or principal balance payment due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the amount
of 5% of the payment so due and unpaid, in addition to the payment; but nothing
in this paragraph is to be construed as any obligation on the part of the
holder of this note to accept payment of any installment past due or less than
the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all costs
and expenses of collection and reasonable attorney's fees incurred by the
holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute of
limitations. Any married person who signs this note agrees that recourse may
be had against separate property for any obligations hereunder. The
indebtedness evidenced hereby shall be payable in lawful money of the United
States. In any action brought under or arising out of this note, each Obligor,
including successor(s) or assign(s) hereby consents to the application of
California law, to the jurisdiction of any competent court within the State of
California, and to service of process by any means authorized by California
law.
No single or partial exercise of any power hereunder, or under any deed of
trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder hereof
in exercising any right hereunder, or under any deed of trust, security
agreement or other agreement, shall not operate as a waiver of such right, or
of any other right, under this note or any deed of trust, security agreement or
other agreement in connection herewith.
* See attached Addendum and Reference Provision.
AUDIONET INC., a Delaware Corporation
- ----------------------------------- -------------------------------------
BY: /s/ JACK RIGGS CFO
- ----------------------------------- -------------------------------------
- ----------------------------------- -------------------------------------
<PAGE> 2
RIDER TO NOTE
BY AUDIONET, INC.
IN FAVOR OF IMPERIAL BANK
DATED AS OF DECEMBER 15, 1997
Rider (i): Default occur (as defined in the CTC mentioned below)
<PAGE> 3
ADDENDUM TO NOTE
DATED DECEMBER 15, 1997
A) For new equipment to be purchased, there will be a draw-down period
through December 15, 1998; at the end of each calendar quarter,
beginning March 31, 1998, and each calendar quarter-end thereafter,
any amount advanced during that quarter shall be converted to a fully
amortizing loan, payable in 24 equal monthly payments of principal
plus accrued interest. Until December 15, 1998, any advances not being
amortized shall require interest only payment.
B) For equipment existing on the date hereof, there will be a three (3)
month drawdown period during which interest only is payable;
thereafter, any amount advanced during the period shall be converted
to a fully amortizing loan, payable in 24 equal monthly payments of
principal plus accrued interest.
Monthly payments of interest to commence January 30, 1998. All principal and
accrued but unpaid interest shall in any event be due and payable on December
15, 2000.
A default under any obligation of the undersigned to Bank shall be a default
hereunder. Subject to the Conditions, Restrictions and Limitations contained in
the Credit Terms and Conditions (hereafter referred to as "CTC") dated December
15, 1997. In the event of a conflict between this Note and the Commitment Letter
dated Oct. 22, 1997, the Commitment Letter shall supersede the terms of this
Note.
AUDIONET, INC. a Delaware Corporation
BY: /s/ JACK RIGGS, CFO
------------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated February 1, 1998,
relating to the financial statements of broadcast.com inc. which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the period from inception (May 19, 1995) to December 31,
1995, and the two years ended December 31, 1997, listed under Item 16(b) of this
Registration Statement, when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule. We also consent to the references to us
under the headings "Experts" and "Selected Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
Dallas, Texas
May 15, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-01-1998
<CASH> 22,400,176
<SECURITIES> 0
<RECEIVABLES> 2,448,561
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,283,905
<PP&E> 5,287,770
<DEPRECIATION> 1,998,515
<TOTAL-ASSETS> 30,134,474
<CURRENT-LIABILITIES> 1,828,482
<BONDS> 0
0
0
<COMMON> 89,835
<OTHER-SE> 28,216,157
<TOTAL-LIABILITY-AND-EQUITY> 30,134,474
<SALES> 3,175,944
<TOTAL-REVENUES> 3,175,944
<CGS> 1,224,957
<TOTAL-COSTS> 4,948,503
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (275,066)
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