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Filed with the Securities and Exchange Commission on November 24, 1999
Registration No. 333-[ ]
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BROADBAND SPORTS, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 7375 95-4673805
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1640 South Sepulveda Boulevard, Suite 500
Los Angeles, California 90025
(310) 996-0067
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
Richard D. Nanula
Chairman of the Board and Chief Executive Officer
Broadband Sports, Inc.
1640 South Sepulveda Boulevard, Suite 500
Los Angeles, California 90025
(310) 882-7577
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications to be sent to:
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Peter E. Williams III, Esq. Kenneth L. Guernsey, Esq.
Victor H. Sim, Esq. L. Kay Chandler, Esq.
Maile Y. C. Yang, Esq. Michael W. Hauptman, Esq.
MORRISON & FOERSTER LLP Cecilia M. Mao, Esq.
755 Page Mill Road COOLEY GODWARD LLP
Palo Alto, California 94304 One Maritime Plaza, 20th Floor
(650) 813-5600 San Francisco, California 94111
(415) 693-2000
</TABLE>
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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 in 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
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CALCULATION OF REGISTRATION FEE
======================================================================================================
Proposed
Maximum Amount of
Title of each class of Aggregate Registration
securities to be registered Offering Price(2) Fee(2)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($0.001 par value)(1)................. $46,000,000 $12,788(3)
======================================================================================================
</TABLE>
(1) Includes shares that the underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act.
(3) $11,120 previously paid.
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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 that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
===============================================================================
<PAGE>
PROSPECTUS (Subject to Completion)
Issued , 1999
Shares
BROADBAND SPORTS, INC.
COMMON STOCK
-----------
Broadband Sports, Inc. is offering shares of its common stock. This is our
initial public offering and no public market currently exists for our shares.
We anticipate that the initial public offering price will be between $
and $ per share.
We have requested that the underwriters reserve up to shares of common
stock from the underwritten offering to be offered at the public offering price
to certain persons designated by us. See "Underwriters."
-----------
We have applied to have the shares of common stock approved for quotation on
the Nasdaq National Market under the symbol "BBND".
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 8.
-----------
PRICE $ A SHARE
-----------
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Underwriting
Price to Discounts and Proceeds to
Public Commissions Broadband Sports
-------- ------------- ----------------
<S> <C> <C> <C>
Per Share............................... $ $ $
Total................................... $ $ $
</TABLE>
Broadband Sports has granted the underwriters the right to purchase up to an
additional shares of common stock to cover over-allotments.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers
on , 1999.
-----------
MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
SG COWEN
, 1999
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
[Screen shots of various Broadband Sports web sites]
2
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TABLE OF CONTENTS
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Page
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Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Special Note Regarding Forward-Looking Statements........................ 26
Use of Proceeds.......................................................... 27
Dividend Policy.......................................................... 27
Capitalization........................................................... 28
Dilution................................................................. 29
Selected Consolidated and Combined Financial Data........................ 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 31
</TABLE>
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Page
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Industry Background........................................................ 43
Broadband Sports........................................................... 45
Management................................................................. 68
Certain Transactions....................................................... 76
Principal Stockholders..................................................... 77
Description of Capital Stock............................................... 79
Shares Eligible for Future Sale............................................ 83
Underwriters............................................................... 85
Legal Matters.............................................................. 87
Experts.................................................................... 87
Additional Information..................................................... 87
Index to Financial Statements.............................................. F-1
</TABLE>
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You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of our common stock only in jurisdictions where offers and sales
are permitted. The information contained in this prospectus is accurate only
as of the date of this prospectus, regardless of the time of delivery of this
prospectus or any sale of our common stock.
In this prospectus, "Broadband Sports," "we," "us," and "our" refer to
Broadband Sports, Inc. and our wholly-owned subsidiaries, and not to the
underwriters.
Unless otherwise stated, all information in this prospectus:
. gives effect to a 20-for-1 stock split, which was effective on December
4, 1998;
. assumes the redemption upon the closing of this offering of all of our
outstanding series A preferred stock for approximately $2.3 million;
. assumes the conversion of our outstanding shares of series C preferred
stock and our outstanding shares of series B preferred stock into an
aggregate of 47,666,663 shares of common stock;
. assumes the issuance of 30,389,809 shares of common stock to our Chief
Executive Officer in November 1999.
. assumes the effectiveness prior to the closing of this offering of an
amendment to our certificate of incorporation providing for (i) an
authorized capital of 75,000,000 shares of common stock and 5,000,000
shares of preferred stock and (ii) a 1-for- reverse stock split of the
outstanding common stock; and
. assumes no exercise of the underwriters' over-allotment option.
Until , 2000, 25 days after commencement of this offering, all dealers
that buy, sell or trade our common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This delivery requirement
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
References to and information contained on our Web sites do not constitute
part of this prospectus.
ATHLETE DIRECT is a registered United States service mark of Athlete Direct,
Inc., a wholly-owned subsidiary of Broadband Sports. ATHLETE DIRECT, BROADBAND
SPORTS, COLLEGE SPORTS XCHANGE, CSX, PRO SPORTS XCHANGE, PSX, ROTONEWS, THE
WRITER NETWORK, SPORTSAUTHENTICS.COM, WHERE ATHLETES AND FANS INTERACT and the
PSX, Athlete Direct, RotoNews and Broadband Sports Logos are also trademarks
and service marks of Broadband Sports. All other brand names and trademarks
appearing in this prospectus are the property of their respective holders.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our Consolidated and Combined Financial Statements and Notes to
Consolidated and Combined Financial Statements appearing elsewhere in this
prospectus.
BROADBAND SPORTS
Broadband Sports is a leading Internet provider of original content and
commerce for hundreds of individual sports communities. These geographically
dispersed communities are composed of fans who follow individual sports, teams
and athletes and are characterized by a passionate demand for content and
commerce relating to their particular interests. In aggregate, these sports
communities generated over $130 billion in revenue according to the most
recently published study from the Georgia Institute of Technology. We believe
that we are well positioned to target these communities through our development
of distinct online media properties, each of which is built around a set of
proprietary assets. By leveraging these proprietary assets, we have created a
unique and compelling network of content, community and commerce offerings.
Through our partnerships with AOL, eBay, Fox, uBid, and Yahoo!, we are able to
efficiently reach these various communities with the type of content and
commerce offerings they demand and derive revenue from multiple sources. During
October 1999, we had over 35 million page impressions across our properties.
To date, we have developed four online media properties:
. Athlete Direct--Athlete Direct is a leading provider of athlete Web
sites. We currently have contracts with more than 200 athletes that
provide us with certain exclusive online rights, and we operate the
official sites for athletes such as:
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Troy Aikman Ken Griffey, Jr. Dennis Rodman
Drew Bledsoe Tony Gwynn Keith Van Horn
Barry Bonds Mia Hamm Michael Waltrip
Kobe Bryant Anna Kournikova Bernie Williams
Brett Favre Karl Malone Ricky Williams
Sergei Fedorov Mike Piazza Steve Young
</TABLE>
We create Web sites offering unique content and contextually relevant
commerce relating to each of our athletes. Our athletes provide
interactive content and authentic e-commerce opportunities that are not
readily available elsewhere. In addition, these characteristics enable
Athlete Direct to create vibrant communities where fans can interact with
each other. By aggregating numerous athlete sites under one network,
Athlete Direct can consistently provide fans with new, original content
and commerce.
. Pro Sports Xchange and College Sports Xchange--Pro Sports Xchange (PSX)
and its collegiate division, College Sports Xchange (CSX), are leading
sources of in-depth team and player information online. PSX covers all
MLB, NFL, NBA and NHL sports teams and players and CSX covers every
Division I college football and basketball team. Each of these
communities is seeking the latest and best inside information, which is
not readily available through other online or offline media outlets. PSX
is able to provide up-to-date information through its
4
<PAGE>
network of over 270 local and regional sports writers, all of whom are
under contract to provide us with exclusive online content.
. RotoNews--RotoNews is a leading online fantasy sports site offering
proprietary news, games and statistical and commissioner services.
Because participants invest significant time learning league rules,
becoming familiar with the user interface and personalizing their site by
entering specific league and player information, we believe that RotoNews
creates significant user loyalty and generates frequent visits of
extended duration.
. SportsAuthentics.com--SportsAuthentics.com is an Internet retailer of
sports collectibles and merchandise. We address the limitations of the
current distribution channels by providing team and athlete products to fans
outside of their local markets and authentic, player/team endorsed products.
We are also able to offer unique products which are available exclusively
through SportsAuthentics.com.
We syndicate our distinctive sports content to various distribution partners,
including AOL, eBay, Fox Sports, uBid, and Yahoo!. Together, the distribution
of our content and products across multiple platforms enables us to effectively
target numerous sports communities, increase brand awareness, promote our
product offerings and generate revenues from multiple sources.
Our properties enable us to derive revenue from multiple sources, including:
. Content syndication. The majority of Internet companies pay significant
fees to distribute their content and product offerings online. By
contrast, the distinctiveness and in-depth analysis of our content has
enabled us to receive significant syndication fees from our distribution
partners, such as AOL, Fox Sports and Yahoo!.
. Advertising. We offer advertisers the opportunity to target the
attractive demographic of sports enthusiasts and associate their brands
with high-profile athletes and sports personalities.
. Electronic Commerce. We offer sports fans an easy-to-use environment for
purchasing authentic player and team related merchandise and
collectibles.
. Subscription. We offer subscriptions to premium content offerings such as
My Baseball Daily, to provide in-depth, original information about teams
and players that is generally not available through traditional media
sources.
In creating and delivering our original content and commerce to distinct
sports communities, we obtain efficiencies across our various sports media
properties through the common use of our proprietary assets, distribution and
technology. We believe we can continue to leverage aspects of our existing
assets, distribution and technology to assist in the development of new
properties focused on different sports communities.
----------------
We are a Delaware corporation. Our principal executive offices are located at
1640 South Sepulveda Boulevard, Suite 500, Los Angeles, California 90025, and
our telephone number is (310) 882-7577.
5
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THE OFFERING
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Common stock offered................................ shares
Common stock to be outstanding after this offering.. shares(1)
Use of proceeds..................................... To repay outstanding indebtedness of
approximately $4.5 million, to redeem
outstanding shares of series A preferred
stock for $2.3 million, and for general
corporate purposes, including the
continued development of our Web sites,
the enhancement of our technology
infrastructure, the expansion into other
markets and working capital. We may use
a portion of the net proceeds to acquire
or invest in complementary businesses,
technologies, assets or products. See
"Use of Proceeds."
Proposed Nasdaq National Market symbol.............. BBND
</TABLE>
- --------------------
(1) Outstanding share information includes 22,801,365 shares of restricted
common stock and excludes: (a) an aggregate of 35,294,117 shares of common
stock reserved for issuance under our stock option plans, of which options
to purchase 29,700,989 shares of common stock were outstanding as of
November 15, 1999 at a weighted average price of $ per share, assuming
a public offering price of $ ; and (b) warrants to purchase 504,582
shares of common stock at a weighted average price of $0.69 per share. The
number of shares of common stock to be outstanding is based on the number
of shares outstanding on November 15, 1999.
6
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SUMMARY CONSOLIDATED AND COMBINED FINANCIAL INFORMATION
The summary consolidated and combined financial data presented below are
derived from our financial statements included at the end of this prospectus.
The pro forma balance sheet data below reflect the issuance of 30,389,809
shares of common stock to our Chief Executive Officer in November 1999, the
issuance of 18,500,000 shares of series C preferred stock in November 1999 and
the conversion of these shares and our outstanding shares of series B preferred
stock into an aggregate of 47,666,663 shares of common stock upon the closing
of this offering. The pro forma as adjusted balance sheet data reflect the
application of net proceeds from the sale of our common stock in this offering
at an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and estimated offering
expenses, the repayment of outstanding indebtedness of approximately
$4.5 million upon the closing of this offering, and the redemption of the
outstanding mandatorily redeemable series A preferred stock for $2.3 million
upon the closing of this offering. See "Use of Proceeds" and "Capitalization."
<TABLE>
<CAPTION>
Predecessor Companies Broadband Sports
----------------------------- and Predecessor Broadband
Period Companies(1) Sports, Inc.
February 1, 1996 -------------------------- -------------
(inception) Nine Months Nine Months
Through Year Ended Year Ended Ended Ended
December 31, December 31, December 31, September 30, September 30,
1996 1997 1998 1998 1999
---------------- ------------ ------------ ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated and
Combined Statement of
Operations:
Revenues................ $ 219 $1,874 $3,226 $2,415 $ 5,725
Gross profit............ (195) 574 894 714 1,913
Total operating
expenses............... 164 1,277 5,334 3,775 11,757
Loss from operations.... 359 703 4,440 3,061 9,844
Net loss................ 359 700 4,513 3,101 9,889
Historical loss per
share basic and
diluted (2)............ $ 0.05
Pro forma loss per share
basic and diluted (3).. $ 0.04
Weighted average common
and common equivalent
shares outstanding.....
Historical (2)........ 217,038
Pro forma (3)......... 246,204
</TABLE>
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<CAPTION>
As of September 30, 1999
----------------------------
Pro Forma
Actual Pro Forma As Adjusted
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(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.......................... $9,320 $27,153 $
Working capital.................................... 9,407 27,240
Total assets....................................... 15,409 33,242
Revolving loan due to stockholder.................. 4,468 4,468
Mandatorily redeemable preferred stock............. 2,285 2,285
Total stockholders' equity......................... 6,116 23,948
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(1) Broadband Sports was incorporated in February 1998 to combine Athlete
Direct, Inc. and Pro Sports Xchange, Inc. under common ownership. The
combined selected data for the year ended December 31, 1998 were derived by
combining the operating data of Athlete Direct and PSX for the two months
ended February 27, 1998 with the operating data of Broadband Sports for the
10 months ended December 31, 1998. The combined financial data for the nine
months ended September 30, 1998 were derived by combining the operating
data of the Predecessor Companies for the two months ended February 27,
1998 with the operating data of Broadband Sports for the seven months ended
September 30, 1998. Pro forma financial information has not been presented
for the year ended December 31, 1998 and the nine months ended September
30, 1999 because such information would not be materially different than
the combined financial data for the same periods. Required unaudited pro
forma condensed combined financial information is included elsewhere
herein.
(2) See notes to the consolidated and combined financial statements for an
explanation of the determination of the number of shares used in computing
basic and diluted per share amounts.
(3) Pro forma loss per share on a historical basis gives effect to the
redemption of the series A preferred stock and the issuance and conversion
of the series B preferred stock.
7
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RISK FACTORS
You should carefully consider the risks described below, together with all
of the other information included in this prospectus before making an
investment decision. If any of the following risks actually occurs, our
business, financial condition or operating results could be seriously
affected, the trading price of our common stock could decline, and you may
lose all or part of your investment.
Risks Related To Our Business
Because we have operated our business only for a short period of time, it is
difficult to evaluate our prospects
In 1998, Broadband Sports was incorporated for the purpose of combining
Athlete Direct and PSX. Athlete Direct and PSX each commenced operations in
1996 and first recognized revenues in that year. Because we have a limited
operating history, you should consider and evaluate our operating prospects in
light of the risks and difficulties frequently encountered by relatively new
companies, particularly companies in the rapidly evolving online industry.
These risks include our ability to do the following:
. provide compelling sports-related content and commerce;
. maintain existing and develop new relationships with athletes, sports
writers, sports personalities and agents, as well as distribution
partners and advertisers;
. publicly release and successfully market our www.athletedirect.com site;
. create an integrated back-end platform across all of our sports media
properties and upgrade the related technology infrastructure on a timely
basis;
. achieve projected levels of online traffic, particularly on our
www.athletedirect.com site;
. build an electronic commerce infrastructure and increase our fulfillment
capabilities; and
. further develop and extend our brands.
Our future growth will depend substantially on our ability to address these
risks and the other risks described below. We cannot assure you that we will
succeed in addressing any of these risks and, if we fail to address these
risks, our business would be adversely affected.
We have a history of losses and anticipate losses for the foreseeable future
We have incurred net losses in each quarterly and annual period since we
began operations. We incurred a net loss of $4.5 million on a combined basis
for the year ended December 31, 1998 and a net loss of $9.9 million for the
nine months ended September 30, 1999. As of September 30, 1999, we had an
accumulated deficit of $14.2 million. We expect to incur increasing net losses
and negative cash flows on a quarterly and annual basis in the foreseeable
future. We need to generate significant revenues to achieve profitability, and
we cannot assure you that our revenues will be sufficient to achieve this
goal. Although we have experienced growth in our revenues in recent periods,
these growth rates could decrease in the future and may not be sustainable at
all. We have incurred substantial costs to do the following:
. acquire, develop and enhance our assets and properties;
. create, introduce and enhance our content and product offerings;
8
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. acquire, develop and implement our technology infrastructure; and
. attract and retain qualified personnel.
We intend to continue these efforts and, in addition, to increase spending to
do the following:
. drive traffic to our current and future online sites;
. build an electronic commerce infrastructure and increase our fulfillment
capabilities;
. integrate all of our properties onto a common technological platform; and
. build awareness of our brands.
If our revenues grow more slowly than we anticipate or if our operating
expenses exceed our expectations, our business would be adversely affected.
Fluctuations in our operating results may adversely affect our stock price
Some of the factors that could cause our revenues and operating results to
fluctuate include the following:
. the addition or loss of significant distribution partners, advertisers or
athletes;
. the introduction by us or by our competitors of new sites, content and
products;
. positive or negative events or publicity concerning particular sports,
leagues, teams or athletes;
. the amount and timing of our capital expenditures and other costs related
to the expansion of our operations;
. seasonal trends in sporting events related to major U.S. sports seasons
and events and during the summer and year-end vacation and holiday
periods;
. changes in demand for, and availability of supply of, merchandise and
collectibles;
. a higher portion of our revenue mix being derived from advertising and
electronic commerce;
. amount and mix of merchandise and collectibles sold and advertisements
and sponsorships sold and displayed;
. technical difficulties or system downtime affecting the online medium
generally or on our online sites in particular; and
. general economic conditions, as well as economic conditions specific to
the online medium, electronic commerce, content syndication, online
advertising and the sports industry.
Many of our operating expenses are planned or committed in advance in
anticipation of future revenues, which are difficult to predict. If our
revenues in a particular quarter are lower than we anticipate, we may not be
able to reduce spending in that quarter. As a result, any shortfall in
revenues could adversely affect our operating results.
Because of these factors, we believe that historical and any period-to-
period comparisons of our operating results are not necessarily meaningful and
you should not view them as indicators of our future performance. If our
operating results in any period fall below the expectations of securities
analysts and investors, the market price of our shares would likely decline.
9
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We may experience difficulties and delays in the release and successful
marketing of our www.athletedirect.com site
To date, Athlete Direct has been available on the AOL proprietary platform
and, on a limited basis, the World Wide Web. Our future growth depends on our
ability to publicly release the www.athletedirect.com site on a timely basis.
We plan to publicly release the www.athletedirect.com site in the last quarter
of 1999. We cannot assure you that we will be successful in publicly releasing
and marketing the www.athletedirect.com site on a timely basis, if at all. We
do not currently have significant internal marketing resources and we do not
have significant experience in planning and executing the major marketing
initiative that we will need for the successful public release of the
www.athletedirect.com site. Further, we cannot assure you that, once released,
the www.athletedirect.com site will attract a significant level of traffic,
achieve market acceptance or be free from technical difficulties.
Our future growth depends on our relationships with our distribution
partners
We currently depend on our distribution partners, many of which are actual
or potential competitors of ours, for a significant portion of our revenues
and traffic. Accordingly, our future success depends on the success of these
relationships, and our ability to retain or renew our existing relationships
or to attract new relationships on a timely basis and on terms favorable to
us. Failure to do so could adversely affect our business. We also rely on the
technical infrastructure and cooperation of our partners to support the
delivery of our content and the sale of our electronic commerce products. Any
failure of the technical infrastructure of our partners or their lack of
cooperation could adversely affect our business. We have in the past and may
in the future enter into agreements with distribution partners that prohibit
us from entering into similar arrangements with other parties. These
exclusivity provisions may limit our ability to enter into favorable
arrangements with complementary businesses and thereby limit our growth. We
cannot assure you that we will achieve the strategic objectives of these
relationships or that any of our distribution partners will perform their
respective obligations as agreed. We may compete with our current and future
distribution partners which may have a material adverse effect on our
relations with our distribution partners.
To date, we have derived a significant portion of our revenues from a small
number of distribution partners. For example, revenues from AOL accounted for
approximately 46% of our revenues for the ten months ended December 31, 1998
and approximately 50% of our revenues in the first nine months of 1999. In
fiscal 1998, revenues from AOL, Fox Sports and Sportsline.com and, during the
first nine months of 1999, revenues from AOL and uBid each accounted for more
than 10% of our total revenues. We expect that a limited number of
distribution partners will continue to account for a significant percentage of
our revenues for the foreseeable future.
We need to continue to develop original content to attract our target
audience
Our future success depends on our ability to continue to develop original
content that is interesting and engaging to our target audience. If our
content does not reflect the preferences of our target audience, our traffic
could decrease or the demographic characteristics of our audience could
change. Either of these results would adversely affect our ability to
syndicate our content, sell subscriptions for premium content products,
conduct electronic commerce and attract advertisers. Our ability to develop
original content depends on several factors, including the following:
. acquiring and retaining online rights relating to athletes, sports
writers and sports personalities;
. the level and quality of participation of our athletes, sports writers
and sports personalities;
10
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. monitoring and adapting to changing consumer preferences;
. effectively integrating leading-edge technologies, including broadband
technologies; and
. the technical expertise and creativity of our production and content
staff.
We depend on athletes and other sports personalities to provide original
content to attract distribution partners, advertisers and traffic
We believe that our future success depends on our ability to maintain our
existing agreements, and to secure additional agreements with athletes and
sports personalities. Our business would be adversely affected by any of the
following:
. cancellations or non-renewal of these agreements or the renewal of these
agreements on terms less favorable to us;
. decreased participation by our athletes and sports personalities on our
online sites or failure of athletes to perform under their agreements
with us;
. poor performance of our athletes, or negative events or publicity
relating to our athletes or sports personalities;
. increased costs of acquiring or retaining athletes and sports
personalities; and
. increased competition to obtain agreements with athletes and sports
personalities.
Competition for the online rights related to athletes and sports
personalities is intense. Competitors may be able to offer our athletes and
sports personalities a better online opportunity. If we lose the services of,
or the online rights related to, any high-profile athlete or a significant
number of athletes or sports personalities, or if we are unable to continue to
attract high-profile athletes or sports personalities, our business would be
adversely affected. We cannot assure you that any athlete or sports
personality will continue his or her relationship with us, or that our
athletes or sports personalities will not decide to affiliate with a
competitor.
In addition, a relatively small number of sports agents represent a
significant proportion of all professional athletes, especially within
specific sports. Although we currently work with a number of these agents,
adverse changes in our relationships with these sports agents could adversely
affect our business. Although these agencies have a fiduciary responsibility
to present the athletes they represent with the best opportunities, in the
event that any of these agents establishes a strategic relationship or other
affiliation with one or more of our competitors or directly provides online
content relating to the athletes they represent, our business could be
adversely affected.
We depend on our network of sports writers for original content
We rely on a network of independent sports writers to deliver original and
timely sports content. Our future success depends substantially upon our
ability to maintain our existing relationships with, and the continued efforts
of, our network of sports writers. We will also need to attract and retain
additional sports writers. We currently have signed agreements with over 270
sports writers. If we lose the services of a significant number of our sports
writers, or if we are unable to continue to attract and retain additional
sports writers with appropriate qualifications, the amount of sports news and
information we could offer would decrease and our business would be adversely
affected. In addition, we believe that certain sports writers may have a large
and loyal following among our readers. If we were to lose the services of any
one of these sports writers, the demand for our content could
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decrease. A significant reduction in the demand for our content could
adversely affect our business. We cannot assure you that each writer will
continue his or her relationship with us, or that our sports writers will not
decide to affiliate with a competitor.
We generally require our sports writers to provide us with original content
for our exclusive online use. However, certain content produced by our sports
writers who are also employed by newspapers may be published online by these
newspapers and other third parties. We face the risk that certain newspapers
may prohibit our sports writers from working for us, which could adversely
affect our business. We face possible liability for claims brought by third
parties, such as newspapers, asserting ownership of content published by us.
Any claim would likely result in our incurring substantial costs and may
adversely affect our business.
We must effectively implement our branding strategy
A growing number of online sites and traditional media companies, some of
which already have well-established brands, offer content and products that
compete with ours. As a result, we believe we must pursue an aggressive
branding strategy in order to attract users, advertisers, distribution
partners, athletes, sports writers and sports personalities. We have not yet
developed strong brand identities. If we fail to implement our branding
strategy effectively and on a timely basis, it would adversely affect our
business. We believe the importance of brand recognition will increase as
additional companies offer content and products similar to ours.
Competition in our industry is growing, and we may have difficulty competing
with companies providing content or products similar to ours
We compete for users, advertising, syndication, commerce and subscription
revenues, as well as for athletes, sports writers, sports personalities and
other content providers, with many other entities, such as:
. entities that provide access to sports-related content and services (many
of which have been established by traditional media companies through Web
entities targeted to sports enthusiasts generally), Web search and
retrieval services and other high-traffic Web entities;
. sports agents, leagues and other third parties that have existing
relationships with a number of athletes and sports personalities;
. vendors of sports information, merchandise, products and services
distributed through online sites and other means, including retail
stores, mail, facsimile and private online bulletin board services; and
. television, radio and other established media entities that broadcast
sporting events.
We have and might have in the future business relationships with some of our
competitors, some of whom offer access to our services through their own Web
sites, and some of our current partners may become competitors in the future.
We anticipate that, as the Internet and other interactive distribution systems
converge with traditional television broadcasting and cable, significant
competition might come from the providers of broadband networks, including
sports-oriented cable networks. Some of our existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do, and may be better able to
attract athletes, sports writers, sports personalities and other content
providers, as well as distribution partners, agents, advertisers, viewers and
consumers. These competitors may be able to respond more quickly than we can
to new or emerging technologies and changes in online user preferences and to
devote greater
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resources than we can to building our business. These competitors may develop
content and product offerings comparable or superior to ours.
Barriers to entry are minimal, and current and potential competitors can
launch new online sites at a relatively low cost. We expect that the number of
our direct and indirect competitors will increase in the future and this might
adversely affect our business, operating results and financial condition.
Increased competition could result in lower revenues and loss of users, any of
which could materially adversely affect our business, operating results and
financial condition.
We need to expand our direct advertising sales force and internal marketing
team
We have limited experience in marketing our properties and selling
advertisements and we have relied primarily on third parties to sell
advertisements and sponsorships on our online sites and to provide us with
marketing support. We have only recently hired a Vice President of Advertising
and intend to develop our internal sales force to sell advertising and
sponsorships on our online sites. In addition, we intend to continue to expand
our internal marketing resources. Expanding our internal sales force and
marketing organization involves a number of risks, including the following:
. our ability to hire, retain, integrate and motivate sales and marketing
personnel;
. the length of time necessary for new sales and marketing personnel to
become productive; and
. the competition we face from other companies in hiring and retaining
sales and marketing personnel.
Our business would be adversely affected if we do not continue to develop
and maintain an effective sales force or expand our marketing team.
We will become increasingly dependent on advertising and sponsorship
contracts
Our failure to sell a significant number of advertisements and sponsorships
on, or attract advertisers or sponsors to, our online sites could adversely
affect our business and financial results. Most of our advertising contracts
for our current online sites have historically been, and we anticipate that in
the near term, they will be, short term and/or subject to termination by the
advertiser at any time with little notice. Accordingly, the cancellation or
deferral of even a limited number of orders could adversely affect our
quarterly performance. In addition, although we intend to continue to sell
sponsorships of our athletes' sites to existing sponsors of these athletes, we
have not sold a significant number of sponsorships to date. The failure to
sell a significant number of advertisements and sponsorships would adversely
affect our business and financial results.
Our ability to attract and retain advertisers and sponsors will depend on
several factors, including the following:
. our ability to retain athletes, sports personalities and other content
providers;
. our ability to achieve, demonstrate and maintain a significant level of
traffic from attractive demographic groups;
. the general market for athlete sponsorships;
. the pricing of advertising on other online sites;
. the acceptance of non-traditional banner-size inventory, which is the
current standard on the AOL platform;
. content introductions by us and our competitors; and
. our ability to develop and retain a skilled advertising sales force.
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We may not be able to obtain sufficient supplies of merchandise or
collectibles to meet customer demand or to manage inventory effectively
The market for sports merchandise and collectibles is highly volatile and
subject to consumer trends relating to particular sporting events and the
popularity of particular athletes and teams. As a result, demand for certain
merchandise and collectibles can often be intense or short-lived. To date, we
have sourced only a limited amount of collectibles from our athletes. We
cannot assure you that we will be able to procure collectibles from our
athletes on a timely basis, if at all. We may be unable to obtain sufficient
inventory of merchandise or collectibles to meet demand on a timely basis, if
at all. In the future, we intend to maintain a larger inventory of sports
merchandise and collectibles. Maintaining a larger inventory subjects us to
numerous risks, including funding, obsolescence and price erosion. If we are
unsuccessful in effectively managing our inventory, we may be forced to sell
our inventory at a discount or loss.
Our business success depends on our ability to generate electronic commerce
and to develop a scalable commerce platform and distribution capabilities
If we do not generate increased revenues from electronic commerce, our
growth will be limited and our business could be adversely affected. To
generate significant electronic commerce revenues, however, we will have to
create or source sports merchandise and collectibles that are appealing to a
large number of online consumers. We will also have to continue to create
online environments that are conducive to electronic commerce, build or
license a sufficiently robust and scalable electronic commerce platform and
increase our order fulfillment capabilities. Currently, we have limited
distribution and fulfillment experience and our failure to build these
capabilities in a timely manner could adversely affect our business. If we
fail to meet any of these challenges, our business would be adversely
affected.
Our collectibles provided by third parties may be subject to fraud
We acquire the majority of our collectibles from third-party providers and
sell them through our independent auction Web sites and our online sites. We
rely on guarantees made by these third-party providers as to the authenticity
of these collectibles. Although we do not independently verify the
authenticity of third-party collectibles, we guarantee and verify our Athlete
Direct collectibles, which are provided to us directly by our athletes. To the
extent that any collectible sold by us is not authentic, we could be subject
to, among other things, significant negative publicity and litigation. Any
negative publicity generated as a result of actual or perceived fraudulent or
deceptive collectibles or any litigation, regardless of the merits, could
adversely affect our business.
Our growth may strain our resources
Our business has grown rapidly over the last three years. The number of our
employees has grown from approximately 13 employees at May 1, 1998 to 128
employees at November 15, 1999. The scope of our operating and financial
systems has also expanded significantly. Our rate of growth places a
significant strain on our resources for a number of reasons, including the
following:
. the need for the continued development of our financial and information
management systems;
. the need to manage relationships with numerous athletes, sports writers,
sports personalities, distribution partners and other third parties;
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. the difficulties in hiring and retaining skilled personnel necessary to
support our business; and
. the need to train and manage our growing employee base.
The addition of new sports media or other properties and the attention they
demand may also strain our management resources. We cannot assure you that we
will adequately address these risks, and if we do not, our business could be
adversely affected.
Our business model depends on us generating revenues for our premium content
products
To date, only a limited number of online users have been willing to pay for
content sold through the Internet. If this market for subscription-based
premium content products does not develop or develops more slowly than we
expect, our business could be adversely affected. Even if this market
develops, it is possible that the renewal rate of our subscribers may be
significantly lower than we expect, which could also adversely affect our
business.
We may not be able to respond to technological changes, and may not remain
competitive with others that are better able to respond to these changes
quickly
The online industry is characterized by rapid technological change, changes
in user and customer preferences, frequent new content and product
introductions and enhancements, and emerging industry standards. The
introduction of new technologies and the emergence of new industry standards
and practices can render our existing offerings less attractive and
unmarketable. In addition, if we are unable to integrate new technologies and
standards effectively, or to introduce new content and products, our ability
to remain competitive will be adversely affected. We are in the process of
deploying the back-end technology developed in connection with the
www.athletedirect.com site across our other online sites. If we fail to deploy
this technology successfully, our business would be adversely affected. Our
future success will depend, in part, on numerous factors, including our
ability to do the following:
. enhance our existing offerings;
. develop new offerings that address the increasingly sophisticated and
varied needs of our prospective users;
. respond to technological advances and emerging industry standards and
practices on a timely and cost-effective basis;
. develop, enhance and improve the responsiveness, functionality and
features of our online sites;
. provide compelling audio and video content via broadband distribution
technologies on a cost-effective and timely basis as these technologies
become more widely available; and
. license or acquire leading technologies.
If we are unable to integrate and capitalize on new technologies and
standards effectively, our business could be adversely affected.
Any inability to protect our intellectual property rights could adversely
affect our business
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality agreements with third
parties, and license agreements with consultants, vendors and customers.
Despite
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such protection, a third party could, without authorization, copy or otherwise
misappropriate information from our database. Our agreements with employees,
consultants and others who participate in development activities could be
breached. We may not have adequate remedies for any breach, and our trade
secrets may otherwise become known or independently developed by competitors.
In addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States, and effective
copyright, trademark and trade secret protection may not be available in those
jurisdictions.
We have applied for registration of several trademarks in the United States
and will seek to register additional trademarks as appropriate. We cannot
assure you that we will be successful in obtaining the trademarks for which we
have applied. Even if these applications mature to registration, they may be
successfully challenged by others or invalidated. If the applications do not
register because third parties own the trademarks, or if our rights to use the
trademarks are challenged by owners of similar rights, the use of the
trademarks may be restricted unless we enter into arrangements with the third
parties, which may be unavailable on commercially reasonable terms.
We also use content from athletes, sports writers, sports personalities and
other third parties and it is possible that we could become subject to
infringement actions based upon this content. We generally obtain
representations as to the origin and ownership of this content; however, this
may not adequately protect us. Any of these claims, with or without merit,
could subject us to costly litigation and the diversion of our technical and
management personnel.
There has been substantial litigation in the computer and online industries
regarding intellectual property assets. Third parties may claim infringement
by us with respect to current and future products, trademarks or other
proprietary rights, or we may counterclaim against these parties. Any claims
or counterclaims, with or without merit, could be time-consuming, result in
costly litigation, divert management's attention, cause product release
delays, require us to redesign our products or require us to enter into
royalty or licensing agreements, any of which could harm our business. These
royalty and licensing agreements, if required, may not be available on terms
acceptable to us, if at all.
Our business may be restricted by rights of sports leagues and players'
associations
The operation of our business and our ability to expand into new areas may
be restricted by rights of sports leagues and players' associations. Sports
leagues, such as the National Football League, typically own league and team
trademarks, and we may be required to obtain a license to any of those
trademarks that we use. In addition, the leagues also own other rights, such
as the rights to display highlights of games, that we may wish to use in our
business in the future. License agreements with the leagues for trademarks or
other rights, if required, may not be available on terms acceptable to us or
at all, and failure to obtain these license agreements could adversely affect
our business.
Players' associations have certain rights to license athlete names,
likenesses and other attributes for groups of athletes, referred to as group
licensing rights. We may be required to obtain licenses from players'
associations for these group licensing rights in order to conduct certain
aspects of our business. If licenses were not available or were not provided
on terms acceptable to us and we were required to modify our properties, our
business would be adversely affected. We, and agents for some of the athletes
with whom we have contracts, have received correspondence from the National
Football League Players' Association telling us to cease creating, selling,
advertising and promoting Web sites for athletes represented by the players'
association. Although we do not believe that there is a basis for the players'
association position, if athletes and agents determine not to work with us
because of the players' association claims or actions, our business would be
adversely affected.
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The loss of key personnel, or the inability to attract and retain
additional, qualified personnel, could adversely affect our business
Our future success depends, in significant part, upon the continued services
of a relatively small number of key senior management and technical personnel,
many of whom have been with us for fewer than 12 months. In particular,
Richard D. Nanula, Chairman of the Board and Chief Executive Officer, and
Tyler J. Goldman, President, Broadband Studios, are important to our success.
We have entered into employment agreements with these officers. However, we
cannot assure you that we will be able to retain these or other key employees
or that we will be successful in attracting, assimilating and retaining other
personnel in the future. In particular, we need to hire qualified marketing,
advertising, sales and merchandise personnel as well as engineers to assist
with our Web sites and our technology infrastructure. These personnel are in
high demand. The loss of any of our key senior management or technical
personnel or the inability to attract and retain additional, qualified
personnel could adversely affect our business.
We face risks associated with maintaining or acquiring new domain names, or
protecting current domain names from unauthorized use by third parties
We currently hold various Web addresses relating to our assets and brands,
including broadbandsports.com, athletedirect.com, psx.com, rotonews.com and
sportsauthentics.com. We may not be able to prevent third parties from
acquiring Web addresses that are similar to our addresses, which could
adversely affect our business. In addition, a number of third parties have
registered as domain names the names of a number of our athletes under
contract. We may not be able to acquire these Web addresses in a cost-
effective manner, or at all, which could adversely affect our business. The
acquisition and maintenance of Web addresses generally is regulated by
governmental agencies and their designees. The regulation of Web addresses in
the United States and in foreign countries and the application of trademark
laws to Web addresses is uncertain and subject to change. As a result, we may
not be able to acquire or maintain relevant Web addresses in all countries in
a cost-effective manner, or at all, where we may conduct business.
We may acquire other businesses and we may have difficulty integrating these
businesses
We have in the past, and may in the future, broaden the scope of our
business by acquiring businesses that complement our current content or
product offerings, increase our market share or otherwise offer growth
opportunities. However, our experience in acquiring and assimilating other
companies is limited. We may not be successful in overcoming problems
encountered in connection with such acquisitions, and our inability to do so
could adversely affect our business. Future acquisitions would expose us to
increased risks, including risks associated with the following:
. assimilating new operations, technologies, products, sites and personnel;
. diverting resources from our existing businesses, sites and technologies;
. diverting management's attention from other business concerns;
. entry into new markets in which we have limited or no experience;
. the inability to generate revenues from new sites sufficient to offset
associated acquisition costs;
. maintaining uniform standards, controls, procedures and policies; and
. the impairment of relationships with employees, distribution partners and
other customers as a result of integration of new businesses.
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Failure to integrate successfully any business, product, technology or
personnel would adversely affect our business.
Because business acquisitions typically involve significant amounts of
intangible assets, our operating results may be adversely affected by
amortization of intangible assets acquired. In addition, in the event of
future acquisitions or business combinations, we could do the following:
. issue equity securities that would dilute current stockholders'
percentage ownership in us;
. use cash or incur substantial debt; or
. assume contingent liabilities.
We plan to expand into international markets, which involves additional
risks
As part of our business strategy, we plan to expand into international
markets, which involves additional risks. In marketing our content and
products internationally, we will face new competitors. In addition, expansion
into international markets will require us to hire and retain additional
personnel to execute our international strategy and may require us to create
localized versions of our content on a cost effective basis. We cannot assure
you that we will be successful in attracting, hiring or retaining the
necessary personnel, creating localized versions of our content or marketing
or distributing our content or products abroad. Even if we are successful, our
international revenues may not offset the expense of establishing and
maintaining international operations. To date, we have limited experience in
marketing and distributing our content and products internationally.
Additional difficulties and risks inherent in doing business internationally
include the following:
. compliance with a variety of local regulatory requirements and changes in
those requirements;
. export controls relating to technology, tariffs and other trade barriers;
. difficulties in staffing and managing foreign operations;
. potentially weaker protection of intellectual property rights in foreign
countries, including the possibility that our trademarks will not be
available for our use in those countries;
. political instability in foreign countries;
. fluctuations in foreign currency exchange rates;
. longer payment cycles and greater difficulty in collecting accounts
receivable;
. seasonality in sports outside of the United States; and
. potentially adverse tax consequences.
Potential Year 2000 problems related to our business systems could adversely
affect our business
The risks posed by year 2000 issues could adversely affect our business in a
number of significant ways. Our information technology system could be
substantially impaired or cease to operate due to year 2000 problems.
Additionally, the online medium could face serious disruptions arising from
the year 2000 problem. We also rely on information technology supplied by
third parties and other third party services which are likewise dependent on
information technology systems and on their own third party vendors' systems.
Year 2000 problems experienced by us or any such third parties could adversely
affect our business.
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We are evaluating our internal systems and contacting our suppliers to
ascertain their year 2000 status. However, our own systems may not be year
2000 compliant in a timely manner, and any of our distribution partners may
not be year 2000 compliant in a timely manner. In addition, there may be
significant interoperability problems among these systems. Consumers may not
be able to visit our online sites or purchase our subscription-based premium
content and product offerings without serious disruptions arising from the
year 2000 problem. Given the pervasive nature of the year 2000 problem,
disruptions in other industries and market segments may also adversely affect
our business.
Finally, year 2000 issues may impact other entities with which we do
business, including, for example, those responsible for maintaining telephone
and online communications. Accordingly, we cannot predict the effect of the
year 2000 problem on such entities. If these other entities fail to take
preventive or corrective actions in a timely manner, the year 2000 issue could
hurt our business.
Risks Related To Our Industry
Our business depends on the development and growth of electronic commerce on
the Internet and other online media
The use of online media for retail transactions, particularly those for
sports-related products, is a recent development, and the continued demand and
growth of a market for services and products via online media is uncertain.
Online media may ultimately prove not to be a viable commercial marketplace
for a number of reasons, including the following:
. unwillingness of consumers to shift their purchasing from traditional
retailers to online retailers;
. lack of acceptable transaction and data security;
. concern for privacy of personal information;
. limitations on access and ease of use;
. congestion leading to delayed or extended response times;
. inadequate development of infrastructure of online media to keep pace
with increased levels of use; and
. increased government regulation and taxation.
Malfunctions of third-party systems and the strain on our own systems due to
increased traffic could adversely affect our business
In the past, our online sites have experienced significant increases in
traffic when there are significant sports-related events. To the extent the
number of users increases, our online sites must accommodate a high volume of
traffic. Our online sites have in the past and may in the future experience
slower response times or other problems for a variety of reasons. If increases
in user traffic result in system interruptions or increases in response time,
it could result in a loss of potential or existing users or advertisers and,
if sustained or repeated, could reduce the attractiveness of our online sites
to users, content providers and advertisers. In addition, our users depend on
Internet service providers, and other online service providers for access to
our online sites. These providers have experienced significant outages in the
past, particularly as a result of increased traffic, and could experience
outages, delays and other difficulties due to system failures unrelated to our
systems in the future. These types of occurrences could cause users to
perceive our online sites as not functioning properly and therefore adversely
affect our ability to attract and retain users, content providers and
advertisers.
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Any failure of our network infrastructure could decrease the availability of
our content and products
The performance, reliability and availability of our online sites are
critical to our reputation and ability to attract and retain users, content
providers and advertisers. We cannot guarantee that:
. we will have uninterrupted access to the Internet;
. our users will be able to reach our Internet sites; or
. communications via our Internet sites will be secure.
Any disruption in Internet access provided by third party services or any
failure of third parties to handle higher volumes of Internet users to our
Internet sites could adversely affect our business. We do not currently have
redundant systems or a formal disaster recovery plan.
Despite precautions taken by us and by the companies that now or in the
future may host our Internet sites, our system is susceptible to natural and
man-made disasters such as earthquakes, fires, floods, power loss and
sabotage. Our system is also vulnerable to disruptions from computer viruses
and attempts by hackers to penetrate our network security.
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
advertisers, content providers and users and, if sustained or repeated, could
reduce the attractiveness of our content services to such entities or
individuals. Expanding our network infrastructure could require substantial
financial and operational resources in 2000 and future periods.
Our revenues depend on advertisers and sponsors adopting the Internet and
other online media as an attractive platform
The Internet and other online media have not been available for a sufficient
period of time to gauge their effectiveness as advertising platforms when
compared with traditional media. There is intense competition among sellers of
advertising space on online media, making it difficult to project pricing
models or anticipate whether we or our partners will be successful in selling
advertising space. Market acceptance of online media as an advertising
platform is highly uncertain for a number of reasons, including the following:
. lack of widely accepted standards for measuring the extent of Internet
traffic;
. concerns about privacy and security among users;
. the limited acceptance to date of online media for widespread commercial
use; and
. inadequate development of the network infrastructure and enabling
technologies.
Tracking and measurement standards for advertising are evolving and create
uncertainty about the viability of advertising on the Internet
It is important to our advertisers that we accurately measure the size and
demographics of our user base and the delivery of advertisements on our online
sites. There are currently no widely accepted standards to measure the
effectiveness of online media as a platform for attracting audiences or
targeting particular demographic groups. If measurement standards do not
develop, we may be
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unable to retain current, or attract new, advertisers. We depend on third
parties to provide these measurement services. If they are unable to provide
these services in the future, we would be required to perform them ourselves
or obtain them from another provider. This could cause us to incur additional
costs or cause interruptions in our business while we are replacing these
services. We are implementing additional systems designed to record
demographic data on our users. If we do not develop these systems
successfully, we may not be able to accurately evaluate the demographic
characteristics of our users. Companies may not advertise on our online sites
or may pay less for advertising if they do not perceive our measurements, or
measurements made by third parties, to be reliable.
Online security concerns could hinder electronic commerce
The need to securely transmit confidential information over online media has
been a significant barrier to electronic commerce and electronic
communications. Any well-publicized compromise of security could deter people
from using the Internet or other online media or from using it to conduct
transactions that involve transmitting confidential information, such as
credit card numbers. To the extent that our activities or those of third-party
contractors involve the storage and transmission of proprietary or personal
information, security breaches could damage our reputation and expose us to a
risk of loss or litigation and possible liability. Our business may be
adversely affected if our security measures do not prevent security breaches,
and we cannot assure you that we can prevent any security breaches. In
addition, we may be subject to liability for orders placed with fraudulent
credit card data even though the associated financial institution approved
payment of the orders. Under current credit card practices, a merchant is
liable for fraudulent credit card transactions where, as is the case with the
transactions we process, the merchant does not obtain a cardholder's
signature. Fraudulent use of credit card data in the future could adversely
affect our business.
In addition, we could be liable for the misuse of personal information. The
Federal Trade Commission, the European Union and certain state and local
authorities have been investigating certain Internet companies regarding their
use of personal information. We could incur additional expenses if new
regulations regarding the use of personal information are introduced or if
these authorities choose to investigate our privacy practices.
We could be subject to liability for online content
The nature and breadth of content disseminated by us on our online sites and
through our distribution partners could expose us to liability in various
areas, including claims relating to:
. defamation, libel, negligence, personal injury and other legal theories
based on the nature and content of the material we publish or distribute;
. copyright or trademark infringement or wrongful action due to the actions
of third parties; and
. use of third-party content made available through our online sites or
through content and material posted by our partners and participants on
online pages or in chat rooms and bulletin boards, such as information
provided by our sports writers.
Because of the large amount of content that is provided to us by our sports
writers on a daily basis, it is difficult to verify the originality or
accuracy of this information. Any claim would likely result in our incurring
substantial costs and would also be a drain on our financial and other
resources. In addition, we might experience disruptions in our relationships
with our athletes, sports writers, sports personalities, advertisers,
distribution partners and other third parties. This could reduce traffic
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on our online sites, negatively affect our user base, or reduce our revenue
from advertising and electronic commerce.
Imposition of sales and other taxes on electronic commerce transactions may
hinder electronic commerce
We generally do not collect sales or other taxes on goods sold on our online
sites to users located outside of California. However, one or more states may
seek to impose sales tax collection obligations on companies like ours, which
engage in or facilitate online commerce. A number of proposals have been made
at the state and local level that would impose additional taxes on the sale of
goods and services online. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and increase our costs and could
adversely affect our opportunity to derive financial benefit from electronic
commerce. If any state or foreign country were to successfully assert that we
should collect sales or other taxes on the exchange of merchandise on our
system, our business could be adversely affected. Recently, the Internet Tax
Freedom Act was signed into law placing a three-year moratorium on new state
and local taxes on Internet commerce. However, future laws may impose taxes or
other regulations on Internet commerce, which could adversely affect our
business.
Imposition of government regulations and other legal uncertainties
associated with the online media could adversely affect our business
The laws governing online media remain largely unsettled, even in areas
where there has been some legislative action. It may take years to determine
whether and how existing laws such as those governing intellectual property,
privacy and libel apply to online media generally. Such legislation could
hamper the growth in use of online media generally and decrease the acceptance
of online media as a communications and commercial medium, which could have an
adverse affect on our business.
We cannot assure you that violations of local or other laws will not be
alleged or charged by local, state or foreign governments, that we might not
unintentionally violate such laws or that such laws will not be modified, or
new laws enacted, in the future. In addition, the growing popularity and use
of online media has burdened the existing telecommunications infrastructure
and many areas with high traffic have begun to experience interruptions in
phone service. As a result, certain local telephone carriers have petitioned
governmental agencies to regulate Internet service providers and online
service providers in a manner similar to long distance telephone carriers and
to impose access fees on Internet service providers and online service
providers. If any of these petitions or the relief that they seek is granted,
the costs of communicating via online media could increase substantially,
potentially adversely affecting the growth in the use of online media. Any of
these developments could have an adverse effect on our business.
Our fantasy contests and services may be subject to state and federal laws
governing lotteries and gambling. We can not assure you that our contests will
be exempt from such laws or that the applicability of such laws will not
adversely affect our business.
Risks Associated With Our Offering
Because our shares have not been publicly traded before this offering, the
initial public offering price may not accurately reflect the trading price of
our stock
There has not previously been a public market for our common stock. We
cannot predict the extent to which investor interest will lead to the
development of a permanent trading market or how liquid that market, if
developed, might become. The initial public offering price for the shares will
be
22
<PAGE>
determined by negotiations among us and the representatives of the
underwriters and may not be indicative of prices that will prevail in the
trading market.
Our stock price may be volatile
The stock market has experienced significant price and volume fluctuations
and the market prices of securities of technology companies, particularly
Internet-related companies, have been highly volatile. These fluctuations are
often unrelated to the operating performance of particular companies. Our
stock price may also be affected by the stock trading prices of other Internet
companies. Investors may not be able to resell their shares at or above the
initial public offering price. Any shortfall in revenue or other inability to
meet the expectations of securities analysts could adversely affect our stock
price.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has been instituted
against that company. Litigation could result in substantial costs and a
diversion of management's attention and resources.
We may need additional financing to achieve our business objectives or
achieve profitability
We currently anticipate that our available cash resources, combined with the
net proceeds from this offering, will be sufficient to meet our anticipated
working capital and capital expenditure needs for at least the 12 months
following the date of this prospectus. Nevertheless, we may need to raise
additional funds to maintain and develop our position in the marketplace. We
cannot assure you that additional financing will be available on terms
favorable to us, or at all. If we cannot obtain needed funds on acceptable
terms, or at all, we would be limited in our ability to do the following:
. fund more rapid expansion;
. develop or enhance existing content or products;
. upgrade our technological infrastructure;
. build our multiple brands;
. respond to competitive pressures; or
. acquire complementary products, businesses or technologies.
Even if we succeed in raising additional funding, it may have a dilutive
effect on the percentage of ownership of our then-current stockholders because
we may need to raise these funds by issuing equity or convertible debt
securities. Also, any new securities may have rights and privileges senior to
the rights of the common stock.
Our officers, directors and principal stockholders can exert control over
matters requiring stockholder approval
After this offering, executive officers, directors and holders of 5% or more
of our outstanding common stock will, in the aggregate, beneficially own
approximately % of our outstanding common stock. These stockholders will be
able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of
significant corporate transactions. This concentration of ownership may also
have the effect of delaying, deterring or preventing a change in control and
may make some transactions more difficult or impossible without the support of
these stockholders.
23
<PAGE>
Provisions in our charter documents and Delaware law may delay or prevent an
acquisition of our company
Upon the closing of this offering, our certificate of incorporation and
bylaws will contain provisions which could make it harder for a third party to
acquire us without the consent of our board of directors. For example, if a
potential acquiror were to make a hostile bid for us, the acquiror would not
be able to call a special meeting of stockholders to remove our board of
directors or act by written consent without a meeting. In addition, our board
of directors will have staggered terms which makes it difficult to remove them
all at once. The acquiror would also be required to provide advance notice of
its proposal to remove directors at an annual meeting. The acquiror also will
not be able to cumulate votes at a meeting, which will require the acquiror to
hold more shares to gain representation on the board of directors than if
cumulative voting were permitted.
Our board of directors also has the ability to issue preferred stock which
would significantly dilute the ownership of a hostile acquiror. In addition,
Section 203 of the Delaware General Corporation Law limits business
combination transactions with 15% stockholders that have not been approved by
the board of directors. These provisions and other similar provisions make it
more difficult for a third party to acquire us without negotiation. These
provisions may apply even if the offer may be considered beneficial by some
stockholders.
Our board of directors could choose not to negotiate with an acquiror that
it did not feel was in the strategic interests of Broadband Sports. If the
acquiror was discouraged from offering to acquire us or prevented from
successfully completing a hostile acquisition by the antitakeover measures,
you could lose the opportunity to sell your shares at a favorable price.
The number of shares that will be eligible for sale in the open market in
the near future could depress our stock price
If our stockholders sell substantial amounts of our common stock (including
shares issued upon the exercise of outstanding options) in the public market
following this offering, the market price of our common stock could fall.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and price that we deem appropriate. After this
offering, we will have outstanding shares of common stock. Of these shares,
the shares being offered hereby are freely tradable. This leaves shares
eligible for sale in the public market as follows:
<TABLE>
<CAPTION>
Number of Shares Date
---------------- ----
<S> <C>
The date of this prospectus
90 days after the date of this prospectus
180 days after the date of this prospectus
At various times after 180 days from the date of this prospectus
</TABLE>
Our directors, officers and stockholders and substantially all of our
optionees have agreed that they will not sell, directly or indirectly, any
common stock without the prior written consent of Morgan Stanley and Co.
Incorporated for a period of 180 days from the date of this prospectus.
Upon the closing of this offering, we intend to file a registration
statement to register for resale the shares of common stock reserved for
issuance under our stock option plans. We expect this registration to become
effective immediately upon filing. As of November 15, 1999, options to
purchase a total of 29,700,989 shares of common stock were outstanding, of
which 7,768,316 shares will be immediately exercisable upon the closing of
this offering. These stock options generally have
24
<PAGE>
exercise prices significantly below the assumed initial public offering of our
common stock. The possible sale of a significant number of these shares may
cause the price of our common stock to fall.
Certain stockholders, representing approximately 248,120,386 shares of
common stock, have the right, subject to conditions, to include their shares
in certain registration statements relating to our securities. By exercising
their registration rights and causing a large number of shares to be
registered and sold in the public market, these holders may cause the price of
the common stock to fall. In addition, any demand to include such shares in
our registration statements could have an adverse effect on our ability to
raise needed capital.
As a new investor, you will experience immediate and substantial dilution
The initial public offering price is expected to be substantially higher
than the net tangible book value per share of the outstanding common stock
immediately after the offering. Investors purchasing common stock in this
offering, therefore, will incur immediate dilution of approximately $ in
net tangible book value per share, assuming an initial public offering price
of $ per share. To the extent that outstanding stock options to purchase
common stock are exercised, there will be further dilution. See "Dilution."
25
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements. These statements relate
to future events or our future financial performance. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expect," "plan," "anticipate," "believe," "estimate," "predict,"
"potential" or "continue," the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results
may differ materially. In evaluating these statements, you should specifically
consider various factors, including the risks outlined under "Risk Factors."
These factors may cause our actual results to differ materially from any
forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of the
forward-looking statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus to conform such
statements to actual results or to changes in our expectations.
26
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares of common
stock in this offering will be approximately $ million, assuming an initial
public offering price of $ per share and after deducting estimated
underwriting discounts and commissions and estimated offering expenses. If the
underwriters exercise their over-allotment option in full, we estimate that
our net proceeds will be $ million.
We intend to use the net proceeds to:
. repay outstanding indebtedness of approximately $4.5 million; and
. redeem our outstanding mandatorily redeemable series A preferred stock
for $2.3 million.
The balance of the net proceeds will be used for general corporate purposes,
including the continued development of our Web sites, the enhancement of our
technology infrastructure, the expansion into other markets and working
capital. We believe the net proceeds of this offering, together with our
current cash and cash equivalents, will be sufficient to fund our working
capital and capital expenditure requirements for at least the next 12 months.
We have not identified specific uses for all such proceeds and accordingly,
our management team will have broad discretion in applying the net proceeds.
We may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, assets or products. We currently have no agreements
or understandings with respect to any such acquisitions. Pending such uses, we
intend to invest the net proceeds of this offering in short-term, interest-
bearing, investment grade securities, certificates of deposit or direct
guaranteed obligations of the United States.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
intend to retain any future earnings to finance operations and the growth of
our business and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. We may incur indebtedness in the future which
may prohibit or effectively restrict the payment of dividends, although we
have no current plans to do so. Any future determination to pay cash dividends
will be at the discretion of our board of directors.
27
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization as of September 30, 1999:
(a) on an actual basis;
(b) on a pro forma basis to reflect the issuance of 30,389,809 shares of
common stock to our Chief Executive Officer in November 1999, the
issuance of 18,500,000 shares of series C preferred stock in November
1999 and the conversion of these shares and our outstanding shares of
series B preferred stock into an aggregate of 47,666,663 shares of common
stock upon the closing of this offering;
(c) on a pro forma basis as adjusted to reflect the following adjustments:
. the sale of shares of common stock and the receipt of the
net proceeds from the sale of common stock, at an assumed initial
public offering price of $ per share and after deducting
estimated underwriting discounts and commissions and estimated
offering expenses;
. the redemption of our outstanding mandatorily redeemable series A
preferred stock for $2.3 million; and
. the repayment of outstanding indebtedness of $4.5 million, which was
outstanding at September 30, 1999.
The table below should be read in conjunction with the more detailed
financial statements and the related notes, which are included elsewhere in
this prospectus:
<TABLE>
<CAPTION>
As of September 30, 1999(1)
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Revolving loan due to stockholder........... $ 4,468 $ 4,468 $ --
-------- -------- ----------
Mandatorily redeemable series A preferred
stock, $0.001 par value, 2,000,000 shares
authorized actual and pro forma; no shares
authorized pro forma as adjusted; 2,000,000
shares issued and outstanding actual; no
shares issued and outstanding pro forma and
pro forma as adjusted...................... 2,285 2,285 --
-------- -------- ----------
Preferred stock, $0.001 par value,
50,000,000 authorized actual and pro forma,
5,000,000 authorized pro forma as adjusted
Series B preferred stock; 34,000,000
authorized actual and pro forma; no shares
authorized pro forma as adjusted;
29,166,663 issued and outstanding actual;
no shares issued and outstanding pro forma
and pro forma as adjusted................. 16,519 -- --
Series C preferred stock; no shares
authorized actual; 20,000,000 shares
authorized pro forma and pro forma as
adjusted; no shares issued and outstanding
actual, pro forma, and pro forma as
adjusted.................................. -- -- --
Common stock, $0.001 par value, 300,000,000
shares authorized, 217,037,500 shares
issued and outstanding, actual; 247,697,913
shares issued and outstanding, pro forma;
75,000,000 shares authorized, issued
and outstanding, pro forma as adjusted..... 217 295
Additional paid-in capital.................. 6,107 55,582
Receivable from stockholder................. -- (15,202)
Deferred compensation....................... (2,483) (2,483)
Accumulated deficit......................... (14,244) (14,244)
-------- -------- ----------
Total stockholders' equity................ 6,116 23,948
-------- -------- ----------
Total capitalization.................... $ 12,869 $ 30,701 $
======== ======== ==========
</TABLE>
- ------------------
(1) The preceding table excludes (a) an aggregate of 35,294,117 shares of
common stock reserved for issuance under our stock option plans, of which
options to purchase 21,667,489 shares of common stock were outstanding as
of September 30, 1999 at a weighted average exercise price of $ per
share, assuming a public offering price of $ , and (b) a warrant to
purchase 282,916 shares of common stock at an exercise price price of
$0.60 per share as of September 30, 1999.
28
<PAGE>
DILUTION
Our pro forma net tangible book value as of September 30, 1999 was
approximately $20.8 million or $0.07 per share. Net tangible book value per
share represents the amount of our total tangible assets reduced by the amount
of our total liabilities and divided by the total number of shares of common
stock outstanding, after giving effect to the automatic redemption of the
mandatorily redeemable series A preferred stock, the issuance of 18,500,000
shares of series C preferred stock in November 1999 and the conversion of
these shares and our outstanding shares of series B preferred stock into an
aggregate of 48,666,663 shares of common stock upon the closing of this
offering and the issuance of 30,389,809 shares of common stock to our Chief
Executive Officer in November 1999. Dilution in net tangible book value per
share represents the difference between the amount per share paid by
purchasers of shares of common stock in this offering and the net tangible
book value per share of common stock immediately after the closing of this
offering. After giving effect to the sale of the shares of common stock
offered by us at an assumed initial public offering price of $ per
share, and after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us, our pro forma net
tangible book value at September 30, 1999 would have been approximately
$ million or $ per share of common stock. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors of
common stock. The following table illustrates this dilution on a per share
basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $
Pro forma net tangible book value per share as of September
30, 1999.................................................... $( )
Increase in pro forma net tangible book value per share
attributable to new investors...............................
-----
Pro forma net tangible book value per share after this
offering......................................................
----
Dilution per share to new investors............................ $
====
</TABLE>
The following table summarizes, on an as adjusted basis to give effect to
the offering at an assumed initial public offering price of $ per share,
before deducting estimated underwriting discounts and commissions and estimate
offering expenses, as of September 30, 1999, the differences between the
existing stockholders and new investors with respect to the number of shares
of common stock purchased from us, the total consideration paid to us and the
average price per share paid:
<TABLE>
<CAPTION>
Shares
Purchased(1) Total Consideration
----------------- ---------------------- Average Price
Number Percentage Amount Percentage Per Share
------ ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors...........
--- ----- --------- ----------
Total................. 100.0% $ 100.0%
=== ===== ========= ==========
</TABLE>
- ---------------------
(1) The preceding table excludes (a) an aggregate of 35,294,117 shares of
common stock reserved for issuance under our stock option plans, of which
options to purchase 21,667,489 shares of common stock were outstanding as
of September 30, 1999 at a weighted average exercise price of $ per
share, assuming a public offering price of $ , and (b) a warrant to
purchase 282,916 shares of common stock at an exercise price of $0.60 per
share.
29
<PAGE>
SELECTED CONSOLIDATED AND COMBINED FINANCIAL DATA
The statement of operations data set forth below for the period from
inception (February 1, 1996) through December 31, 1996, the fiscal year ended
December 31, 1997, the two months ended February 27, 1998 and the 10 months
ended December 31, 1998, and the selected balance sheet data as of December
31, 1997 and 1998 have been derived from our financial statements, which have
been audited by Ernst & Young LLP, independent auditors, included elsewhere in
this prospectus. The selected combined financial data for the year ended
December 31, 1998 were derived by combining the operating data of Athlete
Direct and PSX, which are together referred to in connection with our
financial statements as the "Predecessor Companies," for the two months ended
February 27, 1998 with the operating data of Broadband Sports for the 10
months ended December 31, 1998. The financial data for the nine months ended
September 30, 1999 and the seven months ended September 30, 1998 and the
selected balance sheet data as of September 30, 1999 are derived from
unaudited financial statements appearing elsewhere in this prospectus. The
combined selected financial data for the nine months ended September 30, 1998
were derived by combining the operating data of the Predecessor Companies for
the two months ended February 27, 1998 with the operating data of Broadband
Sports for the seven months ended September 30, 1998. The combined balance
sheet data as of December 31, 1996 are derived from financial statements of
the Predecessor Companies that are not included herein. Pro forma financial
information has not been presented for the year ended December 31, 1998 and
the nine months ended September 30, 1999 because such information would not be
materially different than the combined financial data for the same periods.
Required unaudited pro forma condensed combined financial information is
included elsewhere herein.
The unaudited financial statements include all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of our financial
position for these periods. The results for the nine months ended September
30, 1999 are not necessarily indicative of results that may be expected for
the entire year. You should read the selected consolidated and combined
financial and operating data set forth below in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our financial statements and the notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
Predecessor Companies
------------------------------------------
The period
February 1, 1996 Broadband Broadband Combined
(inception) Two months Ten months Combined Seven months Nine months
through Year ended ended ended Year ended ended ended
December 31, December 31, February 27, December 31, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1998 1998
---------------- ------------ ------------ ------------ ------------ ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated and
Combined Statement
of Operations
Data:
Revenues........... $ 219 $ 1,874 $ 507 $ 2,719 $ 3,226 $ 1,908 $ 2,415
Cost of revenues... 414 1,300 296 2,036 2,332 1,405 1,701
----- ------- ----- ------- ------- ------- -------
Gross profit
(loss)............ (195) 574 211 683 894 503 714
Operating expenses:
Sales and
marketing........ 4 154 69 592 661 209 278
Product
development...... 8 22 9 137 146 85 94
General and
administrative... 97 672 136 1,537 1,673 1,067 1,203
Depreciation...... 3 15 4 43 47 26 30
Amortization of
goodwill......... -- -- -- 244 244 170 170
Amortization of
deferred stock
compensation and
deferred
incentives....... 52 414 150 2,413 2,563 1,850 2,000
----- ------- ----- ------- ------- ------- -------
Total operating
expenses....... 164 1,277 368 4,966 5,334 3,407 3,775
----- ------- ----- ------- ------- ------- -------
Operating loss..... (359) (703) (157) (4,283) (4,440) (2,904) (3,061)
Interest income.... -- 3 -- -- -- -- --
Interest and other
expense........... -- -- -- (73) (73) (41) (41)
----- ------- ----- ------- ------- ------- -------
Net loss........... $(359) $ (700) $(157) $(4,356) $(4,513) $(2,945) $(3,102)
===== ======= ===== ======= ======= ======= =======
Historical loss per
share basic and
diluted (1)....... $ 0.02 $ 0.01
Pro forma loss per
share basic and
diluted (2)....... $ 0.02 $ 0.01
Weighted average
common and common
equivalent shares
outstanding.......
Historical (1).... 217,038 217,038
Pro forma (2)..... 246,204 246,204
<CAPTION>
Broadband
Nine months
ended
September 30,
1999
-------------
<S> <C>
Consolidated and
Combined Statement
of Operations
Data:
Revenues........... $ 5,725
Cost of revenues... 3,812
-------------
Gross profit
(loss)............ 1,913
Operating expenses:
Sales and
marketing........ 4,488
Product
development...... 714
General and
administrative... 4,098
Depreciation...... 268
Amortization of
goodwill......... 269
Amortization of
deferred stock
compensation and
deferred
incentives....... 1,920
-------------
Total operating
expenses....... 11,757
-------------
Operating loss..... (9,844)
Interest income.... 199
Interest and other
expense........... (244)
-------------
Net loss........... $(9,889)
=============
Historical loss per
share basic and
diluted (1)....... $ 0.05
Pro forma loss per
share basic and
diluted (2)....... $ 0.04
Weighted average
common and common
equivalent shares
outstanding.......
Historical (1).... 217,038
Pro forma (2)..... 246,204
</TABLE>
<TABLE>
<CAPTION>
Predecessor
Companies Broadband Sports, Inc.
------------- -----------------------
December 31,
------------- Dec. 31, September 30,
1996 1997 1998 1999
------ ------ --------- -------------
(in thousands)
<S> <C> <C> <C> <C>
Consolidated and Combined Balance Sheet
Data:
Cash and cash equivalents............... $ 258 $ 53 $ 213 $ 9,320
Working capital ........................ $ 209 $ 587 $ 403 $ 9,407
Total assets............................ $1,172 $1,971 $2,356 $15,409
Revolving loan due to stockholder....... $ -- -- $1,998 $ 4,468
Mandatorily redeemable series A
preferred stock........................ $ -- -- $2,150 $ 2,285
Total stockholders' equity.............. $ 909 $1,631 $2,388 $ 6,116
</TABLE>
- ------------------
(1) See notes to the consolidated and combined financial statements for an
explanation of the determination of the number of shares used in computing
basic and diluted per share amounts.
(2) Pro forma loss per share on a historical basis takes effect for the
redemption of the series A preferred stock and the issuance and conversion
of the series B preferred stock.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF
OPERATIONS
You should read the following discussion in conjunction with our
consolidated financial statements and the notes to those statements included
elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties, such as statements of our
plans, objectives, expectations and intentions. Our actual results could
differ materially from those anticipated in the forward-looking statements as
a result of certain factors, including, but not limited to, those discussed in
"Risk Factors" and elsewhere in this prospectus.
Overview
We are a leading online provider of athlete sites and original, in-depth
team and player content targeted at distinct communities of sports fans. We
capitalize on the growing worldwide popularity of sports and the emergence of
the Internet by developing sports media properties that offer compelling
content and commerce. These properties are based on our proprietary assets,
which include multi-year contracts with over 200 athletes and sports
personalities that provide us with certain exclusive online rights, as well as
a network of over 270 local and regional sports writers. We have selected a
number of distribution partners, including AOL, eBay, Fox Sports, uBid and
Yahoo!, to target a broad range of sports communities effectively. To augment
the distribution of our content and products, we intend to pursue additional
distribution partners and to publicly release the www.athletedirect.com site.
Broadband Sports was incorporated in February 1998 to combine Athlete
Direct, Inc. and Pro Sports Xchange, Inc. under common ownership. Athlete
Direct began operations in September 1996. Pro Sports Xchange LLC began
operations in February 1996. Broadband Sports purchased all of the outstanding
stock of the Predecessor Companies in February 1998 for cash. In February
1999, Broadband Sports acquired the assets of Manna Mir Research, Inc., which
owned and operated the fantasy sports site, rotonews.com. These assets were
contributed to a newly formed subsidiary, RotoNews, Inc. In March 1999,
Broadband Sports formed a new subsidiary, SportsAuthentics.com, Inc., to
market and distribute sports-related merchandise and collectibles.
We have only a limited operating history upon which you can evaluate our
business and prospects. You must consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in their early
stage of development, particularly companies in new and rapidly evolving
markets. These risks include, among others, our ability to provide compelling
sports-related content and products, maintain existing and develop new
strategic relationships, publicly release the www.athletedirect.com site,
create an integrated common back-end platform, achieve and maintain projected
levels of online traffic, build an electronic commerce infrastructure,
increase our fulfillment capabilities and extend our brands. We cannot assure
you that we will be successful in addressing these risks, and our failure to
do so could have a material adverse effect on our business and financial
results. See "Risk Factors--Because we have operated our business only for a
short period of time, it is difficult to evaluate our prospects."
We have incurred significant net losses and negative cash flows from
operations since inception, and as of September 30, 1999, we had an
accumulated deficit of approximately $14.2 million. We intend to make
significant financial investments in developing new properties, content and
product offerings, enhancing our technology infrastructure and building our
brands and increasing our traffic through marketing and promotion. As a
result, we believe that we will incur losses from operations for the
foreseeable future. See "Risk Factors--We have a history of losses and
anticipate losses for the foreseeable future."
31
<PAGE>
In addition, our results of operations may fluctuate significantly in the
future as a result of a variety of factors, many of which are beyond our
control. These factors include, among others, seasonal trends in sporting
events; publicity concerning particular sports, leagues, team or athletes;
changes in distribution partners, advertisers or athletes; new sites, content
or products introduced by us or by our competition; mix of revenues from
content syndication, electronic commerce, advertisements and subscriptions;
the amount and timing of capital expenditures and other costs; changes in
demand for and supply of merchandise and collectibles; and general economic
conditions. If our operating results in any period fall below the expectations
of securities analysts and investors, the market price of our share would
likely decline. See "Risk Factors--Fluctuations in our operating results may
adversely affect our stock price."
Revenues. We currently derive revenues from four sources: content
syndication, advertising, electronic commerce and subscriptions. Content
syndication revenues represent licensing of original content and programming
to our distribution partners and are recognized over the period of the
distribution agreements as we deliver such content and programming. In
addition to cash payments, our content syndication revenues include guaranteed
promotion and positioning for certain of our product and content offerings.
Advertising revenues represent the sale of banner advertisements and
sponsorships and are recognized ratably over the period in which they are
displayed, provided that no significant obligations remain and collection of
the resulting receivable is probable. Electronic commerce revenues represent
the sale of sports-related merchandise and collectibles and are recognized
once the product has been shipped and collection of the resulting receivable
is probable. Subscription revenues represent customer subscriptions to our
premium content offerings and are recognized ratably over the subscription
period, which is typically a professional sports season. Subscriptions are
generally billed in advance and charged directly to customers' credit cards.
Deferred revenues relate to subscription fees that have been collected but for
which revenues have not yet been recognized.
We generate revenues from our four current properties:
. Athlete Direct launched its initial site on the AOL platform in the third
quarter of 1996 and recognized its first content syndication revenues
from AOL in that quarter. Since the third quarter of 1996, Athlete Direct
has maintained a distribution relationship with AOL, which was exclusive
through March 1999. In 1999, Athlete Direct entered into an agreement
with Yahoo! to syndicate its content to Yahoo! Sports. In addition,
Athlete Direct currently sells collectibles through eBay. To date,
Athlete Direct has derived revenues primarily from content syndication
and, to a lesser extent, from the sale of advertising and electronic
commerce. To augment the distribution of our content and products, we
intend to publicly release the www.athletedirect.com site in the last
quarter of 1999. We cannot assure you that we will be able to release the
www.athletedirect.com site on a timely basis, if at all. "See Risk
Factors--We may experience difficulties and delays in the release and
successful marketing of our www.athletedirect.com site."
. PSX initially recognized revenues from content syndication in the first
quarter of 1996. During 1997, PSX entered into syndication relationships
that limited distribution for its content to three distribution partners.
These distribution restrictions expired in December 1998. Currently,
PSX's distribution partners include AOL, AOL.com, Fox Sports and Yahoo!.
PSX derives revenues primarily from content syndication and, to a lesser
extent, the sale of subscriptions to its premium content offerings.
Subscriptions are sold to consumers through the psx.com Web site and
through our various distribution partners.
32
<PAGE>
. RotoNews derives substantially all of its revenues from the sale of
banner advertisements on its Web site, rotonews.com. In addition to its
own site, RotoNews' content and commissioner services are distributed
primarily through sites targeted at the fantasy sports market.
. SportsAuthentics.com derives electronic commerce revenues from the sale
of sports merchandise and collectibles. SportsAuthentics.com distributes
products both through its distribution relationship with uBid and its own
branded online stores on the World Wide Web and on the AOL platform.
Cost of Revenues. Our cost of revenues includes compensation and benefits
for editorial and operations personnel, contractual royalty fees to content
providers including athletes, sports writers, and sports personalities and
telecommunications, Internet access and computer-related expenses for the
support and delivery of our services. Cost of revenues also includes the cost
of merchandise and collectibles sold and the royalty and other payments paid
to certain partners and athletes based on a percentage of the revenues or
gross profits generated.
Operating Expenses.
Sales and Marketing. Sales and marketing expenses consist of advertising and
promotional expenditures, salaries and related expenses for personnel engaged
in marketing, advertising sales, customer service, fulfillment and public
relations. Amounts earned by content providers including athletes, sports
writers, and sports personalities in excess of the contractual royalty are
included in sales and marketing expenses.
Product Development. Product development expenses consist primarily of
employee compensation and benefits, and consulting and development fees
required to enhance existing and develop new product and content offerings.
General and Administrative. General and administrative expenses consist of
salary and related costs for general corporate functions as well as
professional service fees and facilities expenses.
Depreciation. Depreciation expenses consist of the depreciation of property
and equipment.
Amortization. Amortization expenses consist of the amortization of goodwill
associated with the acquisitions of Athlete Direct and PSX in February 1998
and RotoNews in February 1999 and deferred stock compensation and incentive
costs.
We intend to recognize $3.3 million of additional amortization expense
related to deferred compensation and incentives existing as of September 30,
1999 as follows:
<TABLE>
<CAPTION>
Amount
Year (in millions)
---- -------------
<S> <C>
1999........................................................... $0.5
2000........................................................... 1.5
2001........................................................... 0.8
2002........................................................... 0.4
2003........................................................... 0.1
----
Total........................................................ $3.3
====
</TABLE>
Interest Expense. Interest expense consists of interest incurred on our
existing revolving loan due to stockholder.
33
<PAGE>
Interest Income. Interest income represents interest earned on cash and cash
equivalents and marketable securities.
Income Taxes. No provision for Federal and state income taxes has been
recorded as we incurred net operating losses for each period presented. As of
September 30, 1999, we had approximately $9.0 million of net operating loss
carryforwards for Federal income tax purposes, available to offset future
taxable income. Due to the change in our ownership interests in connection
with this offering and prior private placements, future utilization of the net
operating loss carryforwards may be subject to certain annual limitations.
These net operating losses begin to expire in 2009. Given our limited
operating history, losses incurred to date and the difficulty in accurately
forecasting our future results, we do not believe that the realization of the
related deferred income tax assets meets the criteria required by generally
accepted accounting principles and, accordingly, a full 100% valuation
allowance has been recorded to reduce the deferred income tax assets to zero.
See Note 7 of Notes to Consolidated and Combined Financial Statements.
Results of Operations
The following tables set forth statement of operations data for the periods
indicated as a percentage of net revenues. Since we began operations on
February 27, 1998, in order to provide a full year of operating results, we
combined the two months of 1998 during which the Predecessor Companies had
operations with Broadband Sports. The following table sets forth our combined
statement of operations data and the Predecessor Companies statement of
operations data for the periods indicated as a percentage of net revenues:
<TABLE>
<CAPTION>
Period from Two Months Ten Months Combined
February 1, 1996 Year ended ended ended Year ended
to December 31, December 31, February 27, December 31, December 31,
1996 1997 1998 1998 1998
---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 189.0 69.4 58.4 74.9 72.3
------ ------ ----- ------ ------
Gross profit (loss)..... (89.0) 30.6 41.6 25.1 27.7
Operating expenses:
Sales and marketing.... 1.9 8.2 13.8 21.8 20.5
Product development.... 3.6 1.2 1.7 5.0 4.5
General and
administrative........ 44.4 35.9 26.8 56.5 51.9
Depreciation........... 1.3 0.8 0.7 1.6 1.5
Amortization of
goodwill.............. -- -- -- 9.0 7.5
Amortization of
deferred stock
compensation and
deferred incentives... 24.0 22.0 29.6 88.7 79.4
------ ------ ----- ------ ------
Total operating
expenses............... 75.2 68.1 72.6 182.6 165.3
------ ------ ----- ------ ------
Operating loss.......... 164.2 37.5 31.0 157.5 137.6
Interest and other
expense................ (0.1) (0.1) -- 2.7 2.2
------ ------ ----- ------ ------
Net loss................ 164.1 37.4 31.0 160.2 139.8
====== ====== ===== ====== ======
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Combined
Two months Seven months Nine months Nine months
ended ended ended ended
February 27, September 30, September 30, September 30,
1998 1998 1998 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 58.4 73.6 70.4 66.6
------ ------ ----- -----
Gross profit (loss)..... 41.6 26.4 29.6 33.4
Operating expenses:
Sales and marketing.... 13.8 11.0 11.6 78.4
Product development.... 1.7 4.4 3.9 12.5
General and
administrative........ 26.8 55.9 49.8 71.6
Depreciation........... 0.7 1.3 1.2 4.7
Amortization of
goodwill.............. -- 8.9 7.0 4.7
Amortization of
deferred stock
compensation and
deferred incentives... 29.6 97.0 82.8 33.5
------ ------ ----- -----
Total operating
expenses............... 72.6 178.5 156.3 205.4
------ ------ ----- -----
Operating loss.......... 31.0 152.1 126.7 172.0
Interest and other
expense................ -- 2.1 1.7 0.7
------ ------ ----- -----
Net loss................ 31.0 154.2 128.4 172.7
====== ====== ===== =====
</TABLE>
Nine Months Ended September 30, 1998 and 1999
Revenues. Revenues increased $3.3 million, to $5.7 million, or 137%, for the
nine months ended September 30, 1999 from $2.4 million for the nine months
ended September 30, 1998. The increase in revenues was primarily the result of
increased content syndication revenues from additional distribution partners
and increased advertising and electronic commerce revenues due to higher
traffic, the introduction of additional content offerings and new distribution
relationships.
Cost of Revenues. Cost of revenues increased $2.1 million to $3.8 million
for the nine months ended September 30, 1999 from $1.7 million for the nine
months ended September 30, 1998. Our gross margin increased to 33.4% from
29.6% for the nine months ended September 30, 1999 from the nine months ended
September 30, 1998. The decrease in cost of revenues as a percentage of total
revenues was primarily attributable to growth in higher margin syndication and
advertising revenues for the 1999 period as compared to the similar 1998
period. The increase in cost of revenues on an absolute basis was primarily
the result of increased headcount, particularly in editorial and operations,
as well as increases in revenue and gross profit sharing with our athletes and
third-party content providers.
Sales and Marketing. Sales and marketing expenses increased $4.2 million to
$4.5 million for the nine months ended September 30, 1999 from $278,000 for
the nine months ended September 30, 1998. This increase was primarily
attributable to additional marketing fees paid to distribution partners, an
increase in amortization of advances paid to athletes, increased advertising
and marketing activity and the hiring of additional sales and marketing staff.
We intend to pursue a branding and marketing campaign in connection with the
public release of athlete sites and the www.athletedirect.com site and in
support of our other properties. Accordingly, we expect sales and marketing
expenses to increase in absolute dollars in the future.
Product Development. Product development expenses increased $620,000 to
$714,000 for the nine months ended September 30, 1999 from $94,000 for the
nine months ended September 30, 1998. This increase was primarily attributable
to the costs of additional personnel and related expense associated with the
development of the www.athletedirect.com site, network operations and other
new programming initiatives. We intend to invest additional resources on the
further development of our
35
<PAGE>
online sites, upgrades to our technological infrastructure, integration of a
common back-end platform across all our properties, and other product
development efforts in the future. As a result, we expect product development
expenses to increase in absolute dollars in the future.
General and Administrative. General and administrative expenses increased
$2.9 million to $4.1 million for the nine months ended September 30, 1999 from
$1.2 million for the nine months ended September 30, 1998. This increase in
general and administrative expenses was primarily attributable to headcount
and related expenses associated with hiring of additional personnel and
increased professional services fees. We expect general and administrative
costs to increase in absolute dollars in the future as we continue to hire
personnel and build our operational infrastructure.
Depreciation. Depreciation expenses increased $239,000 to $268,000 for the
nine months ended September 30, 1999 from $29,000 for the nine months ended
September 30, 1998. The increase in depreciation was primarily due to
increases in facilities, equipment and related costs associated with increases
of personnel in all areas. We expect depreciation expenses to continue to
increase as we invest in additional property and equipment in the future.
Amortization. Amortization expenses increased $19,000 to $2.19 million for
the nine months ended September 30, 1999 from approximately $2.17 million for
the nine months ended September 30, 1998. This increase in amortization was
primarily due to increased amortization of goodwill associated with the
acquisition of RotoNews. To the extent that we acquire businesses or
technologies in the future, we may be required to amortize a significant
amount of intangible assets related to these acquisitions, which could
adversely affect our operating results. In addition, we intend to sign
additional athletes, sports writers and sports personalities and we may incur
additional deferred incentives.
Interest Expense. Interest expense increased $209,000 to approximately
$244,000 for the nine months ended September 30, 1999 from approximately
$35,000 for the nine months ended September 30, 1998. The increase in interest
expense reflects a higher outstanding balance on our revolving loan due to
stockholders during the nine months ended September 30, 1999.
Interest Income. Interest income increased $200,000 for the nine months
ended September 30, 1999 from zero for the nine months ended September 30,
1998. The Company generated this income by investing the proceeds from the
series B preferred stock issued during the second quarter of 1999.
Inception Period and Years Ended December 31, 1997 and 1998
Revenues. Revenues increased $1.7 million, or 757%, to $1.9 million for the
year ended December 31, 1997 from $219,000 for the period from inception to
December 31, 1996, and increased $1.4 million, or 72%, to $3.2 million for the
year ended December 31, 1998 from $1.9 million for the year ended December 31,
1997. The increase from 1996 to 1997 was primarily due to increased content
syndication revenues as a result of additional distribution partners and
earning an entire year of revenues in December 31, 1997. The increase from
1997 to 1998 was primarily the result of additional content syndication
revenues and, to a lesser extent, increased advertising and electronic
commerce revenues which were the result of increased traffic and additional
content offerings.
Cost of Revenues. Cost of revenues increased $900,000 to $1.3 million for
the period ended December 31, 1997 from $414,000 for the period from inception
to December 31, 1996, and increased $1 million to $2.3 million for the year
ended December 31, 1998 from $1.3 million for the year ended December 31,
1997. Our gross margin decreased from 30.6% for the twelve months ended
December 31, 1997 to 27.7% for the similar period ended December 31, 1998.
These increases in cost
36
<PAGE>
of revenues were primarily the result of increased hiring, particularly in
editorial and operations staff, as well as increases in revenue and gross
profit sharing with athletes and third party content providers.
Sales and Marketing. Sales and marketing expenses increased $150,000 to
$154,000 for the year ended December 31, 1997 from $4,000 for the period from
inception to December 31, 1996, and increased $507,000 to $661,000 for the
year ended December 31, 1998 from $154,000 for the year ended December 31,
1997. The increase in sales and marketing expenses in 1998 from 1997 and 1996
was primarily attributable to increases in our sales and marketing staffs and
payments to non-employees.
Product Development. Product development expenses increased $14,000 to
$22,000 for the year ended December 31, 1997 from $8,000 for the period from
inception to December 31, 1996, and increased $124,000 to $146,000 for the
year ended December 31, 1998 from $22,000 for the year ended December 31,
1997. The increase in product development expenses in 1998 from 1997 and 1996
was primarily attributable to hiring additional technical personnel in 1998
and in 1997.
General and Administrative. General and administrative expenses increased
$575,000 to $672,000 for the year ended December 31, 1997 from $97,000 for the
period from inception to December 31, 1996, and increased $1.0 million to $1.7
million for the year ended December 31, 1998 from $672,000 for the year ended
December 31, 1997. The increases in general and administrative expenses in
each period were primarily attributable to salary and related expenses for
additional personnel, increased costs related to a new facility and an
increase in professional fees.
Depreciation. Depreciation expenses increased $12,000 to $15,000 for the
year ended December 31, 1997 from $3,000 for the period from inception to
December 31, 1996, and increased $32,000 to $47,000 for the year ended
December 31, 1998 from $15,000 for the year ended December 31, 1997. The
increases in depreciation expenses in 1998 from 1997 and 1996 were due to the
purchase of additional property and equipment.
Amortization. Amortization expenses increased $361,000 to $414,000 for the
year ended December 31, 1997 from $52,000 for the period from inception to
December 31, 1996, and increased $2.4 million to $2.8 million for the year
ended December 31, 1998 from $414,000 for the year ended December 31, 1997.
The increases in amortization expenses in 1998 from 1997 and 1996 were
primarily due to amortization of deferred stock compensation and incentives
and the amortization of goodwill related to our acquisition of PSX.
Interest Expense. We incurred no interest expense during the period from
inception to December 31, 1996 and the year ended December 31, 1997. Interest
expense was approximately $67,000 for the year ended December 31, 1998. The
increase in interest expense in 1998 from 1997 and 1996 was due to the initial
use of our revolving loan, which became available in the first quarter of
1998.
37
<PAGE>
Quarterly Results of Operations
The following table sets forth the unaudited quarterly statement of
operations data for each of the six quarters ended September 30, 1999 and as a
percentage of revenues for our six most recent quarters. The unaudited
quarterly information has been derived from our unaudited financial statements
and, in the opinion of management, include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of the
information for the periods covered. The quarterly data should be read in
conjunction with our financial statements and related notes. The operating
results for any quarter are not necessarily indicative of the operating
results for any future period.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
June 30, September 30, December 31, March 31, June 30, September 30,
1998 1998 1998 1999 1999 1999
-------- ------------- ------------ --------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $ 778 $ 890 $ 811 $ 1,553 $ 1,758 $ 2,414
Cost of revenues........ 545 712 631 786 1,371 1,655
----- ------- ------- ------- ------- -------
Gross profit............ 233 178 180 767 387 759
Operating expenses:
Sales and marketing... 110 70 382 977 1,331 2,180
Product development... 40 40 51 195 272 247
General and
administrative....... 301 584 449 814 1,473 1,811
Depreciation.......... 9 15 17 30 87 151
Amortization of
goodwill ............ 72 73 74 80 94 95
Amortization of
deferred stock
compensation and
deferred incentives.. 280 463 585 694 690 536
----- ------- ------- ------- ------- -------
Total operating
expenses............ 812 1,245 1,558 2,790 3,947 5,020
----- ------- ------- ------- ------- -------
Operating loss.......... (579) (1,067) (1,378) (2,023) (3,560) (4,261)
Interest income......... -- -- -- -- 43 156
Interest and other
expenses............... (19) (18) (33) (54) (91) (99)
----- ------- ------- ------- ------- -------
Net loss................ $(598) $(1,085) $(1,411) $(2,077) $(3,608) $(4,204)
===== ======= ======= ======= ======= =======
As a Percentage of
Revenues:
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 70.1 80.0 77.8 50.6 78.0 68.6
----- ------- ------- ------- ------- -------
Gross profit............ 29.9 20.0 22.2 49.4 22.0 31.4
Operating expenses:
Sales and marketing... 14.1 7.9 47.1 62.9 75.7 90.3
Product development... 5.1 4.5 6.3 12.5 15.5 10.2
General and
administrative....... 38.7 65.6 55.4 52.4 83.8 75.0
Depreciation.......... 1.2 1.7 2.1 1.9 5.0 6.3
Amortization of
goodwill............. 9.3 8.2 9.1 5.2 5.3 3.9
Amortization of
deferred stock
compensation and
deferred incentives.. 36.0 52.0 72.1 44.7 39.2 22.2
----- ------- ------- ------- ------- -------
Total operating
expenses............ 104.4 139.9 192.1 179.6 224.5 207.9
----- ------- ------- ------- ------- -------
Operating loss.......... (74.5) (119.9) (169.9) (130.2) (202.5) (176.5)
Interest income......... -- -- -- -- 2.4 6.5
Interest and other
expenses............... (2.4) (2.0) (4.1) (3.5) (5.1) (4.1)
----- ------- ------- ------- ------- -------
Net loss................ (76.9) (121.9) (174.0) (133.7) (205.2) (174.1)
===== ======= ======= ======= ======= =======
</TABLE>
Revenues were derived primarily from a limited number of content syndication
relationships in 1998. The fixed nature of these agreements resulted in
limited volatility in quarterly revenues during 1998. As our revenue mix
shifts to a higher proportion of revenues being derived from advertising and
electronic commerce, quarterly revenues may fluctuate more significantly than
in prior quarters.
Cost of revenues has increased each quarter due to higher editorial and
content costs and third-party fees paid to athletes and content providers.
Operating expenses exclusive of amortization
38
<PAGE>
of deferred stock compensation and deferred incentives have increased each
quarter on both an absolute and a percentage basis as we have significantly
increased our headcount and built our infrastructure to support the growth of
our business as well as increased spending on marketing, product development
and professional fees.
Liquidity and Capital Resources
From inception through February 1998, we and the Predecessor Companies have
funded our operations primarily through capital contributions and to a lesser
extent, from the cash generated by operations. Since February 1998, we have
funded our operations through a $4.5 million revolving loan that was
established by our principal stockholder and have raised an aggregate of
approximately $36.5 million, net of offering expenses, through the sale of our
equity securities. Interest on outstanding debt accrues at an annual rate of
prime plus 1% and the borrowings under the credit line are secured by our
assets. All amounts borrowed under the credit line mature and become due upon
the closing of this offering. At September 30, 1999, the outstanding balance
on this credit line was approximately $4.5 million.
We and the Predecessor Companies have entered into various licensing,
royalty, distribution, and consulting agreements with various online sites,
vendors and other non-employees. The remaining terms of these agreements
provide for the payment of royalties, bounties, and certain guaranteed amounts
on a per member and/or minimum dollar amount basis. Additionally, some
agreements provide for a specified percentage of advertising and merchandising
revenue to be paid to non-employees from whose online site the revenue is
derived. There are minimum guaranteed payments required under such agreements
at December 31, 1998 totalling $1.7 million.
At September 30, 1999, we had approximately $9.3 million in cash and cash
equivalents. Net cash used in operating activities was $729,000 and
$7.7 million for the nine months ended September 30, 1998 and 1999,
respectively. Net cash used in operating activities resulted primarily from
our net operating losses, adjusted for certain non-cash items, including
amortization of deferred stock compensation and deferred incentives. Non-cash
charges related to the issuance of these options were $1.9 million, $2.6
million and $414,000 for the nine months ended September 30, 1999 and for the
years ended December 31, 1998 and 1997, respectively. Non-cash charges
relating to depreciation expenses for the nine months ended September 30, 1999
and, the years ended December 31, 1998 and 1997 were $268,000, and $47,000 and
$15,000.
Net cash used in investing activities was $2.4 million and $2.1 million for
the nine months ended September 30, 1998 and 1999. Net cash used in investing
activities was $39,000 and $2.4 million for 1997 and 1998. Net cash used in
investing activities resulted primarily from capital expenditures related to
purchases of computer software and equipment and acquisition of the
predecessor companies and RotoNews during 1998 and 1999.
Net cash provided by financing activities was $3.2 million and $19.0 million
for the nine months ended September 30, 1998 and 1999. Net cash provided by
financing activities was $243,000 and $4.1 million for the years ended
December 31, 1997 and 1998. Net cash provided by financing activities for
these periods includes capital contributions and borrowings from the revolving
loan due to stockholder. The $19.0 million provided in the nine months ended
September 30, 1999 includes $16.5 million of proceeds from the issuance of
series B preferred stock and $2.5 million of proceeds from the revolving loan
due to stockholder.
In November 1999, we raised $17.8 million of proceeds from the issuance of
common stock to our Chief Executive Officer and the issuance of series C
preferred stock.
39
<PAGE>
We have experienced a substantial increase in our capital expenditures since
our inception, consistent with the growth in our operations and staffing, and
we anticipate that this will continue for the foreseeable future. These
expenditures are primarily for computer equipment, software, lease
commitments, furniture and fixtures. We had no material commitments for
capital expenditures at September 30, 1999, but we expect to incur capital
expenditures and other lease expenses of approximately $4.0 million in 1999
and approximately $6.0 million in 2000. Additionally, we will continue to
evaluate possible investments in businesses, products and technologies, and
plan to expand our sales and marketing programs and conduct more significant
brand promotions. In October 1999, we entered into an equipment lease
agreement where we can finance up to a maximum amount of $2.8 million in
capital expenditures. The agreement is for three years with an interest rate
of 7.5%. This line will help us finance our capital investments.
We believe that the net proceeds from this offering and net proceeds of
$17.8 million from the series C preferred stock and the issuance of common
stock in November 1999 combined with our current cash and cash equivalents,
will be sufficient to fund our working capital and capital expenditure
requirements for at least the next 12 months. However, we expect to continue
to incur significant operating losses for the foreseeable future. To the
extent we require additional funds to support our operations or the expansion
of our business, we may sell additional equity, issue debt or convertible
securities or obtain credit facilities through financial institutions. The
sale of additional equity or convertible securities will result in additional
dilution to our stockholders. We cannot assure you that additional financing,
if required, will be available to us in amounts or on terms acceptable to us,
if at all. If funding is insufficient at any time in the future, we may be
limited in our ability to fund expansion, develop or enhance content or
products, respond to competitive pressures or take advantage of business
opportunities.
Seasonality
We expect that our revenues will be higher leading up to and during major
U.S. sports seasons and sporting events and during the year-end holiday
periods, and lower at other times of the year, particularly during the summer
months. In addition, the effect of such seasonal fluctuations in revenues
could be enhanced or offset by revenues associated with certain major sporting
events, such as the Superbowl, or the effects of having our athletes
participate in events that do not occur on an annual basis, such as the
Olympics and the World Cup.
Year 2000 Compliance
Many existing computer programs use only two digits to identify a year.
These programs were designed and developed without addressing the impact of
the upcoming change in the century. If not corrected, many computer software
applications could fail or create erroneous results by, at or beyond the year
2000. We use internally developed and third-party software, technology and
other services that may fail due to the year 2000 phenomenon. For example, we
are dependent on the financial institutions involved in processing our
customers' credit card payments and a third party that hosts our servers. We
are also dependent on telecommunications vendors to maintain our network and
the United States Postal Service and other third-party carriers to deliver
orders to customers.
The year 2000 readiness of the general infrastructure necessary to support
our operations is difficult to assess. For instance, we depend on the
integrity and stability of the Internet to provide our services. We also
depend on the year 2000 compliance of the computer systems and financial
services used by consumers. Thus, the infrastructure necessary to support our
operations consists of networks of computers and telecommunication systems
located throughout the world and operated by numerous
40
<PAGE>
unrelated entities and individuals, none of which has the ability to control
or manage the potential year 2000 issues that may impact the entire
infrastructure. Our ability to assess the reliability of this infrastructure
is limited and relies solely on generally available news reports, surveys and
comparable industry data. Based on these sources, we believe most entities and
individuals that rely significantly on the Internet are carefully reviewing
and attempting to remediate issues relating to the year 2000 compliance, but
it is not possible to predict whether these efforts will be successful in
reducing or eliminating the potential negative impact of year 2000 issues. A
significant disruption in the ability of consumers to reliably access the
Internet or portions of it or to use credit cards would have an adverse effect
on demand for our services and would have a material adverse effect on us. Any
failure of our material systems, our vendors' material systems or the Internet
to be year 2000 compliant could also have material adverse consequences for
us. Such consequences could include difficulties in operating our Web site
effectively, taking product orders, making product deliveries or conducting
other fundamental parts of our business.
To minimize the effect of the year 2000 problem, we established a year 2000
compliance program that involves the identification, assessment and testing of
the equipment and systems affected in the following manner:
. the completion of an assessment of information technology (IT) equipment
and systems, which includes web servers and web serving technology;
. the completion of an assessment of non-information technology (non-IT)
embedded systems such as building security, voice mail, fire prevention,
climate control and other systems; and
. an analysis of the readiness of significant third party vendors and
suppliers of services.
The program, which is expected to be completed by the middle of December
1999, covers the following phases:
. development of an inventory of all IT equipment and systems and non-IT
systems that are potentially affected;
. determination of those systems that require repair or replacement;
. repair or replacement of those systems;
. testing of those repaired or replaced systems; and
. creation of contingency plans in the event of Year 2000 failures.
To date, less than 10% of assessed systems have required repair or
replacement. Non-IT systems and internally developed programs have been
reviewed, and are not considered to be date sensitive to the year 2000. Based
on this evaluation, we do not believe that our systems and programs present
year 2000 issues. However, if third party vendors and suppliers are not able
to make all systems year 2000 compliant, our operations may be negatively
affected.
Because the majority of our infrastructure is new, costs attributable to
this project to date have not been material. Based upon procedures performed
to date, we further anticipate that future costs related to this project will
also not be material; however, future costs are difficult to estimate and may
differ materially from those currently projected. The anticipated costs
associated with our year 2000 compliance program do not include time and costs
that may be incurred as a result of any potential failure of third parties to
become year 2000 compliant or costs to implement our future contingency plans.
If systems important to our operations have not been made year 2000 compliant,
or if third parties fail to make their systems year 2000 compliant in a timely
manner, the year 2000 issue could negatively affect our business.
41
<PAGE>
Qualitative and Quantitative Disclosures About Market Risk
Our sales from inception to date have been made to U.S. customers and, as a
result, we have not had any exposure to factors such as changes in foreign
currency exchange rates or weak economic conditions in foreign markets.
However, in future periods, we expect to sell in foreign markets, including
Europe and Asia. As our sales are made in U.S. dollars, a strengthening of the
U.S. dollar could make our products less competitive in foreign markets. At
September 30, 1999, we did not hold any significant short or long-term
investments and, therefore, did not have any market risk exposure related to
changes in interest rates related to such investments. As of September 30,
1999, we were exposed to interest rate risk on our outstanding revolving loan
due to stockholder. The table below presents principal amounts by expected
maturity date and the weighted average interest rates of debt obligations
which are sensitive to changes in interest rates.
<TABLE>
<CAPTION>
Expected Maturity Date
------------------------------------------------------
1999 2000 2001 2002 2003
---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Revolving loan due to
stockholder............ $ -- $ -- $ -- $ -- $4,468,085
Weighted average
interest rate.......... -- -- -- -- 8.75%
</TABLE>
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<PAGE>
INDUSTRY BACKGROUND
The Sports Market
Sports is one of the most popular forms of entertainment, generating intense
interest and profound loyalty among sports fans worldwide. Approximately 87%
of the U.S. population over the age of 11 consider themselves sports fans,
according to the 1998 espn/chilton Sports Poll. The popularity of sports has
produced one of the largest industries in the world, creating substantial
business opportunities, such as providing sports-related entertainment,
products and advertising. Over $130 billion of revenue was derived from
spectator sports, sporting goods and sporting publications in the U.S. in
1995, according to a study from the Georgia Institute of Technology. More
specifically, in 1998:
. Retailers sold approximately $45.6 billion of official licensed sports
merchandise and collectibles according to the Sporting Goods Manufacturer
Association;
. Sports-related television advertising was approximately $4.8 billion and
is projected to increase to $6.6 billion in 2003, according to Paul Kagan
Associates, Inc.
In addition to on-air advertising, many corporations spend significant
amounts of sponsorship dollars annually to associate their brands with
individual athletes and sporting events.
Although the sports market is large, it is also highly fragmented,
comprising thousands of individual communities of sports fans who are devoted
to their favorite leagues, teams and athletes and desire higher levels of
interaction with the players they admire. Many of these individual communities
are sizeable in their own right and often consist of geographically dispersed
sports fans. Whether it be Dallas Cowboys fans or a fantasy baseball league,
each distinct community includes numerous sports fans who desire timely,
original and in-depth information and authentic merchandise and collectibles
related to their favorite leagues, teams and athletes. The Dallas Cowboys, for
example, generated over $50 million in home game receipts and suite revenues,
and fans bought approximately $300 million of Dallas Cowboys merchandise in
1998 according to Forbes magazine.
Emergence of the Internet
The Internet has emerged as a mass medium for commerce and communication,
enabling millions of people worldwide to be entertained, interact, distribute
and collect information, create communities among individuals with similar
interests and make purchases electronically. International Data Corporation
projects that worldwide Internet use will grow from approximately 142 million
users at the end of 1998 to 399 million users in 2002.
As a platform for commerce, the Internet enables businesses to reach a
worldwide audience, achieve greater economies of scale and operate with less
physical infrastructure, while providing consumers with greater convenience
and access to a broad selection of content and products. International Data
Corporation projects that the value of goods and services purchased worldwide
on the Internet will grow from approximately $50 billion in 1998 to $734
billion in 2002. As an advertising medium, the Internet provides numerous
advantages over traditional media, including the ability to target specific
demographic groups, measure the effectiveness of advertising campaigns and
modify these campaigns in response to real-time feedback. Forrester Research
projects that total annual spending on Internet advertising will reach $15
billion in 2003.
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<PAGE>
Traditional Sports Media and Commerce
While traditional mass media, such as broadcast and cable television, radio,
newspapers and magazines, are effective in providing sports programming and
content to a broad audience, these media are limited in their ability to
efficiently tailor their content to appeal to the specific interests of
distinct sports communities. In addition, traditional media are constrained in
their ability to enable sports fans to interact with each other and with their
favorite athletes, writers and sports personalities.
Similarly, we believe that traditional retail distribution channels face a
number of challenges in providing a satisfying shopping experience for
consumers of sports merchandise and collectibles within individual sports
communities. Traditional retail distribution channels are generally limited in
their ability to provide a broad selection of products related to teams and
players outside of their local markets. They are also limited in their ability
to quickly alter their inventory or presentation of sports offerings in
response to specific sporting event outcomes and milestones. In addition, it
is difficult to verify the authenticity of sports collectibles because the
traditional retail distribution channels generally do not source these items
directly from athletes.
Existing Internet Sports Offerings
In response to the limitations of traditional sports media and commerce, the
Internet has emerged as an attractive and growing channel for the distribution
of sports content and products. Approximately 36 million people in the United
States accessed sports information on the Internet in 1998, 40% more than in
1997, as estimated by the espn/chilton Sports Poll. According to International
Data Corporation, approximately 58% of Internet users are between the ages of
12 and 34. The Internet has become a medium of choice for individuals in this
age group. We believe that sports has become a popular application over the
Internet because, among other reasons, there is a significant overlap between
the demographic of Internet users and sports fans.
Although there are many Web sites that include sports information as part of
their content offerings, these sites typically offer general information and
do not provide content and commerce targeted at distinct communities of sports
fans. Most sites do not create communities for fans to interact with one
another and with athletes and other sports personalities or offer electronic
commerce integrated into their sports content. Because their sports content is
typically generic, these sites are required to incur significant marketing
expenses to differentiate themselves from other sites with comparable
information.
Because of these limitations and the desire to attract users, Internet
portals and other destination sites continue to seek ways to differentiate
their sites by expanding and enriching their offerings with distinctive
content, including sports content. This demand has created a significant
market for syndicated content, including sports content, that is original,
entertaining and informative.
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BROADBAND SPORTS
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our Consolidated and Combined Financial Statements and Notes to
Consolidated and Combined Financial Statements appearing elsewhere in this
prospectus.
Broadband Sports is a leading Internet provider of original content and
commerce for hundreds of individual sports communities. These geographically
dispersed communities are composed of fans who follow individual sports, teams
and athletes and are characterized by a passionate demand for content and
commerce relating to their particular interests. In aggregate, these sports
communities generated over $130 billion in revenue according to the most
recently published study from the Georgia Institute of Technology. We believe
that we are well positioned to target these communities through our
development of distinct online media properties, each of which is built around
a set of proprietary assets. By leveraging these proprietary assets, we have
created a unique and compelling network of content, community and commerce
offerings. Through our partnerships with AOL, eBay, Fox, uBid, and Yahoo!, we
are able to efficiently reach these various communities with the type of
content and commerce offerings they demand and derive revenue from multiple
sources. During October 1999, we had over 35 million page impressions across
our properties.
To date, we have developed four online media properties:
. Athlete Direct--Athlete Direct is a leading provider of athlete Web
sites. We currently have contracts with more than 200 athletes that
provide us with certain exclusive online rights, and we operate the
official sites for athletes such as:
<TABLE>
<S> <C> <C>
Troy Aikman Ken Griffey, Jr. Dennis Rodman
Drew Bledsoe Tony Gwynn Keith Van Horn
Barry Bonds Mia Hamm Michael Waltrip
Kobe Bryant Anna Kournikova Bernie Williams
Brett Favre Karl Malone Ricky Williams
Sergei Fedorov Mike Piazza Steve Young
</TABLE>
We create Web sites offering unique content and contextually relevant
commerce relating to each of our athletes. Our athletes provide
interactive content and authentic e-commerce opportunities that are not
readily available elsewhere. In addition, these characteristics enable
Athlete Direct to create vibrant communities where fans can interact with
each other. By aggregating numerous athlete sites under one network,
Athlete Direct can consistently provide fans with new, original content
and commerce.
. Pro Sports Xchange and College Sports Xchange--PSX and its collegiate
division, CSX, are leading sources of in-depth team and player
information online. PSX covers all MLB, NFL, NBA and NHL sports teams and
players and CSX covers every Division I college football and basketball
team. Each of these communities is seeking the latest and best inside
information, which is not readily available through other online or
offline media outlets. PSX is able to provide up-to-date information
through its network of over 270 local and regional sports writers, all of
whom are under contract to provide us with exclusive online content.
. RotoNews--RotoNews is a leading online fantasy sports site offering
proprietary news, games and statistical and commissioner services.
Because participants invest significant time learning
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<PAGE>
league rules, becoming familiar with the user interface and personalizing
their site by entering specific league and player information, we believe
that RotoNews creates significant user loyalty and generates frequent
visits of extended duration.
. SportsAuthentics.com--SportsAuthentics.com is an Internet retailer of
sports collectibles and merchandise. We address the limitations of the
current distribution channels by providing team and athlete products to
fans outside of their local markets and authentic, player/team endorsed
products. We are also able to offer unique products which are available
exclusively through SportsAuthentics.com.
We syndicate our distinctive sports content to various distribution
partners, including AOL, eBay, Fox Sports, uBid, and Yahoo!. Together, the
distribution of our content and products across multiple platforms enables us
to effectively target numerous sports communities, increase brand awareness,
promote our product offerings and generate revenues from multiples sources.
Our properties enable us to derive revenue from multiple sources, including:
. Content syndication. The majority of Internet companies pay significant
fees to distribute their content and product offerings online. By
contrast, the distinctiveness and in-depth analysis of our content has
enabled us to receive significant syndication fees from our distribution
partners, such as AOL, Fox Sports and Yahoo!
. Advertising. We offer advertisers the opportunity to target the
attractive demographics of sports enthusiasts and associate their brands
with high-profile athletes and sports personalities.
. Electronic Commerce. We offer sports fans an easy-to-use environment for
purchasing authentic player and team related merchandise and
collectibles.
. Subscription. We offer subscriptions to premium content offerings such as
My Baseball Daily, to provide in-depth, original information about teams
and players that is generally not available through traditional media
sources.
In creating and delivering our original content and commerce to distinct
sports communities, we obtain efficiencies across our various sports media
properties through the common use of our proprietary assets, distribution and
technology. We believe we can continue to leverage aspects of our existing
assets, distribution and technology to assist in the development of new
properties focused on different sports communities.
Our Strategy
Our objective is to be the leading online provider of proprietary sports
content and products to a large number of sports communities worldwide. Key
strategies to achieve our objective include:
Continue to Acquire Proprietary Assets. Athletes, writers and sports
personalities are fundamental to the growth and popularity of sports. We
intend to both continue adding to our existing asset base of athletes, writers
and sports personalities, and to develop and acquire new types of proprietary
assets. During 1999, we have added more than 150 athletes, writers and sports
personalities to our various properties.
Continue to Develop Original Content, Programming and Related Product
Offerings. Currently, we believe we are the leading provider of athlete-
oriented content, in-depth player and team information, and fantasy news
online. While some Internet businesses provide unique content and a
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large number offer products, very few companies create their own proprietary
content and sell the products that they develop. We intend to continue to
leverage our proprietary assets to create and offer both original content and
compelling products targeted at both the distinct sports communities we now
serve as well as new sports communities we do not currently target. This will
include an increase in the number of properties we develop, programs we
produce and commerce products we create.
Capitalize on Multiple Distribution Partners. We currently distribute our
content and products through leading online sites such as AOL, eBay, Fox
Sports, uBid and Yahoo!. The distinctiveness of our original content and
products provides significant value to our distribution partners. We intend to
continue to distribute our content and products across multiple platforms to
effectively target distinct sports communities, increase brand awareness of
our properties, promote our product offerings and generate revenues for us and
our partners from multiple sources. To augment the distribution of our content
and products, we intend to pursue additional distribution partners and to
release a number of new web sites, including the public release of the
www.athletedirect.com site.
Increase Traffic and Build Awareness of Our Properties. To date, we have
capitalized on the unique nature of our offerings and the efforts of our
distribution partners to drive traffic and promote our properties. In addition
to using our present distribution relationships to drive traffic and enhance
awareness of our properties, we intend to market our brands and properties
through both traditional media and online campaigns and to leverage the
significant brand-name recognition of our high-profile athletes and sports
personalities to effectively promote their sites. For instance, due to Mia
Hamm's high profile during the 1999 Women's World Cup, she was able to
generate over 600,000 page impressions over a period of only a few days.
Capitalize on Evolving Broadband Opportunities. We believe that online
sports-related content will become more compelling in a broadband environment.
To address this opportunity, we intend to offer enriched broadband
programming, such as the creation of a 24 hours a day, seven days a week
broadband commerce environment featuring individual athlete hosts, the
broadcast of event-related programming, and the development of real-time
reports from our sports writers and personalities. We intend to develop these
types of broadband programming to capitalize on the benefits of a number of
emerging platforms and standards.
Capitalize on Common Infrastructure. We are building a common technology
backbone across all of our properties. We believe that this will enable us to
achieve significant cost savings in technology development, bring new
properties to market in an expeditious manner and capture the value in the
relationship between our various properties and the communities they serve.
For example, a Green Bay Packer fan reading a PSX editorial product about his
team can be identified and offered a related product such as a Brett Favre
signed football.
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Our Properties
To capitalize on the opportunities within the online sports marketplace, we
develop branded properties that combine original content and compelling
products. We offer our content and products through selected distribution
partners to effectively reach sports fans within distinct sports communities.
Currently, we own four online sports media properties:
<TABLE>
<CAPTION>
Property Revenue Sources Primary Distribution Partners
- -------- -------------------- -----------------------------
<S> <C> <C>
[Athlete Direct Logo]
Official athlete sites, original athlete Content Syndication AOL
programming, vibrant communities Advertising eBay
and online stores Electronic Commerce Yahoo!
[PSX Logo]
In-depth professional and collegiate team Content Syndication AOL
and player information from our network Subscription AOL.com
of sports writers Advertising Fox Sports
Yahoo!
[RotoNews Logo]
Comprehensive fantasy news, games and Advertising Cox Media (Fastball.com)
statistical and commissioner services Subscription New York Post
San Diego Tribune
Sandbox.net
Wall Street Sports
[SportsAuthentics.com Logo]
Sports related merchandise Electronic Commerce AOL
and collectibles uBid
</TABLE>
Athlete Direct
Commencing operations in 1996, Athlete Direct is a leading developer,
publisher and aggregator of high-quality, official online sites for athletes,
based on the number of athletes under contract. Athlete Direct's athlete
partners include some of the world's most prominent athletes across 10 sports,
including football, baseball, basketball, auto racing and tennis. Currently,
Athlete Direct has contracts with over 200 athletes that provide Athlete
Direct with certain exclusive online rights.
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<PAGE>
Athlete Direct is an online destination site for sports fans to obtain
information about, interact with and purchase products relating to, their
favorite athletes. Athlete Direct aggregates individual athlete sites within
the Athlete Direct-branded network. The individual athlete sites within this
network create a focal point for communities of sports fans to interact with
their favorite athletes, access original athlete-oriented content, participate
in community activities and purchase merchandise and collectibles in a
contextually relevant environment. For example, just prior to Superbowl XXXII,
Athlete Direct created an original multimedia feature in which Jamal Anderson,
star running back of the Atlanta Falcons, explained to his fans how to perform
the "Dirty Bird" dance. At the same time, Athlete Direct offered fans an
opportunity to buy exclusive, limited "Dirty Bird" merchandise and related
collectibles.
Athlete Direct designs each athlete site to target a distinct sports
community consisting of fans of the athlete and the athlete's team or sport.
Athlete Direct and its athletes provide users with original content, including
online programs, breaking news, interviews, journals, live online chats, email
correspondence and online fan clubs. By aggregating numerous athlete sites
from a variety of sports, Athlete Direct can consistently provide sports
communities with fresh and original content and products throughout the year.
By contrast, independently operated individual athlete sites are generally
restricted to the content that can be provided by an individual athlete and
limited by the duration of the athlete's season and the athlete's ability to
participate on his or her site on a continual basis. Additionally, Athlete
Direct enables fans to purchase merchandise and collectibles directly from the
athletes' stores located within the athletes' sites.
Athlete Direct offers its athletes a number of benefits, including a
complete online solution in terms of design, publishing, marketing, promotion
and day-to-day operation of their sites. Through Athlete Direct's online
sites, athletes can interact with a larger number of fans more effectively
than through traditional personal appearances such as card shows, radio and
television interviews or mailings. Additionally, participation in their sites
provides athletes with the opportunity to manage their public and media
interactions more effectively, control distribution of selected products,
create a platform to derive additional revenues from existing and new
sponsors, and receive greater financial benefit from the sale of related
merchandise and collectibles. As a member of the Athlete Direct network, each
athlete benefits from the traffic generated directly by his or her site as
well as from the traffic generated by the other athlete sites and the traffic
generated by Athlete Direct's distribution partners.
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Features of our Athlete Sites
Below is an example of an individual athlete's official site along with a
description of the exclusive features which are available within each such
site on the Athlete Direct Network .
[Screen shot of Athlete Direct home page for Ken Griffey Jr. marked
by numbers corresponding to the features described above.]
1. Athlete Journal--Regular updates from the athlete offering fresh,
entertaining perspectives on events related to the athlete's sport and other
non-sports related activities. These journals often contain an athlete's
thoughts on key games and events within the athlete's sport, and can be in
both a text or multimedia format.
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2. Athlete Store--Electronic storefront offering athlete-signed memorabilia,
collectible items and other team-licensed merchandise. Some athletes' sites
may provide a personal audio greeting from the athlete to his or her fans upon
entering the store.
3. Athlete Community Area--Suite of interactive features, including
regularly scheduled chats, bulletin boards for fan and athlete postings and
other interactive activities. The site also includes the athlete's message
board, which is an interactive bulletin board where fans can communicate with
each other on a variety of topics. Additionally, an athlete can interact with
his or her fans by posting responses to fan questions on the message board.
4. Fan Club--This area includes original athlete commentary, regular email
bulletins of upcoming events, new product offerings in the athlete's store and
other new information targeted at the athlete's community of fans.
5. Gameday--Current news about the athlete during his or her season,
including original commentary, recent events, game statistics and other
highlights.
6. Multimedia Gallery--Recent and archived photos of players and teams. This
area also includes original multimedia programming created around the
individual athlete.
7. Fun Zone--Regular contests in which community members participate, with
chances to win a variety of athlete-related or sports-related prizes and
products.
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Distribution
From inception through March 31, 1999, Athlete Direct distributed its
content exclusively on AOL. Subsequently, Athlete Direct expanded its
relationship with AOL on a non-exclusive basis. Under the agreement, AOL
continues to provide Athlete Direct with its own separately branded area and
with certain guaranteed promotion, including promotion of a separate Stars
Area within the AOL Sports Channel and an anchor tenancy position within the
AOL Kids Channel. Athlete Direct also has an agreement with Yahoo! under which
it provides Yahoo! with certain exclusive athlete content for a select number
of athletes, produces live athlete events, develops fan clubs for each of its
athletes within the Yahoo! Clubs area and creates individual athlete stores
that are integrated within the Yahoo! Stores area. As part of this agreement,
Athlete Direct receives continuous placement on the front page of the Yahoo!
Sports area and the front of Yahoo! Sports screens. In addition, Athlete
Direct has a distribution agreement with eBay which allows continuous
placement on the front of eBay's sports collectibles page with links to
various pages featuring Athlete Direct's athletes. On each of these athlete
pages, Athlete Direct offers collectibles in the eBay auction format, such as
in the example below.
[Two screen shots of the athlete page for Anna Kournikova
on the eBay web site at www.eBay.com]
The above distribution relationships complement the traffic generated by the
individual athlete sites such as www.kournikova.com as well as the traffic
generated within the Athlete Direct Network.
Revenue Sources
Syndication. The distinctiveness of our content and programming has
generally enabled us to command licensing fees and receive valuable
distribution. We currently receive syndication revenues from AOL and Yahoo!.
To date, substantially all of Athlete Direct's syndication revenues have been
derived from its relationship with AOL.
Advertising. Athlete Direct offers advertisers the opportunity to benefit
from the association of their products and brands with Athlete Direct athletes
and to target an attractive demographic group. In addition, advertisers,
including existing sponsors of our athletes, can sponsor the sites of athletes
and other areas within Athlete Direct. In 1998, Athlete Direct sold
advertising or sponsorships to
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companies such as Coca-Cola, Converse, eBay, Electronic Arts, Fila, Fox
Sports, HBO, PeopleSoft and Prime Sports. We believe that the public release
of the www.athletedirect.com site will provide Athlete Direct with additional
advertising and sponsorship opportunities.
Electronic Commerce--Merchandise. Athlete Direct currently offers sports
merchandise through each athlete's online store. This merchandise includes
licensed team and player apparel and league, event and team merchandise and
collectibles. By selling through individual athlete's stores, we believe that
we offer fans a logical venue for purchasing player-related and team-related
products in a contextually rich environment, 24 hours a day, seven days a
week. Although Athlete Direct currently sources substantially all of its
merchandise from third-party vendors, we anticipate that, in the future, we
will create certain Athlete Direct-branded merchandise for individual athletes
and events.
Electronic Commerce--Collectibles. Athlete Direct offers its own branded
products, typically consisting of autographed and game-worn and game-used
items. Athlete Direct's products are sourced directly from its athletes and
sold through the athletes' sites online and through Athlete Direct's
distribution partners. We believe that this approach greatly reduces the
likelihood of fraud, a common characteristic of the sports collectibles
market. To date, Athlete Direct has sourced only a limited amount of
collectibles from its athletes, and we cannot assure you that Athlete Direct
will be able to procure collectibles on a timely basis in the future, if at
all. See "Risk Factors--We may not be able to obtain sufficient supplies of
merchandise or collectibles to meet customer demand or to manage inventory
effectively."
Pro Sports Xchange
PSX is a leading online provider of in-depth team and player information,
based on the number of teams and players that PSX covers on a regular basis.
PSX is built around The Writer Network, which was formed in the early 1990s to
enable local sports journalists to cover sports on a national basis by
exchanging detailed information relating to the local teams and athletes they
covered. Today, PSX has evolved into a network of over 270 local and regional
sports writers, who are under contract with PSX and have granted PSX certain
exclusive online rights.
The PSX network of sports writers includes many of the top beat writers who
write for major publications in their respective cities. Typically, writers
cover the same team for an extended period of time and have privileged access
to players, coaches and other team officials. As a result, these sports
writers possess in-depth information about the teams and players they cover
that is not generally published or distributed by traditional media. With the
proliferation of multiple media channels, such as cable, satellite and the
Internet, sports fans are able to easily access general information, such as
scores, statistics and game summaries. However, space limitations resulting
from the costs of production and distribution have limited traditional media's
ability to provide in-depth, timely information on a broad scale. PSX
addresses the demand of sports fans within various communities for more in-
depth coverage of particular sports, teams or athletes.
Because PSX generates original and detailed information and distributes this
content online, PSX can cost-effectively deliver large volumes of in-depth
information to geographically dispersed sports fans. PSX's vertical content
offerings include original editorials, predictions, opinions, injury reports,
roster moves, trades and other commentary on teams and players. PSX provides
this vertical content to a large number of sports communities. PSX produces
and distributes original content covering over 110 professional sports teams
and, through College Sports Xchange, its college division, over 300 collegiate
sports teams. The following table lists of the professional and collegiate
teams covered by the PSX and CSX writer networks.
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<PAGE>
TEAMS COVERED BY THE PSX AND CSX WRITER NETWORKS
Professional Teams
<TABLE>
<S> <C> <C> <C> <C> <C>
Anaheim Angels Chicago Bulls Florida Marlins Minnesota Twins Philadelphia 76ers St. Louis Cardinals
Anaheim Mighty Ducks Chicago Cubs Florida Panthers Minnesota Vikings Philadelphia Eagles St. Louis Rams
Arizona Cardinals Chicago White Sox Golden State Warriors Montreal Canadiens Philadelphia Flyers Tampa Bay Bucaneers
Arizona Diamondbacks Cincinnati Bengals Green Bay Packers Montreal Expos Philadelphia Phillies Tampa Bay Devil Rays
Atlanta Braves Cincinnati Reds Houston Astros Nashville Predators Phoenix Coyotes Tampa Bay Lightning
Atlanta Falcons Cleveland Browns Houston Rockets New England Patriots Phoenix Suns Tennessee Titans
Atlanta Hawks Cleveland Cavaliers Indiana Pacers New Jersey Devils Pittsburgh Penguins Texas Rangers
Baltimore Orioles Cleveland Indians Indianapolis Colts New Jersey Nets Pittsburgh Pirates Toronto Blue Jays
Baltimore Ravens Colorado Avalanche Jacksonville Jaguars New Orleans Saints Pittsburgh Steelers Toronto Maple Leafs
Boston Bruins Colorado Rockies Kansas City Chiefs New York Giants Portland Trailblazers Toronto Raptors
Boston Celtics Dallas Cowboys Kansas City Royals New York Islanders Sacramento Kings Utah Jazz
Boston Red Sox Dallas Mavericks Los Angeles Clippers New York Jets San Antonio Spurs Vancouver Canucks
Buffalo Bills Dallas Stars Los Angeles Dodgers New York Knicks San Diego Chargers Vancouver Grizzlies
Buffalo Sabres Denver Broncos Los Angeles Kings New York Mets San Diego Padres Washington Capitals
Calgary Flames Denver Nuggets Los Angeles Lakers New York Rangers San Jose Sharks Washington Redskins
Carolina Hurricanes Detroit Lions Miami Dolphins New York Yankees Seattle Mariners Washington Wizards
Carolina Panthers Detroit Pistons Miami Heat Oakland Athletics Seattle Sonics
Charlotte Hornets Detroit Red Wings Milwaukee Brewers Oakland Raiders San Francisco 49ers
Chicago Bears Detroit Tigers Milwaukee Bucks Orlando Magic San Francisco Giants
Chicago Blackhawks Edmonton Oilers Minnesota Timberwolves Ottawa Senators St. Louis Blues
</TABLE>
Colleges and Universities
<TABLE>
<S> <C> <C> <C> <C>
*Air Force Colgate *Houston Miss. Valley St. Portland
*Akron *Colorado Howard *Mississippi Portland State
*Alabama *Colorado State High Point *Mississippi State Prairie View A&M
Alabama A&M *Columbia *Idaho *Missouri *Princeton
Alabama State Connecticut Idaho State Missouri-Kansas City Providence
*Alabama-Birmingham Coppin State *Illinois Monmouth *Purdue
Alcorn State *Cornell Illinois State Montana Quinnipiac
American Creighton Illinois-Chicago Montana St. Radford
Appalachian State *Dartmouth *Indiana Morehead State Rhode Island
*Arizona Davidson Indiana State Morgan State *Rice
*Arizona State Dayton Iona Mount St. Mary's Richmond
Arkansas-- Delaware *Iowa Murray State Rider
Pine Bluff Delaware State *Iowa State N. Car. A&T State Robert Morris
*Arkansas DePaul IUPUI *Navy *Rutgers
*Arkansas State Detroit Jackson State NC--Asheville Sacramento State
Arkansas-Little Rock Denver Jacksonville NC--Greensboro S. Carolina State
*Army Drake Jacksonville State *Nebraska Sam Houston State
*Auburn Drexel James Madison *Nevada-Las Vegas Samford
Austin Peay State *Duke *Kansas *Nevada-Reno San Diego
*Ball State Duquesne *Kansas State New Hampshire *San Diego State
*Baylor Elon *Kent *New Mexico San Francisco
Belmont (Tn.) E. Tennessee State *Kentucky *New Mexico State *San Jose State
Bethune-Cookman *East Carolina La Salle New Orleans Santa Clara
*Boise State Eastern Illinois Lafayette Niagara SE Missouri State
*Boston College Eastern Kentucky Lamar Nicholls State SE Louisiana
Boston *Eastern Michigan Lehigh No. Carolina-Wilmington Seton Hall
*Bowling Green Eastern Washington Liberty Norfolk State Siena
Bradley Evansville Long Beach State *North Carolina *SMU
*Brigham Young Fairfield Long Island University *North Carolina State South Alabama
*Brown Fairleigh Dickinson *Louisiana State North Carolina-Charlotte *South Carolina
Bucknell *Florida *Louisiana Tech *North Texas South Florida
*Buffalo Florida A&M *Louisville *Northeast Louisiana Southern
Butler Florida Atlantic Loyola Northeastern *Southern California
Cal Poly-San Luis Obispo Florida International Loyola Marymount Northern Arizona Southern Illinois
Cal State-Northridge *Florida State Maine *Northern Illinois *Southern Mississippi
Cal State-Fullerton Fordham Manhattan Northern Iowa Southern Utah
*California Berkeley *Fresno State Marist *Northwestern Southwest Missouri State
California Irvine Furman Marquette Northwestern State *Southwestern La.
California Santa Barbara George Mason *Marshall *Notre Dame St. Bonaventure
Campbell George Washington *Maryland Oakland St. Francis (NY)
Canisius Georgetown Maryland-Eastern Shore *Ohio St. Francis (PA)
Centenary *Georgia Massachusetts *Ohio State St. John's
Central Connecticut State Georgia Southern McNeese State *Oklahoma St. Joseph's
*Central Florida Georgia State Md.-Baltimore County *Oklahoma State St. Louis
*Central Michigan *Georgia Tech Md.-Eastern Shore Old Dominion St. Mary's
Charleston Gonzaga *Memphis Oral Roberts St. Peter's
Charleston Southern Grambling St. Mercer *Oregon *Stanford
Chattanooga Hampton *Miami *Oregon State Stephen F. Austin
Chicago State Hartford *Miami (Ohio) Pacific Stetson
*Cincinnati *Harvard *Michigan *Penn State SW Texas State
*Clemson *Hawaii *Michigan State *Pennsylvania *Syracuse
Cleveland State Hofstra *Middle Tenn. State Pepperdine *Temple
Coastal Carolina Holy Cross *Minnesota *Pittsburgh *Tennessee
Col. of Charleston
Tennessee State
Tennessee Tech
Tennessee-Martin
*Texas
*Texas A&M
*Texas Christian
*Texas Tech
Texas-Arlington
*Texas-El Paso
Texas-Pan American
Texas-San Antonio
Texas Southern
The Citadel
*Toledo
Towson
Troy State
*Tulane
*Tulsa
*UCLA
*Utah
*Utah State
Valparaiso
*Vanderbilt
Vermont
Villanova
*Virginia
Virginia Commonwealth
*Virginia Tech
VMI
Wagner
*Wake Forest
*Washington
*Washington State
Weber State
*West Virginia
Western Carolina
Western Illinois
Western Kentucky
*Western Michigan
Wichita State
William & Mary
Winthrop
*Wisconsin
Wisconsin-Green Bay
Wisconsin-Milwaukee
Wofford
Wright State
*Wyoming
Xavier
*Yale
Youngstown State
</TABLE>
- -----------------
* Covers both Division I football and basketball. All other schools only offer
Division I basketball programs.
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PSX collects and stores the information it receives from its writer network
through its proprietary database. This information is then packaged into two
general types of content offerings: offerings that are syndicated to online
sites and specialized content offerings that are sold on a subscription basis.
Some of our current content offerings include:
<TABLE>
<S> <C> <C>
Product Description Price
------- ----------- -----
PSX Insider Team Reports.... In-depth coverage of all Varying content syndication fee
NFL, MLB, NBA and NHL teams
and daily editorial features
CSX Insider Team Reports.... In-depth coverage of all Varying content syndication fee
Division I college football
and basketball teams
Player Notes................ Daily highlights of key Varying content syndication fee
player news from MLB and the
NFL
My Baseball Daily........... Daily personalized updates $9.95 per season per subscription
regarding players selected
in subscribers' portfolios
The Minor League Scout...... Daily information on minor $9.95 per season per subscription
league baseball teams and
players
Fred Edelstein's NFL
Football Insider........... Weekly NFL gossip $19.95 per year per subscription
Fred Edelstein's NFL Draft
Report..................... Annual insider view of the $9.95 per subscription
NFL draft
Wrestling Observer.......... In-depth coverage of $9.95 per month or $99.95
professional wrestling annually
</TABLE>
By working with PSX, sports writers are able to generate additional income
and, in certain cases, further develop their individual brand names. Sports
writers in the PSX network are paid a flat fee for syndicated content and can
participate with PSX in revenues derived from the sale of subscription-based
premium content offerings.
Distribution and Revenue Sources
PSX syndicates its content through AOL, Internet portals and other
destination sites and sells its premium content offerings to users on a
subscription basis. The PSX Insider Team Reports and CSX Insider Team Reports
are currently provided for all teams to such portals as AOL, AOL.com and Fox
Sports. In addition, PSX produces the Team Areas for all major professional
and college teams within AOL Sports, providing team and player feeds and news
updates, among other production responsibilities. PSX controls the majority of
promotional links within the Team Areas, which it uses to cross-promote our
other properties. Player Notes is syndicated to many online sites, including
AOL, Fox Sports and Yahoo!. All of PSX's distribution partners are obligated
to promote PSX's premium products as part of their license agreements. These
premium products are also distributed through a number of online sites,
including Allstar Stats, Prime Sports Interactive and Total Quality Stats.
To date, PSX has derived substantially all of its revenues from the
syndication of PSX Insider Team Reports and CSX Insider Team Reports. PSX also
generates revenues from the sale of subscriptions to its premium content
offerings. To date, these revenues have not been material.
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<PAGE>
RotoNews
RotoNews was founded in 1997 and was acquired by us in February 1999.
RotoNews is a leading online fantasy sports site, offering commissioner
services, player news and statistical services. Unlike competing fantasy
sites, RotoNews offers its full suite of fantasy news and services free to
consumers. This strategy has helped RotoNews build a significant audience
base. RotoNews currently operates commissioner services for over 48,000 active
leagues representing over 200,000 fantasy players. RotoNews supplements its
commissioner services with regular player updates, which are delivered both
through the rotonews.com site and through free email subscriptions. RotoNews
currently has over 296,000 registered users and sends out regular emails to
over 55,000 email subscribers. To extend its brand and build its traffic,
RotoNews provides player content and commissioner services to other sites,
including online newspapers and other sports sites.
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<PAGE>
Fantasy sports have experienced significant growth in the United States over
the past several years. Currently, millions of fantasy sports fans play their
games, receive their statistics, or access information about their fantasy
teams online. Leading sports sites that provide fantasy games have
traditionally charged users fees to participate in their fantasy games or to
utilize commissioner and statistical services. Because players invest
significant time in entering specific league and player information, setting-
up league rules, becoming familiar with the user interface and researching
archived information, we believe that these services create significant user
loyalty and generate frequent visits of extended duration.
RotoNews Features
Below is a copy of the RotoNews home Web page and an example commissioner
page for an individual league, along with a description of selected features
available on Rotonews.com.
[Screen shot of RotoNews web site marked by numbers corresponding
to the features described above.]
1. Commissioner Services--Offers fantasy sports participants commissioner
services with daily statistics, updated standings, bulletin boards and other
administrative services covering the NFL, NBA, MLB and NHL.
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<PAGE>
2. Player News--Up-to-date player information, news and statistics, as well
as searchable athlete databases for various sports and leagues.
-- Latest player information, statistical
NFL, NBA, MLB, NHL projections and player rankings with a
searchable database for every player.
Additionally, offers feature stories,
columns and team previews.
Golf -- Latest player information with a searchable
database for many professional golfers on
the PGA tour and other worldwide tours.
Auto Racing -- Latest driver information, with a searchable
database for NASCAR, Formula One and other
auto-racing series.
Wrestling -- Latest news and information for many of the
professional wrestlers within the WWF, WCW
and ECW.
College Football -- Latest news and information on individual
college players within Division I NCAA
football.
3. MyRotoNews--Provides users with a personalized Web page with news and
statistics tailored to players chosen by the user.
4. Email Reports--Twice-weekly email newsletter providing up to date player
news and information.
5. Office Pools--Online management tool for traditional office pools.
Creates an easy-to-use graphical interface for participants to enter their
picks online, see updated standings, access relevant team and player
information and communicate with each other.
6. Fantasy Forum--Online community where users can share thoughts on fantasy
sports topics, seek advice and information with other community members as
well as seek participants for their online leagues.
Distribution and Revenue Sources
In addition to operating its Web site, rotonews.com, RotoNews has entered
into distribution agreements with Fastball.com (owned by Cox Media),
Sandbox.net, Wall Street Sports and the online versions of the New York Post
and San Diego Union Tribune. Pursuant to these distribution agreements,
RotoNews typically provides statistical services and/or fantasy games in a co-
branded format.
To date, RotoNews has derived substantially all of its revenues from the
sale of advertising on its Web site. RotoNews also sells advertising
placements within email newsletters it regularly sends to its customers. In
addition, RotoNews receives a share of the advertising sold on the sites to
which it provides commissioner services and/or player information. In March
1999, RotoNews began selling subscriptions to PSX's premium content offerings,
such as My Baseball Daily. To date, RotoNews has not derived significant
revenues from these premium content offerings.
SportsAuthentics.com
SportsAuthentics.com is an online retailer of sports-related merchandise and
collectibles. Founded in the first quarter of 1999, SportsAuthentics.com
aggregates products from a large number of providers, including Athlete
Direct. SportsAuthentics.com offers a broad range of products across
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<PAGE>
major U.S. sports, including baseball, football, basketball, hockey, boxing
and auto racing. Although SportsAuthentics.com does not source its products
directly from athletes in the case of memorabilia, it works to carefully
select reputable providers who represent that they produce such products
directly from the source and provide legally binding certificates of
authenticity.
SportsAuthentics.com's objective is to become the premier provider of
sports-related merchandise and collectibles. SportsAuthentics.com currently
offers over 10,000 stock keeping units and believes it has become one of the
largest sellers of collectibles online.
We believe there is a significant opportunity to sell these types of
products online because of the limitations inherent in traditional retail
distribution. Because of the large number of teams and available products,
traditional retailers cannot effectively inventory the large number of
available products necessary to satisfy the demand of fans of different teams
and athletes. Similarly, sports retailers have had a difficult time offering a
wide range of collectibles and trading products, where the number of items is
even larger.
SportsAuthentics.com addresses some of the limitations of current
distribution channels by:
. providing access to products 24 hours, 7 days a week;
. offering an extensive selection of products updated on a regular basis;
. offering flexible pricing, including auction-based selling; and
. targeting customers based on preference and buying patterns.
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<PAGE>
Distribution and Revenue Sources
SportsAuthentics.com currently sells the majority of its products through an
exclusive relationship with uBid, a leading online business-to-consumer
auction site. As part of this relationship, SportsAuthentics.com provides
sports memorabilia on the uBid.com site as illustrated below.
[Screen shot of uBid web site at www.uBid.com displaying
sports memorabilia offered by SportsAuthentics.com,
and insert with close-up of memorabilia offered.]
SportsAuthentics.com also operates individual team stores within the AOL
Team Areas. SportsAuthentics.com is currently in the process of opening up
additional online storefronts, though no assurances can be given when such
stores will open. SportsAuthentics.com intends to launch a branded online
retail presence in the first quarter of 2000.
SportsAuthentics.com handles all order fulfillment and customer service
associated with its sales. SportsAuthentics.com handles the majority of its
order fulfillment through its own distribution center.
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<PAGE>
Strategic Relationships
We have established a number of strategic relationships to obtain original
sports content, provide broad distribution of our content and products and
increase consumer awareness of our branded properties. These relationships
include:
Content and Product Partners
Athletes
Athlete Direct currently has agreements with over 200 athletes that have
terms ranging from two to eight years, with longer terms for key athletes.
These agreements generally provide Athlete Direct with exclusive rights to the
athletes' online participation, as well as rights to use the athletes' names,
likenesses and other attributes in connection with the online medium. The
exclusivity provisions of these agreements permit the athletes to engage in
limited online activities on behalf of their leagues, teams and sponsors.
Under these agreements, athletes are required to participate in their online
sites in specified manners and at specified times. This participation
generally includes engaging in online chats, responding to fan emails,
publishing online journals and providing audio content for online
distribution. Each athlete shares in the gross profits generated from the
athlete's site, including revenues derived from sales of merchandise,
collectibles and advertisements. Pursuant to their agreements, some athletes
are guaranteed minimum royalties. In addition, certain athletes are equity
holders of our company.
Sports Writers
We have agreements with over 270 sports writers, which typically have a two-
year term with a one-year extension at our option. These local and regional
writers provide PSX with original sports-related content. The majority of
these writers are beat writers who cover a particular team or conference for a
traditional publication, such as a newspaper. The agreements require the
writers to create original, in-depth content for PSX, provide PSX with
exclusive rights to this content and restrict the writers from performing
services for anyone, other than PSX, that provides online products or
services. However, these agreements do permit the writers to provide similar
information to, and to perform services for, daily newspapers, including
newspapers that maintain online sites, that are the primary employers of the
writers. We pay our writers a flat fee for content that we syndicate and, in
some cases, a percentage of revenues derived from sales of subscriptions to
selected premium content offerings.
Distribution Partners
AOL
In January 1999, we entered into an interactive services agreement with AOL.
Under this agreement, AOL is required to pay to us a license fee for
programming and syndicated content. This programming and syndicated content
includes both PSX team-by-team coverage of professional baseball, basketball,
football and hockey and NCAA Division I college basketball and football, as
well as a minimum number of athlete sites from Athlete Direct.
In accordance with the agreement, Athlete Direct has created and operates a
separately branded Athlete Direct area within both the AOL Sports Channel and
the AOL Kids Channel. These sites are
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<PAGE>
promoted through the AOL Sports channel, including Sports Stars screens which
Athlete Direct programs and through an anchor tenancy position within the AOL
Kids Channel. AOL receives a percentage of revenues derived from placements
and the sale of merchandise, collectibles and subscription-based premium
content offerings through the Athlete Direct sites on AOL.
PSX also syndicates selected Fantasy Sports content within the AOL Fantasy
Center and, in exchange, receives guaranteed promotion for its subscription-
based premium content offerings. The agreement expires June 30, 2001, unless
earlier terminated. AOL has the option to extend the agreement for up to two
additional one-year terms.
During the first nine months of 1999, AOL accounted for approximately 50% of
our revenues. Loss of this relationship, or a material adverse change in this
relationship, would have a material adverse effect on our business.
eBay
In April 1999, Athlete Direct entered into a co-branding and advertising
agreement with eBay, under which eBay acts as Athlete Direct's official online
person-to-person auction venue for sports collectibles on behalf of its
athletes. Pursuant to the agreement, Athlete Direct creates individual athlete
sites within the eBay site. Athlete Direct updates content on these sites and
provides signed collectibles for sale through eBay's auction environment. The
various pages and auctions are promoted by eBay on certain selected pages,
including at the top of eBay's primary collectibles channel. Unless earlier
terminated, this agreement terminates in April 2001.
Fox Sports
In September 1998, PSX entered into a content license agreement with News
America Digital Publishing, Inc. ("NADP"), an affiliate of Fox Entertainment
Group, Inc. Under this agreement, PSX receives a syndication fee for providing
Insider Team Reports and other content for distribution on foxsports.com. NADP
is required to promote PSX's premium content offerings products. PSX pays NADP
a royalty based on the net revenues of premium content products sold through
Fox Sports Online. This agreement expires in December 2001.
uBid
In March 1999, SportsAuthentics.com entered into a two-year agreement with
uBid. Under the uBid agreement, SportsAuthentics.com is the exclusive provider
of sports collectibles on the www.uBid.com site. As part of this agreement,
SportsAuthentics.com has agreed to offer a specified minimum dollar value
worth of products on the www.uBid.com site each week. SportsAuthentics
receives prominent branding within all areas of www.uBid.com where
SportsAuthentics products are offered. uBid receives a percentage of gross
revenues for sales made on its site.
Yahoo!
In May 1999, Athlete Direct and PSX entered into an agreement with Yahoo! to
provide Athlete Direct content and PSX content to Yahoo! in exchange for a
monthly license fee and promotion and placement within Yahoo! Sports and other
Yahoo! properties. Athlete Direct produces athlete fan clubs and athlete
stores for Yahoo! for a certain number of pre-determined athletes as well as a
regular schedule of live events. Yahoo! receives a percentage of revenue
derived from electronic commerce sold within the Yahoo! site. In addition,
pursuant to this agreement, PSX licenses to Yahoo! player
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<PAGE>
content to be incorporated into Yahoo!'s Fantasy Area and its MyYahoo!
service. PSX licenses and receives promotion and placement to promote its
subscription products. This agreement expires in June 2000, and automatically
renews for an additional year unless either party elects not to renew the
agreement.
Technology
We use state-of-the-art technology to support our business. Our
www.athletedirect.com site and all of our individual athlete sites include
open application standard interfaces emphasizing a model that is highly
scalable, flexible, modular and has a high degree of automation and redundancy
in order to minimize single points of failure. The software platform and
architecture for the www.athletedirect.com site and individual athlete sites
is available through multiple Sun Microsystems servers, and integrated with an
Oracle relational database, Netscape Enterprise server and Broadvision's One-
to-One enterprise relationship management application environment.
To publish content on the AOL platform, we employ AOL's proprietary
"Rainman" mark-up language. Production involves creation and editing of text
and graphics, which are uploaded from our offices to the AOL mainframe. For
our AOL advertisements, Athlete Direct pages reference Web-based URLs to
generate banner advertisements, which are controlled through AdForce's
proprietary advertisement-reporting software.
PSX and CSX utilize a number of Sun Microsystems servers integrated with an
Oracle relational database, Netscape Enterprise server, Netscape
PublishingXpert 2.2 for publishing, Broadvision's One-to-One enterprise
relationship management application environment, and secure credit card
capture and billing. In addition, PSX utilizes customized software for real-
time update of content by sports writers and editors, and an extensive modem
pool for dial-up remote access.
The RotoNews platform utilizes a combination of Microsoft NT with SQL
Server, IIS, Cold Fusion and ASP together with an Oracle relational database,
and Broadvision's One-to-One enterprise relationship management application
environment.
We intend to consolidate the technologies used by all of our properties into
a single, common infrastructure built around a Sun, Oracle and Broadvision
infrastructure. This common platform will emphasize interoperability,
scalability and stability.
We cannot assure you that we will be able to publicly release the
www.athletedirect.com site on a timely basis or effectively develop our common
infrastructure. See "Risk Factors--We may experience difficulties and delays
in the release and successful marketing of our www.athletedirect.com site,"
and "--We may not be able to respond to technological changes, and may not
remain competitive with others that are better able to respond to these
changes quickly."
We maintain most of our computer systems with Exodus Communications in its
El Segundo, California facility, which provides us with Internet connectivity
via multiple DS-3 and OC-3 links. Exodus also provides human technical
monitoring of all production services 24 hours a day, 7 days a week as well as
protection against damage from fire, hurricanes, earthquakes, power loss,
telecommunications failure and break-ins and full redundancy so that a failure
in the network is automatically routed to a different provider. We also employ
in-house monitoring systems, which include automated diagnostic software, that
generate reports and pager calls in the event of system failures.
Notwithstanding these precautions, any system failure that causes an
interruption of service or a failure of our third-party providers to handle
higher volumes of Internet traffic could have a material adverse effect on our
business.
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Sales and Marketing
We have recently expanded our advertising and sales efforts, including the
opening of a dedicated advertising sales office in New York. To date, we have
sold sponsorships and advertising primarily through our distribution partners,
such as AOL, and have worked with outside sales agencies in such efforts. As
we continue to expand, we intend to create a larger internal sales force and
open offices in additional cities.
Similar to our sales efforts, in our marketing efforts, we work very closely
with our distribution partners including AOL, Yahoo!, eBay and uBid. These
partners provide us with placement within their services, driving traffic to
our content and products. In addition, we have purchased selected promotion on
various online sites like Pro Football Weekly and Sportsline.com for certain
of our products. With the public release of our www.athletedirect.com site and
other products, we anticipate spending a larger amount of marketing dollars,
including expenditures for offline marketing. In so doing, we anticipate
continuing to leverage our internal assets and focusing on selected
communities on a region-by-region basis.
Proprietary Rights
Proprietary rights are important to our success and our competitive
position. To protect our proprietary rights, we rely generally on copyright,
trademark and trade secret laws, confidentiality agreements with third
parties, and license agreements with consultants, vendors and customers.
Despite such protection, a third party could, without authorization, copy or
otherwise appropriate information from our database. Our agreements with
employees, consultants and others who participate in development activities
could be breached. We may not have adequate remedies for any breach, and our
trade secrets may otherwise become known or independently developed by
competitors. In addition, the laws of some foreign countries do not protect
our proprietary rights to the same extent as do the laws of the United States,
and effective copyright, trademark and trade secret protection may not be
available in those jurisdictions.
We have applied for registration of several trademarks in the United States
and will seek to register additional trademarks as appropriate. We cannot
assure you that we will be successful in obtaining the trademarks for which we
have applied. Even if these applications mature to registration, the
trademarks may be successfully challenged by others or invalidated. If the
applications do not register because third parties own the trademarks, or if
our rights to use the trademarks are challenged by owners of similar rights,
the use of the trademarks will be restricted unless we enter into arrangements
with the third parties, which may be unavailable on commercially reasonable
terms.
We also use content from athletes, sports writers, sports personalities and
other third parties and it is possible that we could become subject to
infringement actions based upon this content. We generally obtain
representations as to the origin and ownership of this content; however, this
may not adequately protect us. Any of these claims, with or without merit,
could subject us to costly litigation and the diversion of our technical and
management personnel.
There has been substantial litigation in the computer and online industries
regarding intellectual property assets. Third parties may claim infringement
by us with respect to current and future products, trademarks or other
proprietary rights, or we may counterclaim against these parties. Any claims
or counterclaims, with or without merit, could be time-consuming, result in
costly litigation, divert management's attention, cause product release
delays, require us to redesign our products or require us to enter into
royalty or licensing agreements, any of which could harm our business. These
royalty and licensing agreements, if required, may not be available on terms
acceptable to us, if at all.
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<PAGE>
The operation of our business and our ability to expand into new areas may
be restricted by rights of sports leagues and players' associations. Sports
leagues, such as the National Football League, typically own league and team
trademarks, and we may be required to obtain a license to any of those
trademarks that we use. In addition, the leagues also own other rights, such
as the rights to display highlights of games, that we may wish to use in our
business in the future. License agreements with the leagues for trademarks or
other rights, if required, may not be available on terms acceptable to us or
at all, and failure to obtain these license agreements could adversely affect
our business.
Players' associations have certain exclusive rights to license athlete
names, likenesses and other attributes for groups of athletes, referred to as
group licensing rights. We may be required to obtain licenses from players'
associations for these group licensing rights in order to conduct certain
aspects of our business. If licenses were not available or were not provided
on terms acceptable to us and we were required to modify our properties, our
business would be adversely affected. We, and agents for some of the athletes
with whom we have contracts, have received correspondence from the National
Football League Players' Association telling us to cease creating, selling
advertising and promoting Web sites for athletes represented by the players'
association. Although we do not believe that there is a basis for the players'
association position, if athletes and agents determine not to work with us
because of the players' association claims or actions, our business would be
adversely affected.
Competition
We compete for users, advertising, syndication, commerce and subscription
revenues, as well as for athletes, sports writers, sports personalities and
other content providers, with many other entities, such as:
. entities that provide access to sports-related content and services (many
of which have been established by traditional media companies through Web
entities targeted to sports enthusiasts generally), Web search and
retrieval services and other high-traffic Web entities;
. sports agents, leagues and other third parties that have existing
relationships with a number of athletes and sports personalities;
. vendors of sports information, merchandise, products and services
distributed through online sites and other means, including retail
stores, mail, facsimile and private online bulletin board services; and
. television, radio and other established media entities that broadcast
sporting events.
We have and might have in the future business relationships with some of our
competitors, some of whom offer access to our services through their own Web
sites, and some of our current partners may become competitors in the future.
We anticipate that, as the Internet and other interactive distribution systems
converge with traditional television broadcasting and cable, significant
competition might come from the providers of broadband networks, including
sports-oriented cable networks. Some of our existing competitors, as well as a
number of potential new competitors, have longer operating histories, greater
name recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do, and may be better able to
attract athletes, sports writers, sports personalities and other content
providers, as well as distribution partners, agents, advertisers, viewers and
consumers. These competitors may be able to respond more quickly than we can
to new or emerging technologies and changes in online user preferences and to
devote greater resources than we can to building our business. These
competitors may develop content and product offerings comparable or superior
to ours.
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Barriers to entry are minimal, and current and potential competitors can
launch new online sites at a relatively low cost. We expect that the number of
our direct and indirect competitors will increase in the future and this might
adversely affect our business, operating results and financial condition.
Increased competition could result in lower revenues and loss of users, any of
which could materially adversely affect our business, operating results and
financial condition.
Government Regulation
We are subject to the same federal, state and local laws as other businesses
on the Internet. There are currently relatively few laws directed specifically
toward online media businesses. Due to the increasing popularity and use of
the Internet and online businesses, however, it is possible that laws and
regulations will be adopted with respect to the Internet and online
businesses. Such laws could cover issues such as user privacy, pricing, fraud,
content and quality of products and services, taxation, advertising, freedom
of expression, intellectual property rights and information security. The laws
governing online media remain largely unsettled even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy, fraud
and libel apply to online media generally. Such legislation could hamper the
growth in use of online media generally and decrease the acceptance of online
media as a communications and commercial medium, which could have an adverse
effect on our business.
We generally do not collect sales or other taxes on goods sold on our online
sites to users located outside of California. However, one or more states may
seek to impose sales tax collection obligations on companies like ours that
engage in or facilitate online commerce. A number of proposals have been made
at the state and local level that would impose additional taxes on the sale of
goods and services online. Such proposals, if adopted, could substantially
impair the growth of electronic commerce and increase our costs and could
adversely affect our opportunity to derive financial benefit from electronic
commerce. If any state or foreign country were to successfully assert that we
should collect sales or other taxes on the exchange of merchandise on our
system, our business could be adversely affected. Recently, the Internet Tax
Freedom Act was signed into law placing a three-year moratorium on new state
and local taxes on Internet commerce. Existing state or local laws were
excluded from the moratorium. Once this moratorium is lifted, new federal or
state taxes may be imposed on Internet commerce. Future laws imposing taxes or
other regulations on Internet commerce could adversely affect our business.
We currently hold various Web addresses relating to our assets and brands,
including broadbandsports.com, athletedirect.com, psx.com, rotonews.com and
sportsauthentics.com. We may not be able to prevent third parties from
acquiring Web addresses that are similar to our addresses, which could
adversely affect our business. In addition, a number of third parties have
registered as domain names the names of a number of Athlete Direct's athletes
under contract. We may not be able to acquire these Web addresses in a cost-
effective manner, or at all, which could adversely affect our business. The
acquisition and maintenance of Web addresses generally is regulated by
governmental agencies and their designees. The regulation of Web addresses in
the United States and in foreign countries and the application of trademark
laws to Web addresses is uncertain and subject to change. As a result, we may
not be able to acquire or maintain relevant Web addresses in all countries in
a cost-effective manner, or at all, where we may conduct business.
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Employees
As of November 15, 1999, we had 128 employees. Our ability to attract and
retain highly qualified employees will be a principal determinant of our
success. Competition for qualified personnel in the industry is high. We
cannot assure you that our current and planned staffing will be adequate to
support our future operations or that management will be able to hire, train,
retain, motivate and manage the required personnel. None of our employees is
represented by a labor union and we have not experienced any work stoppages.
We consider our relations with our employees to be good.
Facilities
We are headquartered in Los Angeles, California, where we sublease 6,500
square feet located at 1640 S. Sepulveda Blvd., Los Angeles, California. The
lease expires March 31, 2002. In July 1999, the Company entered into a new
lease for 26,635 square feet. The Company anticipates moving into this new
facility in January 2000. The lease expires October 31, 2006. At that time the
current sub-lease will be terminated.
In October of 1999, the Company entered into a lease for approximately 2,700
square feet located at 350 Fifth Avenue, New York, New York. The lease expires
October 31, 2002.
In addition, we sublease two offices and common areas at 820 Grant Avenue,
Novato, California. The sublease for the two offices and common areas are on a
month to month basis. We have an option to renew the sublease for an
additional one-year period at the same monthly rental rates if the lessor
exercises its option to renew for an additional year. We believe that our
current facilities, including the new lease for 26,635 square feet, will be
adequate to accommodate our needs for the foreseeable future.
Legal Proceedings
We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the
ordinary course of our business. Any such proceeding against us, even if not
meritorious, could result in the expenditure of significant financial and
managerial resources.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of our
executive officers and directors as of November 15, 1999:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Richard D. Nanula....... 39 Chief Executive Officer and Chairman of the Board
Tyler J. Goldman........ 33 President, Broadband Studios and Director
Ross B. Schaufelberger.. 32 President, Athlete Direct and Vice President, Business Development
Gregory S. Hebner....... 30 Chief Financial Officer
Jose A. Royo............ 33 Chief Technology Officer
John Collins............ 37 Vice President, New Media Programming
Thomas F.X. Beusse...... 35 Vice President, Advertising
Ahmed O. Alfi(2)........ 43 Director
W. Allen Beasley........ 31 Director
Frank J. Biondi, Jr..... 54 Director
Stephen D.
Greenberg(1)........... 51 Director
Douglas Leone(2)........ 42 Director
Geoffrey Y. Yang(1)..... 40 Director
</TABLE>
- ---------------------
(1) Member of the audit committee
(2) Member of the compensation committee
Richard D. Nanula has served as our Chief Executive Officer and one of our
directors since November 1999. From August 1998 to May 1999, Mr. Nanula served
as the President and Chief Operating Officer at Starwood Hotels & Resorts
Worldwide, a Fortune 500 global hotel company. From February 1996 to March
1998 and August 1991 to November 1994, Mr. Nanula served as the Chief
Financial Officer of The Walt Disney Company. From November 1994 to February
1996, Mr. Nanula was the President of the Disney Stores Worldwide. From
December 1989 to August 1991, Mr. Nanula served as the Treasurer of The Walt
Disney Company. Mr. Nanula received a B.A. degree from the University of
California at Santa Barbara and an M.B.A. degree from Harvard University.
Tyler J. Goldman is the founder of Broadband Sports and has served as
President of Broadband Studios, the division of Broadband Sports focused on
new properties, since November 1999. Mr. Goldman has served as a director of
Broadband Sports since inception. From inception through October 1999, Mr.
Goldman served as our Chief Executive Officer and President. From 1995 to
1997, Mr. Goldman served as an associate at the law offices of Steinberg &
Moorad, an independent provider of athlete services. From 1992 to 1995, Mr.
Goldman served as an associate at Wilson Sonsini Goodrich and Rosati, P.C., a
law firm focused on technology companies. Mr. Goldman received an A.B. degree
from Dartmouth College, and J.D. and Masters of Management degrees from
Northwestern University.
Ross B. Schaufelberger has served as our President, Athlete Direct and Vice
President, Business Development since our inception. From July 1990 to
February 1996, Mr. Schaufelberger served as Vice President of Marketing and
Business Development at STATS, Inc., a provider of online sports statistical
information. Mr. Schaufelberger received a B.A. degree from the University of
Pennsylvania.
Gregory S. Hebner has served as our Chief Financial Officer since May 1998.
From August 1997 to May 1998, Mr. Hebner served as a senior analyst within the
Technology and New Media Group of the Strategic Planning Department for The
Walt Disney Company. From November 1993 to August
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<PAGE>
1995, Mr. Hebner worked as an operations manager for Premark International, a
consumer goods company. From August 1991 to November 1993, Mr. Hebner served
as an auditor for PricewaterhouseCoopers LLP, an independent accounting firm.
Mr. Hebner received a B.S. degree in Accountancy from the University of
Illinois, and M.B.A. degree from Harvard University. Mr. Hebner is a certified
public accountant.
Jose A. Royo has served as our Chief Technical Officer since December 1998.
From August 1998 to December 1998, Mr. Royo served as a Program Manager for
Trilogy Software, a provider of front-office software. From October 1997 to
August 1998, Mr. Royo served as the Chief Information Officer for Crimson
Solutions, a software company developing solutions for higher education. From
September 1993 to August 1997, Mr. Royo served as Lead Software Engineer for
Harvard University. From September 1990 to September 1997, Mr. Royo served as
an instructor in the Department of East Asian Studies at Harvard University.
Mr. Royo received a B.A. degree from Earlham College, and A.M., Ph.D. and
M.B.A. degrees from Harvard University.
John Collins has served as our Vice President, New Media Programming since
November 1999. From April 1991 to November 1999, Mr. Collins served as a
senior programming and sales executive for the National Football League. From
April 1994 to November 1999, Mr. Collins served as the Senior Vice President
of Programming and Sales and the Vice President of Programming and Sales at
the National Football League. From April 1991 to April 1994, Mr. Collins
served as Vice President Sales and Marketing for NFL Films. Mr. Collins
received a B.S. degree from Long Island University.
Thomas F.X. Beusse has served as our Vice President, Advertising Sales since
August 1999. From November 1992 to July 1999 Mr. Beusse served as an
advertising executive for Sports Illustrated, a division of Time-Warner. From
August 1996 to July 1999, Mr. Beusse was the advertising director for Sports
Illustrated's New York office. From August 1989 to November 1992, Mr. Beusse
held various sales positions for Times Mirror Magazines and Hachette
Publishing. Mr. Beusse received a B.A. degree from Ithaca College.
Ahmed O. Alfi has served as a director of Broadband Sports since inception.
Mr. Alfi is the President of Netcubator, the Managing Member of NMSS Partners
LLC, an investment company. From January 1992 to present, Mr. Alfi has served
as Chairman and Chief Executive Officer of Alfigen, a genetic diagnostic
company. Mr. Alfi also serves as a director of Toytime.com, an online toy
retailer and Insureon.com, an online business insurance exchange. Mr. Alfi
received a B.S. degree from California State University, Northridge.
W. Allen Beasley has served as a director of Broadband Sports since May
1999. Since September 1999, Mr. Beasley has been a principal of Redpoint
Ventures, a venture capital firm. From June 1998 to September 1999, Mr.
Beasley was an associate of Institutional Venture Partners, a venture capital
firm. From August 1995 to December 1997, Mr. Beasley worked in various
marketing positions for Ipsilon Networks, Inc. a provider of high-performance
networking equipment. From June 1994 to August 1995, Mr. Beasley worked in
business development for Synopsys, Inc. a provider of design automation
software. Mr. Beasley received an A.B. degree in Economics and a M.B.A. degree
from Stanford University.
Frank J. Biondi, Jr. has served as a director of Broadband Sports since May
1999. Since February 1999, Mr. Biondi has served as Senior Managing Director
of Waterview Advisors, LLC, an investment management firm that acts as the
advisor to Waterview Partners, L.P. Mr. Biondi served as Chairman of the Board
and Chief Executive Officer of Universal Studios, Inc., a media company, from
April 1996 until November 1998. From July 1987 until January 1996, he was
President, Chief Executive
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<PAGE>
Officer and a director of Viacom, Inc., a media company. Mr. Biondi has also
served as a director of The Bank of New York, Vail Resorts, Inc., a resort
operator, and About.com as well as several privately held companies. Mr.
Biondi received an A.B. degree in psychology from Princeton University and a
M.B.A. degree from Harvard University.
Stephen D. Greenberg has served as a director of Broadband Sports since May
1999. Since April 1999, Mr. Greenberg has been a member of General Catalyst
LLC, an investment company. Mr. Greenberg has also served as President of
Classic Sports Network, Inc., a cable television programming service, from
November 1993 through November 1998. From April 1993 to November 1993, Mr.
Greenberg served as President of Stephen D. Greenberg, P.C., an independent
business consulting firm. From January 1990 to April 1993, Mr. Greenberg
served as Deputy Commissioner and Chief Operating Officer of Major League
Baseball. Mr. Greenberg serves as a director on the board of directors of The
Topps Company, a marketer of sports cards. Mr. Greenberg received a B.A.
degree from Yale University, and a J.D. degree from the University of
California at Los Angeles.
Douglas Leone has served as a director of Broadband Sports since May 1999.
Mr. Leone has been a partner of Sequoia Capital since July 1988. Mr. Leone
served on the board of directors of International Network Services, an
enterprise network service provider, from June 1993 to 1998 and Arbor
Software, a software company, from June 1991 to 1997. Mr. Leone is currently
on the board of directors of Scient Corporation as well as several privately
held companies. Mr. Leone holds a B.S. degree in Mechanical Engineering from
Cornell University, an M.S. degree in Industrial Engineering from Columbia
University, and an M.S. degree in Management from the Massachusetts Institute
of Technology.
Geoffrey Y. Yang has served as a director of Broadband Sports since May
1999. Since June 1989, Mr. Yang has been a partner of Institutional Venture
Partners (IVP), a venture capital firm. He is also a Managing Director of
Redpoint Ventures, a venture capital firm. He is a director of Ask Jeeves,
Inc., an online provider of natural-language question answering services, MMC
Networks, Inc., a developer of network processors, TiVo, Inc., a provider of
personal video recorders and personalized TV services, as well as several
privately held companies. He has also been a director of Excite, Inc., an
online portal company. Mr. Yang received a B.A. degree in Economics and a
B.S.E. degree in Information Systems Engineering from Princeton University and
a M.B.A. degree from Stanford University.
Board Composition
Our certificate of incorporation provides for a classified board of
directors consisting of three classes of directors, each serving staggered
three-year terms. As a result, a portion of our board of directors will be
elected each year. To implement the classified structure, prior to the
consummation of the offering, three of the nominees to the board will be
elected to one-year terms, three will be elected to two-year terms and two
will be elected to three-year terms. Thereafter, directors will be elected for
three-year terms. Ahmed O. Alfi, W. Allen Beasley and Frank J. Biondi, Jr.
have been designated Class I directors whose term expires at the 2001 annual
meeting of stockholders. Tyler Goldman, Stephen D. Greenberg and Douglas Leone
have been designated Class II directors whose term expires at the 2002 annual
meeting of stockholders. Richard D. Nanula and Geoffrey Y. Yang have been
designated Class III directors whose term expires at the 2003 annual meeting
of stockholders. For more information on the classified board, see the section
entitled "Description of Capital Stock -- Anti-takeover effects of provisions
of our certificate and bylaws and Delaware law."
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<PAGE>
Executive officers are appointed by the board of directors on an annual
basis and serve until their successors have been duly elected and qualified.
There are no family relationships among any of our directors, officers or key
employees.
Board Committees
In May 1999, the board established an audit committee and a compensation
committee. The audit committee monitors the accounting practices and
procedures and the scope of internal and external audits and will recommend
the appointment of the independent auditors. The members of the audit
committee are Stephen D. Greenberg and Geoffrey Y. Yang. The compensation
committee evaluates and approves the compensation policies for the executive
officers and administers our employee benefit plans. The members of the
compensation committee are Ahmed O. Alfi and Douglas Leone.
Director Compensation
We reimburse members of our board of directors for out-of-pocket expenses
incurred in the performance of their duties as directors. No member of our
board of directors currently receives any additional cash compensation for his
services as a director.
Compensation Committee Interlocks and Insider Participation
Prior to this offering, we did not have a compensation committee, and
compensation decisions were made by the full board. Upon completion of this
offering, the compensation committee will make compensation recommendations to
the board. No interlocking relationship exists between the board or
compensation committee and the board or compensation committee of any other
company, nor has any interlocking relationship existed in the past.
Executive Compensation
The following table sets forth information concerning the compensation paid
by us to our chief executive officer and our three other most highly
compensated executive officers who served as executive officers during fiscal
1998 and whose total compensation for fiscal 1998 exceeded $100,000 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation ------------------ All Other
Name and Principal --------------------- Awards Underlying Compensation
Position Salary($) Bonus($) Options/SARS(#)(1) ($)
- ------------------ ---------- --------- ------------------ ------------
<S> <C> <C> <C> <C>
Richard D. Nanula(2)...... $ -- $ -- -- $ --
Chief Executive Officer
and Chairman
Tyler J. Goldman.......... 150,000 -- -- --
President, Broadband
Studios
Ross B. Schaufelberger.... 125,000 26,850 -- --
President of Athlete
Direct and Vice
President, Business
Development
Gregory S. Hebner......... 95,000 17,500 2,352,941 --
Chief Financial Officer
</TABLE>
- ---------------------
(1) Consists of shares issuable pursuant to options granted under the 1998
Equity Incentive Plan.
(2) Mr. Nanula became our Chief Executive Officer in November 1999. His
expected annual salary for the year 2000 is $180,000.
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<PAGE>
Option Grants In Fiscal 1998
The following table sets forth certain information regarding stock options
granted during 1998 to the named executive officers, including the potential
realizable value over the 10-year term of the options based on annual rates of
stock appreciation of 5% and 10%, compounded annually. These assumed rates of
appreciation comply with the rules of the SEC and do not represent our
estimate of future stock prices. Actual gains, if any, on stock option
exercises will depend on the future performance of our common stock. In 1998,
we granted options to acquire up to 12,174,853 shares to employees,
consultants, directors and service providers, all under the 1998 Equity
Incentive Plan and all at an exercise price equal to not less than the fair
market value of our common stock on the date of grant as determined in good
faith by the board. Optionees may pay the exercise price by check, note,
delivery of already-owned shares of our common stock or any other instrument
the board will accept.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of
Number of Percent of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Option Term(2)
Options Employees in Exercise Price Expiration ---------------------
Name Granted(1)(#) Fiscal Year(%) Per Share Date 5% 10%
- ---- ------------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard D. Nanula(3).... -- -- -- -- -- --
Tyler J. Goldman........ -- -- -- -- -- --
Ross B. Schaufelberger.. -- -- -- -- -- --
Gregory S. Hebner....... 2,352,941 29.9% $0.015 12/04/08 $ 22,196 $ 56,250
</TABLE>
- ---------------------
(1) All options granted to the named executive officers during 1998 were
granted under the 1998 equity incentive plan. Mr. Hebner's options vest
quarterly and become exercisable as to 294,118 shares each quarter
commencing upon employment. See "Stock Plans."
(2) Potential realizable values are net of exercise price but before taxes
associated with exercise.
(3) Mr. Nanula became our Chief Executive Officer in November 1999.
Aggregated Option Exercises During Fiscal 1998 and Fiscal Year-End Option
Values
No options were exercised during 1998 by our chief executive officer or any
of the other named executive officers. The following table sets forth
information about the number and year-end value of exercisable and
unexercisable options held by the named executive officers in the table below
as of December 31, 1998. The "Value of Unexercised In-the-Money Options at
December 31, 1998" is based on an assumed initial public offering price of
$ per share, minus the exercise price, multiplied by the number of
shares underlying the option.
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options at In-The-Money Options at
December 31, 1998(1) December 31, 1998
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard D. Nanula(2)....... -- -- -- --
Tyler J. Goldman........... -- -- -- --
Ross B. Schaufelberger..... -- -- -- --
Gregory S. Hebner.......... 882,351 1,470,590
</TABLE>
- ---------------------
(1) All options were granted under our 1998 equity incentive plan. Mr.
Hebner's options vest quarterly and become exercisable as to 294,118
shares each quarter commencing upon employment.
(2) Mr. Nanula became our Chief Executive Officer in November 1999.
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<PAGE>
Stock Plans
1998 Equity Incentive Plan. Our 1998 Equity Incentive Plan was approved by
the board of directors and stockholders in December 1998. The 1998 equity
incentive plan provides for the grant of options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code of
1986, as amended, nonqualified stock options, the sale of restricted stock and
the grant of other securities or benefits with a value derived from the value
of common stock. The 1998 equity incentive plan also provides for the transfer
or sale of common stock to selected individuals in connection with the
performance of services for us. Initially, 35,294,117 shares of common stock
were reserved for issuance under the 1998 equity incentive plan. We do not
intend to grant further awards under the 1998 equity incentive plan after the
completion of this offering.
As of November 15, 1999, options to purchase 30,592,656 shares had been
granted under the 1998 equity incentive plan. The board of directors or a
committee designated by the board is authorized to administer the 1998 equity
incentive plan, including the selection of individuals to whom grants of
options are made, issuances of common stock, the terms of such grants or
issuances, possible amendments to the terms of such grants or issuances and
the interpretation of the terms of, and adoption of rules for, the 1998 equity
incentive plan. The maximum term of any stock option granted under the 1998
equity incentive plan is ten years, except that with respect to incentive
stock options granted to a person possessing more than 10% of our combined
voting power, the term of these stock options may not exceed five years.
The exercise price of incentive stock options granted under the 1998 equity
incentive plan must be at least 100% of the fair market value of the common
stock on the grant date except that the exercise price of incentive stock
options granted to a 10% stockholder must be at least 110% of the fair market
value on the grant date. The aggregate fair market value on the date of grant
of the common stock for which incentive stock options are exercisable for the
first time by an employee during any calendar year may not exceed $100,000.
The purchase price of shares of common stock granted under the 1998 equity
incentive plan must be at least 85% of the fair market value of the common
stock on the grant date except that the purchase price of shares of common
stock granted to a 10% stockholder must be at least 110% of the fair market
value on the grant date. The individual agreements under the 1998 equity
incentive plan may provide us with repurchase rights under the terms and
conditions set forth in the equity incentive plan. Options generally become
exercisable at the rate of 20% per year over four years. Incentive stock
options cannot be transferred and other options can be transferred only in the
discretion of the administrator of the plan, but cease to vest if they are
transferred. The 1998 equity incentive plan will terminate in 2008, unless
earlier terminated by the board.
The 1998 equity incentive plan provides that we can cancel any unexpired,
unpaid or deferred award (whether or not vested) at any time if the recipient
of the award violates certain agreements with us or competes with our business
within one year after termination of employment or engagement with us or
renders services for a competitor during this time. In addition, if the
recipient has violated any of these agreements within 180 days of exercise of
an award, the recipient is obligated to pay us the amount of any gain realized
or payment received as a result of the rescinded exercise. This payment must
be made by returning to us all shares of capital stock that the recipient
received in connection with the rescinded exercise, or if the shares have been
transferred by the recipient, by paying in cash to us the fair market value of
the shares transferred at the time of transfer of the shares.
Except as otherwise provided in an individual award agreement, in the event
of a merger in which we are not the surviving entity, the sale of all or
substantially all of our assets or a reverse merger resulting in a change of
control, each grant which is at the time outstanding under the equity
incentive plan shall, unless the plan administrator in its discretion decides
differently, will terminate immediately
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<PAGE>
prior to the consummation of such proposed transaction, unless the grant is
assumed or an equivalent grant is substituted by the successor corporation.
During the ten months ended December 31, 1998, we granted options to acquire
up to 12,174,853 shares of common stock ranging from an exercise price of
$0.015 per share to the per share price of the common stock in this offering.
1999 Stock Incentive Plan. Our 1999 Stock Incentive Plan was approved by the
board of directors and stockholders in 1999. The 1999 stock incentive
plan provides for the grant of options intended to qualify as "incentive stock
options" under Section 422 of the Internal Revenue Code of 1986, as amended,
nonqualified stock options and stock appreciation rights. The 1999 stock
incentive plan also provides for the transfer or sale of common stock to
selected individuals in connection with the performance of services for us.
Initially, up to 12% of the then-outstanding number of shares of common stock
were reserved for issuance under the 1999 stock incentive plan which will be
increased annually by a number equal to one percent of the number of shares of
common stock outstanding as of December 31 of the immediately preceding
calendar year.
The board of directors or a committee designated by the board is authorized
to administer the 1999 stock incentive plan, including the selection of
individuals to whom grants of options are made, issuances of common stock, the
terms of these grants or issuances, possible amendments to the terms of these
grants or issuances and the interpretation of the terms of, and adoption of
rules for, the 1999 stock incentive plan. The maximum term of any stock option
granted under the stock incentive plan is ten years, except that with respect
to incentive stock options granted to a person possessing more than 10% of our
combined voting power, the term of these stock options may not exceed five
years.
The exercise price of incentive stock options granted under the 1999 stock
incentive plan must be at least 100% of the fair market value of the common
stock on the grant date except that the exercise price of incentive stock
options granted to a 10% stockholder must be at least 110% of the fair market
value on the grant date. The aggregate fair market value on the date of grant
of the common stock for which incentive stock options are exercisable for the
first time by an employee during any calendar year may not exceed $100,000.
The purchase price of shares of common stock granted under the stock incentive
plan must be at least 85% of the fair market value of the common stock on the
grant date except that the purchase price of shares of common stock granted to
a 10% stockholder must be at least 100% of the fair market value on the grant
date. The individual agreements under the 1999 stock incentive plan may
provide us with repurchase rights under the terms and conditions set forth in
the stock incentive plan. Options generally become exercisable at the rate of
25% per year over four years. Incentive stock options are not transferable.
The 1999 stock incentive plan will terminate in 2009, unless earlier
terminated by the board.
The 1999 stock incentive plan provides for automatic grants to non-employee
directors. Each non-employee director, upon initial election or appointment to
our board of directors, is entitled to receive options to purchase
shares of common stock and follow-on grants in the amount of shares at
the conclusion of each annual meeting of stockholders. The initial grants and
follow-on grants become exercisable over four years with 25% of the shares
vesting one year from the grant date and the remaining shares vesting in equal
monthly installments thereafter.
In the event of a merger in which we are not the surviving entity, the sale
of all or substantially all of our assets or a reverse merger resulting in a
change of control, each grant which is at the time
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<PAGE>
outstanding under the 1999 stock incentive plan shall, unless the plan
administrator in its discretion decides differently, immediately prior to the
specified effective date of such transaction, automatically .
To the extent it has not been previously exercised, the grant will terminate
immediately prior to the consummation of such proposed transaction, unless the
grant is assumed or an equivalent grant is substituted by the successor
corporation.
401(k) Plan
We have a 401(k) plan pursuant to which eligible employees may elect to
reduce their current salary by up to the statutorily prescribed annual limit
and have the amount of the reduction contributed to the 401(k) plan.
Contributions to the 401(k) plan by us are discretionary and, to date, we have
not made any contribution to the 401(k) plan. The 401(k) plan is intended to
qualify under Section 401 of the Internal Revenue Code so that contributions
by participants to the 401(k) plan, and income earned on plan contributions,
are not taxed to participants until withdrawn from the 401(k) plan.
Employment Agreements
Under an employment agreement dated November 1999, we will pay Richard D.
Nanula a base salary of $180,000 per year plus performance bonuses at the
discretion of the compensation committee of the board of directors. Other than
as provided in his restricted stock purchase agreement, neither we nor Mr.
Nanula shall have any further obligation to each other by way of compensation
or otherwise if terminated.
Under an employment agreement dated February 1998, we pay Tyler J. Goldman a
base salary of $150,000 per year plus performance bonuses at the discretion of
the compensation committee of the board of directors. After completion of this
offering, Mr. Goldman's base salary will be increased to an amount to be
determined by the compensation committee. The employment agreement has a term
of three years; however, if Mr. Goldman is terminated for any reason other
than for cause, he is entitled to a severance payment equal to six months of
his then-current base salary at the time of termination.
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<PAGE>
CERTAIN TRANSACTIONS
In connection with our formation, NMSS Partners, LLC ("NMSS") purchased all
of our 2,000,000 shares of outstanding mandatory redeemable series A preferred
stock for $1.00 per share and extended to us a $4.5 million revolving credit
facility. In connection with the closing of this offering, all of the series A
preferred stock will be redeemed for approximately $2.3 million and the $4.5
million credit facility will be repaid. NMSS owns more than 5% of our company,
and two of its members, Ahmed O. Alfi and Amre Youness, were directors of our
company at the time of these transactions. Mr. Alfi continues to serve as a
director on our board of directors and is also the sole shareholder of the
managing member of NMSS.
In May 1999, we sold 29,166,663 shares of our series B preferred stock at a
$0.60 per share. Each share of series B preferred stock will be converted to
shares of common stock upon the closing of this offering for an aggregate
of shares of common stock. In connection with this financing, we
entered into an agreement that provides for certain rights relating to the
registration of our common stock under the Securities Act of 1933, as amended.
BRCM LLC and General Catalyst LLC each purchased 3,333,333 shares of series B
preferred stock. In addition to BRCM LLC and General Catalyst LLC, Tyler
Goldman, our President, Broadband Studios, Ross Schaufelberger, our President,
Athlete Direct and Vice President, Business Development, NMSS, and funds
affiliated with Institutional Venture Partners and Sequoia Capital entered
into the agreement regarding registration rights. Frank J. Biondi, Jr. is a
member of our board of directors and is affiliated with BRCM LLC, Stephen D.
Greenberg is a member of our board of directors and is affiliated with General
Catalyst LLC, W. Allen Beasley and Geoffrey Y. Yang are members of our board
of directors and are affiliated with Institutional Venture Partners, and Doug
Leone is a member of our board of directors and is affiliated with Sequoia
Capital. In addition, funds affiliated with Institutional Venture Partners and
Sequoia Capital each own, in the aggregate, more than 5% of our company.
In November 1999, we sold 18,500,000 shares of our series C preferred stock
at $0.80 per share. Each share of Series C preferred stock will convert to
shares of common stock upon the closing of this offering for an aggregate of
shares of common stock.
Pursuant to a restricted stock purchase agreement, we sold an aggregate of
30,389,809 shares of common stock to Richard D. Nanula for approximately
$18,233,885. In connection with the restricted stock purchase agreement, Mr.
Nanula entered into a note with us, which had a principal amount of
approximately $15,200,906. The note bears interest at the rate of
approximately 6% per annum.
A number of our officers have entered into employment agreements with us.
See "Management--Executive Compensation" and "--Employment Agreements."
Prior to the offering, we intend enter into indemnification agreements with
each of our executive officers and directors. These agreements may require us,
among other things, to indemnify them (other than for liabilities arising from
willful misconduct of a culpable nature) and to advance their expenses
incurred as a result of any proceedings against them as to which they could be
indemnified. See "Description of Capital Stock--Limitation of Liability and
Indemnification Matters."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of November 15, 1999, and as
adjusted to reflect our sale of shares for:
. each person (or group of affiliated persons) who we know to own
beneficially more than 5% of our common stock;
. each of our named executive officers and directors; and
. all of our executive officers and directors as a group.
Unless otherwise indicated, the address for each of the listed individuals
is c/o Broadband Sports, Inc., 1640 South Sepulveda Boulevard, Suite 500, Los
Angeles, California 90025. Except as otherwise indicated, and subject to
applicable community property laws, the listed persons have sole voting and
investment power with respect to all shares of common stock held by them. The
numbers of shares in the table assumes no exercise of the underwriters' over-
allotment option.
Applicable percentage ownership in the table is based on 295,093,972 shares
of common stock outstanding as of November 15, 1999, and shares
outstanding immediately following the completion of this offering. Beneficial
ownership is determined in accordance with the rules of the SEC. Shares of
common stock subject to options that are presently exercisable or exercisable
within 60 days of November 15, 1999 are deemed outstanding for the purpose of
computing the percentage ownership of the person or entity holding those
options, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person or entity. To the extent that any
shares are issued upon exercise of options or other rights to acquire our
capital stock that are presently outstanding or granted in the future or
reserved for issuance under our stock plans, there will be further dilution to
new investors.
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Owned
Shares -----------------
Beneficially Prior to After
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ -------- --------
<S> <C> <C> <C>
NMSS Partners LLC (1).......................... 78,859,755 26.7% %
301 North Lake Avenue
Suite 910
Pasadena, CA 91101
Ahmed O. Alfi (1).............................. 78,859,755 26.7
Tyler J. Goldman............................... 37,916,660 12.8
Entities affiliated with Institutional Venture
Partners (2).................................. 32,250,000 10.9
Institutional Venture Partners
3000 Sand Hill Road
Suite 290
Menlo Park, CA 94025
Geoffrey Y. Yang (2)........................... 32,250,000 10.9
Entities affiliated with Sequoia Capital (3)... 32,250,000 10.9
Sequoia Capital
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
</TABLE>
77
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares
Beneficially
Owned
Shares -----------------
Beneficially Prior to After
Owned Offering Offering
------------ -------- --------
<S> <C> <C> <C>
Douglas Leone (3).............................. 32,250,000 10.9
Richard D. Nanula.............................. 30,389,809 10.3
Ross B. Schaufelberger......................... 9,787,500 3.3
Frank J. Biondi, Jr. (4)....................... 3,520,833 1.2
Stephen D. Greenberg (5)....................... 3,708,333 1.3
W. Allen Beasley............................... -- *
Gregory S. Hebner (6).......................... 1,789,706 *
All executive officers and directors as a group
(13 persons).................................. 230,447,596 77.5%
</TABLE>
- ---------------------
* Less Than 1%
(1) Represents 78,859,755 shares held by NMSS Partners, LLC. Mr. Alfi, one of
our directors, is a director and member of NMSS.
(2) Represents 981,436 shares held by IVP Broadband Fund, L.P., 30,690,096
shares held by Institutional Venture Partners VIII, L.P. and 578,468
shares held by IVM Investment Fund VIII, LLC. Mr. Yang, one of our
directors, is a partner of Institutional Venture Partners.
(3) Represents 19,350,000 shares held by Sequoia Capital Franchise Fund,
11,691,270 shares held by Sequoia Capital VIII, 148,350 shares held by
Sequoia International Technology Partners VIII, 774,000 shares held by
Sequoia International Technology Partners VIII (Q), 258,000 shares held by
CMS Partners LLC and 28,380 shares held by Sequoia 1997. Mr. Leone, one of
our directors, is a partner of Sequoia Capital.
(4) Represents 3,520,833 held by Waterview Partners, L.P. Mr. Biondi, one of
our directors, is a director and is affiliated with BRCM LLC. Mr. Biondi
disclaims beneficial ownership of these shares, except to the extent of
his pecuniary interest therein.
(5) Represents 3,708,333 shares held by General Catalyst LLC. Mr. Greenberg,
one of our directors, is a director and a member of General Catalyst LLC.
Mr. Greenberg disclaims beneficial ownership of these shares, except to
the extent of his pecuniary interest therein.
(6) Represents 1,764,706 shares subject to options issued under the 1998
equity incentive plan, all of which are exercisable within 60 days of
September 30, 1999.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and certain provisions of our
charter and bylaws are only summaries and are qualified by reference to our
charter and bylaws filed as exhibits to the registration statement of which
this prospectus is a part. At the closing of the offering our authorized
capital stock will consist of shares of common stock, $0.001 par value
per share, and shares of preferred stock, $0.001 par value per share. As
of November 15, 1999, there were 2,000,000 shares of mandatorily redeemable
series A preferred stock outstanding, 29,166,663 shares of series B preferred
stock outstanding and 18,500,000 shares of series C preferred stock
outstanding. The shares of mandatorily redeemable series A preferred stock
outstanding prior to this offering will be redeemed upon the closing of this
offering, the shares of series B preferred stock outstanding prior to this
offering will be converted into 29,166,663 shares of common stock upon the
closing of this offering and the shares of series C preferred stock
outstanding prior to this offering will be converted into 18,500,000, shares
of common stock upon the closing of this offering.
Common Stock
Holders of the common stock are entitled to receive, when and if declared by
the board, dividends and other distributions in cash, stock or property from
our assets or funds legally available for those purposes, subject to any
dividend preferences that may be attributable to preferred stock. Holders of
common stock are entitled to one vote for each share held of record on all
matters on which stockholders may vote. Holders of common stock are not
entitled to cumulative voting for the election of directors.
There are no preemptive, conversion, redemption or sinking fund provisions
applicable to the common stock. All outstanding shares of common stock are
fully paid and non-assessable. In the event of our liquidation, dissolution or
winding up, subject to any liquidation preferences that may be attributed to
preferred stock, holders of common stock are entitled to share ratably in the
assets available for distribution.
After this offering there will be shares of common stock
outstanding, including 247,427,309 shares of common stock currently
outstanding, 29,166,663 shares to be issued upon conversion of the series B
preferred stock, 18,500,000 shares to be issued upon conversion of the
series C preferred stock, and shares to be issued in this offering.
Preferred Stock
Upon the closing of this offering, 5,000,000 shares of preferred stock will
be authorized and no shares will be issued or outstanding. The board has the
authority, without further action by the stockholders, to issue the shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
and purchase fund provisions, and the number of shares constituting any series
and the designation of such series. The issuance of preferred stock could
adversely affect the voting power of holders of common stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation. The issuance of preferred stock could also have the effect of
delaying, deferring or preventing a change in control. We have no present plan
to issue any additional shares of preferred stock.
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<PAGE>
Warrants
As of November 15, 1999, warrants to purchase up to 282,916 and 221,666
shares of common stock were outstanding at a purchase price of $0.60 and $0.80
per share, respectively. The warrants contain provisions for the adjustment of
the exercise price and the aggregate number of shares issuable upon the
exercise of the warrant in the event of stock dividends, stock splits,
reorganizations and reclassifications and consolidations.
Anti-takeover effects of our certificate and bylaws and Delaware law
Upon the closing of this offering, some provisions of Delaware law and our
certificate of incorporation and bylaws could make the following more
difficult:
. acquisition of Broadband Sports by means of a tender offer;
. acquisition of Broadband Sports by means of a proxy contest or
otherwise; or
. removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to acquire control of us to first
negotiate with our board of directors. We believe that the benefits of
increased protection of our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us outweigh
the disadvantages of discouraging such proposals because negotiation of such
proposals could result in an improvement of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. For more information on
the classified board, see the section entitled "Management--Board
Composition." This system of electing and removing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us because it generally makes it more difficult for
stockholders to replace a majority of the directors.
Stockholder Meetings. Under our bylaws, only the board of directors, the
chairman of the board and the president may call special meetings of
stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board of directors.
Delaware Anti-Takover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not
80
<PAGE>
approved in advance by the board of directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders to act by written consent
without a meeting.
Elimination of Cumulative Voting. Our certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors.
Cumulative voting provides for a minority stockholder to vote a portion or all
of its shares for one or more candidates for seats on the board of directors.
Without cumulative voting, a minority stockholder will not be able to gain as
many seats on our board of directors based on the number of shares of our
stock that such stockholder holds than if cumulative voting were permitted.
The elimination of cumulative voting makes it more difficult for a minority
stockholder to gain a seat on our board of directors to influence the board of
directors' decision regarding a takeover.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for the board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of
any attempt to change control of Broadband Sports. These and other provisions
may have the effect of deferring hostile takeovers or delaying changes in
control or management of Broadband Sports.
Amendment of Charter Provisions. The amendment of any of the above
provisions would require approval by holders of at least 66 2/3% of the
outstanding common stock.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. Delaware law provides that our
directors are not personally liable for monetary damages to us or our
stockholders for breach of fiduciary duties as a director, except for
liability for:
. any breach of the duty of loyalty to us or our stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. an act related to the unlawful stock repurchase or payment of a dividend
under Section 174 of Delaware General Corporation Law; or
. any transaction from which the director derived an improper personal
benefit.
The limitation of liability provided in the certificate of incorporation does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
Indemnification Agreements. Our certificate of incorporation and bylaws
authorize us to indemnify our directors, officers, employees and other agents,
by agreements or otherwise, to the fullest extent permitted under Delaware
law. We plan to enter into separate indemnification agreements with our
directors and officers which may, in some cases, be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
The indemnification agreements may require us, among other things, to
indemnify such officers and directors against certain liabilities that may
arise by reason of their status or service as directors or officers, to
advance their expenses incurred as a result of any proceeding against them as
to which they could be indemnified, and to obtain directors' and officers'
insurance if available on reasonable terms.
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<PAGE>
Indemnification under Bylaws. Our bylaws require us to indemnify our
directors, officers, employees and other agents to the fullest extent
permitted by law. We believe that indemnification under our bylaws covers at
least negligence on the part of the indemnified party.
Indemnification under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to our directors
and officers and persons that control us pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Pending indemnification proceedings. At present, there is no pending
litigation or proceeding involving any of our directors, officers, employees
or other agents where indemnification will be required or permitted. We are
not aware of any threatened litigation or proceeding which may result in a
claim for such indemnification.
Registration Rights of Certain Holders
After this offering, the holders of approximately 248,120,386 shares of
common stock will be entitled to certain rights to register these shares under
the Securities Act of 1933 pursuant to an investors' rights agreement. These
holders all have "Piggyback" rights. If we propose to register any of our
common stock for our own account or for the account of other security holders,
the holders of these 248,120,386 shares of common stock are entitled to notice
of such registration and are entitled to include their shares in the
registration, subject to the ability of underwriters to limit the number of
shares included in the offering.
Subject to certain limitations in the investors' rights agreement, the
holders of an aggregate of 91,166,663 shares of common stock are also entitled
to demand registration rights pursuant to which the holders of at least a
majority of such shares may require us to use our best efforts to register
such shares for public resale. Any holder or holders of such shares may also
require us to register all or a portion of their registrable securities on
Form S-3 when we are eligible to use that form, provided, among other
limitations, that the proposed aggregate price to the public is at least
$500,000 and that we shall not have effected two of these in any 12-month
period.
We will bear all fees, costs and expenses of such registrations, other than
underwriting discounts and commissions.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is
. Its address is
and its telephone number at this
location is .
Listing
We have applied to have the shares of common stock approved for quotation on
the Nasdaq National Market under the symbol "BBND."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
there can be no assurance that a significant public market for our common
stock will develop or be sustained after this offering. Future sales of
substantial amounts of our common stock, including shares issued upon exercise
of outstanding options and warrants, in the public market after this offering
could adversely affect market prices prevailing from time to time and could
impair our ability to raise capital through the sale of our equity securities.
Upon completion of this offering, based on the number of shares outstanding
on November 15, 1999, we will have outstanding shares of common stock,
shares if the underwriters exercise their over-allotment option in full,
assuming no exercise of outstanding warrants and options. Of these shares,
shares, plus an additional shares if the underwriters exercise their
over-allotment option in full, of common stock sold in this offering will be
freely tradable without restriction or further registration under the
Securities Act unless purchased by our affiliates.
Of the remaining shares, a total of approximately shares held by our
directors, officers and shareholders are subject to "lock-up" agreements
generally providing that, these shareholders will not (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock or (2) 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 of these transactions described in (1) or (2)
are to be settled by delivery of common stock or such other securities, in
cash or otherwise, for a period of 180 days following the date of the final
prospectus for this offering without the prior written consent of Morgan
Stanley & Co. Incorporated. The restrictions described in this paragraph do
not apply to:
. the sale to the underwriters of the shares of common stock to be sold in
the offering;
. the issuance by us of shares of common stock upon the exercise of an
existing option or an existing warrant or the conversion of a security
outstanding on the date of this prospectus of which the underwriters
have been advised in writing;
. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares; or
. issuances of certain shares of common stock or options to purchase
shares of common stock pursuant to our employee benefit plans as in
existence on the date of this prospectus.
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 (1) 1% of the number of shares of common stock then
outstanding, which will equal approximately shares immediately after
this offering or (2) the average weekly trading volume of the
common stock during the four calendar weeks preceding the filing of a Form 144
with respect to such sale. Sales under Rule 144 also are subject to certain
manner of sale provisions and notice requirements and to the availability of
current public information about us. Under Rule 144(k), a person who is not
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<PAGE>
deemed to have been an affiliate of Broadband Sports at any time during the
three months 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.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to Broadband Sports who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule 701 further provides that non-affiliates may sell such shares in reliance
on Rule 144 without having to comply with the holding period, public
information, volume limitation or notice provisions of Rule 144. All holders
of Rule 701 shares are required to wait until 90 days after the date of this
prospectus before selling such shares.
As of the effective date of the registration statement, holders of
248,120,386 shares of common stock will be entitled to "piggyback"
registration rights with respect to their shares. Holders of 91,166,663 of
these shares can also require Broadband Sports to register their shares at any
time following 180 days after the date of this prospectus, subject to certain
conditions.
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<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Hambrecht & Quist LLC and SG Cowen
Securities Corporation are acting as representatives, have severally agreed to
purchase, and we have agreed to sell to them, severally, the respective number
of shares of common stock set forth opposite the names of the underwriters
below:
<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated.................................
Hambrecht & Quist LLC.............................................
SG Cowen Securities Corporation...................................
---
Total............................................................
===
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. 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 by this prospectus if any shares are taken.
However, the underwriters are not required to take or pay for the share
covered by the underwriters over-allotment option described below.
The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page of this prospectus and part to certain dealers at a price that
represents a concession not in excess of $ a share under the public
offering price. Any underwriters may allow, and such dealers may reallow, a
concession not in excess of $ a share to other underwriters or to certain
other 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 of the underwriters.
We 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 public offering price listed on the cover page
of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent such option is
exercised, each underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of the additional
shares of common stock as the number listed next to such underwriter's name in
the preceding table bears to the total number of shares of common stock listed
next to the names of all underwriters in the preceding table.
At our request, the underwriters have reserved up to shares of common
stock to be issued by us and offered hereby for sale, at the initial public
offering price, to directors, officers, employees, business associates and
persons related to us. The number of shares of common stock available for sale
to the general public will be reduced to the extent these individuals purchase
such reserved shares. Any reserved shares that are not so purchased will be
offered by the underwriters to the general public on the same basis as the
other shares offered by this prospectus. Pursuant to the regulations of the
National Association of Securities Dealers, Inc., certain purchasers of the
reserved shares may have to agree not to sell, transfer, assign or hypothecate
their shares for a period of 90 days after the date of this prospectus.
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<PAGE>
The underwriters have informed us 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.
We, the directors, officers, shareholders and certain optionholders of ours
have agreed that, without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters, we will not, during the period
ending 180 days after the date of this prospectus, directly or indirectly:
. 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, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; 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 common
stock.
Any such transaction described above is to be settled by delivery of common
stock or such other securities, in cash or otherwise, after the date of this
prospectus.
The restrictions described in the previous paragraph do not apply to:
. the sale to the underwriters of the shares of common stock to be sold in
the offering;
. the issuance by us of shares of common stock upon the exercise of an
existing option or an existing warrant or the conversion of a security
outstanding on the date of this prospectus, of which the underwriters
have been advised in writing;
. transactions by any person other than us relating to shares of common
stock or other securities acquired in open market transactions after the
completion of the offering of the shares; or
. issuances of certain shares of common stock or options to purchase shares
of common stock pursuant to our employee benefit plans as in existence on
the date of this prospectus.
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 an underwriter or a dealer for
distributing the common stock in the offering if the syndicate repurchases
previously distributed shares of 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.
We have applied to have the shares of common stock approved for quotation on
the Nasdaq National Market under the symbol "BBND."
We 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 common
stock. The public offering price for the shares of common stock will be
determined by negotiations between us and the
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<PAGE>
representatives of the underwriters. Among the factors to be considered in
determining the public offering price will be our record of operations, our
current financial position and future prospects and our industry in general,
the experience of our management, sales, earnings and certain of our other
financial and operating information in recent periods, the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to ours.
The estimated 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.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Morrison & Foerster LLP, Palo Alto, California. Certain matters in connection
with this offering will be passed upon for the Underwriters by Cooley Godward
LLP, San Francisco, California. Upon the completion of this offering, certain
attorneys of Morrison & Foerster LLP will beneficially own an aggregate of
283,332 shares of our common stock.
EXPERTS
The consolidated financial statements of Broadband Sports, Inc. as of
December 31, 1998 and for the ten months ended December 31, 1998 and the
combined financial statements of the Predecessor Companies as of December 31,
1997 and for the period February 1, 1996 to December 31, 1996, the year ended
December 31, 1997 and the two months ended February 27, 1998 appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority
of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
Broadband Sports has filed with the SEC a registration statement on Form S-1
under the Securities Act with respect to the shares of common stock offered
hereby. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules that are a part of
the registration statement which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to
Broadband Sports and the common stock, reference is made to the registration
statement and the exhibits and schedules that are a part of the registration
statement. With respect to statements contained in this prospectus as to the
contents of any agreement or other document in each instance reference is made
to the copy of such agreement or other document filed as an exhibit to the
registration statement, each such statement being qualified in all respects by
such reference.
You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our SEC filings are also available to the public from the
SEC's Web site at http://www.sec.gov.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934,
and, in accordance therewith, will file periodic reports, proxy statements and
other information with the SEC. Such periodic reports, proxy statements and
other information will be available for inspection and copying at the SEC's
public reference rooms and the SEC's Web site, which is described above.
87
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Year Ended
December 31, 1998....................................................... F-3
Unaudited Pro Forma Condensed Combined Statement of Operations for the
Nine Months
Ended September 30, 1999................................................ F-4
Notes to Unaudited Pro Forma Condensed Combined Financial Statements..... F-5
Broadband Sports, Inc.
Report of Independent Auditors........................................... F-6
Combined Balance Sheet of the Predecessor Companies at December 31, 1997,
the Consolidated Balance Sheets at December 31, 1998 and September 30,
1999 (Unaudited) and September 30, 1999 Pro Forma (Unaudited)........... F-7
Combined Statements of Operations of the Predecessor Companies for the
Period from February 1, 1996 to December 31, 1996, the Year Ended
December 31, 1997 and the Two Months ended February 27, 1998 and the
Consolidated Statements of Operations of the Company for the Ten Months
ended December 31, 1998, the Seven Months ended September 30, 1998
(Unaudited) and the Nine Months ended September 30, 1999 (Unaudited).... F-8
Combined Statements of Cash Flows of the Predecessor Companies for the
Period from February 1, 1996 to December 31, 1996, the Year ended
December 31, 1997 and the Two Months ended February 27, 1998 and the
Consolidated Statements of Cash Flows of the Company for the Ten Months
ended December 31, 1998, the Seven Months ended September 30, 1998
(Unaudited) and the Nine Months ended September 30, 1999 (Unaudited).... F-9
Consolidated Statements of Owners' Equity of the Predecessor Companies
for the Period from February 1, 1996 to December 31, 1996, the Year
ended December 31, 1997 and the Two Months ended February 27, 1998 and
the Consolidated Statements of Stockholders' Deficit of the Company for
the Ten Months ended December 31, 1998 and the Nine Months ended
September 30, 1999 (Unaudited).......................................... F-10
Notes to Consolidated and Combined Financial Statements.................. F-11
</TABLE>
F-1
<PAGE>
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined financial information for
Broadband Sports, Inc. (Broadband Sports) set forth below gives effect to:
. the acquisition on February 27, 1998 of Athlete Direct, Inc. (Athlete
Direct) and Pro Sports Xchange, Inc. (PSX); and
. conversion of the series B preferred stock; and
. repayment of the revolving loan due to stockholder; and
. the issuance and conversion of series C preferred stock; and
. the issuance of 30,389,809 shares of common stock in November 1999.
The historical financial information set forth below has been derived from
the consolidated financial statements of Broadband Sports and the combined
financial statements of the Predecessor Companies and should be read in
conjunction with those financial statements and the notes thereto included
elsewhere herein.
The unaudited pro forma condensed combined statement of operations for the
year ended December 31, 1998 set forth below gives effect to the acquisitions
of Athlete Direct and PSX and the repayment of the revolving loan due to
stockholder as if these transactions occurred at the beginning of the period
presented. The unaudited pro forma condensed combined statement of operations
for the nine months ended September 30, 1999 set forth below gives effect to
the repayment of the revolving loan due to stockholder as if this transaction
occurred at the beginning of the period presented. The information set forth
below should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the consolidated
financial statements of Broadband Sports and the combined financial statements
of the Predecessor Companies which are included elsewhere herein. The
unaudited pro forma condensed combined financial information set forth below
does not purport to represent what would actually have been if the
acquisitions had in fact occurred on such date or to project the future
consolidated results of operations of Broadband Sports.
F-2
<PAGE>
Broadband Sports, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Broadband
Sports, Predecessor
Inc. Ten Companies
Months Two Months
ended ended
December February 27, Pro Forma Pro Forma
31, 1998 1998 Combined Adjustments Combined
----------- ------------ ----------- ----------- -----------
(Note 1) (Note 2) (Note 3)
<S> <C> <C> <C> <C> <C>
Revenues................ $ 2,718,628 $ 507,224 $ 3,225,852 $ -- $ 3,225,852
Cost of revenues........ 2,035,669 296,401 2,332,070 -- 2,332,070
----------- --------- ----------- -------- -----------
Gross profit ........... 682,959 210,823 893,782 -- 893,782
Operating expenses:
Sales and marketing... 592,102 69,290 661,392 -- 661,392
Product development... 136,682 8,822 145,504 -- 145,504
General and
administrative....... 1,536,967 136,117 1,673,084 -- 1,673,084
Depreciation.......... 43,246 3,678 46,924 -- 46,924
Amortization.......... 2,657,071 149,613 2,806,684 48,751(a) 2,855,435
----------- --------- ----------- -------- -----------
Total operating
expenses............... 4,966,068 367,520 5,333,588 48,751 5,382,339
----------- --------- ----------- -------- -----------
Operating loss.......... (4,283,109) (156,697) (4,439,806) (48,751) (4,488,557)
Interest income......... -- -- -- -- --
Interest expense........ (66,962) -- (66,962) 66,962(b) --
Other expense........... (5,708) -- (5,708) -- (5,708)
----------- --------- ----------- -------- -----------
Net loss................ $(4,355,779) $(156,697) $(4,512,476) $ 18,211 $(4,494,265)
=========== ========= =========== ======== ===========
Historical loss per
share--
basic and diluted...... $ (0.02)
===========
Weighted average common
and common equivalent
shares outstanding--
basic and diluted...... 217,037,500
===========
Pro forma loss per
share--
basic and diluted
(Note 4)............. $ (0.02)
===========
Weighted average common
and common equivalent
shares outstanding--
basic and diluted (Note
4)..................... 295,093,972
===========
</TABLE>
F-3
<PAGE>
Broadband Sports, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Broadband
Sports, Pro Forma Pro Forma
Inc. Adjustments Combined
----------- ----------- -----------
(Note 3)
<S> <C> <C> <C>
Revenues.............................. $ 5,724,646 $ -- $ 5,724,646
Cost of revenues...................... 3,811,427 -- 3,811,427
----------- -------- -----------
Gross profit.......................... 1,913,219 -- 1,913,219
Operating expenses:
Sales and marketing................. 4,487,799 -- 4,487,799
Product development................. 713,859 -- 713,859
General and administrative.......... 4,098,004 -- 4,098,004
Depreciation........................ 268,490 -- 268,490
Amortization........................ 2,188,674 -- 2,188,674
----------- -------- -----------
Total operating expenses.............. 11,756,826 -- 11,756,826
----------- -------- -----------
Operating loss........................ (9,843,607) (9,843,607)
Interest income....................... 199,501 -- 199,501
Interest expense...................... (244,419) 244,419(b) --
----------- -------- -----------
Net loss.............................. $(9,888,525) $244,419 $(9,644,106)
=========== ======== ===========
Historical loss per share--
basic and diluted.................... $ 0.05
===========
Weighted average common and common
equivalent shares outstanding--basic
and diluted.......................... 217,037,500
===========
Pro forma loss per share--
basic and diluted (Note 4).......... $ 0.03
===========
Weighted average common and common
equivalent shares outstanding--basic
and diluted (Note 4)................. 295,093,972
===========
</TABLE>
F-4
<PAGE>
Broadband Sports, Inc.
Notes to Unaudited Pro Forma Condensed Combined Financial Statements
Note 1 -- General
Broadband Sports was founded in February 1998 to provide sports content and
commerce to distinct sports communities online. The historical financial
statements reflect the financial position and results of operations of
Broadband Sports. The unaudited pro forma combined financial statements
include the results of operations of Broadband Sports and the Predecessor
Companies for the nine months ended September 30, 1999 and for the year ended
December 31, 1998.
Note 2 -- Predecessor Companies
On February 27, 1998, the Company purchased all of the outstanding common
stock of Athlete Direct and PSX for a combined purchase price of $2,209,964.
The acquisitions have been accounted for as purchase transactions.
Note 3 -- Unaudited Pro Forma Combined Statement of Operations Adjustments
(a) Represents additional amortization in connection with the acquisitions of
the predecessor companies for the two months ended February 27, 1998.
(b) Represents elimination of interest expense on the revolving loan due to
stockholder.
Note 4 -- Loss Per Share
Pro forma loss per share on a pro forma combined basis takes effect for the
conversion of the series B preferred stock, the issuance and conversion of the
series C preferred stock, the issuance of 30,389,809 shares of common stock in
November 1999, and the repayment of the outstanding balance on the revolving
loan due to stockholder.
F-5
<PAGE>
Report of Independent Auditors
The Board of Directors
Broadband Sports, Inc.
We have audited the accompanying combined balance sheet of the Predecessor
Companies as of December 31, 1997 and the consolidated balance sheet of
Broadband Sports, Inc. (the "Company") as of December 31, 1998 and the related
combined statements of operations, owners' equity, and cash flows of the
Predecessor Companies for the period February 1, 1996 to December 31, 1996,
the year ended December 31, 1997 and the two months ended February 27, 1998
and the consolidated statements of operations, stockholders' deficit, and cash
flows of the Company for the ten months ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Predecessor Companies
at December 31, 1997 and the financial position of the Company at December 31,
1998 and the results of operations and cash flows of the Predecessor Companies
for the period February 1, 1996 to December 31, 1996, the year ended December
31, 1997 and the two months ended February 27, 1998 and the results of
operations and cash flows of the Company for the ten months ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Los Angeles, California
April 4, 1999
F-6
<PAGE>
Broadband Sports, Inc.
Consolidated Balance Sheets
and the Predecessor Companies Combined Balance Sheets
<TABLE>
<CAPTION>
Predecessor Pro Forma
Companies September September
December 31, December 30, 30,
1997 31, 1998 1999 1999
------------ ----------- ------------ ------------
(Unaudited) (Unaudited)
(See Notes 1
and 11)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 53,356 $ 212,997 $ 9,320,484 $ 7,035,484
Investments............ -- 51,588 51,588 51,588
Accounts receivable.... 199,295 262,208 788,285 788,285
Advances and deferred
incentives............ 631,010 421,414 326,430 326,430
Inventory.............. 4,002 17,223 158,712 158,712
Prepaid expenses and
other current assets.. 39,454 33,929 1,302,677 1,302,677
---------- ----------- ------------ ------------
Total current
assets.............. 927,117 999,359 11,948,176 9,663,176
Fixed assets, net........ 51,632 200,099 1,812,327 1,812,327
Goodwill, net............ -- 633,762 619,057 619,057
Advances and deferred
incentives.............. 989,060 503,509 891,959 891,959
Other assets............. 3,285 19,324 137,821 137,821
---------- ----------- ------------ ------------
Total assets......... $1,971,094 $ 2,356,053 $ 15,409,340 $ 13,124,340
========== =========== ============ ============
Liabilities and
stockholders'/owners'
equity (deficit)
Current liabilities
Accounts payable....... $ 68,763 $ 153,364 $ 511,990 $ 511,990
Accrued liabilities.... 225,145 438,540 2,028,765 2,028,765
Deferred revenue....... 46,500 4,000 -- --
---------- ----------- ------------ ------------
Total current
liabilities......... 340,408 595,904 2,540,755 2,540,755
Revolving loan due to
stockholder............. -- 1,998,085 4,468,085 4,468,085
Commitments and
contingencies (Note 9)
Mandatorily redeemable
series A preferred
stock, $0.001 par value,
no shares authorized at
December 31, 1997;
2,000,000 shares
authorized, issued and
outstanding December 31,
1998, September 30,
1999; none issued or
outstanding pro forma... -- 2,150,000 2,285,000 --
Stockholders'/owners'
equity (deficit):
Series B convertible
preferred stock;
$0.001 par value, no
shares authorized
December 31, 1997 and
1998; 34,000,000
shares authorized,
29,166,663 shares
issued and outstanding
September 30, 1999;
none issued or
outstanding pro
forma................. -- -- 16,519,487 --
Common stock, $0.001
par value; no shares
authorized, issued or
outstanding at
December 31, 1997;
235,294,118 shares
authorized,
217,037,500 issued and
outstanding at
December 31, 1998;
300,000,000 shares
authorized,
217,037,500 issued and
outstanding at
September 30, 1999;
246,204,163 issued and
outstanding pro
forma................. -- 217,038 217,038 246,204
Additional paid-in
capital............... -- 3,554,994 6,106,753 22,597,074
Deferred compensation.. -- (1,804,189) (2,483,474) (2,483,474)
Accumulated deficit.... -- (4,355,779) (14,244,304) (14,244,304)
Owners' equity......... 1,630,686 -- -- --
---------- ----------- ------------ ------------
Total stockholders'
equity (deficit).... 1,630,686 (2,387,936) 6,115,500 6,115,500
---------- ----------- ------------ ------------
Total liabilities and
stockholders'
equity.............. $1,971,094 $ 2,356,053 $ 15,409,340 $ 13,124,340
========== =========== ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
Broadband Sports, Inc.
Consolidated Statements of Operations
and the Predecessor Companies Combined Statements of Operations
<TABLE>
<CAPTION>
Predecessor Companies
--------------------------------------
Period from
February 1, Two months Ten months Seven months Nine months
1996 to Year ended ended ended ended ended
December 31, December 31, February 27, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1999
------------ ------------ ------------ ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 218,675 $1,873,930 $ 507,224 $ 2,718,628 $ 1,908,170 $ 5,724,646
Cost of revenues........ 413,352 1,300,062 296,401 2,035,669 1,405,291 3,811,427
--------- ---------- --------- ----------- ----------- -----------
Gross profit (loss)..... (194,677) 573,868 210,823 682,959 502,879 1,913,219
Operating expenses:
Sales and marketing... 4,241 154,487 69,290 592,102 209,212 4,487,799
Product development... 7,875 22,000 8,822 136,682 85,361 713,859
General and
administrative....... 97,041 671,946 136,117 1,536,967 1,066,509 4,098,004
Depreciation.......... 2,780 15,195 3,678 43,246 25,660 268,490
Amortization.......... 52,409 413,510 149,613 2,657,071 2,020,198 2,188,674
--------- ---------- --------- ----------- ----------- -----------
Total operating
expenses............... 164,346 1,277,138 367,520 4,966,068 3,406,940 11,756,826
--------- ---------- --------- ----------- ----------- -----------
Operating loss.......... (359,023) (703,270) (156,697) (4,283,109) (2,904,061) (9,843,607)
Interest income......... 244 3,056 -- -- -- 199,501
Interest expense........ -- -- -- (66,962) (34,702) (244,419)
Other expense........... -- -- -- (5,708) (5,875) --
--------- ---------- --------- ----------- ----------- -----------
Net loss................ $(358,779) $ (700,214) $(156,697) $(4,355,779) $(2,944,638) $(9,888,525)
========= ========== ========= =========== =========== ===========
Historical loss per
share-- basic and
diluted................ $ 0.02 $ 0.01 $ 0.05
=========== =========== ===========
Pro forma historical
loss per share--basic
and diluted ........... $ 0.02 $ 0.01 $ 0.04
=========== =========== ===========
Weighted average common
and common equivalent
shares outstanding
Historical............ 217,037,500 217,037,500 217,037,500
=========== =========== ===========
Pro forma............. 246,204,163 246,204,163 246,204,163
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
Broadband Sports, Inc.
Consolidated Statements of Cash Flows
and the Predecessor Companies Combined Statements of Cash Flows
<TABLE>
<CAPTION>
Predecessor Companies
--------------------------------------
Period from
February 1, Two months Ten months Seven months Nine months
1996 to Year ended ended ended ended ended
December 31, December 31, February 27, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1999
------------ ------------ ------------ ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Operating activities
Net loss................ $(358,779) $(700,214) $(156,697) $(4,355,779) $(2,944,638) $(9,888,525)
Adjustments to reconcile
net loss to net cash
used in operating
activities:
Depreciation and
amortization of
goodwill.............. 2,780 15,195 3,678 287,000 196,285 537,269
Amortization of
deferred compensation
and deferred
incentives............ 52,409 413,510 149,613 2,413,317 1,849,573 1,919,895
Stock compensation
expense............... -- -- -- 8,519 8,519 --
Changes in operating
assets and
liabilities:
Accounts receivable.... (26,798) (172,497) 16,643 (79,556) (107,187) (526,077)
Inventory.............. -- (4,002) (1,925) (11,296) (8,363) (141,489)
Prepaid expenses and
other assets.......... (5,762) (37,619) 12,000 (22,514) (14,087) (1,242,958)
Advances and deferred
incentives............ -- -- -- -- (52,173) (350,174)
Accounts payable....... -- 68,763 45,596 39,005 64,300 358,626
Accrued liabilities.... 75,458 149,687 (61,605) 275,000 317,548 1,590,225
Deferred revenue....... 187,500 (141,000) (43,500) 1,000 (3,000) (4,000)
--------- --------- --------- ----------- ----------- -----------
Net cash used in
operating activities... (73,192) (408,177) (36,197) (1,445,304) (693,223) (7,747,208)
Investing activities
Purchase of property and
equipment.............. (29,936) (39,029) (5,278) (190,113) (158,360) (1,878,718)
Acquisitions, net of
cash acquired.......... -- -- -- (2,198,083) (2,198,083) (256,074)
Purchase of
investments............ -- -- -- (51,588) (50,939) --
--------- --------- --------- ----------- ----------- -----------
Net cash used in
investing activities... (29,936) (39,029) (5,278) (2,439,784) (2,407,382) (2,134,792)
Financing activities
Capital contributions... 360,953 242,737 -- -- -- --
Issuance of common
stock.................. -- -- -- 100,000 100,000 --
Issuance of mandatorily
redeemable preferred
stock.................. -- -- -- 2,000,000 2,000,000 --
Issuance of preferred
stock.................. -- -- -- -- -- 16,519,487
Proceeds from revolving
loan due to
stockholder............ -- -- -- 1,998,085 1,053,000 2,470,000
--------- --------- --------- ----------- ----------- -----------
Net cash provided by
financing activities... 360,953 242,737 -- 4,098,085 3,153,000 18,989,487
--------- --------- --------- ----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents............ 257,825 (204,469) (41,475) 212,997 52,395 9,107,487
Cash and cash
equivalents at
beginning of the
period................. -- 257,825 53,356 -- -- 212,997
--------- --------- --------- ----------- ----------- -----------
Cash and cash
equivalents at end of
the period............. $ 257,825 $ 53,356 $ 11,881 $ 212,997 $ 52,395 $ 9,320,484
========= ========= ========= =========== =========== ===========
Supplemental disclosure
of cash flow
information:
Cash paid for:
Interest............... $ -- $ -- $ -- $ 33,605 $ 17,241 $ 201,502
========= ========= ========= =========== =========== ===========
Income taxes........... $ -- $ -- $ -- $ -- $ -- $ 2,400
========= ========= ========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
Broadband Sports, Inc.
Consolidated Statements of Stockholders' Deficit and the
Predecessor Companies Combined Statements of Owners' Equity
<TABLE>
<CAPTION>
Series B
Preferred Stock Common Stock Additional
---------------------- -------------------- Paid-in Deferred Owners' Accumulated
Shares Amount Shares Amount Capital Compensation Equity Deficit Total
---------- ----------- ----------- -------- ---------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 1,
1996............ -- $ -- -- $ -- $ -- $ -- $ -- $ -- $ --
Capital
contributions.. -- -- -- -- -- -- 360,953 -- 360,953
Deferred
incentives..... -- -- -- -- -- -- 907,083 -- 907,083
Net loss........ -- -- -- -- -- -- (358,779) -- (358,779)
---------- ----------- ----------- -------- ---------- ----------- ----------- ------------ -----------
Balance at
December 31,
1996............ -- -- -- -- -- -- 909,257 -- 909,257
Capital
contributions.. -- -- -- -- -- -- 242,737 -- 242,737
Deferred
compensation
and incentives
............... -- -- -- -- -- -- 1,051,034 -- 1,051,034
Amortization of
deferred
compensation .. -- -- -- -- -- -- 127,872 -- 127,872
Net loss........ -- -- -- -- -- -- (700,214) -- (700,214)
---------- ----------- ----------- -------- ---------- ----------- ----------- ------------ -----------
Balance at
December 31,
1997............ -- -- -- -- -- -- 1,630,686 -- 1,630,686
Deferred
compensation
and
incentives..... -- -- -- -- -- -- 51,833 -- 51,833
Amortization of
deferred
compensation .. -- -- -- -- -- -- 42,743 -- 42,743
Net income...... -- -- -- -- -- -- (156,697) -- (156,697)
---------- ----------- ----------- -------- ---------- ----------- ----------- ------------ -----------
Balance at
February 27,
1998............ -- $ -- -- $ -- $ -- $ -- $ 1,568,565 $ -- $ 1,568,565
========== =========== =========== ======== ========== =========== =========== ============ ===========
Issuance of
common stock... -- $ -- 200,000,000 $200,000 $ (100,000) $ -- $ -- $ 100,000
Issuance of
common stock... -- -- 17,037,500 17,038 (8,519) -- -- 8,519
Deferred
compensation
and
incentives..... -- -- -- -- 3,813,513 (3,760,680) -- 52,833
Amortization of
deferred
compensation... -- -- -- -- -- 1,956,491 -- 1,956,491
Accretion of
dividends
payable for
mandatorily
redeemable
series A
preferred
stock.......... -- -- -- -- (150,000) -- -- (150,000)
Net loss........ -- -- -- -- -- -- (4,355,779) (4,355,779)
---------- ----------- ----------- -------- ---------- ----------- ------------ -----------
Balance at
December 31,
1998............ -- -- 217,037,500 217,038 3,554,994 (1,804,189) (4,355,779) (2,387,936)
Issuance of
Series B
Preferred Stock
(unaudited)..... 29,166,663 16,519,487 -- -- -- -- -- 16,519,487
Issuance of
warrant......... -- -- -- -- 144,287 -- -- 144,287
Deferred
compensation and
incentives
(unaudited)..... -- -- -- -- 2,542,472 (2,274,532) -- 267,940
Amortization of
deferred
compensation
(unaudited)..... -- -- -- -- -- 1,595,247 -- 1,595,247
Accretion of
dividends
payable for
mandatorily
redeemable
series A
preferred stock
(unaudited)..... -- -- -- -- (135,000) -- -- (135,000)
Net loss
(unaudited)..... -- -- -- -- -- -- (9,888,525) (9,888,525)
---------- ----------- ----------- -------- ---------- ----------- ------------ -----------
Balance at
September 30,
1999............ 29,166,663 $16,519,487 217,037,500 $217,038 $6,106,753 $(2,483,474) $(14,244,304) $ 6,115,500
========== =========== =========== ======== ========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements
(Information at September 30, 1999 and for the seven months ended September
30, 1998 and the nine months ended September 30, 1999 is unaudited)
December 31, 1998
1. Company Formation, Business and Basis of Presentation
Broadband Sports, Inc. (Broadband Sports or the Company) was incorporated in
the state of Delaware on February 20, 1998 and commenced operations on
February 28, 1998. Athlete Direct began operations in September 1996. Pro
Sports Xchange LLC began operations in February 1996.
In connection with the formation of Broadband Sports, Athlete Direct, Inc.
(AD or Athlete Direct) and Pro Sports Xchange, Inc. (PSX or Pro Sports
Xchange) were incorporated on February 27, 1998. On February 27, 1998, Athlete
Direct LLC was merged with and into Athlete Direct, Inc. and each 1%
membership interest was exchanged for 700,000 shares of common stock of
Athlete Direct, Inc. On February 27, 1998, Pro Sports Xchange LLC was merged
with and into Pro Sports Xchange, Inc. and each 1% membership interest was
exchanged for 1,000,000 shares of common stock of Pro Sports Xchange, Inc. On
February 27, 1998, Broadband Sports purchased all of the outstanding common
stock of Athlete Direct, Inc. and Pro Sports Xchange, Inc. for a combined
purchase price of $2,209,964 (including acquisition costs of $169,964),
The acquisitions have been accounted for as purchase transactions;
accordingly, the fair value assigned in each acquisition was allocated to the
net assets acquired based on their estimated fair market values. The
determination of the aggregate cost in excess of net assets acquired is set
forth below:
<TABLE>
<S> <C>
Current assets.................................................. $ 765,012
Non-current assets.............................................. 848,335
Cost in excess of net assets acquired........................... 877,516
Current liabilities............................................. 277,899
Non-current liabilities......................................... 3,000
</TABLE>
The cost in excess of net assets acquired in the acquisitions has been
allocated to goodwill and is being amortized using the straight-line method
over three years. The accompanying consolidated financial statements include
the results of operations since the effective date of the acquisitions.
Through its wholly-owned subsidiary, PSX, the Company, through its network
of local and regional sports writers, produces original, in-depth content
covering major professional sports (e.g. football, baseball, basketball, and
hockey) as well as major Division I College Sports (e.g. basketball and
football). Through its wholly-owned subsidiary, Athlete Direct, the Company
develops and aggregates individual athlete sites under the Athlete Direct
branded network, creating an online destination for sports fans to obtain
information about, interact with, and purchase products relating to their
favorite athletes. The Company currently derives its revenue from four major
revenue streams: content syndication, advertising, electronic commerce and
subscriptions.
F-11
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
1. Company Formation, Business and Basis of Presentation--(Continued)
The Company has only a limited operating history and its prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their early stage of development, particularly
companies in new and rapidly evolving markets. These risks include, among
others, the Company's ability to provide compelling sports-related content and
commerce, maintain existing and develop new strategic relationships, publicly
release the www.athletedirect.com website, achieve and maintain projected
levels of online traffic, build an electronic commerce infrastructure,
increase its fulfillment capabilities and extend its brands.
Pro Forma Information (unaudited)
The following unaudited pro forma condensed consolidated financial
information is presented to show the results of the Company as if the
acquisitions of Pro Sports Xchange and Athlete Direct had occurred at the
beginning of the periods presented. The pro forma results include adjustments
for the additional amortization of goodwill. The pro forma financial
information is not necessarily indicative of the results of operations as they
would have been had the acquisitions been effective at the beginning of the
periods presented.
<TABLE>
<CAPTION>
Nine months
Years ended ended
December 31, September 30,
------------------------- -----------------
1997 1998 1998
----------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues...................... $ 1,873,930 $ 3,225,852 $ 2,415,394
Net loss...................... $ (992,719) $ (4,561,227) $ (3,150,086)
Basic and diluted loss per
share........................ $ (0.00) $ (0.02) $ (0.01)
</TABLE>
Basis of Presentation
The consolidated financial statements as of December 31, 1998 and for the
ten months then ended, include the accounts of Broadband Sports and its
majority owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
The combined financial statements of Athlete Direct LLC and Pro Sports
Xchange LLC (the "Predecessor Companies") as of December 31, 1997 and for the
period from February 1, 1996 through December 31, 1996 and for the year ended
December 31, 1997 and the two months ended February 27, 1998, have been
prepared on a combined basis due to the respective companies' common
ownership. All capital contributions to the Predecessor Companies from the LLC
members have been recorded as owner's equity in stockholders' equity. Earnings
per share have not been presented for the Predecessor Companies as the
presentation would not be meaningful due to the significant change in the
capital structure of the Predecessor Companies following their acquisitions.
All significant balances and transactions between the Predecessor Companies
have been eliminated in the combined financial
F-12
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
1. Company Formation, Business and Basis of Presentation--(Continued)
statements. The financial statements of the Predecessor Companies do not
necessarily reflect the results of operations or financial position that would
have existed had the companies operated as a single consolidated entity.
The pro forma balance sheet at September 30, 1999 has been presented to
reflect the conversion of series B convertible preferred stock and the
redemption of the mandatorily redeemable series A preferred stock in
connection with the change in capitalization that will occur upon the
occurrence of an initial public offering with net proceeds to the Company that
exceed $15,000,000 (for Series B conversion) or $10,000,000 (for Series A
redemption).
2. Significant Accounting Policies
Unaudited Interim Financial Information
The financial information as of September 30, 1999 and for the nine months
ended September 30, 1999 and the seven months ended September 30, 1998, is
unaudited but includes all adjustments consisting of only normal recurring
adjustments that the Company considers necessary for a fair presentation of
the financial position at such dates and the results of operations and cash
flows for the periods then ended. Operating results for the seven months ended
September 30, 1998 and the nine months ended September 30, 1999 are not
necessarily indicative of results that may be expected for the entire year.
Revenue Recognition
Content syndication revenue is recognized over the period of the content
syndication agreement as the Company delivers its content provided there are
no further obligations. Advertising revenue is recognized ratably over the
period in which the advertising is displayed, provided that no significant
obligations remain and collection of the resulting receivable is probable.
Company obligations may include guarantees of a minimum number of
"impressions" or times that an advertisement appears in page views downloaded
by users. Revenue from electronic commerce is recognized once the product has
been shipped and collection of the resulting receivable is probable.
Subscription revenue is recognized ratably over the subscription period, which
is often a professional sports season. Subscriptions are charged directly to
the customers' credit card and are billed in advance. Accordingly, amounts
received for which services have not yet been provided are recorded as
deferred revenues. To date, revenue and expenses from any barter transactions
are recognized at fair value when the Company has a history of receiving or
paying cash for similar transactions.
F-13
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
2. Significant Accounting Policies--(Continued)
Sales and Marketing
Advertising costs are expensed as incurred. Advertising costs for the ten
months ended December 31, 1998 amounted to $111,000. There was no advertising
expense for any prior periods. Amounts earned by content providers including
athletes, sports writers, and sports personalities in excess of the
contractual royalty are included in sales and marketing expense.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Investments
At December 31, 1998, short-term investments consist of debt instruments
with maturity dates less than one year. The Company accounts for investments
in accordance with Statement of Financial Accounting Standards ("SFAS") No.
115, Accounting for Certain Investments in Debt and Equity Securities. The
Company's short-term investments are classified as held-to-maturity as of the
balance sheet date and are reported at amortized cost.
Inventory
Inventory consists primarily of licensed sports merchandise and collectibles
and is stated at the lower of cost, determined on a first-in, first-out basis,
or market.
Property and Equipment
Property, equipment and leasehold improvements are recorded at cost and
depreciated using the straight-line method over its estimated useful life,
ranging from three to seven years. Property and equipment consist primarily of
computers, software, furniture, and equipment. Upon the sale or retirement of
assets, the cost and accumulated depreciation are removed from the account and
any gain or loss is recognized. Maintenance and repairs are charged to expense
when incurred.
Product Development
Product development expenses consist of expenses incurred by the Company in
the development and creation of its web sites. Product development expenses
include compensation and related expenses, and costs incurred in developing
features and functionality of the service. Product development costs are
expensed as incurred.
F-14
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
2. Significant Accounting Policies--(Continued)
Income Taxes
Prior to the acquisitions, the federal and state taxable income or loss of
Athlete Direct LLC and Pro Sports Xchange LLC were recognized on the separate
tax returns of the LLC members. Current and deferred taxes have not been
provided on a pro forma basis because the effects are insignificant.
The Company adopted SFAS No. 109 "Accounting for Income Taxes" on February
20, 1998. Accordingly, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences
are expected to be recovered or settled.
Impairment of Long-Lived Assets and Intangibles
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-
Lived Assets and Long-Lived Assets to Be Disposed Of," the Company
periodically reviews long-lived assets and certain identifiable intangibles
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows (on an undiscounted basis) expected to be
generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
Loss Per Share
Historical net loss per share is computed using the weighted average number
of shares of common stock and common stock equivalents outstanding. Due to the
anti-dilutive effects of common stock equivalents, historical basic and
diluted loss per share are the same.
Pro forma loss per share was computed to take effect for the redemption of
the series A preferred stock and conversion of 29,166,663 shares of the series
B convertible preferred stock into 29,166,663 shares of common stock as though
these transactions occurred at the beginning of the periods presented.
Stock Based Compensation
The Company is subject to SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123). As allowed by SFAS No. 123, the Company accounts
for stock based compensation to employees in accordance with APB 25,
"Accounting for Stock Issued to Employees." In cases where exercise prices are
less than the fair value as of the grant date, compensation expense is
F-15
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
2. Significant Accounting Policies--(Continued)
recognized over the vesting period. The Company accounts for options issued to
its vendors based upon the fair value of the services received or the fair
value of options, whichever is more determinable. Unaudited pro forma
financial information, assuming that the Company had adopted the measurement
standards of SFAS No. 123, is included in Note 8.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of cash and accounts receivable. Cash is
deposited with high-credit, quality financial institutions and may exceed
F.D.I.C. insured limits. The Company's accounts receivable are generally
unsecured and are derived from revenue earned from customers located in the
U.S. and are denominated in U.S. dollars.
America Online, Inc. (AOL) accounted for approximately 42%, 47%, 49% and 46%
of revenue for the period February 1, 1996 through December 31, 1996, the year
ended December 31, 1997, the two months ended February 27, 1998, and the ten
months ended December 31, 1998, respectively. AOL accounted for approximately
75% and 59% of accounts receivable at December 31, 1997 and 1998,
respectively.
Use of Estimates
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 at the
date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates.
Segments and Related Information
The Company views its operations as principally one segment and the
financial information disclosed herein materially represents all of the
financial information related to the Company's principal operating segment.
F-16
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
3. Fixed Assets
Fixed assets consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Computers and equipment............ $ 65,511 $138,353 $1,683,456
Software and computer
applications...................... 2,900 96,036 430,352
Furniture and fixtures............. 1,196 8,956 10,255
-------- -------- ----------
69,607 243,345 2,124,063
Less accumulated depreciation and
amortization...................... (17,975) (43,246) (311,736)
-------- -------- ----------
$ 51,632 $200,099 $1,812,327
======== ======== ==========
</TABLE>
During the ten months ended December 31, 1998, the Company wrote off fully
amortized fixed assets with a gross value of $21,653.
4. Revolving Loan Due to Stockholder
On February 27, 1998, the Company entered into a Revolving Loan Agreement
("Revolving Loan") with a stockholder whereby the stockholder made available
to the Company $4,500,000. All amounts borrowed under the Revolving Loan are
secured by, among other things, accounts and notes receivable, inventory,
equipment, licensing agreements, and intellectual property of the Company.
Amounts borrowed under the Revolving Loan bear interest at the prime rate plus
1% (8.75% at December 31, 1998) and are payable monthly on the last day of the
month. All amounts borrowed under the Revolving Loan mature and are payable
the earlier of February 27, 2003 or upon the occurrence of other
reorganization transactions including an initial public offering which results
in net proceeds to the Company of at least $10 million. The Revolving Loan
contains covenants and other restrictions with which the Company must comply,
including, among others, restrictions on additional indebtedness and payment
of dividends. The Company was in compliance with these covenants at December
31, 1998. As of December 31, 1998, the Company had $2,501,915 available to be
drawn under the revolving loan agreement.
5. Manditorily Redeemable Series A Preferred Stock
On February 27, 1998, the Company entered into a Series A Preferred Stock
Purchase Agreement with a shareholder whereby the Company agreed to sell and
issue to the shareholder 2,000,000 shares of the Company's Manditorily
Redeemable Series A Preferred Stock (Series A) at a purchase price of $1.00
per share. The Series A has no voting rights except on items that directly may
adversely impact the Series A stockholders. Dividends accumulate at $.09 per
share per year from the date of issuance and are payable upon the occurrence
of a liquidation event, as defined. The Series A has a liquidation preference
of $1.00 per share, plus all declared, or undeclared but accumulated and
unpaid dividends on such shares. The Series A shall be redeemed for $1.00 per
share plus all declared, or undeclared
F-17
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
5. Manditorily Redeemable Series A Preferred Stock--(Continued)
but accumulated and unpaid dividends, upon the occurrence of either i) a sale
of 50% interest of the Company, or ii) an initial public offering of net
proceeds of at least $10 million. The Company increased the carrying value of
the Series A by $150,000 and $135,000 for the ten months ended December 31,
1998 and the nine months ended September 30, 1999, respectively, to account
for the accretion of undeclared but accumulated and unpaid dividends.
6. Stockholders' Equity
On February 27, 1998, the Board of Directors approved the employment
agreements of two employees which included the issuance of 17,037,500 shares
of common stock on April 1, 1998 at a purchase price of $8,519. The fair value
of the shares issued in exchange for services provided to the Company was
recorded as compensation expense.
On December 4, 1998, the Company's Articles of Incorporation were amended
increasing the amount of shares the Company is authorized to issue to
235,294,118 shares reflecting a 20-for-1 common stock split approved by the
Board of Directors. Par value remained unchanged at $0.001 per share (see Note
11). The common stock split has been retroactively reflected in all share and
per share disclosures in the accompanying consolidated financial statements.
7. Income Taxes
The Predecessor Company was formed as a limited liability company and was
treated as a partnership for income tax purposes. As such, the individual LLC
members recorded on their individual tax returns their allocated portion of
federal and state taxable income and expenses and accordingly the Predecessor
Companies were not subject to federal and state income taxation.
The Company did not provide an income tax benefit for any of the periods
presented because it has experienced operating losses since inception. As a
result of the net operating losses, the provision for income taxes consists
solely of minimum state taxes which has been included in general and
administrative expense.
The following is a reconciliation of the statutory federal income tax rate
to the Company's effective income tax rate.
<TABLE>
<CAPTION>
Ten months
ended
December 31,
1998
------------
<S> <C>
Statutory federal income tax benefit............................ (34)%
State income tax benefit........................................ (2)
Valuation allowance............................................. 17
Non-deductible stock compensation............................... 16
Non-deductible goodwill amortization............................ 3
------
-- %
======
</TABLE>
F-18
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
7. Income Taxes--(Continued)
The components of deferred tax assets and related valuation allowance are as
follows:
<TABLE>
<CAPTION>
December 31,
1998
------------
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.............................. $ 648,000
Stock compensation............................................ 363,000
Other......................................................... 120,000
----------
1,131,000
Less valuation allowance...................................... (1,131,000)
----------
Net deferred tax assets......................................... $ --
==========
</TABLE>
Due to the uncertainty surrounding the timing of realizing the net deferred
tax assets in future tax returns, the Company has placed a valuation allowance
equal to its net deferred tax assets.
At December 31, 1998, the Company has net operating losses for both federal
and state income tax purposes of approximately $1,631,000, which are available
to offset future taxable income, if any, through 2019 and 2005, respectively.
8. Equity Incentive Plan
On December 4, 1998, the Board of Directors and stockholders of the Company
adopted the 1998 Equity Incentive Plan (Incentive Plan). The Incentive Plan
provides for the granting, at the discretion of an administrator as appointed
by the Board of Directors, of up to 15% of the number of shares of the
Company's common stock authorized for issuance. Each grant of options under
the Incentive Plan vest on a case-by-case basis as approved by the
administrator, generally over a range of two to eight years from the date of
grant and expire not more than 10 years from the date of grant.
Deferred compensation for employees and deferred incentives for non-
employees represent the fair value of options that were granted on December 4,
1998. Such amounts were recorded as deferred compensation in stockholders'
equity for employees and deferred incentives for non-employees. The Company
calculated the fair value of each option to non-employees on the date of grant
using an option pricing model as prescribed by SFAS No. 123. The fair value of
options granted to non-employees is evenly amortized from the beginning of the
service period.
F-19
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
8. Equity Incentive Plan--(Continued)
Amounts recorded for options granted to employees represent the difference
between the grant price and the deemed fair value of the Company's common
stock based on a recent common stock equity transaction. The following table
outlines total deferred compensation for employees and deferred incentives for
non-employees for all periods presented:
<TABLE>
<CAPTION>
Predecessor Companies
--------------------------------------
Period from
February 1, Two months Ten months Nine months
1996 to Year ended ended ended ended
December 31, December 31, February 27, December 31, September 30,
1996 1997 1998 1998 1999
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Employees............... $ -- $ 504,700 $ 61,800 $3,364,795 $2,274,532
Non-employees........... 907,083 1,051,034 51,833 52,833 267,940
-------- ---------- -------- ---------- ----------
Total................. $907,083 $1,555,734 $113,633 $3,417,628 $2,542,472
======== ========== ======== ========== ==========
</TABLE>
A summary of changes in outstanding options under the Incentive Plan is as
follows:
<TABLE>
<CAPTION>
Employees Non-employees Total
------------------ ----------------------- ------------------------
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- ------------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at February
28, 1998............... -- $ -- -- $ -- -- $ --
Granted................. 7,912,353 0.015 4,262,500 0.015--0.350 12,174,853 0.015--0.350
Exercised............... -- -- -- -- -- --
Cancelled............... 240,000 0.015 -- -- 240,000 0.015
--------- ------- --------- ------------- ---------- -------------
Outstanding at December
31, 1998............... 7,672,353 $ 0.015 4,262,500 $0.015--0.350 11,934,853 $0.015--0.350
========= ======= ========= ============= ========== =============
Options exercisable..... 4,009,706 1,176,750 5,186,456
========= ========= ==========
Available for grant..... 23,359,265
==========
</TABLE>
The weighted average fair value of options granted during 1998 was $0.53.
F-20
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
8. Equity Incentive Plan--(Continued)
The weighted average exercise prices for options granted and exercisable at
December 31, 1998 and the weighted average remaining contractual life for
options outstanding at December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise of Contractual Exercise of Exercise
Price Shares Life (Years) Price Shares Price
-------- --------- ------------ -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Employees
$0.015.................. 7,672,353 9.3 $ 0.015 4,009,706 $ 0.015
Non-employees
$0.015-0.016............ 3,795,000 8.2 $0.0153 1,156,750 $ 0.0153
0.120................... 100,000 8.2 0.120 20,000 0.120
0.350................... 237,500 9.6 0.350 -- --
(1)................... 130,000 9.4 (1) -- --
</TABLE>
- ---------------------
(1) Exercise price is equal to the price of the proposed offering.
SFAS No. 123 requires disclosure of pro forma net loss and pro forma basic
and diluted loss per share based upon the fair value of the options issued.
The Company calculated the fair value of each option grant on the date of the
grant using an option pricing model as prescribed by SFAS No. 123 using the
following assumptions:
<TABLE>
<S> <C>
Risk-free interest rate................. 5.5%
Expected life (in years)................ 5
Dividend yield.......................... 0%
Volatility.............................. 65%
</TABLE>
This option valuation model requires the input of highly subjective
assumptions including the expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing model does not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-21
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
8. Equity Incentive Plan--(Continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
<CAPTION>
Predecessor Companies
--------------------------------------
Period from
February 1, Two months Ten months Seven months Nine months
1996 to Year ended ended ended ended ended
December 31, December 31, February 27, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1999
------------ ------------ ------------ ------------ ------------- -------------
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Pro forma net loss...... 358,779 701,207 157,029 4,372,254 2,956,559 10,006,275
Pro forma basic and
diluted loss per
share.................. 0.02 0.01 0.05
</TABLE>
These pro forma amounts may not be representative of future disclosures
since the estimated fair value of stock options is amortized to expense over
the vesting period, and additional options may be granted in future years.
9. Commitments and Contingencies
The Company and the Predecessor Companies lease office facilities and
certain computer and communications equipment under non-cancellable leases
that expire at various dates through March 31, 2002. Rent expense amounted to
approximately $5,000, $9,170, $8,431, and $155,163 for the period February 1,
1996 through December 31, 1996, the year ended December 31, 1997, the
two months ended February 27, 1998 (the Predecessor Companies) and the ten
months ended December 31, 1998 (the Company), respectively.
Future minimum lease payments at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Leases
---------
<S> <C>
Year ended December 31:
1999............................. $ 217,520
2000............................. 205,020
2001............................. 205,020
2002............................. 51,255
---------
Total.......................... $ 678,815
=========
</TABLE>
The Company and the Predecessor Companies have entered into various
licensing, royalty, distribution, and consulting agreements with various
online sites, vendors and other non-employees. The remaining terms of these
agreements provide for the payment of royalties, bounties, and certain
guaranteed amounts on a per member and/or minimum dollar amount basis.
Additionally, some agreements provide for a specified percentage of
advertising and merchandising revenue to be paid to
F-22
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
9. Commitments and Contingencies--(Continued)
non-employees from whose online site the revenue is derived. Minimum
guaranteed payments required under such agreements at December 31, 1998 are as
follows:
<TABLE>
<S> <C>
Year ended December 31:
1999............................ $ 256,260
2000............................ 330,012
2001............................ 302,505
2002............................ 316,674
2003............................ 130,016
Thereafter...................... 375,000
----------
Total......................... $1,710,467
==========
</TABLE>
From time to time, the Company may be involved in litigation relating to
claims arising out of the normal course of business. The Company is not
currently a party to any legal proceedings, of which, individually or in the
aggregate, would have a material effect on the Company's financial position or
results of operations.
10. Defined Contribution Plan
Effective November 1, 1998, the Company adopted a 401(k) Plan covering all
of the Company's employees who are at least 21 years old. Employees may elect
to contribute up to 15% of their wages to the 401(k) Plan and are eligible to
enroll on the first day of every quarter. The Company, at its discretion, may
make contributions to the 401(k) Plan, which are allocated among the
participants. No contributions were made by the Company in 1998.
11. Subsequent Events (Unaudited)
In January 1999, the Company entered into an interactive services agreement
with AOL. Under this agreement, the Company receives a license fee for its
programming and syndicated content. In accordance with the agreement, the
Company operates a separately branded Athlete Direct area within both the AOL
Sports Channel and the AOL Kids Channel as well as providing content and
programming for team related areas within AOL Sports. AOL receives a
percentage of revenues derived from the sale of merchandise and premium
subscription products through the Company's sites on AOL. The agreement
expires June 30, 2001 and AOL has the option to extend the agreement for up to
two additional one-year terms.
On February 26, 1999, the Company purchased certain assets and liabilities
of Manna Mir Research, Inc. (Manna Mir) for $225,000 in cash and contingent
consideration of up to an additional $205,000. Manna Mir operates a fantasy
sports-related web site under the name RotoNews.
F-23
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
11. Subsequent Events (Unaudited)--(Continued)
In May 1999, the Company amended its Certificate of Incorporation to, among
other matters, increase the authorized number of shares of common and
preferred stock to 300,000,000 and 50,000,000, respectively. Preferred stock
consists of 2,000,000 shares of series A preferred stock, $0.001 par value and
34,000,000 shares of convertible series B preferred stock (Series B), $0.001
par value. The Company issued convertible series B preferred stock which
resulted in net proceeds of approximately $16,500,000, representing 29,166,663
shares issued and outstanding at $0.60 per share. The holders of shares of
Series B are entitled to receive dividends at the rate of $0.054 per share per
year if declared by the Board of Directors. Such dividends are not cumulative.
Each share of Series B is convertible into fully paid and nonassessable shares
of common stock as determined by dividing $0.60 by the Series B conversion
price, as defined. In the event of a public offering of the Company's common
stock that exceeds $15,000,000 all outstanding shares of series B preferred
stock will automatically be converted into common stock.
In May 1999, the Company entered into an agreement with Yahoo! to provide
content and programming to Yahoo! in exchange for a monthly license fee and
guaranteed promotion and placement within Yahoo! Sports. Yahoo! receives a
percentage of electronic commerce sold on the Yahoo! site. This agreement
expires in June 2000 with both parties having options to extend the agreement
for one year under similar terms.
In July 1999, the Company entered into various operating lease agreements
for equipment and facilities ranging in terms from three to seven years. Under
these leases, the Company is committed to pay approximately $990,000 per year.
On August 9, 1999, the Company entered into a Reimbursement Agreement with a
lender whereby the lender agreed to provide a letter of credit in the amount
of $1,414,581. The average undrawn face amount of the letter of credit bears a
commitment fee of 1.5%. In connection with the Reimbursement Agreement, the
Company issued the lender a warrant to purchase 282,916 shares of the
Company's common stock at a purchase price of $0.60 per share, subject to
adjustment as provided in the Warrant Agreement. The fair value of the
warrants of $144,287 was calculated using an option pricing model as
prescribed by SFAS No. 123.
F-24
<PAGE>
Broadband Sports, Inc.
and
The Predecessor Companies
Notes to Consolidated and Combined Financial Statements--(Continued)
(Information at September 30, 1999 and for the seven months ended September
30, 1998
and the nine months ended September 30, 1999 is unaudited)
11. Subsequent Events (Unaudited)--(Continued)
In October, 1999, the Company entered into an equipment master lease
agreement with a capacity to borrow up to $2.8 million. The term of the
agreement is for three years with an interest rate of 7.5%. As part of this
agreement, the lessor will receive a warrant to purchase 221,666 shares of the
Company's common stock at $0.80 per share. The maximum term of the warrant is
ten years.
In November, 1999, the Company entered into an employment agreement with its
Chairman and Chief Executive Officer with a base salary of $180,000 per year.
The employment agreement has no specific term and may be terminated by either
party with or without cause. In connection with the employment agreement, the
Company has issued 30,389,809 shares of common stock at $0.60 per share. The
purchase price for the shares was paid in cash and through issuance of a
secured recourse promissory note (Promissory Note) by the Company in the
amount of $15,200,906. The Promissory Note bears interest at a rate of 6.02%
per year. Principal and interest payments are due in full no later than on the
ten year anniversary of the Promissory Note. Of the 30,389,809 shares issued,
7,588,444 shares are immediately vested and the remaining 22,801,365 shares
will vest in equal monthly installments over the next four years, allowing for
certain exceptions.
In November, 1999, the Company further amended its Certificate of
Incorporation to increase the authorized number of shares of common and
preferred stock to 306,000,000 and 56,000,000, respectively, and create series
C preferred stock (Series C), $0.001 par value, consisting of 20,000,000
authorized shares. The holders of shares of Series C are entitled to receive
dividends at the rate of $0.072 per share per year if declared by the Board of
Directors. Such dividends are not cumulative. The Company issued Series C
which resulted in net proceeds of $14,800,000, representing 18,500,000 shares
issued and outstanding at $0.80 per share. Each share of Series C is
convertible to fully paid and nonassessable shares of common stock as
determined by dividing $0.80 by the Series C conversion price, as defined. In
the event of a public offering of the Company's common stock which results in
net proceeds to the Company of at least $15,000,000, all outstanding shares of
Series C will automatically be converted into common stock. Upon the
occurrence of a liquidation event, as defined, any remaining assets of the
Company, after payment in full of the liquidation preference of the
mandatorily redeemable series A preferred stock, will be distributed pro rata
to holders of the series B preferred stock, series C preferred stock and
common stock based on the number of shares of common stock held by each
(assuming full conversion of the Series B and the Series C). The effect of the
conversion of the Series C has not been included in the pro forma balance
sheet at September 30, 1999 since they were not outstanding at that date.
F-25
<PAGE>
[LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities hereunder other than
underwriting discounts and commissions.
<TABLE>
<CAPTION>
Amount
to be
Paid
-------
<S> <C>
Registration fee.................................................... $12,788
NASD filing fee..................................................... 5,100
Nasdaq National Market listing fee.................................. 90,000
Printing and Engraving expenses.....................................
Legal fees and expenses.............................................
Blue Sky qualification fees and expenses............................ 5,000
Accounting fees and expenses........................................
Directors' and Officers' securities act liability insurance.........
Transfer Agent and registrar fees...................................
Miscellaneous.......................................................
Total........................................................... $
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") contains
detailed provisions on indemnification of directors and officers against
expenses, judgments, fines and amounts paid in settlement, actually and
reasonably incurred in connection with legal proceedings. Section 102(a)(7) of
the DGCL permits a provision in the certificate of incorporation of each
corporation organized thereunder, such as Broadband Sports, eliminating or
limiting, with certain exceptions, the personal liability of a director of the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Certificate of Incorporation of Broadband Sports
eliminates the liability of each of its directors to its stockholders or
Broadband Sports for monetary damages for breach of fiduciary duty to the full
extent provided by the DGCL, as such law exists or may hereafter be amended.
Indemnification applies to any threatened, pending or completed action, suit
or proceeding, whether, civil, criminal, administrative or investigative.
Indemnification may include all expenses (including attorneys' fees,
judgments, fines, ERISA excise taxes and amounts paid in settlement)
reasonably incurred by the indemnified person.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
Exhibit
Document Number
-------- -------
<S> <C>
Form of Underwriting Agreement...................................... 1.1
Amended and Restated Certificate of Incorporation................... 3.1
Form of Second Amended and Restated Certificate of Incorporation.... 3.2
Amended and Restated Bylaws......................................... 3.3
Form of Indemnification Agreements.................................. 10.9
</TABLE>
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
From November 15, 1996 through November 15, 1999 the Registrant issued and
sold the following securities:
(a) In February 1998, we issued and sold an aggregate of 200,000,000 shares
of common stock to the founders at an aggregate purchase price of
$100,000.
(b) In February 1998, we issued and sold 2,000,000 shares of Series A
Preferred Stock to NMSS for a purchase price of $2,000,000.
(c) In April 1998, we issued and sold an aggregate of 17,037,500 shares of
common stock to Tyler J. Goldman and Ross Schaufelberger for an
aggregate value of $8,518.75.
(d) In May 1999, we sold an aggregate of 29,166,663 shares of Series B
Preferred Stock for $0.60 per share, for an aggregate purchase price
of approximately $17.5 million.
(e) In August 1999, we issued warrants to purchase up to 282,916 shares of
common stock at a purchase price of $0.60 per share.
(f) In October 1999, we issued warrants to purchase up to 221,666 shares of
common stock at a purchase price of $0.80 per share.
(g) In November 1999, we issued and sold an aggregate of 30,389,809 shares
of common stock to Richard D. Nanula at $0.60 per share, for an
aggregate purchase price of approximately $18,233,885.
(h) In November 1999, we sold an aggregate of 18,500,000 shares of Series C
Preferred Stock for $0.80 per share, for an aggregate purchase price of
$14.8 million.
From November 15, 1996 through November 15, 1999, we issued options to
purchase an aggregate of 30,592,656 shares of our common stock at exercise
prices ranging from $0.015 to the initial offering price to the public.
The issuances described above were deemed exempt from registration under the
Securities Act in reliance upon Sections 4(2) or 3(a) of the Securities Act.
The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with the
Company, to information about the Company.
Item 16. Exhibits and Financial Statements
(a) Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2* Form of Second Amended and Restated Certificate of Incorporation
3.3* Amended and Restated Bylaws
4.1* Specimen Stock Certificate
5.1* Form of Opinion of Morrison & Foerster LLP
10.1 1998 Equity Incentive Plan
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.2* Form of 1999 Equity Incentive Plan
10.3 Investors' Rights Agreement
10.4* Form of Warrant to Comdisco
10.5* Restricted Stock Purchase Agreement between the Registrant and
R. Nanula
10.6* Employment Agreement for R. Nanula
10.7 Employment Agreement for T. Goldman
10.8 Revolving Loan Agreement, dated February 27, 1998 between the
Registrant, Athlete Direct, Inc., Pro Sports Xchange and NMSS
Partners, LLC
10.9 Form of Indemnification Agreement
10.10 Standard Office Lease, dated January 10, 1996 as amended between LAOP
IV, LLC, and Smartalk Teleservices, Inc.
10.11 Sublease, dated April 1, 1998 between Smartalk Teleservices, Inc. and
The RHL Group, Inc.
10.12 Sub-Sublease Agreement, dated April 1, 1998 between The RHL Group,
Inc. and Registrant
10.13+ Lease, dated July 30, 1999, between Spieker Properties, L.P. and
Registrant
10.14+ Interactive Services Agreement, dated January 1, 1999 between
Registrant (and its wholly-owned subsidiaries, Pro Sports Xchange,
Inc., and Athlete Direct, Inc.) and America Online, Inc.
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2* Consent of Morrison & Foerster LLP
24.1 Power of Attorney (See II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
(b) Financial Statement Schedules
No schedules are included because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(a) That, 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 provisions
described under Item 14 above, or otherwise, the registrants has
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
II-3
<PAGE>
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Securities Act and will be governed by the final adjudication of
such issue.
(b) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and
contained in the 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.
(c) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(d) To provide to the underwriters at the closing specified in the
underwriting agreement, certificates in such denomination and
registered in such names as required by the underwriters to permit
prompt delivery to each purchaser.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Los
Angeles, County of Los Angeles, State of California, on November 24, 1999.
BROADBAND SPORTS, INC.
By: /s/ Richard Nanula
_____________________________________
Richard Nanula
Chairman of the Board and Chief
Executive Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Richard Nanula and Gregory
S. Hebner, and each of them, as his true and lawful attorneys-in-fact and
agents, jointly and severally, with full power of substitution and
resubstitution, for and in his stead, in any and all capacities, to sign on
his behalf this Registration Statement on Form S-1 in connection with the
offering of common stock by Broadband Sports, Inc. and to execute any
amendments thereto (including post-effective amendments), including a
registration statement filed pursuant to Rule 462(b), or certificates that may
be required in connection with this Registration Statement, and to file the
same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission and granting unto said
attorneys-in-fact and agents, and each of them, jointly and severally, the
full power and authority to do and perform each and every act and thing
necessary or advisable to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, jointly or severally, 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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard Nanula Chairman of the Board and November 24, 1999
____________________________________ Chief Executive Officer
Richard Nanula (Principal Executive
Officer)
/s/ Gregory S. Hebner Chief Financial Officer November 24, 1999
____________________________________ (Principal Financial and
Gregory S. Hebner Accounting Officer)
/s/ Tyler J. Goldman President, Broadband Studios November 24, 1999
____________________________________ and Director
Tyler J. Goldman
/s/ Ahmed O. Alfi Director November 24, 1999
____________________________________
Ahmed O. Alfi
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Allen Beasley Director November 24, 1999
____________________________________
W. Allen Beasley
Director
____________________________________
Frank J. Biondi, Jr.
/s/ Stephen D. Greenberg Director November 24, 1999
____________________________________
Stephen D. Greenberg
/s/ Douglas Leone Director November 24, 1999
____________________________________
Douglas Leone
/s/ Geoffrey Y. Yang Director November 24, 1999
____________________________________
Geoffery Y. Yang
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Amended and Restated Certificate of Incorporation
3.2* Certificate of Amendment to Amended and Restated Certificate of
Incorporation
3.3* Form of Second Amended and Restated Certificate of Incorporation
3.4* Amended and Restated Bylaws
4.1* Specimen Stock Certificate
5.1* Form of Opinion of Morrison & Foerster LLP
10.1 1998 Equity Incentive Plan
10.2* Form of 1999 Equity Incentive Plan
10.3 Investors' Rights Agreement
10.4* Form of Warrant to Comdisco
10.5* Restricted Stock Purchase Agreement between the Registrant and
R. Nanula
10.6* Employment Agreement for R. Nanula
10.7* Employment Agreement for T. Goldman
10.8 Revolving Loan Agreement, dated February 27, 1998 between the
Registrant, Athlete Direct, Inc., Pro Sports Xchange and NMSS
Partners, LLC
10.9 Form of Indemnification Agreement
10.10 Standard Office Lease, dated January 10, 1996 as amended between LAOP
IV, LLC, and Smartalk Teleservices, Inc.
10.11 Sublease, dated April 1, 1998 between Smartalk Teleservices, Inc. and
The RHL Group, Inc.
10.12 Sub-Sublease Agreement, dated April 1, 1998 between The RHL Group,
Inc. and Registrant
10.13+ Lease, dated July 30, 1999, between Spieker Properties, L.P. and
Registrant
10.14+ Interactive Services Agreement, dated January 1, 1999 between
Registrant (and its wholly-owned subsidiaries, Pro Sports Xchange,
Inc., and Athlete Direct, Inc.) and America Online, Inc.
21.1 Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2* Consent of Morrison & Foerster LLP
24.1 Power of Attorney (See II-5)
27.1 Financial Data Schedule
</TABLE>
- ---------------------
* To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
<PAGE>
EXHIBIT 1.1
_______________ Shares
BROADBAND SPORTS, INC.
COMMON STOCK, PAR VALUE $0.001 PER SHARE
UNDERWRITING AGREEMENT
__________, 1999
<PAGE>
_____________, 1999
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
SG Cowen Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Broadband Sports, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters named in Schedule I
hereto (the "Underwriters") _______________ shares of its Common Stock, par
value $0.001 per share (the "Firm Shares"). The Company also proposes to issue
and sell to the several Underwriters not more than an additional ______________
shares of its Common Stock, par value $0.001 per share (the "Additional Shares")
if and to the extent that you, as Managers of the offering, shall have
determined to exercise, on behalf of the Underwriters, the right to purchase
such shares of common stock granted to the Underwriters in Section 2 hereof. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares." The shares of Common Stock, par value $0.001 per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Stock."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
<PAGE>
Morgan Stanley & Co. Incorporated ("Morgan Stanley") has agreed to reserve
a portion of the Shares to be purchased by it under this Agreement for sale to
the Company's directors, officers, employees and business associates and other
parties related to the Company (collectively, "Participants") at the public
offering price, as set forth in the Prospectus under the heading "Underwriters"
(the "Directed Share Program"). The Shares to be sold by Morgan Stanley and its
affiliates pursuant to the Directed Share Program are referred to hereinafter as
the "Directed Shares." Any Directed Shares not orally confirmed for purchase by
any Participants by the end of the business day on which this Agreement is
executed will be offered to the public by the Underwriters as set forth in the
Prospectus.
1. Representations and Warranties. The Company represents and
warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect,
and no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) The Registration Statement, when it became effective, did
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, (ii) the Registration Statement and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations
and warranties set forth in this paragraph do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would
<PAGE>
not have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole; all of the issued shares of capital stock of each subsidiary of the
Company have been duly authorized and are validly issued, fully paid and
non-assessable and are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims.
(e) This Agreement has been duly authorized, executed and delivered
by the Company.
(f) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock outstanding prior to the issuance of
the Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and the issuance of such Shares will
not be subject to any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any agreement or other instrument binding upon the
Company or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or
any subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of the various
states in connection with the offer and sale of the Shares and the
<PAGE>
clearance of such offering with the National Association of Securities
Dealers, Inc.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(l) Each preliminary prospectus filed as part of the Registration
Statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder.
(m) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its subsidiaries, except in each case as described in the
Prospectus.
(n) The Company and its subsidiaries have good and marketable title
in fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real
<PAGE>
property and buildings held under lease by the Company and its subsidiaries
are held by them under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
subsidiaries, in each case except as described in the Prospectus.
(o) The Company and its subsidiaries own or possess, or can acquire
on reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, could reasonably be expected to
result in a material adverse affect on the Company and its subsidiaries,
taken as a whole.
(p) No material labor dispute with the employees of the Company or
any of its subsidiaries exists, except as described in the Prospectus, or,
to the knowledge of the Company, is imminent; and the Company is not aware
of any existing, threatened or imminent labor disturbance by the employees
of any of its principal suppliers, manufacturers or contractors that could
have a material adverse effect on the Company and its subsidiaries, taken
as a whole.
(q) The Company and its subsidiaries are insured by the insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the businesses in which they
are engaged; neither the Company nor any of its subsidiaries has been
refused any insurance coverage sought or applied for; and neither the
Company nor any of its subsidiaries has any reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole, except as described in the Prospectus.
(r) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any of its subsidiaries has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly
or in the aggregate, if the subject of an unfavorable decision,
<PAGE>
ruling or finding, would have a material adverse effect on the Company and
its subsidiaries, taken as a whole, except as described the Prospectus.
(s) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are executed in accordance with management's general
or specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(t) The Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" as such term is
defined in the Investment Company Act of 1940, as amended.
(u) The Company and its subsidiaries (i) are in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(v) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to third
parties) which would, singly or in the aggregate, have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(w) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities
<PAGE>
with the Shares registered pursuant to the Registration Statement except as
such have been validly waived.
(x) The Company has complied with all provisions of Section 517.075,
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(y) The Company has reviewed its operations and that of its
subsidiaries to evaluate the extent to which the business or operations of
the Company or any of its subsidiaries will be affected by the Year 2000
Problem (that is, any significant risk that computer hardware or software
applications used by the Company and its subsidiaries will not, in the case
of dates or time periods occurring after December 31, 1999, function at
least as effectively as in the case of dates or time periods occurring
prior to January 1, 2000); as a result of such review, (i) the Company has
no reason to believe, and does not believe, that (A) there are any issues
related to the Company's preparedness to address the Year 2000 Problem that
are of a character required to be described or referred to in the
Registration Statement or Prospectus that have not been accurately
described in the Registration Statement or Prospectus and (B) the Year 2000
Problem will have a material adverse effect on the condition, financial or
otherwise, or on the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, or result in any material loss or
interference with the business or operations of the Company and its
subsidiaries, taken as a whole; and (ii) the Company reasonably believes,
after reviewing the disclosure and surveys of third parties with which the
Company or its subsidiaries have a material relationship, that such
material third parties are addressing or will address the Year 2000 Problem
in a timely manner, except to the extent that a failure to address the Year
2000 Problem by such third party would not have a material adverse effect
on the condition, financial or otherwise, or on the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(z) The Registration Statement, the Prospectus and any preliminary
prospectus comply, and any amendments or supplements thereto will comply,
with any applicable laws or regulations of foreign jurisdictions in which
the Prospectus or any preliminary prospectus, as amended or supplemented,
if applicable, are distributed in connection with the Directed Share
Program.
(aa) No consent, approval, authorization or order of, license from,
or qualification or registration with, any governmental body or agency,
other than those obtained, is required in connection with the offering of
the Directed Shares in any jurisdiction where the Directed Shares are being
offered.
<PAGE>
(bb) The Company has not offered, or caused Morgan Stanley or its
affiliates to offer, Shares to any person pursuant to the Directed Share
Program with the specific intent to unlawfully influence (i) a customer or
supplier of the Company to alter the customer's or supplier's level or type
of business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its products.
(cc) The Nasdaq Stock Market, Inc. has approved the Common Stock for
listing on the Nasdaq National Market, subject only to official notice of
issuance.
(dd) Ernst & Young LLP are independent public accountants with respect
to the Company as required by the Securities Act.
(ee) The financial statements included in the Registration Statement
and the Prospectus (and any amendment or supplement thereto), together with
related schedules and notes, present fairly the financial position, results
of operations and changes in financial position of the Company on the basis
stated therein at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; the supporting schedules, if any, included in the Registration
Statement present fairly in accordance with generally accepted accounting
principles the information required to be stated therein; and the other
financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared
on a basis consistent with such financial statements and the books and
records of the Company.
(ff) Except for the Shares and as otherwise agreed to in writing by
the Company and Morgan Stanley or as disclosed in the Prospectus, all
outstanding shares of Common Stock, and all securities convertible into or
exercisable or exchangeable for Common Stock, are subject to valid and
binding agreements (collectively, the "Lock-Up Agreements") that restrict
the holders thereof from selling, making any short sale of, granting any
option for the purchase of, or otherwise transferring or disposing of, any
of such shares of Common Stock, or any such securities convertible into or
exercisable or exchangeable for Common Stock, for a period of 180 days
after the date of the Prospectus without the prior written consent of
Morgan Stanley.
<PAGE>
2. Agreements to Sell and Purchase. The Company hereby agrees to
sell to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company the respective numbers of Firm Shares set forth in Schedule I hereto
opposite its name at $______ a share (the "Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the Underwriters the Additional Shares, and the Underwriters shall have a
one-time right to purchase, severally and not jointly, up to _______________
Additional Shares at the Purchase Price. If you, on behalf of the Underwriters,
elect to exercise such option, you shall so notify the Company in writing not
later than 30 days after the date of this Agreement, which notice shall specify
the number of Additional Shares to be purchased by the Underwriters and the date
on which such shares are to be purchased. Such date may be the same as the
Closing Date (as defined below) but not earlier than the Closing Date nor later
than ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 4 hereof solely for the purpose of covering
over-allotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each Underwriter agrees, severally and
not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Additional Shares to be purchased as the
number of Firm Shares set forth in Schedule I hereto opposite the name of such
Underwriter bears to the total number of Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
ending 180 days after the date of the 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, lend, or
otherwise transfer 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. The foregoing sentence shall not apply to (A) the Shares to
be sold hereunder, (B) the issuance by the Company of shares of Common Stock
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing, or (C) any options granted under any of the Company's stock option
plans or any shares issued under the Company's 1999 Employee Stock Purchase
Plan.
<PAGE>
3. Terms of Public Offering. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at
$_____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
4. Payment and Delivery. Payment for the Firm Shares shall be made
to the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on ____________, 1999, or at
such other time on the same or such other date, not later than _________, 1999,
as shall be designated in writing by you. The time and date of such payment are
hereinafter referred to as the "Closing Date".
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 a.m., New York City time, on the date specified in the
notice described in Section 2 or at such other time on the same or on such other
date, in any event not later than _______, 1999, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Option Closing Date".
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
5. Conditions to the Underwriters' Obligations. The obligations of
the Company to sell the Shares to the Underwriters and the several obligations
of the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_____] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
<PAGE>
(a) Subsequent to the execution and delivery of this Agreement and
prior to the Closing Date:
(i) there shall not have occurred any downgrading, nor shall any
notice have been given of any intended or potential downgrading or of
any review for a possible change that does not indicate the direction
of the possible change, in the rating accorded any of the Company's
securities by any "nationally recognized statistical rating
organization," as such term is defined for purposes of Rule 436(g)(2)
under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, from that set forth in the
Prospectus (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement) that, in your judgment, is
material and adverse and that makes it, in your judgment,
impracticable to market the Shares on the terms and in the manner
contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in Section 5(a)(i) above and to the
effect that the representations and warranties of the Company contained in
this Agreement are true and correct as of the Closing Date and that the
Company has complied with all of the agreements and satisfied all of the
conditions on its part to be performed or satisfied hereunder on or before
the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date an
opinion of Morrison & Foerster LLP, outside counsel for the Company, dated
the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction
of its incorporation, has the corporate power and authority to own its
property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification, except
to the extent that the failure to be so
<PAGE>
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock outstanding prior to the
issuance of the Shares have been duly authorized and are validly
issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly authorized and are validly
issued, fully paid and non-assessable and, unless otherwise disclosed
in the Prospectus and to such counsel's knowledge are owned directly
by the Company, free and clear of all liens, encumbrances, equities or
claims;
(vi) the Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable; the issuance of such
Shares will not be subject to any statutory preemptive rights or, to
such counsel's knowledge, any other similar rights except as set forth
in the Prospectus; the Company has no statutory preemptive rights or,
to such counsel's knowledge, any outstanding options to purchase, or
other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations; and all outstanding shares of
capital stock and options and other rights to acquire capital stock
were not issued in violation of any preemptive rights or, to such
counsel's knowledge, rights of first refusal or other similar rights,
unless otherwise disclosed in the Prospectus;
(vii) this Agreement has been duly authorized, executed and
delivered by the Company;
<PAGE>
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law (other than
applicable state securities and blue sky laws, as to which such
counsel need not express an opinion) or the certificate of
incorporation or by-laws of the Company or, to such counsel's
knowledge, any agreement or other instrument binding upon the Company
or any of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or to such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as have
been obtained under the Securities Act and such as may be required by
the securities or Blue Sky laws of the various states in connection
with the offer and sale of the Shares;
(ix) the statements (A) in the Prospectus under the captions
"Dividend Policy," "Business--Distribution Partners," "Business--
Proprietary Rights," "Management--Stock Plans," "Management--
Employment Agreements," "Certain Transactions," "Description of
Capital Stock," "Shares Eligible for Future Sale" and "Underwriters"
and (B) in the Registration Statement in Items 14 and 15, in each case
insofar as such statements constitute summaries of the legal matters,
documents or proceedings referred to therein, fairly present the
information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein;
(x) such counsel does not know of any legal or governmental
proceedings pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the
Company or any of its subsidiaries is subject that are required to be
described in the Registration Statement or the Prospectus and are not
so described or of any statutes, regulations, contracts or other
documents that are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement that are not described or filed as required;
(xi) the Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of
1940, as amended;
<PAGE>
(xii) such counsel (A) is of the opinion that the Registration
Statement and Prospectus (except for financial statements and
schedules and other financial and statistical data included therein as
to which such counsel need not express any opinion) comply as to form
in all material respects with the Securities Act and the applicable
rules and regulations of the Commission thereunder, (B) has no reason
to believe that (except for financial statements and schedules and
other financial and statistical data as to which such counsel need not
express any belief) the Registration Statement and the prospectus
included therein at the time the Registration Statement became
effective contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading and (C) has no reason to
believe that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need not
express any belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(xiii) except as set forth in the Registration Statement and
Prospectus, no holders of Common Stock or other Securities of the
Company have registration rights with respect to Securities of the
Company and, except as set forth in the Registration Statement and
Prospectus, all holders of securities of the Company having rights
known to such counsel to registration of such shares of Common Stock
or other Securities, because of the filing of the Registration
Statement by the Company have, with respect to the offering
contemplated thereby, waived such rights or such rights have expired
by reason of lapse of time following notification of the Company's
intent to file the Registration Statement.
(xiv) to such counsel's knowledge there is no legal or
beneficial owner of any securities of the Company who has any rights,
not effectively satisfied or waived, to require registration of any
shares of capital stock of the Company in connection with the filing
of the Registration Statement;
(xv) such counsel's knowledge: (A) the Registration Statement
has become effective under the Securities Act, no stop order
proceedings with respect thereto have been instituted or are pending
or threatened under the Securities Act and nothing has come to such
counsel's attention to lead it to believe that such proceedings are
contemplated; and (B) any
<PAGE>
required filing of the Prospectus and any supplement thereto pursuant
to Rule 424(b) under the Securities Act has been made in the manner
and within the time period required by Rule 424(b);
(xvi) the offer and sale of the ______ shares of Series C
Preferred Stock for an aggregate purchase price of ________, in a
placement that closed on October __, 1999, pursuant to the terms and
conditions of that certain Stock Purchase Agreement dated as of
_________ between the Company and the purchasers [listed on Schedule
XX thereto] was exempt from the registration requirements of the Act;
and
(xvi) the Shares to be sold under this Agreement to the
Underwriters are duly authorized for listing on the Nasdaq National
Market.
(d) The Underwriters shall have received on the Closing Date an
opinion of Cooley Godward LLP, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in Sections 5(c)(vi) (but
only as to the first clause thereof), 5(c)(vii), 5(c)(ix) (but only as to
the statements in the Prospectus under "Description of Capital Stock" and
"Underwriters") and 5(c)(xiii) above.
With respect to Section 5(c)(xiii) above, Morrison & Foerster LLP and
Cooley Godward LLP may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and
discussion of the contents thereof, but are without independent check or
verification, except as specified.
The opinion of Morrison & Foerster described in Section 5(c) above
shall be rendered to the Underwriters at the request of the Company and
shall so state therein.
(e) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to the Underwriters,
from Ernst & Young LLP, independent public accountants, containing
statements and information of the type ordinarily included in accountants'
"comfort letters" to underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form of
Exhibit A hereto, between you and the security holders, officers and
directors of the
<PAGE>
Company relating to sales and certain other dispositions of shares of
Common Stock or certain other securities, delivered to you on or before the
date hereof, shall be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares and an
opinion or opinions of Morrison & Foerster LLP in form and substance reasonably
satisfactory to Cooley Godward, counsel for the Underwriters.
6. Covenants of the Company. In further consideration of the
agreements of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York City, without
charge, prior to 10:00 a.m. New York City time on the business day next
succeeding the date of this Agreement and during the period mentioned in
Section 6(c) below, as many copies of the Prospectus and any supplements
and amendments thereto or to the Registration Statement as you may
reasonably request.
(b) Before amending or supplementing the Registration Statement or
the Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters
the Prospectus is required by law to be delivered in connection with sales
by an Underwriter or dealer, any event shall occur or condition exist as a
result of which it is necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
when the Prospectus is delivered to a purchaser, not misleading, or if, in
the opinion of counsel for the Underwriters, it is necessary to amend or
supplement the Prospectus to comply with applicable law, forthwith to
prepare, file with the Commission and furnish, at its own expense, to the
Underwriters and to the dealers (whose names and addresses you will furnish
to the Company) to which Shares may have been sold by you on behalf of the
Underwriters and to any
<PAGE>
other dealers upon request, either amendments or supplements to the
Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earning statement covering the twelve-
month period ending ___________, 2000 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid
all expenses incident to the performance of its obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountants in connection with the
registration and delivery of the Shares under the Securities Act and all
other fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing
costs associated therewith, and the mailing and delivering of copies
thereof to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and delivery
of the Shares to the Underwriters, including any transfer or other taxes
payable thereon, (iii) the cost of printing or producing any Blue Sky or
Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws
as provided in Section 6(d) hereof, including filing fees and the
reasonable fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky or
Legal Investment memorandum, (iv) all filing fees and the reasonable fees
and disbursements of counsel to the Underwriters incurred in connection
with the review and qualification of the offering of the Shares by the
National Association of Securities Dealers, Inc. (the "NASD"), (v) all fees
and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all
costs and expenses incident to listing the Shares on the Nasdaq National
Market, (vi) the cost of printing certificates representing the Shares,
(vii) the costs and charges of any transfer agent, registrar or depositary,
(viii) the costs and expenses of the Company relating to investor
presentations on any "road show" undertaken in connection with the
marketing of the offering of the Shares, including, without
<PAGE>
limitation, expenses associated with the production of road show slides and
graphics, fees and expenses of any consultants engaged in connection with
the road show presentations with the prior approval of the Company, travel
and lodging expenses of the representatives and officers of the Company and
any such consultants, and the cost of any aircraft chartered in connection
with the road show, (ix) all fees and disbursements of counsel incurred by
the Underwriters in connection with the Directed Share Program and stamp
duties, similar taxes or duties or other taxes, if any, incurred by the
Underwriters in connection with the Directed Share Program, (x) all
expenses in connection with any offer and sale of the Shares outside of the
United States, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection with offers and
sales outside of the United States, and (xi) all other costs and expenses
incident to the performance of the obligations of the Company hereunder for
which provision is not otherwise made in this Section. It is understood,
however, that except as provided in this Section, Section 7 entitled
"Indemnity and Contribution", and the last paragraph of Section 10 below,
the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale
of any of the Shares by them and any advertising expenses connected with
any offers they may make.
(g) To place stop transfer orders on any Directed Shares that have
been sold to Participants subject to the three-month restriction on sale,
transfer, assignment, pledge or hypothecation imposed by NASD Regulation,
Inc. under its Interpretative Material 2110-1 on free-riding and
withholding to the extent necessary to ensure compliance with the three-
month restrictions.
(h) To comply with all applicable securities and other applicable
laws, rules and regulations in each jurisdiction in which the Directed
Shares are offered in connection with the Directed Share Program.
7. Indemnity and Contribution. (a) The Company agrees to indemnify
and hold harmless each Underwriter and each person, if any, who controls any
Underwriter within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), from and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably incurred
in connection with defending or investigating any such action or claim) caused
by any untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company shall
have furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such
<PAGE>
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein; provided, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Shares, or any person
controlling such Underwriter, fi a copy of the Prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Underwriter to such
person, if required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus (as
so amended or supplemented) would have cured the defect giving rise to such
losses, claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 6(a) hereof.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act to the same extent as the foregoing indemnity from the Company to
such Underwriter, but only with reference to information relating to such
Underwriter furnished to the Company in writing by such Underwriter through you
expressly for use in the Registration Statement, any preliminary prospectus, the
Prospectus or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 7(a) or 7(b), such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the fees and expenses of more than one separate firm (in addition
to any local counsel) for all such indemnified parties and that all such fees
and expenses shall be
<PAGE>
reimbursed as they are incurred. Such firm shall be designated in writing by
Morgan Stanley, in the case of parties indemnified pursuant to Section 7(a), and
by the Company, in the case of parties indemnified pursuant to Section 7(b). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by reason
of such settlement or judgment. Notwithstanding the foregoing sentence, if at
any time an indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as contemplated
by the second and third sentences of this paragraph, the indemnifying party
agrees that it shall be liable for any settlement of any proceeding effected
without its written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request and (ii)
such indemnifying party shall not have reimbursed the indemnified party in
accordance with such request prior to the date of such settlement. No
indemnifying party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in respect
of which any indemnified party is or could have been a party and indemnity could
have been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
(d) To the extent the indemnification provided for in Section 7(a) or
7(b) is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriters on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company on the one hand and of
the Underwriters on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand in
connection with the offering of the Shares shall be deemed to be in the same
respective proportions as the net proceeds from the offering of the Shares
(before deducting expenses) received by the Company and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate Public
Offering Price of the Shares. The relative fault of the Company on the one hand
and the Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material
<PAGE>
fact relates to information supplied by the Company or by the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the respective number of Shares they have purchased hereunder, and not joint.
(e) The Company and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in Section 7(d). The amount paid or payable
by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 7, no Underwriter shall be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies that may otherwise be available to
any indemnified party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 7 and the representations, warranties and other statements of the
Company contained in this Agreement shall remain operative and in full force and
effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any person controlling the Company and (iii) acceptance of and payment for any
of the Shares.
8. Directed Share Program Indemnification. (a) The Company agrees to
indemnify and hold harmless Morgan Stanley and its affiliates and each person,
if any, who controls Morgan Stanley or its affiliates within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
("Morgan Stanley Entities"), from and against any and all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or investigating any
such action or claim) (i) caused by any untrue statement or alleged untrue
statement of a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection with the
Directed Share Program, or caused by any omission or alleged omission to state
therein a material
<PAGE>
fact required to be stated therein or necessary to make the statements therein
not misleading; (ii) caused by the failure of any Participant to pay for and
accept delivery of Directed Shares that the Participant has agreed to purchase;
or (iii) related to, arising out of, or in connection with the Directed Share
Program other than losses, claims, damages or liabilities (or expenses relating
thereto) that are finally judicially determined to have resulted from the bad
faith or gross negligence of Morgan Stanley Entities.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any Morgan Stanley Entity in respect of which
indemnity may be sought pursuant to Section 8(a), the Morgan Stanley Entity
seeking indemnity shall promptly notify the Company in writing and the Company,
upon request of the Morgan Stanley Entity, shall retain counsel reasonably
satisfactory to the Morgan Stanley Entity to represent the Morgan Stanley Entity
and any other the Company may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any Morgan Stanley Entity shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Morgan Stanley Entity unless (i) the Company shall have agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties) include both the Company and the Morgan
Stanley Entity and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them. The
Company shall not, in respect of the legal expenses of the Morgan Stanley
Entities in connection with any proceeding or related proceedings the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Morgan Stanley Entities. Any such
firm for the Morgan Stanley Entities shall be designated in writing by Morgan
Stanley. The Company shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the Company agrees to indemnify the
Morgan Stanley Entities from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
a Morgan Stanley Entity shall have requested the Company to reimburse it for
fees and expenses of counsel as contemplated by the second and third sentences
of this paragraph, the Company agrees that it shall be liable for any settlement
of any proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by the Company of the aforesaid
request and (ii) the Company shall not have reimbursed the Morgan Stanley Entity
in accordance with such request prior to the date of such settlement. The
Company shall not, without the prior written consent of Morgan Stanley, effect
any settlement of any pending or threatened proceeding in respect of which any
Morgan Stanley Entity is or could have been a party and indemnity could have
been sought hereunder by such Morgan Stanley Entity, unless such settlement
includes an unconditional release of the Morgan Stanley Entities from all
liability on claims that are the subject matter of such proceeding.
<PAGE>
(c) To the extent the indemnification provided for in Section 8(a) is
unavailable to a Morgan Stanley Entity or insufficient in respect of any losses,
claims, damages or liabilities referred to therein, then the Company, in lieu of
indemnifying the Morgan Stanley Entity thereunder, shall contribute to the
amount paid or payable by the Morgan Stanley Entity as a result of such losses,
claims, damages or liabilities (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and the
Morgan Stanley Entities on the other hand from the offering of the Directed
Shares or (ii) if the allocation provided by clause 8(c)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(c)(i) above but also the
relative fault of the Company on the one hand and of the Morgan Stanley Entities
on the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and of the Morgan Stanley Entities on the other hand in connection with
the offering of the Directed Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Directed Shares (before
deducting expenses) and the total underwriting discounts and commissions
received by the Morgan Stanley Entities for the Directed Shares, bear to the
aggregate Public Offering Price of the Shares. If the loss, claim, damage or
liability is caused by an untrue or alleged untrue statement of a material fact,
the relative fault of the Company on the one hand and the Morgan Stanley
Entities on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement or the omission or
alleged omission relates to information supplied by the Company or by the Morgan
Stanley Entities and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
(d) The Company and the Morgan Stanley Entities agree that it would
not be just or equitable if contribution pursuant to this Section 8 were
determined by pro rata allocation (even if the Morgan Stanley Entities were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in
Section 8(c). The amount paid or payable by the Morgan Stanley Entities as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
the Morgan Stanley Entities in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 8, no
Morgan Stanley Entity shall be required to contribute any amount in excess of
the amount by which the total price at which the Directed Shares distributed to
the public were offered to the public exceeds the amount of any damages that
such Morgan Stanley Entity has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. The remedies
provided for in this Section 8 are not exclusive and shall not limit any rights
or remedies that may otherwise be available to any Morgan Stanley Entity at law
or in equity.
<PAGE>
(e) The indemnity and contribution provisions contained in this Section 8
shall remain operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on behalf of
any Morgan Stanley Entity or the Company, its officers or directors or any
person controlling the Company and (iii) acceptance of and payment for any of
the Directed Shares.
9. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses 9(a)(i) through 9(a)(iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus.
10. Effectiveness; Defaulting Underwriters. This Agreement shall
become effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may
be, any one or more of the Underwriters shall fail or refuse to purchase Shares
that it has or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of the Shares to be purchased on such date, the other
Underwriters shall be obligated severally in the proportions that the number of
Firm Shares set forth opposite their respective names in Schedule I bears to the
aggregate number of Firm Shares set forth opposite the names of all such non-
defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; provided that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased pursuant to this Section 10 by an amount in excess of
one-ninth of such number of Shares without the written consent of such
Underwriter. If, on the Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Firm Shares and the aggregate number of Firm Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Firm Shares to be purchased, and arrangements
<PAGE>
satisfactory to you and the Company for the purchase of such Firm Shares are not
made within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Underwriter or the Company. In any
such case either you or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and in the Prospectus or in any
other documents or arrangements may be effected. If, on the Option Closing Date,
any Underwriter or Underwriters shall fail or refuse to purchase Additional
Shares and the aggregate number of Additional Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Additional
Shares to be purchased, the non-defaulting Underwriters shall have the option to
(i) terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. Applicable Law. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
13. Headings. The headings of the sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed a part
of this Agreement.
Very truly yours,
BROADBAND SPORTS, INC.
By:____________________________
<PAGE>
Name:
Title:
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
SG Cowen Securities Corporation
Acting severally on behalf
of themselves and the
several Underwriters named
in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:__________________________
Name:
Title:
<PAGE>
SCHEDULE I
Number of
Firm Shares
Underwriter To Be Purchased
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
SG Cowen Securities Corporation
[NAMES OF OTHER UNDERWRITERS]
_______________
Total ........
===============
<PAGE>
Exhibit A
[FORM OF LOCK-UP LETTER]
_____________, 1999
Morgan Stanley & Co. Incorporated
Hambrecht & Quist LLC
SG Cowen Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs and Mesdames:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley") proposes to enter into an Underwriting Agreement (the
"Underwriting Agreement") with Broadband Sports, Inc., a Delaware corporation
(the "Company"), providing for the public offering (the "Public Offering") by
the several Underwriters, including Morgan Stanley (the "Underwriters"), of ___
shares (the "Shares") of the Common Stock, par value $0.001 per share of the
Company (the "Common Stock").
To induce the Underwriters that may participate in the Public Offering
to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 180 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (2) 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 (1) or (2)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise. The foregoing sentence shall not apply to (a) the sale of any
Shares to the Underwriters pursuant to the Underwriting Agreement or (b)
transactions relating to shares of Common Stock or other securities acquired in
open market transactions after the completion of the Public Offering. In
addition, the undersigned agrees that, without the prior written consent of
Morgan Stanley on behalf of the Underwriters, it will not, during the period
commencing on the date hereof and ending 180 days after the date of the
Prospectus, make any demand for or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
Notwithstanding the foregoing (i) gifts and transfers by will or
intestacy or (ii) transfers to (A) the undersigned's members, partners,
affiliates or immediate family or (B) a trust, the beneficiaries of which are
the undersigned and/or members of the undersigned's immediate family, shall not
be prohibited by this agreement; provided, that (x) the donee or transferee
agrees in writing to be bound by the foregoing in the same manner as it applies
to the undersigned and (y) if the donor or transferor is a reporting person
subject to Section 16(a) of the Securities Exchange Act
<PAGE>
of 1934 (the "Exchange Act"), any gifts or transfers made in accordance with
this paragraph shall not require such person to, and such person shall not
voluntarily, file a report of such transaction on Form 4 under the Exchange Act.
"Immediate family" shall mean spouse, lineal descendants, father, mother,
brother or sister of the transferor and father, mother, brother or sister of the
transferor's spouse.
Whether or not the Public Offering actually occurs depends on a number
of factors, including market conditions. Any Public Offering will only be made
pursuant to an Underwriting Agreement, the terms of which are subject to
negotiation between the Company and the Underwriters.
This agreement shall automatically terminate on the earlier of (i) the
date on which the Underwriting Agreement is terminated, in the event that the
Underwriters do not purchase the Shares and the Underwriting Agreement is
terminated pursuant to its terms or (ii) January 31, 2000, if the Underwriting
Agreement has not become effective.
Very truly yours,
_________________________
(Name)
_________________________
(Address)
<PAGE>
EXHIBIT 3.1
BROADBAND SPORTS, INC.
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
BROADBAND SPORTS, INC., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Broadband Sports, Inc., the
original Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on February 20, 1998 under the name of E-Sport, Inc.
2. Pursuant to Section 242 and 245 of the General Corporation Law
of the State of Delaware, this Amended and Restated Certificate of Incorporation
restates and amends the provisions of this corporation's Certificate of
Incorporation.
3. The terms and provisions of this Amended and Restated
Certificate of Incorporation have been duly approved by vote of the required
number of shares of each outstanding class of stock of this corporation pursuant
to Subsection 242 of the General Corporation Law of the State of Delaware.
4. The text of the Amended and Restated Certificate of
Incorporation is hereby restated and amended to read in its entirety as set
forth in Exhibit A attached hereto.
---------
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation has been signed this 29th day of September 1999.
----
BROADBAND SPORTS, INC.
/s/ Tyler Goldman, President
----------------------------
Tyler Goldman, President
ATTEST:
/s/ Ross Schaufelberger
-----------------------
Ross Schaufelberger,
Secretary
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF BROADBAND SPORTS, INC.,
a Delaware Corporation
I
The name of this corporation is Broadband Sports, Inc.
II
The address of the registered office of the corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the corporation's registered agent at such address is
The Corporation Trust Company.
III
The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
IV
A. Classes of Stock. This corporation is authorized to issue two classes
----------------
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
The total number of shares which the corporation is authorized to issue is three
hundred fifty million (350,000,000) shares, three hundred million (300,000,000)
shares of which shall be Common Stock (the "Common Stock") and fifty million
(50,000,000) shares of which shall be Preferred Stock (the "Preferred Stock").
The Common Stock shall have a par value of $0.001 per share and the Preferred
Stock shall have a par value of $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------
Preferred Stock authorized by this Certificate of Incorporation may be issued
from time to time in one or more series. The rights, preferences, privileges,
and restrictions granted to and imposed on the Series A Preferred Stock, which
series shall consist of two million (2,000,000) shares, the Series B Preferred
Stock, which series shall consist of thirty four million (34,000,000) shares and
the Series C Preferred Stock, which series shall consist of two million five
hundred thousand (2,500,000) shares, are as set forth below in this Article
IV(B). Subject to compliance with applicable protective voting rights which have
been or may be granted to the Preferred Stock or series thereof in Certificates
of Designation or this corporation's Certificate of Incorporation ("Protective
Provisions"), the Board of Directors is hereby authorized to fix or alter the
rights,
1
<PAGE>
preferences, privileges and restrictions granted to or imposed upon additional
series of Preferred Stock, and the number of shares constituting any such series
and the designation thereof, or of any of them. Subject to compliance with
applicable Protective Provisions, but notwithstanding any other rights of the
Preferred Stock or any series thereof, the rights, privileges, preferences and
restrictions of any such additional series may be subordinated to, pari passu
----------
with (including, without limitation, inclusion in provisions with respect to
liquidation and acquisition preferences, redemption and/or approval of matters
by vote or written consent), or senior to any of those of any present or future
class or series of Preferred Stock or Common Stock. Subject to compliance with
applicable Protective Provisions, the Board of Directors is also authorized to
increase or decrease the number of shares of any series, prior or subsequent to
the issue of that series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall be so decreased,
the shares constituting such decrease shall resume the status which they had
prior to the adoption of the resolution originally fixing the number of shares
of such series.
1. Dividend Provisions.
-------------------
(a) The holders of the Series A Preferred Stock shall be entitled to
receive dividends at the rate of $0.09 per share per annum (appropriately
adjusted for any stock dividend, combination, stock split or other
recapitalization (collectively a "Recapitalization") with respect to the Series
A Preferred Stock). Such dividends shall begin to accumulate upon the date of
issuance of the Series A Preferred Stock and shall be due and payable upon the
occurrence of a Liquidation Event (as defined in Section 2 hereof) or a
Redemption Event (as defined in Section 3 hereof). No dividends shall be paid on
any Common Stock or any other Preferred Stock during any fiscal year of the
corporation until dividends in the total amount of $0.09 per share (as adjusted
for any Recapitalization with respect to the Series A Preferred Stock) on the
Series A Preferred Stock shall have been accounted for and set aside during that
fiscal year. In the event the corporation shall declare a distribution payable
in securities of other persons, evidences of indebtedness issued by the
corporation or other persons, assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case the holders of the Series A Preferred Stock shall be entitled to
a proportionate share of any such distribution as though the holders of the
Series A Preferred Stock were the holders of the same number of shares of Common
Stock of the corporation.
(b) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of shares of Series B Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) on the Common
Stock and the Series C Preferred Stock of this corporation, at the rate of
$0.054 per share (appropriately adjusted for any Recapitalization with respect
to the Series B Preferred Stock) of Series B Preferred Stock per annum, when, as
and if declared by the Board of Directors of the corporation. Such dividends
shall not be cumulative. In the event that the corporation declares or pays any
dividend on the Common Stock (whether payable in cash, securities, or other
property), other
2
<PAGE>
than dividends subject to subsection (d)(i) or (e) of Section 4, the corporation
shall also declare and pay to the holders of the Series B Preferred Stock at the
same time that it declares and pays such dividends to the holders of the Common
Stock, the dividends which would have been declared and paid with respect to the
Common Stock issuable upon the conversion of the Series B Preferred Stock had
all of the Series B Preferred Stock been converted immediately prior to the
record date for such dividend, or if no record date is fixed, the date as of
which the record holders of Common Stock entitled to such dividends are
determined.
(c) Subject to the rights of series of Preferred Stock which may from
time to time come into existence, the holders of shares of Series C Preferred
Stock shall be entitled to receive dividends, out of any assets legally
available therefor, prior and in preference to any declaration or payment of any
dividend (payable other than in Common Stock or other securities and rights
convertible into or entitling the holder thereof to receive, directly or
indirectly, additional shares of Common Stock of this corporation) on the Common
Stock of this corporation, at the rate of $0.072 per share (appropriately
adjusted for any Recapitalization with respect to the Series C Preferred Stock)
of Series C Preferred Stock per annum, when, as and if declared by the Board of
Directors of the corporation. Such dividends shall not be cumulative. In the
event that the corporation declares or pays any dividend on the Common Stock
(whether payable in cash, securities, or other property), other than dividends
subject to subsection (d)(i) or (e) of Section 4, the corporation shall also
declare and pay to the holders of the Series C Preferred Stock at the same time
that it declares and pays such dividends to the holders of the Common Stock, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon the conversion of the Series C Preferred Stock had all of
the Series C Preferred Stock been converted immediately prior to the record date
for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are determined .
2. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of
this corporation (a "Liquidation Event"), either voluntary or involuntary, the
holders of the Series A Preferred Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of the
corporation to the holders of any other Preferred Stock or Common Stock by
reason of their ownership thereof, the amount of $1.00 per share (as adjusted
for any Recapitalization with respect to the Series A Preferred Stock), plus all
declared, or undeclared but accumulated and unpaid, dividends on such share for
each share of Series A preferred Stock then held by them (the "Series A
Liquidation Preference Amount"). If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series A Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the
preferential amount each such holder is otherwise entitled to receive.
(b) In the event of any Liquidation Event, and subject to the payment
in full of the aggregate Series A Liquidation Preference Amount as provided in
subsection (a) of
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this Section 2, and any other distribution that may be required with respect to
series of Preferred Stock that may from time to time come into existence, the
remaining assets of the corporation available for distribution to stockholders
shall be distributed among the holders of Series B Preferred Stock, Series C
Preferred Stock and Common Stock pro rata based on the number of shares of
Common Stock held by each (assuming full conversion of all shares of Series B
Preferred Stock and Series C Preferred Stock).
(c) For purposes of this Section 2, a Liquidation Event shall be
deemed to be occasioned by, or to include, (A) the acquisition of the
corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation but, excluding any merger effected exclusively for the purpose of
changing the domicile of the corporation); or (B) a sale of all or substantially
all of the assets of the corporation; unless the corporation's stockholders of
record as constituted immediately prior to such acquisition or sale will,
immediately after such acquisition or sale (by virtue of securities issued as
consideration for the corporation's acquisition or sale or otherwise) hold at
least 50% of the voting power of the surviving or acquiring entity.
(d) Whenever the distribution provided for in this Section 2 shall be
payable in securities or property other than cash, the value of such
distribution shall be the fair market value of such securities or other property
as determined in good faith by the Board of Directors of the corporation.
3. Redemption.
----------
(a) In the event that the corporation shall consummate (i) a sale of
all or substantially all of the assets or stock of the corporation to any entity
in which more than 50% of the equity interests in such entity are not held by
the holders of Common Stock of the corporation (assuming full conversion of all
shares of Series B Preferred Stock and Series C Preferred Stock) as in existence
immediately prior to the consummation of such transaction, or (ii) an
underwritten public offering of the Common Stock of the corporation pursuant to
the Securities Act of 1933, as amended, which results in net proceeds to the
corporation of at least $10 million (each such event referred to as a
"Redemption Event" and the date of consummation of each such Redemption Event
referred to as the "Redemption Date"), the corporation shall, concurrently with
the surrender by the holders of Series A Preferred Stock of the certificates
representing such shares, redeem all of the outstanding shares of Series A
Preferred Stock by paying in cash therefor, $1.00 per share of Series A
Preferred Stock (as adjusted for any Recapitalizations with respect to the
Series A Preferred Stock) plus all declared, or undeclared but accumulated and
unpaid, dividends on such shares (the "Redemption Price").
(b) Except as provided in subsection (c) of this Section 3, on or
after the Redemption Date, each holder of Series A Preferred Stock to be
redeemed shall surrender to the corporation the certificate or certificates
representing such shares, in the manner and at the place designated by the
corporation, and thereupon the Redemption Price of such shares shall be payable
to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled.
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(c) From and after the Redemption Date, unless there shall have been
a default in payment of the Redemption Price, all rights of the holders of
shares of Series A Preferred Stock (except the right to receive the Redemption
Price without interest upon surrender of their certificate or certificates)
shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the corporation legally available for
redemption of shares of Series A Preferred Stock on any Redemption Date are
insufficient to redeem the total number of shares of Series A Preferred Stock to
be redeemed on such date, those funds which are legally available will be used
to redeem the maximum possible number of such shares ratably among the holders
of such shares to be redeemed based upon their holdings of Series A Preferred
Stock. The shares of Series A Preferred Stock not redeemed shall remain
outstanding and entitled to all the rights and preferences provided herein. Any
time thereafter when additional funds of the corporation are legally available
for the redemption of shares of Series A Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the corporation
has become obligated to redeem on any Redemption Date, but which it has not
redeemed.
4. Conversion. The Series A Preferred Stock is not convertible. The
----------
holders of the Series B Preferred Stock and the Series C Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock and the
----------------
Series C Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
this corporation or any transfer agent for such Preferred Stock, into such
number of fully paid and nonassessable shares of Common Stock as is determined
in accordance with subsection (a) of this Section 4. The number of shares of
Common Stock into which each share of Series B Preferred Stock shall be
convertible shall be determined by dividing $0.60 (the "Original Series B Issue
Price") by the Series B Conversion Price determined as hereinafter provided, in
effect on the date that the certificate is surrendered for conversion. The
number of shares of Common Stock into which each share of Series C Preferred
Stock shall be convertible shall be determined by dividing $0.80 (the "Original
Series C Issue Price") by the Series C Conversion Price determined as
hereinafter provided, in effect on the date that the certificate is surrendered
for conversion. The initial Series B Conversion Price per share and the initial
Series C Conversion Price per share shall be the Original Series B Issue Price
and the Original Series C Issue Price, respectively; provided, however, that the
Series B Conversion Price and Series C Conversion Price shall be subject to
adjustment as set forth in subsection (d) of this Section 4.
(b) Automatic Conversion. Each share of Series B Preferred Stock and
--------------------
Series C Preferred Stock shall automatically be converted into shares of Common
Stock at the Series B Conversion Price and Series C Conversion Price, as the
case may be, at the time in effect for such share immediately upon the earlier
of (i) the corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended, which results in net proceeds to the
corporation of at least $15,000,000 or (ii) the date specified by written
consent or agreement of the holders of a
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majority of the then outstanding shares of Series B Preferred Stock and Series C
Preferred Stock voting together as a single class.
(c) Mechanics of Conversion. Before any holder of Series B Preferred
-----------------------
Stock or Series C Preferred Stock, as the case may be, shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed, at the office of this
corporation or of any transfer agent for the Preferred Stock, and shall give
written notice to this corporation at its principal corporate office, of the
election to convert the same and shall state therein the name or names in which
the certificate or certificates for shares of Common Stock are to be issued.
This corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Preferred Stock, or to the nominee or nominees of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder shall be entitled as aforesaid. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten public offering of securities registered
pursuant to the Securities Act of 1933, as amended, the conversion may, at the
option of any holder tendering Preferred Stock for conversion, be conditioned
upon the closing with the underwriters of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of such
sale of securities .
(d) Conversion Price Adjustments of Preferred Stock. The Series B
-----------------------------------------------
Conversion Price and Series C Conversion Price shall be subject to adjustment
from time to time as follows:
(i) In the event the corporation should at any time or from time
to time after the date upon which any shares of Series C Preferred Stock were
first issued (the "Series C Purchase Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend, distribution, split or subdivision if no record date is fixed),
the Series B Conversion Price or the Series C Conversion Price, as the case may
be, shall be appropriately decreased so that the number of shares of Common
Stock issuable on conversion of each share of Series B Preferred Stock or Series
C Preferred Stock shall be increased in proportion to such increase of the
aggregate number of shares of Common Stock outstanding and those issuable with
respect to such Common Stock Equivalents.
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(ii) If the number of shares of Common Stock outstanding at
any time after the Series C Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of such
combination, the Series B Conversion Price or Series C Conversion Price, as the
case may be, shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of share of Series B Preferred Stock or
Series C Preferred Stock shall be decreased in proportion to such decrease in
outstanding shares.
(e) Other Distributions. In the event this corporation shall declare
-------------------
a distribution payable in securities of other persons, evidences of indebtedness
issued by this corporation or other persons, assets (excluding cash dividends)
or options or rights not referred to in subsection 4(d)(i), then, in each such
case for the purpose of this subsection 4(e), the holders of the Series B
Preferred Stock or Series C Preferred Stock, as the case may be, shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the corporation into
which their shares of Series B Preferred Stock or Series C Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the corporation entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there
-----------------
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Section 2 or this Section 4) provision shall be made so that the holders of the
Series B Preferred Stock and Series C Preferred Stock shall thereafter be
entitled to receive upon conversion of the Series B Preferred Stock or Series C
Preferred Stock the number of shares of stock or other securities or property of
the corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 4 with respect to the rights of the holders of the Series B
Preferred Stock or Series C Preferred Stock after the recapitalization to the
end that the provisions of this Section 4 (including adjustment of the Series B
Conversion Price or Series C Conversion Price then in effect and the number of
shares purchasable upon conversion of the Series B Preferred Stock or Series C
Preferred Stock), shall be applicable after that event as nearly equivalent as
may be practicable.
(g) No Impairment. This corporation will not, by amendment of its
-------------
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by this
corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Series B Preferred Stock or Series C Preferred Stock against
impairment.
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(h) No Fractional Shares and Certificate as to Adjustments.
------------------------------------------------------
(i) No fractional shares shall be issued upon conversion of any
share or shares of the Series B Preferred Stock or Series C Preferred Stock and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series B Preferred Stock or Series C Preferred Stock the holder is at the time
converting into Common Stock and the number of shares of Common Stock issuable
upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of
the Series B Conversion Price or Series C Conversion Price pursuant to this
Section 4, this corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series B Preferred Stock or Series C Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. This corporation
shall, upon the written request at any time of any holder of Series B Preferred
Stock or Series C Preferred Stock furnish or cause to be furnished to such
holder a like certificate setting forth (A) such adjustment and readjustment,
(B) the Series B Conversion Price or Series C Conversion Price at the time in
effect and (C) the number of shares of Common Stock and the amount, if any, of
other property which at the time would be received upon the conversion of a
share of Series B Preferred Stock or Series C Preferred Stock.
(i) Notices of Record Date. In the event of any taking by this
----------------------
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, this
corporation shall mail to each holder of Series B Preferred Stock or Series C
Preferred Stock at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The
---------------------------------------------
corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Series B Preferred Stock or Series C Preferred
Stock such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series B
Preferred Stock or Series C Preferred Stock and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred Stock
and Series C Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Series B Preferred Stock and Series C Preferred
Stock, this corporation will take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging
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in best efforts to obtain the requisite stockholder approval of any necessary
amendment to this Certificate of Incorporation.
(k) Notices. Any notice required by the provisions of this
--------
Section 4 to be given to the holders of shares of Series B Preferred Stock or
Series C Preferred Stock shall be deemed given if deposited in the United States
mail, postage prepaid, and addressed to each holder of record at such holder's
address appearing on the books of this corporation.
5. Voting Rights.
-------------
(a) General. Except as otherwise expressly provided herein, the
-------
holder of each share of Series B Preferred Stock and Series C Preferred Stock
shall have the right to one vote for each share of Common Stock into which such
Series B Preferred Stock or Series C Preferred Stock could then be converted and
with respect to such vote, such holder shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock, and shall
be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the Bylaws of this corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
Fractional votes shall not, however, be permitted and any fractional voting
rights available on an as-converted basis (after aggregating all shares into
which shares of Series B Preferred Stock and Series C Preferred Stock held by
each holder could be converted) shall be rounded to be nearest whole number
(with one-half being rounded upward).
(b) Series A Preferred Stock. The holders of Series A Preferred
------------------------
Stock will not have any voting rights except (i) that the holders of Series A
Preferred Stock shall have such rights as from time to time are required by the
Delaware General Corporation law and (ii) the holders of Series A Preferred
Stock shall have one vote for each share of Series A Preferred Stock (or, if a
share of Common Stock shall have more than one vote per share, that number of
votes per share of a share of Common Stock) as to matters voted upon by the
holders of the Common Stock in which such matter could have a direct, adverse
affect on the rights of the holders of Series A Preferred Stock (which shall not
be deemed to include the election of any director).
6. Protective Provisions.
---------------------
(a) Series A Preferred Stock. Without limiting the generality of
------------------------
subsection (b) of Section 5, so long as shares of Series A Preferred Stock are
outstanding, this corporation shall not without first obtaining the approval (by
vote or written consent, as provided by law) of the holders of at least 66 2/3%
of the then outstanding shares of Series A Preferred Stock, voting as a separate
class, take any action to amend the Certificate of Incorporation or Bylaws of
the corporation in a manner that would change any of the rights, preferences or
privileges provided for herein for the benefit of any shares of the Series A
Preferred Stock. Without limiting the generality of the preceding sentence, the
corporation will not amend its Certificate of Incorporation or Bylaws without
the approval of the holders of 66 2/3% of Series A Preferred Stock if such
amendment would:
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(1) reduce the dividend rates on the Series A Preferred Stock provided
for herein or make such dividends non-cumulative or defer the date from which
dividends will accrue, or cancel accrued and unpaid dividends, or change the
relative seniority rights of the holders of that series of Preferred Stock as to
the payment of dividends in relation to the holders of any other capital stock
of the corporation;
(2) reduce the amount payable to the holders of the Series A
Preferred Stock upon a Liquidation Event, or change the relative seniority of
the liquidation preferences of the holders of the Series A Preferred Stock to
the rights upon liquidation of the holders of any other capital stock of the
corporation;
(3) reduce the Redemption Price specified in Section 3 hereof with
respect to the Series A Preferred Stock;
(4) delay any of the Redemption Dates provided for in Section 3; or
(5) change the authorized number of directors of the corporation.
(b) Series B Preferred Stock. So long as shares of Series B Preferred
------------------------
Stock are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series B Preferred Stock,
voting as a separate class, take any action to:
(1) alter or change the rights, preferences or privileges of the
shares of Series B Preferred Stock so as to affect materially and adversely the
shares;
(2) increase or decrease (other than by conversion) the total
number of authorized shares of Series B Preferred Stock; or
(3) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over the Series B Preferred Stock
as to the payment of dividends.
(c) Series C Preferred Stock. So long as shares of Series C Preferred
------------------------
Stock are outstanding, this corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of at
least a majority of the then outstanding shares of Series C Preferred Stock,
voting as a separate class, take any action to:
(1) alter or change the rights, preferences or privileges of the
shares of Series C Preferred Stock so as to affect materially and adversely the
shares;
(2) increase or decrease (other than by conversion) the total
number of authorized shares of Series C Preferred Stock; or
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(3) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security, having a preference over the Series C Preferred Stock
as to the payment of dividends.
7. Status of Converted or Redeemed Stock. In the event any shares of
-------------------------------------
Series A Preferred Stock shall be redeemed pursuant to Section 3 or any shares
of Series B Preferred Stock or Series C Preferred Stock, as the case may be,
shall be converted pursuant to Section 4, the shares so redeemed or converted
shall be canceled and shall not be issuable by the corporation. The Certificate
of Incorporation of this corporation shall be appropriately amended to effect
the corresponding reduction in the corporation's authorized capital stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all
---------------
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when and as
declared by the Board of Directors, out of any assets of the corporation legally
available therefor, such dividends as may be declared from time to time by the
Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding
------------------
up of the corporation, the assets of the corporation shall be distributed as
provided in Section 2 of Division (B) of this Article IV hereof.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. The holder of each share of Common Stock shall have
-------------
the right to one vote, and shall be entitled to notice of any stockholders'
meeting in accordance with the Bylaws of this corporation, and shall be entitled
to vote upon such matters and in such manner as may be provided by law.
V
The corporation is to have perpetual existence.
VI
Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this 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 this 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
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stockholders or class of stockholders of this 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 this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as a consequence of such compromise or
arrangement, the same compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the 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 this corporation, as the case may be,
and also on this corporation.
VII
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation, and regulation of the
powers of the corporation and of its directors and of its stockholders or any
class thereof, as the case may be, it is further provided:
1. 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 "total 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. No election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation have been
adopted, amended, or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the corporation has received any payment for any of its
stock, the power to adopt, amend, or repeal the Bylaws of the corporation may be
exercised by the Board of Directors of the corporation; provided, however, that
any provision for the classification of directors of the corporation for
staggered terms pursuant to the provision of subsection (d) of Section 141 of
the General Corporation Law of the State of Delaware shall be set forth in an
initial Bylaw or in a Bylaw adopted by the stockholders of the corporation
entitled to vote unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder thereof to
notice of, and the right to vote at, any meeting of stockholders. Whenever the
corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under the
provisions of the Certificate of Incorporation shall entitle the holder thereof
to the right to vote at any meeting of stockholders except as the provisions of
paragraph (2) of subsection (b) of Section 242 of the General Corporation Law of
the State of Delaware shall otherwise require; provided, that no share of any
such class which is otherwise denied voting power shall entitle the holder
thereof to vote upon the increase or decrease in the number of authorized shares
of said class.
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VIII
The personal liability of the directors of the corporation is hereby
eliminated to the fullest extent permitted by the provision of paragraph (7) of
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
IX
The corporation shall, to the fullest extent permitted by the provisions of
Section 145 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented, indemnify any and all persons whom it shall
have power to indemnify under said section from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall 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 person.
X
From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article X.
XI
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the corporation.
* * *
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EXHIBIT 10.1
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE 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 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
will continue in effect until the Expiration Date, at which time this Plan will
automatically terminate.
2.2 Effect on Awards. Awards may be granted only during the Plan Term,
but each Award granted during the Plan Term will remain in effect after the
Expiration Date until such Award has been exercised, terminated or expired in
accordance with its terms and the terms of this Plan.
2.3 Stockholder Approval. This Plan must be approved by the Company's
stockholders within 12 months before or after the Effective Date. The
effectiveness of any Awards granted prior to such stockholder approval will be
subject to such stockholder approval and rescinded if stockholder approval is
not obtained.
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 Awards granted under this Plan is equal to 15% of the
number of shares of Common Stock authorized pursuant to the Company's
Certificate of Incorporation as of the Effective Date, 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 Administrator, either from
authorized but unissued shares of Common Stock or from previously issued shares
of Common Stock reacquired by the Company.
3.3 Availability of Unused Shares. Shares of Common Stock subject to
unexercised portions of any Award that expire, terminate or are canceled, and
shares of Common Stock
<PAGE>
issued pursuant to an Award that are reacquired by the Company pursuant to the
terms of (a) the Award under which such shares were issued, or (b) any
stockholder agreement entered into by a Recipient in connection with receipt or
exercise of an Award, will again become available for the grant of further
Awards under this Plan as part of the shares available under Section 3.1. In
-----------
addition, shares of Common Stock subject to an Award that are delivered to or
retained by the Company upon exercise to cover cashless exercise or tax
withholding, and any shares of Common Stock underlying an Award that are not
issued because the Award is settled in cash, will be available for grant of
further Awards under this Plan as part of the shares available under Section
-------
3.1.
- ---
3.4 Adjustment Provisions.
(a) Adjustments. If the Company consummates any Reorganization in
-----------
which holders of shares of Common Stock are entitled to receive in respect of
such shares any additional shares or new or different shares or securities, cash
or other consideration (including, without limitation, a different number of
shares of Common Stock), or if the outstanding shares of Common Stock are
increased, decreased or exchanged for a different number or kind of shares or
other securities through merger, consolidation, sale or exchange of assets of
the Company, reorganization, recapitalization, reclassification, combination,
stock dividend, stock split, reverse stock split, spin-off, or similar
transaction, then an appropriate and proportionate adjustment shall be made by
the Administrator in its discretion 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 Awards; and/or (3) the
price for each share or other unit of any other securities subject to, or
measurement criteria applicable to, then outstanding Awards.
(b) No Fractional Interests. No fractional interests will be issued
-----------------------
under the Plan resulting from any adjustments.
(c) Adjustments Related to Company Stock. To the extent any
------------------------------------
adjustments relate to stock or securities of the Company, such adjustments will
be made by the Administrator, whose determination in that respect will be final,
binding and conclusive.
(d) Right to Make Adjustment. The grant of an Award will 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) Limitations. No adjustment to the terms of an Incentive Stock
-----------
Option may be made unless such adjustment either: (i) would not cause the
Option to lose its status as an Incentive Stock Option; or (ii) is agreed to in
writing by the Administrator and the Recipient.
3.5 Reservation of Shares. The Company will at all times reserve and keep
available shares of Common Stock equaling at least the total number of shares of
Common Stock issuable pursuant to all outstanding Awards.
2
<PAGE>
ARTICLE IV
ADMINISTRATION OF PLAN
4.1 Administrator.
(a) Plan Administration. This Plan will be administered by the Board
-------------------
and may also be administered by a Committee of the Board appointed pursuant to
Section 4.1(b).
- --------------
(b) Administration by Committee. The Board in its sole discretion may
---------------------------
from time to time appoint a Committee of not less than two (2) Board members
with authority to administer this Plan in whole or part and, subject to
applicable law, to exercise any or 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 (2)) the number of members of the Committee, remove
from membership on the 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
Committee, whether caused by removal, resignation or otherwise. The Board may
disband the Committee at any time.
4.2 Authority of Administrator.
(a) Authority to Interpret Plan. Subject to the express provisions of
---------------------------
this Plan, the Administrator will have the power to implement, interpret and
construe this Plan and any Awards and Award Documents or other documents
defining the rights and obligations of the Company and Recipients hereunder and
thereunder, to determine all questions arising hereunder and thereunder, and to
adopt and amend such rules and regulations for the administration hereof and
thereof as it may deem desirable. The interpretation and construction by the
Administrator of any provisions of this Plan or of any Award or Award Document,
and any action taken by, or inaction of, the Administrator relating to this Plan
or any Award or Award Document, will be within the discretion of the
Administrator and will be conclusive and binding upon all persons. Subject only
to compliance with the express provisions hereof, the Administrator may act in
its discretion in matters related to this Plan and any and all Awards and Award
Documents.
(b) Authority to Grant Awards. Subject to the express provisions of
-------------------------
this Plan, the Administrator may from time to time in its discretion select the
Eligible Persons to whom, and the time or times at which, Awards will be granted
or sold, the nature of each Award, the number of shares of Common Stock or the
number of rights that make up or underlie each Award, the exercise price and
period (if applicable) for the exercise of each Award, and such other terms and
conditions applicable to each individual Award as the Administrator may
determine. Any and all terms and conditions of Awards may be established by the
Administrator without regard to existing Awards or other grants and without
incurring any obligation of the Company in respect of subsequent Awards. The
Administrator may grant at any time new Awards to an Eligible Person who has
previously received Awards or other grants (including other stock options)
regardless of the status of such other Awards or grants. The Administrator may
grant Awards singly or in combination or in tandem with other Awards as it
determines in its discretion.
3
<PAGE>
(c) Procedures. Subject to the Company's charter or bylaws or any
----------
Board resolution conferring authority on the Committee, any action of the
Administrator with respect to the administration of this Plan must be taken
pursuant to a majority vote of the authorized number of members of the
Administrator or by the unanimous written consent of its members; provided,
however, that (i) if the Administrator is the Committee and consists of two (2)
members, then actions of the Administrator must be unanimous, and (ii) actions
taken by the Board will be valid if approved in accordance with applicable law.
4.3 No Liability. No member of the Board or the Committee or any designee
thereof will be liable for any action or inaction with respect to this Plan or
any Award or any transaction arising under this Plan or any Award except in
circumstances constituting bad faith of such member.
4.4 Amendments.
(a) Plan Amendments. The Administrator may at any time and from time
---------------
to time in its discretion, insofar as permitted by applicable law, rule or
regulation and subject to Section 4.4(c), 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 Awards, including those granted before such revision or
amendment. Without limiting the generality of the foregoing, the Administrator
is authorized to amend this Plan to comply with or take advantage of amendments
to applicable laws, rules or regulations, including the Securities Act, the
Exchange Act, the IRC, or the rules of any exchange or market system upon which
the Common Stock is listed or trades, or any rules or regulations promulgated
thereunder. No stockholder approval of any amendment or revision will be
required unless such approval is required by applicable law, rule or regulation.
(b) Award Amendments. The Administrator may at any time and from time
----------------
to time in its discretion, subject to Section 4.4(c) and compliance with
--------------
applicable statutory or administrative requirements, accelerate or extend the
vesting or exercise period of any Award as a whole or in part, and make such
other modifications in the terms and conditions of an Award as it deems
advisable.
(c) Limitation. Except as otherwise provided in this Plan or in the
----------
applicable Award Document, no amendment, revision, suspension or termination of
this Plan or an outstanding Award that would cause an Incentive Stock Option to
cease to qualify as such or that would alter, impair or diminish in any material
respect any rights or obligations under any Award theretofore granted under this
Plan may be effected without the written consent of the Recipient to whom such
Award was granted.
4.5 Other Compensation Plans. The adoption of this Plan will not affect
any other stock option, incentive or other compensation plans in effect from
time to time for the Company, and this Plan will 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
<PAGE>
4.6 Successors. Except as otherwise provided in an individual Award
Document, in the event of a Reorganization in which the Company is not the
surviving entity or in which the Company is the surviving entity but in which
securities possessing more than fifty percent (50%) of the total combined voting
power of the Company's outstanding securities are transferred to a person or
persons different from those who held such securities immediately prior to such
Reorganization, each Award will terminate immediately prior to such
Reorganization, unless the Award is assumed by the successors or 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 will also
refer to any successor provision of such statute, regulation or rule.
4.8 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 is not to be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions are to be given full force and effect to the same extent as though
the invalid and unenforceable provision were not contained herein.
4.9 Governing Law. This Agreement will 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.
4.10 Interpretation. Headings herein are for convenience of reference
only, do not constitute a part of this Plan, and will not affect the meaning or
interpretation of this Plan. References herein to Sections or Articles are
references to the referenced Section or Article hereof, unless otherwise
specified.
ARTICLE V
GENERAL AWARD PROVISIONS
5.1 Participation in Plan.
(a) Eligibility to Receive Awards. A person is eligible to receive
-----------------------------
grants of Awards if, at the time of the grant of the Award, such person is an
Eligible Person or has received an offer of employment from the Company,
provided that Awards granted to a person who has received an offer of employment
will terminate and be forfeited without consideration if the employment offer is
not accepted within such time as may be specified by the Company. Status as an
Eligible Person will not be construed as a commitment that any Award will be
granted under this Plan to an Eligible Person or to Eligible Persons generally.
(b) Eligibility to Receive Incentive Stock Options. Incentive Stock
----------------------------------------------
Options may be granted only to Eligible Persons meeting the employment
requirements of Section 422 of the IRC.
(c) Awards to Foreign Nationals. Notwithstanding anything to the
---------------------------
contrary herein, the Administrator may, in order to fulfill the purposes of this
Plan, modify grants of
5
<PAGE>
Awards 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 Award Documents. Each Award must be evidenced by an agreement duly
executed on behalf of the Company and by the Recipient or, in the
Administrator's discretion, a confirming memorandum issued by the Company to the
Recipient, setting forth such terms and conditions applicable to the Award as
the Administrator may in its discretion determine. Awards will not be deemed
made or binding upon the Company, and Recipients will have no rights thereto,
until such an agreement is entered into between the Company and the Recipient or
such a memorandum is delivered by the Company to the Recipient, but an Award may
have an effective date prior to the date of such an agreement or memorandum.
Award Documents may be (but need not be) identical and must comply with and be
subject to the terms and conditions of this Plan, a copy of which will be
provided to each Recipient and incorporated by reference into each Award
Document. Any Award Document may contain such other terms, provisions and
conditions not inconsistent with this Plan as may be determined by the
Administrator. In case of any conflict between this Plan and any Award
Document, this Plan shall control.
5.3 Payment For Awards.
(a) Payment of Exercise Price. The exercise price or other payment
-------------------------
for an Award is payable upon the exercise of a Stock Option or upon other
purchase of shares pursuant to an Award granted hereunder by delivery of legal
tender of the United States or payment of such other consideration as the
Administrator may from time to time deem acceptable in any particular instance;
provided, however, that the Administrator may, in the exercise of its
discretion, allow exercise of an Award in a broker-assisted or similar
transaction in which the exercise price is not received by the Company until
promptly after exercise.
(b) Company Assistance. The Company may assist any person to whom an
------------------
Award is granted (including, without limitation, any officer or director of the
Company) in the payment of the purchase price or other amounts payable in
connection with the receipt or exercise of that Award, by lending such amounts
to such person on such terms and at such rates of interest and upon such
security (if any) as may be consistent with applicable law and approved by the
Administrator. In case of such a loan, the Administrator may require that the
exercise be followed by a prompt sale of some or all of the underlying shares
and that a portion of the sale proceeds be dedicated to full payment of the
exercise price and amounts required pursuant to Section 5.10.
------------
(c) Cashless Exercise. If permitted in any case by the Administrator
-----------------
in its discretion, the exercise price for Awards may be paid by capital stock of
the Company delivered in transfer to the Company by or on behalf of the person
exercising the Award 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 Administrator; or retained by the Company from
the stock otherwise issuable upon exercise or surrender of vested and/or
exercisable Awards or other equity awards 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
6
<PAGE>
the Administrator may from time to time in the exercise of its discretion deem
acceptable in any particular instance.
(d) No Precedent. Recipients will have no rights to the assistance
------------
described in Section 5.3(b) or the exercise techniques described in Section
-------------- -------
5.3(c), and the Company may offer or permit such assistance or techniques on an
- ------
ad hoc basis to any Recipient without incurring any obligation to offer or
permit such assistance or techniques on other occasions or to other Recipients.
5.4 No Employment Rights. Nothing contained in this Plan (or in Award
Documents or in any other documents related to this Plan or to Awards) will
confer upon any Eligible Person or Recipient any right to continue in the employ
of or engagement by 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 an Award, the
Company has the right to deal with each Recipient in the same manner as if this
Plan and any such statement evidencing the grant of an Award did not exist,
including, without limitation, with respect to all matters related to the
hiring, discharge, compensation and conditions of the employment or engagement
of the Recipient. Unless otherwise set forth in a written agreement binding
upon the Company or an Affiliated Entity, all employees of the Company or an
Affiliated Entity are "at will" employees whose employment may be terminated by
the Company or the Affiliated Entity at any time for any reason or no reason,
without payment or penalty of any kind. Any question(s) 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 an Award pursuant to
this Plan will determined by the Administrator and the Administrator's
determination thereof will final and binding.
5.5 Restrictions Under Applicable Laws and Regulations.
(a) Government Approvals. All Awards will be subject to the
--------------------
requirement that, if at any time the Company determines, in its discretion, that
the listing, registration or qualification of the securities subject to Awards
granted under this Plan upon any securities exchange or interdealer quotation
system or under any federal, state or foreign law, or the consent or approval of
any government or regulatory body, is necessary or desirable as a condition of,
or in connection with, the granting of such an Award or the issuance, if any, or
purchase of shares in connection therewith, such Award may not be exercised as a
whole or in part unless and until such listing, registration, qualification,
consent or approval has 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 governmental and
regulatory agencies any requisite qualifications, consents, approvals or
authorizations in order to issue and sell such number of shares of its Common
Stock as is sufficient to satisfy the requirements of this Plan. The inability
of the Company to obtain any
7
<PAGE>
such qualifications, consents, approvals or authorizations will relieve the
Company of any liability in respect of the nonissuance or sale of such stock as
to which such qualifications, consents, approvals or authorizations pertain.
(b) No Registration Obligation; Recipient Representations. The
-----------------------------------------------------
Company will be under no obligation to register or qualify the issuance of
Awards or underlying securities under the Securities Act or applicable state
securities laws. Unless the issuance of Awards and underlying securities 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 Awards or underlying securities unless the Awards and underlying
securities may be issued pursuant to applicable exemptions from such
registration or qualification requirements. In connection with any such exempt
issuance, the Administrator may require the Recipient to provide a written
representation and undertaking to the Company, satisfactory in form and scope to
the Company, that such Recipient is acquiring such Awards and underlying
securities for such Recipient's own account as an investment and not with a view
to, or for sale in connection with, the distribution of any such securities, 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 securities are issued without
registration, a legend to this effect (together with any other legends deemed
appropriate by the Administrator) may be endorsed upon the securities so issued,
and to the effect of any additional representations that are appropriate in
light of applicable securities laws and rules. The Company may also order its
transfer agent to stop transfers of such shares. The Administrator may also
require the Recipient to provide the Company such information and other
documents as the Administrator may request in order to satisfy the Administrator
as to the investment sophistication and experience of the Recipient and as to
any other conditions for compliance with any such exemptions from registration
or qualification.
5.6 Stockholder Agreement and Additional Conditions. Unless otherwise
determined by the Company in any particular case, each Award consisting of
equity securities or securities convertible or exercisable for equity securities
shall be contingent upon the Recipient thereof, as a condition (which may be
waived in any case by the Company) to the Company's issuance of equity
securities to the Recipient pursuant to the Award, entering into a Stockholder
Agreement not substantially inconsistent with the form thereof attached hereto
as Exhibit A (the "Stockholder Agreement"), and any conflict between such an
---------
agreement and this Plan will be resolved in favor of the Plan. Subject to the
California Securities Law and federal securities laws, any Award may also be
subject to such other provisions (whether or not applicable to any other Award
or Recipient) as the Administrator deems appropriate, including without
limitation provisions for the forfeiture of or restrictions on resale or other
disposition of securities of the Company acquired under this Plan, provisions
giving the Company the right to repurchase securities of the Company acquired
under this Plan in the event the Recipient leaves the Company for any reason or
elects to effect any disposition thereof.
5.7 No Privileges re: Stock Ownership or Specific Assets. Except as
otherwise set forth herein, a Recipient or a permitted transferee of an Award
will have no rights as a stockholder with respect to any shares issuable or
issued in connection with the Award until the
8
<PAGE>
Recipient has delivered to the Company all amounts payable and performed all
obligations required to be performed in connection with exercise of the Award
and the Company has issued such shares. No person will 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 Award granted hereunder. Neither this
Plan (or any documents related hereto) nor any action taken pursuant hereto is
to 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 Award hereunder, such right shall be no greater than the
right of any unsecured general creditor of the Company.
5.8 Nonassignability. No Award is 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 5.8, upon dissolution of marriage pursuant to a
-----------
qualified domestic relations order or, in the discretion of the Administrator
and under circumstances that would not adversely affect the interests of the
Company, transfers for estate planning purposes or pursuant to a nominal
transfer that does not result in a change in beneficial ownership. During the
lifetime of a Recipient, an Award granted to such person will be exercisable
only by the Recipient (or the Recipient's permitted transferee) or such person's
guardian or legal representative. Notwithstanding the foregoing, (i) any
assignment or transfer of an Award will immediately result in the termination of
vesting as of the date of transfer or assignment and (ii) Stock Options and
stock purchase rights that are California Regulated Securities may not be
transferred other than by will or the laws of descent and distribution at any
time that this Plan is a California Regulated Plan, and Stock Options intended
to be treated as Incentive Stock Options (or other Awards subject to transfer
restrictions under the IRC) may not be assigned or transferred in violation of
Section 422(b)(5) of the IRC or the regulations thereunder, and nothing herein
is intended to allow such assignment or transfer.
5.9 Information To Recipients.
(a) Provision of Information. The Administrator in its sole
------------------------
discretion may determine what, if any, financial and other information is to be
provided to Recipients and when such financial and other information is to 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, provided that during such times as this
Plan is a California Regulated Plan, holders of California Regulated Securities
will receive financial statements of the Company to the extent required by the
California Securities Rules.
(b) Confidentiality. The furnishing of financial and other
---------------
information that is confidential to the Company is subject to the Recipient's
agreement to maintain the confidentiality of such financial and other
information, and not to use the information for any purpose other than
evaluating the Recipient's position under this Plan. The Administrator may
impose other restrictions on the access to and use of such confidential
information and may require a Recipient to acknowledge the Recipient's
obligations under this Section 5.9(b) (which acknowledgment is not to be a
--------------
condition to Recipient's obligations under this Section 5.9(b)).
---------------
5.10 Withholding Taxes. Whenever the granting, vesting or exercise of any
Award, or the issuance of any securities upon exercise of any Award or transfer
thereof, gives rise to tax
9
<PAGE>
or tax withholding liabilities or obligations, the Administrator will have the
right as a condition thereto to require the Recipient to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements arising in connection therewith. 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 in connection with an Award, in each case valued at
Fair Market Value as of the date that such delivery or withholding, as the case
may be, is determined.
5.11 Legends on Awards and Stock Certificates. Each Award Document and
each certificate representing securities acquired upon vesting or exercise of an
Award must be endorsed with all legends, if any, required by applicable federal
and state securities and other laws to be placed on the Award Document and/or
the certificate. The Award Documents and share certificates may also contain
legends reflecting the restrictions and rights contained in the Stockholder
Agreement as long as such restrictions and rights are applicable. The
determination of which legends, if any, will be placed upon Award Documents or
the certificates will be made by the Administrator in its discretion and such
decision will be final and binding.
5.12 Effect of Termination of Employment on Awards.
(a) Termination of Vesting. Notwithstanding anything to the contrary
----------------------
herein, but subject to the California Securities Rules, and subject to Section
-------
5.12(b), Awards will be exercisable by a Recipient (or the Recipient's successor
- -------
in interest) following such Recipient's termination of employment only to the
extent that installments thereof had become exercisable on or prior to the date
of such termination and are not forfeited pursuant to Section 5.15.
------------
(b) Alteration of Vesting and Exercise Periods. Notwithstanding
------------------------------------------
anything to the contrary herein, but subject to the California Securities Rules,
the Administrator may in its discretion (i) designate shorter or longer periods
following a Recipient's termination of employment during which Awards may vest
or be exercised; provided, however, that any shorter periods determined by the
Administrator will be effective only if provided for in this Plan or the
instrument that evidences the grant to the Recipient of the affected Award or if
such shorter period is agreed to in writing by the Recipient, and (ii)
accelerate the vesting of all or any portion of any Awards by increasing the
number of shares purchasable at any time.
(c) Leave of Absence. In the case of any employee on an approved
----------------
leave of absence, unless the Administrator makes such provisions respecting
continuance of Awards granted to such employee as the Administrator in its
discretion deems appropriate, vesting of any Award shall be discontinued for the
period of the leave of absence and shall resume again at the conclusion of the
leave of absence with no credit given for the period of the leave, provided that
in no event will an Award be exercisable after the date such Award would expire
in accordance with its terms had the Recipient remained continuously employed.
(d) General Cessation. Except as otherwise set forth in this Plan or
-----------------
an Award Document or as determined by the Administrator in its discretion, all
Awards granted to a Recipient, and all of such Recipient's rights thereunder,
will terminate upon termination for any reason of such Recipient's employment
with the Company or any Affiliated Entity (or cessation
10
<PAGE>
of any other service relationship between the Recipient and the Company or any
Affiliated Entity in place as of the date the Award was granted).
5.13 Lock-Up Agreements. Each Recipient agrees as a condition to receipt
of an Award that, in connection with any public offering by the Company of its
equity securities and upon the request of the Company and the principal
underwriter (if any) in such public offering, any shares of Common Stock
acquired or that may be acquired upon exercise or vesting of an Award may not be
sold, offered for sale, encumbered, or otherwise disposed of or subjected to any
transaction that will involve any sales of securities of the Company, without
the prior written consent of the Company and such underwriter for a period of
not more than 365 days after the effective date of the registration statement
for such public offering. Each Recipient will, if requested by the Company or
the principal underwriter, enter into a separate agreement to the effect of this
Section 5.13. Each lead underwriter of a public offering of the Company's
- ------------
stock, during the period of such offering and for the period of not more than
365 days thereafter, is an intended beneficiary of this Section 5.13.
-------------
5.14 Restrictions on Common Stock and Other Securities. Common Stock or
other securities of the Company issued or issuable in connection with any Award
will be subject to all of the restrictions imposed under this Plan upon Common
Stock issuable or issued upon exercise of Stock Options, except as otherwise
determined by the Administrator.
5.15 Cancellation and Recision of Awards. Unless an Award Document or
other separate written agreement binding upon the Company provides otherwise,
the Administrator may cancel any unexpired, unpaid or deferred Award (whether or
not vested) at any time if the Recipient thereof fails at any time to comply
with all applicable provisions of the Award Document or this Plan, or does any
of the following:
(a) During employment or engagement with the Company or any
Affiliated Entity or at any time within 365 days after termination of employment
or engagement with the Company or any Affiliated Entity, renders services for
any organization or engages directly or indirectly in any business that, in the
judgment of the Administrator or any person specifically designated by the
Administrator, is competitive with the Company or any Affiliated Entity, or
which organization or business, or the rendering of services to such
organization or business, is otherwise prejudicial to or in conflict with the
business or interests of the Company or any Affiliated Entity. For a Recipient
whose employment has terminated, the judgment of the Administrator or any person
specifically designated by the Administrator shall be based upon the Recipient's
position and responsibilities while employed by the Company or any Affiliated
Entity, the Recipient's post-employment responsibilities and position with the
other organization or business, the extent of past, current and potential
competition or conflict between the Company or any Affiliated Entity and the
other organization or business, the effect on the customers, suppliers and
competitors of the Company or Affiliated Entity of the Recipient's assuming the
post-employment position, the guidelines established in any employee handbook,
any employment agreement with the Recipient, and such other considerations as
are deemed by the Company to be relevant given the applicable facts and
circumstances.
11
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(b) During employment or engagement with the Company or any Affiliated
Entity or at any time thereafter, fails to comply with any confidentiality
agreement with the Company or any Affiliated Entity to which the Recipient is
party, or with the policies of the Company or Affiliated Entity regarding
nondisclosure of confidential information, or without prior written
authorization from the Company or any Affiliated Entity, discloses to anyone
outside the Company or any Affiliated Entity, or uses for any purpose or in any
context other than in performance of the Recipient's duties to the Company or
any Affiliated Entity, any confidential or trade secret information of the
Company.
(c) During employment or engagement with the Company or any Affiliated
Entity or at any time thereafter, fails to comply with any agreement with the
Company or any Affiliated Entity regarding assignment of inventions, or to
otherwise disclose promptly and assign to the Company or any Affiliated Entity
all right, title and interest in any invention or idea, patentable or not, made
or conceived by the Recipient during and within the scope of employment or
engagement by the Company or any Affiliated Entity, relating in any manner to
the actual or anticipated business, research, or development work of the Company
or any Affiliated Entity, or to do anything reasonably necessary to enable the
Company or any Affiliated Entity to secure a patent where appropriate in the
United States and other countries.
(d) During employment or engagement with the Company or any Affiliated
Entity or at any time thereafter, breaches any agreement with or duty to the
Company or any Affiliated Entity.
Upon and as a condition to exercise of any Award, a Recipient shall
certify on a form acceptable to the Company that he or she is in compliance with
the terms and conditions of this Plan and any applicable Award Document and has
not done any of the things described in this Section 5.15. Furthermore, if a
------------
Recipient does any of the things described in this Section 5.15 within 180 days
------------
after any exercise, payment or delivery pursuant to an Award, the Company may
rescind such exercise, payment or delivery. The Company shall notify the
Recipient in writing of any such recision within two years after such exercise,
payment or delivery. Within ten days after receiving such notice from the
Company, a Recipient shall pay to the Company the amount of any gain realized or
payment received as a result of the rescinded exercise, payment or delivery
pursuant to an Award. Such payment shall be made by returning to the Company
all shares of capital stock that the Recipient received in connection with the
rescinded exercise, payment or delivery, or if such shares have been transferred
by the Recipient, then by paying in cash to the Company the Fair Market Value
thereof at the time of transfer. To assist in enforcement of the Company's
recision right described above, the Company may, in its discretion, retain any
Common Stock or other consideration otherwise deliverable to a Recipient in
connection with an Award until the recision period described above has lapsed.
12
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ARTICLE VI
AWARDS
6.1 Stock Options.
(a) Nature of Stock Options. Stock Options may be Incentive Stock
-----------------------
Options or Nonqualified Stock Options.
(b) Option Exercise Price. The exercise price for each Stock Option
---------------------
will be determined by the Administrator as of the date such Stock Option is
granted. Subject to Section 4.4(b), the exercise price may be greater than or
--------------
less than the Fair Market Value of the Common Stock subject to the Stock Option
as of the date of grant, provided that in no event may the exercise price per
share be less than the par value, if any, per share of the Common Stock subject
to the Stock Option, and provided further that the exercise price of Stock
Options that are California Regulated Securities granted while this Plan is a
California Regulated Plan may not be less than 85% of the Fair Market Value of
the Common Stock as of the date of grant, or 110% of the Fair Market Value of
the Common Stock as of the date of grant in the case of Stock Options granted to
Recipients owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its parent or subsidiary
corporations.
(c) Option Period and Vesting. Stock Options granted hereunder will
-------------------------
vest and may be exercised as determined by the Administrator, except that (i)
Stock Options that are California Regulated Securities granted while this Plan
is a California Regulated Plan will vest and become exercisable at the rate of
at least 20% per year over five years from the date of grant, and (ii) exercise
of Stock Options after termination of the Recipient's employment shall be
subject to Section 5.12. Each Stock Option granted hereunder and all rights or
------------
obligations thereunder shall expire on such date as may be determined by the
Administrator, but not later than ten (10) years after the date the Stock Option
is granted and may be subject to earlier termination as provided herein or in
the Award Document. Except as otherwise provided herein, a Stock Option will
become exercisable, as a whole or in part, on the date or dates specified by the
Administrator and thereafter will remain exercisable until the exercise,
expiration or earlier termination of the Stock Option.
(d) Exercise of Stock Options. The exercise price for Stock Options
-------------------------
will be paid as set forth in Section 5.3. No Stock Option will be exercisable
-----------
except in respect of whole shares, and fractional share interests shall be
disregarded. Not fewer than 100 shares of Common Stock may be purchased at one
time and Stock Options must be exercised in multiples of 100 unless the number
purchased is the total number of shares for which the Stock Option is
exercisable at the time of exercise. A Stock Option will be deemed to be
exercised when the Secretary or other designated official of the Company
receives written notice of such exercise from the Recipient in the form of
Exhibit B hereto or such other form as the Company may specify from time to
- ---------
time, together with payment of the exercise price in accordance with Section 5.3
-----------
and any amounts required under Section 5.10 or, with permission of the
------------
Administrator, arrangement for such payment. Notwithstanding any other
provision of this Plan, the Administrator may impose, by rule and/or in Award
Documents, such conditions upon the
13
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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
-------
5.10, or any applicable section of or regulation under the IRC.
- ----
(e) Termination of Employment.
-------------------------
(i) Termination for Just Cause. Subject to Section 5.12 and
-------------------------- ------------
except as otherwise provided in a written agreement between the Company or an
Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of employment, or, with respect to California
Regulated Securities, as required by the California Securities Rules while this
Plan is a California Regulated Plan, in the event of a Just Cause Dismissal of a
Recipient all of the Recipient's unexercised Stock Options, whether or not
vested, will expire and become unexercisable as of the date of such Just Cause
Dismissal.
(ii) Termination Other Than for Just Cause. Subject to Section
------------------------------------- -------
5.12 and except as otherwise provided in a written agreement between the Company
- ----
or an Affiliated Entity and the Recipient, which may be entered into at any time
before or after termination of employment, if a Recipient's employment with the
Company or any Affiliated Entity terminates for:
(A) any reason other than for Just Cause Dismissal, death,
Permanent Disability or Retirement, the Recipient's Awards will cease vesting as
of the date of employment termination and such Awards, whether or not vested,
will expire and become unexercisable as of the earlier of: (x) the date such
Stock Options would expire in accordance with their terms had the Recipient
remained employed; and (y) 90 days after the date of employment termination.
(B) death or Permanent Disability or Retirement, the
Recipient's unexercised Awards will, whether or not vested, expire and become
unexercisable as of the earlier of: (x) the date such Awards would expire in
accordance with their terms had the Recipient remained employed; and (y) 365
days after the date of employment termination.
(f) Special Provisions Regarding Incentive Stock Options.
----------------------------------------------------
Notwithstanding anything herein to the contrary,
(i) The exercise price and vesting period of any Stock Option
intended to be treated as an Incentive Stock Option must 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: (A) 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 (B) that the Incentive Stock Option not be
exercisable after the expiration of ten (10) years from the date of grant or the
expiration of five (5) years from the date of grant in the case of an Incentive
Stock Option granted to a Significant Stockholder.
14
<PAGE>
(ii) 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 may not exceed $100,000.
(iii) Any Stock Options granted as Incentive Stock Options
pursuant to this Plan that for any reason fail or cease to qualify as such will
be treated as Nonqualified Stock Options. If the limit described in Section
-------
6.1(f)(ii) is exceeded, the earliest granted Stock Options will be treated as
- ----------
Incentive Stock Options, up to such limit.
6.2 Performance Awards.
(a) Grant of Performance Award. Subject to California Securities
--------------------------
Rules, the Administrator will determine in its discretion the performance
criteria (which need not be identical and may be established on an individual or
group basis) governing Performance Awards, the terms thereof, and the form and
time of payment of Performance Awards.
(b) Payment of Award. Upon satisfaction of the conditions applicable
----------------
to a Performance Award, payment will be made to the Recipient in cash, in shares
of Common Stock valued at Fair Market Value as of the date payment is due, or in
a combination of Common Stock and cash, as the Administrator in its discretion
may determine.
6.3 Restricted Stock.
(a) Award of Restricted Stock. The Administrator will determine,
-------------------------
subject to applicable law, the Purchase Price (if any), the terms of payment of
the Purchase Price, the restrictions upon the Restricted Stock, and when such
restrictions will lapse, provided that the Purchase Price (if any) for
Restricted Stock that constitutes California Regulated Securities granted while
this Plan is a California Regulated Plan may not be less than 85% of the Fair
Market Value of the Common Stock as of the date of grant or purchase, or 100% of
the Fair Market Value of the Common Stock as of the date of grant to or purchase
by Recipients owning stock possessing more than 10% of the total combined voting
power of all classes of stock of the Company or its parent or subsidiary
corporations.
(b) Requirements of Restricted Stock. All shares of Restricted Stock
--------------------------------
granted or sold pursuant to this Plan will be subject to the following
conditions:
(i) No Transfer. The shares may not be sold, assigned,
-----------
transferred, pledged, hypothecated or otherwise disposed of, alienated or
encumbered until the restrictions are removed or expire;
(ii) Certificates. The Administrator may require that the
------------
certificates representing Restricted Stock granted or sold to a Recipient remain
in the physical custody of an escrow holder or the Company until all
restrictions are removed or expire;
15
<PAGE>
(iii) Restrictive Legends. Each certificate representing
-------------------
Restricted Stock granted or sold to a Recipient pursuant to this Plan will bear
such legend or legends making reference to the restrictions imposed upon such
Restricted Stock as the Administrator in its discretion deems necessary or
appropriate to enforce such restrictions; and
(iv) Other Restrictions. The Administrator may impose such other
------------------
conditions on Restricted Stock as the Administrator may deem advisable,
including, without limitation, restrictions under the Securities Act, under the
Exchange Act, under the requirements of any stock exchange or interdealer
quotation system upon which such Restricted Stock or other securities of the
Company are then listed or traded and under any blue sky or other securities
laws applicable to such shares.
(c) Lapse of Restrictions. The restrictions imposed upon Restricted
---------------------
Stock will lapse in accordance with such terms or other conditions as are
determined by the Administrator consistent with applicable laws.
(d) Rights of Recipient. Subject to the provisions of Section 6.3(b)
------------------- --------------
and any restrictions imposed upon the Restricted Stock, the Recipient will have
all rights of a stockholder with respect to the Restricted Stock granted or sold
to such Recipient under this Plan, including, without limitation, the right to
vote the shares and receive all dividends and other distributions paid or made
with respect thereto.
(e) Termination of Employment. Unless the Administrator in its
-------------------------
discretion determines otherwise, and notwithstanding the Stockholder Agreement,
if a Recipient's employment with the Company or any Affiliated Entity terminates
for any reason, all of the Recipient's Restricted Stock remaining subject to
restrictions on the date of such termination of employment may be repurchased by
the Company at its discretion at the Purchase Price (if any) paid by the
Recipient to the Company, without interest or premium, and otherwise returned to
the Company without consideration. Shares no longer subject to the restrictions
imposed in connection with the grant will be governed by the Stockholder
Agreement.
6.4 Stock Appreciation Rights.
(a) Granting of Stock Appreciation Rights. The Administrator may at
-------------------------------------
any time and from time to time approve the grant to Eligible Persons of Stock
Appreciation Rights, related or unrelated to Stock Options.
(b) SARs Related to Options.
-----------------------
(i) A Stock Appreciation Right related to a Stock Option will
entitle the holder of the related Stock Option, upon exercise of the Stock
Appreciation Right, to surrender such Stock Option, or any portion thereof to
the extent previously vested but unexercised, with respect to the number of
shares as to which such Stock Appreciation Right is exercised, and to receive
payment of an amount computed pursuant to Section 6.4(b)(iii). Such Stock Option
-------------------
will, to the extent surrendered, then cease to be exercisable.
16
<PAGE>
(ii) A Stock Appreciation Right related to a Stock Option
hereunder will be exercisable at such time or times, and only to the extent
that, the related Stock Option is exercisable, and will not be transferable
except to the extent that such related Stock Option may be transferable (and
under the same conditions), will expire no later than the expiration of the
related Stock Option, and may be exercised only when the market price of the
Common Stock subject to the related Stock Option exceeds the exercise price of
the Stock Option.
(iii) Upon the exercise of a Stock Appreciation Right related to
a Stock Option, the Recipient will be entitled to receive payment of an amount
determined by multiplying: (A) the difference obtained by subtracting the
exercise price of a share of Common Stock specified in the related Stock Option
from the Fair Market Value of a share of Common Stock on the date of exercise of
such Stock Appreciation Right (or as of such other date or as of the occurrence
of such event as may have been specified in the instrument evidencing the grant
of the Stock Appreciation Right), by (B) the number of shares as to which such
Stock Appreciation Right is exercised.
(c) SARs Unrelated to Options. The Administrator may grant Stock
-------------------------
Appreciation Rights unrelated to Stock Options. Section 6.4(b)(iii) will govern
-------------------
the amount payable at exercise under such Stock Appreciation Right, except that
in lieu of an option exercise price the initial base amount specified in the
Award shall be used.
(d) Limits. Notwithstanding the foregoing, the Administrator, in its
------
discretion, may place a dollar limitation on the maximum amount that will be
payable upon the exercise of a Stock Appreciation Right.
(e) Payments. Payment of the amount determined under the foregoing
--------
provisions may be made solely in whole shares of Common Stock valued at their
Fair Market Value on the date of exercise of the Stock Appreciation Right or,
alternatively, at the discretion of the Administrator, in cash or in a
combination of cash and shares of Common Stock as the Administrator deems
advisable. The Administrator has full discretion to determine the form in which
payment of a Stock Appreciation Right will be made and to consent to or
disapprove the election of a Recipient to receive cash in full or partial
settlement of a Stock Appreciation Right. If the Administrator decides to make
full payment in shares of Common Stock, and the amount payable results in a
fractional share, payment for the fractional share will be made in cash.
6.5 Stock Payments. The Administrator may approve Stock Payments to any
Eligible Person on such terms and conditions as the Administrator may determine.
Stock Payments will replace cash compensation at the Fair Market Value of the
Common Stock on the date payment is due.
6.6 Dividend Equivalents. The Administrator may grant Dividend
Equivalents to any Recipient who has received a Stock Option, SAR or other Award
denominated in shares of Common Stock. Dividend Equivalents may be paid in
cash, Common Stock or other Awards; the amount of Dividend Equivalents paid
other than in cash will be determined by the Administrator by application of
such formula as the Administrator may deem appropriate to translate the cash
value of dividends paid to the alternative form of payment of the Dividend
17
<PAGE>
Equivalent. Dividend Equivalents will be computed as of each dividend record
date and will be payable to recipients thereof at such time as the Administrator
may determine.
6.7 Stock Bonuses. The Administrator may issue Stock Bonuses to Eligible
Persons on such terms and conditions as the Administrator may determine.
6.8 Stock Sales. The Administrator may sell to Eligible Persons shares of
Common Stock on such terms and conditions as the Administrator may determine.
6.9 Phantom Stock. The Administrator may grant Awards of Phantom Stock to
Eligible Persons. Phantom Stock is a cash payment measured by the Fair Market
Value of a specified number of shares of Common Stock on a specified date, or
measured by the excess of such Fair Market Value over a specified minimum, which
may but need not include a Dividend Equivalent.
6.10 Other Stock-Based Benefits. The Administrator is authorized to grant
Other Stock-Based Benefits. Other Stock-Based Benefits are any arrangements
granted under this Plan not otherwise described above that: (a) by their terms
might involve the issuance or sale of Common Stock or other securities of the
Company; or (b) involve a benefit that is measured, as a whole or in part, by
the value, appreciation, dividend yield or other features attributable to a
specified number of shares of Common Stock or other securities of the Company.
ARTICLE VII
SEVERABILITY
If any provision of this Plan, or the application of such provision to any
person or circumstances, is held invalid or unenforceable, the remainder of this
Plan, or the application of such provision to persons or circumstances other
than those as to which it is held invalid or unenforceable, shall continue in
full force without being impaired or invalidated.
ARTICLE VIII
DEFINITIONS
Capitalized terms used in this Plan and not otherwise defined have the
meanings set forth below:
"Administrator" means the Board as long as no Committee has been appointed
and is in effect and also means the Committee to the extent that the Board has
delegated authority thereto.
"Affiliated Entity" means any Parent Corporation of the Company or
Subsidiary Corporation of the Company or any other entity controlling,
controlled by, or under common control with the Company.
18
<PAGE>
"Applicable Dividend Period" means (i) the period between the date a
Dividend Equivalent is granted and the date the related Stock Option, SAR, or
other Award is exercised, terminates, or is converted to Common Stock, or (ii)
such other time as the Administrator may specify in the written instrument
evidencing the grant of the Dividend Equivalent.
"Award" means any Stock Option, Performance Award, Restricted Stock, Stock
Appreciation Right, Stock Payment, Stock Bonus, Stock Sale, Phantom Stock,
Dividend Equivalent, or Other Stock-Based Benefit granted or sold to an Eligible
Person under this Plan.
"Award Document" means the agreement or confirming memorandum setting forth
the terms and conditions of an Award.
"Board" means the Board of Directors of the Company.
"California Commissioner" means the Commissioner of Corporations of the
State of California.
"California Regulated Plan" means this Plan at any time that Awards and
securities underlying Awards are California Regulated Securities and the Company
relies upon the exemption provided by Section 25102(o) of the California
Securities Law (or another exemption imposing comparable requirements) to exempt
the issuance of securities under this Plan from qualification under the
California Securities Law.
"California Regulated Securities" means Awards and securities underlying
Awards that are subject to the California Securities Law or the California
Securities Rules.
"California Securities Law" means the California Corporate Securities Law
of 1968, as amended.
"California Securities Rules" means the Rules of the California
Commissioner adopted under the California Securities Law.
"Committee" means any committee appointed by the Board to administer this
Plan pursuant to Section 4.1.
-----------
"Common Stock" means the common stock of the Company, as constituted on the
Effective Date, and as thereafter adjusted under Section 3.4.
-----------
"Company" means Broadband Sports, Inc., a Delaware corporation.
"Dividend Equivalent" means a right granted by the Company under Section
-------
6.6 to a holder of a Stock Option, Stock Appreciation Right or other Award
- ---
denominated in shares of Common Stock to receive from the Company during the
Applicable Dividend Period payments equivalent to the amount of dividends
payable to holders of the number of shares of Common Stock underlying such Stock
Option, Stock Appreciation Right, or other Award.
19
<PAGE>
"Effective Date" means December 7, 1998, which is the date this Plan was
adopted by the Board whether or not stockholder approval had yet been obtained
as of such date.
"Eligible Person" includes directors, officers, employees, consultants and
advisers of the Company or of any Affiliated Entity.
"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 (10th) anniversary of the Effective Date.
"Fair Market Value" of a share of the Company's capital stock as of a
particular date means: (i) if the stock is listed on an established stock
exchange or exchanges (including for this purpose, the Nasdaq National Market),
the arithmetic mean of the highest and lowest sale prices of the stock for the
trading day immediately preceding such date on the primary exchange upon which
the stock trades, as measured by volume, as published in The Wall Street
Journal, or, if no sale price was quoted for such date, then as of the next
preceding date on which such a sale price was quoted; or (ii) 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 on such date (in the case of (i) or (ii), 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 Award is granted); 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 Administrator, which need not
necessarily be the Purchase Price under the Stockholder Agreement; provided,
however, that (A) when appropriate, the Administrator in determining Fair Market
Value of capital stock of the Company shall consider such factors as may be
required by the California Securities Law and the California Securities Rules
while this Plan is a California Regulated Plan, and may take into account such
other factors as it may deem appropriate under the circumstances, and (B) if the
stock is traded on the Nasdaq SmallCap Market and both sales prices and bid and
asked prices are quoted or available, the Administrator 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 must be determined in compliance with applicable
provisions of the IRC. The Fair Market Value of rights or property other than
capital stock of the Company means the fair market value thereof as determined
by the Administrator on the basis of such factors as it may deem appropriate.
"Incentive Stock Option" means a Stock Option that qualifies as an
incentive stock option under Section 422 of the IRC.
"IRC" means the Internal Revenue Code of 1986, as amended.
"Just Cause Dismissal" means a termination of a Recipient's employment for
any of the following reasons: (i) the Recipient violates any reasonable rule or
regulation of the Board, the Company's President or Chief Executive Officer or
the Recipient's superiors that results in
20
<PAGE>
damage to the Company or any Affiliated Entity or which, after written notice to
do so, the Recipient fails to correct within a reasonable time not exceeding 15
days; (ii) any willful misconduct or gross negligence by the Recipient in the
responsibilities assigned to the Recipient; (iii) any willful failure to perform
the Recipient's job as required to meet the objectives of the Company or any
Affiliated Entity; (iv) any wrongful conduct of a Recipient which has an adverse
impact on the Company or any Affiliated Entity or which constitutes a
misappropriation of assets of the Company or any Affiliated Entity; (v) the
Recipient does any of the things described in Section 5.15; or (vi) any other
------------
conduct that the Administrator reasonably determines constitutes Just Cause for
Dismissal; provided, however, that if a Recipient is party to an employment
agreement with the Company or any Affiliated Entity providing for just cause
dismissal (or some comparable concept) of Recipient from Recipient's employment
with the Company or any Affiliated Entity, "Just Cause Dismissal" for purposes
of this Plan will have the same meaning as ascribed thereto or to such
comparable concept in such employment agreement.
"Nonqualified Stock Option" means a Stock Option that is not an Incentive
Stock Option.
"Other Stock-Based Benefits" means an Award granted under Section 6.10.
------------
"Parent Corporation" means any Parent Corporation as defined in Section
424(e) of the IRC.
"Performance Award" means an Award under Section 6.2, payable in cash,
-----------
Common Stock or a combination thereof, that vests and becomes payable over a
period of time upon attainment of performance criteria established in connection
with the grant of the Award.
"Permanent Disability" means 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 (3) consecutive months or six (6) months in any 12-month period
or such other period(s) as may be determined by the Administrator with respect
to any Award, provided that for purposes of determining the period during which
an Incentive Stock Option may be exercised pursuant to Section 6.1(e), Permanent
--------------
Disability shall mean "permanent and total disability" as defined in Section
22(e) of the IRC.
"Person" means any person, entity or group, within the meaning of Section
13(d) or 14(d) of the Exchange Act, but excluding (i) the Company and its
subsidiaries, (ii) any employee stock ownership or other employee benefit plan
maintained by the Company and (iii) an underwriter or underwriting syndicate
that has acquired the Company's securities solely in connection with a public
offering thereof.
"Phantom Stock" means an Award granted under Section 6.9.
-----------
21
<PAGE>
"Plan" means this 1998 Equity Incentive Plan of the Company.
"Plan Term" means the period during which this Plan remains in effect
(commencing the Effective Date and ending on the Expiration Date).
"Purchase Price" means the purchase price (if any) to be paid by a
Recipient for Restricted Stock as determined by the Administrator (which price
shall be at least equal to the minimum price required under applicable laws and
regulations for the issuance of Common Stock which is nontransferable and
subject to a substantial risk of forfeiture until specific conditions are met).
"Recipient" means a person who has received an Award.
"Reorganization" means any merger, consolidation or other reorganization.
"Restricted Stock" means Common Stock that is the subject of an Award made
under Section 6.3 and that is nontransferable and subject to a substantial risk
-----------
of forfeiture until specific conditions are met, as set forth in this Plan and
in any statement evidencing the grant of such Award.
"Retirement" of a Recipient means the Recipient's resignation from the
Company or any Affiliated Entity after reaching age 60 and at least five years
of full-time employment by the Company or any Affiliated Entity without any
circumstances that would justify a Just Cause Dismissal of the Recipient.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholder Agreement" has the meaning set forth in Section 5.6.
-----------
"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 Appreciation Right" or "SAR" means a right granted under Section 6.4
-----------
to receive a payment that is measured with reference to the amount by which the
Fair Market Value of a specified number of shares of Common Stock appreciates
from a specified date, such as the date of grant of the SAR, to the date of
exercise.
"Stock Bonus" means an issuance or delivery of unrestricted or restricted
shares of Common Stock under Section 6.7 as a bonus for services rendered or for
-----------
any other valid consideration under applicable law.
"Stock Payment" means a payment in shares of the Company's Common Stock
under Section 6.5 to replace all or any portion of the compensation or other
-----------
payment (other than base salary) that would otherwise become payable to the
Recipient in cash.
22
<PAGE>
"Stock Option" means a right to purchase stock of the Company granted under
Section 6.1 of this Plan.
- -----------
"Stock Sale" means a sale of Common Stock to an Eligible Person under
Section 6.8.
- -----------
"Subsidiary Corporation" means any Subsidiary Corporation as defined in
Section 424(f) of the IRC.
23
<PAGE>
EXHIBIT A
to
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
STOCKHOLDER AGREEMENT
This Stockholder Agreement (this "Agreement") is made effective as of
___________________________, ___, by and among Broadband Sports, Inc., a
Delaware corporation (the "Company"), and each of the Company's stockholders
party hereto as evidenced by such stockholder's execution of the signature pages
hereof or receipt in transfer of stock of the Company from another party hereto.
The Company and its Stockholders (as defined below) desire to impose
certain restrictions and obligations on themselves and the stock of the Company
owned by each of the Stockholders.
Therefore, in consideration of the foregoing premises and the mutual
promises and agreements of the parties hereto and other good and valuable
consideration, the parties hereto hereby agree as follows:
I.
DEFINITIONS
Capitalized terms used herein and not otherwise defined have the respective
meanings ascribed to them below.
"Affiliate" of the Company means any entity controlling, controlled by, or
under common control with the Company.
"Majority Consent" to an action means consent to such action by
Stockholders possessing more than fifty percent (50%) of the total voting
interest represented by all outstanding voting securities of the Company owned
by Qualified Stockholders.
"Plan" means the Broadband Sports, Inc. 1998 Equity Incentive Plan.
"Qualified Stockholder" at any time means any Stockholder who is at that
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time (i) an officer, director, or employee of the Company or any Affiliate or
(ii) a consultant, independent contractor or adviser of the Company who received
equity securities or securities convertible or exercisable for equity securities
pursuant to an Award (as defined in the Plan) granted under the Plan.
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"Stockholder" at any time means each person or entity who at that time owns
Shares and is party to this Agreement. No person will be a "Stockholder"
entitled to the benefits of this Agreement at any time that such person is not
bound by this Agreement.
"Shares" means all equity securities of the Company now owned or hereafter
acquired.
"Special Consent" to an action means consent to such action by Stockholders
possessing more than sixty-six and two-thirds percent (66 2/3%) of the total
voting interest represented by all outstanding voting securities of the Company
owned by Qualified Stockholders.
"Transfer" means any transfer, sale, assignment, pledge, mortgage,
hypothecation, encumbrance, gift, grant, bequest, or other disposition of any
kind, of any Shares or any direct or indirect, contingent or non-contingent,
beneficial interest in any Shares. Without limitation, any transfer or
allocation of any rights in Shares upon death, pursuant to a marital dissolution
(whether by agreement or court decree), a voluntary or involuntary bankruptcy or
insolvency petition or proceeding, or any other court order or process shall be
a Transfer for purposes of this Agreement. Notwithstanding the foregoing,
however, any Transfer approved by Majority Consent shall not be considered to be
a Transfer for purposes of this Agreement.
II.
RESTRICTIONS ON TRANSFER
2.01 Invalidity of Transfer Not Complying With This Agreement. No
Transfer or attempted Transfer in contravention of this Agreement will be
effective for any purpose or confer on any transferee or attempted transferee
any rights whatsoever.
2.02 Legend on Share Certificates. Certificates representing Shares shall
be stamped in a prominent manner with the following legend:
"The transfer, sale, assignment, pledge, mortgage, hypothecation,
encumbrance, gift or other disposition of the Shares represented by this
certificate is restricted by a Stockholder Agreement, a copy of which may
be obtained at the principal office of this corporation."
2.03 Stop Transfer. The Company shall not recognize, and shall issue
appropriate instructions to its transfer agent (if any) to stop, any Transfer or
attempted Transfer in contravention of this Agreement.
III.
CONDITIONS OF TRANSFER
3.01 Rights on Transfer. Except as provided in Section 3.03 and subject
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to Article IV, if any Stockholder desires or is required to make any Transfer,
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before such Transfer may be made, the Company and all other Qualified
Stockholders shall have the right (but not the obligation) to purchase, at the
Purchase Price (as defined in Article VI) and under the terms and conditions
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specified herein, any and all of the Shares potentially subject to such
Transfer.
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3.02 Exercise of Rights.
(a) Written Notice. The transferring Stockholder shall give written
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notice (for purposes of this Article III, the "Request to Transfer") to the
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Company and to the other Qualified Stockholders of the number of Shares subject
to the proposed Transfer (the "Transfer Shares") and the proposed terms of such
Transfer, including the identity of the proposed transferee and the price and
other material terms, if any, of the proposed Transfer.
(b) The Company's Right. The Company shall have thirty (30) days
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after its receipt of a Request to Transfer under this Article III (for purposes
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of this Article III, the "Company's Purchase Period") during which to exercise
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its right to purchase, on the terms described in Article VI, the Transfer Shares
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or any portion thereof by giving written notice to the transferring Stockholder
and the other Qualified Stockholders of the number of Transfer Shares, if any,
as to which the Company is exercising its right. The Company's failure to give
written notice within the Company's Purchase Period shall be deemed an election
by the Company not to purchase any Transfer Shares.
(c) Non-Transferring Qualified Stockholders' Rights. If and to the
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extent that the Company does not exercise its right to purchase all of the
Transfer Shares, each non-transferring Qualified Stockholder shall have thirty
(30) days after the expiration of the Company's Purchase Period or earlier
delivery by the Company of the notice of non-purchase described in Section
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3.02(b) (for purposes of this Article III, the "Qualified Stockholders' Purchase
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Period") during which to exercise such Qualified Stockholder's right to
purchase, on the terms described in Article VI, some or all of such Qualified
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Stockholder's Pro Rata Portion (as defined below) of the Transfer Shares not
being purchased by the Company by giving written notice to the Company and the
other Qualified Stockholders of the number of Transfer Shares, if any, as to
which such Qualified Stockholder is exercising such Qualified Stockholder's
purchase right. The failure by a Qualified Stockholder to give written notice
within the Qualified Stockholders' Purchase Period shall be deemed an election
by the Qualified Stockholder not to purchase any of the applicable Transfer
Shares. For purposes of this Section 3.02(c), a Qualified Stockholder's "Pro
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Rata Portion" of the Transfer Shares not being purchased by the Company shall be
a portion of such Shares equal to the total number of such Shares multiplied by
a fraction, the numerator of which shall be the number of Shares of the same
class and series as the Transfer Shares that such Qualified Stockholder owns
beneficially or is entitled to receive upon conversion or exercise of securities
(whether or not vested) issued by the Company, and the denominator of which
shall be the aggregate number of Shares of the same class and series as the
Transfer Shares that all Qualified Stockholders other than the transferring
Stockholder own beneficially or are entitled to receive upon conversion or
exercise of securities (whether or not vested) issued by the Company. Following
the foregoing allocation, if any Transfer Shares remain, the Qualified
Stockholders who have taken their full Pro Rata Portions thereof shall have the
right to purchase the balance of the unallocated Transfer Shares in proportion
to their relative Pro Rata Portions immediately prior to the first allocation,
and this process will continue iteratively until either all Transfer Shares have
been allocated, or until no Qualified Stockholder wishes to purchase any
remaining Transfer Shares. If at the time contemplated by this Section 3.02(c)
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there are no other Shares of the same class and series as the Transfer Shares
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outstanding or issuable upon conversion or exercise of securities issued by the
Company, the allocations contemplated by this Section 3.02(c) will be made on
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the basis of all Shares outstanding or underlying options or other convertible
securities rather than Shares of the same class and series as the Transfer
Shares.
(d) Shares Not Purchased. The Stockholder proposing to make a
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Transfer may Transfer any Transfer Shares not being purchased by the Company or
non-transferring Qualified Stockholders at any time within one hundred twenty
(120) days after the expiration of the Qualified Stockholders' Purchase Period
or earlier delivery by all Qualified Stockholders of the notice of non-purchase
described in Section 3.02(c); provided, however, that (i) such Transfer shall be
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on terms no more favorable to the transferee than the terms specified in the
applicable Request to Transfer, (ii) the transferring Stockholder has obtained
Majority Consent to the person or entity to which the Transfer will be made and
the terms of the Transfer, which consent will not be unreasonably withheld,
provided that the Stockholders may withhold consent, in their sole discretion,
to any lien or encumbrance upon Shares, and (iii) the transferee shall first
enter into this Agreement or otherwise agree in writing to be bound by and hold
the transferred Shares or interest therein pursuant to this Agreement.
(e) No Written Notice by Transferring Stockholder. If a Stockholder
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purports to make a Transfer without providing a Request to Transfer, or a
purported Transfer is made or required to be made pursuant to a court order, the
Company's Purchase Period shall be deemed to start on the date on which the
Company's President or Chief Executive Officer obtains actual and complete
knowledge of the purported Transfer or order. Promptly after obtaining such
knowledge, the Company shall provide written notice of such purported Transfer
or order to the non-transferring Qualified Stockholders. Any such purported
Transfer or order shall be subject to the rights of the Company and the other
Qualified Stockholders hereunder.
3.03 Rights on Dissolution of Marriage. In the event of the dissolution
of the marriage of a Stockholder (the "Divorced Stockholder") and the division
of the property of the Divorced Stockholder and the Divorced Stockholder's
spouse (the "Divorced Spouse"), the Divorced Spouse, by executing a Spousal
Consent in substantially the form of Exhibit I to this Agreement, agrees to
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accept other property in lieu of any interest which the Divorced Spouse may
assert in any Shares or under this Agreement. In the event there is not
sufficient marital or separate property to compensate the Divorced Spouse for
any interest the Divorced Spouse may assert in Shares or under this Agreement,
or if for any other reason there is a Transfer or award of any interest in
Shares to the Divorced Spouse, such Transfer or award shall be treated as a
proposed Transfer subject to Section 3.01. Any Shares retained by the Divorced
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Stockholder and not transferred to the Divorced Spouse shall not become subject
to the purchase rights under this Agreement as a result of the divorce or any
Transfer to the Divorced Stockholder of the Divorced Spouse's interest in such
Shares. Stockholders shall cause their respective current and future spouses to
execute and deliver to the Company a Spousal Consent in substantially the form
of Exhibit I. For purposes of this Section 3.03, when Shares are owned by a
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trust or as community or marital property or as joint tenants or tenants in
common, the trustee or beneficiary or spouse who is a Qualified Stockholder or a
direct lineal descendant of a Qualified Stockholder shall be
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deemed to be the Stockholder of such Shares and the Divorced Stockholder for
purposes of this Section 3.03.
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IV.
DEATH OF A STOCKHOLDER
4.01 Rights on Death. Any Transfer or purported Transfer of Shares or
interests therein owned by a deceased Stockholder (the "Decedent's Shares")
shall be subject to the rights as set forth in this Article IV (but no
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obligation) of the Company and the Qualified Stockholders to purchase some or
all of the Decedent's Shares at the Purchase Price and under the terms and
conditions hereinafter specified.
4.02 Exercise of Rights.
(a) Written Notice. The legal representative of a deceased
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Stockholder shall give written notice (for the purposes of this Article IV, the
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"Request to Transfer") to the Company and the Qualified Stockholders of the
number of Decedent's Shares subject to a proposed Transfer (whether by
testamentary disposition, the laws of descent and distribution, or otherwise)
and the proposed terms of such Transfer, including the identity of the proposed
transferee and the price and other material terms, if any, of the proposed
transfer.
(b) The Company's Right. The Company shall have ninety (90) days
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after its receipt of a Request to Transfer under this Article IV (for purposes
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of this Article IV, the "Company's Purchase Period") during which to exercise
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its right to purchase, on the terms described in Article VI, the Decedent's
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Shares or any portion thereof by giving written notice to the Qualified
Stockholders and to the legal representatives of the estate of the deceased
Stockholder of the number of the Decedent's Shares, if any, as to which the
Company is exercising its right. The Company may exercise its right with
respect to all or any portion of the Decedent's Shares. The Company's failure
to give written notice within the Company's Purchase Period shall be deemed an
election by the Company not to purchase any Decedent's Shares.
(c) Qualified Stockholders' Rights. If and to the extent that the
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Company does not exercise its right to purchase all of the Decedent's Shares,
each Qualified Stockholder shall have sixty (60) days after the expiration of
the Company's Purchase Period or earlier delivery by the Company of the notice
of non-purchase described in Section 4.02(b) (for purposes of this Article IV,
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the "Qualified Stockholders' Purchase Period") during which to exercise such
Stockholder's right to purchase, on the terms described in Article VI, some or
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all of such Qualified Stockholder's Pro Rata Portion (as defined below) of the
Decedent's Shares not being purchased by the Company by giving written notice to
the Company, the other Qualified Stockholders and the legal representative of
the estate of the deceased Stockholder of the number of such Shares, if any, as
to which such Qualified Stockholder is exercising such Qualified Stockholder's
purchase right. The failure by a Qualified Stockholder to give written notice
within the Qualified Stockholder's Purchase Period shall be deemed an election
by the Qualified Stockholder not to purchase any of the applicable Decedent's
Shares. For purposes of this Section 4.02(c), a Qualified Stockholder's "Pro
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Rata Portion" of the Decedent's Shares not
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being purchased by the Company shall be a portion of such Shares equal to the
total number of such Shares multiplied by a fraction, the numerator of which
shall be the number of Shares of the same class and series as the Decedent's
Shares that such Qualified Stockholder owns beneficially or is entitled to
receive upon conversion or exercise of securities (whether or not vested) issued
by the Company, and the denominator of which shall be the aggregate number of
Shares of the same class and series as the Decedent's Shares that all Qualified
Stockholders own beneficially or are entitled to receive upon conversion or
exercise of securities (whether or not vested) issued by the Company. Following
the foregoing allocation, if any Decedent's Shares remain, the Qualified
Stockholders who have taken their full Pro Rata Portions thereof shall have the
right to purchase the balance of the unallocated Decedent's Shares in proportion
to their relative Pro Rata Portions immediately prior to the first allocation,
and this process will continue iteratively until either all Decedent's Shares
have been allocated, or until no Qualified Stockholder wishes to purchase any
remaining Decedent's Shares. If, at the time contemplated by this Section
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4.02(c), there are no other Shares of the same class and series as the
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Decedent's Shares outstanding or issuable upon conversion or exercise of
securities issued by the Company, the allocations contemplated by this Section
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4.02(c) will be made on the basis of all Shares outstanding or underlying
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options or other convertible securities rather than Shares of the same class and
series as the Transfer Shares.
(d) Shares Not Purchased. Decedent's Shares not being purchased by
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the Company or Qualified Stockholders may thereafter be Transferred in
compliance with applicable law, provided, however, that (i) the transferor has
obtained Majority Consent to the person or entity to which the Transfer will be
made and the terms of the Transfer, which will not be unreasonably withheld,
provided that the Stockholders may withhold consent, in their sole discretion,
to any lien or encumbrance upon Shares, and (ii) the transferee shall first
enter into this Agreement or otherwise agree in writing to be bound by and hold
the transferred Decedent's Shares or interest therein pursuant to this
Agreement.
(e) No Notice. If a Transfer of Decedent's Shares is purportedly made
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in the absence of a Request to Transfer, or a purported Transfer is made or
required to be made pursuant to a court order, the Company's Purchase Period
shall be deemed to start on the date on which the Company's President or Chief
Executive Officer obtains actual knowledge of the purported Transfer or order.
Promptly after obtaining such knowledge, the Company shall provide written
notice of such purported Transfer or order to the Qualified Stockholders. Any
such purported Transfer or order shall be subject to the rights of the Company
and the Qualified Stockholders hereunder.
(f) Legal Representatives. In the event that a legal representative
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of the estate of the deceased Stockholder has not been appointed within sixty-
five (65) days after such Stockholder's death, the written notices which would
otherwise be given to such legal representative shall be given to the deceased
Stockholder's heirs at law.
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V.
REPURCHASE
5.01 Right of Repurchase. In the event of termination of any
Stockholder's employment, directorship, consultancy, or contractual relationship
with the Company or any Affiliate, voluntarily or involuntarily, for any reason
whatsoever (with or without cause), including death, disability or retirement,
that does not trigger Article III or Article IV hereof (a "Repurchase Event"),
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the Company and, in the Company's discretion, the Qualified Stockholders other
than the Stockholder involved in the Repurchase Event (the "non-Affected
Stockholders"), shall have the right (the "Repurchase Right") (but not the
obligation) to purchase, at the Purchase Price as defined below and under the
terms and conditions specified herein, any or all of the Shares owned by the
Stockholder involved in the Repurchase Event (the "Affected Stockholder"),
including without limitation Shares acquired by the Affected Stockholder after
the Repurchase Event (the "Repurchase Shares"). The Repurchase Right may be
exercised with respect to any Repurchase Shares selected by the Company or the
non-Affected Qualified Stockholders in their discretion, and no Affected
Stockholder will have any right to have any Repurchase Shares purchased or not
purchased.
5.02 Exercise of Repurchase Right.
(a) The Company's Right. The Company may exercise its right to
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purchase Repurchase Shares or any portion thereof at any time within ninety (90)
days after the Repurchase Event (or, if later, within ninety (90) days after
receiving notice of acquisition by the Affected Stockholder of Shares following
the Repurchase Event), by giving written notice to the Affected Stockholder and
the non-Affected Stockholders of the Repurchase Shares as to which the Company
is exercising its right.
(b) Non-Affected Stockholders' Rights. The Company may from time to
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time in its discretion (but will have no obligation to) permit non-Affected
Stockholders to purchase some or all of such non-Affected Stockholders' Pro Rata
Portions (as defined below) of the Repurchase Shares, or any portion thereof
designated by the Company, not being purchased at that time by the Company. The
Company shall exercise this right by notice to the non-Affected Stockholders,
each of whom may then exercise the right to purchase Repurchase Shares by giving
written notice to the Company, the Affected Stockholder, and the non-Affected
Stockholders of the number of Repurchase Shares as to which such Stockholder is
exercising such Stockholder's purchase right. The failure by a non-Affected
Stockholder to give written notice within fifteen (15) days after receipt of the
Company notice will be deemed an election by the Stockholder not to purchase any
of the applicable Repurchase Shares. For purposes of this Section 5.02(b), a
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non-Affected Stockholder's "Pro Rata Portion" of the designated Repurchase
Shares not being purchased by the Company shall be a portion of such Shares
equal to the total number of such Shares multiplied by a fraction, the numerator
of which shall be the number of Shares of the same class and series as the
designated Repurchase Shares that such non-Affected Stockholder owns
beneficially or is entitled to receive upon conversion or exercise of securities
(whether or not vested) issued by the Company, and the denominator of which
shall be the aggregate number of Shares of the same class and series as the
designated Repurchase Shares
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that all non-Affected Stockholders own beneficially or are entitled to receive
upon conversion or exercise of securities (whether or not vested) issued by the
Company. Following the foregoing allocation, if any Repurchase Shares remain,
the non-Affected Stockholders who have taken their full Pro Rata Portions
thereof shall have the right to purchase the balance of the unallocated
Repurchase Shares in proportion to their relative Pro Rata Portions immediately
prior to the first allocation, and this process will continue iteratively until
either all Repurchase Shares have been allocated, or until no non-Affected
Stockholder wishes to purchase any remaining Repurchase Shares. If, at the time
contemplated by this Section 5.02(b), there are no other Shares of the same
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class and series as the designated Repurchase Shares outstanding or issuable
upon conversion or exercise of securities issued by the Company, the allocations
contemplated by this Section 5.02(b) will be made on the basis of all Shares
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outstanding or underlying options or other convertible securities rather than
Shares of the same class and series as the Repurchase Shares.
VI.
PURCHASE PRICE AND PAYMENT
6.01 Initial Purchase Price. The "Purchase Price" applicable to the
purchase by the Company or any Qualified Stockholder of any Shares pursuant to
this Agreement shall be the lesser of (a) the proposed sale price specified in
the Request to Transfer, if applicable, and (b) $___________ per Share (which is
agreed to be a fair estimate of the fair market value of the Company's stock as
of the date hereof), subject to adjustment as provided in Section 6.02 (the
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"Agreed Price"), but in no event will the Purchase Price be less than the
minimum price, if any, required under the applicable law. Notwithstanding the
foregoing, however, the Company or any Stockholder may in its discretion (but
shall have no obligation to) pay any such higher price for any Shares pursuant
to this Agreement as the Company or such Stockholder may determine, provided
that such a discretionary higher price paid by the Company or any Stockholder
for certain Shares shall not create any obligation upon the Company or any
Stockholder to pay any discretionary higher price for any other Shares.
6.02 Adjusted Purchase Price. During the ninety (90) day period
immediately preceding the commencement of each calendar year commencing with the
ninety (90) day period prior to calendar year 1999 (the "Pricing Period" for the
ensuing year) the Company and the Stockholders acting by Special Consent shall
agree in writing upon the Agreed Price (which shall be a good faith estimate of
the fair market value of the Company's stock) relevant to any Transfer that
might occur during such immediately following calendar year. If for any reason
the Company and the Stockholders do not fix the Agreed Price as aforesaid or
cannot agree on the Agreed Price for any calendar year, the Agreed Price for
such calendar year shall be the then fair market value of the Shares as of the
last day of the Pricing Period for that calendar year, to be determined by an
independent appraiser selected by the Stockholders acting by Majority Consent.
The Stockholders acting by Special Consent may cause the Agreed Price applicable
to a particular calendar year to be adjusted not more than twice during that
calendar year to a price (which shall be a good faith estimate of the fair
market value of the Company's stock) agreed upon in writing by the Stockholders
acting by Special Consent, and if the Stockholders cannot reach such agreement
by Special Consent, then a price representing the fair market value of the
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Shares at such time as determined by an independent appraiser selected by the
Stockholders acting by Majority Consent.
6.03 Payment of Purchase Price. The Purchase Price shall be paid by
delivering to the transferring Stockholder, or the legal representative of such
Stockholder, a bank certified or cashier's check or checks at a "Closing" to be
held within ten (10) days of final determination of the number of Shares that
will be purchased by the Company and any Qualified Stockholders pursuant to
their purchase rights under this Agreement and the price payable therefor. At
the Closing, the transferring Stockholder, or the Stockholder's legal
representative, shall deliver to the Company and/or the Qualified Stockholders
purchasing the Shares, as applicable, (individually a "Purchaser" and
collectively the "Purchasers") the certificate or certificates representing the
Shares to be purchased, duly endorsed or accompanied by duly executed stock
powers for transfer to the Purchasers. If there is more than one Purchaser, the
certificate or certificates shall be delivered to the Company and the Company
shall reissue certificates representing the Shares to the Purchasers as
appropriate. Delivery of the Shares to the Purchasers shall constitute the
representation and warranty of the transferring Stockholder to the Purchasers
that the Shares being purchased are delivered free and clear of all claims,
encumbrances, or other rights or interests of third parties, including without
limitation community property rights of spouses or former spouses (other than
liens created in compliance with this Agreement and fully disclosed), and that
the Purchasers shall obtain good and marketable title to the Shares (subject to
this Agreement). All parties to a purchase of Shares under this Agreement shall
promptly execute and file all agreements, documents, applications, and
instruments and shall take such additional actions required by applicable
securities and other laws, rules, or regulations to effect the sales of the
Shares pursuant hereto.
6.04 Failure to Deliver Company Option Shares. If any Stockholder
obligated to transfer Shares hereunder fails or refuses to deliver on a timely
basis duly endorsed certificates representing the Shares to be sold to the
Company or Qualified Stockholders, the Company or the purchasing Qualified
Stockholders will have the right to deposit the Purchase Price for such Shares
in a special account with any bank or trust company in the State of California,
giving notice of such deposit to the Stockholder obligated to sell, whereupon
such Shares will be deemed to have been purchased by the Company or Qualified
Stockholders. All such moneys, less any fees and expenses charged by the bank
or trust company, will be held by the bank or trust company for the benefit of
the selling Stockholder. All moneys deposited with the bank or trust company
remaining unclaimed for six (6) years after the date of deposit must be repaid
by the bank or trust company to the Company on demand, and the selling
Stockholder may thereafter look only to the Company for payment.
VII.
GENERAL PROVISIONS
7.01 Equity Securities. In the event the Company issues equity securities
other than common stock, or securities exercisable or convertible for common
stock or other equity securities, this Agreement shall be deemed to apply to
such securities in the same manner as to common stock, with such equity
securities weighted as equitable and appropriate hereunder,
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according to their relative voting rights and/or liquidation or other
preferential rights vis-a-vis common stock or the number of shares of common
stock ultimately issuable upon their exercise or conversion.
7.02 Non-Employee Stockholders. Notwithstanding anything herein to the
contrary, no Stockholder who is not a Qualified Stockholder will have any right
to purchase Shares hereunder.
7.03 Transferees. Any person or entity acquiring Shares or any interest
therein pursuant to this Agreement shall take the same subject to the terms of
this Agreement, shall be a Stockholder for purposes of this Agreement and may
not make any Transfer except as provided in this Agreement.
7.04 Adoptees. Adopted children shall be treated the same as biological
children for purposes of determining direct lineal descendancy hereunder.
7.05 Equitable Remedies. The parties to this Agreement recognize and
agree that the Shares subject to this Agreement are of a peculiar and unique
character, and that this Agreement may be enforced by an injunction or
injunctions to prevent Transfers or other dispositions of the Shares not in
accordance with the terms of this Agreement or by a decree for specific
performance of the provisions of this Agreement.
7.06 Authorization of Directors. Subject to the provisions of this
Agreement, the Board of Directors of the Company shall have full authority to
prescribe regulations and conditions not inconsistent with this Agreement for
the exercise of rights to purchase Shares hereunder, the consummation of
purchases and sales thereunder, and any and all other matters necessary and
convenient for the performance of this Agreement.
7.07 Copy For Inspection. A copy of this Agreement shall be filed in the
principal office of the Company and shall be made available to Stockholders upon
request.
7.08 Notices. All written notices referred to in this Agreement shall be
communicated by means of registered or certified mail (return receipt requested)
or personal delivery and shall be effective for purposes of determining
compliance with the time requirements herein (unless otherwise specifically
provided herein) at the time of personal delivery, or upon deposit in the United
States mail, postage fully prepaid, addressed, if to the Company, at its then
principal place of business, if to a Stockholder, at the latest address of such
Stockholder shown on the books of the Company, or if to the legal representative
of a deceased Stockholder or to such deceased Stockholder's heirs at law, at the
latest address of such deceased Stockholder shown on the books of the Company.
Any such notice shall be conclusively deemed to have been received by the
addressee for purposes hereof when tendered at the address to which it is so
addressed.
7.09 Legal Holidays. In the event that any period of time specified in
this Agreement ends on a Saturday or Sunday or a legal holiday, as defined under
the present or any future laws of the State of California, then such period
shall be construed to include the next succeeding business day.
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7.10 Successors and Assigns. This Agreement shall be binding upon the
successors, heirs, executors, administrators and assigns of the parties hereto.
In the event that any security subject to this Agreement or any right hereunder
shall be determined to be community property under the laws of California or any
other state or country, this Agreement shall bind the community interest of the
spouse, and such spouse's heirs, executors, administrators and assigns, as well
as the interest of the party in whose name the security is registered.
7.11 Amendment. This Agreement may be amended only with the consent of
the Qualified Stockholders owning outstanding voting securities of the Company
representing more than 50% of the total voting interest represented by all
outstanding voting securities of the Company owned by Qualified Stockholders.
7.12 Termination of Agreement. This Agreement shall terminate upon: (a)
the vote of the Stockholders acting by Special Consent, (b) the dissolution of
the Company, (c) the concurrent death of all of the Stockholders, (d) the merger
or other acquisition of the Company in a transaction in which the Company is not
the survivor and the Stockholders do not own more than 50% of the voting
securities or securities convertible or exercisable for voting securities of the
survivor of the merger, or (e) the consummation of an underwritten public
offering of common stock of the Company having gross proceeds of at least $10
million and a price per share or other unit to the public of at least $5.00.
7.13 Attorneys' Fees and Costs. If any party to this Agreement brings any
action or proceeding, at law or equity, to enforce this Agreement or on account
of any breach of this Agreement, the prevailing party or parties shall be
entitled to recover from the non-prevailing party or parties the reasonable
attorneys' fees and costs of the prevailing party or parties incurred in such
action. If there is more than one non-prevailing party in such action, the non-
prevailing parties shall each be liable only for the portion of the attorneys'
fees and costs of the prevailing party or parties as the court or arbitration
determines are fairly allocable to such non-prevailing party in light of all of
the facts and circumstances, including relative fault among all non-prevailing
parties, provided that all attorneys' fees and costs of the prevailing party or
parties will be allocated.
7.14 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.
7.15 Entire Agreement. This Agreement together with the Plan and the
Stock Option Agreement by and between the Stockholder and the Company, supersede
all prior written and oral understandings, commitments and agreements between
the Stockholder, on the one hand, and the Company and/or its subsidiaries, on
the other hand, with respect to the subject matter of this Agreement, and
constitute a complete and exclusive statement of the terms of the agreement
between the parties hereto with respect to the subject matter of this Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
BROADBAND SPORTS, INC.
By:________________________________________
Name:______________________________________
Title:_____________________________________
By:________________________________________
[NAME]
12
<PAGE>
EXHIBIT I
TO
STOCKHOLDER AGREEMENT
SPOUSAL CONSENT
CONSENT TO STOCKHOLDER AGREEMENT OF
BROADBAND SPORTS, INC.
The undersigned is the spouse of _______________ and acknowledges that he
or she has read the Stockholder Agreement among Broadband Sports, Inc., a
Delaware corporation (the "Company"), and its stockholders (the "Agreement") and
clearly understands its provisions. The undersigned is aware that, by the
provisions of the Agreement, the undersigned and his or her spouse have agreed
to subject all their interest in the Company, including any community property,
joint tenancy, or tenancy in common interest, to the terms of the Agreement,
including provisions of the Agreement that restrict their ability to sell or
transfer their interest in the Company. The undersigned understands and agrees
that the Agreement provides that upon dissolution of marriage the undersigned
will not be entitled to any interest in the Company, and must take other
property in lieu of any such interest. The undersigned hereby expressly
approves of and agrees to be bound by the provisions of the Agreement in its
entirety, including without limitation those provisions relating to sales and
transfers of interests in the Company and limitations on inheritance at death.
If the undersigned predeceases his or her spouse when his or her spouse owns an
interest in the Company, he or she hereby agrees not to devise or bequeath any
interest he or she may have in the Company in contravention of the Agreement.
Date:____________________________
_________________________________
(Signature of spouse)
_________________________________
(Printed name of spouse)
<PAGE>
EXHIBIT B
to
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
NOTICE OF EXERCISE
Broadband Sports, Inc.
Re: Stock Option
Notice is hereby given that I elect to purchase the number of shares (the
"Shares") set forth below pursuant to the stock option referenced below at the
exercise price applicable thereto:
Option Grant Date: _______________
Vesting Commencement Date: _______________
Total Number of Shares
Underlying Original Option: _______________
Number of Shares for
which Option has been
Previously Exercised: _______________
Exercise Price Per Share: _______________
Number of Shares Being
Acquired With This Exercise: _______________
A check in the amount of the aggregate price of the shares being purchased
is attached.
I hereby confirm that such shares are being acquired by me for my own
account for investment purposes, and not with a view to, or for resale in
connection with, any distribution thereof. I will not sell or dispose of my
Shares in violation of the Securities Act of 1933, as amended, or any applicable
federal or state securities laws. Further, I understand that the exemption from
taxable income at the time of exercise is dependent upon my holding such stock
for a period of at least one year from the date of exercise and two years from
the date of grant of the Option.
I understand that the certificate representing the Shares will bear a
restrictive legend within the contemplation of the Securities Act and as
required by such other state or federal law or regulation applicable to the
issuance or delivery of the Shares.
I agree to provide to the Company such additional documents or information
as may be required pursuant to the Company's 1998 Equity Incentive Plan.
________________________________
(signature)
________________________________
(name of Optionee)
<PAGE>
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made effective as of the
Option Grant Date set forth below, by and between Broadband Sports, Inc., a
Delaware corporation (the "Company"), and _________________________
("Optionee"). Terms not otherwise defined in this Agreement shall have the
meanings ascribed to them in the Broadband Sports, Inc. 1998 Equity Incentive
Plan (the "Plan"). The parties agree as follows:
1. Governing Plan. Optionee has received a copy of the Plan. This
--------------
Agreement is subject in all respects to the applicable provisions of the Plan,
which are incorporated herein by reference. In the case of any conflict between
the provisions of the Plan and this Agreement, the provisions of the Plan shall
control.
2. Grant of Option. The Company hereby grants to Optionee a stock option
---------------
(the "Option") to purchase shares of the Company's Common Stock upon the
following terms and conditions:
<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Option Grant Date:
Vesting Commencement Date:
Type of Option (Incentive/Nonqualified):
Maximum Number of Shares of Common
Stock Issuable Upon Exercise of Option:
____________________
Purchase Price Per Share: $___________________
Vesting Schedule: The Option to purchase the option shares will vest with
respect to 1/4th of the option shares on the first
anniversary of the Vesting Commencement Date and with
respect to 1/16th of the option shares on each quarterly (3
month) anniversary of the Vesting Commencement Date
thereafter.
Expiration Date: ____________________
---------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Governing Law. This Agreement shall be governed by, interpreted under,
-------------
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware.
4. Entire Agreement. This Agreement together with the document(s)
----------------
referred to herein supersede all prior written and oral commitments,
understandings and agreements between Optionee, on the one hand, and the Company
and/or its subsidiaries, on the other hand, with respect to the subject matter
of this Agreement, and constitute a complete and exclusive statement of the
terms of the agreement between the Optionee and the Company with respect to the
subject matter of this Agreement. This Agreement may not be amended except by a
written agreement executed by Optionee and the Company.
<PAGE>
5. No Representations; Reverse Stock Splits. The Company does not make,
----------------------------------------
nor has it authorized anyone to make on its behalf, any representations or
warranties as to the value of the Option or the Common Stock underlying the
Option today or in the future. Optionee understands and acknowledges that both
the Option and the underlying Common Stock may have no value. Optionee
understands and acknowledges that in the event the Company makes available its
capital stock, including without limitation its Common Stock, in a public
offering or a private placement, it is likely that the Company's outstanding
securities, including without limitation its Common Stock underlying the Option,
will be subject to a reverse split by a factor of fifteen (15) or more.
IN WITNESS WHEREOF, the Company and Optionee have executed this Stock
Option Agreement effective as of the Option Grant Date.
The Company: Optionee:
BROADBAND SPORTS, INC.
By:______________________________ __________________________________
Name:____________________________ [NAME]
Title:___________________________
2
<PAGE>
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT FOR INCENTIVE STOCK OPTIONS
Athlete Direct, Inc.
THIS STOCK OPTION AGREEMENT (this "Agreement") is made effective as of the
Option Grant Date set forth below, by and between Broadband Sports, Inc., a
Delaware corporation (the "Company"), and _________________________
("Optionee"). This Option is being granted to Optionee to encourage and reward
his or her contributions to the performance of Athlete Direct, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("Athlete Direct").
Terms not otherwise defined in this Agreement shall have the meanings ascribed
to them in the Broadband Sports, Inc. 1998 Equity Incentive Plan (the "Plan").
The parties agree as follows:
1. Governing Plan. Optionee has received a copy of the Plan. This
--------------
Agreement is subject in all respects to the applicable provisions of the Plan,
which are incorporated herein by reference. In the case of any conflict between
the provisions of the Plan and this Agreement, the provisions of the Plan shall
control.
2. Grant of Option. The Company hereby grants to Optionee a stock option
---------------
(the "Option") to purchase shares of the Company's Common Stock upon the
following terms and conditions:
<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Option Grant Date:
Vesting Commencement Date:
Type of Option: Incentive
Maximum Number of Shares of Common
Stock Issuable Upon Exercise of Option:
____________________
Purchase Price Per Share: $___________________
Vesting Schedule: The Option to purchase the option shares will vest with
respect to 1/4th of the option shares on the first
anniversary of the Vesting Commencement Date and with
respect to 1/16th of the option shares on each quarterly (3
month) anniversary of the Vesting Commencement Date
thereafter.
Expiration Date: ____________________
---------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Consent to Adjustment of Option. Optionee acknowledges that this
-------------------------------
Option has been granted in connection with Optionee's expected contributions to
Athlete Direct and therefore agrees that if the Company consummates any
transaction (a "Sale Transaction") involving the transfer of all or
substantially all of the assets or capital stock of Athlete Direct (whether by
sale, merger, exchange, consolidation or any other manner) to a third-party (the
"Transferee") without transferring all or substantially all of the assets or
capital stock of the Company, the Company shall have the right, but not the
obligation, to adjust, exchange or convert Optionee's Option into an option (of
equivalent value as determined in good faith by the Administrator) to acquire
shares of Athlete Direct or the Transferee.
<PAGE>
4. Governing Law. This Agreement shall be governed by, interpreted under,
-------------
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware.
5. Entire Agreement. This Agreement together with the document(s)
----------------
referred to herein supersede all prior written and oral commitments,
understandings and agreements between Optionee, on the one hand, and the Company
and/or its subsidiaries (including without limitation Athlete Direct), on the
other hand, with respect to the subject matter of this Agreement, and constitute
a complete and exclusive statement of the terms of the agreement between the
Optionee and the Company with respect to the subject matter of this Agreement.
This Agreement may not be amended except by a written agreement executed by
Optionee and the Company.
6. No Representations; Reverse Stock Splits. The Company does not make,
----------------------------------------
nor has it authorized anyone to make on its behalf, any representations or
warranties as to the value of the Option or the Common Stock underlying the
Option today or in the future. Optionee understands and acknowledges that both
the Option and the underlying Common Stock may have no value. Optionee
understands and acknowledges that in the event the Company makes available its
capital stock, including without limitation its Common Stock, in a public
offering or a private placement, it is likely that the Company's outstanding
securities, including without limitation its Common Stock underlying the Option,
will be subject to a reverse split by a factor of fifteen (15) or more.
IN WITNESS WHEREOF, the Company and Optionee have executed this Stock
Option Agreement effective as of the Option Grant Date.
The Company: Optionee:
BROADBAND SPORTS, INC.
By:________________________________ __________________________________
Name:______________________________ [NAME]
Title:_____________________________
2
<PAGE>
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT FOR NON-QUALIFIED STOCK OPTIONS
Athlete Direct, Inc.
THIS STOCK OPTION AGREEMENT (this "Agreement") is made effective as of the
Option Grant Date set forth below, by and between Broadband Sports, Inc., a
Delaware corporation (the "Company"), and _________________________
("Optionee"). This Option is being granted to Optionee to encourage and reward
his or her contributions to the performance of Athlete Direct, Inc., a Delaware
corporation and wholly owned subsidiary of the Company ("Athlete Direct"),
pursuant to that certain Agreement dated __________________ by and between and
Optionee and Athlete Direct (the "Athlete Agreement"). Terms not otherwise
defined in this Agreement shall have the meanings ascribed to them in the
Broadband Sports, Inc. 1998 Equity Incentive Plan (the "Plan"). The parties
agree as follows:
1. Governing Plan. Optionee has received a copy of the Plan. This
--------------
Agreement is subject in all respects to the applicable provisions of the Plan,
which are incorporated herein by reference. In the case of any conflict between
the provisions of the Plan and this Agreement, the provisions of the Plan shall
control.
2. Grant of Option. The Company hereby grants to Optionee a stock option
---------------
(the "Option") to purchase shares of the Company's Common Stock upon the
following terms and conditions:
<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Option Grant Date:
Vesting Commencement Date:
Type of Option: Nonqualified
Maximum Number of Shares of Common
Stock Issuable Upon Exercise of Option:
____________________
Purchase Price Per Share: $___________________
Vesting Schedule: The Option to purchase the option shares will vest at a
rate of _____% per year beginning on the first anniversary
of the Vesting Commencement Date. The Option shall only be
exercisable with respect to vested option shares upon the
earlier of (i) the merger or other acquisition of the
Company in a transaction in which the Company is not the
survivor and the stockholders of the Company immediately
prior to such merger or other acquisition do not own more
than 50% of the voting securities or securities convertible
or exercisable for voting securities of the survivor of the
merger, (ii) the consummation of an underwritten public
offering of common stock of the Company having gross
proceeds of at least $10 million and a price per share or
other unit to the public of at least $5.00 or (iii) the
third anniversary of the Vesting Commencement Date.
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------
Expiration Date: ____________________
----------------------------------------------------------------------------------------------------
</TABLE>
3. Consent to Adjustment of Option. Optionee acknowledges that this
-------------------------------
Option has been granted in connection with Optionee's expected contributions to
Athlete Direct and therefore agrees that if the Company consummates any
transaction (a "Sale Transaction") involving the transfer of all or
substantially all of the assets or capital stock of Athlete Direct (whether by
sale, merger, exchange, consolidation or any other manner) to a third-party (the
"Transferee") without transferring all or substantially all of the assets or
capital stock of the Company, the Company shall have the right, but not the
obligation, to adjust, exchange or convert Optionee's Option into an option (of
equivalent value as determined in good faith by the Administrator) to acquire
shares of Athlete Direct or the Transferee.
4. Governing Law. This Agreement shall be governed by, interpreted under,
-------------
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware.
5. Entire Agreement. This Agreement together with the document(s)
----------------
referred to herein supersede all prior written and oral commitments,
understandings and agreements (including without limitation the Athlete
Agreement) between Optionee, on the one hand, and the Company and/or its
subsidiaries (including without limitation Athlete Direct), on the other hand,
with respect to the subject matter of this Agreement, and constitute a complete
and exclusive statement of the terms of the agreement between the Optionee and
the Company with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by Optionee and the
Company.
6. No Representations; Reverse Stock Splits. The Company does not make,
----------------------------------------
nor has it authorized anyone to make on its behalf, any representations or
warranties as to the value of the Option or the Common Stock underlying the
Option today or in the future. Optionee understands and acknowledges that both
the Option and the underlying Common Stock may have no value. Optionee
understands and acknowledges that in the event the Company makes available its
capital stock, including without limitation its Common Stock, in a public
offering or a private placement, it is likely that the Company's outstanding
securities, including without limitation its Common Stock underlying the Option,
will be subject to a reverse split by a factor of fifteen (15) or more.
IN WITNESS WHEREOF, the Company and Optionee have executed this Stock
Option Agreement effective as of the Option Grant Date.
The Company: Optionee:
BROADBAND SPORTS, INC.
By:____________________________ ________________________________
Name:__________________________ [NAME]
Title:_________________________
2
<PAGE>
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT FOR INCENTIVE STOCK OPTIONS
Pro Sports Xchange, Inc.
THIS STOCK OPTION AGREEMENT (this "Agreement") is made effective as of the
Option Grant Date set forth below, by and between Broadband Sports, Inc., a
Delaware corporation (the "Company"), and _________________________
("Optionee"). This Option is being granted to Optionee to encourage and reward
his or her contributions to the performance of Pro Sports Xchange, Inc., a
Delaware corporation and wholly owned subsidiary of the Company ("PSX"). Terms
not otherwise defined in this Agreement shall have the meanings ascribed to them
in the Broadband Sports, Inc. 1998 Equity Incentive Plan (the "Plan"). The
parties agree as follows:
1. Governing Plan. Optionee has received a copy of the Plan. This
--------------
Agreement is subject in all respects to the applicable provisions of the Plan,
which are incorporated herein by reference. In the case of any conflict between
the provisions of the Plan and this Agreement, the provisions of the Plan shall
control.
2. Grant of Option. The Company hereby grants to Optionee a stock option
---------------
(the "Option") to purchase shares of the Company's Common Stock upon the
following terms and conditions:
<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Option Grant Date:
Vesting Commencement Date:
Type of Option: Incentive
Maximum Number of Shares of Common
Stock Issuable Upon Exercise of Option:
____________________
Purchase Price Per Share: $___________________
Vesting Schedule: The Option to purchase the option shares will vest with
respect to 1/4th of the option shares on the first
anniversary of the Vesting Commencement Date and with
respect to 1/16th of the option shares on each quarterly (3
month) anniversary of the Vesting Commencement Date
thereafter.
Expiration Date: ____________________
---------------------------------------------------------------------------------------------------------------------
</TABLE>
3. Consent to Adjustment of Option. Optionee acknowledges that this
-------------------------------
Option has been granted in connection with Optionee's expected contributions to
PSX and therefore agrees that if the Company consummates any transaction (a
"Sale Transaction") involving the transfer of all or substantially all of the
assets or capital stock of PSX (whether by sale, merger, exchange, consolidation
or any other manner) to a third-party (the "Transferee") without transferring
all or substantially all of the assets or capital stock of the Company, the
Company shall have the right, but not the obligation, to adjust, exchange or
convert Optionee's Option into an option (of equivalent value as determined in
good faith by the Administrator) to acquire shares of PSX or the Transferee.
<PAGE>
4. Governing Law. This Agreement shall be governed by, interpreted under,
-------------
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware.
5. Entire Agreement. This Agreement together with the documents(s)
----------------
referred to herein supersede all prior written and oral commitments,
understandings and agreements between Optionee, on the one hand, and the Company
and/or its subsidiaries (including without limitation PSX), on the other hand,
with respect to the subject matter of this Agreement, and constitute a complete
and exclusive statement of the terms of the agreement between the Optionee and
the Company with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by Optionee and the
Company.
6. No Representations; Reverse Stock Splits. The Company does not make,
----------------------------------------
nor has it authorized anyone to make on its behalf, any representations or
warranties as to the value of the Option or the Common Stock underlying the
Option today or in the future. Optionee understands and acknowledges that both
the Option and the underlying Common Stock may have no value. Optionee
understands and acknowledges that in the event the Company makes available its
capital stock, including without limitation its Common Stock, in a public
offering or a private placement, it is likely that the Company's outstanding
securities, including without limitation its Common Stock underlying the Option,
will be subject to a reverse split by a factor of fifteen (15) or more.
IN WITNESS WHEREOF, the Company and Optionee have executed this Stock
Option Agreement effective as of the Option Grant Date.
The Company: Optionee:
BROADBAND SPORTS, INC.
By:_____________________________ ________________________________
Name:___________________________ [NAME]
Title:__________________________
Title:__________________________
2
<PAGE>
BROADBAND SPORTS, INC.
1998 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT FOR NON-QUALIFIED STOCK OPTIONS
Pro Sports Xchange, Inc.
THIS STOCK OPTION AGREEMENT (this "Agreement") is made effective as of the
Option Grant Date set forth below, by and between Broadband Sports, Inc., a
Delaware corporation (the "Company"), and _________________________
("Optionee"). This Option is being granted to Optionee to encourage and reward
his or her contributions to the performance of Pro Sports Xchange, Inc., a
Delaware corporation and wholly owned subsidiary of the Company ("PSX"). Terms
not otherwise defined in this Agreement shall have the meanings ascribed to them
in the Broadband Sports, Inc. 1998 Equity Incentive Plan (the "Plan"). The
parties agree as follows:
1. Governing Plan. Optionee has received a copy of the Plan. This
--------------
Agreement is subject in all respects to the applicable provisions of the Plan,
which are incorporated herein by reference. In the case of any conflict between
the provisions of the Plan and this Agreement, the provisions of the Plan shall
control.
2. Grant of Option. The Company hereby grants to Optionee a stock option
---------------
(the "Option") to purchase shares of the Company's Common Stock upon the
following terms and conditions:
<TABLE>
---------------------------------------------------------------------------------------------------------------------
<S> <C>
Option Grant Date:
Vesting Commencement Date:
Type of Option: Nonqualified
Maximum Number of Shares of Common
Stock Issuable Upon Exercise of Option:
____________________
Purchase Price Per Share: $___________________
Vesting Schedule: The Option to purchase the option shares will vest at a
rate of _____% per year beginning on the first anniversary
of the Vesting Commencement Date. The Option shall only be
exercisable with respect to vested option shares upon the
earlier of (i) the merger or other acquisition of the
Company in a transaction in which the Company is not the
survivor and the stockholders of the Company immediately
prior to such merger or other acquisition do not own more
than 50% of the voting securities or securities convertible
or exercisable for voting securities of the survivor of the
merger, (ii) the consummation of an underwritten public
offering of common stock of the Company having gross
proceeds of at least $10 million and a price per share or
other unit to the public of at least $5.00 or (iii) the
third anniversary of the Vesting Commencement Date.
Expiration Date: ____________________
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
3. Consent to Adjustment of Option. Optionee acknowledges that this
-------------------------------
Option has been granted in connection with Optionee's expected contributions to
PSX and therefore agrees that if the Company consummates any transaction (a
"Sale Transaction") involving the transfer of all or substantially all of the
assets or capital stock of PSX (whether by sale, merger, exchange, consolidation
or any other manner) to a third-party (the "Transferee") without transferring
all or substantially all of the assets or capital stock of the Company, the
Company shall have the right, but not the obligation, to adjust, exchange or
convert Optionee's Option into an option (of equivalent value as determined in
good faith by the Administrator) to acquire shares of PSX or the Transferee.
4. Governing Law. This Agreement shall be governed by, interpreted under,
-------------
and construed and enforced in accordance with the internal laws, and not the
laws pertaining to conflicts or choice of laws, of the State of Delaware.
5. Entire Agreement. This Agreement together with the document(s)
----------------
referred to herein supersede all prior written and oral commitments,
understandings and agreements between Optionee, on the one hand, and the Company
and/or its subsidiaries (including without limitation PSX), on the other hand,
with respect to the subject matter of this Agreement, and constitute a complete
and exclusive statement of the terms of the agreement between the Optionee and
the Company with respect to the subject matter of this Agreement. This Agreement
may not be amended except by a written agreement executed by Optionee and the
Company.
6. No Representations; Reverse Stock Splits. The Company does not make,
----------------------------------------
nor has it authorized anyone to make on its behalf, any representations or
warranties as to the value of the Option or the Common Stock underlying the
Option today or in the future. Optionee understands and acknowledges that both
the Option and the underlying Common Stock may have no value. Optionee
understands and acknowledges that in the event the Company makes available its
capital stock, including without limitation its Common Stock, in a public
offering or a private placement, it is likely that the Company's outstanding
securities, including without limitation its Common Stock underlying the Option,
will be subject to a reverse split by a factor of fifteen (15) or more.
IN WITNESS WHEREOF, the Company and Optionee have executed this Stock
Option Agreement effective as of the Option Grant Date.
The Company: Optionee:
BROADBAND SPORTS, INC.
By:_____________________________ _________________________________
Name:___________________________ [NAME]
Title:__________________________
2
<PAGE>
BROADBAND SPORTS, INC.
RESTRICTED STOCK GRANT
Date: ____________________
To: ____________________
____________________
____________________
Dear ____________________:
The Board of Directors of Broadband Sports, Inc., a Delaware corporation
(the "Company"), has elected to grant to ____________________ ("you") an award
of restricted stock on the terms and conditions set forth below:
1. Grant of Restricted Stock. The Company hereby grants to you
-------------------------
______________ _____________________ (________) shares of the Company's common
stock (the "Granted Stock"), subject to the terms, conditions and restrictions
set forth below (this "Restricted Stock Grant"). Simultaneous to your execution
and delivery of this Restricted Stock Grant to the Company, you shall pay to the
Company $__________ for each share of the Granted Stock that you acquire
pursuant to this Restricted Stock Grant (the "Acquisition Consideration") and to
enter into a stockholder agreement in the form specified by the Company (the
"Stockholder Agreement").
2. Restrictions on the Granted Stock. Any Granted Stock acquired by you
---------------------------------
will be subject to the following restrictions:
(a) No Transfer. The shares of Granted Stock may not be sold,
-----------
assigned, transferred, pledged, hypothecated or otherwise disposed of,
alienated or encumbered until the restrictions set forth in Section 2(b)
------------
are removed or expire as provided in Section 2(c), and any additional
------------
requirements or restrictions contained in this Restricted Stock Grant have
been satisfied, terminated or expressly waived by the Company in writing.
Further, any such transfer may only be made in compliance with the
Stockholder Agreement.
(b) Restrictions. Notwithstanding the Stockholder Agreement, in the
------------
event your service as a _______________________ of the Company terminates
for any reason, the Company will have the right, which must be exercised
not later than ninety (90) days following such termination, to buy, for
cash and at the price per share that you paid to the Company, all shares of
Granted Stock acquired hereunder that are, at the date of such termination,
still subject to the vesting restrictions imposed under this Section.
Shares no longer subject to such vesting restrictions will be governed by
the Stockholder Agreement.
<PAGE>
(c) Removal of Restrictions. The restrictions imposed under the
-----------------------
foregoing provisions of this Section will expire and be removed, and the
shares of Granted Stock acquired by you under this Restricted Stock Grant
will vest, in accordance with the following rules:
(i) The restrictions imposed under Section 2(b) above will lapse
------------
and be removed at the rate of (A) 1/4th of the shares of Granted Stock
on the first anniversary of this Restricted Stock Grant; and (B)
1/12th of the shares of Granted Stock on the first day of each quarter
(3 month period) thereafter (the "Vesting Schedule").
(ii) In the event that your service as a ____________________ of
the Company terminates for any reason before you are fully vested in
the Granted Stock, the restrictions imposed under Section 2(b) will
------------
expire and be removed if the Company does not elect to repurchase the
Granted Stock within ninety (90) days of such termination, but the
Granted Shares will remain subject to the Stockholder Agreement.
3. Voting and Other Rights. Notwithstanding anything to the contrary in
-----------------------
the foregoing, during the period prior to the lapse and removal of the
restrictions set forth in Section 2, except as otherwise provided herein, you
---------
will have all of the rights of a stockholder with respect to all of the Granted
Stock you purchase, including without limitation the right to vote such Granted
Stock and the right to receive all dividends or other distributions with respect
to such Granted Stock. In connection with the payment of such dividends or
other distributions, the Company will be entitled to deduct any taxes or other
amounts required by any governmental authority to be withheld and paid over to
such authority for your account.
4. Expiration of Restrictions. As soon as practicable after the lapse and
--------------------------
removal of the restrictions applicable to all or any portion of the Granted
Stock as provided in Section 2, the Company will release the certificate(s)
---------
representing such Granted Stock to you, provided that (a) you have paid to the
Company, by cash or check, the Acquisition Consideration and an amount
sufficient to satisfy any taxes or other amounts required by any governmental
authority to be withheld and paid over to such authority for your account, or
otherwise made arrangements satisfactory to the Company for the payment of such
amounts through withholding or otherwise, and (b) you have, if requested by the
Company, made appropriate representations in a form satisfactory to the Company
that such Granted Stock will not be sold other than (i) pursuant to an effective
registration statement under the Securities Act of 1933, as amended, or an
applicable exemption from the registration requirements of such Act; (ii) in
compliance with all applicable state securities laws and regulations; and (iii)
in compliance with all terms and conditions of the Plan and the Stockholder
Agreement to which you are party.
5. Section 83(b) Election. You will be entitled to make an election
----------------------
pursuant to Section 83(b) of the Internal Revenue Code, or comparable provisions
of any state tax law, to include in your gross income the amount by which the
fair market value of the Granted Stock you acquire exceeds the Acquisition
Consideration only if, prior to making any such election, you (a) notify the
Company of your intention to make such election, by delivering to the Company a
copy of the fully-executed Section 83(b) Election Form attached hereto as
Exhibit A,
- ---------
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and (b) pay to the Company an amount sufficient to satisfy any taxes or other
amounts required by any governmental authority to be withheld or paid over to
such authority for your account, or otherwise makes arrangements satisfactory to
the Company for the payment of such amounts through withholding or otherwise.
6. Merger, Consolidation or Reorganization. In the event of a merger,
---------------------------------------
consolidation or reorganization of the Company in which the Common Stock of the
Company is exchanged for cash, securities or other property (the "Exchange
Consideration"), you will be entitled to receive a proportionate share of the
Exchange Consideration in exchange for your Granted Stock; provided, however,
that your share of the Exchange Consideration shall be subject to the vesting
restrictions imposed under Section 2, unless the Board of Directors, in its
---------
discretion, accelerates the Vesting Schedule.
7. No Right to Continued Employment. This Restricted Stock Grant does not
--------------------------------
confer upon you any right to continue as an employee of the Company, nor does it
limit in any way the right of the Company to terminate your services to the
Company at any time, with or without cause.
8. No Representations; Reverse Stock Splits. The Company does not make,
----------------------------------------
nor has it authorized anyone to make on its behalf, any representations or
warranties as to the value of the Option or the Common Stock underlying the
Option today or in the future. Optionee understands and acknowledges that both
the Option and the underlying Common Stock may have no value. Optionee
understands and acknowledges that in the event the Company makes available its
capital stock, including without limitation its Common Stock, in a public
offering or a private placement, it is likely that the Company's outstanding
securities, including without limitation its Common Stock underlying the Option,
will be subject to a reverse split, perhaps by a factor of ten (10) or more.
9. No Assignment. Neither this Restricted Stock Grant nor any rights
-------------
granted herein are assignable by you.
10. Notices. All notices or other communications required or permitted
-------
hereunder will be in writing, and will be sufficient in all respects only if
delivered in person or sent via certified mail, postage prepaid, delivered as
follows:
If to the Company: Broadband Sports, Inc.
______________________________
______________________________
If to you:
______________________________
______________________________
______________________________
11. Governing Law. This Restricted Stock Grant will be governed by and
-------------
construed in accordance with the laws of the State of Delaware.
12. Governing Plan. This Restricted Stock Grant is subject in all
--------------
respects to the applicable provisions of the Company's 1998 Equity Incentive
Plan (the "Plan"), which are incorporated herein by reference. In the case of
any conflict between the provisions of the Plan
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and this Restricted Stock Grant, the provisions of the Plan shall control. Terms
not otherwise defined in this Restricted Stock Grant shall have the meanings
ascribed to them in the Plan.
13. Entire Agreement. This Restricted Stock Grant together with the
----------------
document(s) referred to herein supersede all prior written and oral
commitments, understandings and agreements (including without limitation that
certain Agreement dated _________ by and between and you and [__________])
between you, on the one hand, and the Company and/or its subsidiaries, on the
other hand, with respect to the subject matter of this Agreement, and constitute
a complete and exclusive statement of the terms of the agreement between you and
the Company with respect to the subject matter of this Agreement. This
Agreement may not be amended except by a written agreement executed by you and
the Company.
BROADBAND SPORTS, INC.
By:_____________________________________
Name:___________________________________
Its:____________________________________
By:_____________________________________
[NAME]
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<PAGE>
EXHIBIT A
to
Restricted Stock Grant
ELECTION TO INCLUDE VALUE OF RESTRICTED PROPERTY
IN GROSS INCOME IN YEAR OF TRANSFER
INTERNAL REVENUE CODE (S) 83(b)
The undersigned hereby elects pursuant to Section 83(b) of the Internal
Revenue Code with respect to the property described below, and supplies the
following information in accordance with the regulations promulgated thereunder:
1. Name, address and taxpayer identification number of the undersigned:
___________________________________
___________________________________
___________________________________
Taxpayer I.D. No.:_________________
2. Description of property with respect to which the election is being made:
____________ shares of Common Stock of Broadband Sports, Inc., a Delaware
corporation (the "Company")
3. Date on which property was transferred:
4. Taxable year to which this election relates:
5. Nature of the restrictions to which the property is subject:
If the taxpayer's service as a ______________ of the Company terminates
for any reason before the Common Stock vests, the Company will have the
right to repurchase the Common Stock from the taxpayer at $_______ per
share. The Common Stock vests according to the following schedule:
_________________________________________________________________________
The Common Stock is non-transferable in the taxpayer's hands, by virtue
of language to that effect stamped on the stock certificate.
6. Fair market value of the property:
The fair market value at the time of transfer (determined without regard
to any restrictions other than restrictions that by their terms will
never lapse) of the property with respect to which this election is being
made is $_________ per share.
7. Amount paid for the property:
The amount paid by the taxpayer for said property is $________ per share.
8. Furnishing statement to employer:
A copy of this statement has been furnished to _______________
Date: ________________ ________________________________
<PAGE>
EXHIBIT 10.3
BROADBAND SPORTS, INC.
INVESTORS' RIGHTS AGREEMENT
----------------------------------------------------------
THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made as of the
21st day of May, 1999, by and among Broadband Sports, Inc., a Delaware
corporation (the "Company"), each of the investors listed on Schedule A hereto
(each an "Investor" and collectively the "Investors"), Tyler Goldman, Ross
Schaufelberger and NMSS Partners, LLC, a Delaware limited liability company.
R E C I T A L S
WHEREAS, the Company and certain of the Investors have entered into,
as of the date hereof, a Series B Preferred Stock Purchase Agreement (the
"Initial Series B Agreement") pursuant to which the Company will issue and sell
shares of the Series B Preferred Stock of the Company (the "Series B Preferred
Stock") to the Investors;
WHEREAS, certain of the Company's and such Investors' obligations
under the Series B Agreement are conditioned upon the execution and delivery of
this Agreement by such Investors and the Company; and
WHEREAS, the Company may sell and issue additional shares of Series B
Preferred Stock (the "Additional Series B Shares") to certain Investors and
other investors (the "Additional Series B Investors") pursuant to the Initial
Series B Agreement (or an agreement substantially similar to the Series B
Agreement) entered into between the Company and such Additional Series B
Investors (collectively with the Initial Series B Agreement, the "Series B
Agreement").
NOW, THEREFORE, in consideration of the mutual premises and covenants set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged hereby, the parties hereto agree as
follows:
1. Registration Rights.
1.1. Definitions. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
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(c) The term "Founders' Shares" means 37,916,660 shares of
Common Stock (subject to appropriate adjustments for stock splits, stock
dividends, combinations and other recapitalizations (collectively, a
"Recapitalization")) issued to and held by Tyler Goldman as of the date hereof,
9,787,500 shares of Common Stock (subject to appropriate adjustments for any
Recapitalization) issued to and held by Ross Schaufelberger as of the date
hereof and 82,633,340 shares of Common Stock (subject to appropriate adjustments
for any Recapitalization) issued to and held by NMSS Partners, LLC, as of the
date hereof.
(d) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(e) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(f) The term "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(g) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series B Preferred Stock, (ii) the
shares of Common Stock (the "Venture Capital Shares") held as of the date hereof
by Sequoia Capital VIII, Sequoia International Technology Partners VIII, Sequoia
International Technology Partners VIII (Q), CMS Partners LLC, Institutional
Venture Partners VIII, L.P., IVM Investment Fund VIII, LLC and IVP Broadband
Fund, L.P., (iii) the Founders' Shares, and (iv) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of the shares referenced in (i), (ii)
or (iii) above, excluding in all cases, however, any Registrable Securities that
have been sold by a person in a transaction in which his or her rights under
this Section 1 are not assigned or that have been sold by a person pursuant to a
registration statement under the Act covering such Registrable Securities that
has been declared effective by the SEC or in an open market transaction under
Rule 144 of the Act. Notwithstanding anything to the contrary set forth in this
Section 1.1(g), neither the Founders' Shares (or any shares of Common Stock
otherwise deemed "Registrable Securities" with respect thereto pursuant to
clause (iv) of this Section 1.1(g)) shall be deemed Registrable Securities and
the holders thereof shall not be deemed Holders for the purposes of Sections
1.2, 1.6, 1.12 and 1.14.
(h) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
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<PAGE>
1.2. Request for Registration.
(a) If the Company shall receive at any time after the earlier
of the two-year anniversary of the date hereof or one year after the effective
date of the first registration statement for a public offering of securities of
the Company (other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction), a written request from
the Holders of a majority of the Registrable Securities then outstanding that
the Company file a registration statement under the Act covering the
registration of at least thirty percent (30%) of the Registrable Securities then
outstanding, then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) as soon as practicable, use commercially reasonable
efforts to effect the registration under the Act of all Registrable Securities
which the Holders request to be registered, together with all or such portion of
the Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company, within twenty (20)
days of the mailing of such notice by the Company in accordance with Section
3.6, subject to the limitations of subsection 1.2(b).
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
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<PAGE>
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
requested by the Holders of Registrable Securities pursuant to this Section 1.2
and such registrations have been declared or ordered effective;
(ii) During the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3. Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Act in connection with the public offering of such
securities solely for cash (other than a registration relating solely to the
sale of securities to participants in a Company stock plan, a registration on
any form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 3.6, the Company shall, subject to the provisions of
Section 1.8, use its reasonable efforts to cause to be registered under the Act
all of the Registrable Securities that each such Holder has requested to be
registered. Each holder hereby acknowledges that the Company is currently in
the process of registering shares of its Common Stock under the Act in
connection with an initial public offering that satisfies the requirements of
this Section 1.3 (the "Proposed Initial Public Offering") and, in connection
therewith and notwithstanding anything to the contrary set forth in this
Agreement, each Holder hereby waives its right to receive notice of and
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<PAGE>
otherwise participate in such proposed registration to the extent that the
registration statement related thereto is filed with the SEC within 60 days of
the date of this Agreement.
1.4. Obligations of the Company. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use commercially reasonable efforts
to cause such registration statement to become effective;
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to each Holder such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as it may reasonably request from time to time in
order to facilitate the disposition of Registrable Securities owned by it;
(d) Use commercially reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already required to qualify to do business or subject to service in such
jurisdiction and except as may be required by the Act;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement;
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
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<PAGE>
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to Registrable Securities of any selling Holder that such Holder shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.6. Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 1.2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company (including fees and disbursements
of counsel for the Company in its capacity as counsel to the selling Holders
hereunder; if Company counsel does not make itself available for this purpose,
the Company will pay the reasonable fees and disbursements, not to exceed
$20,000, of one counsel for the selling Holders) shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2.
1.7. Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of Registrable Securities with respect to the registrations pursuant to Section
1.3 for each Holder, including (without limitation) all registration, filing,
and qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders thereunder (if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements, not to exceed $20,000, of one counsel for the selling
Holders selected by them), but excluding underwriting discounts and commissions
relating to Registrable Securities.
1.8. Underwriting Requirements. In connection with any offering involving
an underwriting of shares of the Company's capital stock, the Company shall not
be required under Section 1.3 to include any of the Holders' securities in such
underwriting unless they accept the terms of the underwriting as agreed upon
between the Company and the underwriters selected by it and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the number of shares
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<PAGE>
of Holders' securities to be included in such offering shall be reduced in such
manner as the Company and the underwriters determine to permit the success of
such offering (the securities so included to be apportioned pro rata among the
selling stockholders according to the total amount of securities entitled to be
included therein owned by each selling stockholder or in such other proportions
as shall mutually be agreed to by such selling stockholders) but in no event
shall (i) the amount of securities of the selling Holders of Registrable
Securities included in the offering be reduced below thirty percent (30%) of the
total amount of securities included in such offering, unless such offering is
the initial public offering of the Company's securities in which case the
selling stockholders may be excluded if the underwriters make the determination
described above and no other stockholders' securities are included, (ii)
notwithstanding (i) above, any shares being sold by a stockholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering, or (iii) the number of shares of Registrable Securities to
be included in such offering (excluding any Founders' Shares and Venture Capital
Shares) be reduced unless the Founders' Shares and Venture Capital Shares are
first entirely excluded from such underwriting. For purposes of the preceding
parenthetical concerning apportionment, for any selling stockholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and stockholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
stockholder," and any pro-rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling stockholder," as defined in this sentence.
1.9. Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act or
the 1934 Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"): (i) any untrue
statement or alleged untrue statement of a material fact contained in such
registration statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, or any
rule or regulation promulgated under the Act or the 1934 Act; and the Company
will pay to each such Holder, underwriter or controlling person any legal or
other expenses reasonably incurred by them in connection with
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<PAGE>
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(a) shall not apply to (1) amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), or
(2) any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
stockholder of the Company that is selling securities in such registration
statement and any controlling person of any such underwriter or such other
stockholder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the Act
or the 1934 Act, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 1.10(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 1.10(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, that, in no event shall any indemnity under this subsection 1.10(b)
exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written
8
<PAGE>
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration or pursuant to
a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
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(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12. Form S-3 Registration. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, use commercially reasonable efforts to
effect such registration and all such qualifications and compliances as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 15 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this section 1.12: (1) if Form S-3 is not available for such
offering by the Holders; (2) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $500,000; (3) if the Company shall furnish to the
Holders a certificate signed by the Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than 60 days after receipt of the request of
the Holder or Holders under this Section 1.12; provided, however, that the
Company shall not utilize this right more than once in any twelve (12) month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected two registrations on Form S-3 for the
Holders pursuant to this Section 1.12; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
(c) Subject to the foregoing, the Company shall use commercially
reasonable efforts to file a registration statement covering the Registrable
Securities and other
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<PAGE>
securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Holders. All expenses other than underwriting
discounts and commissions incurred in connection with the first two (2)
registrations requested pursuant to Section 1.12, including (without limitation)
all registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company (including fees and
disbursements of counsel for the Company in its capacity as counsel to the
selling Holders hereunder; if Company counsel does not make itself available for
this purpose, the Company will pay the reasonable fees and disbursements, not to
exceed $20,000, of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.12 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to have the
Company bear the expenses of one (1) Form S-3 registration pursuant to this
Section 1.12. Except as provided in the immediately preceding sentence, all
expenses incurred in connection with a registration requested pursuant to this
Section 1.12, including (without limitation) all registration, filing,
qualification, printer's and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, shall be borne pro rata by the Holder or Holders participating in the
Form S-3 Registration. Registrations effected pursuant to this Section 1.12
shall not be counted as demands for registration or registrations effected
pursuant to Sections 1.2 or 1.3, respectively.
1.13. Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities who, after such assignment or transfer, holds at least two
million (2,000,000) shares of Registrable Securities (subject to appropriate
adjustment for any Recapitalization ) provided: (a) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (b) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement, including without limitation the provisions of
Section 1.15 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of registration
rights shall have a single attorney-in-fact for the purpose of exercising any
rights, receiving notices or taking any action under this Section 1.
1.14. Limitations on Subsequent Registration Rights. Except with respect
to Additional Series B Investors, from and after the date of this Agreement, the
Company shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable
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Securities, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration filed under Section
1.2 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 his securities will not reduce the amount of the
Registrable Securities of the Holders which is included or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
1.2(a) or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 1.2.
1.15. "Market Stand-Off" Agreement. Each Holder hereby agrees that, during
the period of duration specified by the Company and an underwriter of Common
Stock or other securities of the Company, following the effective date of a
registration statement of the Company filed under the Act, it shall not, to the
extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any securities of the Company
held by it at any time during such period except Common Stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) such market stand-off time period shall not exceed 180 days; and
(c) all executive officers and directors of the Company and all
other persons with registration rights enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this Section
1.15 shall not apply to a registration relating solely to employee benefit plans
on Form S-1 or Form S-8 or similar forms which may be promulgated in the future,
or a registration relating solely to a Commission Rule 145 transaction on Form
S-4 or similar forms which may be promulgated in the future.
Without limiting the generality of the foregoing, in connection with the
Proposed Initial Public Offering, each Investor hereby agrees to the terms of
the lock-up letter attached hereto as Schedule B, which terms are incorporated
herein by this reference.
1.16. Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right provided for
in this Section 1 after three (3) years following the consummation of the sale
of securities pursuant
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<PAGE>
to a registration statement filed by the Company under the Act in connection
with the initial firm commitment underwritten offering of its Common Stock to
the general public.
(b) In addition, the right of any Holder to request registration
or inclusion in any registration pursuant to this Section 1 shall terminate on
such date after the closing of the first Company-initiated registered public
offering of Common Stock of the Company as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may immediately be
sold under Rule 144 during any 90-day period.
2. Covenants of the Company.
2.1. Delivery of Audited Financial Statements. The Company shall
deliver to each Investor, as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a schedule as to the
sources and applications of funds for such year, such year-end financial reports
to be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company.
2.2. Delivery of Quarterly Financial Statements. The Company shall
deliver to each Investor holding at least two million (2,000,000) shares of
Registrable Securities (subject to appropriate adjustment for any
Recapitalization), as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter.
2.3. Assignment of Right to Receive Financial Information. The
rights, if any, to receive certain financial information regarding the Company
pursuant to this Section 2 may be assigned by an Investor to a transferee or
assignee of such Investor that, after such assignment or transfer, holds at
least two million (2,000,000) shares of Registrable Securities (subject to
appropriate adjustment for any Recapitalization ) provided; the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee. For the purposes of
determining the number of shares of Registrable Securities held by a transferee
or assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities by gift, will or intestate succession) shall be
aggregated together and with the partnership.
2.4. Termination of Financial Covenants. The covenants set forth in
this Section 2 shall terminate and be of no further force or effect when the
sale of securities pursuant to a registration statement filed by the Company
under the Act in connection with the firm commitment underwritten offering of
its securities to the general public is consummated or when
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<PAGE>
the Company first becomes subject to the periodic reporting requirements of
Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur.
3. Miscellaneous.
3.1. Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2. Additional Series B Investors. Upon the sale of Additional
Series B Shares to Additional Series B Investors, the Company, without prior
action on the part of any of the Investors, shall require each Additional Series
B Investor to execute this Agreement. Each such Additional Series B Investor,
upon execution and delivery of this Agreement by the Company and such Additional
Series B Investor, shall be deemed an Investor hereunder.
3.3. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.4. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.5. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.6. Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified; or
(ii) by deposit with an overnight delivery service or with the United States
Post Office, by certified mail, postage prepaid, and addressed to the party to
be notified at the address indicated for such party on the signature page
hereof, or at such other address as such party may designate by ten (10) days'
advance written notice to the other parties.
3.7. Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.8. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or
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<PAGE>
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the then-
outstanding Registrable Securities subject to or enjoying the rights under the
provisions being amended or waived. Any amendment or waiver effected in
accordance with this Section 3.7 shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.9. Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.10. Aggregation of Stock. All shares of Registrable Securities held
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
3.11. Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
BROADBAND SPORTS, INC.
By:/s/ Tyler Goldman
------------------------
Tyler Goldman, President
Address: 1640 South Sepulveda Boulevard
Suite 500
Los Angeles, California 90025
NMSS PARTNERS, LLC, a
Delaware limited liability company
By: M&K Financial Capital Corp.,
Manager
By: ---------------------------------
Ahmed O. Alfi
Address:
-----------------------------
-----------------------------
-----------------------------
/s/ Tyler Goldman
--------------------------------------
Tyler Goldman
Address: 235 Main Street
-----------------------------
Venice, CA
-----------------------------
-----------------------------
/s/ Ross Schaufelberger
--------------------------------------
Ross Schaufelberger
Address: 1440 Veteren #612
-----------------------------
Los Angeles, CA 90024
-----------------------------
-----------------------------
16
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INVESTOR:
By:
-------------------------------------------
Name:
-----------------------------------------
Address:
--------------------------------------
--------------------------------------
--------------------------------------
17
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Schedule A
Schedule of Investors
---------------------
18
<PAGE>
Schedule B
----------
Broadband Sports, Inc.
Lock-Up Agreement
May __, 1999
Hambrecht & Quist LLC
SG Cowen Securities Corporation
William Blair & Company L.L.C.
As Representatives of the
Several Underwriters
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, California 94104
Ladies and Gentlemen:
The undersigned is a securityholder of BroadBand Sports, Inc. (the "Company")
and wishes to facilitate the public offering (the "Offering") of Common Stock of
the Company ("Common Stock") pursuant to a Registration Statement on Form S-1
(the "Registration Statement") to be transmitted for filing with the Securities
and Exchange Commission on or about May 26, 1999.
In consideration of the foregoing, in order to induce you to act as underwriters
in the Offering, and for other good and valuable consideration, receipt of which
is hereby acknowledged, the undersigned hereby irrevocably agrees that it will
not, directly or indirectly, sell, offer, contract to sell, transfer the
economic risk of ownership in, make any short sale, pledge, loan or otherwise
dispose of (each, a "Disposition") any shares of Common Stock or any options or
warrants to purchase any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire Common Stock (collectively, "Securities"), without the prior written
consent of Hambrecht & Quist LLC acting alone or of each of the Representatives
of the Underwriters acting jointly, beginning on the date of the prospectus and
ending 180 days from the date of the final prospectus related to the Offering
(the "Lock-Up Period").
Notwithstanding the foregoing, this Lock-Up Agreement shall not apply to shares
of the Company's Common Stock acquired pursuant to an effective registration
statement filed by the Company or on the open market after the consummation of
the Offering.
Notwithstanding the foregoing, (i) if the undersigned is a corporation or
partnership, it may distribute Securities on a pro rata basis to shareholders or
limited partners, respectively, so long as such transaction does not involve a
disposition for value; and (ii) if the undersigned is an individual, he or she
may transfer Securities either during his or her lifetime or, on death, by will
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<PAGE>
or intestacy to his or her immediate family or to a charitable organization or
to a trust the beneficiaries of which are exclusively the undersigned and/or a
member or members of his or her immediate family; provided in each such case,
however, that prior to any such transfer each donee, transferee or distributee
shall execute an agreement, satisfactory to Hambrecht & Quist LLC, pursuant to
which each donee, transferee or distributee shall agree to receive and hold such
Securities subject to the provisions hereof, and there shall be no further
transfer except in accordance with the provisions hereof. For the purposes of
this paragraph, "immediate family" shall mean spouse, lineal descendant, father,
mother, brother or sister of the transferor and "charitable organization" shall
mean an organization described in Section 501(c)(3)of the Internal Revenue Code
of 1986, as amended.
The foregoing restriction on Dispositions is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the Lock-Up Period even if such Securities would be disposed
of by someone other than the undersigned. Such prohibited hedging or other
transactions would include without limitation any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from
Securities.
The undersigned hereby waives any rights of the undersigned to sell shares of
Common Stock or any other security issued by the Company pursuant to the
Registration Statement, and acknowledges and agrees that for a period of 180
days from the effective date of the Registration Statement the undersigned has
no right to require the Company to register under the Securities Act of 1933
such Common Stock or other securities issued by the Company and beneficially
owned by the undersigned.
The undersigned understands that the agreements of the undersigned are
irrevocable and shall be binding upon the undersigned's heirs, legal
representatives, successors and assigns. The undersigned agrees and consents to
the entry of stop transfer instructions with the Company's transfer agent
against the transfer of Common Stock or other securities of the Company held by
the undersigned except in compliance with this agreement.
Very truly yours,
Dated:
---------------------- ------------------------------------------
Signature
------------------------------------------
Printed Name
------------------------------------------
Address
------------------------------------------
20
<PAGE>
Exhibit 10.8
REVOLVING LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered into as of this
27th day of February, 1998 (the "Effective Date,"), by and between E-Sport,
Inc., a Delaware corporation (the "Borrower"), Athlete Direct Inc., a
corporation and wholly owned subsidiary of Borrower ("AD"), Pro Sports Xchange,
a Delaware corporation and wholly owned subsidiary of Borrower ("PSX," and
collectively with, AD, the "Subsidiaries"), and NMSS Partners, LLC, a Delaware
limited liability company (the "Lender").
RECITALS
A. WHEREAS, Borrower desires to borrow up to Four Million Five Hundred
Thousand Dollars ($4,500,000) for working capital purposes of Borrower and its
Subsidiaries from Lender; and
B. WHEREAS, Lender has agreed to make a loan in the principal amount of up
to Four Million Five Hundred Thousand Dollars ($4,500,000) to Borrower in
accordance with the terms and conditions provided herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, agreements, representation and warranties hereinafter set forth, the
parties hereto agree as follows:
1. DEFINITIONS.
1.1 Business Day. The term "Business Day" means a day other than a
Saturday, Sunday or other day on which commercial banks in the United States are
required by law to close.
1.2 Maturity Date. The term "Maturity Date" means the earlier of (a)
___________________ (b) the date on which any of the following transactions are
consummated: (i) any acquisition of the Borrower by means of merger or other
form of corporate reorganization in which outstanding shares of the Borrower are
exchanged for securities or other consideration issued, or caused to be issued,
by the acquiring corporation or its subsidiary (other than a mere
reincorporation transaction or a transaction in which, upon consummation, more
than 60% of the outstanding voting securities of the acquiring corporation are
owned by the common stockholders of the Borrower as in existence immediately
prior to the consummation of such transaction), (ii) a sale of all or
substantially all of the assets or stock of the Borrower to any entity in which
more than 60% of the equity interests in such entity are not held by the common
stockholders of the Borrower as in existence immediately prior to the
consummation of such transaction, or (iii) an underwritten public offering of
the Common Stock of the
1
<PAGE>
Borrower pursuant to the Securities Act of 1933 which results in net proceeds to
the Borrower of at least $10 million.
2. AMOUNT AND TERMS OF THE LOAN.
2.1 Loan. Subject to, and upon the terms and conditions herein set
forth (including, without limitation, the restrictions contained in Section 5.7
hereof), Lender agrees to make a loan to Borrower in the principal amount of up
to Four Million Five Hundred Thousand Dollars ($4,500,000) (the "Loan").
Borrower may request disbursements of all or a portion of the Loan, subject to
the restrictions set forth in Section 5.7 hereof, at any time prior to the
Maturity Date upon the terms and limitations contained herein; provided;
however, that the principal balance outstanding at any time shall not exceed
$4,500,000.
2.2 Interest. Interest shall accrue on the unpaid principal balance
of the Loan at the Loan Rate. The "Loan Rate" shall be the lesser of the prime
rate plus one percent (1%) or the maximum rate allowable by law. The prime rate
as. of any date shall be determined by reference to the prime rate as published
in the Wall Street Journal (the base rate on corporate loans posted by at least
75% of the thirty largest U.S. banks). Interest shall be payable monthly on the
last day of the month, provided that should such date not be a Business Day,
interest shall be payable on the next Business Day. Any amount of principal and
accrued interest which is not paid when due shall bear interest from the date on
which such amount is due until such amount is paid in full, payable on demand,
at the Loan Rate or the maximum rate allowable by law. Interest shall be
computed daily at the Loan Rate on the basis of the actual number of days in
which all or any portion of the principal amount hereof is outstanding computed
on the basis of a 360 day year.
Principal and interest shall be payable in lawful money of the United
States at Lender's offices located at the address set forth below.
2.3 Disbursements. Borrower may borrow any amount up to an aggregate
amount of Four Million Five Hundred Thousand Dollars ($4,500,000) by providing
written notice to Lender ___________________ which notice shall include the
amount of such borrowing, the date of such borrowing and certification as to the
satisfaction of the conditions set forth in Section 5 hereof; provided
_______________________________ _____________________________________________.
Within the limits set forth in this Agreement, Borrower may borrow, repay and
reborrow amounts under this Agreement, provide that the aggregate principal
balance outstanding under this Agreement at any given time shall not exceed Four
Million Five Hundred Thousand Dollars ($4,500,000).
2.4 Recordings of Disbursements. All disbursements of the Loan made
by Lender and all repayments of the principal thereof shall be recorded by
Lender and endorsed by an officer of Borrower on Schedule A attached hereto, or
on a continuation of
2
<PAGE>
such schedule attached to and made a part hereof; provided that the failure of
Lender to make any such recordation or of Borrower to make any such endorsement
shall not affect the obligations of Borrower hereunder.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER.
Each of the Borrower and the Subsidiaries represent and wan-ant to Lender
that:
3.1 Organization and Standing; Charter Documents. It is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
own, lease and operate its property and to conduct its business as such is
presently conducted and as proposed to be conducted. It is duly qualified to do
business as a foreign corporation in any state or jurisdiction in the United
States in which the failure to be so qualified would have a material adverse
effect on its financial condition or its ability to perform its obligations
hereunder. True and accurate copies of the Certificate of Incorporation and
Bylaws of it, each as currently in effect, have been made available to Lender
and its counsel.
3.2 Authorization. All corporate action on the part of it and its
officers, directors and shareholders that is necessary for the authorization,
execution, delivery and performance of this Agreement and any other documents or
certificates related thereto (collectively, the "Loan Documents") by it has been
taken; and the Loan Documents, when executed and delivered, will constitute
valid and legally binding obligations of it, enforceable against it in
accordance with their terms.
3.3 Consents. All consents, approvals, orders, waivers of
authorizations of, or registrations, qualifications, designations, declarations
or filings with, any court or any federal or state governmental authority or
third party required on the part of it in connection with the consummation of
the transactions contemplated by this Agreement and the other Loan Documents
will have been obtained prior to and be effective as of the Effective Date.
3.4 Compliance with Other Instruments. It is not in violation of or
default under any provision of its Certificate of Incorporation or Bylaws. It is
not in violation of or default in any material respect under any provision of
any material instrument or contract to which it is a party or by which it is
bound, or, to its knowledge, of any provision of any federal or state statute,
rule, governmental regulation, order or decree, applicable to it.
3.5 Conduct of Business. The conduct of its business, as now
conducted and as proposed to be conducted, will not conflict with or result in a
breach of any material terms, conditions or provisions of, or constitute a
default under, any material contract, covenant or instrument under which it is
now obligated.
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3.6 Title to Property and Assets. It owns all of its property and
assets free and clear of all mortgages, liens, claims, loans and encumbrances,
other than any mortgages, liens, claims, loans or encumbrances created
hereunder.
3.7 Information: Misleading Statements. No representation, warranty
or statement by it in this Agreement or the other Loan Documents, or in any
written statement or certificate furnished or to be furnished to Lender pursuant
thereto contains or will contain any untrue statement of a material fact or,
when taken together, omits or will omit to state a material fact necessary to
make the statements made herein or therein, in light of the circumstances in
which made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF LENDER.
Lender represents and warrants to each of the Borrower and the Subsidiaries
that:
4.1 Organization and Standing; Charter Documents. Lender is duly
formed, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite power and authority to own, lease and operate
its property and to conduct its business as such is presently conducted and is
proposed to be conducted.
4.2 Authorization. All action on the part of Lender and its members
that is necessary for the authorization, execution, delivery and performance of
the Loan Documents by Lender has been taken; and the Loan Documents, when
executed and delivered, will constitute a valid and legally binding obligations
of Lender, enforceable in accordance with their terms.
5. CONDITIONS PRECEDENT TO LOAN.
The obligation of Lender to make each disbursement of the Loan is subject
to the satisfaction (or written waiver by Lender) of all the flowing conditions
precedent:
5.1 Representations True. All representations and warranties
contained in this Agreement and all other Loan Documents will be true, correct
and complete in all respects with the same effect as though such representations
and warranties had been made on and as of each disbursement of the Loan.
5.2 Corporate Documents. Lender will have received, in form and
substance satisfactory to Lender and its counsel, a copy of the records of all
actions taken by Borrower and the Subsidiaries, including all corporate
resolutions of Borrower and the Subsidiaries authorizing or relating to the
execution, delivery and performance of the Loan Documents and the consummation
of the transactions contemplated thereby, and a certified copy of the
Certificates of Incorporation and Bylaws of Borrower and the Subsidiaries.
5.3 Qualifications and Consents. All authorizations, approvals,
permits, consents or waivers if any, of (i) governmental authority or regulatory
body of
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the United States or of any state or (ii) any third party that are required on
the part of Borrower or the Subsidiaries in connection with the receipt of the
Loan or the execution of this Agreement will have been duly obtained and will be
effective on and as of the Effective Date.
5.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transaction contemplated by this Agreement and all documents
incident to such transaction will be in form and substance satisfactory to
Lender and its counsel, and Lender will have received all counterpart originals
or certified or other copies of such documents as it may reasonably request.
5.5 Performance. Borrower and the Subsidiaries shall have performed
and complied with all agreements and conditions contained herein required to be
performed or complied with by them prior to or at each disbursement of the Loan.
5.6 Absence of Litigation. No suit, action, proceeding or
investigation shall have occurred, be pending or threatened which would or seeks
to prevent or delay beyond the Effective Date the consummation of the
transactions contemplated by this Agreement and there shall be no other pending
or threatened material litigation.
5.7 Loan in Compliance with Annual Budget. Lender will have
received, in form and substance satisfactory to Lender and its counsel, a
certificate signed by at least two of the Company's officers stating that the
amount of the Loan disbursement requested by the Company does not exceed the
amount permitted to be drawn during that calendar year under the Company's
annual budget, which budget has been approved by the affirmative vote of at
least four of the five authorized directors of the Company.
6. SECURITY INTEREST.
As security for the payment of principal and accrued interest under this
Agreement, each of the Borrower and the Subsidiaries hereby grants to the Lender
a security interest in all of the their respective assets listed on Schedule B
attached hereto (the "Collateral"). Borrower and the Subsidiaries shall not and
nothing in this Section 6 shall constitute, or be deemed to constitute, a grant
of authority to Borrower or the Subsidiaries to, sell, lease, or otherwise
dispose of or encumber the Collateral, or any part of the Collateral, without
the prior written consent of Lender, except in the ordinary course of business
or as otherwise provided herein. The security interest hereby created shall
attach immediately upon execution of this Agreement and concurrently herewith,
Borrower and the Subsidiaries shall execute any financing statement or financing
statements requested by Lender to perfect the security interest created hereby.
Such financing statement or statements shall be on a form or forms approved by
the California Secretary of State and Borrower and the Subsidiaries shall
forthwith pay to Lender the filing fees required to file such statement or
statements in the manner required by the Uniform Commercial Code of California.
In addition, Borrower and the Subsidiaries shall pay from their own funds, as
they become due, all taxes and assessments levied or
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<PAGE>
assessed against the Collateral, or any part of the Collateral, prior to the
final termination of this Agreement. Upon any event of default hereunder, the
Lender shall be entitled to all the rights and remedies of a secured creditor
with respect to such Collateral as provided for in the Uniform Commercial Code
of California.
7. COVENANTS OF BORROWER.
Each of Borrower and the Subsidiaries hereby covenants and agrees with
Lender that each shall:
7.1 Corporate Rights; Facilities; Conduct of Business.
(a) Maintain and preserve in full force and effect its corporate
existence and all rights, licenses, leases, qualifications, privileges,
franchisee and other authority adequate for the conduct of its business;
(b) Maintain, preserve and protect all its properties, assets,
equipment and facilities in good order and working repair and condition
(taking into consideration ordinary wear and tear) and from time to time
make, or cause to be made, all needful and proper repairs, renewals and
replacements thereto;
(c) Maintain, preserve and protect all of its rights to enjoy and
use patents, copyrights, trademarks, trade names, service marks, licenses,
leases, and franchises;
(d) Promptly pay and discharge all taxes when due and payable,
except such as may be contested in good faith by appropriate proceedings
and for which an adequate reserve has been established and is maintained in
accordance with generally accepted accounting principles (and it will
promptly notify Lender of any challenge, contest or proceeding pending by
or against it before any taxing authority);
(e) Maintain all banking accounts at FDIC or FSLIC insured banks
or other savings institutions acceptable to Lender, and
(f) From time to time as may be necessary, disclose to Lender in
writing any material matter hereafter arising which, if existing or
occurring at the date of this Agreement, would have been required to be set
forth or described by it in this Agreement or any of the other Loan
Documents (including all schedules and exhibits hereto or thereto) or which
is necessary to correct any information set forth or described by it
hereunder or thereunder which has been rendered inaccurate thereby.
7.2 Negative Covenants. So long as any portion of the Loan remains
outstanding, neither Borrower nor the Subsidiaries will, without first obtaining
Lender's prior written consent:
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<PAGE>
(a) declare or pay any dividend on or declare or make any
distribution on account of, any shares of any class of stock now or
hereafter outstanding (except for dividends or distributions from a
Subsidiary to the Borrower), or set apart any sum for such purpose, except
for shares of Common Stock issued to its employees pursuant to stock option
agreements or debentures.
(b) issue or enter into any agreement that restricts the
Company's ability to repay the Loan or subordinates the repayment of the
Loan by more than Four Million Five Hundred Thousand Dollars ($4,500,000).
(c) Use any portion of the Loan for purposes other than those
directly related to the conduct of Borrower's or the Subsidiaries'
businesses.
7.3 Further Assurances. In addition to the obligations and documents
which this Agreement expressly requires Borrower and the Subsidiaries to
execute, deliver and perform, Borrower and the Subsidiaries will execute,
deliver and perform, any and all further acts or documents which Lender may
reasonably require to effectuate the purposes of this Agreement or any of the
other Loan Documents.
8. PREPAYMENT OF THE LOAN.
Borrower may prepay the Loan at any time without penalty.
9. EVENTS OF DEFAULT OF BORROWER.
9.1 Events of Default. Each of the following shall constitute an
event of default ("Event of Default") under this Agreement:
(a) Borrower shall fail to pay when due (whether by acceleration
or otherwise) principal under this Agreement;
(b) Borrower shall fail to pay when due (whether by acceleration
or otherwise) interest under this Agreement, and such default unless
otherwise cured shall have continued for a period of five (5) days after
receipt of notice from Lender,
(c) Any representation or warranty made by or on behalf of
Borrower in this Agreement, in any other Loan Document or in any statement
or certificate given in writing pursuant thereto or in connection therewith
is false, misleading or incomplete in any material respect when made (or
deemed to have been made);
(d) Borrower or the Subsidiaries fails or neglects to perform,
keep or observe any covenant set forth in this Agreement and the same has
not been cured within ten (10) calendar days after Borrower or the
Subsidiaries receives notice thereof from Lender;
7
<PAGE>
(e) Borrower or the Subsidiaries shall commence a voluntary case
or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of
a trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; provided, however, that any of
the foregoing acts by or with respect to a Subsidiary shall not be an Event
of Default if, and only if, such act will not adversely affect, impair or
subordinate the Borrower's ability to repay the Loan;
(f) An involuntary case or other proceeding shall be commenced
against the Borrower or the Subsidiaries seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, and
such involuntary case or other proceeding shall remain undismissed and
unstayed for a period of 60 days; or an order for relief shall be entered
against the Borrower or the Subsidiaries under the federal bankruptcy laws
as now or hereafter in effect; provided, however, that any of the foregoing
acts by or with respect to a Subsidiary shall not be an Event of Default
if, and only if, such act will not adversely affect, impair or subordinate
the Borrower's ability to repay the Loan; or
(g) This Agreement, for any reason (other than the satisfaction
in full of all amounts owing in connection with the Loan) ceases to be, or
is asserted by Borrower or the Subsidiaries not to be, a legal, valid and
binding obligation of Borrower or the Subsidiaries, enforceable in
accordance with its terms, and such occurrence has not been cured to
Lender's satisfaction within five (5) calendar days after Borrower or the
Subsidiaries receives notice thereof from Lender.
9.2 Remedies of Lender. If an Event of Default shall occur and be
continuing or shall exist, the principal amount outstanding of the Loan and
interest accrued thereon shall be immediately due and payable without
presentment demand, protest or further notice of any kind, all of which are
hereby expressly waived, and an action therefor shall immediately accrue.
10. RESTRICTIONS ON TRANSFER OF LOAN
10.1 Right to Transfer. Lender shall not have the right or power to
sell, exchange, transfer (with or without consideration), assign or otherwise
dispose of (such
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actions being collectively referred to in this Agreement as "Transfers") the
Loan, or any interest therein, except:
(a) Transfers pursuant to a firmly underwritten public offering
of the Borrower's common stock on a Form S- 1, Form SB- I or Form SB-2
Registration Statement filed with the Securities and Exchange Commission
under the Securities Act with respect to which the Borrower receives net
proceeds of at least $10,000,000 (a "Qualified Public Offering") or
Transfers to any member or other equity owner of Lender or any person or
entity dud, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with the Lender
(an "Affiliated Entity"); provided, however, that any such Affiliated
Entity shall agree in a writing deposited with the Borrower prior to such
Transfer to be bound by all of the terms of this Agreement as the "Lender"
hereunder.
(b) Transfers in accordance with the provisions of Section 10.2
below.
10.2 Transfer of Loan.
(a) Except for Transfers permitted by the provisions of Section
10.1 (a) above, the Lender shall not Transfer the Loan unless the
consideration for such Transfer consists solely of cash and unless the
Lender has first given each of the common stockholders of the Borrower the
right to purchase the Loan by delivering to the common stockholders a
written offer (the "Offer") to sell the Loan to each and every one of the
other common stockholders, which Offer (i) shall remain open for at least
thirty (30) days from the date of its transmittal (the "Offer Period"),
(ii) shall state its exact termination date, and (iii) shall state the
identity of the proposed transferee, the price, closing date and all other
material terms and conditions of the proposed Transfer. The Offer shall be
on the same terms and conditions as the proposed Transfer.
(b) The Offer may be accepted by any of the common stockholders,
(any stockholder so accepting shall be referred to herein as a "Subscribing
Stockholder") only by giving written notice of acceptance delivered to the
Lender prior to the expiration of the Offer Period, provided that the
Subscribing Stockholders collectively shall have accepted the Offer to
purchase all (but not less than all) of the Loan. Each Subscribing
Stockholder shall be entitled to purchase that fraction of the Loan equal
to the fraction obtained by dividing the sum of the number of shares of
common stock which such Subscribing Stockholder owns by the aggregate
number of shares of common stock then issued and outstanding. Following the
foregoing allocation, if any fraction of the Loan remains unallocated and
all Subscribing Stockholders' subscriptions have not been filled, the
balance of the Loan shall be iteratively allocated by the Borrower among
the Subscribing Stockholders whose
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subscriptions have not been filled, pro rata based upon the foregoing
fractions or as mutually agreed to between Subscribing Stockholders, until
either the entire balance of the Loan has been allocated, or all
subscriptions have been filled.
(c) Upon termination of the Offer Period, provided that the
Subscribing Stockholders collectively shall have accepted the Offer to
purchase all (but not less than all) of the Loan, the Borrower shall give
written notice to that effect to all Subscribing Stockholders, stating the
fraction of the Loan allocated to each Subscribing Stockholder, and the
Transfer of the Loan shall thereafter be effected between the Lender and
the Subscribing Stockholders upon all of the applicable terms and
conditions set forth in the Offer.
(d) To the extent the entire balance of the Loan has not been
fully subscribed by the common stockholders, pursuant to the terms and
conditions of Section 11.2(b) above, prior to the expiration of the Offer
Period, the Lender shall be free for a period of ninety (90) days beginning
the day immediately following the day on which the Offer Period expires to
sell to the proposed transferee identified in the Offer the Loan, provided
that such sale must be at the same price, and upon the other terms and
conditions specified in the Offer.
(e) Notwithstanding anything to the contrary set forth herein,
Lender shall not be permitted to Transfer the Loan to a person (or a person
which is controlled by, under common control with, or controls such person)
that competes directly with one or more of the lines of business of the
Borrower or the Subsidiaries as conducted at the time of such Transfer,
unless such Transfer has been approved by at least four of the five
authorized directors of the Borrower.
11. MISCELLANEOUS.
11.1 Survival of Representations and Warranties. The representations
and warranties contained herein or made pursuant to this Agreement and all other
Loan Documents shall survive until the termination of this Agreement.
11.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given upon personal delivery, facsimile
transmission (with written or facsimile confirmation of receipt), telex or
delivery by a reputable overnight commercial delivery service (delivery, postage
or freight charges prepaid), or on the fourth day following deposit in the
United States mail (if sent by registered or certified mail, return receipt
requested, delivery, postage or freight charges prepaid), addressed to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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(a) if to Lender, to: (b) If to Borrower or the Subsidiaries,
to:
NMSS Partners, LLC
11 West Del Mar Boulevard E-Sport, Inc.
Pasadena, CA 91105 _______________________
Attention: Ahmed O. Alfi _____________, CA 92
FAX: (818) 405-9708 Attention:______________
FAX: (714) ______________
11.3 Interpretation. When a reference is made in this Agreement to
an Article, Section, Exhibit or Schedule, such reference shall be to an Article,
Section, Exhibit or Schedule to this Agreement unless otherwise indicated. The
words "include," "includes" and "including" when used herein shall be deemed in
each case to be followed by the words "without limitation."
11.4 Counterparts. This Agreement may be executed by one or more of
the parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
agreement and shall become effective when all counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
11.5 Integration. This Agreement, the exhibits and schedules
attached hereto and thereto constitute the entire agreement among the parties
with respect to the subject matter set forth herein or therein and supersede all
prior agreements and understandings, both written and oral, among the parties
with respect to the subject matter hereof or thereof.
11.6 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
11.7 Governing Law. This Agreement and the rights and obligations of
the parties hereunder shall be governed in all respects, including validity,
interpretation and effect, by the laws of the State of California, excluding its
rules of conflicts of law or choice of law.
11.8 Assignment. Borrower shall not assign or transfer or permit the
assignment or transfer of any of its rights or obligations under this Agreement
without the prior written consent of Lender.
11.9 Severability. Any portion or provision of the Agreement which
is invalid, illegal or unenforceable in any jurisdiction shall, as to that
jurisdiction, be ineffective to the extent of such invalidity, illegality or
unenforceability, without affecting in any way the remaining portions or
provisions hereof in such jurisdiction or, to the
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extent permitted by law, rendering that or any other portion or provision of
the Agreement invalid, illegal or unenforceable in any other jurisdiction.
11.10 Attorneys' Fees. If any party to this Agreement shall bring
any action, suit, counterclaim or appeal for any relief against any other party,
declaratory or otherwise, to enforce the terms hereof or to declare rights
hereunder (collectively, an "Action"), the prevailing party shall be entitled to
recover as part of any such Action its reasonable attorneys' fees and costs,
including any fees and costs incurred in bringing and prosecuting such Action
and/or enforcing any order, judgment, ruling or award granted as part of such
Action. "Prevailing party" within' the meaning of this section includes, without
limitation, a party who agrees to dismiss an Action upon the other party's
payment of all or a portion of the sums allegedly due or performance of the
covenants allegedly breached, or who obtains substantially the relief sought by
it.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
BORROWER: LENDER:
E-SPORT, INC. NMSS PARTNERS, LLC
By: /s/ Tyler Goldman By: M&K Financial Capital Corp.
-------------------------- Manager
Tyler Goldman
President By: /s/ Ahmed O. Alfi
----------------------
Ahmed O. Alfi
President
By: /s/ Ross Schaufelberger
--------------------------
Ross Schaufelberger
Treasurer and Secretary
ATHLETE DIRECT, INC. PRO SPORTS EXCHANGE
By: /s/ Ross Schaufelberger By: /s/ Tyler Goldman
-------------------------- -----------------------
Ross Schaufelberger Tyler Goldman
President President
By: /s/ Michael Scharnagi By: /s/ Ross Schaufelberger
-------------------------- ------------------------
Michael Scharnagi Ross Schaufelberger
Treasurer and Secretary Treasurer and Secretary
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SCHEDULE A
Revolving Promissory Note
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Unpaid Lender
Amount of Amount of Principal Recordation Borrower
Date Loan Principal Repaid Balance by Endorsement By
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
Feb 27, 98 $450,000 AA RS
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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SCHEDULE B
ASSET OF BORROWER
AND THE SUBSIDIARIES.
(A) all accounts receivable and other rights to payment of money, together
with all rights, claims, titles, securities, security interests, liens and
guaranties evidencing, securing, guaranteeing payment of, relating to or
otherwise with respect to such accounts receivable and rights, including,
without limitation, any rights to stoppage in transit, replevin, reclamation and
resale and all interest, finance charges or other amounts payable in respect of
the foregoing;
(B) all notes receivable;
(C) all inventory;
(D) all equipment;
(E) all documents and documents of title, including, without limitation,
bills of lading, warehouse receipts, trust receipts and the like;
(F) all chattel paper, documents, instruments, money, notes and drafts;
(G) all licenses, licensing agreements, contracts, agreements, rights to
payment, royalties, license fees, leases of personal property, undertakings,
surety bonds, all forms of obligations owing to the Borrower or the Subsidiaries
or in which the Borrower or the Subsidiaries may have an interest, however
arising or created, all present and future chooses and things in action,
goodwill, governmental approvals, tax refunds, all other general intangibles of
every kind and nature to which the Borrower or the Subsidiaries may now or
hereafter become entitled and however arising, all other refunds of any kind and
nature and all rights, remedies, powers and privileges of the Borrower or the
Subsidiaries with respect to any of the foregoing;
(H) all deposit accounts, including, without limitation, any collection
accounts and concentration accounts and any other demand, time savings, passbook
or like account maintained by the Borrower or the Subsidiaries with any bank,
savings and loan association, credit union or other person, all money, cash and
checks, drafts, notes, bills, bills of exchange and bonds deposited therein or
credited thereto, any increases, renewals, extensions, substitutions and
replacements thereof, all interest accruing thereon or any other property of the
Borrower or the Subsidiaries received or receivable by the Borrower or the
Subsidiaries in respect thereof, whether or not deposited in any such deposit
account and all statements, certificates, passbooks and instruments representing
any such deposit account;
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(I) all intellectual property rights (including, without limitation, any
and all rights of the Borrower or the Subsidiaries to sue and collect damages
for past, present or feature infringements of any intellectual property rights
or for any injury to the goodwill associated with any intellectual property
right), trade secrets, catalogs, computer programs, purchase orders, computer
software (including, without limitation, all source codes and object codes, all
media of any type or nature on which such source codes or object codes are
reproduced, copies, stored or maintained at any time and from time to time, and
all licenses or other rights entitling the Borrower or the Subsidiaries to use,
copy and reproduce such object codes and source codes and all licenses and other
rights granted by the Borrower or the Subsidiaries to any other person or entity
to copy, use, sell, market or reproduce computer software and such source codes
and object codes), technology processes, drawings, blueprints, proprietary
information, customer lists, mailing lists;
(J) all stocks, bonds, debentures, securities, subscription rights,
options, warrants, puts, calls, certificates, partnership interests, joint
venture interests, investments and/or brokerage accounts and all rights,
preferences, privileges, dividends, distributions, redemption payments or
liquidation payments with respect thereto;
(K) all rights and claims of the Borrower or the Subsidiaries in or under
all policies of insurance owned by the Borrower or the Subsidiaries or covering
all or any part of the Collateral, including, but not limited to, insurance for
life, fire, damage, loss, and casualty, whether covering life, personal
property, real property or tangible rights, together with the proceeds,
products, renewals, and replacements thereof, including prepaid or unearned
premiums;
(L) all books and records (including, without limitation, all books of
account and ledgers of every kind and nature, customer lists, credit files,
computer programs, computer software, computer tapes, other computer materials
and records and electronically recorded data) pertaining to the Borrower or the
Subsidiaries or any of the Collateral and all equipment, receptacles, containers
and cabinets for such books and records, and all files and correspondence
relating thereto; and
(M) all proceeds of any of the foregoing, whether derived from voluntary or
involuntary disposition or otherwise, and all products of the foregoing, whether
now owned and existing or hereafter acquired or arising and all renewals,
replacements, substitutions, additions, accessions, appurtenances, components,
repairs, repair parts, spare parts, rents, issues, royalties and profits of, to
or from any such property. "Proceed" hereunder shall include (i) whatever is now
or hereafter received by the Borrower or the Subsidiaries upon the sale,
exchange, collection or other disposition of any item of Collateral, whether
such proceeds constitute inventory, accounts receivable, general intangible,
instruments, securities, credits, documents, letters of credit, chattel paper,
documents of title, warehouse receipts, leases, deposit accounts, money,
contract rights, goods, equipment or other personal property, (ii) any such
items that are now or hereafter acquired by the Borrower or the Subsidiaries
with any proceeds of Collateral
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<PAGE>
hereunder, (iii) any insurance now or hereafter payable by reason of any loss or
damage to any Collateral and any proceeds thereof, and (iv) the right to further
transfer, including to pledge, mortgage, license, assign or sell, any of the
aforementioned property or rights.
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EXHIBIT 10.9
FORM OF INDEMNIFICATION AGREEMENT
THIS AGREEMENT by and between Broadband Sports, Inc., a Delaware
corporation (the "Company"), and ______________ (the "Indemnitee") is entered
into effective as of _______________, 1999.
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is a director/officer of the Company;
WHEREAS, the Certificate of Incorporation, as amended, and the Bylaws, as
amended, of the Company require the Company to indemnify and advance expenses
to its directors to the fullest extent permitted by law and authorize the
Company to indemnify and advance expenses to its officers to the fullest extent
permitted by law;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner and Indemnitee's reliance on the aforesaid
Certificate of Incorporation and Bylaws, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by such Certificate
of Incorporation and Bylaws will be available to Indemnitee (regardless of,
among other things, any amendment to or revocation of such Certificate of
Incorporation and Bylaws or any change in the composition of the Company's Board
of Directors or acquisition transaction relating to the Company), and in order
to induce Indemnitee to continue to provide services to the Company as a
director or officer thereof, the Company wishes to provide in this Agreement for
the indemnification of and the advancing of expenses to Indemnitee to the
fullest extent (whether partial or complete) permitted by law and as set forth
in this Agreement, and, to the extent insurance is maintained, for the continued
coverage of Indemnitee under the Company's directors' and officers' liability
insurance policies.
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, with another
enterprise, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. Certain Definitions:
(a) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20% or more of
the total voting power represented by the Company's then outstanding Voting
Securities, or (ii) during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the
1
<PAGE>
Company and any new director whose election by the Board of Directors or
nomination for election by the Company's stockholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute a
majority thereof, or (iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the Voting Securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company (in one transaction or a series of
transactions) of all or substantially all of the Company's assets.
(b) Expense: include attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating, defending, being
a witness in or participating in (including on appeal), or preparing to defend,
be a witness in or participate in any Proceeding relating to any Indemnifiable
Event.
(c) Indemnifiable Event: any event or occurrence that takes place either
prior to or after the execution of this Agreement, related to the fact that
Indemnitee is or was a director or an officer of the Company, or while a
director or officer is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise, or
by reason of anything done or not done by Indemnitee in any such capacity.
(d) Potential Change in Control: shall be deemed to have occurred if (i)
the Company enters into an agreement or arrangement, the consummation of which
would result in the occurrence of a Change in Control; (ii) any person
(including the Company) publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control; (iii)
any person, other than a trustee or other fiduciary holding securities under an
employee benefit plan of the Company acting in such capacity or a corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
who is or becomes the beneficial owner, directly or indirectly, of securities of
the Company representing 10% or more of the combined voting power of the
Company's then outstanding Voting Securities, increases his beneficial ownership
of such securities by 5% or more over the percentage so owned by such person on
the date hereof; or (iv) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has occurred.
(e) Proceeding: any threatened, pending or completed action, suit or
proceeding, or any inquiry, hearing or investigation, whether conducted by the
Company or any other party, that Indemnitee in good faith believes might lead to
the institution of any such action, suit or proceeding, whether civil, criminal,
administrative, investigative or other.
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<PAGE>
(f) Reviewing Party: any appropriate person or body consisting of a member
or members of the Company's Board of Directors or any other person or body
appointed by the Board (including the special, independent counsel referred to
in Section 3) who is not a party to the particular Proceeding with respect to
which Indemnitee is seeking Indemnification.
(g) Voting Securities: any securities of the Company which vote generally
in the election of directors.
2. Agreement to Indemnify. (a) In the event Indemnitee was, is or becomes a
party to or witness or other participant in, or is threatened to be made a party
to or witness or other participant in, a Proceeding by reason of (or arising in
part out of) an Indemnifiable Event, the Company shall indemnify Indemnitee to
the fullest extent permitted by law, as soon as practicable, but in any event no
later than thirty (30) days after written demand is presented to the Company,
against any and all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Proceeding and any federal,
state, local or foreign taxes imposed on the Indemnitee as a result of the
actual or deemed receipt of any payments under this Agreement (including the
creation of the Trust (as defined below)). Notwithstanding anything in this
Agreement to the contrary and except as provided in Section 5, prior to a Change
in Control Indemnitee shall not be entitled to indemnification pursuant to this
Agreement in connection with any Proceeding initiated by Indemnitee against the
Company or any director or officer of the Company unless the Company has joined
in or consented to the initiation of such Proceeding. If so requested by
Indemnitee, the Company shall advance (within ten (10) business days of such
request) any and all Expenses to Indemnitee (an "Expense Advance"); provided,
however, that such Expenses shall be advanced only upon delivery to the Company
of an undertaking by or on behalf of the Indemnitee to repay such amount if it
is ultimately determined that Indemnitee is not entitled to be indemnified by
the Company.
(b) Notwithstanding the foregoing, (i) the obligations of the Company under
Section 2(a) shall be subject to the condition that the Reviewing Party shall
not have determined (in a written opinion, in any case in which the special,
independent counsel referred to in Section 3 hereof is involved) that Indemnitee
would not be permitted to be so indemnified under applicable law, and (ii) the
obligation of the Company to make an Expense Advance pursuant to Section 2(a)
shall be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be reimbursed
by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts
theretofore paid; provided, however, that if Indemnitee has commenced legal
proceedings in a court of competent jurisdiction to secure a determination that
Indemnitee should be indemnified under applicable law, any determination made by
the Reviewing Party that Indemnitee would not be permitted to be indemnified
under applicable law shall not be binding and Indemnittee shall not be required
to reimburse the Company for any Expense Advance until a final judicial
determination is made with respect thereto (as to which all rights of appeal
therefrom have been exhausted or lapsed). Indemnitee's obligation to reimburse
the Company for Expense Advances shall be unsecured and no interest shall be
charged thereon.
3
<PAGE>
If there has not been a Change in Control, the Reviewing Party shall be selected
by the Board of Directors, and if there has been such a Change in Control (other
than a Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), the Reviewing Party shall be the special, independent counsel referred
to in Section 3 hereof. If there has been no determination by the Reviewing
Party or if the Reviewing Party determines that Indemnitee substantively would
not be permitted to be indemnified in whole or in part under applicable law,
Indemnitee shall have the right to commence litigation in any court in the
States of California or Delaware having subject matter jurisdiction thereof and
in which venue is proper seeking an initial determination by the court or
challenging any such determination by the Reviewing Party or any aspect thereof,
and the Company hereby consents to service of process and to appear in any such
proceeding. Any determination by the Reviewing Party otherwise shall be
conclusive and binding on the Company and Indemnitee. Expenses shall be
advanced, however, only upon delivery to the Company of an undertaking by or on
behalf of the Indemnitee to repay such amount if it is ultimately determined
that Indemnitee is not entitled to be indemnified by the Company.
3. Change in Control. The Company agrees that if there is a Change in Control
of the Company (other than a Change in Control which has been approved by a
majority of the Company's Board of Directors who were directors immediately
prior to such Change in Control), then with respect to all matters thereafter
arising concerning the rights of Indemnitee to indemnity payments and Expense
Advances under this Agreement or any other agreement or under applicable law or
the Company's Certificate of Incorporation or Bylaws now or hereafter in effect
relating to indemnification for Indemnifiable Events, the Company shall seek
legal advice only from special, independent counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld), and
who has not otherwise performed services for the Company or the Indemnitee
(other than in connection with such matters) within the last five years. Such
independent counsel shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a conflict of
interest in representing either the Company or Indemnitee in an action to
determine Indemnitee's rights under this Agreement. Such counsel, among other
things, shall render its written opinion to the Company and Indemnitee as to
whether and to what extent the Indemnitee would be permitted to be indemnified
under applicable law. The Company agrees to pay the reasonable fees of the
special, independent counsel referred to above and to indemnify fully such
counsel against any and all expenses (including attorneys' fees), claims,
liabilities and damages arising out of or relating to this Agreement or the
engagement of special, independent counsel pursuant hereto.
4. Establishment of Trust. In the event of a Potential Change in Control, the
Company shall, upon written request by Indemnitee, create a trust (the "Trust")
for the benefit of the Indemnitee and from time to time upon written request of
Indemnitee shall fund such Trust in an amount sufficient to satisfy any and all
Expenses reasonably anticipated at the time of each such request to be incurred
in connection with investigating, preparing for and defending any Proceeding
relating to an Indemnifiable Event and any and all judgments, fines, penalties
and settlement amounts of any and all Proceedings relating to an Indemnifiable
Event from time to time actually paid or claimed, reasonably anticipated or
proposed to be paid. The amount or amounts to be deposited in the Trust
pursuant to the foregoing funding obligation shall be
4
<PAGE>
determined by the Reviewing Party, in any case in which this special,
independent counsel referred to above is involved. The terms of the Trust shall
provide that upon a Change in Control (i) the Trust shall not be revoked or the
principal thereof invaded, without the written consent of the Indemnitee, (ii)
the trustee under the Trust (the "Trustee") shall advance, within ten (10)
business days of a request by the Indemnitee, any and all Expenses to the
Indemnitee (and the Indemnitee hereby agrees to reimburse the Trust under the
circumstances under which the Indemnitee would be required to reimburse the
Company under Section 2(b) of this agreement), (iii) the Trust shall continue to
be funded by the Company in accordance with the funding obligation set forth
above, (iv) the Trustee shall promptly pay to the Indemnitee all amounts for
which the Indemnitee shall be entitled to indemnification pursuant to this
Agreement or otherwise, and (v) all unexpended funds in such Trust shall revert
to the Company upon a final determination by the Reviewing Party or a court of
competent jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The Trustee shall be chosen by
the Indemnitee. Nothing in this Section 4 shall relieve the Company of any of
its obligations under this Agreement. All income earned on the assets held in
the Trust shall be reported as income by the Company for federal, state, local
and foreign tax purposes.
5. Indemnification for Expenses Incurred In Enforcing this Agreement. The
Company shall indemnify Indemnitee against any and all-expenses (including
attorneys' fees), and, if requested by Indemnitee, shall (within ten (10)
business days of such request) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any claim asserted against or action
brought by Indemnitee for (i) indemnification or advance payment of Expenses by
the Company under this Agreement or any other agreement or under applicable law
or the Company's Certificate of Incorporation or Bylaws now or hereafter in
effect relating to indemnification for Indemnifiable Events and/or (ii) recovery
under any directors' and officers' liability insurance policies maintained by
the Company, regardless of whether Indemnitee ultimately is determined to be
entitled to such indemnification, advance expense payment or insurance recovery,
as the case may be.
6. Partial Indemnity. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a
Proceeding but not, however, for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled. Moreover, notwithstanding any other provision of this
Agreement to the extent that Indemnitee has been successful on the merits or
otherwise in defense of any or all Proceedings relating in whole or in part to
an Indemnifiable Event or in defense of any issue or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
7. Defense to Indemnification, Burden of Proof and Presumptions. It shall be a
defense to any action brought by the Indemnitee against the Company to enforce
this Agreement (other than an action brought to enforce a claim for expenses
incurred in defending a Proceeding in advance of its final disposition where the
required undertaking has been tendered to the Company) that the Indemnitee has
not met the standards of conduct that make it permissible under the Delaware
General Corporation Law for the Company to indemnify the Indemnitee for the
amount claimed.
5
<PAGE>
In connection with any determination by the Reviewing Party or otherwise as to
whether the Indemnitee is entitled to be indemnified hereunder, the burden of
proving such a defense shall be on the Company. Neither the failure of the
Company (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action by the Indemnitee that indemnification of the claimant is proper under
the circumstances because he or she has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual determination
by the Company (including its Board of Directors, independent legal counsel, or
its stockholders) that the Indemnitee had not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct. For purposes of this
Agreement, the termination of any claim, action, suit or proceeding, by
judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere, or its equivalent, shall not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
8. Non-exclusivity. The rights of the Indemnitee hereunder shall be in
addition to any other rights Indemnitee may have under the Company's Certificate
of Incorporation or Bylaws or the Delaware General Corporation Law or otherwise.
To the extent that a change in the Delaware General Corporation Law (whether by
statute or judicial decision) permits greater indemnification by agreement than
would be afforded currently under the Company's Certificate of Incorporation and
Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
10. Period of Limitations. No legal action shall be brought and no cause of
action shall be asserted by or on behalf of the Company or any affiliate of the
Company against Indemnitee, Indemnitee's spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of accrual
of such cause of action, or such longer period as may be required by state law
under the circumstances, and any claim or cause of action of the Company or its
affiliate shall be extinguished and deemed released unless asserted by the
timely filing of a legal action within such period; provided, however, that if
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
11. Amendment of this Agreement. No supplement modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
6
<PAGE>
12. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
13. No Duplication of Payment. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Bylaw or otherwise) of the amounts otherwise
indemnifiable hereunder.
14. Settlement of Claims. The Company shall not be liable to indemnify
Indemnitee under this Agreement for any amounts paid in settlement of any action
or claim effected without the Company's written consent. The Company shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Indemnitee without Indemnitee's written consent. Neither the
Company nor the Indemnitee will unreasonably withhold their consent to any
proposed settlement. The Company shall not be liable to indemnify the
Indemnitee under this Agreement with regard to any judicial award if the Company
was not given a reasonable and timely opportunity, at its expense, to
participate in the defense of such action.
15. Binding Effect. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors, assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company, spouses, heirs, and personal and legal
representatives. The Company shall require and cause any successor (whether
direct or indirect by purchase, merger, consolidation or otherwise) to all,
substantially all, or a substantial part, of the business and/or assets of the
Company, by written agreement in form and substance satisfactory to the
Indemnitee, expressly to assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform if
no such succession had taken place. This Agreement shall continue in effect
regardless of whether Indemnitee continues to serve as a director or officer of
the Company or of any other enterprise at the Company's request.
16. Severability. The provisions of this Agreement shall be severable in the
event that any of the provisions hereof (including any provision within a single
section, paragraph or sentence) is held by a court of competent jurisdiction to
be invalid, void or otherwise unenforceable, and the remaining provisions shall
remain enforceable to the fullest extent permitted by law. Furthermore, to the
fullest extent possible, the provisions of this agreement (including, without
limitation, each portion of this Agreement containing any provision held to be
invalid, void or otherwise unenforceable, that is not itself invalid, void or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
17. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such State without giving effect to the
principles of conflicts of laws.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Agreement as of the _____ day of __________________, 1999.
BROADBAND SPORTS, INC.
By:__________________________________
Name:________________________________
Title:_______________________________
INDEMNITEE:
By:__________________________________
Name:________________________________
8
<PAGE>
EXHIBIT 10.10
STANDARD OFFICE LEASE
BY AND BETWEEN
LAOP IV, LLC
AS LANDLORD,
AND
SMARTALK TELESERVICES, INC.
AS TENANT
<PAGE>
Table of Contents
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 - Basic Lease Provisions.............................. 1
ARTICLE 2 - Term................................................ 3
ARTICLE 3 - Rental.............................................. 3
(a) Basic Rental........................................ 3
(b) Increase in Direct Costs............................ 4
(c) Definitions......................................... 4
(d) Determination of Payment............................ 8
ARTICLE 4 - Security Deposit.................................... 10
ARTICLE 5 - Holding Over........................................ 10
ARTICLE 6 - Personal Property Taxes............................. 10
ARTICLE 7 - Use................................................. 11
ARTICLE 8 - Condition of Premises............................... 11
ARTICLE 9 - Repairs and Alterations............................. 12
ARTICLE 10 - Liens............................................... 14
ARTICLE 11 - Project Services.................................... 14
ARTICLE 13 - Indemnity; Exemption of Landlord from Liability..... 17
(a) Indemnity........................................... 17
(b) Exemption of Landlord from Liability................ 17
ARTICLE 14 - Insurance
(a) Tenant's Insurance.................................. 17
(b) Form of Policies.................................... 18
(c) Landlord's Insurance................................ 18
(d) Waiver of Subrogation............................... 18
(e) Compliance with Law................................. 19
ARTICLE 15 - Assignment and Subletting........................... 19
ARTICLE 16 - Damage or Destruction............................... 22
ARTICLE 17 - Subordination....................................... 23
ARTICLE 18 - Eminent Domain...................................... 24
</TABLE>
i
<PAGE>
ARTICLE 19 - Default............................................. 24
ARTICLE 20 - Remedies............................................ 25
ARTICLE 21 - Transfer of Landlord's Interest..................... 27
ARTICLE 22 - Broker.............................................. 27
ARTICLE 23 - Parking............................................. 27
ARTICLE 24 - Waiver.............................................. 28
ARTICLE 25 - Estoppel Certificate................................ 28
ARTICLE 26 - Liability of Landlord............................... 28
ARTICLE 27 - Inability to Perform................................ 29
ARTICLE 28 - Hazardous Waste..................................... 29
ARTICLE 29 - Surrender of Premises; Removal of Property.......... 31
ARTICLE 30 - Miscellaneous....................................... 32
(a) Severability; Entire Agreement...................... 32
(b) Attorney's Fees..................................... 32
(c) Time of Essence..................................... 32
(d) Headings............................................ 33
(e) Reserved Area....................................... 33
(f) No Option........................................... 33
(g) Use of Project Name; Improvements................... 33
(h) Rules and Regulations............................... 33
(i) Quite Possession.................................... 33
(j) Rent................................................ 33
(k) Successors and Assigns.............................. 34
(l) Notices............................................. 34
(m) Persistent Delinquencies............................ 34
(n) Right of Landlord to Perform........................ 34
(o) Access, Changes in Project, Facilities, Name........ 34
(p) Corporate Authority................................. 35
(q) Identification of Tenant............................ 35
(r) Substitute Premises................................. 35
(s) Building Codes...................................... 36
(t) Exhibits and Addendum............................... 36
ARTICLE 31 - Option to Renew..................................... 36
(a) Option Right........................................ 36
(b) Option Rent......................................... 36
(c) Exercise of Options................................. 36
ii
<PAGE>
(d) Determination of Market Rent........................ 37
ARTICLE 32 - Right of First Offer/Right of First Refusal......... 37
(a) Right of First Offer................................ 37
(b) Right of First Refusal.............................. 38
ARTICLE 33 - Storage Space....................................... 40
ARTICLE 34 - Signage/Directory................................... 40
ARTICLE 35 - Option to Cancel.................................... 40
ARTICLE 36 - Building Antenna(s) or Satellite Dish(es)........... 41
ARTICLE 37 - Limited Arbitration/Dispute Resolution Procedure.... 42
Addendum [_] Yes [X] No
Exhibit "A" Premises
Exhibit "B" Rules and Regulations
Exhibit "C" Notice of Lease Term Dates and Tenant's Percentage
iii
<PAGE>
STANDARD OFFICE LEASE
This standard Office Lease ("Lease") is made and entered into as of this
10th day of January, 1996, between LAOP IV, LLC, a Nevada limited liability
company ("Landlord"), and SMARTALK TELESERVICES, INC., a California corporation
("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
premises described as Suite No. 500, as designated on the plan attached hereto
and incorporated herein as Exhibit "A" ("Premises"), of the project ("Project")
now known as Westwood Terrace, whose address is 1640 Sepulveda Boulevard, Los
Angeles, California 90025, for the term and upon the terms and conditions
hereinafter set forth, and Landlord and Tenant hereby agree as follows:
ARTICLE 1 - Basic Lease Provisions:
- ----------------------------------
A. Term: Commencement Date: On the later of (i) February 1, 1996, or
(ii) up to five (5) business days after
substantial completion of the tenant
improvement work defined in Article 9 below
to install Tenant's main "T-Switch";
provided, however, Tenant shall use its best
efforts to install such switch prior to the
expiration of said five (5) day period, and
if Tenant does install said switch prior to
the expiration of such five (5) day period
the Lease shall commence on such earlier
date. Substantial completion shall mean
completion of "the Tenant Improvements"
(defined in Article 9), punch-list items
excluded, in accordance with the approved
plans, and the final inspection by the City
of Los Angeles has occurred. Upon Tenant's
occupancy of the Premises, Landlord and
Tenant agree to execute and deliver a
Commencement Letter in a form substantially
similar to that attached hereto as Exhibit
"C." Tenant shall be allowed access to the
Premises prior to the commencement of the
Lease term (without a charge for rent), to
ensure the Premises are properly furnished
and special leasehold improvements,
equipment, furniture, telephone and
computer/data cabling is properly installed
and operational; provided, Tenant shall not
unreasonably interfere with any tenant
improvement work to be done. If Tenant
interferes with the tenant improvement work
because of such early occupancy, the
Commencement Date shall not be delayed but
shall be started as of the date which would
have occurred but for such Tenant
interference.
1
<PAGE>
Expiration Date: Seventy-two (72) months from the
Commencement Date.
B. Square Footage: Approximately 6,795 rentable square feet.
C. Basic Rental:
D. Base Year: 1996
E. Tenant's Proportionate Share:
F. Security Deposit
G. Permitted Use: General office use not inconsistent with the
use in the Project or other first-class
office projects in the area of the Project.
H. Broker: First Property Realty Corporation;
Prentiss Properties, Limited, Inc.
I. Parking Passes: Tenant shall have the use of three (3)
unreserved parking spaces for each 1,000
square feet contained in the Premises, which
equals twenty (20) spaces. Four (4) of the
twenty (20) spaces may be reserved spaces.
Parking charges for such spaces shall be as
set forth in Article 1.J., immediately
below.
J. Parking Charges: All parking provided in Article 1.1. above
shall be at the prevailing monthly rate in
effect at the beginning of each month during
the term of this Lease, and any extensions
or renewals thereof; provided, however, such
charge during the Initial Lease term shall
not exceed Ninety-Nine Dollars ($99.00) a
space each month (including all applicable
taxes) for each unreserved space or One
Hundred Thirty-Two Dollars ($132.00) a space
each month (including all applicable taxes)
for each unreserved space.
K. First Month's Rent:
L. Consent: Whenever the consent of either Landlord or
Tenant is required hereunder, the party
giving such consent shall not unreasonably
withhold or delay the giving of such
consent.
2
<PAGE>
ARTICLE 2 - Term
- ----------------
The term of this Lease shall commence on the Commencement Date (the
"Commencement Date") as set forth in Article l.A. of the Basic Lease Provisions,
and shall end on the expiration date set forth in Article l.A. of the Basic
Lease Provisions. If Landlord is unable to deliver possession of the Premises
to Tenant on or before the Commencement Date, Landlord shall not be subject to
any liability for its failure to do so, and such failure shall not affect the
validity of this Lease nor the obligations of Tenant hereunder, but the term
hereof shall commence on the earlier of (a) the day that Landlord gives Tenant
written notice that the Premises are ready for occupancy or (b) on the day that
Tenant first occupies the Premises, and the expiration of the term hereof shall
be extended accordingly.
In the event that the Substantial Completion of the Premises has not
occurred by the "Outside Date", which shall be July 1, 1996, and as such the
July 1, 1996 date may be extended by the number of days of tenant delays (as
defined below), then the sole remedy of Tenant shall U the right to deliver a
notice to Landlord ("Termination Notice") electing to terminate this Lease
effective upon receipt of the Termination Notice by Landlord ("Effective Date").
The Termination Notice must be delivered by Tenant to Landlord, if at all, not
earlier than the Outside Date and not later than five (5) business days after
the Outside Date.
ARTICLE 3 - Rental
- ------------------
(a) BASIC RENTAL. Tenant agrees to pay to Landlord during the term hereof,
at Landlord's office or to such other person or at such other place as directed
from time to time by written notice to Tenant from Landlord, the initial monthly
and annual sums as set forth in Article 1.C of the Basic Lease Provisions,
payable in advance on the first day of each calendar month, without demand,
setoff or deduction, and in the event this Lease commences or the date of
expiration of this Lease occurs other than on the first day or last day of a
calendar month, the rent of such month shall be prorated. Notwithstanding the
foregoing, the first month's rent shall be paid to Landlord in accordance with
Article 1.K. of the Basic Lease provisions. Basic Rental shall be subject to
increase from time to time pursuant to the subsequent provisions this Article 3,
or other articles of this Lease and any Addendum (if applicable) incorporated
herein.
(b) INCREASE IN DIRECT COSTS. The term "Base Year" means the calendar year
set forth in Article l.D. of the Basic Lease Provisions. If, in any calendar
year during the term of this Lease, the "direct costs" (as hereinafter defined)
paid or incurred by Landlord shall be higher than the direct costs for the Base
Year, Tenant shall pay an additional sum for such and each subsequent calendar
year equal to the product of the amount set forth in Article 1.E. of the Basic
Lease Provisions multiplied by such increased amount of "direct costs." In the
event either the Premises and/or the Project is expanded or reduced, then
Tenant's proportionate share shall be appropriately adjusted, and as to the
calendar year in which such change occurs, Tenant's proportionate share for such
year shall be determined on the basis of the number of days during that
particular calendar year that such Tenant's proportionate share was in effect.
In the event this Lease shall terminate on any date other than the last day of A
calendar year, the additional sum payable hereunder by Tenant during the
calendar year in which this Lease terminates shall be prorated on the basis of
the relationship which the number of days which have elapsed from the
commencement of said calendar year to and including said date on which this
Lease
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terminates bears to three hundred sixty (360). Any and all amounts due and
payable by Tenant pursuant to Article 3(b), (c) and (d) hereof shall be deemed
"Additional Rent" and Landlord shall be entitled to exercise the same rights and
remedies upon default in these payments as Landlord is entitled to exercise with
respect to defaults in monthly Basic Rental payments.
(c) DEFINITIONS. As used herein the term "direct costs" shall mean the sum
of the following:
(i) "Tax Costs," which shall mean any and all real estate taxes and
other similar charges on real property or improvements, assessments, water and
sewer charges, and all other charges assessed, reassessed or levied upon the
Project and appurtenances thereto and the parking or other facilities thereof,
or the real property (the "Property") thereunder (collectively the "Real
Property") or attributable thereto or on the rents, issues, profits or income
received or derived therefrom which axe assessed, reassessed or levied by the
United States, the state of California or any local government authority or
agency or any political subdivision thereof, and shall include Landlord's
reasonable legal fees, costs and disbursements incurred in connection with
proceedings for reduction of Tax Costs or any part thereof (but only to the
extent Landlord reasonably expects to receive a reduction of Tax Costs);
provided, however, if at any time after the date of this Lease the methods of
taxation now prevailing shall be altered so that in lieu of or as a supplement
to or a substitute for the whole or any part of any Tax Costs, there shall be
assessed, reassessed or levied (a) a tax, assessment, reassessment, levy,
imposition or charge wholly or partially as a net income, capital or franchise
levy or otherwise on the rents, issues, profits or income derived therefrom, or
(b) a tax, assessment, reassessment, levy (including but not limited to any
municipal, state or federal levy), imposition or charge measured by or based in
whole or in part upon the Real Property and imposed upon Landlord, or (c) a
license fee measured by the rent payable under this Lease, then all such taxes,
assessments, reassessments or levies or the part thereof so measured or based,
shall be deemed to be included in the term "direct costs." Notwithstanding the
foregoing, Tax Costs shall not include excess profits, franchise taxes, gift
taxes, capital stock taxes, inheritance and succession taxes, estate taxes and
federal and state income taxes. Any increase in Tax Costs as a result of the
sale of the Project in 1995 which is paid, assessed or which accrues during the
Base Year shall be included in Tax Costs for the Base Year. Notwithstanding
anything to the contrary set forth in this Article 3(c)(i), any Tax Cost
increase resulting from the sale or transfer of the Project after the execution
of this Lease which results in a reassessment of the Project for tax purposes
shall not be included in computations for payment of increases of direct costs
during the first three (3) years of the initial Lease term.
(ii) "Operating Costs," which shall mean all costs and expenses
incurred by Landlord in connection with the maintenance, operation, replacement,
ownership (as set forth herein) and repair of the Project, the equipment, the
intrabuilding network cable, adjacent walks, malls and landscaped and common
areas and the parking structure, areas and facilities of the Project, including,
but not limited to, salaries, wages, medical, surgical and general welfare
benefits and pension payments, payroll taxes, fringe benefits, employment taxes,
workers' compensation, uniforms and dry cleaning thereof for all persons who
perform duties connected with the operation, maintenance and repair of the
Project, its equipment the intrabuilding network cable and the adjacent walks
and landscaped areas, including janitorial, gardening, security , parking,
operating engineer, elevator, painting, plumbing, electrical, carpentry,
heating,
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ventilation, air conditioning, window washing, hired services, a reasonable
allowance for depreciation of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of the Project,
accountant's fees incurred in the preparation of rent adjustment statements,
legal fees, real estate tax consulting fees, personal property taxes on property
used in the maintenance and operation of the Project, gross receipts tax imposed
by the City of Los Angeles, capital expenditures incurred to effect economies of
operation (but only to the extent Landlord reasonably expects to receive a
savings effect from such capital expenditures) and capital expenditures required
by government regulations, laws, or ordinances, and the cost of all charges for
electricity, gas, water and other utilities furnished to the Project, including
any taxes thereon; the cost of all charges for fire and extended coverage,
liability and all other insurance for the Project carried by Landlord (provided,
however, if Landlord acquires additional insurance, then Landlord shall
recalculate the Base Year to take into account the cost of such additional
insurance as if the same had been an operating Cost in existence at the time the
Base Year was determined); the cost of all building and cleaning supplies and
materials; the cost of all charges for cleaning, maintenance and service
contracts and other services with independent contractors (including property
management fees); and license, permit and inspection fees relating to the
Project. In the event, during any calendar year, the Project is less than
ninety-five percent (95%) occupied at all times, the operating Costs shall be
adjusted to reflect the operating costs of the Project as though ninety-five
percent (95%) were occupied at all times, and the Increase or decrease in the
sums owed hereunder shall be based upon such operating costs as so adjusted.
Operating Costs shall also include all management fees (provided, however, the
Base Year Management fees shall be determined based on the percentage described
in Subsection (c)(ii)(k) immediately below) and administrative fees.
Notwithstanding the foregoing, for purposes of this Lease, Operating Costs and
Tax Costs shall not, however, include:
(a) Costs, including marketing costs, legal fees, space planner's
fees, advertising and promotional expenses, and brokerage fees incurred in
connection with the original construction or development, or leasing of the
Project, and costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant improvements made for
new tenants in the Project or incurred in renovating or otherwise
improving, decorating, painting or redecorating vacant space for tenants or
other occupants of the Project (excluding, however, such costs relating to
any common areas of the Project or parking facilities);
(b) Depreciation, interest and principal payments on mortgage and
other debt costs, if any, penalties and interest, costs of all capital
items (except as set forth in (c)(ii) above with respect to economies of
operation and governmental compliance)f including without limitation,
repairs, replacements and alterations, and costs of capital improvements
and equipment;
(c) Costs for which Landlord is reimbursed by any tenant or
occupant of the Project or by insurance by its carrier or any tenant's
carrier, and electric power costs for which any tenant directly contracts
with the local public service company;
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(d) Costs associated with the operation of the business of the
partnership or entity which constitutes the Landlord, as the same are
distinguished from the costs of operation of the Project;
(e) The wages and benefits of any employee who does not devote
substantially all of his or her employed time to the Project unless such
wages and benefits are prorated to reflect time spent on maintaining,
operating or managing the Project vis-a-vis time spent on matters unrelated
to maintaining, operating or managing the Project; provided, that in no
event shall Operating Costs for purposes of this Lease include wages and/or
benefits attributable to personnel above the level of Project Manager or
Project Engineer (and allocated costs of Landlord's Asset Supervisor);
(f) Amount as ground rental for the Project by the Landlord;
(g) Except for a Project management fee to the extent allowed
pursuant to Subparagraph (c)(ii)(k) below, overhead and profit increment
paid to the Landlord or to subsidiaries or affiliates of the Landlord for
services in the Project to the extent the same exceeds the costs of such
services rendered by unaffiliated third parties on a competitive basis;
(h) Any compensation, including wages, benefits and bonuses paid
to clerks, attendants or other persons in commercial concessions (except
parking) operated by the Landlord;
(i) Rentals and other related expenses incurred in leasing air
conditioning systems, elevators or other equipment which if purchased the
cost of which would be excluded from Operating Costs as a capital cost,
except equipment not affixed to the Project which is used in providing
janitorial or similar services and, further excepting from this exclusion
such equipment rented or leased to remedy or ameliorate an emergency
condition in the Project;
(j) Costs, other than those incurred in ordinary maintenance and
repair, for sculpture, painting, fountains or other objects or art;
(k) Fees payable by landlord for management of the Project in
excess of five percent (5%) of Landlord's gross rental revenues, adjusted
and grossed up to reflect a one hundred percent (100%) occupancy of the
Project with all tenants paying rent, including base rent, pass-throughs
and parking fees (but excluding the cost of after-hours services or
utilities) from the Project for any calendar year or portion thereof;
(1) Any costs expressly excluded from Operating costs elsewhere
under this Lease;
(m) Rent for any space occupied by Project management personnel
to the extent the size or rental rate of such office space exceeds the size
or fair market rental value of office space occupied by management
personnel of the comparable buildings in the vicinity of the Project, with
adjustment where appropriate for the size of the applicable project;
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(n) Costs arising from Landlord's charitable or political
contributions;
(o) costs arising from the gross negligence or willful misconduct
of Landlord or its agents, employees, vendors, contractors, or providers of
materials or services, and costs arising from legal proceedings against
other tenants or occupants of the Project, or prospective occupants of the
Project;
(p) Costs of advertising and promotion;
(q) Except as set forth in Article 28 below, costs incurred to
comply with laws relating to the removal of hazardous material (as defined
under applicable law) and asbestos or asbestos containing material
(collectively, "Hazardous Material") which was in existence in or on the
Project prior to the Lease Commencement Date, and was of such a nature that
a federal, state or municipal governmental authorities, if it had then had
knowledge of the presence of such Hazardous Material, in the state, and
under the conditions that then existed in or on the Project, would have
then required the removal of such Hazardous Material or other remedial or
containment action with respect thereto; and costs incurred to remove,
remedy, contain or treat Hazardous Material, which Hazardous Material is
brought into or onto the Project after the date hereof by Landlord and is
of such a nature, at that time, that a federal, state or municipal
governmental authority, if it had then had knowledge of the presence of
such Hazardous Material in the state and under the conditions that then
exists in the building or on the Project, would have then required the
removal of such Hazardous Material or other remedial or containment action
with respect thereto;
(r) Any bad debt loss, rent loss, or reserves;
(s) Costs of seismic inspection and testing required pursuant to
statutes, codes or ordinances in effect and as enacted prior to the Lease
Commencement Date; and
(t) costs for capital improvements to comply with the
requirements of the Americans with Disabilities Act as enacted as of the
execution of this Lease.
(d) DETERMINATION OF PAYMENT.
(i) At any time following the end of calendar year 1996, but not more
often than once (excepting therefrom adjusted billings) during each calendar
year, commencing with the present calendar year, Landlord shall furnish to
Tenant a written statement showing in reasonable detail Landlord's direct costs
for the Base Year and for the calendar year preceding the year in which such
statement is furnished, and showing the amount, if any, of any increase or
decrease in the sums due from Tenant for such calendar year. The failure of
Landlord to so furnish said statement shall not constitute a default by Landlord
hereunder or a waiver of Landlord's right to any adjustment provided for
hereunder.
(ii) On the monthly rental payment date which next occurs thirty (30)
days after Tenant's receipt of such statement Tenant shall pay to Landlord an
amount equal to the sum of (a) the amount shown in said statement as being due
from Tenant (less any amounts paid by
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Tenant on account therefrom during such previous calendar year) and (b) one
twelfth (1/12th) of said amount multiplied by the number of rental payment dates
having elapsed during the current calendar year, to be applied on account of
Tenant's proportionate share of the increase in direct costs for the then
present calendar year. The monthly rental payment then due and subsequent
monthly rental payments during the then current calendar year shall be increased
by one-twelfth (1/12th) of Tenant's Proportionate Share of the increase in
direct costs for the preceding calendar year over the Base Year direct costs. In
the case of the decrease in direct costs, any overpayment by Tenant shall be
credited against the next rent payment falling due.
(iii) In the event Tenant disputes Landlord's calculation of any
Additional Rent due hereunder for a given Lease year, Tenant shall, only once
for each lease year, have the right within one hundred eighty (180) days of
receipt of the yearly reconciliation provided to Tenant from Landlord, after
reasonable notice and at reasonable times, to inspect Landlord's accounting
records at Landlord's accounting office and if, after such inspection, Tenant
still disputes such Additional Rent, a certification as to the proper amount
shall be made by a nationally recognized accounting firm (who is paid on an
hourly or flat-fee basis and not a contingency or commission basis) selected by
Tenant and approved by Landlord. Tenant agrees to pay the cost of such
certification unless it is subsequently determined that Landlord's original
statement was in error to Tenant's disadvantage by more than five percent (5%)
of the direct costs. As a condition precedent to its exercise of its rights of
dispute aforesaid, Tenant shall timely pay to Landlord all amounts set forth in
the statement which Tenant wishes to dispute.
No audit may be conducted by Tenant if any other tenant of the Project
has notified Landlord of its intention to perform an audit and timely performs
the same. If Tenant requests an audit and another tenant of the Project has
previously notified Landlord of its intention to audit, then Landlord agrees to
furnish to Tenant a copy of the results of such other audit. No audit shall be
conducted if Tenant is in default under any provision of this Lease, including,
but not limited to, timely payment of any amount due pursuant to the actual
statement. Tenant shall deliver to Landlord a copy of the results of an audit
within fifteen (15) days of its receipt by Tenant.
If an audit indicates an over-billing, Tenant may submit a claim for
the over-billed amount to Landlord, detailing the nature of the over-billing,
and Landlord shall have sixty (60) days to pay such amount or contest the claim
by giving notice thereof to Tenant, detailing the nature of Landlord's contest
of Tenant's claims. If Landlord contests the claim, either Landlord or Tenant
may submit the claim to arbitration in accordance with the dispute resolution
procedures set forth by the American Arbitration Association (or similar
successor entity) for such matters. If the arbitration discloses that the
actual statement is more than five percent (5%) overstated, Landlord shall,
within thirty (30) days of the date of decision by the Arbitrator, pay to Tenant
the amount of any over-billing. If the Arbitrator determines that the actual
statement is understated, Tenant shall, within thirty (30) days of the date of
the Arbitrator's decision pay to Landlord the amount of the underbilling so
determined.
Except as provided in this Article 3, Tenant shall keep all
information gained in connection with any audit confidential. Tenant shall not
disclose any information gained in connection with any audit to third parties
except to those who must receive the information in order to carry out the
purpose of this Article 3, and agree in writing to keep the information
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confidential. Failure to observe the provision of this confidentiality
requirement shall be deemed a material default under the Lease.
(iv) Landlord shall have the right, prior to the commencement of each
calendar year during the term hereof during which Tenant's obligation may
adjusted under this Article 3, to furnish to Tenant a written estimate showing
in reasonable detail Landlord's estimated direct costs for the next following
calendar year and the amount of Tenant's proportionate share of increase in
direct costs over the Base Year direct costs appropriately prorated on a monthly
basis. Thereafter, the monthly rent adjustment payments becoming due hereunder
shall be in the amounts set forth in said written estimate. Neither Landlord's
failure to deliver nor the late delivery of such estimate shall constitute a
default by Landlord hereunder or a waiver of Landlord's right to any rent or
other-adjustment provided for herein. Within one hundred twenty (120) calendar
days following the close of each calendar year during the term hereof, Landlord
will furnish to Tenant a written statement (the "Reconciliation") showing in
reasonable detail Landlord's actual direct costs for the relevant calendar year,
together with a full statement of any adjustments necessary to reconcile any
sums paid (or credited) hereunder as an estimated amount of Tenant's
Proportionate Share of direct costs during such calendar year with those sums
actually payable and due hereunder for such calendar year as set forth in the
Reconciliation. If the Reconciliation shows that additional sums are due from
Tenant hereunder, Tenant shall pay such sums to Landlord within thirty (30) days
of receipt of the Reconciliation. If the Reconciliation shows that a credit is
due Tenant, such credit shall be credited against the next sums becoming due
from Tenant hereunder. Notwithstanding that the term of this Lease has expired
and Tenant has vacated the Premises, Tenant shall pay to Landlord any additional
sums due Landlord and Landlord shall rebate to Tenant the amount of any credit
due Tenant, as set forth in the Reconciliation for the year in which the Lease
term expired. Even though the term of this Lease has expired and Tenant has
vacated the Premises, when the final determination is made of Tenant's share of
Tax Costs and operating Costs for the year in which this Lease terminated,
Tenant shall pay any increase due over the estimated amounts paid. The terms of
this Article 3(d)(iv) shall survive the expiration or earlier termination of the
Lease Term (including any and all option periods, if applicable).
ARTICLE 4 - Security Deposit
- ----------------------------
Tenant has deposited with Landlord the sum set forth in Article 1.F. of the
Basic Lease Provisions as security for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant breaches any
provision of this Lease, including but not limited to that payment of rent,
Landlord may, following the expiration of any grace or n ice period, use all or
any part of this security deposit for the payment of any rent or any other sums
in default, or to compensate Landlord for any other loss or damage which
Landlord may suffer by reason of Tenant's default. If any portion of said
deposit is so used or applied, Tenant shall, within five (5) days after written
demand therefor, deposit cash with Landlord in an amount sufficient to restore
the security deposit to amount then required in Article 1.F. of the Basic Lease
Provisions. Tenant agrees that Landlord shall not be required to keep this
security deposit in trust, segregate it or keep it separate from Landlord's
general funds but Landlord may commingle the security deposit with its general
funds and Tenant shall not be entitled to interest on such deposit. At the
expiration of the Lease term, and provided there exists no default, following
the expiration of any grace or notice period, by Tenant hereunder, the security
deposit or any balance thereof shall
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be returned to Tenant (or, at Landlord's option, to Tenant's assignee), provided
that subsequent to the expiration of this Lease, Landlord may retain from said
security deposit (a) any and all amounts permitted by California Civil Code
(S)1950.7 or any successor or replacement statute; but not limited to this
section.
ARTICLE 5 - Holding Over
- ------------------------
Should Tenant, without Landlord's written consent, hold over after
termination of this Lease, Tenant shall become a tenant from month to month,
only upon each and all of the terms herein provided as may be applicable to a
mouth-to-month tenancy, and any such holding over shall not constitute an
extension of this Lease. During the first three (3) months of such holding
over, Tenant shall pay on the first of each month, Monthly Basic Rental, all
direct costs, and all other and additional rent due hereunder at the rate of one
hundred twenty-five percent (25%) for such amounts in effect for the last month
of the Lease term. After the first three (3) months of such holding-over
period, Tenant shall pay Monthly Basic Rental at the rate of one hundred fifty
percent (150%) of the Monthly Basic Rental in effect for the last month of the
term of this Lease, in addition to, and not in lieu of, all other payments
required to be made by Tenant hereunder, including but not limited to, Tenant's
Proportionate Share of any increase in direct costs. If Tenant fails to
surrender the Premises upon the expiration or termination of this Lease, Tenant
hereby indemnifies and agrees to hold Landlord and any real estate broker and
agent harmless from all costs, loss, expense or liability, including without
limitation, costs, real estate brokers claims and attorney's fees.
ARTICLE 6 - Personal Property Taxes
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Tenant shall pay, prior to delinquency, all taxes assessed against or
levied upon fixtures, furnishings, equipment and all other personal property of
Tenant located in the Premises. In the event any or all of Tenant's fixtures,
furnishings, equipment and other personal property shall be assessed and taxed
with property of Landlord, Tenant shall pay to Landlord its share of such taxes
within ten (10) days after delivery to Tenant by Landlord of a statement in
writing setting forth the amount of such taxes applicable to Tenant's property.
Tenant shall pay directly to the party or entity entitled thereto all business
license fees, gross receipts taxes and similar taxes and impositions which may
from time to time be assessed against or levied upon Tenant, as and when the
same become due and before delinquency. Notwithstanding anything to the
contrary contained herein, any sums payable by Tenant under this Article 6 shall
not be included in the computation of "Tax Costs."
ARTICLE 7 - Use
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Tenant shall use and occupy the Premises only for the use set forth in
Article 1.G. of the Basic Lease Provisions and shall not use or occupy the
Premises or permit the same to be used or occupied for any other purpose without
the prior written consent of Landlord, which Landlord consent may be given or
withheld in its sole and absolute discretion, and Tenant agrees that it will use
the Premises in such a manner so as not to unreasonably interfere with or
infringe the rights of other tenants in the Project. Tenant shall, at its sole
cost and expense, promptly comply with all laws, statutes, ordinances and
governmental regulations or requirements now in force or which may hereafter be
in force relating to or affecting (i) the manner of use or occupancy of the
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Premises or the Project, and (ii) improvements installed or constructed in the
Premises by or for the benefit of Tenant. Tenant shall not do or permit to be
dome anything which would invalidate or increase the cost of any fire and
extended coverage insurance policy covering the Project and/or the property
located therein and Tenant shall comply with all rules, orders, regulations and
requirements of any organization which sets out standards, requirements or
recommendations commonly referred to by major fire insurance underwriters.
Tenant shall promptly upon demand reimburse Landlord for any additional premium
charges for any such insurance policy assessed or increased by reason of
Tenant's failure to comply with the provisions of this Article.
ARTICLE 8 - Condition of Premises
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Tenant hereby agrees that the Premises shall be taken "as is", and Tenant
hereby agrees and warrants that it has inspected the condition of the visible
portion of the Premises and the suitability of same for Tenant's purposes, and
Tenant does hereby waive and disclaim any objection to, cause action based upon,
or claim that its obligations hereunder should be reduced or limited because of
the condition of the visible portions of the Premises or the Project or the
suitability of same for Tenant's purposes. The foregoing sentence
notwithstanding, Landlord agrees to bear the cost for any latent structural
defects in the Premises which are discovered by Tenant (and written notice is
given to Landlord) during the first year of the Lease term only except to the
extent set forth in this Lease, Tenant acknowledges that neither Landlord nor
any agent nor any employee of Landlord has made any representations or warranty
with respect to the Premises or the Project or with respect to the suitability
of either for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall conclusively establish that the Premises and the
Project were at such time in satisfactory condition, subject to punch list items
if applicable. Tenant hereby waives Sections 1941 and 1942 of the Civil Code of
California or any successor provision of law.
Landlord reserves the right from time to time: (i) to install, use,
maintain, repair, replace and relocate for service to the Premises and/or other
parts of the Project pipes, ducts, conduits, wires, appurtenant fixtures, and
mechanical systems, wherever located in the Premises or the Project, (ii) to
alter, close or relocate any facility in the Premises or the Common Areas or
otherwise conduct any of the above activities for the purpose of complying with
a general plan for fire/life safety for the Project or otherwise and (iii) to
comply with any federal, state or local law, rule or order with respect thereto
or the regulation thereof not currently in effect. Landlord shall attempt to
perform any such work with the least inconvenience to Tenant as possible
(including the performance of same during after hours), but in no event shall
Tenant be permitted to withhold or reduce Basic Rent or other charges due
hereunder as a result of same or otherwise make claim against Landlord for
interruption or interference with Tenant's business and/or operations or for any
other reason whatsoever unless the work materially interferes with the operation
of Tenant's business.
Landlord agrees, at its sole cost and expense, to thoroughly clean the
Premises immediately prior to Tenant's occupancy and immediately after Tenant
has moved in and "set-up" the Premises.
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ARTICLE 9 - Repairs and Alterations
- -----------------------------------
Tenant shall keep the Premises in good condition and repair, except for
damage caused by ordinary wear and tear, or caused by Landlord, its agents,
representatives, employees or contractors or otherwise beyond the reasonable
control of Tenant (provided, however, such exclusion shall not exclude damage
caused by Tenant or Tenant's employees, invitees, agents and the like). All
damage or injury to the Premises or the Project caused by the act or negligence
of Tenant, its employees, agents or visitors, guests, invitees or licensees or
by the use of the Premises shall be promptly repaired by Tenant, at its sole
cost and expense (except to the extent Landlord has responsibility for same
under this Lease.), to the satisfaction of Landlord; provided, however, that for
damage to the Project, Landlord shall have the right (but not the obligation) to
select the contractor and oversee all such repairs. Landlord may make any
repairs which are not promptly made by Tenant after Tenant's receipt of written
notice and the reasonable opportunity of Tenant to make said repair within five
(5) business days from receipt of said written notice, and charge Tenant for the
cost thereof, which cost shall be paid by Tenant within five (5) days from
invoice from Landlord. Tenant shall be responsible for the design and function
of all nonstandard improvements of the Premises, whether or not installed by
Landlord at Tenant's request. Tenant waives all rights to make repairs at the
expense of Landlord, or to deduct the cost thereof from the rent. Tenant shall
make no alterations, changes or additions in or to the Premises without
Landlord's prior written consent, and then only by contractors or mechanics
approved by Landlord in writing and upon the approval by Landlord in writing of
fully detailed and dimensioned plans and specifications pertaining to the work
in question, to be prepared and submitted by Tenant at its sole cost and
expense. Tenant shall at its sole cost and expense obtain all necessary
approvals and permits pertaining to any work approved by Landlord. If Landlord,
in approving any work, specifies a reasonable commencement date therefor, Tenant
shall not commence any work prior to such date. Tenant hereby indemnifies and
agrees to hold Landlord free and harmless from all liens and claims of lien, and
all other liability, claims and demands arising out of any work done or material
supplied to the Premises by or at the request of Tenant. If permitted
alterations, changes, or additions are made, they shall be made at Tenant's sole
cost and expense and shall be and become the property of Landlord, except that
Landlord may, by written notice to Tenant given at the time of approval of such
work, require Tenant it Tenant's expense to remove all partitions, counters,
i and the like installed by Tenant (excluding the Tenant Improvements as
defined below), and to repair any damages to the Premises caused by such
removal. With regard to repairs, alterations or any other work (excluding the
Tenant Improvements) arising from or related to this Article 9 which Tenant
requests Landlord to complete, Landlord shall be entitled to receive an
administrative/supervision fee of fifteen percent (15%) of the total cost of all
(i) work performed; (ii) materials, plans and drawings furnished; and (iii) all
other costs and expenses related to such repairs, alterations or other work.
below, Tenant shall also pay for any required metering system for such unit(s)
and shall pay for any and all utility charges to operate the unit(s).
Notwithstanding anything to the contrary contained in this Lease, the
contractor(s) and subcontractors constructing the Tenant Improvements shall
receive free on-site parking during construction of the Tenant Improvements, and
Tenant shall not be charged for the use of freight elevators, loading docks,
utilities or temporary HVAC during the construction of the Tenant Improvements.
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ARTICLE 10 - Liens
- ------------------
Tenant shall keep the Premises and the Project free from any mechanics'
liens, vendors liens or any other liens arising out of any work performed,
materials furnished or obligations incurred by Tenant, and agrees to defend,
indemnify and hold harmless Landlord from and against any such lien or claim or
action thereon, together with costs of suit and reasonable attorneys, fees
incurred by Landlord in connection with any such claim or action. Before
commencing any work of alteration, addition or improvement (other than the
Tenant Improvements) to the Premises, Tenant shall give Landlord at least ten
(10) business days' written notice of the proposed commencement of such work (to
afford Landlord an opportunity to post appropriate notices of non-
responsibility). In the event that there shall be recorded against the Premises
or the Project or the property of which the Premises is a part any claim or lien
arising out of any such work performed, materials furnished or obligations
incurred by Tenant and such claim or lien shall not be removed or discharged
within ten (10) days of filing, Landlord shall have the right but not the
obligation to pay and discharge said lien without regard to whether such lien
shall be lawful or correct or to require that Tenant deposit with Landlord in
cash, lawful money of the United States, one hundred fifty percent (150%) of the
amount of such claim, which sum may be retained by Landlord until such claim
shall have been removed of record or until judgment shall have been rendered on
such claim and such judgment shall have become final, at which time Landlord
shall have the right to apply such deposit in discharge of the judgment on said
claim and any costs, including attorneys' fees incurred by Landlord, and shall
remit the balance thereof to Tenant.
ARTICLE 11 - Project Services
- -----------------------------
(a) Landlord agrees to furnish to the Premises, at a cost to be included
in Operating Costs, from 8:00 a.m. to 6:00 p.m. Mondays through Fridays and 9:00
a.m. to 1:00 p.m. on Saturdays, excepting local and national holidays, air
conditioning and heat, electric current for normal lighting and fractional
horsepower for office machines, elevator service and water on the same floor as
the Premises, for lavatory and drinking purposes, all in such reasonable
quantities as in the judgment of Landlord is reasonably necessary for the
comfortable occupancy of the Premises and otherwise consistent with the amounts
furnished by landlords of similar office buildings in West Los Angeles.
Janitorial and maintenance services shall be furnished five (5) days a week,
excepting local and national holidays. Tenant shall comply with all non-
discriminatory rules and regulations which Landlord may reasonable establish for
the proper functioning and protection of the common area air conditioning,
heating, elevator, electrical intrabuilding network cable and plumbing systems.
Landlord shall enforce said rules and regulations on a non-discriminatory basis.
Landlord shall not be liable for, and there shall be no rent abatement as a
result of, any stoppage, reduction or interruption of any such services caused
by governmental rules, regulations or ordinances, riot, strike, labor disputes,
breakdowns, accidents, necessary repairs or other cause. Except as specifically
provided in this Article 11, Tenant agrees to pay for all utilities and other
services utilized by Tenant for all overtime or additional building services
furnished to Tenant not uniformly furnished to all tenants of the Project at
Landlord's actual expense.
(b) Tenant will not, without the prior written consent of Landlord, use
any apparatus or device in the Premises, including without limitation electronic
data processing machines,
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computer or video equipment or other machines or equipment, using current in
excess of 110 volts, which will in any way increase the amount of electricity or
water usually furnished or supplied for use of the Premises as general office
space; nor connect any apparatus, machine or device with water pipes or electric
current (except through existing electrical outlets in the Premises), for the
purpose of using electric current or water. Nothing contained in this subsection
(b) is intended to restrict Tenant from using equipment and other machines which
are deemed to be standard in first-class office buildings in West Los Angeles.
(c) If Tenant shall require electric current in excess of that which
Landlord is obligated to furnish under Article 11(a) and (b) above, Tenant shall
first obtain the written consent of Landlord, which Landlord may refuse in its
reasonable discretion, to the use thereof and Landlord may cause an electric
current meter to be installed in the Premises to measure the amount of electric
current consumed for any such other use. The cost of any such meter and of
installation, maintenance and repair thereof shall be paid for by Tenant so long
as such consumption by Tenant is in excess of that uniformly furnished to all
tenants at Landlord's expense, and Tenant agrees to pay to Landlord, promptly
upon demand therefor by Landlord, for all such excess electric current consumed
by any such use as shown by said meter at the rates charged for such service by
the City in which the Project is located or the local Public Utility, as the
case may be, furnishing the same, plus any additional expense incurred by
Landlord in keeping account of the electric current so consumed.
(d) If any lights, machines or equipment (including but not limited to
computers) are used by Tenant in the Premises in amounts beyond the standard
found in first-class office buildings in West Los Angeles and which materially
affect the temperature otherwise maintained by the air conditioning system, or
generate substantially more heat in the Premises than would be generated by the
building standard lights and usual fractional horsepower office equipment,
Landlord shall have the right to install any machinery and equipment which
Landlord reasonably deems necessary to restore temperature balance, including
but not limited to modifications to the standard air conditioning equipment, and
the cost thereof, including the cost of installation and any additional cost of
operation and maintenance occasioned thereby, shall be paid by Tenant to
Landlord upon demand by Landlord. Landlord shall not be liable under any
circumstances for loss of or injury to properly, however occurring, through or
in connection with or incidental to failure to furnish any of the foregoing,
[unless such failure was within Landlord's actual control to prevent.]
(e) If Tenant requires heating, ventilation and/or air conditioning during
times other than the times provided in Article 11(a) above, Tenant shall give
Landlord such advance notice as Landlord shall reasonably require and shall pay
Landlord's actual cost for the use of such equipment with a two (2) hour minimum
provided, however, the cost for the use f such equipment shall not exceed,
during the Lease term, Sixty-Five Dollars ($65.00) for each hour.
(f) Landlord, at its sole cost and expense, shall hire a security service
company for the Project, which company shall also provide after-hours escort
service to the Project's parking structure for Tenant's employees and visitors.
Landlord makes no representations as to the type and level of security or
quality of the company's employees. Tenant specifically agrees that the
security is for the Project and is not a full-time service to guard the parking
structure or the Premises.
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(g) In the event that Tenant is prevented from using the Premises or any
portion thereof as a result of any failure of Landlord to provide utilities,
services or access to the Premises or the Project, or there exists a hazardous
material in the Premises (not brought into the Premises by Tenant or any party
under Tenant's control, including employees, invitees, customers and the like)
which by law prevents Tenant from using the Premises, then Tenant shall promptly
give Landlord notice thereof ("Tenant's Notice"). Notwithstanding anything to
the contrary contained in this Lease, in the event that Tenant prevented from
using the Premises or any portion thereof as a result of such a failure for a
period of five (5) consecutive business days following the date Landlord
receives Tenant's Notice ("Notice Date"), all of Tenant's rents (and escalations
thereto) shall be abated or reduced, as the case may be, in the proportion that
the rentable area of the portion of the Premises that the Tenant is prevented
from using bears to the total rentable area of the Premises, during the period
after the Notice Date that Tenant is prevented from conducting its business from
the Premises or portion of the Premises. However, in the event that Tenant is
prevented from conducting its business in any portion of the Premises and the
remaining portion of the Premises is not sufficient to allow Tenant to
efficiently conduct its business therein, and if Tenant does not conduct its
business-from such remaining portion, then all of the rents for the entire
Premises shall be abated during said period. Provided, however, that if Tenant
is prevented from using the Premises and Tenant reoccupies and conducts its
business from any portion of the Premises during such period, the rents
allocable to such reoccupied portion, based upon the proportion which the
rentable area of such reoccupied portion of the Premises bears to the total
rentable area of the Premises, shall be payable by Tenant from the date such
business operation commences.
ARTICLE 12 - Rights of Landlord
- -------------------------------
Landlord and its agents shall have the right to enter the Premises at all
reasonable times for the purpose of cleaning the Premises, examining or
inspecting the same, serving or posting and keeping posted thereon notice's as
provided by law, or which Landlord deems necessary for the protection of
Landlord or the Property, showing the same to prospective tenants or purchasers
of the Project, in the case of an emergency, and for making such alterations,
repairs, improvements or additions to the Premises or to the Project as Landlord
may deem necessary or desirable. If Tenant shall not be personally present to
open and permit an entry into the Premises at any time when such an entry by
Landlord is necessary or permitted hereunder, Landlord may enter by means of a
master key or may enter forcibly, only in the case of an emergency, without
liability to Tenant except for any failure to exercise due care for Tenant's
property, and without-affecting this Lease. Any such entry by Landlord shall be
conducted at such times as is reasonably necessary under the circumstances to
cause the least amount of disruption to Tenant's business.
ARTICLE 13 - Indemnity; Exemption of Landlord from Liability
- ------------------------------------------------------------
(a) INDEMNITY. Tenant shall indemnify, defend and hold Landlord harmless
from any and all claims arising from Tenant's use of the Premises or the Project
(including Tenant's Signage rights set forth in Article 34) or from the conduct
of its business or from any activity, work or thing which may be permitted or
suffered by Tenant in or about the Premises or the Project and shall further
indemnify, defend and hold Landlord harmless from and against any and all claims
arising from any breach or default in the performance of any obligation on
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Tenant's part to be performed under this Lease or arising from any negligence of
Tenant or any of its agents, contractors, employees or invitees, patrons or
customers in or about the Project and from any and all costs, attorneys' fees,
expenses and liabilities incurred in the defense of any claim or any action or
proceeding brought thereon, including negotiations in connection therewith.
Tenant hereby assumes all risk of damage to property or injury to persons in or
about the Premises from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, excepting where the damage is caused by the
gross negligence or willful misconduct of Landlord and is not covered by
Tenant's insurance.
(b) EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not be liable for
injury to Tenant's business, or loss of income therefrom, or for damage that may
be sustained by the person, goods, wares, merchandise or property of Tenant, its
employees, invitees, customers, agents, or contractors, or any other person in,
on or about the Premises directly or indirectly caused by or resulting from
fire, steam, electricity, gas, water, or rain which may leak or flow from or
into any part of the Premises, or from the breakage , leakage, obstruction or
other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, light fixtures, or mechanical or electrical systems or from
intrabuilding network cable, whether such damage or injury results from
conditions arising upon the Premises or upon other portions of the Project or
from other sources or places and regardless of whether the cause of such damage
or injury or the means or repairing the same is inaccessible to Tenant, except
in connection with damage or injury resulting from the gross negligence or
willful misconduct of Landlord, or its authorized agents. Landlord shall not be
liable to Tenant for any damages arising from any act or neglect of any other
tenant of the building.
ARTICLE 14 - Insurance
- ----------------------
(a) TENANT'S INSURANCE. Tenant, shall at all times during the term of this
Lease, and at its own cost and expense, procure and continue in force the
following insurance coverage: (i) Commercial General Liability Insurance with a
combined single limit for bodily injury and property damages of not less than
One Million Dollars ($1,000,000) per occurrence and Two Million Dollars
($2,000,000) in the annual aggregate, including products liability coverage if
applicable, covering the insuring provisions of this Lease and the performance
of Tenant of the indemnity and exemption of Landlord from liability agreements
set forth in Article 13 hereof; (ii) a policy of standard fire, extended
coverage and special extended coverage insurance (all risks), including a
vandalism and malicious mischief endorsement, sprinkler leakage coverage and
earthquake sprinkler leakage where sprinklers are provided in an amount equal to
the full replacement value new without deduction for depreciation of all
equipment, fixtures and furniture installed by or at the expense of Tenant; and
(iii) insurance for all telecommunications equipment and intrabuilding network
for which Tenant is responsible. Tenant shall carry and maintain during the
entire Lease term (including any option periods, if applicable), at Tenant's
sole cost and expense, increased amounts of the insurance required to be carried
by Tenant pursuant to this Article 14 and such other reasonable types of
insurance coverage and in such reasonable amounts covering the Premises and
Tenant's operations therein, as may be reasonably required by Landlord, so long
as such requirement is consistent with the requirements of other landlords of
first-class office buildings in West Los Angeles, or required by Landlord's
lender.
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(b) FORM OF POLICIES. The aforementioned minimum limits of policies and
Tenant's procurement and maintenance thereof shall in no event limit the
liability of Tenant hereunder. Such insurance shall name Landlord and such
other persons or firms with insurable interests, as Landlord specifies from time
to time, as additional insureds' with an appropriate endorsement to the
policy(s) and shall be with companies having a rating of not less than A-VIII in
Best's Insurance Guide. Tenant shall furnish to Landlord, from the insurance
companies, or cause the insurance companies to furnish, certificates of
coverage. No such policy shall be cancelable or subject to reduction of
coverage or other modification or cancellation except after thirty (30) days
prior written notice to Landlord by the insurer. All such policies shall be
endorsed to agree that Tenant's policy is primary and that any insurance covered
by Landlord is excess and not contributing with any Tenant insurance requirement
hereunder. Tenant shall, at least twenty (20) days prior to the expiration of
such policies, furnish Landlord with renewals or binders. Tenant agrees that if
Tenant does not take out and maintain such insurance or furnish Landlord with
renewals or binders, Landlord may (but shall not be required to) procure said
insurance on Tenant's behalf and charge Tenant the cost thereof, which amount
shall be payable by Tenant upon demand with interest from the date such sums are
extended. Tenant shall have the right to provide such insurance coverage,
pursuant to blanket policies obtained by Tenant, provided such blanket policies
expressly afford coverage to the Premises and to Tenant as required by this
Lease.
(c) LANDLORD'S INSURANCE. Landlord shall, as a cost to be included in
Operating Costs, procure and maintain at all times during the term of this
Lease, a policy or policies of insurance covering loss or damage to the Project
(including the Tenant Improvements, but excluding Tenant's personal property,
equipment, fixtures, and the like) in the amount of the full replacement costs
without deduction for depreciation thereof (exclusive of Tenant's trade
fixtures, inventory, personal property and equipment); providing protection
against all perils included within the classification of fire and extended
coverage, vandalism coverage and malicious mischief, sprinkler leakage, water
damage, and special extended coverage on building. Additionally, Landlord may
(but shall not be required to) carry: (i Bodily Injury and Property Damage
Liability Insurance and/or Excess Liability Coverage insurance; and (ii)
Earthquake and/or Flood Damage insurance; and (iii) Rental Income Insurance at
its election or if required by its lender from time to time during the term
hereof, in such amounts and with such limits as Landlord or its lender may deem
appropriate. The costs of such insurance shall be included in operating Costs.
(d) WAIVER OF SUBROGATION. Tenant releases Landlord (and its respective
authorized representatives) and Landlord releases Tenant (and its respective
authorized representatives) from any claims for damage to any person or the
Premises, and to the fixtures, personal property, improvements, and alterations
of either Landlord or Tenant, in or on the Premises, and the Project, that are
caused by or result from risks insured against under any insurance policies
carried by either Tenant or Landlord and in force at the time of any such
damage.
(e) COMPLIANCE WITH LAW. Tenant agrees that it will not, at any time,
during the term of this Lease, carry any stock of goods or do anything in or
about the Premises that will in any way tend to increase the insurance rates
upon the Project. Tenant agrees to pay Landlord forthwith upon demand the
amount of any increase in premiums for insurance against loss by fire
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that may be charged during the term of this Lease on the amount of insurance to
be carried by Landlord on the Project resulting from the foregoing, or from
Tenant doing any act in or about said Premises that does so increase the
insurance rates, whether or not Landlord shall have consented to such act on the
part of Tenant. If Tenant installs upon the Premises any electrical equipment
which constitutes an overload of electrical lines of the Premises, Tenant shall
at its own cost and expense in accordance with all other Lease provisions, and
subject to the provisions of Article 9, 10 and 11, hereof, make whatever changes
are necessary to comply with requirements of the insurance underwriters and any
governmental authority having Jurisdiction thereover, but nothing herein
contained shall be deemed to constitute Landlord's consent to such overloading.
Tenant shall, at its own expense, comply with all requirements of the insurance
authority having jurisdiction over the Project necessary for the maintenance of
reasonable fire and extended coverage insurance for the Premises, including
without limitation thereto, the installation of fire extinguishers or an
automatic dry chemical extinguishing system.
ARTICLE 15 - Assignment and Subletting
- --------------------------------------
Tenant shall have no power to, either voluntarily, involuntarily, by
operation of law or otherwise, sell, assign, transfer or hypothecate this Lease,
or sublet the Premises or any part thereof, or permit the Premises or any part
thereof to be used or occupied by anyone other than Tenant or Tenant's employees
without the prior written consent of Landlord which consent shall not be
unreasonably withheld. If Tenant is a corporation, unincorporated association
or partnership, the sale, assignment, transfer or hypothecation of any class of
stock or other ownership interest in such corporation, association or
partnership in excess of twenty-five percent (25%) in the aggregate ("Internal
Transfer") shall meet the transfer provisions of Subsection (g) below, but
Tenant shall not be required to pay any of the review, processing or attorney's
fees set forth below. The foregoing notwithstanding, Landlord shall have no
right of consent or approval, of any kind, in connection with the issuance,
sale, transfer, assignment, or hypothecation of securities and/or assets by
Tenant for which filings are required to be made with federal or state agencies,
including by way of illustration, but not limitation, the Securities and
Exchange commission or the California Commissioner of Corporations. Subject to
the foregoing, Tenant may transfer its interest pursuant to this Lease only upon
the following express conditions:
(a) That the proposed transferee shall be subject to the prior written
consent of Landlord, which consent will not be unreasonably withheld (it being
agreed that if Landlord does not respond within ten (10) business days from a
written request for sublease or assignment, such refusal to respond shall be
deemed an approval by Landlord to such assignment or sublease) but, without
limiting the generality of the foregoing, it shall be reasonable for Landlord to
deny such consent if:
(i) The use to be made of the Premises by the proposed transferee is.
(a) not generally consistent with the character and mature of all other
tenancies in the Project, or (b) a use which conflicts with any so-called
"exclusive" then in favor of, or for any use which is the same as that stated in
any percentage Lease to, another tenant of the Project or any of Landlord's then
buildings which are in the same complex as the Project, or (c) a use which would
be prohibited by any other portion of this Lease (including but not limited to
any Rules and Regulations then in effect); or
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(ii) The financial responsibility of the proposed transferee is not
reasonably satisfactory to Landlord or in any event not at least equal to those
which were possessed by Tenant as of the date of execution of this Lease;
(b) That Tenant shall pay to Landlord Landlord's then standard processing
fee, review fee and attorneys' fees up to the sum of One Thousand Dollars
($1,000.00);
(c) That the proposed transferee shall execute an agreement pursuant to
which it shall agree to perform faithfully and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease (provided,
however, this Subparagraph (c) shall not be deemed to apply to the economic
business terms of the transfer between Tenant and such transferee);
(d) That an executed duplicate original of said assignment and assumption
agreement or other transfer on Landlord's then standard form, shall be delivered
to Landlord within five days after the execution thereof, and that such transfer
shall not be binding upon Landlord until the delivery thereof to Landlord and
the execution and delivery of Landlord's consent thereto. It shall be a
condition to Landlord's consent to any subleasing, assignment or other transfer
of part or all of Tenant's interest in the Premises (hereinafter referred to as
a "Transfer") that (i) upon Landlord's consent to any Transfer, Tenant shall pay
and continue to pay one-half (1/2) of any "Transfer Premium" (defined below),
received by Tenant from the transferee; provided, however, Tenant shall have the
right to sublease up to twenty percent (20%) of the Premises to individual users
without sharing of the Transfer Premium; (ii) any Sublessee of part or all of
Tenant's interest in the Premises shall agree that in the event Landlord gives
such sublessee notice that Tenant is in default under this Lease following the
expiration of any grace or cure period, such sublessee shall thereafter make all
sublease or other payments directly to Landlord, which will be received by
Landlord without any liability whether to honor the sublease or otherwise
(except to credit such payments against sums due under this Lease), and any
sublessee shall agree to attorn to Landlord or its successors and assigns at
their request should this Lease be terminated for any reason, except that in no
event shall Landlord or its successors or assigns be obligated to accept such
attornment, (iii) any such Transfer and consent shall be effected on reasonable
forms, supplied or approved by Landlord and/or its legal counsel; and (iv)
Landlord may require that Tenant not then be in default following the expiration
of any grace or cure period hereunder in any respect. "Transfer Premium" shall
mean all rent, additional rent or other consideration payable by a transferee in
connection with a Transfer in excess of the rent and Additional Rent payable by
Tenant under this Lease during the term of the Transfer and if such Transfer is
less than all of the Premises, the Transfer Premium shall be calculated on a
rentable square foot basis. The Transfer Premium shall be calculated after
deducting the reasonable expenses incurred by Tenant for any reasonable Tenant
improvements (reasonably approved by Landlord), legal fees, rent concessions and
brokerage commissions in connection with the Transfer. "Transfer Premium" shall
also include, but not be limited to, key money, bonus money or other cash
consideration paid by a transferee to Tenant in connection with such Transfer,
and any payment in excess of fair market value for services rendered by Tenant
to transferee or for assets, fixtures, inventory, equipment, or furniture
transferred by Tenant to transferee in connection with such Transfer. If
Landlord consents to a requested assignment or sublease, Tenant hereby agrees
that (i) it shall thereupon be deemed, automatically and irrevocably to have
assigned to Landlord as additional security for the performance and observance
of Tenant's obligations and covenants under this Lease, all rent or other sums
received or to be received by
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Tenant in connection therewith and (ii) Landlord as assignee and as attorney-in-
fact of Tenant, or a receiver for Tenant whether or not appointed on Landlord's
application may collect such rent or other sums and apply the same toward
Tenant's obligations under this Lease. Notwithstanding the foregoing, Tenant
shall have the right to collect such rent and other sums unless and until Tenant
commits any act of default hereunder following the expiration of any grace or
cure period. Tenant hereby agrees and acknowledges that the above conditions
imposed upon the granting of Landlord's consent to any proposed Transfer by
Tenant are reasonable. Any sale assignment, hypothecation, transfer or
subletting of this Lease which is not in compliance with the provisions of this
Article 15 shall be void. In no event shall the consent by Landlord to an
assignment or subletting be construed as relieving Tenant, any assignee, or
sublessee from obtaining the express written consent of Landlord to any further
assignment or subletting, or as releasing Tenant from any liability or
obligation hereunder whether or not then accrued and Tenant shall continue to be
fully liable therefor. No collection or acceptance of rent by Landlord from any
person other than Tenant shall be deemed a waiver of any provision of this
Article 15 on the acceptance of any assignee or subtenant hereunder, or a
release of Tenant (or of any successor of Tenant or any subtenant holding
theretofore or thereafter accruing). Notwithstanding anything to the contrary in
this Lease, if Tenant or any proposed transferee claims that Landlord his
unreasonably withheld or delayed its consent under this Article 15 or otherwise
has breached or acted unreasonably under this Article 15, their sole remedies
shall be a declaratory judgment and an injunction for the relief sought without
any monetary damages, and Tenant hereby waives all other remedies, including,
without limitation, any right at law or equity to terminate this Lease, on its
own behalf and, to the extent permitted under all applicable laws, on behalf of
the proposed transferee;
(e) Tenant shall not enter into any sublease or assignment in which any of
the following is applicable:
(i) The determination of the amount of rent is expressed in whole or
in part as a percentage of the income or profits derived by the tenant or
subtenant or assignee from the space Leased (other than an amount based on a
fixed percentage or percentages of gross receipts or gross sales);
(f) In any sublease or assignment in which the amount of rent is
determined in whole or in part by reference to the gross sales or receipts of
the subtenant or assignee such sublease or assignment shall contain a provision
which prohibits subleasing or assigning or if subleasing or assigning is
permitted it shall prohibit the tenant or any successor in interest from
subleasing all or any portion of its Leasehold interest for an amount of rent
determined in whole or in part from the income or profits derived by any person
from such interest (other than an amount based in a fixed percentage or
percentages of receipts or sales); provided, however, Tenant shall have the
right to sublease up to twenty percent (20%) of the Premises to individual users
without sharing of the Transfer Premium.
(g) Notwithstanding anything to the contrary contained in this Article 15,
(i) an internal Transfer, (it) an assignment or subletting of all or a portion
of the Premises to an affiliate of Tenant (an entity which is controlled by,
controls, or is under common control with, Tenant) ("Permitted Transferees"), or
a subletting or assignment of all of the premises to a purchaser of all or
substantially all of the assets of Tenant or a Permitted Transferee, or (iii) a
transfer, by law
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or otherwise, in connection with the merger, consolidation or other corporate
reorganization of Tenant or a Permitted Transferee, shall not be deemed a
Transfer requiring payment of a Transfer Premium under this Article 15, but
Tenant shall still be required to obtain Landlord's written consent and approval
of such transfer; provided, however, Landlord shall only be able to disapprove
of such transfer under 15(a)(i) above, or if the transfer would result in either
Tenant or the Permitted Transferee having a net worth less than that of Tenant
on the date this Lease is executed (or in Landlord's reasonable business
discretion the Permitted Transferee does not have the financial ability to meet
the economic terms and conditions of the Lease); and further provided that such
assignment or sublease is not a subterfuge by Tenant to avoid its obligations
under this Lease. "Control" as used in this Section 15(g) shall mean the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of a person or entity, or ownership of any sort,
whether through the ownership of voting securities, by contract or otherwise.
ARTICLE 16 - Damage Or Destruction
- ----------------------------------
If the Project is damaged by fire or other insured casualty and the
insurance proceeds have been made available therefor by the holder or holders of
any mortgages or deeds of trust covering the Premises or the Project, the damage
shall be repaired by and at the expense of the Landlord to the extent such
insurance proceeds are available therefor and provided such repairs can, in
Landlord's sole opinion, be completed within one hundred eighty (180) days after
the occurrence of such damage becomes known to Landlord without the payment of
overtime or other premiums, and until such repairs are completed rent shall be
abated in proportion to the part of the Premises which is unusable by Tenant in
the conduct of its business, provided that if the damaged portion renders the
entire Premises unusable by Tenant, then rent shall be abated for the entire
Premises (but there shall e no abatement of rent by reason of any portion of the
Premises being unusable for a period equal to one (1) day or less). If the
damage is due to the fault or neglect of Tenant, its employees, guests, invitees
and the like, there shall be no abatement of rent, and Tenant agrees to make a
claim, in an expeditious manner, under its insurance policies for the cost of
such damage or destruction, and to assign any such insurance proceeds from its
insurance policies to Landlord. If pairs cannot, in Landlord's opinion, be
completed within one hundred eighty (180) days, Landlord may, at its option,
make them in a reasonable time and in such event this Lease shall continue in
effect and the rent shall be abated, if at all, in the manner provided in this
Article 16; provided, however, that if repairs cannot be completed within one
hundred eighty (180) days from commencement of construction, Tenant shall have
the right after the expiration of such one hundred eighty (180) days to
terminate this Lease upon thirty (30) days' written notice to Landlord.
Tenant's failure to so notify Landlord within such thirty (30) day period shall
be deemed to constitute Tenant's waiver of its right to terminate this Lease.
In addition, Landlord may elect not to rebuild and/or restore the Project, and
instead terminate this Lease, by notifying Tenant in writing of such termination
within thirty (30) days after Landlord receives notice of the date of damage,
such notice to include a termination date giving Tenant sixty (60) days to
vacate the Premises, but Landlord may so elect only if the Project shall be
damaged by fire or other casualty or cause, whether or not the Premises are
affected, and the damage is not fully covered, except for deductible amounts, by
Landlord's insurance policies. A total destruction of the Project shall
automatically terminate this Lease. Except as provided in this Article, there
shall be no abatement of rent and no liability of Landlord by reason of any
injury to or interference with Tenant's business or property arising
21
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from such damage or destruction or the making of any repairs, alterations or
improvements in or to any portion of the Project or the Premises or in or to
fixtures, appurtenances and equipment therein. Tenant understands that Landlord
will not carry insurance of any kind to Tenant's furniture, furnishings,
fixtures or equipment, and that Landlord shall not be obligated to repair any
damage thereto or replace the same. with respect to any damage which Landlord is
obligated to repair or elects to repair, Tenant, as a material inducement to
Landlord entering into this Lease, irrevocably waives and releases its rights
under the provisions of Sections 1932 and 1933 of the California Civil Code.
ARTICLE 17 - Subordination
- --------------------------
This Lease is subject and subordinate to all ground or underlying Leases,
mortgages and deeds of trust which affect the property or the Project, including
all renewals, modifications, consolidations, replacements and extensions
thereof; provided, however, if the lessor under any such lease or the holder or
holders of any such mortgage or deed of trust shall advise Landlord that they
desire or require this Lease to be prior and superior thereto , upon written
request of Landlord to Tenant, Tenant agrees to promptly execute, acknowledge
and deliver any and all documents or instruments which Landlord or such lessor,
holder or holders deem necessary or desirable for purposes thereof. Landlord
shall have the right to cause this Lease to be and become and remain subject and
subordinate to any and all ground or underlying leases, mortgages or deeds of
trust which may hereafter be executed covering the Premises, the Project or the
property or any renewals, modifications, consolidations, replacements or
extensions thereof, for the full amount of all advances made or to be made
thereunder and without regard to the time or character of such advances,
together with interest thereon and subject to all the terms and provisions
thereof, provided, however, that Landlord obtains from the lender or other party
in question a written undertaking in favor of Tenant to the affect that such
lender or other party will not disturb Tenant's right of possession under this
Lease if Tenant is not then or thereafter in breach following the expiration of
any grace or cure period of any covenant or provision of this Lease; and Tenant
agrees, within fifteen (15) days after Landlord's written request therefor, to
execute, acknowledge and deliver upon request any and all documents or
instruments requested by Landlord or necessary or proper to assure the
subordination of this Lease to any such mortgages, deed of trust, or leasehold
estates. Tenant agrees not to assert against Landlord and hereby expressly
waives any claims for interference with, or disturbance of Tenant's right of
possession and/or breach of the covenant quiet enjoyment by reason of the
enforcement of any and all ground or underlying leases, mortgages and deeds of
trust affecting the Project or the Premises and all renewals, modifications,
consolidations, replacements and extensions thereof, whether or not the Lease is
subordinate thereto. The foregoing notwithstanding, Landlord shall use its best
efforts to obtain a Non-Disturbance and Attornment Agreement from any
lienholders or mortgagees of the Project, whether currently existing or in the
future. The Non-Disturbance and Attornment Agreement shall be in a form
reasonably acceptable to Tenant and any lienholders or mortgagees.
ARTICLE 18 - Eminent Domain
- ---------------------------
If the whole of the Premises or the Project or so much thereof as to render
the balance unusable by Tenant shall be taken under power of eminent domain, or
is sold, transferred or conveyed in lieu thereof, this Lease shall automatically
terminate as of the date of such
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condemnation, or as of the date possession is taken by the condemning authority
at Landlord's option. No award for any partial or entire taking shall be
apportioned, and Tenant hereby assigns to Landlord any award which may be made
in such taking or condemnation, together with any and all rights of Tenant now
or hereafter arising in or to the same or any part thereof; provided, however,
that nothing contained herein shall be deemed to give Landlord any interest in
or to require Tenant to assign to Landlord any award made to Tenant for the
taking of personal property and fixtures and one-half (1/2) of any leasehold
bonus as it relates to the Premises belonging to Tenant and removable by Tenant
at the expiration of the term hereof as provided hereunder or for the
interruption of, or damage to, Tenant's business. In the event of a partial
taking described in this Article 18, or a sale, transfer or conveyance in lieu
thereof, which does not result in a termination of this Lease, the rent shall be
apportioned according to the ratio that the part of the Premises remaining
useable by Tenant bears to the total area of the Premises. Tenant hereby waives
any and all rights it might otherwise have pursuant to Section 1265.130 of the
California Code of Civil Procedure.
ARTICLE 19 - Default
- --------------------
Each of the following acts or omissions of Tenant or of any guarantor of
Tenant's performance hereunder, or occurrences, shall constitute an "Event of
Default":
(a) Failure or refusal to pay Monthly Basic Rental, Additional Rent or any
other amount to be paid by Tenant to Landlord hereunder within five (5) calendar
days after notice that the same was not paid when due or payable hereunder; said
five (5) day period shall be in lieu of, and not in addition to, the notice
requirements pertaining to the unlawful detainer statutes;
(b) Except as set forth in item (g) below, failure to perform or observe
other covenant or condition of this Lease to be performed or observed within
thirty (30) days following written notice to Tenant of such failure; provided
that if the nature of such default cannot reasonably be cured within thirty (30)
days, Tenant shall not be in default if it commences such cure within such
period and diligently proceeds with such cure and does cure within ninety (90)
days. Such thirty (30) day notice shall also constitute any notice required
under Section 1161 of the California Code of Civil Procedure;
(c) Abandonment or vacationing or failure to accept tender of possession of
the Premises or any significant portion thereof, unless Tenant continues to pay
Monthly Basic Rental and all other sums due hereunder;
(d) The taking in execution or by similar process or law (other than by
eminent. domain) of the estate hereby created;
(e) The filing by Tenant or any guarantor hereunder in any court pursuant
to any statute of a petition in bankruptcy or insolvency or for reorganization
or arrangement for the appointment of a receiver of all or a portion of Tenant's
property; the filing against Tenant or any guarantor hereunder of any such
petition, or the commencement of a proceeding for the appointment of a trustee,
receiver or liquidator for Tenant, or for any guarantor hereunder, or of any of
the property of either, or a proceeding by any governmental authority for the
dissolution or liquidation of Tenant or any guarantor hereunder, if such
proceeding shall not be dismissed or
23
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trusteeship discontinued within thirty (30) days after commencement of such
proceeding or the appointment of such trustee or receiver; or the making by
Tenant or any guarantor hereunder of an assignment for the benefit of creditors.
Tenant hereby stipulates to the lifting of the automatic stay in effect and
relief from such stay for Landlord in the event Tenant files a petition under
the United States Bankruptcy laws, for the purpose of Landlord pursuing its
rights and remedies against Tenant and/or a guarantor of this Lease;
(f) Tenant's failure to cause to be released any mechanics liens filed
against the Premises or the Project within twenty (20) days after the date the
same shall have been filed or recorded; or
(g) Tenant's failure to observe or perform according to the provisions of
Articles 17 or 25 within fifteen (15) business days after notice from Landlord.
All defaults following the expiration of any applicable notice or grace period
by Tenant of any covenant or condition of this Lease shall be deemed by the
parties hereto to be material.
ARTICLE 20 - Remedies
- ---------------------
(a) In the event of a breach of or default under this Lease as provided in
Article 19 hereof, Landlord may exercise all of its remedies as may be permitted
by law, including but not limited to the remedy provided by Section 1951.4 of
the California Civil Code, and including without limitation, terminating this
Lease, reentering the Premises and removing all persons and property therefrom,
which property may be stored by Landlord at a warehouse or elsewhere at the
risk, expense and for the account of Tenant. If Landlord elects to terminate
this Lease, Landlord shall be entitled to recover from Tenant the aggregate of
all amounts permitted by law, including but not limited to (i) the worth at the
time of any unpaid rent which has been earned at the time of such termination;
plus (ii) the worth at the time of award of the amount by which the unpaid rent
which would have been earned after termination until the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonably
avoided; plus (iii) the worth at the time of award of the amount by which the
unpaid rent for the balance of the Lease Term after the time of award exceeds
the amount of such rental loss that Tenant proves could have been reasonable
avoided; plus (iv) any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom, specifically including but not limited to, brokerage
commissions and advertising expenses incurred, expenses of remodeling the
Premises or any portion thereof for a new tenant, whether for the same or a
different use, and any special concessions made to obtain a new tenant; and (v)
at Landlord's election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law. The term
"rent" as used in this Article 20(a) shall be deemed to be and to mean all sums
of every nature required to be paid by Tenant pursuant to the terms of this
Lease, whether to Landlord or to others. As used in items (i) and (ii), above,
the "worth at the time of award" shall be computed by allowing interest at the
rate set forth in item (e), below, but in no case greater than the maximum
amount of such interest permitted by law. As used in item (iii), above, the
"worth at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). If Landlord terminates this Lease or Tenant's right to
possession, Landlord shall
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use reasonable efforts to mitigate Landlord's damages, and Tenant shall be
entitled to submit roof of such failure to mitigate as a defense to Landlord's
claims hereunder, if mitigation of damages by Landlord is required by applicable
law. Further, Tenant shall be liable for all unamortized leasing commissions
paid by or owing by Landlord arising from this Lease and extensions thereof.
(b) Nothing in this Article 20 shall be deemed to affect Landlord's right
to indemnification for liability or liabilities arising prior to the termination
of this Lease for personal injuries or property damage under the indemnification
clause or clauses contained in this Lease.
(c) Notwithstanding anything to the contrary set forth herein, Landlord's
re-entry to perform acts of maintenance or preservation of or in connection with
efforts to relet the Premises or any portion thereof, or the appointment of a
receiver upon Landlord's initiative to protect Landlord's interest under this
Lease shall not terminate Tenant's right to possession of the Premises or any
portion thereof and, until Landlord does elect to terminate this Lease, this
Lease shall continue in full force and effect and Landlord shall enforce all of
Landlord's rights and remedies hereunder including, without limitation, the
remedy described in California Civil Code Section 1951.4 (lessor may continue
lease in effect after lessee's breach and abandonment and recover rent as it
becomes due, if Lessee has the right to sublet or assign, subject only to
reasonable limitations). Accordingly, if Landlord does not elect to terminate
this Lease on account of any default by Tenant, Landlord may, from time to time,
without terminating this Lease, enforce all of its rights and remedies under
this Lease, including the right to recover all rent as it becomes due.
(d) All rights, powers and remedies of Landlord hereunder and under an
other agreement now or hereafter in force between Landlord and Tenant shall
cumulative and not alternative and shall be in addition to all rights, powers
and remedies given to Landlord by law, and the exercise of one or more rights or
remedies shall not impair Landlord's right to exercise any other right or
remedy.
(e) Any amount due from Tenant to Landlord hereunder which is not paid
within five (5) days after Tenant's receipt of written notice that the same is
due shall bear interest at the lower of 16% per annum or the maximum lawful rate
of interest from the due date until paid, unless otherwise specifically provided
herein, but the payment of such interest shall not excuse or cure any default by
Tenant under this Lease. In addition to such interest: (a) if Basic Rental is
not paid within ten (10) days after the same is due, a late charge equal to ten
percent (10%) of the amount overdue or $100, whichever is greater, shall be
assessed and shall accrue for each calendar month or part thereof until such
rental, including the late charge, is paid in full, which late charge Tenant
hereby agrees is a reasonable estimate of the damages Landlord shall Buffer as a
result of Tenant's late payment and (b) an additional charge of $25 shall be
assessed for any check (liven to Landlord by or on behalf of Tenant which is not
honored by the drawee thereof; which damages include Landlord's additional
administrative and other costs associated with such late payment and unsatisfied
checks and the parties agree that it would be impracticable or extremely
difficult to fix Landlord's actual damage in such event. Such charges for
interest and late payments and unsatisfied checks are separate and cumulative
and are in addition to and shall
25
<PAGE>
not diminish or represent a substitute for any or all of Landlord's rights or
remedies under any other provision of this Lease.
(f) Tenant shall be liable for any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's default following
the expiration of any applicable cure or notice period under this Lease, or
which in the ordinary cause of things would be likely to result therefrom.
ARTICLE 21 - Transfer of Landlord's Interest
- --------------------------------------------
In the event of any transfer or termination of Landlord's interest in the
Premises or the Project by sell, assignments, transfer, foreclosure, deed-in-
lieu of foreclosure or otherwise whether voluntary or involuntary, Landlord
shall be automatically relieved of any and all obligations and liabilities on
the part of Landlord which accrue from and after the date of such transfer or
termination, including furthermore without limitation the obligation of Landlord
under Article 4 and California Civil Code 1950.7 above to return the security
deposit, provided said security deposit is transferred to said assignee. Tenant
expressly waives and releases its rights with regard to its security deposit
pursuant to the provision of California Civil Code 1950.7 or any substitute or
successor statute to the extent the same could be asserted by Tenant against
Landlord.
ARTICLE 22 - Broker
- -------------------
In connection with this Lease, Landlord and Tenant each warrant and
represent that it has had dealings only with firm(s) set forth in Article 1.H.
of the Basic Lease Provisions and that it knows of no other person or entity who
is or might be entitled to a commission, finder's fee or other like payment in
connection herewith and each does hereby indemnify and agree to hold the other,
its agents, partners, representatives, officers, affiliates, shareholders,
employees, successors and assigns harmless from and against any and all loss,
liability and expenses that such party may incur should such warranty and
representation prove incorrect, inaccurate or false.
ARTICLE 23 - Parking
- --------------------
Tenant shall have the right but not the obligation to rent up to the number
of parking passes set forth in Article 1.1. of Basic Lease Provisions. The
initial parking rates are set forth in Article 1.J. of the Basic Lease
Provisions. Such parking shall be available upon terms and conditions to be
established from time to time by Landlord or Landlord's operator of such parking
facilities, but Landlord does not warrant or represent that the parking will
continue to be available if Tenant does not rent the same continuously from the
commencement of the term of this Lease. Tenant agrees that it shall be liable
for and pay for any and all parking taxes imposed in connection with such
parking.
ARTICLE 24 - Waiver
- -------------------
No waiver by Landlord of any provision of this Lease shall be deemed to be
a waiver of any other provision hereof or of any subsequent breach by Tenant of
the same or any other provision. No provision of this Lease may be waived by
Landlord, except by an instrument in
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writing executed by Landlord. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval shall not be deemed to render
unnecessary the obtaining of Landlord's consent to or approval of any subsequent
act of Tenant, whether or not similar to the act so consented to or approved. No
act or thing done by Landlord or Landlord's agents during the term of this Lease
shall be deemed an acceptance of a surrender of the Premises, and no agreement
to accept such surrender shall be valid unless in writing and signed by
Landlord. Any payment by Tenant or receipt by Landlord of an amount less than
the total amount then due hereunder shall be deemed to be in partial payment
only thereof and not a waiver of the balance due or an accord and satisfaction,
notwithstanding any statement or endorsement to the contrary on any check or any
other instrument delivered concurrently therewith or in reference thereto.
Accordingly, Landlord may accept any such amount and negotiate any such check
without prejudice to Landlord's right to recover all balances due and owing and
to pursue its other rights against Tenant under this Lease, regardless of
whether Landlord makes any notation on such instrument of payment or otherwise
notifies Tenant that such acceptance or negotiation is without prejudice to
Landlord's rights.
ARTICLE 25 - Estoppel Certificate
- ---------------------------------
Tenant shall, at any time and from time to time, upon not less than fifteen
(15) days' prior written notice from Landlord, execute, acknowledge and deliver
to Landlord a statement in writing certifying the following information, (but
not limited to the following information in the event further information is
requested by Landlord): (i) that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as modified, is in full force and effect); (ii) the dates to
which the rental and other charges are paid in advance, if any; (iii) the amount
of Tenant's security deposit, if any; and (iv) acknowledging that there are not,
to Tenant's knowledge, any uncured defaults on the part of Landlord hereunder,
and no events or conditions then in existence which, with the passage of time or
notice or both, would constitute a default on the part of Landlord hereunder, or
specifying such defaults, events or conditions, if any are claimed. It is
expressly understood and agreed that any such statement may be relied upon by
any prospective purchaser or encumbrancer of all or any portion of the Real
Property. Tenant's failure upon Landlord's reasonable request to deliver such
statement within such time shall, at the option of Landlord, constitute a
default under this Lease. Furthermore, Tenant's failure to deliver such
statement within such time shall constitute an admission by Tenant that all
statements contained therein are true and correct. Tenant agrees to execute all
documents required in accordance with this Article 25 within fifteen (15) days
after delivery of said documents.
ARTICLE 26 - Liability Of Landlord
- ----------------------------------
Tenant agrees to look solely to Landlord's interest in the Project and the
Premises if any for the satisfaction of any remedy of Tenant for the collection
of a judgment (or other judicial process) requiring the payment of money by
Landlord in the event of any default by Landlord hereunder or any claim cause of
action, obligation, contractual statutory or otherwise by Tenant against
Landlord concerning, arising out of or relating to any matter relating to this
Lease and all of the covenants and condition or any obligations, contractual,
statutory, or otherwise set forth herein, and no other property or assets of
Landlord, or any officer, director, shareholder, partner, trustee, agent,
servant or employee of Landlord (the "Representative") shall be subject to levy,
27
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execution or other enforcement procedure for the satisfaction of Tenant's
remedies under or with respect to this Lease, Landlord's obligations to Tenant,
whether contractual, statutory or otherwise, the relationship of Landlord and
Tenant hereunder, or Tenant's use or occupancy of the Premises. Tenant further
understands that any liability, duty or obligation of Landlord to Tenant, shall
no longer accrue as of the date that Landlord or any of the Representatives no
longer have any right, title or interest in or to the Project, and shall
automatically cease if another entity has agreed to assume such liabilities
through a written assignment and assumption agreement.
ARTICLE 27 - Inability To Perform
- ---------------------------------
This Lease and the obligations of Tenant hereunder shall not be affected or
impaired because Landlord is unable to fulfill any of its obligations hereunder
or is delayed in doing so, if such inability or delay is caused by reason of any
stoppage due to strikes, lockouts, acts of God, or any other cause previously,
or at such time, beyond the reasonable control or anticipation of Landlord
(collectively, a "Force Majeure") and Landlord's obligations under this Lease
shall be forgiven and suspended by any such Force Majeure, excepting, however,
Landlord's obligations under the last sentence of Article 2 and Article 11(g).
ARTICLE 28 - Hazardous Waste
- ----------------------------
(a) Tenant shall not cause or permit any Hazardous Material (as defined in
Article 28(d) below) to be brought, kept or used in or about the Project by
Tenant, its agents, employees, contractors, or invitees, excluding, however,
customary office supplies, and equipment. Tenant indemnitees Landlord from and
against any breach by Tenant of the obligations stated in the preceding sentence
and agrees to defend and hold Landlord harmless from and against any and all
claims, judgments, damages, penalties, fines, costs, liabilities, or losses
(including, without limitation, diminution in value of the Project, damages; for
the loss or restriction or use of rentable or useable space or of any amenity of
the Project, damages arising from any adverse impact or marketing of space in
the Project, and sum paid in settlement of claims, attorneys' fees, consultant
fees, and expert fees) which arise during or after the term of this Lease as a
result of such breach. This indemnification of Landlord by Tenant includes,
without limitation, costs incurred in connection with any investigation of site
conditions or any cleanup, remedial, removal, or restoration work required by an
federal, state, or local governmental agency or political subdivision because of
Hazardous Material present in the soil or ground water on or under the Project.
Without limiting the foregoing, if the presence of any Hazardous Material on the
Project caused or permitted by Tenant results in any contamination of the
Project and subject to the provisions of Articles 9, 10 and 11, hereof, Tenant
shall promptly take all actions at its sole expense as are necessary to return
the Project to the condition existing prior to the introduction of any such
Hazardous Material and the contractors to be used by Tenant must be approved by
the Landlord, which approval shall not be unreasonably withheld so long as such
actions would not potentially have any material adverse long-term or short-term
effect on the Project and so long as such actions do not materially interfere
with the use and enjoyment of the Project by the other tenants thereof.
(b) Landlord and Tenant acknowledge that Landlord may become legally liable
for the costs of complying with Laws (as defined in Article 29(e) below)
relating to Hazardous
28
<PAGE>
material which are not the responsibility of Landlord or the responsibility of
Tenant, including the following: (i) Hazardous Material present in the soil or
ground water on the project of which Landlord has no knowledge as of the
effective date of this Leases (ii) a change in Laws which relate to Hazardous
material which make that Hazardous Material which is present on the Property as
of the effective date of his Lease, whether known or unknown to Landlord, a
violation of such new Laws: (iii) Hazardous Material that migrates, flows,
percolates, diffuses, or in any way moves on to, or under the Project after the
effective date of this Lease; or Hazardous material present on or under the
Project as a result of any discharge, dumping or spilling (whether accidental or
otherwise) on the Product by other lessees of the Project or their agents,
employees, contractors, or invitees, or by others. Accordingly, Landlord and
Tenant agree that the cost of complying with Laws relating to Hazardous Material
on the Project for which Landlord is legally liable and which are paid or
incurred by Landlord shall not be an Operating Cost.
(c) it shall not be unreasonable for Landlord to withhold its consent to
any proposed Transfer if (i) the proposed transferee's anticipated use of the
Premises involves the generation, storage, use, treatment, or disposal of
Hazardous Material; ( ) the proposed Transferee has been required by any prior
landlord, lender, or governmental authority to take remedial action in
connection with Hazardous material contaminating a property if the contamination
resulted from such Transferee's actions or use of the property in question; or
(iii) the proposed Transferee is subject to an enforcement order issued by any
governmental authority in connection with the use, disposal, or storage of a
Hazardous Material.
(d) As used herein, the term "Hazardous Material" means any hazardous or
toxic substance, material, or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government.
The term Hazardous material" includes, without limitation, any material or
substance which is (i) defined as "Hazardous Waste," "Extremely Hazardous
Waste," or "Restricted Hazardous Waste" under Sections 25115, 25117 or 25122.7,
or listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a
"Hazardous Substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance
Account Act), (iii) defined as a "Hazardous Material," "Hazardous Substance," or
"Hazardous Waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory), (iv) defined as a "Hazardous Substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (underground Storage
of Hazardous Substances), (v) petroleum, (vi) asbestos, (vii) listed under
Article 9 or defined as Hazardous or extremely hazardous pursuant to Article 11
of Title 22 of the California Administrative Code, Division 4, Chapter 20,
(viii) designated as a Hazardous Substance, pursuant to Section 311 of the
Federal Water Pollution Control Act (33 U.S.C. (S) 1317), (ix) defined as a
"Hazardous Waste" pursuant to Section 1004 of the Federal Resource Conservation
and Recovery Act, 42 U.S.C. (S) 6901 et seq. (42 U.S.C. (S) 6903), or (x)
defined as a "Hazardous Substance" pursuant to section 101 of the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. & 9601 et seq.
(42 U.S.C. & 9601).
29
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(e) As used herein, the term "Laws" mean any applicable federal, state or
local laws, ordinances, or regulations relating to any Hazardous material
affecting the Project, including, without limitation, the laws, ordinances, and
regulations referred to in Article 28 (d) above.
ARTICLE 29 - Surrender of Premises; Removal of Property
- -------------------------------------------------------
(a) The voluntary or other surrender of this Lease by Tenant to Landlord,
or a mutual termination hereof, shall not work a merger, and shall at the option
of Landlord, operate as an assignment to it of any or all subleases or
subtenancies affecting the Premises.
(b) Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall quit and surrender possession of the
Premises to Landlord in as good order and condition as the same are now and
hereafter may be improved by Landlord or Tenant, reasonable wear and tear and
repairs which are Landlord's obligation excepted, and shall, without expense to
Landlord, remove or cause to be removed from the Premises all debris and
rubbish, all furniture, equipment, business and trade fixtures, free-standing
cabinet work, moveable partitioning and other articles of personal property
owned by Tenant or installed or placed by Tenant at its own expense in the
Premises, and all similar articles of any other persons claiming under Tenant
unless Landlord exercises its option to have any subleases or subtenancies
assigned to it, and Tenant shall repair all damage to the Premises resulting
from the installation and removal of such items to be removed.
(c) Whenever Landlord shall reenter the Premises as provided in Article 20
hereof, or as otherwise provided in this Lease, any property of Tenant not
removed by Tenant upon the expiration of the term of this Lease (or within
forty-eight (48) hours after a termination by reason of Tenant's default), as
provided in this Lease, shall be considered abandoned and Landlord may remove
any or all of such items and dispose of the same in any manner or store the same
in a public warehouse or elsewhere for the account and at the expense and risk
of Tenant, and if Tenant shall fail to pay the cost of storing any such property
after it has been stored for a period of ninety (90) days or more, Landlord may
sell any or all of such property at public or private sale, in such manner and
at such times and places as Landlord, in its sole discretion, may deem proper,
without notice or to demand upon Tenant, for the payment of all or any part of
such charges or the removal of any such property, and shall apply the proceeds
of such sale: first, to the cost and expense of such sale, including reasonable
attorneys' fees for services rendered; second, to the payment of the cost of or
charges for storing any such property; third, to the payment of any other sums
of money which may then or thereafter be due to Landlord from Tenant under any
of the terms hereof; and fourth, the balance, if any, to Tenant.
(d) All fixtures, equipment, alterations, additions, improvements and/or
appurtenances attached to or built into the Premises prior to or during the
Term, whether by Landlord or Tenant and whether at the expense of Landlord or
Tenant, or of both, shall be and remain part of the Premises and shall not be
removed by Tenant at the end of the term unless otherwise expressly provided for
in this Lease or unless such removal is required by Landlord pursuant to the
provisions of Article 9, above. Such fixtures, equipment, Tenant Improvements,
alterations, additions, improvements and/or appurtenances shall include but not
be limited to: all floor coverings, drapes, paneling, built-in cabinetry,
molding, doors, vaults (including vault doors), plumbing systems, electrical
systems, lighting systems, silencing equipment,
30
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communication systems, all fixtures and outlets for the systems mentioned above
and for all telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations. Notwithstanding the foregoing, Tenant shall
have the right to remove any nonpermanently affixed alterations or free-standing
improvements mad and paid by Tenant, so long as Tenant repairs any damage to the
Premises caused by such removal.
ARTICLE 30 - Miscellaneous
- --------------------------
(a) SEVERABILITY; ENTIRE AGREEMENT. Any provision of this Lease which
shall prove to be invalid, void, or illegal shall in no way affect, impair or
invalidate any other provision hereof any such other provisions shall remain in
full force and effect. This Lease and the Exhibits and any Addendum attached
hereto constitute the entire agreement between the parties hereto with respect
to the subject matter hereof, and no prior agreement or understanding pertaining
to any such matter shall be effective for any purpose. No provision of this
Lease may be amended or supplemented except by an agreement in writing signed by
the parties hereto or their successor in interest. This Lease shall be governed
by and construed in accordance with the laws of the State of California.
(b) ATTORNEYS, FEES.
(i) In any action to enforce the terms of this Lease, including any
suit by Landlord for the recovery of rent or possession of the Premises, the
losing party shall pay the successful party a reasonable sum for attorneys' fees
in such suit and such attorneys' fees shall be deemed to have accrued prior to
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment.
(ii) Should Landlord, without fault on Landlord's part, be made a
party to any litigation instituted by Tenant or by any third party against
Tenant, or by or against any person holding under or using the Premises by
license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any such other person or otherwise arising out of
or resulting from any act or transaction of Tenant or of any such other person,
Tenant covenants to save and hold Landlord harmless from any judgment rendered
against Landlord or the Premises or any part thereof and from all costs and
expenses, including reasonable attorneys' fees incurred by Landlord in
collection with such litigation.
(iii) When legal services are rendered by an attorney at law who is
an employee of a party, shall be determined as to amount, including overhead, by
consideration of the same factors, including but not limited by, the importance
of the matter, time applied, difficulty and results, as are considered when an
attorney not in the employ of a party is engaged to render such service.
(c) TIME OF ESSENCE. Each of Tenant's covenants herein is a condition and
time is of the essence with respect to the performance of every provision of
this Lease.
(d) HEADINGS. The article headings contained in this Lease are for
convenience only and do not in any way limit or amplify any term or provision
hereof. The terms "Landlord" and "Tenant" as used herein shall include the
plural as well as the singular, the neuter shall include the masculine and
feminine genders and the obligations herein imposed upon Tenant
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shall be joint and several as to each of the persons, firms or corporations of
which Tenant may be composed.
(e) RESERVED AREA. Tenant hereby acknowledges and agrees that the,
exterior walls of the Premises and the area between the finished ceiling of the
Premises and the slab of the floor of the project thereabove have not been
demised hereby and the use thereof together with the right to install, maintain,
use, repair and replace pipes, ducts, conduits and wires leading through, under
or above the Premises in locations which will not materially interfere with
Tenant's use of the Premises and serving other parts of the Project are hereby
excepted and reserved unto Landlord.
(f) NO OPTION. The submission of this Lease by Landlord, its agent or
representative for examination or execution by Tenant does not constitute an
option or offer to Lease the Premises upon the terms and conditions contained
herein or a reservation of the Premises in favor of Tenant, it being intended
hereby that this Lease shall only become effective upon the execution hereof by
Landlord and delivery of a fully executed counterpart hereof to Tenant.
(g) USE OF PROJECT NAME; IMPROVEMENTS. Tenant shall not be allowed to use
the name, picture or representation of the Project, or words to that effect, in
connection with any business carried on in the Premises or otherwise (except as
Tenant's address) without the prior written consent of Landlord. In the event
that Landlord undertakes any additional improvements on the real property
including but not limited to new construction or renovation or additions to the
existing improvements, Landlord shall not be liable to Tenant for any noise,
dust, vibration or interference with access to the Premises or disruption in
Tenant's business caused thereby and rental hereunder shall only be abated to
the extent that such interference materially interferes with Tenant's business.
(h) RULES AND REGULATIONS. Tenant shall observe faithfully and comply
strictly with the Rules and Regulations attached to this Lease and made a part
hereof, and such other Rules and Regulations as Landlord may from time to time
reasonably adopt for the safety, care and cleanliness of the Project, the
facilities thereof, or the preservation of good order therein. Landlord shall
not be liable to Tenant for violation of any such Rules and Regulations, or for
the breach of any covenant or condition in any Lease by any other tenant in the
Project. A waiver by Landlord of any Rule or Regulation for any other tenant
shall not constitute nor be deemed a waiver of the Rule or Regulation for this
Tenant.
(i) QUIET POSSESSION. Upon Tenant's paying the Basic Rent, Additional Rent
and other sums provided hereunder and observing and performing all of the
covenants, conditions and provisions on Tenant's part to be observed and
perforated hereunder, Tenant shall have quiet possession of the Premises for the
entire term hereof, subject to all of the provisions of this Lease.
(j) RENT. All payments required to be made hereunder shall be deemed to be
rent, whether or not described as such.
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(k) SUCCESSORS AND ASSIGNS. Subject to the provisions of Article 15
hereof, all of the covenants, conditions and provisions of this Lease shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns.
(l) NOTICES. Any notice required or permitted to be given hereunder shall
be in writing and may be given by facsimile, personal service, first-class mail,
or registered or certified mail, return receipt requested, addressed to Tenant
at the Premises with a copy via U.S. Mail, to Robert Thau, Esq., Rosenfeld,
Meyer & Susman at 9601 Wilshire Boulevard, 5th Floor, Beverly Hills, California
90210 (provided, however, a notice shall not be ineffective because a copy was
not sent to Robert Thau, Esq., or any other designated copy recipient), or to
Landlord at the address of the place from time to time established for the
payment of rent and which shall be effective upon proof of delivery. Either
party may by notice to the other specify a different address for notice purposes
except that, upon Tenant's taking possession of the Premises, the Premises shall
constitute Tenant's address for notice purposes. A copy of all notices to be
given to Landlord hereunder shall be concurrently transmitted by Tenant to such
party hereafter designated by notice from Landlord to Tenant. Any notices sent
by Landlord regarding or relating to eviction procedures, including without
limitation Three Day Notices, may be sent by regular mail.
(m) PERSISTENT DELINQUENCIES. In the event that Tenant shall be delinquent
by more than fifteen (15) days in the payment of rent on three (3) separate
occasions in any twelve (12) month period, Landlord shall have the right to
require Tenant to deposit (and maintain) three (3) months' rent in advance to be
used as security for future rental payments due hereunder and may be applied by
Landlord for the payment of Monthly Basic Rental and other sums as the same
become due hereunder.
(n) RIGHT OF LANDLORD TO PERFORM. All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be performed by
Tenant at Tenant's sole cost and expense and without any abatement of rent,
except as otherwise provided in this Lease. If Tenant shall fail to pay any sum
of money, other than rent, required to be paid by it hereunder or shall fail to
perform any other act on its part to be performed hereunder, and such failure
shall continue beyond any applicable period of notice set forth in this Lease,
Landlord may, but shall not e obligated so to do, and without waiving or
releasing Tenant from any obligations of Tenant, make any such payment or
perform any such other act on Tenant's part to be made or performed as is in
this Lease provided. All sums so paid by Landlord and all reasonable incidental
costs, together with interest thereon at the rate of ten percent (10%) per annum
from the date of such payment by Landlord, shall be payable to Landlord on
demand and Tenant covenants to pay any such sums, and Landlord shall have (in
addition to any other right or remedy of Landlord) the same rights and remedies
in the event of the nonpayment thereof by Tenant as in the case of default by
Tenant in the payment of the rent.
(o) ACCESS, CHANGES IN PROJECT, FACILITIES, NAME.
(i) Every part of the Project except the inside surfaces of all walls,
windows and doors bounding the Premises (including exterior building walls, core
corridor walls and doors and any core corridor entrance), and any space in or
adjacent to the Premises used for
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shafts, stacks, pipes, conduits, fan rooms, ducts, electric or other utilities,
sinks or other building facilities, and the use thereof, as well as access
thereto through the Premises for the purposes of operation, maintenance,
decoration and repair, are reserved to Landlord.
(ii) Tenant shall permit Landlord to install, use and maintain pipes,
ducts and conduits within the walls, bearing columns and ceilings of the
Premises.
(iii) Landlord reserves the right, without incurring any liability to
Tenant therefor, to make such reasonable changes in or to the Building and the
fixtures and equipment thereof, as well as in or to the street entrances, halls,
passages, elevators, stairways and other improvements thereof, as it may deemed
necessary or desirable.
(iv) Landlord may adopt any name for the Project and Landlord
reserves the right to change the name or address of the Building at any time.
(p) CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants that
he is duly authorized to execute and deliver this Lease on behalf of said
corporation in accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-laws of said
corporation, and that this Lease is binding upon said corporation in accordance
with its terms. If Tenant is a corporation, said corporation and each
individual executing this Lease on behalf of said corporation covenants that
Tenant shall provide to Landlord a copy of such resolution of the Board of
Directors authorizing the execution of this Lease on behalf of such corporation,
which copy of resolution shall be duly certified by the secretary or an
assistant secretary of the corporation to be a true copy of a resolution duly
adopted by the Board of Directors of said corporation.
(q) IDENTIFICATION OF TENANT.
(a) If more than one person executes this Lease as Tenant, (i) each of
them shall be jointly and severally liable for the keeping, observing and
performing of all of the terms, covenants, conditions and provisions of this
Lease to be kept, observed and performed by Tenant, (ii) the term "Tenant" as
used in this Lease shall mean and include each of them jointly and severally,
and (iii) the act of or notice from, or notice or refund to, or the signature
of, any one or more of them, with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, expiration, termination
or modification of this Lease, shall be binding upon each and all of the person
executing this Lease as Tenant with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
(r) SUBSTITUTE PREMISES. Provided Landlord shall have a full floor tenant
for the! fifth (5th) floor of the Project, then Landlord shall have the right at
any time during the term hereof, upon giving Tenant not less than one hundred
twenty (120) days prior notice, to provide and furnish Tenant with space
elsewhere in the Project of the same size or greater and reasonably similar
tenant improvements as the Premises, and remove and place Tenant in such space.
Landlord shall pay all verified costs and expenses incurred as a result of such
removal and relocation of Tenant, including without limitation the cost of
replacing Tenant's existing supply of stationary and business cards and
relocation of all of Tenant's telephone and communications
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equipment. Should Tenant refuse to permit Landlord to move Tenant to such new
space at the end of said one hundred twenty (120) day period, Landlord or Tenant
shall have the right to cancel and terminate this Lease, subject to the
cancellation provisions set forth in Article 35, below, and Tenant's prospective
obligations hereunder effective ninety (90) days after the date of Landlord's
original notification to Tenant of its intent to relocate Tenant. If Landlord
moves Tenant to such new space, this Lease and each and all of its terms,
covenants and conditions shall remain in full force and effect and shall be
deemed applicable to such new space and such new space shall thereafter be
deemed to be the "Premises" as though Landlord and Tenant had entered into an
express written amendment of this lease with respect thereto.
(s) BUILDING CODES. After the Tenant Improvements have been completed, any
and all costs attributable to or related to the applicable building codes of the
city in which the Project is located (or any other authority having jurisdiction
over the Project) arising from Tenants plans, specifications, improvements,
alterations or otherwise (other than the Tenant Improvements) shall be paid by
Tenant at its sole cost and expense.
(t) EXHIBITS AND ADDENDUM. The Exhibits and Addendum, if applicable,
attached hereto are incorporated herein by this reference as if fully set forth
herein.
ARTICLE 31 - Option to Renew
- ----------------------------
(a) OPTION RIGHT. Landlord hereby grants the Tenant named in this Lease
and any Permitted Transferees (the "Original Tenant") one (1) option to extend
the Lease term for a period of five, (5) years an ("Option Term"), which option
shall, be exercisable only by written notice delivered by Tenant to Landlord set
forth below. The rights contained in this Article 31 shall be personal to the
original Tenant and may only be exercised by the Original Tenant and any
Permitted Transferees (and not any assignee, sublessee or other transferee of
the Original Tenant's interest in this Lease, excepting a Permitted Transferee)
if the Original Tenant, occupies at least fifty-one percent (51%) of the entire
Premises.
(b) OPTION RENT. The rent payable by Tenant during the Option Term
("Option Rent") shall be equal to one hundred percent (100%) of the "Market
Rent" (defined below). "Market Rent" shall mean the applicable monthly basic
rent, including all escalations, direct costs, additional rent and other
charges, including rent concessions and tenant improvement allowances at which
tenants, as of the commencement of the option term, are leasing non-sublease,
nonencumbered, non-equity, space comparable in size, location and quality to the
Premises for a term of five (5) years which comparable space is located in
office buildings comparable to the Project in the West Los Angeles area of Los
Angeles, California.
(c) EXERCISE OF OPTIONS. The Option shall be exercised by Tenant only in
the following manner (i) Tenant shall not be in default following the expiration
of any applicable notice or cure period on the delivery date of the notice to
exercise the Option; (ii) Tenant shall deliver written notice to Landlord not
more than ten (10) months nor less than nine (9) months prior to the expiration
of the Lease term, stating that Tenant is interested in exercising that Option,
(iii) within five (5) business days of Landlord's receipt of Tenant's written
notice, Landlord shall deliver notice ("Option Rent Notice") to Tenant setting
forth the Option Rent; and
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(iv) if Tenant desires to exercise such Option, Tenant shall provide Landlord
written notice within thirty (30) calendar days after receipt of the Option Rent
Notice ("Tenant's Acceptance").
(d) DETERMINATION OF MARKET RENT. If Tenant timely and appropriately
objects to the Market Rent in Tenant's Acceptance, Landlord and Tenant shall
attempt to agree upon the Market Rent using their best good-faith efforts. If
Landlord and Tenant fail to reach agreement within ten (10) calendar days
following Tenant's Acceptance ("Outside Agreement Date"), then each party shall
make a separate determination of the market Rent which shall be submitted to
arbitration in accordance with the following items (i) through (vii):
(i) Landlord and Tenant shall each appoint one arbitrator who shall
by profession be a current real estate broker or appraiser of commercial high-
rise properties in the immediate vicinity of the Project, and who has been
active in such field over the last five (5) years. The determination of the
arbitrators shall be limited solely to the issue of whether Landlord's or
Tenant's submitted Market Rent is the closest to the actual Market Rent as
determined by the arbitrators, taking into account the requirements of item (b),
above.
(ii) The two arbitrators so appointed shall within five (5) business
days of the date of the appointment of the last appointed arbitrator agree upon
and appoint a third arbitrator who shall be qualified under the same criteria
set forth hereinabove for qualification of the initial two arbitrators.
(iii) The three arbitrators shall within fifteen (15) days of the
appointment of the third arbitrator reach a decision as to whether the parties
shall Use Landlord's or Tenant's submitted Market Rent, and shall notify
Landlord and Tenant thereof.
(iv) The decision of the majority of the three arbitrators shall be
binding upon Landlord and Tenant.
(v) If either Landlord or Tenant fails to appoint an arbitrator
within fifteen (15) days after the applicable Outside Agreement Date, the
arbitrator appointed by one of them shall reach a decision, notify Landlord and
Tenant thereof, and such arbitrator's decision shall be binding upon Landlord
and Tenant.
(vi) If the two arbitrators fail to agree upon and appoint a third
arbitrator, or both parties fail to appoint an arbitrator, then the appointment
of the third arbitrator or any arbitrator shall be dismissed and the matter to
be decided shall be forthwith submitted to arbitration under the provisions of
the American Arbitration Association, but subject to the instruction set forth
in this item (d).
(vii) The cost of arbitration shall be paid by Landlord and Tenant
equally.
ARTICLE 32 - Right of First Offer/Right of First Refusal
- --------------------------------------------------------
(a) RIGHT OF FIRST OFFER. From and after the sixteenth (16th) month of the
Commencement Date, and provided Tenant is not, in default following the
expiration of any applicable notice or cure period under this Lease, then
Landlord grants to the Original Tenant (and any Permitted Transferees) a right
of first offer on any space which becomes available for
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lease and which is contiguous to the Premises ("First Offer Space"), subject to
any rights of renewal or expansion of existing Tenants in the Project executing
leases with Landlord prior to the date of this Lease. Tenant's right of first
offer shall be on the terms and conditions set forth in this Article.
(i) Procedure for Offer. Landlord shall from time to time during the
initial Lease term, notify Tenant in writing of the availability to lease space
contiguous to the Premises which notice shall set forth the rental rate
therefore in accordance with Article 32(a)(iii) below ("First Offer Rent").
Within five (5) business days following such notice, Tenant shall notify
Landlord in writing of its desire to lease such available space ("Notice").
(ii) Procedure for Acceptance. In the event Tenant disputes the First
Offer Rent applicable to the First Offer Space, Tenant shall concurrently notify
Landlord of such dispute, along with the Notice, in which event the First Offer
Rent shall be determined in accordance with the terms of Article 31(b) and (d)
above, of this Lease. If Tenant does not so notify Landlord within the five (5)
business day period, then Landlord shall be free to lease the space to anyone to
whom Landlord desires on any terms Landlord desires, provided the amount is not
less than five percent (5%) of the First Offer Rent.
(iii) First Offer Rent. The rent payable by Tenant for the First
Offer Space (the "First Offer Rent") shall be equal to one hundred percent
(100%) of the then Market Rent.
(iv) Construction in First Offer Space. Landlord and Tenant shall
attempt to mutually agree on a tenant improvement allowance for such First Offer
Space at the time the First Offer Space becomes available and Tenant receives
the Notice in Article 32(a)(i) above.
(v) Amendment to Lease. If Tenant timely exercises Tenant's right to
lease the First Offer Space as set forth herein, Landlord and Tenant shall
within thirty (30) days thereafter execute an amendment to this Lease for the
First Offer Space upon the terms and conditions as set forth in the First Offer
Notice and this Article 32. Tenant shall commence payment of rent for the First
Offer Space and the term of the First Offer S ace shall commence upon the date
mutually agreed to by Landlord and Tenant ("First Offer Commencement Date") and
shall terminate on the Expiration Date of this Lease.
(vi) Termination of right of First Offer. The rights contained in
this Article 32 shall be personal to the Original Tenant or any Permitted
Transferee, and may only be exercised by the Original Tenant or any Permitted
Transferee (and not any other assignee, sublessee or other transferee of the
Original Tenant's interest in this Lease) if the Original Tenant or any
Permitted Transferee has not subleased fifty percent (50%) or more of the
original Premises. Tenant shall not have the right to lease First Offer Space,
as provided in this Article 32, or if, as of the date of the attempted exercise
of any right of first offer by Tenant, or as of the scheduled date of delivery
of the First Offer Space to Tenant, Tenant is in default following any
applicable notice or cure period under this Lease.
(b) RIGHT OF FIRST REFUSAL. During the first fifteen (15) months after the
Commencement Date, and provided Tenant has not subleased fifty percent (50%) or
more of the Premises, Landlord hereby grants to the Original Tenant and any
Permitted Transferee a right of
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first refusal with respect to all the available space on the fifth (5th) floor
located in the Project other than the Premises ("First Refusal Space"). Tenant's
right of first refusal shall be on the terms and conditions set forth in this
Article 32(b).
(i) Procedure for Offer. During the first fifteen (15) months after
the Commencement Date, Landlord shall notify Tenant in writing, from time to
time, of third party interest in available space on the fifth (5th) floor of the
Project, along with the third party offer acceptable to Landlord ("First Refusal
Notice").
(ii) Procedure for Acceptance. If Tenant desires to exercise Tenant's
right of first refusal with respect to all or a portion (but not less than 1,500
rentable square feet) of the space described in the First Refusal Notice, then
within five (5) business days of delivery of the First Refusal Notice, Tenant
shall deliver notice to Landlord of Tenant's intention to exercise its right of
first refusal with respect to any portion of the available First Refusal Space
on the same terms and conditions of this Lease (including the effective rental
rate of $1.71 a rentable square foot and Subparagraph (iii) immediately below);
provided, however, that if Tenant desires to take less than all of the First
Refusal Space, the remaining space must be in a "commercially leasable
configuration" or Tenant cannot exercise its right of first offer hereunder.
Landlord shall have the right in its sole and absolute discretion to determine
what constitutes a "commercially leasable configuration". If Tenant does not
exercise its right of first refusal within such five (5) business day period,
then Landlord may lease the First Refusal Space to such third party upon terms
and conditions substantially similar to those set forth in the First Refusal
Notice.
(iii) Construction in First Refusal Space. Landlord and Tenant shall
agree in Tenant's acceptance of the First Refusal Space as to the construction,
if any, of the First Refusal Space. The amount of tenant improvements shall be
proportionately adjusted based on the term remaining on this Lease in comparison
to the original Lease term.
(iv) Amendment to Lease. If Tenant timely and in writing exercises
Tenant's right to lease the First Refusal Space as set forth herein, Landlord
and Tenant shall within thirty (30) days thereafter execute an amendment to this
Lease for the First Refusal Space upon the terms and conditions as set forth in
the First Refusal Notice. Tenant shall commence payment of rent for the First
Refusal. Space, and the term of the First Refusal Space shall commence upon the
date of delivery of the First Refusal Space to Tenant, including the substantial
completion of tenant improvements and shall terminate on the Expiration Date of
this Lease.
(v) Termination of Right of First Refusal. The rights contained in
this Article 32(b) shall be personal to the original Tenant, and may only be
exercised by the Original Tenant and any Permitted Transferee (and not any other
assignee, sublessee or other transferee of the original Tenant's interest in
this Lease, except an affiliate of Tenant) if the original Tenant and any
Permitted Transferee occupies at least fifty percent (50%) of the entire
Premises and Tenant may not exercise it, right of first refusal, if, as of the
date of the attempted exercise of such right of first refusal or as of the
scheduled date of delivery of the First Refusal Space to Tenant, Tenant is in
material default following the expiration of any applicable notice or cure
period under this Lease.
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ARTICLE 33 - Storage Space
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ARTICLE 34 -- Signage/Directory
- -------------------------------
Provided Tenant is not in default hereunder, Tenant shall have the right to
the following signage/directory rights:
(a) At Landlord's sole cost and expense, the right to fourteen (14) lines
in the Project's lobby directory; and
(b) Tenant, at Tenant's sole cost and expense, shall have the right to
install custom suite identification (including logo and business name) on all
entrances to the Premises, subject to Landlord's reasonable approval, which
shall not be unreasonably withheld or delayed.
ARTICLE 35 - Option to Cancel
- -----------------------------
Tenant shall have a one-time right to cancel the Lease effective as of the
end of the thirty-sixth (36th) month of the initial Lease term only
("Termination Date"). In order for the termination right set forth herein to be
valid and effective, Tenant must give Landlord written notice of its intention
to cancel the Lease not later than six (6) months prior to the Termination Date.
In the event Tenant timely and in writing exercises its option to cancel, Tenant
shall, at the time of providing such written notice, pay to Landlord a
cancellation fee equal to the sum of (a) the outstanding balance of the Loan
(defined in Article 9), (b) the unamortized portion of (i) Tenant Improvements
in the amount of Sixty-Two Thousand Fifty-Five Dollars ($62,055.00), (ii)
brokerage commissions in the amount of Forty-Five Thousand Eight Hundred
Forty-One Dollars and Seventy-Nine Cents ($45,841.79), and (iii) Sixty-One
Thousand One Hundred Fifty-Five Dollars ($61,155.00) in rent concessions paid by
and given by Landlord in connection with the Lease, and (c) the sum of Forty-Six
Thousand Six Hundred Thirteen Dollars and Seventy Cents ($46,613.70) Which
equals four (4) months' Monthly Basic Rental (calculated at the effective rate).
ARTICLE 36 - Building Antenna(s) or Satellite Dish(es)
- ------------------------------------------------------
Subject to all governmental laws, rules and regulations, Tenant and
Tenant's contractors (which shall first be reasonably approved by Landlord)
shall have the right and access to install, repair replace, remove, operate and
maintain one (1) so-called "satellite dish" or other similar
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device, such as antennae (collectively, "Communication Equipment") no greater
than one (1) meter in diameter, together with all cable, writing, conduits and
related equipment, for the purpose of receiving and sending radio, television,
computer, telephone or other communication signals at a location on the roof of
the Project designated by Landlord. Landlord shall have the right to require
Tenant to relocate the Communication Equipment (at Landlord's cost) at any time
to another location on the roof of the Project reasonably approved by Tenant.
Tenant shall retain Landlord's roofing contractor to make any necessary
penetrations and associated repairs to the roof in order to preserve Landlord's
roof warranty. Tenant's installation and operation of the Communication
Equipment shall be governed by the following terms and conditions:
(a) Tenant's right to install, replace, repair, remove, operate and
maintain the Communication Equipment shall be subject to all governmental laws,
rules and regulations, and Landlord makes no representation that such laws,
rules and regulations permit such installation and operation.
(b) All plans and specifications for the Communication Equipment shall be
subject to Landlord's reasonable approval.
(c) All costs of installation, operation, maintenance and removal (and
restoration of the Project due to such removal) of the Communication Equipment
and any necessary related equipment (including, without limitation, costs of
obtaining any necessary permits and connections to the Project's electrical
system) shall be borne by Tenant.
(d) It is expressly understood that Landlord retains the right to use the
roof of the Project for any purpose whatsoever provided that Landlord shall not
unduly interfere with Tenant's use of the Communication Equipment.
(e) Tenant shall use the Communication Equipment so as not to cause any
interference to other tenants in the Project or with any other tenant's
Communication Equipment (installed prior to Tenant's installation), and not to
damage the Project or interfere with the normal operation of the Project.
(f) Landlord shall not have any obligations with respect to the
Communication Equipment. Landlord makes no representation that the
Communication Equipment will be able to receive or transmit communication
signals without interference or disturbance (whether or not by reason of the
installation or use of similar equipment by others on the roof of the Project)
and Tenant agrees that Landlord shall not be liable to Tenant therefor.
(g) Tenant shall (i) be solely responsible for any damage caused as a
result of the Communication Equipment; (ii) promptly pay any tax, license or
permit fees charged pursuant to any laws or regulations in connection with the
installation, maintenance or use of the Communication Equipment and comply with
all precautions and safeguards recommended by all governmental authorities; and
(iii) pay for all necessary repairs, replacements, to or maintenance of the
Communication Equipment.
(h) The Communication Equipment shall remain the sole property of Tenant.
Tenant shall remove the Communication Equipment and related equipment at
Tenant's sole cost and expense upon the expiration or sooner termination of this
Lease or upon the imposition of any
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governmental law or regulation which may require removal, and shall repair the
Project upon such removal to the extent required by such work of removal. If
Tenant fails to remove the Communication Equipment and repair the Project within
fifteen (15) days after the expiration or earlier termination of this Lease,
Landlord may do so at Tenant's expense. The provisions of this Article 36 shall
survive the expiration or earlier termination of this Lease.
(i) The communication Equipment shall be deemed to constitute a portion of
the Premises for purposes of the Basic Lease Provisions of this Lease
(j) Tenant shall be solely responsible for the cost of removal of the
Communication Equipment from the Project, and for the cost of repairing and
restoring the Project to its condition immediately prior to the communication
equipment being installed.
ARTICLE 37 - Limited Arbitration/Dispute Resolution Procedure
- -------------------------------------------------------------
The submittal of all matters to arbitration in accordance with the terms of
this Article 37 shall be the sole and exclusive method, means and procedure to
resolve any and all claims, disputes or disagreements of Fifty Thousand Dollars
($50,000.00) or less arising under this Lease, except for (a) determination of
First Offer Rent and Fair Market Rental Rate, which shall be determined in
accordance with the applicable Articles above, (b) all claims by either party
which (i) seek anything other than enforcement of rights under this Lease, or
(ii) are primarily founded upon matters of fraud, willful misconduct, bad faith
or any other allegations of tortious action, and seek the award of punitive or
exemplary damages, and (c) claims relating to Landlord's exercise of any
unlawful detainer rights pursuant to California law or rights or remedies used
by Landlord to gain possession of the Premises or terminate Tenant's right of
possession to the Premises. Should there be a dispute under the Lease for
amounts less than Fifty Thousand Dollars ($50,000.00), and accepted pursuant to
(a), (b) or (c) above, then such procedure shall be that Landlord and Tenant
shall select an arbitrator, which arbitrator shall be selected and qualified
pursuant to the rules of the Judicial Arbitration and Mediation Service (such
arbitrator to be selected by a process by which each party either agrees upon a
third party arbitrator or selects an independent third party, each of which
independent third party shall meet and agree upon such arbitrator, and, failing
to agree within fifteen (15) days after the commencement of such process, such
arbitrator shall be selected by the rules of the Judicial Arbitration Mediation
Service without regard to input by Landlord and Tenant) and whose costs shall be
paid for by the losing party unless it is not clear that there is a "losing"
party, in which event the costs of arbitration shall be shared equally. The
purpose of the use of an arbitrator to resolve such dispute is to avoid the
delays incident to the court calendar system of the jurisdiction within which
the Premises are located. Therefore, the parties agree that if the issue in
dispute between Landlord and Tenant under this Article may be expected to be
resolved under the then current calendar of the court of appropriate
jurisdiction within a period not exceeding six (6) months from the date the
issue is in dispute arises, then the arbitration process described hereinabove
shall not be utilized, an the matter shall proceed through the judicial process
in the court of appropriate jurisdiction.
41
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease, consisting of the
foregoing provisions and Articles, including all exhibits and other attachments
referenced therein, as of the date first above written.
"TENANT" "LANDLORD"
SmarTalk Teleservices, Inc., LAOP, IV, LLC,
a California corporation a Nevada limited liability company,
By: Metropolitan Falls Partners,
By: /s/ Robert H. Lorsch a California general partnership
---------------------------- Its: Managing Member
Robert H. Lorsch,
Chairman, CEO
By: /s/ Richard S. Ziman
-------------------------------
By: /s/ Bruce W. Bielinski Richard S. Ziman,
---------------------------- Managing General Partner
Bruce W. Bielinski, M.D.
Secretary
By: /s/ Victor J. Coleman
------------------------------
Victor J. Coleman,
Executive Officer
42
<PAGE>
EXHIBIT "B"
-----------
RULES AND REGULATIONS
1. No sign, advertisement or notice shall be displayed, printed or affixed
on or to the Premises or to the outside or inside of the Building or so as to be
visible from outside the Premises or Building without Landlord's prior written
consent. Landlord shall have the right to remove any non-approved sign,
advertisement or notice, without notice to and at the expense of Tenant, and
Landlord shall not be liable in damages for such removal. All approved signs or
lettering on doors and walls shall be printed, painted, affixed or inscribed at
the expense of Tenant by Landlord or by a person selected by Landlord and in a
manner and style acceptable to Landlord.
2. Tenant shall not obtain for use on the Premises ice, drilling water,
waxing, cleaning, interior glass polishing, rubbish removal, towel or other
similar services, or accept barbering or bootblackening, or coffee cart
services, milk, soft drinks or other like services on the Premises, except from
persons authorized by Landlord and at the hours and under regulations fixed by
Landlord. No vending machines or machines of any description shall be
installed, maintained or operated upon the Premises without Landlord's prior
written consent.
3. The sidewalks, hall, passages, exits, entrances, elevators and
stairways shall not be obstructed by Tenant or used for any purpose other than
for ingress and egress from Tenant's Premises.
4. Toilet rooms, toilets, urinals, wash bowls and other apparatus shall
not be used for any purpose other than for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein.
5. Tenant shall not overload the floor of the Premises or mark, drive
nails, screw or drill into the partitions, ceilings or floor or in any way
deface the Premises.
6. In no event shall Tenant place a load upon any floor of the Premises or
portion of any such flooring exceeding the floor load per square foot of area
for which such floor is designed to carry and which is allowed by law, or any
machinery or equipment which shall cause excessive vibration to the Premises or
noticeable vibration to any other part of the Building. Prior to bringing any
heavy safes, vaults, large computers or similarly heavy equipment into the
Building, Tenant shall inform Landlord in writing of the dimensions and weights
thereof and shall obtain Landlord's consent thereto, which consent Landlord
shall have the right to deny. Such consent shall not constitute a
representation or warranty by Landlord that the safe, vault or other equipment
complies, with regard to distribution of weight and/or vibration, with the
provisions of this Rule 6 nor relieve Tenant from responsibility for the
consequences of such noncompliance, and any such safe, vault or other equipment
which Landlord determines to constitute a danger of damage to the Building or a
nuisance to other Tenants, either alone or in combination with other heavy
and/or vibrating objects and equipment, shall be promptly removed by Tenant upon
Landlord's written notice of such determination and demand for removal thereof.
1
<PAGE>
7. Tenant shall not use or keep in the Premises or Project any kerosene,
gasoline or inflammable, explosive or combustible fluid or material, or use any
method of heating or air-conditioning other than that supplied by Landlord.
8. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord.
9. Tenant shall not install or use any blinds, shades, awnings or-screens
in connection with any window or door of the Premises and shall not use any
drape or window covering facing any exterior glass surface other than the
standard drapes, blinds or other window covering.
2
<PAGE>
EXHIBIT "C"
-----------
NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE
TO: _____________________________ DATE: ____________________________
_____________________________
_____________________________
RE: Lease dated ________________, 19___, between ______________________________
_______________________ ("Landlord"), and ______________________________________
("Tenant"), concerning Suite ______, located at ______________________________.
Gentlemen:
In accordance with the Lease, Landlord wishes to advise and/or conform the
following:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the Lease and that there is no
deficiency in construction.
2. That the Tenant has taken possession of the Premises and acknowledges
that under the provisions of the Lease the term of said Lease shall
commence as of __________________________ for a term of ___________________
___________ ending on ____________________________________.
3. That in accordance with the Lease, Basic Rental commenced to accrue on
_______________________.
4. If the Commencement Date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each
billing thereafter shall be for the full amount of the monthly installment
as provided for in said Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the term of said Lease. Your rent checks should be made
payable to __________________________ at __________________________________
____________________________________________________________________.
6. The exact number of rentable square feet within the Premises is
_________ square feet.
1
<PAGE>
7. Tenant's Percentage, as adjusted b:s1d upon the exact number of
rentable square feet within the Premise is ________%.
-------
AGREED AND ACCEPTED:
TENANT:
By:
--------------------------
Its:
--------------------------
2
<PAGE>
AMENDMENT NO. 1 TO LEASE AGREEMENT
----------------------------------
THIS AMENDMENT NO. 1 TO LEASE ("Agreement") dated as of tb12 16th day of
January, 1996 by and between LAOP IV, LLC, a Nevada limited liability company
("Landlord") and SMARTALK TELESERVICES, INC., a California corporation
("Tenant"), with reference to the following recitals:
A. Landlord and Tenant entered into that certain Lease dated January 10,
1996 ("Lease") for suite 500, consisting of approximately 6,795 rentable square
feet ("Premises"), located in the building at 1640 Sepulveda Boulevard, Los
Angeles, California 90025, known as Westwood Terrace ("Project").
B. Pursuant to Article 32 of the Lease, Landlord has provided Tenant with
notice of the availability of approximately 1,729 rentable square feet of
contiguous space ("First Refusal Space") to the Premises and Tenant has provided
Landlord with written notification of its intent to exercise its right of first
refusal to lease the First Refusal Space.
C. Landlord and Tenant desire to amend the Lease to include the First
Refusal Space as part of the Premises on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the terms, covenants and conditions as
set forth in the Lease and in this Agreement, the sufficiency and adequacy of,
which is hereby acknowledged, Landlord and Tenant hereby agree to amend the
Lease as follows:
1. PREMISES: Article 1.B of the Lease shall be amended to delete the
--------
number "6,795" as the definition of rentable square feet of the
Premises and to replace it with the number "8,524" thereby reflecting
that the Premises shall be defined as for all purposes under the Lease
approximately 8,524 rentable square feet as designated on the plan
attached hereto and incorporated in the Lease as Exhibit "A."
2. BASIC RENTAL: Article 1.C of the Lease shall be amended to reflect
------------
that Tenant shall pay to Landlord as Monthly Base Rental during the
Lease term, the following amounts:
3. TENANT'S PROPORTIONATE SHARE: Article 1.E of the Lease shall be
----------------------------
amended by deleting the number "4.99045%" as the definition of
Tenant's Proportionate Share under the Lease and replacing it with the
number "6.26039%" reflecting that Tenant's Proportionate Share shall
be defined as for all purposes under the Lease as 6.26039%.
4. SECURITY DEPOSIT: Article 1.F of the Lease shall be amended to
----------------
5. PARKING PASSES: Article 1.1 of the Lease shall be amended to reflect
--------------
that Tenant shall be entitled to twenty-six (26) unreserved parking
spaces. Five (5) of the twenty-six (26) parking spaces located in the
Project's parking structure may
1
<PAGE>
be reserved parking spaces. The charges for all parking spaces shall
be as set forth in the Lease.
6.
7. REPAIRS AND ALTERATIONS: Article 9 of the Lease shall be amended to
-----------------------
8. OPTION TO CANCEL: Article 35 of the Lease shall be amended to
----------------
9. CAPITALIZED TERMS: Except as otherwise expressly provided herein to
-----------------
the contrary, all capitalized terms used in this First Amendment to
Lease shall have the same meanings given such terms in the Lease.
10. APPLICABILITY OF LEASE: All terms, covenants and conditions of the
----------------------
Lease, except as expressly amended herein are hereby ratified and
shall continue in full force and effect throughout the term of the
Lease, including any extension or renewal thereof. The terms,
covenants and conditions expressly amended herein shall become
effective upon the execution o this First Amendment to Lease Agreement
by both Landlord and Tenant and the full and complete satisfaction of
each and every one of the conditions set forth in Paragraphs 4 and 6
above.
11. AUTHORIZATION: Each individual and entity executing this First
-------------
Amendment to Lease Agreement hereby represents and warrants that it
has the capacity set forth on the signature page hereof with full
power and authority to bind the party on whose behalf it is executing
this First Amendment to Lease Agreement, to the terms hereof.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
date first written above.
"LANDLORD" "TENANT"
LAOP, IV, LLC, SmarTalk Teleservices, Inc.,
a Nevada limited liability company, a California corporation
By: Metropolitan Falls Partners, By: /s/ Robert H. Lorsch
a California general partnership --------------------------
Its: Managing Member Robert H. Lorsch,
Chairman, CEO
By: /s/ Richard S. Ziman By: /s/ Bruce W. Bielinski
--------------------------- --------------------------
Richard S. Ziman, Bruce W. Bielinski, M.D.
Managing General Partner Secretary
By: /s/ Victor J. Coleman
---------------------------
Victor J. Coleman,
Executive Officer
3
<PAGE>
AMENDMENT NO. 2 TO LEASE AGREEMENT
----------------------------------
THIS AMENDMENT No. 2 TO LEASE ("Agreement") dated as of this 7th day of
February, 1996 by and between LAOP IV, LLC, a Nevada limited liability company
("Landlord") and SMARTALK TELESERVICES, INC., a California corporation
("Tenant"), with reference to the following recitals:
A. Landlord and Tenant entered into that certain Lease dated January 10,
1996 ("Lease ) for suite 500, consisting of approximately 6,795 rentable square
feet ("Premises"), located in the building at 1640 Sepulveda Boulevard, Los
Angeles, California 90025, known as Westwood Terrace ("Project"). The Lease was
subsequently amended in or about February, 1996, to include approximately 1,729
rental square feet of additional contiguous space. The Lease and the Amendment
are collectively referred to herein as the "Lease" and the term "Premises"
includes the original Premises and the additional space added pursuant to the
Amendment.
B. Landlord and Tenant desire to amend the Lease to, among other matters,
change the Commencement Date set forth in the Lease on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the terms, covenants and conditions as
set forth in the Lease and in this Agreement, the sufficiency and adequacy of
which is hereby acknowledged, Landlord and Tenant hereby agree to amend the
Lease as follows:
1. COMMENCEMENT DATE: Article 1.A of the Lease shall be amended by
-----------------
deleting the following language: "On the later of (i) February 1,
1996," and replacing it with the following language: "The earlier of
(i) March 25, 1996,"
2. CAPITALIZED TERMS: Except as otherwise expressly provided herein to
-----------------
the contrary, all capitalized terms used in this Agreement shall have
the same meanings given such terms in the Lease.
3. APPLICABILITY OF LEASE: All terms, covenants and conditions of the
----------------------
Lease, except as expressly amended herein are hereby ratified and
shall continue in full force and effect throughout the term of the
Lease, including any extension or renewal thereof. The terms,
covenants and conditions expressly amended herein shall become
effective upon the execution of this Agreement by both Landlord and
Tenant.
4. AUTHORIZATION: Each individual and entity executing this Agreement
-------------
hereby represents and warrants that it has the capacity set forth on
the signature page hereof with full power and authority to bind the
party on whose behalf it is executing this Agreement.
1
<PAGE>
"LANDLORD" "TENANT"
LAOP, IV, LLC, SmarTalk Teleservices, Inc.,
a Nevada limited liability company, a California corporation
By: Metropolitan Falls Partners, By: /s/ Robert H. Lorsch
a California general partnership --------------------------
Its: Managing Member Robert H. Lorsch,
Chairman, CEO
By: /s/ Richard S. Ziman By: /s/ Bruce W. Bielinski
--------------------------- --------------------------
Richard S. Ziman, Bruce W. Bielinski, M.D.
Managing General Partner Secretary
By: /s/ Victor J. Coleman
---------------------------
Victor J. Coleman,
Executive Officer
2
<PAGE>
AMENDMENT NO. 3 TO LEASE AGREEMENT
----------------------------------
THIS AMENDMENT N0.3 TO LEASE ("Agreement") dated as of this 19th day of
April, 1996 by and between LAOP IV, LLC, a Nevada limited liability company
("Landlord") and SMARTALK TELESERVICES, INC., a California corporation
("Tenant"), with reference to the following recitals:
A. Landlord and Tenant entered into that certain Lease dated January 10,
1996 ("Lease") for Suite 500, consistency of approximately 6,795 rentable square
feet ("Premises"), located in the building at 1640 Sepulveda Boulevard, Los
Angeles, California 90025, known as Westwood Terrace ("Project"). The Lease was
subsequently amended ("Amendment No. 1") in or about January or February, 1996,
to, among other things, include approximately 1,729 rental square feet of
additional contiguous space, and further amended on February 7, 1996,
("Amendment No. 2") to, among other things, recalculate the Commencement Date
under the Lease. The Lease and the amendments are collectively referred to
herein as the "Lease," and the term "Premises" includes the original Premises
and the additional space added pursuant to Amendment No. 1.
B. Landlord and Tenant desire to amend the Lease to, among other matters,
document the Loan to Tenant for construction of the Tenant Improvements and the
increase in Monthly Basic Rental for the repayment of the Loan, as more
specifically set forth in the Lease, on the terms and conditions hereinafter set
forth.
C. Except as otherwise stated herein, all capitalized and defined terms
have the same meaning as set forth in the Lease.
NOW, THEREFORE, in consideration of the terms, covenants and conditions as
set forth in the Lease and in this Agreement, the sufficiency and adequacy of
which is hereby acknowledged, Landlord and Tenant hereby agree to amend the
Lease as follows:
2. BASIC RENTAL: Article I.C. of the Lease and Paragraph 2 of Amendment
------------
No. 1 shall be amended to reflect that Tenant shall pay to Landlord as
Monthly Basic Rental during the Lease term, the following amounts
(which includes the repayment of the Loan with interest):
3. RENTAL ADJUSTMENT: Pursuant to the provisions of Paragraph 6 of
-----------------
4. APPLICABILITY OF LEASE: All terms, covenants and conditions of the
----------------------
Lease, except as expressly amended herein are hereby ratified and
shall continue in full force and effect throughout the term of the
Lease, including any extension or renewal thereof. The terms,
covenants and conditions expressly amended herein
1
<PAGE>
shall become effective upon the earlier of (i) disbursement of the
Loan to Tenant, or (ii) execution of this Agreement by both Landlord
and Tenant.
5. AUTHORIZATION: Each individual and entity executing this Agreement
hereby represents and warrants that it has the capacity set forth on
the signature page hereof with full power and authority to bind the
party on whose behalf it is executing this Agreement.
6. DEFAULTS: As of the date of this Agreement, Tenant hereby represents
and warrants to Landlord that Tenant is in full compliance with all
terms, covenants and conditions of the Lease and that there are no
breaches or defaults under the Lease by Landlord or Tenant, and Tenant
knows of no events or circumstances which given the passage of time
would constitute a default under the Lease by either Landlord or
Tenant.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and date first written above.
"LANDLORD" "TENANT"
LAOP, IV, LLC, SmarTalk Teleservices, Inc.,
a Nevada limited liability company, a California corporation
By: Metropolitan Falls Partners, By: /s/ Robert H. Lorsch
a California general partnership --------------------------
Its: Managing Member Robert H. Lorsch,
Chairman, CEO
By: /s/ Richard S. Ziman By: /s/ Bruce W. Bielinski
--------------------------- --------------------------
Richard S. Ziman, Bruce W. Bielinski, M.D.
Managing General Partner Secretary
By: /s/ Victor J. Coleman
---------------------------
Victor J. Coleman,
Executive Officer
2
<PAGE>
NOTICE OF LEASE TERM DATES AND TENANT'S PERCENTAGE
TO: Robert H. Lorsch, Chairman, CEO DATE: April 25, 1996
Bruce W. Bielinski, M.D., Secretary
SMARTALK TELESERVICES, INC.
1640 S. Sepulveda Blvd., Suite 500
Los Angeles, CA 90025
RE: Lease dated January 10, 1996, Amendment No. 1 dated January 30, 1996,
Amendment No. 2 dated February 7, 1996 and Amendment No. 3 dated April 19,
1996, between LAOP IV, LLC, a Nevada limited liability company ("Landlord")
and SMARTALK TELESERVICES, INC., a California corporation ("Tenant"),
concerning Suite 500, located at 1640 S. Sepulveda Boulevard, Los Angeles,
California.
Gentlemen:
In accordance with the Lease, Landlord wishes to advise and/or confirm the
following:
1. That the Premises have been accepted herewith by the Tenant as being
substantially complete in accordance with the Lease and that there is no
deficiency in construction.
2. That the Tenant has taken possession of the Premises and acknowledges
that under the provisions of the Lease term of said Lease shall commence as of
March 11, 1996 for a term of seventy-two months ending on March 31, 2002.
3. That in accordance with the Lease Basic Rental commenced to accrue on
March 11, 1996.
4. If the Commencement Date of the Lease is other than the first day of
the mouth, the first billing will contain a pro rata adjustment. Each billing
thereafter shall be or the full amount of the monthly installment as provided
for in said Lease.
5. Rent is due and payable on the first day of each and every month during
the term of said Lease. Your rent checks should be mad payable to Hanford/Healy
Agent for LBHI at P.O. Box 54177, Los Angeles, California 90051-4177.
6. The exact number of rentable square feet within the Premises is 8,524
square feet.
1
<PAGE>
7. Tenant's Percentage, as adjusted based upon the exact number of
rentable square feet within the Premises is 6.26039%.
AGREED AND ACCEPTED:
TENANT
SMARTALK TELESERVICES, INC.,
By: /s/ Robert H. Lorsch
-------------------------------
Robert H. Lorsch,
Its: Chairman, CEO
By: /s/ Bruce W. Bielinski
-------------------------------
Bruce W. Bielinski, M.D.
Its: Secretary
2
<PAGE>
TO: SMARTALK TELESERVICES, INC. DATE: August 18, 1997
1640 S. Sepulveda Blvd., Suite 500
Low Angeles, CA 90025
RE: Fourth Amendment dated February 28, 1997 to Lease dated January 30, 1996
between ARDEN REALTY LIMITED PARTNERSHIP, a Maryland limited partnership
("Landlord") and SMARTALK TELESERVICES. INC., a California corporation
("Tenant"), concerning the Expansion Space on the fifth floor located at
1640 S. Sepulveda Boulevard, Los Angeles, California.
Gentlemen:
In accordance with the Lease, Landlord wishes to advise and/or confirm the
following:
1. That the Expansion Space has been accepted herewith by the Tenant as
being substantially complete in accordance with the Fourth Amendment to Lease
and that there is no deficiency in construction.
2. That the Tenant has taken possession of the Expansion Space and
acknowledges that under the provisions of the Fourth Amendment to Lease term of
said Expansion Space shall. commence as of August 18, 1997 for a term of fifty-
five months ending on March 31, 2002.
3. That in accordance with the Lease Basic Rental for the Expansion Space
commenced to accrue on August 18, 1997.
4. If the Commencement Date of the Lease is other than the first day of
the month, the first billing will contain a pro rata adjustment. Each billing
thereafter shall be for the full amount of the monthly installment as provided
for in said Lease.
5. Rent is due and payable on the first day of each and every month during
the term of said Lease. Your rent checks should be made payable to Arden
Realty(TM) Inc., 9100 Wilshire Blvd., Suite 700E, Beverly Hills, CA 90212.
6. The exact number of rentable square feet within the Expansion Space is
4,915 square feet for a total of 13, 439 square feet.
1
<PAGE>
7. Tenant's Percentage, as adjusted based upon the exact number of
rentable square feet within the Premises will increase to 3.6 1% on the
Expansion Commencement Date.
AGREED AND ACCEPTED:
TENANT:
SMARTALK TELESERVICES, INC.
- ---------------------------
a California corporation
By:
-----------------------
Its
--------------------
2
<PAGE>
FOURTH AMENDMENT TO LEASE
-------------------------
THIS FOURTH AMENDMENT TO LEASE ("Fourth Amendment") is made and entered
into as of the 28th day of February, 1997, by and between ARDEN REALTY LIMITED
PARTNERSHIP, a Maryland limited partnership ("Landlord") and SMARTALK
TELESERVICES, INC., a California corporation ("Tenant"):
R E C I T A L S :
- - - - - - - -
A. LAOP IV, LLC, a Nevada limited liability company ("LAOP") and Tenant
entered into that certain Standard Office Lease dated as of January 10, 1996
("Original Lease"), as amended by that certain Amendment No. 1 to Lease
Agreement dated January 1996 ("First Amendment"), that certain Amendment No. 2
to Lease Agreement dated February 28, 1996 ("Second Amendment"), and that
certain Amendment No. 3 to Lease Agreement dated April 19, 1996 ("Third
Amendment") collectively referred to as the "Amendments," whereby Landlord
leased to Tenant and Tenant leased from Landlord certain space (the "Premises")
located on the fifth (5th) floor of that certain building located at 1640
Sepulveda Boulevard, Los Angeles, California 90025 (the "Project"). The
Original Lease as amended by the Amendments may be referred to herein as the
"Lease" Landlord is the successor in interest to LAOP.
B. Tenant desires to expand the Premises to include that certain space
("Expansion Space") located on the fifth (5th) floor of the Project, which space
contains approximately 4,915 rentable (4,241 useable) square feet as delineated
on Exhibit "A" attached hereto and made a part hereof. In connection therewith,
Landlord and Tenant desire to amend the Lease as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
A G R E E M E N T :
- - - - - - - - -
1. Capitalized Terms. All capitalized terms when used herein shall have
-----------------
the same meaning as is given such terms in the Lease unless expressly superseded
by the terms of this Fourth Amendment.
2. Expansion Commencement Date. The term "Expansion Commencement Date"
---------------------------
shall mean the later of (a) March 15, 1997; or (b) the date upon which the
Tenant Improvements have been substantially completed in the Expansion Space (as
described in the Tenant Work Letter attached hereto as Exhibit "B").
3. Addition to Premises. Effective as of the Expansion Commencement
--------------------
Date, Tenant shall lease from Landlord and Landlord shall lease to Tenant the
Expansion Space. Consequently, effective upon the Expansion Commencement Date,
the original Premises shall be increased to include the Expansion Space. The
term of Tenant's leases of the Expansion Space shall expire co-terminously with
the Term of Tenant's lease of the original Premises on March 31, 2002. Landlord
and Tenant hereby agree that such addition of the Expansion Space to
1
<PAGE>
the original Premises shall, effective as of the Expansion Commencement Date,
increase the number of rentable square feet contained within the Premises to
thirteen thousand four hundred thirty nine (13,439) rentable square feet.
4. Tenant's Proportionate Share. Effective upon the Expansion
----------------------------
Commencement Date, Tenant's Proportionate Share shall increase to three point
six one percent (3.61%). The Base Year specified in Section 1.A.D. of the
Original Lease shall apply to Tenant's lease of the Expansion Space as well as
the Original Premises.
5. Monthly Base Rental. Monthly Base Rental applicable to the Expansion
-------------------
Space for the period from the Expansion Commencement Date and continuing until
the expiration of the initial term of the Lease shall be as follows:
6. Improvements to Expansion Space. Landlord shall construct the
-------------------------------
improvements to the Expansion Space pursuant to the terms and conditions of the
Tenant Work Letter attached hereto as Exhibit "B." Except as specifically set
forth in the Tenant Work Letter, Tenant hereby acknowledges that Landlord shall
not be obligated to provide or pay for any improvement work or services related
to the improvement of the Expansion Space. Tenant also acknowledges that
Landlord has made no representation or warranty regarding the condition of the
Expansion Space.
7. Exterior Signage. Provided that Tenant is not in default under the
----------------
Lease and provided that Tenant has not assigned the Lease by means other than
merger or consolidation, or subleased more than fifty percent (50%) of the
Premises then under the Lease, Tenant shall be entitled, during the initial
lease term and the Option Term (if applicable), to install and maintain one (1)
sign identifying Tenant, with such sign to be located immediately above the
window line on the fifth floor of the Project on the South side of the Project
(the "Exterior Signage"). The graphics, materials, color, design, lettering,
lighting, size, specifications and exact location of the Exterior Signage shall
be subject to the prior written approval of Landlord, which approval shall be at
Landlord's sole and absolute discretion. However, Landlord shall in no event
approve Exterior Signage that would restrict another user from erecting similar
Exterior Signage and Tenant's signage rights shall be non-exclusive. Landlord
shall in no event approve exterior signage for another user that would abut
Tenant's exterior signage. In addition, such signage shall be subject to
Tenant's receipt of all required governmental permits and approvals and shall be
subject to all applicable governmental laws and ordinances. The cost of
installation of the Exterior Signage, as well as all costs of design and
construction of such signage and all other costs associated with such signage,
including, without limitation, utility charges and hook-up fees (if applicable),
permits, maintenance and repair, shall be the sole responsibility of Tenant.
Tenant further acknowledges that any repairs necessitated as a result of window
washing equipment cabling passing over such signage in the normal course of
cleaning the exterior
2
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windows of the Project shall be the sole responsibility of Tenant. The rights
set forth in this Section 7, and Landlord's obligations with respect thereto,
shall be personal to the originally named Tenant under this Fourth Amendment and
may only be exercised by the originally named Tenant, and not any assignee,
subtenant or other person or entity.
(a) Monthly Basic Rental For Exterior Signage. Monthly Basic Rental
-----------------------------------------
for the Exterior Signage right shall commence as of the Expansion Commencement
Date and shall be in the amount of One Thousand Dollars ($1,000.00) per month
during the initial Lease Term (which amount is reflected in the schedule in
Section 5 above) and One Thousand Five Hundred Dollars ($1,500.00) per month
during the Option Term (if applicable), said rental to be paid at the same time
as Tenant's Monthly Basic Rental for the Premises and in accordance with the
terms of the Lease.
(b) Maintenance of Exterior Signage. Should the Exterior Signage
-------------------------------
require maintenance or repairs as determined in Landlord's reasonable judgment,
Landlord shall have the right to provide written notice thereof to Tenant and
Tenant shall cause such repairs and/or maintenance to be performed within thirty
(30) days after receipt of such notice from Landlord, at Tenant's sole cost and
expense; provided, however, if such repairs and/or maintenance are reasonably
expected to require longer than thirty (30) days to perform, Tenant shall
commence such repairs and/or maintenance within such thirty (30) day period and
shall diligently prosecute such repairs and maintenance to completion. Should
Tenant fail to perform such maintenance and repairs within the periods described
in the immediately preceding sentence, Landlord shall have the right to cause
such work to be performed and to charge Tenant as additional rent for the costs
of such work. Upon the expiration or earlier termination of the Lease, Tenant
shall, at Tenant's sole cost and expense, cause the Exterior Signage to be
removed from the exterior of the Project and shall cause the exterior of the
Project to be restored to the condition existing prior to the placement of such
signage. If Tenant fails to remove such signage and to restore the exterior of
the Project as provided in the immediately preceding sentence within thirty (30)
days following the expiration or earlier termination of the Lease, then Landlord
may perform such work, and all costs and expenses incurred by Landlord in so
performing shall be reimbursed by Tenant to Landlord within ten (10) days after
Tenant's receipt of invoice therefor. The immediately preceding sentence shall
survive the expiration of earlier termination of the Lease.
8. Parking. Tenant shall be entitled to lease fourteen (14) parking
-------
passes, of which three (3) may be reserved at Tenant's request and subject to
availability as determined by Landlord, in addition to those passes Tenant is
entitled to lease under the Original Lease, located in the Project's parking
facility, at prevailing market rates. Said additional parking passes shall
increase Tenant'' total number of parking passes to forty (40), of which Tenant
shall be entitled to request a total of eight (8) reserved parking passes,
subject to availability as determined by Landlord. Any such reserved parking
passes shall be for reserved parking at a location in the Project'' parking
facility designated by Landlord.
9.
10. Cancellation Rights. Article 35 of the Original Lease (as amended by
-------------------
Section 8 of the First Amendment) is hereby deleted in its entirety.
3
<PAGE>
11. No further Modification. Except as set forth in this Fourth
-----------------------
Amendment, all of the terms and provisions of the Lease shall apply with respect
to the Expansion Space and shall remain unmodified and in full force and effect.
"LANDLORD"
ARDEN REALTY LIMITED PARTNERSHIP, a
Maryland limited partnership
By: Arden Realty, Inc. a Maryland corporation,
Its sole general partner
By: /s/ Victor J. Coleman
-------------------------------------
Victor J. Coleman
President and COO
By: /s/
------------------------------------------
Its: CEO
-------------------------------------
Richard S. Zieman
Chairman and Chief Executive Officer
"TENANT"
SMARTALK TELESERVICES, INC.
a California corporation
By: /s/
------------------------------------------
Its: CFO
-------------------------------------
By:
------------------------------------------
Its:
-------------------------------------
***
4
<PAGE>
EXHIBIT 10.11
SUBLEASE
--------
THIS SUBLEASE (the "Sublease") is made as of April 1, 1998, by and
between SMARTALK TELESERVICES, INC., a California corporation. whose mailing
address is 5500 Frantz Road, Suite 124, Dublin, Ohio 43017 ("Sublessor"), and
THE RHL GROUP, INC., a California corporation, whose mailing address is Suite
500, Westwood Terrace, 1640 Sepulvada Boulevard, Los Angeles, California 90025
("Sublessee").
WITNESSETH:
----------
WHEREAS, LAOP IV, LLC, a California limited liability company
("Landlord") and Sublessor entered into that certain Standard Office Lease dated
as of January 10, 1996, as amended by Amendment No. 1 to Lease Agreement dated
as of January 16, 1996, Amendment No. 2 to Lease Agreement dated as of February
7, 1996, Amendment No. 3 to Lease Agreement dated as of April 19, 1996, Notice
of Lease Term Dates and Tenant's Percentage dated April 25, 1996, Fourth
Amendment to Lease dated February 28, 1997, and Notice of Lease Term Dates and
Tenant's Percentage dated August 18, 1997 (collectively, the "Lease") covering
certain premises known as Suite 500, Westwood Terrace, 1640 Sepulvada Boulevard,
Los Angeles, California, 90025 (including all rights appurtenant thereto as
provided in the Lease, hereinafter referred to as the "Premises"); and
WHEREAS, Sublessor desires to sublet the entire Premises to Sublessee
and Sublessee desires to sublet the entire Premises from Sublessor, on the terms
and conditions set forth herein;
NOW, THEREFORE, in consideration of the rents reserved and the other
terms and conditions hereinafter set forth, Sublessor and Sublessee hereby agree
as follows:
1. Relationship to Lease. This Sublease and all its terms, covenants
---------------------
and provisions are and each of them is subject and subordinate to the Lease, the
terms of which are specifically incorporated herein by reference. In the event
Landlord provides Sublessee with notice that Sublessor is in default under the
Lease following the expiration of any grace or cure period. Sublessee shall
thereafter make all payments due under this Sublease directly to Landlord, which
will be received by Landlord without any liability to honor this Sublease or
otherwise (except to credit such payments to amounts due under the Lease and
Sublessee shall attorn to Landlord or its successors and assigns at their
request should the Lease be terminated for any reason, except that in no event
shall Landlord or its successors or assigns be obligated to accept such
attornment. Sublessor shall provide to Sublessee, promptly, copies of any and
all notices it receives from the Landlord regarding the Lease. Sublessor (i)
represents and warrants in favor of Sublessee that all payments to be made by
the tenant under the Lease through the date of execution of this Sublease have
been made and (ii) agrees to remain responsible for and indemnify and hold
Sublessee harmless against any payments due under the Lease attributable to all
periods through and including March 31, 1998.
1
<PAGE>
2. Performance of Lease Term. With respect to the Premises, Sublessee
-------------------------
hereby expressly agrees during the Term (hereinafter defined) to be subject to
and bound by and to observe, and this Sublease shall be deemed to contain. all
of the covenants, stipulations, restrictions, agreements and other provisions
contained in the Lease to the extent the same are applicable to the Premises,
except the covenant to pay the rent provided in the Lease and except as
expressly modified, excluded or otherwise specifically addressed in this
Sublease. Sublessee further agrees not to take or cause to be taken any action
which would cause Sublessor to be in default under the Lease.
3. Premises. Upon the terms and conditions hereinafter set forth,
--------
Sublessor hereby subleases to Sublessee, and Sublessee hereby hires and takes
from Sublessor, the entire Premises on an "AS IS" basis including any right of
Sublessor under the Lease to utilize the common areas of the property of which
the Premises are a part (including, without limitation, the use of the 20
parking spaces pursuant to the terms of the Lease), provided that Sublessee
shall use the same in such a manner as permitted and required by the Lease.
Sublessee shall purchase from Sublessor all of the office furniture, trade
fixtures and personalty (including, without limitation (i) the telephone system
and (ii) the computer equipment listed on Schedule A attached hereto) owned by
Sublessor and located in or at the Premises as of the date of the execution
hereof (the "Equipment") for the appraised value of the Equipment (as
established by an appraiser selected by Sublessor and reasonably acceptable to
Sublessee), payment for such purchase to be made by Sublessee to Sublessor
within five (5) days of receipt of an invoice for such amount from Sublessor.
The Equipment shall specifically exclude any business files and/or records of
Sublessor and any inventory (including phone cards) which business files,
records and inventory shall be recovered by, or returned to, Sublessor promptly
after the execution hereof without limitation, it is acknowledged that the art
work at the Premises and the office furniture and personalty contained in the
private office of Robert Lorsch belongs to Robert Lorsch and is not subject to
the appraisal and purchase described above.
4. Term. The term of this Sublease (the "Term") shall commence on
----
April 1, 1999 and shall run parallel with the term of the Lease (excluding any
renewal term). Notwithstanding anything set forth herein to the contrary, in the
event the term of the Lease shall be terminated prior to the expiration of the
term of this Sublease for any reason. other than due to a default by Sublessor
thereunder, then the term of this Sublease automatically shall be deemed
terminated effective on the date of termination of the Lease, and Sublessor
shall have no liability to Sublessee arising out of such early termination.
5. Rent. Sublessee shall pay to Sublessor as rent for the Premises,
----
without set-off or demand, the sum.
6. Use of the Premises; Sublessee's Obligations. The Premises shall
--------------------------------------------
be used for general office purposes only and for no other purpose whatsoever.
Sublessee shall fully comply with all rules and regulations which Sublessor or
Landlord may promulgate from time to time. Sublessee shall not commit or permit
any waste or injury to any of the Premises (or any other property of Sublessor
or Landlord) or any nuisance on the Premises or the property of which the
Premises are a part, nor shall Sublessee make any alterations, improvements or
2
<PAGE>
changes thereto without the prior written consent of Sublessor and otherwise in
accordance with the requirements and provisions contained in the Lease.
7. Operating Costs; Other Costs. Sublessee shall reimburse to
----------------------------
Sublessor the amount of all operating costs and other charges payable by
Sublessor to the. Landlord pursuant to, the terms of the Lease ("Operating
Costs") which are attributable to the Term; provided. however, that Sublessee
shall W be responsible for any costs associated with or arising out of' any
signage of Sublessor remaining on the Premises and Sublessor shall promptly make
payment for such costs (including the Monthly Basic Rental For Signage as
defined in the Lease) as and when due. Landlord will supply to Tenant such
invoices and or calculations as received by Sublessor from Landlord and
Sublessee shall remit payment for such items as are attributable to the term
hereof to Sublessor at least three (3) days prior to the date such amounts are
due to be paid by Sublessor to Landlord. Operating Costs shall be prorated for
periods prior to April 1, 1998 and Sublessor shall remain responsible for,
indemnify and hold Sublessee harmless against, and pay promptly when due.
Operating Costs attributable to periods prior to April 1, 1998.
8. Access by Sublessor. Sublessee shall permit Sublessor (and its
-------------------
employees and agents) to have access to the Premises at all reasonable times for
any lawful purpose.
9. Sublessee's Insurance. At all times during the Term, Sublessee
---------------------
shall, at its sole cost and expense, maintain in full force and effect such
insurance policies as required by the Lease, in such amount and manner as
required by the Lease and, in addition thereto, also naming Sublessor as an
additional insured. Sublessee shall maintain its own insurance covering
Sublessee's property (including furniture, trade fixtures and personalty)
located in the Premises.
10. Indemnity. Sublessee hereby covenants and agrees to defend, hold
---------
harmless and indemnify Sublessor and Landlord and their respective affiliates,
directors, officers, members, employees, partners and/or shareholders from and
against any and all expenses, claims, actions, liabilities, losses and damages
of any kind whatsoever (including without limitation any death of or injury to
persons and any damage to property and any diminution in value or loss of income
from the Premises) actually or allegedly arising out of I he activities of
Sublessee or its employees, agents or invitees in the Premises.
11. Surrender of the Premises. Upon the expiration or termination of
-------------------------
this Sublease, Sublessee immediately shall deliver up and surrender the Premises
to Sublessor in as good a state of order and repair as at the date hereof,
normal wear and tear excepted. Without limiting the generality of the foregoing.
Sublessee shall repair any damage to the Premises caused by the installation or
removal of any personal property or trade fixtures placed in the Premises by
Sublessee.
12. Assignment. This Sublease may not be assigned, mortgaged or
----------
hypothecated by Sublessee, nor may the Premises be subleased or subjected to any
liens or claims by Sublessee, under any conditions without the prior written
consent of Sublessor in each instance, which consent shall not be unreasonably
withheld. In the event this Sublease is assigned to a permitted assignee or
subleased to a permitted sub-subtenant and such assignee or sub-subtenant agrees
to assume all of the obligations hereunder in writing in favor of Sublessor,
3
<PAGE>
the undersigned Sublessee and any guarantor of Sublessee shall be released from
any obligations assumed by such assignee or sub-subtenant and accruing hereunder
for periods from and after the effective date of such assignment or sub-
sublease. Any assignment, mortgage, hypothecation, sublease, lien or claim made
or created by Sublessee without Sublessor's consent shall be void and of no
force and effect and shall constitute an immediate and continuing default
hereunder. Notwithstanding the foregoing, Sublessor hereby consents to
Sublessee's sub-sublease of a portion of the Premises to E-Sport, Inc.,
provided, however, that such sub-sublease is and shall at all times remain
subject to the terms hereof and the terms of the Lease and that Sublessor's
consent of such sub-sublease shall not release or diminish the liability of
Sublessee (or Sublessee's guarantor) for all of the Sublessee's obligations set
---
forth in this Sublease until such time as E-Sport, Inc. shall assume the
obligations of Sublessee in writing, upon which time Sublessee and its guarantor
shall be released from all obligations arising after the effective date of such
sub-sublease (but only to the extent of the Premises sub-sublet for the term of
the sub-sublease).
13. Casualty. In the event the Premises or any part thereof shall be
--------
rendered unfit for occupancy by fire or other casualty, this Sublease shall not
terminate (unless the Lease shall be terminated as a result thereof), but rent
shall be abated on a per them basis in proportion to that area of the Premises
which is thereby rendered unfit for occupancy.
14. Default. The occurrence of any one or more of the following
-------
events shall constitute an event of default by Sublessee under this Sublease:
(a) any failure by Sublessee to pay any monetary obligation of Sublessee
hereunder within three (3) days after the same is due hereunder, (b) any failure
by Sublessee to comply with any other provision of this Sublease, which failure
shall continue for ten (10) or more days after notice thereof from Sublessor to
Sublessee (provided that if compliance cannot reasonably be accomplished within
such time, such period shall be extended a reasonable period so long as
Sublessee has commenced and is diligently pursuing such compliance); or (c)
Sublessee shall become insolvent, or bankruptcy proceedings shall be commenced
by or against Sublessee, or a receiver shall be appointed to control any part of
Sublessee's business or assets, or Sublessee shall make an assignment for the
benefit of creditors. Upon or at any time after the occurrence of an event of
default, Sublessor shall be entitled at its option, to exercise, concurrently or
successively, any one or more of the following rights and remedies: (a) to pay
any sum required to be paid by Sublessee hereunder to any person or entity which
Sublessee has failed to pay, and to perform any obligation required to be
performed by Sublessee, for the account of Sublessee; any amount so paid by
Sublessor shall be deemed to constitute additional rent hereunder and shall be
paid by Sublessee to Sublessor forthwith on demand; (b) to bring suit for the
collection of any amounts for which Sublessee may be in default, or for the
specific performance of any other covenant devolving upon Sublessee for
performance, and for damages for the non-performance thereof, all without
entering into possession of the Premises or terminating this Sublease; (c) to
re-enter the Premises, by summary proceedings or otherwise, with or without
process of law, and take possession thereof, without thereby terminating this
Sublease, whereupon Sublessor may (i) expel all persons and remove all property
therefrom, without thereby becoming liable in trespass or otherwise, and (ii)
relet all or any portion of the Premises for such periods (either longer or
shorter than, or coterminous with, the term of this Sublease); it being agreed
that no legal or other action initiated by Sublessor shall
4
<PAGE>
be (X) construed as an election to terminate this Sublease unless Sublessor
shall, in writing, expressly exercise its election to declare the Term ended and
terminate this Sublease, or (y) deemed to absolve or discharge Sublessee from
any of its obligations and liabilities for the remainder of the Term; and (d) to
terminate this Sublease, re-enter the Premises and take possession thereof,
eject all parties therefrom, repossess and enjoy the Premises together with all
additions, alterations and improvements thereto. All rights and remedies granted
herein and any other rights or remedies which Sublessor may have at law or in
equity are hereby declared to be cumulative and not exclusive, and the fact that
Sublessor may have exercised any remedy without terminating this Sublease shall
not impair Sublessor's rights thereafter to terminate this Sublease or to
exercise any other remedy granted herein, at law or in equity.
15. Notices. Any notice or other communication required or permitted
-------
to be given hereunder by either party hereto to the other shall be in writing
and shall be deemed to have been properly given (a) when delivered, if hand-
delivered, or (b) one (1) day after being deposited with an overnight courier
company, or (c) five (5) days after being deposited in the United States mail,
certified, registered or express mail, postage prepaid, return receipt
requested, in each case addressed to such other party hereto at the address
first above written or to such other address or such additional party as may be
designated from time to time by such other party hereto by notice given in the
manner provided in this Section 15.
16. Successor and Assigns. This Sublease shall be binding upon and
---------------------
inure to the benefit of Sublessor and Sublessee and their respective successors
and permitted assigns.
17. Entire Agreement; Amendments; No Waiver. This Sublease contains
---------------------------------------
the entire agreement between the parties, and no promise, representation,
warranty, covenant, agreement or understanding not specifically set forth in
this Sublease shall be binding upon, or inure to the benefit of, either party.
This Sublease may not be amended, altered, modified or supplemented in any
manner except by an instrument in writing duly executed by the parties. The
failure of Sublessor strictly to enforce the conditions or covenants of this
Sublease or exercise any remedy herein conferred, or the acceptance by Sublessor
of any installment of rent after any breach by Sublessee, in any one or more
instances, shall not be construed or deemed to be a waiver by Sublessor of any
such conditions, covenants or remedies, but the same shall continue in full
force and effect.
18. Governing Law. This Sublease shall be governed, interpreted and
-------------
construed in accordance with the laws of the state in which the Premises are
located.
19. Payment of Costs of Landlord Approval. Sublessee shall reimburse
-------------------------------------
Sublessor for all costs associated with obtaining Landlord's approval of this
Sublease (up to $1000) to be paid by Sublessee to Sublessor within five (5) days
of receipt of an invoice therefor from Sublessor.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Sublease as of the day and year first above written.
SUBLESSOR:
SMARTALK TELESERVICES, INC.
a California corporation
By: /s/ Thaddeus Bereday
------------------------------------
Thaddeus Bereday, Vice President
SUBLESSEE:
THE RHL INVESTMENT GROUP, INC.
By: /s/
------------------------------------
Title:
The undersigned LAOP IV, LLC, the Landlord under the Lease, hereby (i) consents
to the foregoing Sublease, (ii) agrees to provide to Sublessee, during the term
of the Sublease, copies of all notices Landlord is required to or elects to
provide to Tenant under the terms of the Lease (at the address of Sublessee as
set forth in the Sublease), (iii) agrees that, notwithstanding anything in the
Lease to the contrary, Sublessor shall be permitted to maintain the Exterior
Signage during the term of the Sublease and (iv) consents to the sub-sublease of
a portion of the Premises to E-Sport, Inc. (which sub-sublease shall at all
times remain subordinate to the Lease and Sublease).
LANDLORD:
LAOP IV, LLC
By:
---------------------------
Title:
To the undersigned Robert Lorsch hereby guarantees, for valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, in favor of
Sublessor, its successors and assigns, the payment of all amounts due for Rent
and Operating Costs under the Sublease as and when such amounts are due, without
any further notice than is provided to Sublessee under the Sublease.
/s/ Robert Lorsch
- --------------------------------------
Robert Lorsch
6
<PAGE>
EXHIBIT 10.12
SUB-SUBLEASE AGREEMENT
(E-Sport)
THIS SUB-SUBLEASE is executed as of, by and between The RHL Group, Inc., a
California corporation (the "Sub-Sublessor"), whose address is 1640 S. Sepulveda
Boulevard, Suite 500, Los Angeles, CA 90025, and E-Sport, Inc., a Delaware
corporation,(the "Sub-Sublessee"), whose address is 1640 S. Sepulveda Boulevard,
Suite 500, Los Angeles, CA 90025.
RECITALS
LAOP IV, LLC, a Nevada limited liability company, as Lessor, and SmarTalk
TeleServices, Inc., as Lessee, executed a lease and subsequent amendments 1
through 4 (hereinafter collectively referred to as the "Master Lease"), which is
incorporated into this Sub-Sublease by this reference;
By the terms of the Master Lease, the real property cumulatively referred
to as 1640 S. Sepulveda Boulevard, Suite 500, Los Angeles, CA 90025.S. Sepulveda
Boulevard, Suite 500, Los Angeles, CA 90025 (hereinafter "Suite 500") was leased
to SmarTalk TeleServices, Inc. for a term ending on March 32, 2002, subject to
earlier termination as provided in the Master Lease;
Effective April 1, 1998 SmarTalk TeleServices, Inc., as Sublessor, and The
RHL Group, Inc, as Sublessee, entered into that certain sublease agreement
("Sublease") pursuant to which Suite 500 was leased to The RHL Group, Inc. for
the remainder of the term specified in the Master Lease;
Sub-Sublessor desires to sublease to Sub-Sublessee a portion of Suite 500
currently occupied by Sub-Sublessor under the terms of the Master
Lease/Sublease, and Sub-Sublessee desires to lease that portion of Suite 500
from Sub-Sublessor; and
The Lessor under the Master Lease and the Sublessor under the Sublease
shall consent to this Sub-Sublease by executing the "Consent of Lessor"
provision at the end of this Sub-Sublease;
NOW, THEREFORE, Sub-Sublessor and Sub-Sublessee agree as follows:
Leasing and Description of Property
1. Subject to the terms, conditions, and covenants set forth in this Sub-
Sublease, Sub-Sublessor hereby leases to Sub-Sublessee, and Sub-Sublessee hereby
leases from Sub-Sublessor, that portion of Suite 500 as set forth in Exhibit A
hereto and incorporated herein by this reference (the "Premises") containing
approximately 6546.20 rentable square feet. In addition, Sub-Sublessor shall
make available for Sub-Sublessee's use during the term of this Sub-Sublease, (i)
the office furniture presently in place on the Premises, except that no
furniture shall be provided for the executive office(s); and (ii) the telephone
system installed on the
1
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Premises. Sub-Sublessee acknowledges that (x) the art work on the Premises is
there at the option of the Sub-Sublessor and may be removed and/or replaced as
Sub-Sublessor may determine from time to time; (y) Sub-Sublessee shall be
responsible for the cost of bringing telephone service to the Premises and for
all telephone costs and charges incurred as well as for all postage expenses;
and Sub-Sublessee shall provide its own beverage and coffee service.
Term
2. This Sub-Sublease shall be for forty-eight (48) months, commencing as
of April 1, 1998 and shall end on the date on March 31, 2002, the date on which
the Master Lease terminates or on sublease termination date, whichever is
earlier.
Rent
3. Sub-Sublessee shall pay to Sub-Sublease as rent ("Rent") for the
Premises the following:
a. Base Rent. The base rent for the Term shall be Eight Hundred Four
---------
Thousand, Four and 30/100 Dollars ($800,004.30), payable in monthly
installments, in accordance with the following schedule, in advance on the first
day of each calendar month during the Term, effective as of April 1, 1998:
<TABLE>
<S> <C> <C>
April & May 1998 $12,634.17/month $ 25,268.34
June through October 1998 $15,645.42/month $ 78,227.10
November 1998-March 2002 $17,085.58/month $700,508.86
</TABLE>
Rent shall be paid to Sub-Sublease at 1640 S. Sepulveda Boulevard, Suite
500, Los Angeles, California 90025, or at any other place designated in writing
by Sub-Sublease. The installment rent payable for any portion of a calendar
month shall be a pro rata portion of the installment payable for a full calendar
month.
b. Other Costs. In addition to the base rent, Sub-Sublessee shall
-----------
pay to Sub-Sublessor (1) One Hundred Dollars ($100.00) monthly, plus a one time
set up fee of One Hundred Fifty Dollars ($150.00), for Special Mail Handling and
Delivery Service; (2) a key deposit of Twenty-Five Dollars ($25.00) for each key
issued, (3) Sub-Sublessee shall pay photocopying charges of $0.07 per copy for
the 1st 25,000 each month and $0.035 per copy for each copy in excess of 25,000
each month; and (4) all costs and charges from any source related to the
customer service area and the area designated as the computer room.
Upon the execution of this Sub-Sublease, Sub-Sublessee shall pay to Sub-
Sublessor the sum of Seventy-Five Thousand Eighty-Four and 82/00 Dollars
($75,084.82) representing the base rent for the months of April, May and June
1998, a last month's rent of $17,085.58 and a security deposit of $17,085.58.
2
<PAGE>
Operating Costs
4. Sub-Sublessee shall reimburse Sub-Sublessor the 48.71% of all
operating and other charges payable by Sub-Sublessor to the Lessor and/or the
Sublessor pursuant to the terms of the Master Lease and/or the Sublease
immediately upon presentment to Sub-Sublessee of such invoices or calculations
as received by Sub-Sublessor from the Lessor and/or the Sublessor.
Use of Premises
5. Sub-Sublessee shall use the Premises for business office purposes and
for no other purpose. Sub-Sublessee shall fully comply with all rules and
regulations which the Sub-Sublease or Landlord may promulgate from time to time.
Sub-Sublessee shall not commit or permit any waste or injury to any of the
Premises or the property of which the Premises are a part, nor shall Sub-
Sublessee make any alterations, improvements or changes thereto without prior
written consent of Sub-Sublease and otherwise in accordance with the
requirements and provisions contained in the Lease.
Quiet Enjoyment
6. Sub-Sublease covenants that Sub-Sublessee shall be entitled to quiet
enjoyment of the Premises, provided that Sub-Sublessee complies with the terms
of this Sub-Sublease.
Condition of Premises
7. Sub-Sublessee agrees that Sub-Sublessee's act of taking possession
will be an acknowledgment that the Premises are in a tenantable and good
condition. Sub-Sublessee will, at Sub-Sublessee's own expense, maintain the
Premises in a thorough state of repair and in good and safe condition.
Applicability of Master Lease
8. This Sub-Sublease is subject and subordinate to the terms and
conditions of the Master Lease and the Sublease.
Assumption
9. Sub-Sublessee expressly assumes and agrees to perform and comply with
all the obligations required to be kept or performed by the Lessee under the
provisions of the Master Lease identified in Paragraph 7 of this Sub-Sublease,
to the extent that they are applicable to the subleased Premises.
Sub-Sublessee's Rights Regarding Continuing Possession
10. Sub-Sublessee shall have the right at any time, at Sub-Sublessor's
expense, to take any action required to be taken, but not timely taken, by Sub-
Sublessor, that may be necessary to prevent a default under the terms of the
Master Lease.
3
<PAGE>
Access by Sub-Sublessor
11. Sub-Sublessee shall permit Sub-Sublessor (and its employees and
agents) to have access to the Premises at all reasonable times for any lawful
purpose.
Sub-Sublessee's Insurance
12. At all times during the Term, Sub-Sublessee shall, at its sole cost
and expense, maintain in full force and effect the following insurance coverage:
(i) Commercial General Liability Insurance with a combined single limit for
bodily injury and property damages of not less than One Million Dollars
($1,000,000) per occurrence and Two Million Dollars ($2,000,000) in the annual
aggregate, including products liability coverage if applicable, covering and
insuring provisions of this Sub-Sublease and the Lease and the performance of
the Sub-Sublessee of the indemnity and exemption of the Sub-Sublessor, the
Sublessor and the Landlord from liability as set forth in section 13, below;
(ii) a policy of standard fire, extended coverage and special extended coverage
(all Risks), including a vandalism and malicious mischief endorsement, sprinkler
leakage coverage and earthquake leakage as specified in the Lease. In addition,
all such policies shall name Sub-Sublessor, Sublessor and Landlord as additional
insureds. Sub-Sublessee shall maintain its own insurance covering Sub-
Sublessee's property (including furniture, trade fixtures and personalty)
located on the Premises.
Indemnity
13. Sub-Sublessee hereby covenants and agrees to defend, hold harmless and
indemnify Sub-Sublessor and its affiliates, directors, officers, members,
employees, partners and/or shareholders from and against any and all expenses,
claims, actions, liabilities, losses and damages of any kind whatsoever
(including without limitation any death or injury to persons and any damage to
property and any diminution in value or loss of income from the Premises)
actually or allegedly arising out of the activities of Sub-Sublessor or its
employees, agents or invitees on the Premises.
Surrender of Premises
14. Upon the termination of this Sub-Sublease, Sub-Sublessee immediately
shall deliver up and surrender the Premises to Sub-Sublessor in as good a state
of order and repair as at the date hereof normal wear and tear excepted. Without
limiting the generality of the foregoing, Sub-Sublessee shall repair any damage
to the Premises caused by the installation or removal of any personal property
or trade fixtures placed in the Premises by Sub-Sublessee.
Assignment
15. This Sub-Sublease may not be assigned, mortgaged or hypothecated by
Sub-Sublessee, nor may the Premises be subleased or subjected to any liens or
claims by Sub-Sublessee, under any conditions without the prior written consent
of Sub-Sublessor in each instance, which consent shall not be unreasonably
withheld. Any assignment, mortgage, hypothecation, sublease, lien or claim made
or created by Sub-Sublessee without
4
<PAGE>
Sub-Sublessor's consent shall be void and of no force and effect and shall
constitute an immediate and continuing default hereunder.
Casualty
16. In the event the Premises or any part thereof shall be rendered unfit
for occupancy by fire or other casualty, this Sub-Sublease shall not terminate
(unless the Lease shall terminate as a result thereof), but rent shall be abated
on a per them basis in proportion to that arm of the Premises which is thereby
rendered unfit for occupancy.
Default
17. The occurrence of any one or more of the following events shall
constitute an event of default by Sub-Sublessee under this Sub-Sublease:
a. any failure of Sub-Sublessee to pay any monetary obligation of
Sub-Sublessee hereunder within three (3) days after the same is due hereunder,
b. any failure by Sub-Sublessee to comply with any other provision
of this Sub-Sublease, which failure shall continue for ten (10) or more days
after notice thereof from Sub-Sublessor to Sub-Sublessee (provided that if
compliance cannot reasonably be accomplished within such time, such period shall
be extended a reasonable period provided Sub-Sublessee has commences and is
diligently pursuing such compliance); or
c. Sub-Sublessee shall be come insolvent, or bankruptcy proceedings
shall be commenced by or against Sub-Sublessee, or a receiver shall be appointed
to control any part of Sub-Sublessee's business or assets, or Sub-Sublessee
shall make an assignment for the benefit of creditors.
Upon the occurrence of any event of default, Sub-Sublessor shall be
entitled to exercise, concurrently or successively, any one or more of the
following rights and remedies: (1) to pay any sum required to be paid by
Sub-Sublessee hereunder to any person or entity which Sub-Sublessee has
failed to pay, and to perform any obligation required to be performed by
Sub-Sublessee for account of Sub-Sublessee, and any amount so paid shall be
constitute additional rent hereunder and shall be paid by Sub-Sublessee to
Sub-Sublessor forthwith on demand, (2) to bring suit for collection of any
amounts for which Sub-Sublessee may be in default or for specific
performance of any other covenant devolving upon Sub-Sublessee for
performance, and for damages for the non-performance thereof all without
entering into possession of the Premises or terminating this Sub-Sublease;
(3) to reenter the Premises, by summary proceedings or otherwise, with or
without process of law, and take possession thereof without thereby
terminating this Sub-Sublease, whereupon Sub-Sublessor may (i) expel all
persons and remove all property therefrom, without becoming liable in
trespass or otherwise; and (ii) relet all or any portion of the Premises
for such periods (either longer or shorter than or coterminous with, this
Sub-Sublease); it being agreed that no legal or other action initiated by
Sub-Sublessor shall be (x) construed as an election to terminate this
5
<PAGE>
Sub-Sublease unless Sub-Sublessor shall, in writing, expressly exercise its
election to declare the Term ended and terminate this Sub-Sublease, or (y)
deemed to absolve or discharge Sub-Sublessee from any and all obligations
and liabilities for the remainder of the Term and (4) to terminate this
Sub-Sublease, re-enter the Premises and take possession thereof, eject all
parties therefrom, repossess and enjoy the premises together with all
additions, alterations and improvements thereto. All rights and remedies
granted herein, and any other rights and remedies which Sub-Sublessor may
have at law or in equity are hereby declared t[o] be cumulative and not
exclusive, and the fact that Sub-Sublessor may have exercised any remedy
without terminating this Sub-Sublease shall not impair Sub-Sublessor's
right thereafter to terminate this Sub-Sublease or to exercise any other
remedy granted herein, at law or in equity.
Notices
18. Any notice or other communication required or permitted to be given
hereunder by either parry hereto to the other shall be deemed to have been
properly given (a) when hand delivered, or (b) one (1) day after being deposited
with an overnight courier company, or (c) five (5) days after being deposited in
the United States mail, certified, registered or express mail, postage prepaid,
return receipt requested, in each case addressed to such other party at the
address first written above or to such other address or such additional party as
may be designated from time to time by such other parry hereto by notice given
in the manner provided in this section.
Successors and Assigns
19. This Sub-Sublease shall be binding upon and inure to the benefit of
Sub-Sublessor and Sub-Sublessee and their respective successors and permitted
assigns.
Entire Agreement; Amendments; No Waiver.
20. This Sub-Sublease contains the entire agreement between the parties
and no promise, representation, warranty, covenant, agreement or understanding
not specifically set forth in this Sub-Sublease shall be binding upon or inure
to the benefit of, either party. The Sub-Sublease may not- be amended, altered,
modified or supplemented in any manner except by an instrument in writing duly
executed by the parties. The failure of Sub-Sublessor to strictly enforce the
conditions or covenants of this Sub-Sublease or to exercise any remedy herein
conferred, or the acceptance by Sub-Sublessor of any installment of rent after
any breach by Sub-Sublessee, in any one or more instances, shall not be
construed or deemed to be a waiver by Sub-Sublessor of any such conditions,
covenants or remedies, but the same shall continue in full force and effect.
Termination of Master Lease
21. If the Master Lease is terminated, this Sub-Sublease shall terminate
simultaneously and the Sub-Sublease and Sub-Sublessee shall thereafter be
released from all
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<PAGE>
obligations under this Sub-Sublease, and Sub-Sublease shall refund to Sub-
Sublessee any unearned rent paid in advance.
Attorney's Fees
22. If any action or other proceeding arising out of this Sub-Sublease is
commenced by either party to this Sub-Sublease concerning the Premises, then as
between Sub-Sublease and Sub-Sublessee, the prevailing party shall be entitled
to receive from the other party, in addition to any other relief that may be
granted, the reasonable attorney's fees, costs, and expenses incurred in the
action or other proceeding by the prevailing party.
Governing Law
23. This Sub-Sublease shall be governed, interpreted and construed in
accordance with the laws of the State of California.
Payment of Costs for Landlord Approval
24. Sub-Sublessee shall reimburse Sub-Sublessor for all costs associated
with obtaining Landlord's approval of this Sub-Sublease (up to $1,000.00) to be
paid by Sub-Sublessee to Sub-Sublessor within five (5) days of receipt of an
invoice therefor from Sub-Sublessor.
IN WITNESS WHEREOF, the parties have executed this Sub-Sublease at Los
Angeles, California, on the date specified in the first paragraph of this Sub-
Sublease.
SUB-SUBLESSOR
THE RHL GROUP, INC., a California corporation
/s/ Robert H. Lorsch
_________________________________
Robert H. Lorsch, President
SUB-SUBLESSEE
E-SPORT, INC., a Delaware corporation
/s/
_________________________________
[name of signing party]
7
<PAGE>
Consent of Sublessor
The undersigned as the Lessor under the Master Lease and as Sublessor under
the Sublease, respectively, described in the foregoing Sub-Sublease, hereby
consent to the Sub-Sublease of the Premises described in this Sub-Sublease to
Sub-Sublessee. In granting this consent, the undersigned do not waive any of
the Lessor's or Sublessor's rights under the Master Lease as to the Lessee or
under the Sublease as to the Sub-Sublessee.
SUBLESSOR
_________________________________
[name of signing party]
8
<PAGE>
EXHIBIT 10.13
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete, unredacted
copies of this exhibit have been filed with the Securities and Exchange
Commission as part of this Company's confidential treatment request.
BASIC LEASE INFORMATION
OFFICE GROSS
LEASE DATE:
- ----------
(same as date in first paragraph of Lease) As of July 30, 1999
TENANT: Broadband Sports, a Delaware
corporation
TENANT'S NOTICE ADDRESS 1640 Sepulveda Blvd., 5th Floor
(prior to Commencement Date): Los Angeles, CA 90025
TENANT'S NOTICE ADDRESS 2120 Colorado Avenue, 2nd Floor
(After Commencement Date): Santa Monica, CA 90400
TENANT'S BILLING ADDRESS: 2120 Colorado Avenue, 2nd Floor
Santa Monica, CA 90400
TENANT CONTACT: GENERAL COUNSEL PHONE NUMBER: (310) 996-0067
FAX NUMBER: (310) 996-1092
LANDLORD: Spieker Properties, L.P., a
California limited partnership
LANDLORD'S NOTICE ADDRESS: Spieker Properties, L.P.
2150 Colorado Avenue, Ste. 125
Santa Monica, CA 90400
LANDLORD'S REMITTANCE
ADDRESS: Spieker Properties, L.P.
P.O. Box 60077, Department 11671
Los Angeles, California 90060-0077
PROJECT DESCRIPTION: A project commonly known as
Arboretum Courtyard consisting of
two (2) office buildings and
subterranean parking garage
located at 2120 and 2150 Colorado
Avenue, Santa Monica, California,
as shown on Exhibit "B" attached
hereto. The office building at
2150 Colorado Avenue contains
52,669 rentable square feet.
Building Description: A four (4) story office building
containing rentable 80,704 square
feet, located at 2120 Colorado
Avenue, Santa Monica, California,
as shown on Exhibit "B" attached
hereto. Such square footage has
been calculated in accordance with
the Standard Method for Measuring
Floor Area in Office Buildings,
ANSI. Z65.1-1996.
Premises: Approximately 26,635 rentable
square feet of space, consisting
of (i) the entire second floor,
containing 22,402 rentable square
feet ("Second Floor Premises"),
(ii) approximately 4,233 rentable
square feet located on the first
floor of the Building (sometimes
referred to as the "First Floor
Premises"), as shown on Exhibit B
attached hereto.
<PAGE>
Permitted Use: General office, non-medical use and
other legally permitted uses
directly incidental thereto.
Occupancy Density: Two Hundred and Thirteen (213)
people
Parking Rights: Tenant shall have the right to lease
up to twenty-seven (27) unreserved
parking permits in the parking
facility serving the Building.
Tenant shall furthermore have the
right, and the obligation, to lease
(i) twenty-seven (27) reserved
parking permits, and (ii) thirty-six
(36) tandem parking permits. The
reserved parking permits and tandem
parking permits shall be in the
locations designated on Exhibit "E"
attached hereto. To the extent any
additional parking permits are
available (as determined by
Landlord, in its sole discretion,
but on a non-discriminatory basis),
Tenant shall furthermore have the
right to lease an additional number
of parking permits (at the then
current parking rates established by
Landlord and in accordance with the
other terms and conditions published
from time to time by Landlord) on a
non-exclusive, month-to-month basis.
Parking and Parking Charge: Tenant's parking rights shall be at
Landlord's prevailing market rates
(which are currently $170 per month
for a reserved permit, $120 per
month for an unreserved permit and
$110 per month for a tandem permit,
exclusive of taxes), provided that
in no event shall such parking rates
increase by more than four percent
(4%) per annum, calculated on a
cumulative and compounded basis.
Term Commencement Date: Determined in accordance with
Article 2 of this Lease.
Length of Term: Eighty-four (84) months from and
after Term Commencement Date.
Term Expiration Date: On the last day of the month which
is eighty-four (84) months after the
month in which the Term Commencement
Date falls, subject to extension for
the Option Term in accordance with
Section 39B.
Rent:
Base Rent: Months 1-12 $[*] per month ($[*] per rentable square foot per
month)
Months 13-24 $[*] per month ($[*] per rentable square foot per
month)
Months 25-36 $[*] per month ($[*] per rentable square foot per
month)
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
Months 37-48 $[*] per month ($[*] per rentable square foot per
month)
Months 49-60 $[*] per month ($[*] per rentable square foot per
month)
Months 61-72 $[*] per month ($[*] per rentable square foot per
month)
Months 73-84 $[*] per month ($[*] per rentable square foot per
month)
Base Year For Operating Expenses: Calendar Year 2000
Security Deposit: $1,414,581.42, subject to the terms
of Paragraphs 19 and 39D
Tenant's Proportionate Share
Of Project: 19.97%
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., Broadband Sports,
a California limited partnership a Delaware corporation
By: Spieker Properties, Inc., By: /s/ Tyler Goldman
a Maryland corporation, Its: President
By: /s/ Jeffrey K. Nickell
Its: Vice President By: /s/ Greg S. Hebner
Its: Chief Financial Officer
LEASE
THIS LEASE is made as of the 30th day of July, 1999, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"LANDLORD"), and Broadband Sports, a Delaware corporation (hereinafter called
"TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises (the "PREMISES") outlined
in red on EXHIBIT B and described in the Basic Lease Information. The Premises
shall be all or part of a building (the "BUILDING") and of a project (the
"PROJECT"), which may consist of more than one building and additional
facilities, as described in the Basic Lease Information. The Building and
Project are outlined in blue and green respectively on
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT B. Landlord and Tenant acknowledge that physical changes may occur from
time to time in the Premises, Building or Project (in accordance with the terms
of this Lease), and that the number of buildings and additional facilities which
constitute the Project may change from time to time, which may result in an
adjustment in Tenant's Proportionate Share, as defined in the Basic Lease
Information, as provided in Paragraph 7.A; provided that Tenant's obligations
under Paragraph 7 below shall not be increased solely as a result of additional
buildings or facilities being added to the Project.
2. POSSESSION AND LEASE COMMENCEMENT
A. CONSTRUCTION OF IMPROVEMENTS. Subject to the terms of the immediately
following paragraph, the term commencement date ("TERM COMMENCEMENT DATE") shall
be the earlier of the date on which: (1) Tenant takes possession of some or all
of the Premises and commences business therefrom; or (2) the improvements to be
constructed or performed in the Premises by Tenant (the "Tenant Improvements")
shall have been "Substantially Completed" in accordance with the plans and
specifications described on EXHIBIT C; or (3) November 1, 1999. Upon Landlord's
request, Tenant shall promptly execute and return to Landlord an accurate
"Start-Up Letter" in which Tenant shall agree, among other things, to acceptance
of the Premises (subject to latent defects) and to the determination of the Term
Commencement Date, in accordance with the terms of this Lease, but Tenant's
failure or refusal to do so shall not negate Tenant's acceptance of the Premises
or affect determination of the Term Commencement Date.
Notwithstanding anything to the contrary contained herein, the Term
Commencement Date shall be delayed in accordance with Section 7 of the Lease
Improvement Agreement (Exhibit C) on the terms and to the extent provided
therein. "Substantially Completed," "Substantial Completion" and similar terms
shall mean that each of the following conditions have been satisfied: (1) the
Tenant Improvements have been completed in accordance with the approved Plans
and all applicable laws and permit conditions, subject only to customary punch-
list items which do not, individually or in the aggregate, materially interfere
with Tenant's ability to commence and operate its business from the Premises as
contemplated in this Lease (such determination shall be made following a walk-
through of the Premises with Landlord, Tenant, and the contractor); (2) the City
of Santa Monica has issued a Certificate of Occupancy or equivalent evidence of
its authorization to occupy the Premises in accordance with all applicable City
ordinances; and (3) Landlord is otherwise prepared to deliver actual possession
of the Premises to Tenant in accordance with the terms of this Lease. The
parties acknowledge and agree that Substantial Completion of the First Floor
Premises may occur prior to the Substantial Completion of the Premises and that
in such event: (a) subject to the conditions below, Tenant may assume
possession of the First Floor Premises without triggering the Term Commencement
Date; (b) upon assuming possession (regardless of whether the Substantial
Completion of the First Floor Premises has occurred), Tenant shall be obligated
to pay pro rata Base Rent with respect to the First Floor Premises (pro rated
based upon the rentable square footage of such premises as a percentage of the
total Premises); (c) upon assuming possession of the First Floor Premises, all
provisions set forth in this Lease, including, without limitation, all
provisions pursuant to which Tenant is required to indemnify Landlord and to
maintain insurance, shall become effective with respect to the First Floor
Premises, provided, however, that Tenant's rent shall be prorated as provided in
clause (b) above and no operating expense pass-through, or other financial
obligations (other than the indemnification obligations noted above) shall
become operative until the Term Commencement Date.
<PAGE>
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement
Date and continue in full force and effect until the Term Expiration Date
(including the Option Term, to the extent applicable under Section 39B), or
until this Lease is terminated as otherwise provided herein. Tenant shall have
the right to use and occupy the Premises in accordance with the terms and
conditions of this Lease from and after the Term Commencement Date (and with
respect to the First Floor Premises, in accordance with Section 2A. above).
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified in
the Basic Lease Information ("PERMITTED USE") and for no other use or purpose.
Tenant shall control Tenant's (and Tenant's assignees' and subtenants')
employees, independent contractors and agents (collectively, "TENANT'S PARTIES")
in such a manner that Tenant and Tenant's Parties cumulatively do not exceed the
occupant density (the "OCCUPANCY DENSITY") specified in the Basic Lease
Information at any time. Furthermore, Tenant agrees not to establish any policy
or otherwise promote any system or other means of reimbursing employees,
independent contractors, subtenants or other persons (collectively, the "Tenant
Parkers") that park in the Building's parking facility without use of a parking
access card on a regular basis for the parking charges incurred by said Tenant
Parkers. If Tenant has not established any policy or system in accordance with
the preceding sentence, but the number of Tenant Parkers using the Building's
parking facility without use of a parking access card on a regular basis
nonetheless materially exceeds .24 parking spaces per 1,000 square feet of the
Premises, Landlord agrees to use its commercially reasonable efforts to find
alternative parking for said Tenant Parkers or employ a new method of parking
(i.e., valet assist) to accommodate the excessive number of Tenant Parkers,
provided that (i) Tenant shall reimburse Landlord for all or a portion of any
additional costs incurred by Landlord to provide said alternative parking (as
reasonably and equitably determined by Landlord), and (ii) Tenant shall not be
in default under this Lease if Landlord is unable to find alternative parking
for said Tenant Parkers or employ a new method of parking. Tenant shall pay the
Parking Charge specified in the Basic Lease Information for spaces leased by
Tenant as Additional Rent (as hereinafter defined) hereunder. Tenant and
Tenant's Parties and any approved subtenants and/or assignees shall have the
nonexclusive right to use, in common with other parties occupying the Building
or Project, the parking areas, driveways and other common areas of the Building
and Project, subject to the terms of this Lease and such reasonable, non-
discriminatory rules and regulations as Landlord may from time to time
prescribe. Landlord reserves the right, without notice or liability to Tenant,
and without the same constituting an actual or constructive eviction, to alter
or modify the common areas from time to time, including the location and
configuration thereof, and the amenities and facilities which Landlord may
determine to provide from time to time, provided that such alterations shall not
materially and adversely interfere with Tenant's use of or access to the
Premises and parking facilities (other than on an incidental or temporary
basis). Landlord shall maintain the Building and Project in a manner consistent
with the manner comparable properties in the Santa Monica Special Office
District ("SMSOD"), as reasonably determined by Landlord, are being maintained
as of the date of this Lease. Subject to the terms and conditions of this Lease,
Tenant shall have access to the Premises and the parking facilities serving the
Premises twenty-four (24) hours per day, three hundred sixty-five (365) days per
year.
All of Landlord's entries and the performance of Landlord's work pursuant
to this Lease (other than the performance of the Tenant Improvements), shall be
scheduled and performed, as applicable, so as to use commercially reasonable
efforts to minimize interference with Tenant's use of and access to the Premises
and parking facilities. Tenant may, subject to Landlord's prior approval,
designate certain areas of the Premises as "Security Areas" should Tenant
require such areas for the purpose of securing certain valuable property or
confidential information. Landlord may only
<PAGE>
enter such Security Areas upon one (1) business days' notice to Tenant which
notice shall specify the date and time of such entry by Landlord (and which
notice may be communicated verbally in person or telephonically); provided,
however, that Landlord may enter the Security Areas without notice to Tenant in
the event of an emergency, in which case Landlord shall provide Tenant with
notice of such entry promptly thereafter. Landlord agrees that all information
(the "Information") obtained in connection with Landlord's entry into the
Security Areas which is identified as "confidential" or "proprietary"
information shall be deemed confidential, shall not be used by Landlord (and
Landlord shall not authorize others to use such Information) other than for the
limited purposes, if any, as required by the Landlord under this Lease, and
shall not be disclosed to any unauthorized person, firm or entity or used for
the benefit of any other person, firm or entity in any manner, whatsoever.
Landlord further agrees that the Information shall not be used, published or
divulged by Landlord to any other person, firm or corporation, in any
advertising or promotion regarding Landlord, or in any other manner or
connection whatsoever without first having obtained the written permission of
Tenant, which permission may be withhold by Tenant in its sole discretion. Upon
expiration or earlier termination of this Lease, Landlord shall return to Tenant
all Information which exists in written or other physical form (and all copies
thereof) under Landlord's control. Landlord agrees to reveal the Information
only to Landlord's representatives, lenders, consultants, attorneys, agents,
prospective purchasers and employees who need to know such Information in
connection with this Lease. Such representatives, lenders, consultants,
attorneys, agents, prospective purchasers and employees shall be informed by
Landlord of the confidential nature of such Information and shall agree to be
bound by the terms and conditions of this Lease. Without Tenant's prior written
consent, Landlord will not communicate with the press regarding any activities,
projects, leases, purchases, or sales of Tenant or any Affiliate (defined in
paragraph 21 below) and will neither issue nor authorize the dissemination of
any publicity or new story relating to Tenant's or any Affiliate's Information.
The obligations imposed on Landlord in this Paragraph 4 shall continue following
the termination of this Lease, and such obligation shall not terminate until
such Information shall be in the public domain, unless such event shall have
occurred as a result of wrongful conduct by Landlord and Landlord's agents,
servants, officers or employees or a breach of the covenants set forth in this
Paragraph.
B. Limitations. Tenant shall not permit any odors, smoke, dust,
gas, substances, noise or vibrations to emanate from the Premises or from any
portion of the common areas as a result of Tenant's or any Tenant's Party's use
thereof in a manner, nor take any other action which, would constitute a
nuisance or would unreasonably disturb, obstruct or endanger any other tenants
or occupants of the Building or Project or elsewhere, or unreasonably interfere
with their use of their respective premises or common areas. Storage outside the
Premises of materials, vehicles or any other items is prohibited. Tenant shall
not use or allow the Premises to be used for any immoral, improper or unlawful
purpose, nor shall Tenant cause or maintain or permit any nuisance in, on or
about the Premises. Tenant shall not commit or suffer the commission of any
waste in, on or about the Premises. Tenant shall not allow any sale by auction
upon the Premises, or place any loads upon the floors, walls or ceilings which
could endanger the structure, or place any harmful substances in the drainage
system of the Building or Project. No waste, materials or refuse shall be dumped
upon or permitted to remain outside the Premises. Landlord shall not be
responsible to Tenant for the non-compliance by any other tenant or occupant of
the Building or Project with any of the above-referenced rules or any other
terms or provisions of such tenant's or occupant's lease or other contract,
provided that Landlord agrees to use its reasonable efforts to enforce said
rules and other terms or provisions in order to ensure compliance therewith.
C. Compliance with Regulations. By entering the Premises,
Tenant accepts the Premises in its "AS-IS" condition existing as of the date of
such entry, subject to any punchlist items, latent defects, structural defects
and any covenants and/or representations set forth in this Lease and Tenant's
rights under any warranties assigned to Tenant pursuant to the Improvement
Agreement attached hereto as Exhibit "C". Except for items which are Landlord's
responsibility hereunder,
<PAGE>
Tenant shall at its sole cost and expense cause its use and occupancy of the
Premises and any Alterations (defined in Paragraph 12 below) performed by or on
behalf of Tenant to strictly comply with all existing or future applicable
municipal, state and federal and other governmental statutes, rules,
requirements, regulations, laws and ordinances, including zoning ordinances and
regulations, and covenants, easements and restrictions of record governing and
relating to the use, occupancy or possession of the Premises, to Tenant's use of
the common areas, or to the use, storage, generation or disposal of Hazardous
Materials (hereinafter defined) caused by Tenant or any employee, agent,
representative, contractor, licensee or invitee of Tenant (collectively
"Regulations"). Tenant shall at its sole cost and expense obtain any and all
licenses or permits necessary for Tenant's use of the Premises. Tenant shall at
its sole cost and expense promptly comply with the requirements of any board of
fire underwriters or other similar body now or hereafter constituted. Tenant
shall not do or permit anything to be done in, on, under or about the Project or
bring or keep anything which will in any way increase the rate of any insurance
upon the Premises, Building or Project or upon any contents therein or cause a
cancellation of said insurance or otherwise affect said insurance in any manner;
provided, however, that the foregoing shall not apply to Tenant's occupancy of
the Premises for general office uses at the density otherwise permitted pursuant
to this Lease. Tenant shall indemnify, defend (by counsel reasonably acceptable
to Landlord), protect and hold Landlord harmless from and against any loss,
cost, expense, damage, attorneys' fees or liability arising out of the failure
of Tenant to comply with any Regulation. Tenant's obligations pursuant to the
foregoing indemnity shall survive the expiration or earlier termination of this
Lease.
D. Hazardous Materials. As used in this Lease, "Hazardous
Materials" shall include, but not be limited to, hazardous, toxic and
radioactive materials and those substances defined as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances," or other similar
designations in any Regulation. Tenant shall not cause, or allow any of Tenant's
Parties to cause, any Hazardous Materials to be handled, used, generated,
stored, released or disposed of in, on, under or about the Premises, the
Building or the Project or surrounding land or environment in violation of any
Regulations. Tenant must obtain Landlord's written consent prior to the
introduction of any Hazardous Materials onto the Project. Notwithstanding the
foregoing, Tenant may handle, store, use and dispose of products containing
small quantities of Hazardous Materials for "general office purposes" (such as
toner for copiers) to the extent customary and necessary for the Permitted Use
of the Premises; provided that Tenant shall always handle, store, use, and
dispose of any such Hazardous Materials in a safe and lawful manner and never
allow such Hazardous Materials to contaminate the Premises, Building, or Project
or surrounding land or environment. Tenant shall immediately notify Landlord in
writing of any Hazardous Materials' contamination of any portion of the Project
of which Tenant becomes aware, whether or not caused by Tenant. Landlord shall
have the right at all reasonable times to inspect the Premises (subject to the
restrictions on access to Security Areas as provided above) and to conduct tests
and investigations to determine whether Tenant is in compliance with the
foregoing provisions, the costs of all such inspections, tests and
investigations to be borne by Tenant to the extent it is determined Tenant is
not in compliance with said provisions. Tenant shall indemnify, defend (by
counsel reasonably acceptable to Landlord), protect and hold Landlord and its
directors, officers, employees, agents, successors and assigns harmless from and
against any and all claims, liabilities, losses, costs, loss of rents, liens,
damages, injuries or expenses (including attorneys' and consultants' fees and
court costs), demands, causes of action, or judgments directly or indirectly
arising out of or related to the use, generation, storage, release, or disposal
of Hazardous Materials by Tenant or any of Tenant's Parties in, on, under or
about the Premises, the Building or the Project or surrounding land or
environment, which indemnity shall include, without limitation, damages for
personal or bodily injury, property damage, damage to the environment or natural
resources occurring on or off the Premises, losses attributable to diminution in
value or adverse effects on marketability, the cost of any investigation,
monitoring, government oversight, repair, removal, remediation, restoration,
abatement, and disposal, and the preparation of any closure or other required
plans, whether such action is required or necessary prior to or following the
expiration or earlier termination of this Lease.
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Neither the consent by Landlord to the use, generation, storage, release or
disposal of Hazardous Materials nor the strict compliance by Tenant with all
laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's
obligation of indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease.
E. Landlord shall indemnify, defend and hold harmless Tenant,
its affiliates, their respective directors, officers, employees and agents
harmless from and against any and all claims, judgments, damages, penalties,
fines, costs, liabilities or losses and attorneys' fees arising out of any
Hazardous Material in, on or about the Project or the Premises which was
created, handled, placed, stored, used, transported or disposed of by Landlord,
excluding, however, any Hazardous Material whose presence was caused by Tenant
or its affiliates or their respective agents. Landlord furthermore agrees to
waive and release Tenant from any liability due to the creation, handling,
placement, storage, use, transportation or disposal of Hazardous Materials by
any predecessor owner of the Building or any of their agents, employees,
tenants, successors or assigns, except to the extent arising from any act of
Tenant or any of Tenant's Parties (i) in violation of the terms of Paragraph 4D
above, or (ii) which exacerbates or aggravates any Hazardous Materials in
existence on the Project or surrounding land as of the date hereof.
F. To the extent required by any Regulations, Landlord agrees
to (i) commence to remove, restore, remediate and/or otherwise abate the
Hazardous Materials described in Paragraph 4E, and (ii) diligently pursue such
removal, restoration, remediation or abatement to completion.
G. Notwithstanding anything to the contrary set forth in this
Lease, the provisions of this Section 4 shall survive the expiration or earlier
termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as Exhibit A and any other reasonable, non-
discriminatory rules and regulations and any modifications or additions thereto
which Landlord may from time to time prescribe in writing for the purpose of
maintaining the proper care, cleanliness, safety, traffic flow and general order
of the Premises or the Building or Project. Tenant shall cause Tenant's Parties
to comply with such rules and regulations. Landlord shall not be responsible to
Tenant for the non-compliance by any other tenant or occupant of the Building or
Project with any of such rules and regulations, any other tenant's or occupant's
lease or any Regulations, provided that Landlord agrees to use its reasonable
efforts to enforce said rules and regulations in a uniform, non-discriminatory
manner against all tenants of the Project.
Notwithstanding anything to the contrary contained in this Lease,
Landlord agrees that the rules and regulations for the Project shall not be (i)
modified or enforced in any way by Landlord so as to unreasonably and materially
interfere with the permitted use set forth in this Lease or Tenant's access to
the Premises, Building or Project parking facility, or (ii) discriminatorily
enforced against Tenant and not against other tenants of the Project. Landlord
agrees that none of the rules and regulations for the Project shall be used to
prohibit the conduct of any business from the Premises which Tenant is permitted
to conduct, unless said conduct constitutes a nuisance to other tenants of the
Project or materially injures or impairs the reputation or image of the Project
as a professional office park. In the event any other tenant or occupant fails
to comply with the rules and regulations for the Project, and such non-
compliance unreasonably and materially interferes with Tenant's use of the
Premises, Landlord shall use its reasonable efforts to cause such other tenants
and/or occupants to comply with such rules and regulations.
<PAGE>
6. RENT
A. Base Rent. Tenant shall pay to Landlord and Landlord shall
receive, without notice or demand, except as otherwise provided herein,
commencing on the Term Commencement Date and continuing throughout the balance
of the Term, Base Rent as specified in the Basic Lease Information, payable in
monthly installments in advance on or before the first day of each calendar
month, in lawful money of the United States, without deduction or offset
whatsoever, except as otherwise provided herein, at the Remittance Address
specified in the Basic Lease Information or to such other place as Landlord may
from time to time designate in writing. Base Rent for the first full month
following the Rent Commencement Date shall be paid by Tenant upon Tenant's
execution of this Lease. If the obligation for payment of Base Rent commences on
a day other than the first day of a month, then Base Rent shall be prorated and
the prorated installment shall be paid on the first day of the calendar month
next succeeding the Rent Commencement Date. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time. Notwithstanding anything to the contrary
contained herein, in the event the Occupancy Density in the Premises exceeds 186
people (7 people per 1,000 rentable square feet in the Premises) (the "Threshold
Figure") at any time, from and after the date the Occupancy Density first
exceeds the Threshold Figure, the Base Rent shall be increased by an amount
equal to $.05 per rentable square foot of the Premises for the balance of the
Term (including any extension(s) thereof), regardless of whether the Occupancy
Density is thereafter decreased below the Threshold Figure.
B. Additional Rent. All monies other than Base Rent required to
be paid by Tenant hereunder, including, but not limited to, Tenant's
Proportionate Share of Operating Expenses, as specified in Paragraph 7 of this
Lease, charges to be paid by Tenant under Paragraph 15, the interest and late
charge described in Paragraphs 26.C. and D., and any monies spent by Landlord
pursuant to Paragraph 30, shall be considered additional rent ("ADDITIONAL
RENT"). "RENT" shall mean Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. Operating Expenses. In addition to the Base Rent required to
be paid hereunder, beginning with the expiration of the Base Year specified in
the Basic Lease Information (the "Base Year"), Tenant shall pay as Additional
Rent, Tenant's Proportionate Share of the Project, as defined in the Basic Lease
Information, of increases in Operating Expenses (defined below) over the
Operating Expenses incurred by Landlord during the Base Year (the "Base Year
Operating Expenses"), in the manner set forth below. Landlord and Tenant
acknowledge that if the number of buildings which constitute the Project
increases or decreases, or if physical changes are made to the Premises,
Building or Project or the configuration of any thereof (in accordance with the
terms of this Lease), Landlord shall, to the extent appropriate, reasonably
adjust Tenant's Proportionate Share of the Project to reflect the change,
provided that Tenant's obligations under this Paragraph 7 shall not be increased
as a result thereof. "Operating Expenses" shall mean all expenses and costs of
every kind and nature which Landlord shall pay, because of or in connection with
the ownership, management, maintenance, repair, preservation, replacement and
operation of the Project and its supporting facilities and such additional
facilities now and in subsequent years as may be determined by Landlord to be
reasonably necessary or desirable to the Project (as determined in a reasonable
manner in accordance with sound real estate management principles) other than
those expenses and costs which are specifically attributable to Tenant or which
are expressly made the financial responsibility of Landlord or specific tenants
of the Building or Project pursuant to this Lease. Operating Expenses shall
include, but are not limited to, the following (each without duplication of any
other Operating Expense item):
1. Taxes. All real property taxes and assessments,
possessory interest taxes, sales taxes, personal property taxes, business
or license taxes or fees, gross receipts taxes, service payments in lieu of
such taxes or fees, annual or periodic
<PAGE>
license or use fees, excises, transit charges, and other impositions,
general and special, ordinary and extraordinary, unforeseen as well as
foreseen, of any kind (including fees "in-lieu" of any such tax or
assessment) which are now or hereafter assessed, levied, charged,
confirmed, or imposed by any public authority upon the Project, its
operations or the Rent (or any portion or component thereof), or any tax,
assessment or fee imposed in substitution, partially or totally, of any of
the above. Operating Expenses shall also include any taxes, assessments,
reassessments, or other fees or impositions with respect to the
development, leasing, management, maintenance, alteration, repair, use or
occupancy of the Premises, Building or Project or any portion thereof,
including, without limitation, by or for Tenant, and all increases therein
or reassessments thereof whether the increases or reassessments result from
increased rate and/or valuation (whether upon a transfer of the Building or
Project or any portion thereof or any interest therein or for any other
reason). Operating Expenses shall not include inheritance or estate taxes
imposed upon or assessed against the interest of any person in the Project,
or taxes computed upon the basis of the net income of any owners of any
interest in the Project. If it shall not be lawful for Tenant to reimburse
Landlord for all or any part of such taxes, the monthly rental payable to
Landlord under this Lease shall be revised to net Landlord the same net
rental after imposition of any such taxes by Landlord as would have been
payable to Landlord prior to the payment of any such taxes. There shall be
included within the definition of "Taxes" with respect to any calendar year
only the amount currently payable on any bonds or assessments, including
interest for such tax calendar year or the current annual installment for
such calendar year, and such shall be paid in the maximum number of
installments allowable. Tax refunds shall be credited against Taxes and
refunded to Tenant, regardless of when received, based on the year to which
the refund is applicable. For purposes of this Lease, Taxes shall be
calculated as if the tenant improvements in the Project were fully
constructed and the Project, the Building, the parking facility and all
tenant improvements in the Project were fully assessed for real estate tax
purposes. Notwithstanding anything to the contrary contained in the Lease,
Taxes shall not include (i) any excess profits taxes, franchise taxes, gift
taxes, capital stock taxes, inheritance and succession taxes, estate taxes,
federal and state income taxes, and other taxes to the extent applicable to
Landlord's general or net income (as opposed to rents or receipts), (ii)
any items for which Tenant or other tenants are liable pursuant to their
lease (other than as an Operating Expense pass through item), (iii)
penalties incurred as a result of Landlord's negligence, inability or
unwillingness to make payments of, and/or to file any tax or informational
returns with respect to, any real property taxes or assessment, when due,
(iv) taxes on tenant improvements in any space in the Building or the
Project based upon an assessed value in excess of $35.00 per rentable
square foot; or (v) reserves for taxes.
a) Proposition 13 Protection. Despite any other provision of
this Lease, if during the initial Term, any sale, refinancing, or
change in ownership of the Project is consummated and, as a result,
all or part of the Project is reassessed (Reassessment) for real
estate tax purposes by the appropriate government authority under the
terms of Proposition 13 (as adopted by the voters of the State of
California in the June 1978 election), the terms of this Paragraph
7(A)(1)(a) shall apply.
I. For purposes of this Paragraph 7(A)(1)(a), the term "Tax Increase"
shall mean the product of (i) that portion of the Taxes, as calculated
immediately following the Reassessment, that is attributable solely to the
Reassessment, multiplied by (ii) the Prop. 13 Percentage Protection (defined
below). The term "Prop. 13 Percentage Protection" shall mean (I) with respect to
a Reassessment which occurs during the first 36 months of the Term, 100%, and
(II) with respect to a Reassessment which occurs during months 37-84 of the
Term, and during any Option Term, 0%. Accordingly, the Tax Increase shall not
include any portion of the Taxes, as calculated immediately following the
Reassessment, that is:
(1) Attributable to the initial assessment of the value of the
Project, the base, shell and core of the Project, or the tenant
improvements located in the Project or is otherwise considered to be a
tax expense incurred during the Base Year;
<PAGE>
(2) Attributable to assessments pending immediately before the
Reassessment that were conducted during, and included in, that
Reassessment or that were otherwise rendered unnecessary following the
Reassessment; or
(3) Attributable to the annual inflationary increase in real estate
taxes.
II. During the first three (3) years of the initial Term, Tenant shall not
be obligated to pay the Tax Increase relating to a Reassessment occurring during
the first three (3) years of the initial Term.
III. The amount of Taxes that Tenant is not obligated to pay or shall not
be obligated to pay during the Term in connection with a particular Reassessment
under the terms of this Paragraph 7(A)(1)(a) shall be referred to as the
"Proposition 13 Protection Amount." If a Reassessment is reasonably foreseeable
by Landlord and the Proposition 13 Protection Amount attributable to that
Reassessment may be reasonably quantified or estimated for each Lease Year
beginning with the Lease Year in which the Reassessment will occur, the terms of
this Paragraph 7(A)(1)(a) shall apply to each such Reassessment. On notice to
Tenant, Landlord shall have the right to purchase the Proposition 13 Protection
Amount relating to the applicable Reassessment (Applicable Reassessment), at any
time during the Term, by paying to Tenant an amount equal to the Proposition 13
Purchase Price, as defined below, as long as the right of any successor of
Landlord to exercise its right to purchase the Proposition 13 Protection Amount
shall not apply to any Reassessment that results from the event under which that
successor became Landlord under this Lease. As used in this Lease, the term
"Proposition 13 Purchase Price" shall mean the present value of the Proposition
13 Protection Amount remaining during the Term, as of the date of payment of the
Proposition 13 Purchase Price by Landlord. The present value shall be calculated
by:
(1) Using the portion of the Proposition 13 Protection Amount
attributable to each remaining Lease Year assuming no additional Tax
Increases (as though the portion of that Proposition 13 Protection
Amount benefited Tenant at the end of each Lease Year) as the amounts
to be discounted; and
(2) Using discount rates for each amount to be discounted equal to:
(A) The average rates of yield for United States Treasury
Obligations with maturity dates as close as reasonably possible
to the end of each Lease Year during which the portions of the
Proposition 13 Protection Amount would have benefited Tenant,
using the rates in effect as of Landlord's exercise of its right
to purchase, as set forth in this Paragraph 7(A)(1)(a); plus
(B) two percent (2%) per annum.
On payment to Tenant of the Proposition 13 Purchase Price,
subparagraph (II) of this Paragraph 7(A)(1)(a) shall not apply to any
Taxes attributable to the Applicable Reassessment. Because Landlord
is estimating the Proposition 13 Purchase Price because a Reassessment
has not yet occurred, an adjustment shall be made when a Reassessment
occurs. If Landlord has underestimated the Proposition 13 Purchase
Price, Landlord shall, on notice to Tenant, credit Tenant's Rent next
due with the amount of that underestimation. If Landlord has
overestimated the Proposition 13 Purchase Price, Landlord shall, on
notice to Tenant, increase Tenant's Rent next due by the amount of the
overestimation. Landlord will supply to Tenant, at the time such
increase notice is given, documentation supporting the basis for its
conclusion about any such underestimation or overestimation.
<PAGE>
(2) Insurance. All insurance premiums and costs, including,
but not limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage set
forth in Paragraph 8.A. herein.
(3) Common Area Maintenance.
(a) Repairs, replacements, and general maintenance of
and for the Building and Project and public and common areas and
facilities of and comprising the Building and Project, including, but
not limited to, the roof and roof membrane, windows, elevators,
restrooms, conference rooms, health club facilities, lobbies,
mezzanines, balconies, mechanical rooms, building exteriors, alarm
systems, pest extermination, landscaped areas, parking and service
areas, driveways, sidewalks, loading areas, fire sprinkler systems,
sanitary and storm sewer lines, utility services,
heating/ventilation/air conditioning systems, electrical, mechanical
or other systems, telephone equipment and wiring servicing, plumbing,
lighting, and any other items or areas which affect the operation or
appearance of the Building or Project, except for: those items
expressly made the financial responsibility of Landlord pursuant to
Paragraph 10 hereof; those items to the extent paid for by the
proceeds of insurance; and those items attributable solely or jointly
to specific tenants of the Building or Project; and those items
specifically excluded from Operating Expenses.
(b) Repairs, replacements, and general maintenance
shall include the cost of any capital improvements made to or capital
assets acquired for the Project or Building that in Landlord's
discretion may reasonably reduce any other Operating Expenses (only to
the extent of cost savings), including present or future repair work,
are reasonably necessary for the health and safety of the occupants of
the Building or Project, or are required to comply with any Regulation
enacted after the date of this Lease, such costs or allocable portions
thereof to be amortized over their respectful useful life (as
reasonably determined by Landlord), together with interest on the
unamortized balance at the publicly announced "prime rate" charged by
Wells Fargo Bank, N.A. (San Francisco) or its successor at the time
such improvements or capital assets are constructed or acquired, plus
two (2) percentage points, or in the absence of such prime rate, then
at the U.S. Treasury six-month market note (or bond, if so designated)
rate as published by any national financial publication selected by
Landlord, plus two (2) percentage points, but in no event more than
the maximum rate permitted by law.
(c) Payment under or for any easement, license,
permit, operating agreement, declaration, restrictive covenant or
instrument relating to the Building or Project.
(d) All expenses and rental related to services and
costs of supplies, materials and equipment used in operating, managing
and maintaining the Premises, Building and Project, the equipment
therein and the adjacent sidewalks, driveways, parking and service
areas, including, without limitation, expenses related to service
agreements regarding security, fire and other alarm systems,
janitorial services, window cleaning, elevator maintenance, Building
exterior maintenance, landscaping and expenses related to the
administration, management and operation of the Project, including
without limitation salaries, wages and benefits of personnel up to the
level of the Project director (and/or vice president responsible for
the Project) and building engineer and fair market management office
rent (to the extent that the activities of such individuals relate to
the management and operation of the Project).
(e) The cost of supplying any services and utilities
which benefit all or a portion of the Premises, Building or Project,
including without limitation services and utilities provided pursuant
to Paragraph 15 hereof.
(f) Reasonable legal expenses and the cost of audits
by certified public accountants (other than in connection with
defending operating expense audits performed by other tenants);
provided, however, that legal expenses chargeable as
<PAGE>
Operating Expenses shall not include the cost of negotiating leases,
collecting rents, evicting tenants nor shall it include costs incurred
in legal proceedings with or against any tenant or to enforce the
provisions of any lease.
(g) The deductible portion of any repair costs covered by
earthquake insurance, provided that said deductible portion shall be
amortized over a ten (10) year period.
(h) A management and accounting cost recovery fee equal to
three percent (3%) of the sum of the Project's base rents and
Operating Expenses to the extent not included in such base rents
(other than such management and accounting fee).
If the rentable area of the Project is not at least 95% occupied during any
fiscal year of the Term, an adjustment shall be made in computing the variable
components of Operating Expenses for such year (to reflect the amount of
Operating Expenses which would have been incurred by Landlord had the Project
been at least 95% occupied) so that Tenant pays an equitable portion of all
variable items (e.g., utilities, janitorial services and other component
expenses that are affected by variations in occupancy levels) of Operating
Expenses, as reasonably determined by Landlord; provided, however, that in no
event shall Landlord be entitled to collect in excess of one hundred percent
(100%) of the total Operating Expenses from all of the tenants in the Project.
Furthermore, Landlord agrees to manage the entire Project on a consistent and
non-discriminatory basis as to all of the tenants of the Project.
Operating Expenses shall not include the cost of providing tenant
improvements or other specific costs incurred for the account of, separately
billed to and paid by specific tenants of the Building or Project, the initial
construction cost of the Building, or debt service on any mortgage or deed of
trust recorded with respect to the Project other than pursuant to Paragraph
7.A.(3)(b) above. Notwithstanding anything herein to the contrary, in any
instance wherein Tenant uses excessive services of the Project or otherwise
creates a greater burden on the operation of the Project than other tenants,
except as specifically allowed by this Lease (such determination to be adjusted
based on relative square footages of the space leased by Tenant and other
tenants), Landlord shall have the right to reasonably allocate any such
additional costs in any manner Landlord deems reasonably appropriate.
Landlord (x) shall not collect or be entitled to collect from Tenant an
amount in excess of Tenant's Proportionate Share of one hundred percent (100%)
of the Operating Expenses actually paid or incurred by Landlord; and (y) shall
reduce the amount of the Operating Expenses by any refund or discount received
by Landlord in connection with any expenses previously included in the Operating
Expenses (such reduction to be credited to Tenant in the year in which the
refund or discount is received by Landlord). Notwithstanding the foregoing, for
purposes of this Lease, the Operating Expenses shall not, however, include:
I. bad debt expenses and interest, principal, points and fees on debts
(except in connection with the financing of items which may be included in the
Operating Expenses) or amortization on any mortgage or mortgages or any other
debt instrument encumbering the Building or the Project;
II. marketing costs, including leasing commissions, attorneys' fees in
connection with the negotiation and preparation of letters, deal memos, letters
of intent, leases, subleases and/or assignments, space planning costs, and other
costs and expenses incurred in connection with lease, sublease and/or assignment
negotiations and transactions with present or prospective tenants or other
occupants of the Project, including attorneys' fees and other costs and
expenditures incurred in connection with disputes with present or prospective
tenants or other occupants of the Project;
III. costs of inspecting and correcting defects in the Project (including
without limitation, defects discovered as a result of earthquake damage) and
costs, including
<PAGE>
permit, license and inspection costs, incurred with respect to the installation
of other tenants' or occupants' improvements made for tenants or other occupants
in the Project or incurred in renovating or otherwise improving, decorating,
painting or redecorating vacant space for tenants or other occupants in the
Project;
IV. the cost of providing any service directly to and paid directly by
any tenant;
V. any costs expressly excluded from the Operating Expenses elsewhere in
this Lease;
VI. costs of any items (including, but not limited to, costs incurred by
Landlord for the repair or damage to the Project or Building) to the extent
Landlord receives reimbursement from insurance proceeds (such proceeds to be
deducted from the Operating Expenses in the year in which received) or from a
third party (such proceeds to be credited to the Operating Expenses in the year
in which received, except that any deductible amount under any insurance policy
shall be included within the Operating Expenses of the Project);
VII. Costs of a capital nature, including, without limitation, capital
improvements, capital repairs and capital equipment; except for those (i)
acquired to reduce the Operating Expenses (amortized at an annual rate
reasonably calculated to equal the amount of the Operating Expenses to be saved
in each calendar year throughout the Term of the Lease, as reasonably determined
at the time Landlord elected to proceed with the capital improvement or
acquisition of the capital equipment to reduce the Operating Expenses), together
with interest at the actual interest rate incurred by Landlord, or (ii) incurred
after the Term Commencement Date in order to comply with any governmental law or
regulation that was enacted subsequent to the Term Commencement Date (but
specifically not including any re-enactment or subsequent codification, local or
otherwise, of any laws or regulations existing as of the Term Commencement Date,
including without limitation the Americans with Disabilities Act or any state or
local codifications thereof) provided that such capital costs shall be amortized
over their useful life, together with interest at the actual interest rate
incurred by Landlord; all other capital expenditures and improvements shall be
excluded from the Operating Expenses;
VIII. rentals and other related expenses for leasing a HVAC system,
elevators, or other items (except when needed in connection with normal repairs
and maintenance of the Project) which if purchased, rather than rented, would
constitute a capital improvement not included in the Operating Expenses pursuant
to this Lease;
IX. depreciation, amortization and interest payments, except as
specifically included in the Operating Expenses pursuant to the terms of this
Lease and except on materials, tools, supplies and vendor-type equipment
purchased by Landlord to enable Landlord to supply services Landlord might
otherwise contract for with a third party, where such depreciation, amortization
and interest payments would otherwise have been included in the charge for such
third party's services, all as determined in accordance with generally accepted
accounting principles, consistently applied, and when depreciation or
amortization is permitted or required, the item shall be amortized over its
reasonably anticipated useful life;
X. costs incurred by Landlord for alterations (including structural
additions), repairs, replacements, equipment and tools which are of a capital
nature and/or which are considered capital improvements or replacements under
generally accepted accounting principles, consistently applied, except as
specifically included in the Operating Expenses pursuant to the terms of this
Lease;
XI. expenses in connection with services or other benefits which are not
offered to Tenant or for which Tenant is charged for directly but which are
provided to another tenant or occupant of the Project, without charge;
<PAGE>
XII. costs incurred by Landlord due to the violation by Landlord or
any tenant of the terms and conditions of any lease of space in the Project;
XIII. overhead and profit increment paid to Landlord or to subsidiaries
or affiliates of Landlord for goods and/or services in the Project to the extent
the same exceeds the costs of such by unaffiliated third parties on a
competitive basis;
XIV. Landlord's general corporate overhead and general and
administrative expenses, excluding on-site management to the level of Project
director (and/or vice president responsible for the Project) and Project
engineer and on-site accounting attributable to the Project, but including costs
associated with the operation of the business of the ownership or entity which
constitutes "Landlord," as distinguished from the costs of building operations,
including, but not limited to, partnership accounting and legal matters, costs
of defending any lawsuits with any mortgagee, costs of selling, syndicating,
financing, mortgaging or hypothecating any of Landlord's interest in the
Project, costs of any disputes between Landlord and its employees or with its
Project management;
XV. advertising and promotional expenditures, and costs of signs in
or on the Project identifying the owner of the Project or other tenants' signs,
except for Project directories or Project standard signage;
XVI. electric power costs or other utility costs for which any tenant
directly contracts with the local public service company (but Landlord shall
have the right to "gross up" as if the floor was vacant);
XVII. tax penalties incurred as a result of Landlord's negligence,
inability or unwillingness to make payments or file returns when due;
XVIII. costs arising from Landlord's charitable or political
contributions;
XIX. costs of installing, maintaining and operating any specialty
service operated by landlord including without limitation, any luncheon club or
athletic facility, or the repair thereof;
XX. costs necessitated by or resulting from the gross negligence of
Landlord, or any of its agents, employees or independent contractors;
XXI. any ground lease rental;
XXII. costs of capital acquisition of sculptures, paintings or other
objects of art;
XXIII. costs of earthquake insurance (except to the extent maintained in
the Base Year);
XXIV. notwithstanding any contrary provision of this Lease, including
without limitation, any provision relating to capital expenditures, costs
arising from the presence of "hazardous materials," "hazardous substances,"
and/or "toxic substances," as defined in any federal, state, county or local
law, including asbestos, in or about the Building and the Project or in the
clean-up, remediation, or implementation of any response actions associated
therewith; and
XXV. management, administration, or monitoring fees to the extent in
excess of that specifically includable in Operating Expenses.
XXVI. costs arising from latent defects in the Base Building Work.
The above enumeration of services and facilities shall not be deemed to
impose an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the
<PAGE>
foregoing, Tenant acknowledges and agrees that it shall be responsible for
providing adequate security for its use of the Premises, the Building and the
Project and that Landlord shall have no obligation or liability with respect
thereto, except to the extent of Landlord's negligence or willful misconduct or
to the extent that Landlord has specifically agreed elsewhere in this Lease to
provide the same.
B. Payment of Estimated Operating Expenses. "Estimated
Operating Expenses" for any particular year shall mean Landlord's estimate of
the Operating Expenses for such fiscal year made with respect to such fiscal
year as hereinafter provided. Landlord shall have the right from time to time to
revise its fiscal year and interim accounting periods so long as the periods as
so revised are reconciled with prior periods in a reasonable manner and do not
result in any net increase to Tenant. During the last month of each fiscal year
during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the difference between
Estimated Operating Expenses and Base Year Operating Expenses with installments
of Base Rent for the fiscal year to which the Estimated Operating Expenses
applies in monthly installments on the first day of each calendar month during
such year, in advance. Such payment shall be construed to be Additional Rent for
all purposes hereunder. If at any time during the course of the fiscal year,
Landlord reasonably determines that Operating Expenses are projected to vary
from the then Estimated Operating Expenses by more than five percent (5%),
Landlord may, by written notice to Tenant, revise the Estimated Operating
Expenses for the balance of such fiscal year, and Tenant's monthly installments
for the remainder of such year shall be adjusted so that by the end of such
fiscal year Tenant has paid to Landlord Tenant's Proportionate Share of the
revised difference between Estimated Operating Expenses and Base Year Operating
Expenses for such year, such revised installment amounts to be Additional Rent
for all purposes hereunder.
C. Computation of Operating Expense Adjustment. "Operating
Expense Adjustment" shall mean the difference between Estimated Operating
Expenses and actual Operating Expenses for any fiscal year, over Base Year
Operating Expenses, determined as hereinafter provided. Within one hundred
twenty (120) days after the end of each fiscal year, or as soon thereafter as
practicable, Landlord shall deliver to Tenant a reasonably detailed statement of
actual Operating Expenses for the fiscal year just ended, accompanied by a
computation of Operating Expense Adjustment. If such statement shows that
Tenant's payment based upon Estimated Operating Expenses is less than Tenant's
Proportionate Share of actual increases in Operating Expenses over the Base Year
Operating Expenses, then Tenant shall pay to Landlord the difference within
thirty (30) days after receipt of such statement, such payment to constitute
Additional Rent for all purposes hereunder. If such statement shows that
Tenant's payments of Estimated Operating Expenses exceed Tenant's Proportionate
Share of actual increases in Operating Expenses over the Base Year Operating
Expenses, then (provided that Tenant is not in default under this Lease, beyond
applicable notices and cure periods) Landlord shall pay to Tenant the difference
within thirty (30) days after delivery of such statement to Tenant. If this
Lease has been terminated or the Term hereof has expired prior to the date of
such statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within thirty (30) days after the date of delivery of the
statement. Tenant's obligation to pay increases in Operating Expenses over the
Base Year Operating Expenses shall commence on January 1 of the year succeeding
the Base Year. Should this Lease terminate at any time other than the last day
of the fiscal year, Tenant's Proportionate Share of the Operating Expense
Adjustment shall be prorated based on a month of 30 days and the number of
calendar months during such fiscal year that this Lease is in effect. Tenant
shall in no event be entitled to any credit if Operating Expenses in any year
are less than Base Year Operating Expenses. Notwithstanding anything to the
contrary contained in Paragraph 7.A or 7.B, Landlord's failure to provide any
notices or statements within the time periods specified in those paragraphs
shall in no way excuse Tenant from its obligation to pay Tenant's Proportionate
Share of increases in Operating Expenses.
<PAGE>
D. Gross Lease. This shall be a gross Lease; however, it is
intended that Base Rent shall be paid to Landlord absolutely net of all costs
and expenses other than Operating Expenses each year equal to Tenant's
Proportionate Share of Base Year Operating Expenses, except as otherwise
specifically provided to the contrary in this Lease. The provisions for payment
of increases in Operating Expenses and the Operating Expense Adjustment are
intended to pass on to Tenant and reimburse Landlord for all costs and expenses
of the nature described in Paragraph 7.A. incurred in connection with the
ownership, management, maintenance, repair, preservation, replacement and
operation of the Building and/or Project and its supporting facilities and such
additional facilities, in excess of the Base Year Operating Expenses, now and in
subsequent years as may be reasonably determined by Landlord to be necessary or
desirable to the Building and/or Project.
E. Tenant Audit. If Tenant shall dispute the amount set forth
in any statement provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant
shall have the right, not later than one hundred eighty (180) days following
receipt of such statement and upon the condition that Tenant shall first deposit
with Landlord the full amount in dispute, to cause Landlord's books and records
with respect to Operating Expenses for such fiscal year to be audited by
certified public accountants selected by Tenant and subject to Landlord's
reasonable right of approval. The Operating Expense Adjustment shall be
appropriately adjusted on the basis of such audit. If such audit discloses a
liability for a refund in excess of three percent (3%) of Tenant's Proportionate
Share of the Operating Expenses previously reported, the cost of such audit
shall be borne by Landlord; otherwise the cost of such audit shall be paid by
Tenant. If Tenant shall not request an audit in accordance with the provisions
of this Paragraph 7.E. within one hundred eighty (180) days after receipt of
Landlord's statement provided pursuant to Paragraph 7.B. or 7.C., such statement
shall be final and binding for all purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. Landlord's Insurance. All insurance maintained by Landlord
shall be for the sole benefit of Landlord and under Landlord's sole control.
(1) Property Insurance. Landlord agrees to maintain All
Perils property insurance insuring the Building at all times against damage
or destruction due to risk including fire, vandalism, and malicious
mischief in an amount not less than the replacement cost thereof, in the
form and with deductibles and endorsements as selected by Landlord (in its
reasonable discretion). At its election, Landlord may (but shall have no
obligation to) obtain earthquake and/or pollution, insurance in amounts
selected by Landlord (in its reasonable discretion). Landlord represents to
Tenant that as of the date of this Lease, Landlord carries "All-Perils"
coverage and rental income insurance.
(2) Optional Insurance. Landlord, at Landlord's option,
may also (but shall have no obligation to) carry insurance against loss of
rent, in an amount equal to the amount of Base Rent and Additional Rent
that Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such terms
as Landlord shall determine (in its reasonable discretion). Landlord shall
not be obligated to insure, and shall have no responsibility whatsoever for
any damage to, any furniture, machinery, goods, inventory or supplies, or
other personal property or fixtures which Tenant may keep or maintain in
the Premises, or any leasehold improvements, additions or alterations
within the Premises.
<PAGE>
B. Tenant's Insurance.
(1) Property Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at all
times until the end of the Term, insurance on all personal property and
fixtures of Tenant and all improvements, additions or alterations made by
or for Tenant to the Premises on an "All Perils" basis, insuring such
property for the full replacement value of such property.
(2) Liability Insurance. Tenant shall procure at Tenant's sole
cost and expense and keep in effect from the date of this Lease and at all
times until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or about
the Premises or arising out of the use and occupancy of the Premises and
the Project, and any part of either, and any areas adjacent thereto, and
the business operated by Tenant or by any other occupant of the Premises.
Such insurance shall include contractual liability insurance coverage
insuring all of Tenant's indemnity obligations under this Lease. Such
coverage shall have a minimum combined single limit of liability of at
least Two Million Dollars ($2,000,000.00), and a minimum general aggregate
limit of Three Million Dollars ($3,000,000.00), with an "Additional
Insured -Managers or Lessors of Premises Endorsement." All such policies
shall be written to apply to all bodily injury (including death), property
damage or loss, personal and advertising injury and other covered loss,
however occasioned, occurring during the policy term, shall be endorsed to
add Landlord and any party holding an interest to which this Lease may be
subordinated as an additional insured, and shall provide that such coverage
shall be "primary" and non-contributing with any insurance maintained by
Landlord, which shall be excess insurance only. Such coverage shall also
contain endorsements including employees as additional insureds if not
covered by Tenant's Commercial General Liability Insurance. All such
insurance shall provide for the severability of interests of insureds; and
shall be written on an "occurrence" basis, which shall afford coverage for
all claims based on acts, omissions, injury and damage, which occurred or
arose (or the onset of which occurred or arose) in whole or in part during
the policy period.
(3) Workers' Compensation and Employers' Liability Insurance.
Tenant shall carry Workers' Compensation Insurance as required by any
Regulation, throughout the Term at Tenant's sole cost and expense. Tenant
shall also carry Employers' Liability Insurance in amounts not less than
One Million Dollars ($1,000,000) each accident for bodily injury by
accident; One Million Dollars ($1,000,000) policy limit for bodily injury
by disease; and One Million Dollars ($1,000,000) each employee for bodily
injury by disease, throughout the Term at Tenant's sole cost and expense.
(4) General Insurance Requirements. All coverages described in
this Paragraph 8.B. shall be endorsed to provide Landlord with thirty (30)
days' notice of cancellation or change in terms. If at any time during the
Term the amount or coverage of insurance which Tenant is required to carry
under this Paragraph 8.B. is, in Landlord's reasonable judgment, materially
less than the amount or type of insurance coverage typically carried by
comparable tenants (in terms of size, financial strength and type of
business of operation) of properties located in the general area in which
the Premises are located which are similar to and operated for similar
purposes as the Premises or if Tenant's use of the Premises should change
with or without Landlord's consent, Landlord shall have the right to
require Tenant to reasonably increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All insurance
policies required to be carried by Tenant under this Lease shall be written
by companies rated A X or better in "Best's Insurance Guide" and authorized
to do business in the State of California. In any event deductible amounts
under all insurance policies required to be carried by Tenant under this
Lease shall not exceed Seven Thousand Five Hundred Dollars ($7,500.00) per
occurrence. Tenant shall deliver to Landlord on or before the Term
Commencement Date, and thereafter at least thirty (30) days before the
expiration dates of the expired policies, a certificate evidencing the
<PAGE>
same issued by the insurer thereunder; and, if Tenant shall fail to procure such
insurance, or to deliver such certificates, Landlord may, at Landlord's option
and in addition to Landlord's other remedies in the event of a default by Tenant
hereunder, after ten (10) business days prior notice to Tenant, procure the same
for the account of Tenant, and the cost thereof shall be paid to Landlord as
Additional Rent.
C. Indemnification. Tenant shall indemnify, defend by counsel
reasonably acceptable to Landlord, protect and hold Landlord harmless from and
against any and all claims, liabilities, losses, costs, loss of rents, liens,
damages, injuries or expenses, including reasonable attorneys' and consultants'
fees and court costs, demands, causes of action, or judgments, directly or
indirectly arising out of or related to: (1) claims of injury to or death of
persons or damage to property occurring or resulting directly or indirectly from
the use or occupancy of the Premises, Building or Project by Tenant or Tenant's
Parties, or from activities or failures to act of Tenant or Tenant's Parties;
(2) claims arising from work or labor performed, or for materials or supplies
furnished to or at the request or for the account of Tenant in connection with
performance of any work done for the account of Tenant within the Premises or
Project (other than by Landlord); (3) claims arising from any breach or default
on the part of Tenant in the performance of any covenant contained in this
Lease; and (4) claims arising from the negligence or intentional acts or
omissions of Tenant or Tenant's Parties. The foregoing indemnity by Tenant shall
not be applicable to claims to the extent arising from the negligence or willful
misconduct of Landlord. Landlord shall not be liable to Tenant and Tenant hereby
waives all claims against Landlord for any injury or damage to any person or
property in or about the Premises, Building or Project by or from any cause
whatsoever (other than Landlord's negligence or willful misconduct) and, without
limiting the generality of the foregoing, whether caused by water leakage of any
character from the roof, walls, basement or other portion of the Premises,
Building or Project, or caused by gas, fire, oil or electricity in, on or about
the Premises, Building or Project. The provisions of this Paragraph shall
survive the expiration or earlier termination of this Lease.
Landlord shall indemnify, defend and hold harmless Tenant from any
loss, cost, liability, damage or expense resulting from the negligence or
willful misconduct of Landlord or its agents, servants, employees, contractors
or licensees in connection with Landlord's activities with respect to the
Project or from any default by Landlord under the terms of this Lease (except
for damage to the tenant improvements and Tenant's personal property, fixtures,
furniture and equipment in the Premises to the extent such damage is covered by
insurance Tenant is required to carry pursuant to Paragraph 8B).
<PAGE>
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided
by insurance to be maintained hereunder or any other rights or remedies,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of persons; (b) damages to property, including
personal property; (c) damages to the Premises or any part thereof; and (d)
claims arising by reason of the foregoing due to hazards covered by insurance
maintained or required to be maintained pursuant to this Lease to the extent of
proceeds recovered therefrom, or proceeds which would have been recoverable
therefrom in the case of the failure of any party to maintain any insurance
coverage required to be maintained by such party pursuant to this Lease. This
provision is intended to waive fully, any rights and/or claims arising by reason
of the foregoing, but only to the extent that any of the foregoing damages
and/or claims referred to above are covered or would be covered, and only to the
extent of such coverage, by insurance actually carried or required to be
maintained pursuant to this Lease by either Landlord or Tenant. This provision
is also intended to waive fully, and for the benefit of each party, any rights
and/or claims which might give rise to a right of subrogation on any insurance
carrier. Subject to all qualifications of this Paragraph 9, Landlord waives its
rights as specified in this Paragraph 9 with respect to any subtenant that it
has approved pursuant to Paragraph 21 but only in exchange for the written
waiver of such rights to be given by such subtenant to Landlord upon such
subtenant taking possession of the Premises or a portion thereof. Each party
shall cause each insurance policy obtained by it to provide that the insurance
company waives all right of recovery by way of subrogation against either party
in connection with any damage covered by any policy.
<PAGE>
10. LANDLORD'S REPAIRS AND MAINTENANCE
Without limiting the generality of the foregoing, Landlord shall
diligently maintain, repair and keep in a clean and sanitary working order and
condition equal to the standards of the Comparable Projects (as defined in
Paragraph 39B below) as part of Operating Expenses to the extent allowable under
this Lease: (i) the foundations, structural portion of the floor, roof and all
structural aspects of the Building, the common areas of the Project (the "Common
Areas"), and the parking facilities; (ii) all systems and facilities necessary
for the operation of the Building and the provision of services and utilities as
required herein, and the electrical, mechanical, plumbing, lighting, lifesafety,
fire sprinkler, heating, ventilating and air conditioning ("HVAC") and security
systems which service the Premises and all other elements thereof (the "Building
Systems"); (iii) the parking facilities; and (iv) the Common Areas, including,
but not limited to, elevators and escalators, electrical, mechanical and
plumbing systems, fixtures and equipment, restrooms, structural components,
lighting, heating, ventilating and air conditioning equipment and systems and
security systems and all other areas or elements thereof. Any damage caused by
or repairs necessitated by any negligence or act of Tenant or Tenant's Parties
may be repaired by Landlord at Landlord's option and Tenant's expense; provided,
however, in the event such damage constitutes an insurable loss Landlord shall
look to its insurance company rather than Tenant to pay for any such insurable
loss (but only to the extent of actual insurance proceeds received therefor by
Landlord). Tenant shall immediately give Landlord written notice of any defect
or need of repairs in such components of the Building for which Landlord is
responsible, after which Landlord shall have a reasonable opportunity and the
right to enter the Premises at all reasonable times to repair same (subject to
the immediately succeeding paragraph). Landlord's liability with respect to any
defects, repairs, or maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of such repairs or
maintenance, and there shall be no abatement of rent and no liability of
Landlord by reason of any injury to or interference with Tenant's business
arising from the making of repairs, alterations or improvements in or to any
portion of the Premises, the Building or the Project or to fixtures,
appurtenances or equipment in the Building, except as provided in Paragraph 24
or elsewhere in this Lease. By taking possession of the Premises, Tenant
accepts them "as is," as being in good order, condition and repair and the
condition in which Landlord is obligated to deliver them and suitable for the
Permitted Use and Tenant's intended operations in the Premises, whether or not
any notice of acceptance is given, subject to punchlist items, latent defects,
structural defects, and any covenants and/or representations set forth in this
Lease. Tenant's rights under any warranties assigned to Tenant pursuant to the
Improvement Agreement attached hereto as Exhibit "C" and the performance by
Landlord of its obligations under this Paragraph 10.
Except in the case of emergency, Landlord shall provide Tenant with
reasonable prior written notice (which Landlord shall attempt to provide no less
than 48 hours in advance unless such entry is approved by the on-site manager
for a lesser time period or with respect to janitorial or normal periodic minor
maintenance and upkeep) of Landlord's intent to enter the Premises, shall use
reasonable efforts to minimize any interference to Tenant, and shall attempt to
make all such entries during normal business hours.
If Tenant provides notice to Landlord of an event or circumstance which
requires the action of Landlord with respect to the provision of utilities
and/or services and/or repairs and/or maintenance as set forth in Articles 10
and 15 of this Lease, and Landlord fails to provide such action as required by
the terms of this Lease, or, if no specific time period for such performance is
set forth in this Lease, within a reasonable time period, then Tenant may
proceed to take the required action upon delivery of an additional two (2)
business days notice to Landlord specifying that Tenant is taking such required
action, and if such action was required under the terms of this Lease to be
taken by Landlord, then Tenant shall be entitled to prompt reimbursement by
Landlord of Tenant's reasonable costs and expenses in taking such action plus
interest at the Applicable Interest Rate (defined herein). In the event Tenant
takes such action,
<PAGE>
and such work will affect, in Landlord's reasonable determination, any of the
Building systems and equipment, structural integrity or exterior appearance of
the Building, Tenant shall use only those contractors used by Landlord in the
Project for such work unless such contractors are unwilling or unable to perform
such work within a reasonable period of time, in which event Tenant may utilize
the services of any other qualified contractor which normally and regularly
performs similar work in comparable projects. In this regard, upon a written
request from Tenant, but not more often than once per calendar year, Landlord
shall provide to Tenant the names of the contractors then being used by Landlord
in the Project for work. Further, if Landlord does not deliver a detailed
written objection to Tenant, within thirty (30) days after receipt of an invoice
by Tenant of its costs of taking action which Tenant claims should have been
taken by Landlord, and if such invoice from Tenant sets forth a reasonably
particularized breakdown of its costs and expenses in connection with taking
such action on behalf of Landlord, then Tenant shall be entitled to deduct from
Rent payable by Tenant under this Lease, the amount set forth in such invoice
together with interest at the Applicable Interest Rate. If, however, Landlord
delivers to Tenant within thirty (30) days after receipt of Tenant's invoice, a
written objection to the payment of such invoice, setting forth with reasonable
particularity Landlord's reasons for its claim that such action did not have to
be taken by Landlord pursuant to the terms of this Lease or that the charges are
excessive (in which case Landlord shall pay the amount it contends would not
have been excessive), then Tenant shall not be entitled to such deduction from
Rent, but as Tenant's sole remedy, Tenant may proceed to submit the matter to
binding arbitration in accordance with the American Arbitration Association in
order to prosecute a claim against Landlord to collect the amount set forth in
the subject invoice. For purposes of the first sentence of this paragraph,
Landlord shall not be deemed to have "failed to provide such action as required
by the terms of this Lease" if Landlord commences any requisite repair work
within a reasonable period of time following Landlord's receipt of written
notice of the need for repairs and Landlord prosecutes such repair work toward
completion with reasonable diligence.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
non-structural parts of the Premises (including partitions and interior dry
walls) (other than Building Systems and equipment and structural parts of the
Premises) and such portions of the Building as are within the exclusive control
of Tenant in good repair and condition, reasonable wear and tear excepted, clean
and secure condition and promptly make all necessary repairs and replacements
with materials and workmanship of the same character, kind and quality as the
original, except to the extent the necessity for any such repairs or
replacements results from Landlord's negligence or willful misconduct of
Landlord. Notwithstanding anything to the contrary contained herein, Tenant
shall, at its expense, promptly repair any damage to the Premises or the
Building or Project resulting from or caused by any negligence or act of Tenant
or Tenant's Parties.
<PAGE>
12. ALTERATIONS
<PAGE>
A. Tenant shall not make, or allow to be made, any alterations,
physical additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
(and shall be granted or denied within twenty (20) business days following
Landlord's receipt of Tenant's request therefor [together with all relevant
information required by Landlord with respect to such Alterations], stating
detailed reasons for denial, provided that Landlord shall use its commercially
reasonable efforts to grant or deny said consent prior to said twenty (20)
business day period, without any liability for its failure to do so) which: (a)
comply with all applicable Regulations; (b) in Landlord's reasonable opinion, do
not adversely affect the structure of the Building or the Project and its
mechanical, plumbing, electrical, heating/ventilation/air conditioning systems,
and will not cause the Building or Project or such systems to be required to be
modified to comply with any Regulations (including, without limitation, the
Americans With Disabilities Act); and (c) will not interfere with the use and
occupancy of any other portion of the Building or Project by any other tenant or
its invitees. Notwithstanding anything to the contrary contained herein,
"Alterations" shall not include any "Tenant Improvements" or other fixtures or
equipment installed in the Premises as of the Term Commencement Date (the
"Existing Improvements"). Specifically, but without limiting the generality of
the foregoing, Landlord shall have the right of written consent for all plans
and specifications for the proposed Alterations, construction means and methods,
all appropriate permits and licenses, any contractor or subcontractor to be
employed on the work of Alterations, and the time for performance of such work,
and may impose reasonable, non-discriminatory rules and regulations for
contractors and subcontractors performing such work, all of which shall not be
unreasonably withheld or delayed. Tenant shall also supply to Landlord any
documents and information reasonably requested by Landlord in connection with
Landlord's consideration of a request for approval hereunder. Tenant shall cause
all Alterations to be accomplished in a good and workmanlike manner, and to
comply with all applicable Regulations and Paragraph 27 hereof. Tenant shall at
Tenant's sole expense, perform any additional work required under applicable
Regulations due to the Alterations hereunder. Tenant shall have the right to use
non-union contractors to perform all or a portion of the Alterations, but only
to the extent (i) Tenant provides Landlord with prior written notice of its
request to hire a non-union contractor, and (ii) hiring non-union contractors
does not violate any contracts to which Landlord is a party. No review or
consent by Landlord of or to any proposed Alteration or additional work shall
constitute a waiver of Tenant's obligations under this Paragraph 12, nor
constitute any warranty or representation that the same complies with all
applicable Regulations, for which Tenant shall at all times be solely
responsible. Tenant shall reimburse Landlord for all reasonable, actual, out-of-
pocket costs which Landlord may incur in connection with granting approval to
Tenant for any such Alterations, including any costs or expenses which Landlord
may incur in electing to have outside architects and engineers review said plans
and specifications, and shall pay Landlord an administration fee of seven and
one-half percent (7.5%) of the cost of the Alterations as Additional Rent
hereunder (provided that such administration fee shall be reduced to 3% in
connection with any cosmetic Alterations which do not require Landlord's consent
pursuant to the immediately succeeding paragraph). All such Alterations shall
remain the property of Tenant until the expiration or earlier termination of
this Lease, at which time they shall be and become the property of Landlord;
provided, however, that Landlord may, at Landlord's option, at the time of
Landlord's consent (or if Landlord's consent is not required, within ten (10)
business days following Tenant's notice to Landlord of its intention to perform
any Alterations) require that Tenant, at Tenant's expense, remove any or all
Alterations made by Tenant (but not the Tenant Improvements constructed in
accordance with the Improvement Agreement attached hereto as Exhibit "C", unless
an item(s) of such Tenant Improvements has been specifically designated by
Landlord to be removed upon the expiration or earlier termination of this Lease)
and restore the Premises by the expiration or earlier termination of this Lease,
to their condition existing prior to the construction of any such Alterations.
All such removals and restoration shall be accomplished in a good and
workmanlike manner so as not to cause any damage to the Premises or Project
whatsoever. If Tenant fails to remove such
<PAGE>
Alterations or Tenant's trade fixtures or furniture or other personal property
at the expiration or earlier termination of this Lease, Landlord may keep and
use them or remove any of them and cause them to be stored or sold in accordance
with applicable law, at Tenant's sole expense. In addition to and wholly apart
from Tenant's obligation to pay Tenant's Proportionate Share of Operating
Expenses, Tenant shall be responsible for and shall pay prior to delinquency any
taxes or governmental service fees, possessory interest taxes, fees or charges
in lieu of any such taxes, capital levies, or other charges imposed upon, levied
with respect to or assessed against its fixtures or personal property, on the
value of Alterations within the Premises, and on Tenant's interest pursuant to
this Lease, or any increase in any of the foregoing based on such Alterations.
To the extent that any such taxes are not separately assessed or billed to
Tenant, Tenant shall pay the amount thereof as invoiced to Tenant by Landlord.
Notwithstanding anything to the contrary contained herein, Tenant may make
any cosmetic Alterations which do not affect the Building systems and equipment,
exterior appearance of the Building, or structural aspects, by providing
Landlord with notice not less than ten (10) business days prior to the
commencement thereof, provided that no notice shall be required in connection
with (i) any such cosmetic Alterations which, in the aggregate, cost less than
$2,000, and (ii) the placement of movable furniture, fixtures or equipment in
the Premises. Landlord's consent shall not be required with respect to any such
Alterations provided the cost of said Alterations do not exceed $100,000 in any
twelve (12) month period. Tenant may not make any Alterations which may affect
the Building systems and equipment, exterior appearance of the Building,
configuration of the Premises or structural aspects or which require a permit
from the applicable governmental authorities, without first procuring the prior
written consent of Landlord to such Alterations, which consent shall be
requested by Tenant not less than ten (10) days prior to commencement thereof,
and which consent may be withheld by Landlord in its reasonable discretion. Any
time Tenant proposes to make Alterations which require the consent of Landlord
pursuant to this Section, Tenant's notice regarding the proposed Alterations
shall be provided together with the plans and specifications for the
Alterations, and Landlord shall use its reasonable efforts to approve or
disapprove of the same within ten (10) business days after its receipt of all of
the same.
B. In compliance with Paragraph 27 hereof, at least ten (10)
business days before beginning construction of any Alteration, Tenant shall give
Landlord written notice of the expected commencement date of that construction
to permit Landlord to post and record a notice of non-responsibility. Upon
substantial completion of construction, if the law so provides, Tenant shall
cause a timely notice of completion to be recorded in the office of the recorder
of the county in which the Building is located.
<PAGE>
13. SIGNS
Except as otherwise set forth in Paragraph 39C below, Tenant shall not
place, install, affix, paint or maintain any signs, notices, graphics or banners
whatsoever or any window decor which is visible in or from public view or
corridors, the common areas or the exterior of the Premises or the Building, in
or on any exterior window or window fronting upon any common areas or service
area without Landlord's prior written approval which Landlord shall have the
right to withhold in its absolute and sole discretion; provided that (i)
Tenant's name and/or logo shall be included in any Building-standard door, (ii)
Tenant shall have the right to one (1) strip on the ground floor lobby directory
signage, and (iii) Tenant shall have the right to twelve (12) strips on the 2120
Building P1 parking level directory signage, including without limitation,
payment by Tenant of any Project standard reasonable fee charged by Landlord for
maintaining such signage, which fee shall constitute Additional Rent hereunder.
Any installation of signs, notices, graphics or banners on or about the Premises
or Project approved by Landlord shall be subject to any Regulations and to any
other requirements imposed by Landlord. Tenant shall remove all such signs or
graphics by the expiration or any earlier termination of this Lease. Such
installations and removals shall be made in such manner as to avoid injury to or
defacement of the Premises, Building or Project and any other improvements
contained therein, and Tenant shall repair any injury or defacement including
without limitation discoloration caused by such installation or removal.
14. INSPECTION/POSTING NOTICES
Upon reasonable prior notice (or upon no notice with respect to janitorial
or normal periodic minor maintenance and upkeep or in emergencies), and in
compliance with the security and confidentiality requirements set forth in this
Lease, Landlord and Landlord's agents and representatives, shall have the right
to enter the Premises at all reasonable times to inspect the same, to clean, to
perform such work as may be permitted or required hereunder, to make repairs,
improvements or alterations to the Premises, Building or Project or to other
tenant spaces therein, to deal with emergencies, to post such notices as may be
permitted or required by law to prevent the perfection of liens against
Landlord's interest in the Project or to exhibit the Premises to prospective
tenants (only during the last nine months of the Term), purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
reasonably necessary or desirable; provided, however, that Landlord shall not
unreasonably interfere with Tenant's business operations or access to the
Premises (except on a temporary or incidental basis) and Landlord shall comply
with all specific notice and access requirements set forth in this Lease. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry, except as otherwise provided herein. Tenant waives any
claim for damages for any injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned by Landlord's entry on the Premises in accordance with
the terms of this Lease. Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon and about the Premises, excluding
Tenant's vaults and safes or special security areas (designated in advance), and
Landlord shall have the right to use any and all means which Landlord may deem
reasonably necessary or proper to open said doors in an emergency, in order to
obtain entry to any portion of the Premises, and any entry to the Premises or
portions thereof obtained by Landlord by any of said means, or otherwise, shall
not be construed to be a forcible or unlawful entry into, or a detainer of, the
Premises, or an eviction, actual or constructive, of Tenant from the Premises or
any portions thereof. At any time within nine (9) months prior to the expiration
of the Term or following any earlier termination of this Lease or agreement to
terminate this Lease, Landlord shall have the right to erect on the Building
and/or Project a suitable sign indicating that the Premises are available for
lease.
<PAGE>
15. SERVICES AND UTILITIES
A. Subject to the provisions elsewhere herein contained and to the
rules and regulations of the Building, Landlord shall furnish to the Premises
during Business Hours (but exclusive, in any event, of Sundays and generally
recognized national or state legal holidays), water for kitchen, lavatory and
drinking purposes and electricity, HVAC as usually furnished or supplied for use
of the Premises for reasonable and normal office use (consistent with other
tenants in the Project). Notwithstanding the foregoing, and subject to all of
the other terms and conditions of this Lease, water, elevator service,
electricity and heat and air conditioning shall be furnished or supplied for use
of the Premises twenty-four (24) hours per day, three hundred sixty-five (365)
days per year. The term "Business Hours" shall mean 8:00 a.m. to 6:00 p.m.,
Monday through Friday, and 9:00 a.m. to 12:00 noon on Saturdays. Except as
otherwise provided in this Article 15, any expenditures incurred by Landlord in
furnishing services and utilities in accordance with this Article 15 shall not
be separately chargeable to Tenant, but rather shall be included in the
Operating Expenses and shall be subject to reimbursement in accordance with the
provisions set forth in Article 7.
B. Landlord shall provide adequate electrical wiring, facilities and
power for normal general office use as reasonably determined by Landlord (but
not including above-standard or continuous cooling for excessive heat-generating
machines, excess lighting or equipment), and elevator service, which shall mean
service either by nonattended automatic elevators or elevators with attendants,
or both, at the option of Landlord. For purposes of this Paragraph 15B, the term
"power for normal general office use" shall equal six (6) watts connected load
per usable square foot of the Premises on an annual basis.
C. Tenant shall have the right to install its own supplemental air-
conditioning unit (the cost of which, if installed concurrently with the
construction of the Tenant Improvements, may be applied against any unused
Tenant Improvement Allowance), provided that Landlord approves of the
installation of such unit and the same does not interfere with the operation
systems and equipment, including without limitation, the Building heating,
ventilation and air-conditioning systems (as determined by Landlord in its
reasonable discretion); provided, however, Tenant shall be solely responsible
for all costs relating to the installation and operation of such unit, and
shall, upon Landlord's request, remove such unit upon the expiration or earlier
termination of the Term and shall cause such unit to be separately metered at
Tenant's expense.
D. Landlord shall provide janitorial services in accordance with the
janitorial specifications attached hereto as Exhibit "D". Landlord further
agrees to provide for the cleaning of the exterior of the perimeter glass of the
Building approximately once every six (6) months.
E. Landlord agrees to provide a card key access system to control
access to the Building's parking facility and for after-hours access to the
Building. Furthermore, Landlord will maintain security measures at the Project
comparable to those maintained by other landlords of office buildings in the
SMSOD. Subject Landlord's approval as to the method of installation and type of
security system, Tenant shall have the right to install its own security system
and/or personnel provided (i) Landlord and its agents, representatives and
employees shall be able to reasonably access the Premises for any purposes for
which Landlord is entitled to access the Premises under this Lease (including,
without limitation, for emergency purposes), (ii) the same does not interfere
with the Building systems or equipment, (iii) Tenant shall indemnify, defend and
hold harmless Landlord from and against any and all claims, loss, damage or
expenses suffered by Landlord resulting from or arising out of the installation
of said security system or maintenance of security personnel, and (iv) upon
Landlord's request (and notwithstanding anything to the contrary set forth in
Paragraph 26 below), Tenant shall remove any such system upon the expiration or
earlier termination of this Lease and repair any damage caused by such removal.
<PAGE>
F. Landlord shall provide after-hours heating or air conditioning at
Tenant's request and Tenant shall pay to Landlord a reasonable charge for such
services as reasonably determined by Landlord (which charge shall not exceed
$60.00 per hour). Landlord agrees that the charge for after-hours heating or air
conditioning shall be reasonably comparable to that being charged at other
first-class office buildings in the Santa Monica Special Office District. Tenant
agrees to keep and cause to be kept closed all window covering when necessary
because of the sun's position, and Tenant also agrees at all times to cooperate
fully with Landlord and to abide by all of the reasonable, non-discriminatory
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of electrical, heating, ventilating and air
conditioning systems. Wherever heat-generating machines, excess lighting or
equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system (other than standard general office
equipment or other equipment originally installed in the Premises which has been
specifically approved by Landlord as not materially affecting the temperature in
the Premises, which approval by Landlord shall not be unreasonably withheld and
shall be given or denied within ten (10) days after Landlord's receipt of a
detailed list of said proposed equipment, provided that Landlord and Tenant
agree to mutually approve a list of such "other equipment" prior to the Term
Commencement Date). Landlord reserves the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the cost of
installation and the cost of operation and maintenance thereof, shall be paid by
Tenant to Landlord within thirty (30) days after demand by Landlord.
G. Tenant shall not without written consent of Landlord (which shall
not be unreasonably withheld or delayed) use any apparatus, equipment or device
in the Premises, including without limitation, electronic data processing
machines, and other over-standard machines using electric current or water, in
excess of or which will in any way increase the amount of electricity or water
being furnished or supplied for the use of the Premises (which, with respect to
electricity consumption, is in excess of 6 watts per usable square foot of the
Premises) or which will require additions or alterations to or interfere with
the Building power distribution systems; nor connect with electric current,
except through existing electrical outlets in the Premises or water pipes, any
apparatus, equipment or device for the purpose of using electrical current,
water, or any other resource. If Tenant shall require water or electric current
or any other resource in excess of that being furnished or supplied for the use
of the Premises, Tenant shall first procure the written consent of Landlord
(which shall not be unreasonably withheld or delayed), and Landlord may cause a
special meter to be installed in the Premises so as to measure the amount of
water, electric current or other resource consumed for any such other use.
Tenant shall pay directly to Landlord as an addition to and separate from
payment of Operating Expenses the actual cost incurred by Landlord to provide
all such additional resources, energy, utility service and meters (and of
installation, maintenance and repair thereof and of any additional circuits or
other equipment necessary to furnish such additional resources, energy, utility
or service). Landlord may add to the separate or metered charge a recovery of
additional expense incurred in keeping account of the excess water, electric
current or other resource so consumed. Except as otherwise provided herein,
Landlord shall not be liable for any damages directly or indirectly resulting
from nor shall the Rent or any monies owed Landlord under this Lease herein
reserved be abated by reason of: (a) the installation, use or interruption of
use of any equipment used in connection with the furnishing of any such
utilities or services, or any change in the character or means of supplying or
providing any such utilities or services or any supplier thereof; (b) the
failure to furnish or delay in furnishing any such utilities or services when
such failure or delay is caused by acts of God or the elements, labor
disturbances of any character, or any other accidents or other conditions beyond
the reasonable control of Landlord or because of any interruption of service due
to Tenant's use of water, electric current or other resource in excess of that
being supplied or furnished for the use of the Premises; (c) the inadequacy,
limitation, curtailment, rationing or restriction on use of water, electricity,
gas or any other form of energy or any other service or utility whatsoever
serving the Premises or Project, whether by Regulation or otherwise beyond
Landlord's reasonable control; or (d) the partial or total unavailability of any
such utilities or
<PAGE>
services to the Premises or the Building, whether by Regulation or otherwise
beyond Landlord's reasonable control; nor shall any such occurrence constitute
an actual or constructive eviction of Tenant. Provided the utility services
provided to Tenant are not materially reduced or impaired, Landlord shall be
entitled to cooperate voluntarily and in a reasonable manner with the efforts of
national, state or local governmental agencies or utility suppliers in reducing
energy or other resource consumption. In addition, Landlord reserves the right
to change the supplier or provider of any such utility or service from time to
time, so long as the cost to provide said utilities or services are reasonably
competitive with that of other providers or suppliers. Tenant shall have no
right to contract with or otherwise obtain any electrical service for or with
respect to the Premises or Tenant's operations therein from any supplier or
provider of any such service. Tenant shall cooperate, at no expense to Tenant
(except as otherwise set forth in this Lease), with Landlord and any supplier or
provider of such services designated by Landlord from time to time to facilitate
the delivery of such services to Tenant at the Premises and to the Building and
Project, including without limitation allowing Landlord and Landlord's suppliers
or providers, and their respective agents and contractors, reasonable access to
the Premises for the purpose of installing, maintaining, repairing, replacing or
upgrading such service or any equipment or machinery associated therewith.
Landlord agrees to use its commercially reasonable efforts to minimize any
interference caused to Tenant's business operations as a result of such access.
H. In the event that Tenant requires utilities (other than
electricity, water and HVAC) and/or services in excess of what Landlord is
required to provide during Business Hours, Landlord agrees to use its
commercially reasonable efforts to provide such extra utilities and services,
and Tenant agrees to pay to Landlord its then standard charge for any such extra
utilities or services.
I. For all utilities furnished to the Premises and separately billed
by Landlord to or metered to Tenant in accordance with the terms of this
Paragraph 15, Tenant shall pay the charges therefor within 30 days after written
demand from Landlord. For all other utilities furnished to the Premises, Tenant
shall pay Tenant's Proportionate Share of all charges jointly serving the
Project in accordance with Paragraph 7. All sums payable under this Paragraph 15
shall constitute Additional Rent hereunder.
J. In the event that Tenant is prevented from using, and does not
use, the Premises or any portion thereof, for five (5) consecutive business days
or ten (10) business days in any twelve (12) month period following Landlord's
receipt of written notice from Tenant (the "Eligibility Period") as a result of
any (i) repair, maintenance or alteration performed by Landlord, or which
Landlord failed to perform and which was required by this Lease (which is not
necessitated by the negligence of Tenant or its employees, agents, contractors
or invitees) and which substantially interferes with Tenant's use of the
Premises, and (ii) interruption in any of the following building services
required to be provided by Landlord (so long as it is not due to the fault or
neglect of Tenant, its agents, employees, contractors or invitees): heating,
ventilation and air conditioning, electrical services, janitorial service or
water or any other "essential" building service (each such circumstance to be
known as an "Abatement Event"), then Tenant's rent and parking charges shall be
abated or reduced, as the case may be, after expiration of the Eligibility
Period for such time that Tenant continues to be so prevented from using, and
does not use, the Premises, or a portion thereof, in the proportion that the
rentable area of the portion of the Premises that Tenant is prevented from
using, and does not use, bears to the total rentable area of the Premises.
However, in the event that Tenant is prevented from conducting, and does not
conduct, its business in any portion of the Premises for a period of time in
excess of the Eligibility Period, and the remaining portion of the Premises is
not sufficient to allow Tenant to effectively conduct its business therein, and
if Tenant does not conduct its business from such remaining portion, then for
such time after expiration of the Eligibility Period during which Tenant is so
prevented from effectively conducting its business therein, the rent for the
entire Premises and all of Tenant's parking charges shall be abated; provided,
however, if Tenant reoccupies and conducts its business from any portion of the
Premises during such period, the rent and parking charges allocable
<PAGE>
to such reoccupied portion, based on the proportion that the rentable area of
such reoccupied portion of the Premises bears to the total rentable area of the
Premises, shall be payable by Tenant from the date such business operations
commence. Notwithstanding anything to the contrary contained herein, the terms
of Article 23 and 24 shall govern and control Tenant's right to any rental
abatement as a result of any event covered by Article 23 or 24 below.
K. Landlord agrees to maintain and operate the Common Areas in a
manner consistent with Comparable Projects within the SMSOD, as reasonably
determined by Landlord.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, the Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that such successor agrees that Tenant shall not be disturbed
in its possession under this Lease by such successor in interest so long as
Tenant is not in default under this Lease, beyond any applicable cure periods.
Within ten (10) business days after request by Landlord, Tenant shall execute
and deliver any additional documents evidencing Tenant's attornment or the
subordination of this Lease with respect to any such ground leases or underlying
leases or any such mortgage or deed of trust, in a commercially reasonable form
requested by Landlord or by any ground landlord, mortgagee, or beneficiary under
a deed of trust, subject to such nondisturbance requirement.
Notwithstanding the foregoing, Landlord represents to Tenant that as of the
date of this Lease, there are no mortgages or deeds of trust encumbering
Landlord's interest in the Project. Landlord also agrees to provide Tenant with
commercially reasonable non-disturbance agreement(s) in favor of Tenant from any
ground lessors, mortgage holders or lien holders of Landlord who later come into
existence at any time prior to the expiration of the Term of the Lease in
consideration of, and as a condition precedent to, Tenant's agreement to be
bound by Article 16 of the Lease.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time and, if Tenant is not a public
company, upon Landlord's signing a commercially reasonable confidentiality
agreement, Tenant shall provide to Landlord the most current financial
statements of Tenant then in Tenant's possession (and prepared in the normal
course of business), which Landlord shall use solely for purposes of this Lease
and in connection with the ownership, management, financing and disposition of
the Project.
<PAGE>
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) business days after
request of Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating, to the extent such statements are accurate, that this Lease
is in full force and effect, that this Lease has not been modified (or stating
all modifications, written or oral, to this Lease), the date to which Rent has
been paid, the unexpired portion of this Lease, to Tenant's actual knowledge,
that there are no current defaults by Landlord or Tenant under this Lease (or
specifying any such defaults), that the leasehold estate granted by this Lease
is the sole interest of Tenant in the Premises and/or the land at which the
Premises are situated, and such other matters pertaining to this Lease as may be
reasonably requested by Landlord or any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acknowledgment by Tenant that the statements included are true and correct
without exception; provided, however, in the event any of the information
described above cannot be truthfully stated, Tenant shall be deemed to have
complied with the provisions in this Article 18 if it provides an estoppel
certificate accurately stating the status of such items. Tenant agrees that if
Tenant fails to execute and deliver such certificate within such ten (10)
business day period, Landlord may execute and deliver such certificate on
Tenant's behalf and that such certificate shall be binding on Tenant. Landlord
and Tenant intend that any statement delivered pursuant to this Paragraph may be
relied upon by any mortgagee, beneficiary, purchaser or prospective purchaser of
the Building or Project or any interest therein. The parties agree that Tenant's
obligation to furnish such estoppel certificates in a timely fashion is a
material inducement for Landlord's execution of the Lease, and shall be an event
of default (without any cure period that might be provided under Paragraph
26.A(3) of this Lease) if Tenant fails to fully comply within two (2) business
days after Tenant's receipt of a notice from Landlord notifying Tenant of its
failure to provide said estoppel certificate within the foregoing ten (10)
business day period or makes any material misstatement in any such certificate.
Landlord hereby agrees to provide to Tenant an estoppel certificate signed
by Landlord, containing the same types of information, and within the same
period of time, as set forth above, with such changes as are reasonably
necessary to reflect that the estoppel certificate is being granted and signed
by Landlord to Tenant, rather than from Tenant to Landlord or a lender.
<PAGE>
19. SECURITY DEPOSIT
A. Subject to Section 39D below (entitling Tenant to deliver a
letter of credit in lieu of a cash security deposit), Tenant agrees to deposit
with Landlord upon execution of this Lease, a security deposit as stated in the
Basic Lease Information (the "SECURITY DEPOSIT"), which sum shall be held and
owned by Landlord, without obligation to pay interest, as security for the
performance of Tenant's covenants and obligations under this Lease. The Security
Deposit is not an advance rental deposit or a measure of damages incurred by
Landlord in case of Tenant's default. Upon the occurrence of any event of
default by Tenant, Landlord may from time to time, without prejudice to any
other remedy provided herein or by law, use such fund as a credit to the extent
necessary to credit against any arrears of Rent or other payments due to
Landlord hereunder, and any other damage, injury, expense or liability caused by
such event of default, and Tenant shall pay to Landlord, within 15 days, the
amount so applied in order to restore the Security Deposit to its original
amount. Although the Security Deposit shall be deemed the property of Landlord,
any remaining balance of such deposit shall be returned by Landlord to Tenant at
such time after termination of this Lease that all of Tenant's obligations under
this Lease have been fulfilled, reduced by such amounts as may be required by
Landlord to remedy defaults on the part of Tenant in the payment of Rent or
other obligations of Tenant under this Lease, to repair damage to the Premises,
Building or Project caused by Tenant or any Tenant's Parties and to restore the
Premises to the condition specified in Section 12 above. Landlord may use and
commingle the Security Deposit with other funds of Landlord. Notwithstanding the
foregoing, provided Tenant is not then in default under this Lease and provided
Tenant has not been in material default on more than three (3) occasions during
the Term, Landlord shall (i) on the first anniversary of the Term Commencement
Date, Landlord shall apply an amount equal to $212,187.21 from the Security
Deposit against Tenant's Base Rent obligations for the next succeeding months of
the Term (until such amount is exhausted), (ii) on the second anniversary of the
Term Commencement Date, Landlord shall apply an amount equal to $180,359.13 from
the Security Deposit against Tenant's Base Rent obligations for the next
succeeding months of the Term (until such amount is exhausted), (iii) on the
third anniversary of the Term Commencement Date, Landlord shall apply an amount
equal to $153,305.27 from the Security Deposit against Tenant's Base Rent
obligations for the next succeeding months of the Term (until such amount is
exhausted), (iv) on the fourth anniversary of the Term Commencement Date,
Landlord shall apply an amount equal to $130,309.47 from the Security Deposit
against Tenant's Base Rent obligations for the next succeeding months of the
Term (until such amount is exhausted); (v) on the fifth anniversary of the Term
Commencement Date, Landlord shall apply an amount equal to $110,763.05 from the
Security Deposit against Tenant's Base Rent obligations for the next succeeding
months of the Term (until such amount is exhausted); and (vi) on the sixth
anniversary of the Term Commencement Date, Landlord shall apply an amount equal
to $94,148.59 from the Security Deposit against Tenant's Base Rent obligations
for the next succeeding months of the Term (until such amount is exhausted).
B. Notwithstanding anything to the contrary contained in Paragraph
19A above, the Security Deposit being held by Landlord pursuant to the terms of
this Lease shall be reduced to an amount equal to $250,000.00, provided that (i)
Tenant is not then in default under this Lease and Tenant has not been in
material default on more than three (3) occasions during the Term, (ii) Tenant
evidences to Landlord's reasonable satisfaction that Tenant has a net worth of
at least $50,000,000.00, and (iii) Tenant evidences to Landlord's reasonable
satisfaction (based upon Landlord's review of Tenant's audited financial
statements) that Tenant has a positive net cash flow for operating activities as
determined in accordance with GAAP during the immediately preceding twelve (12)
month period. From and after the date of any such reduction of the Security
Deposit, if the conditions set forth in subparagraph (ii) and (iii) of the
preceding sentence are no longer satisfied, Tenant shall be obligated to
replenish the Security Deposit in accordance with the amounts otherwise required
to be retained by Landlord pursuant to the terms of Paragraph 19A above (or
Tenant shall be obligated to
<PAGE>
issue a Letter of Credit in accordance with the terms of Paragraph 39D below in
the same amount).
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by
Landlord under the terms of this Lease are not personal obligations of Landlord
or of the individual or other partners of Landlord or its or their partners,
directors, officers, or shareholders, and Tenant agrees to look solely to
Landlord's interest in the Project for the recovery of any amount from Landlord,
including all rental income, insurance, net sales and condemnation proceeds, and
shall not look to other assets of Landlord nor seek recourse against the assets
of the individual or other partners of Landlord or its or their partners,
directors, officers or shareholders. Any lien obtained to enforce any such
judgment and any levy of execution thereon shall be subject and subordinate to
any lien, mortgage or deed of trust on the Project. Under no circumstances shall
Tenant have the right to offset against or recoup Rent or other payments due and
to become due to Landlord hereunder except as expressly provided in this Lease,
including Paragraph 23.B. below, which Rent and other payments shall be
absolutely due and payable hereunder in accordance with the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) General. Tenant shall not assign or pledge this Lease or
sublet the Premises or any part thereof, whether voluntarily or by
operation of law, or permit the use or occupancy of the Premises or any
part thereof by anyone other than Tenant, or suffer or permit any such
assignment, pledge, subleasing or occupancy, without Landlord's prior
written consent except as provided herein. If Tenant desires to assign this
Lease or sublet any or all of the Premises, Tenant shall give Landlord
written notice (the "Transfer Notice") of Tenant's intent to assign or
sublet the Premises, which notice shall be given at least twenty (20) days
prior to the anticipated effective date of the proposed assignment or
sublease, which shall contain all of the information reasonably requested
by Landlord to address Landlord's decision criteria specified hereinafter.
Within twenty (20) days following Landlord's receipt of the Transfer
Notice, Landlord shall notify Tenant in writing that Landlord elects
either: (i) to terminate this Lease as to the space so affected as of the
date so requested by Tenant; or (ii) to consent or reasonably deny consent
to the proposed assignment or sublease. Consent to any assignment or
subletting shall not constitute consent to any subsequent transaction to
which this Paragraph 21 applies.
(2) Conditions of Landlord's Consent. Without limiting the
other instances in which it may be reasonable for Landlord to withhold
Landlord's consent to an assignment or subletting, Landlord and Tenant
acknowledge that it shall be reasonable for Landlord to withhold Landlord's
consent in the following instances: if the proposed assignee does not agree
to be bound by and assume the obligations of Tenant under this Lease in a
commercially reasonable form and substance reasonably satisfactory to
Landlord; the use of the Premises by such proposed assignee or subtenant
would not be a Permitted Use or would violate any exclusivity or other
arrangement which Landlord has with any other tenant or occupant (provided
that in no event shall such exclusivity arrangement impair the ability to
use the Premises as contemplated in this Lease, except for an exclusivity
clause granted for the operation of a stock brokerage company/investment
banking facility from the Project), or any Regulation or would violate the
Occupancy Density set forth in Paragraph 4 above; the proposed assignee or
subtenant is not of sound financial condition in light of its obligations
under any such sublease or assignment; the proposed assignee or subtenant
is a governmental agency with the power of condemnation or high foot
traffic or otherwise of a character which is not consistent (in Landlord's
reasonable opinion) with the professional image of the Building or the
character of the other tenant's therein; the proposed assignee or subtenant
does not have a good reputation as a tenant of property or a good business
reputation (as determined by Landlord in its reasonable discretion); the
proposed assignee or subtenant is a person who is a present tenant of the
Project or with whom Landlord has executed a lease proposal setting forth
the material business terms of a proposed lease concerning the lease of
space in the Project; the assignment
<PAGE>
or subletting would entail any use of any Hazardous Materials or other
noxious use or use which may disturb other tenants of the Project; or
Tenant is in default of any obligation of Tenant under this Lease, beyond
applicable notice and cure periods. Failure by or refusal of Landlord to
consent to a proposed assignee or subtenant shall not cause a termination
of this Lease. Upon a termination under Paragraph 21.A.(1)(i), Landlord may
lease the Premises to any party without incurring any liability to Tenant.
A termination of this Lease, as elected by Landlord, shall operate as an
assignment to Landlord of all subleases or subtenancies previously approved
in accordance with this Lease. In connection with each request for
assignment or subletting, Tenant shall pay to Landlord Landlord's actual
out-of-pocket costs for approving such requests, as well as all costs
incurred by Landlord or any mortgagee or ground lessor in approving each
such request and effecting any such transfer, including, without
limitation, reasonable attorneys' fees (provided that all such out-of-
pocket costs, including attorneys' fees, shall not exceed $1,500 in the
aggregate).
B. Bonus Rent. Any Rent or other consideration realized by Tenant
under any such sublease or assignment in excess of the Rent payable hereunder,
after deducting any Subleasing Costs (defined below) incurred by Tenant in
connection with said sublease or assignment (which Subleasing Costs shall be
amortized over the term of said sublease or assignment), shall be divided and
paid, fifty percent (50%) to Tenant, fifty percent (50%) to Landlord.
"Subleasing Costs" shall mean reasonable, out-of-pocket expenses for (i) any
changes, alterations and improvements to the Premises in connection with the
transfer, (ii) any brokerage commissions in connection with the transfer, (iii)
any costs to buy-out or takeover the previous lease of a transferee, (iv)
reasonable legal fees incurred in connection with the transfer including those
fees and costs reimbursed to Landlord pursuant to this Lease, (v) free rent,
(vi) any other "out-of-pocket" monetary concessions reasonably provided in
connection with the transfer including, but not limited to, tenant improvement
or decorating allowances (collectively, the "Subleasing Costs"), and (vii) any
other actual, reasonable out-of-pocket costs incurred by Tenant in connection
with such subleasing or assignment including any reimbursements to Landlord for
its approval pursuant to Section 21.A.(2).
C. Corporation. If Tenant is a corporation, a transfer of corporate
shares by sale, assignment, bequest, inheritance, operation of law or other
disposition (including such a transfer to or by a receiver or trustee in federal
or state bankruptcy, insolvency or other proceedings) resulting in a change in
the present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares (other than a
transfer to an Affiliate as provided in Subsection F below), shall constitute an
assignment for purposes of this Lease. The terms of this Paragraph 21C shall not
apply if Tenant becomes a publicly traded company on a nationally or regionally
recognized stock exchange or in connection with the investment of money into
Tenant.
D. Unincorporated Entity. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
E. Liability. No assignment or subletting by Tenant, permitted or
otherwise, shall relieve Tenant of any obligation under this Lease or alter the
primary liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
From and after the date of any default by Tenant under this Lease, beyond any
applicable notice and cure period, Landlord may collect rent or other amounts or
any portion thereof from any assignee, subtenant, or other occupant of the
Premises, permitted or otherwise, and apply the net
<PAGE>
rent collected to the Rent payable hereunder, but no such collection shall be
deemed to be a waiver of this Paragraph 21, or the acceptance of the assignee,
subtenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of the obligations of Tenant under this Lease. Any
assignment or subletting which conflicts with the provisions hereof shall be
void to such extent.
F. Sublease and Assignment. Notwithstanding anything to the contrary
contained in this Section, neither (i) an assignment or subletting of all or a
portion of the Premises (A) to an entity which is controlled by, controls or is
under common control with Tenant (or a valid assignee of this Lease), or (B) to
a purchaser of all or substantially all of the assets of Tenant or of an entity
which is controlled by, controls or is under common control with Tenant (or a
valid assignee of this Lease), nor (ii) a transfer, by operation of law or
otherwise, in connection with the merger, consolidation or other reorganization
of Tenant or of an entity which is controlled by, controls or is under common
control with Tenant (or a valid assignee of this Lease), shall be subject to the
Landlord's consent (collectively, such entities, purchasers, and parties shall
be referred to herein collectively or individually as an "Affiliate"), provided
such assignment or sublease is not a subterfuge by Tenant to avoid its
obligations under this Lease. Tenant shall immediately notify Landlord of any
such assignment, purchase, transfer, sublease, action, or use. For purposes of
this Lease, "control" shall mean the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
person or entity, or majority ownership of any sort, whether through the
ownership of voting securities, by contract or otherwise.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to
enter into this Lease and to perform all of Landlord's obligations hereunder and
that all persons signing this Lease on its behalf are authorized to do. Tenant
represents and warrants that Tenant has full right and authority to enter into
this Lease, and to perform all of Tenant's obligations hereunder, and that all
persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. Condemnation Resulting in Termination. If the whole or any
substantial part of the Premises should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking would prevent or materially interfere with the
Permitted Use of the Premises, Tenant shall have the right to terminate this
Lease at its option. If any material portion of the Building or the Common Areas
is taken or condemned for any public use under any Regulation, or by right of
eminent domain, or by private purchase in lieu thereof, and the taking would
prevent or materially interfere with Landlord's ability to operate the Building
or the Common Areas, as reasonably determined by Landlord, Landlord may
terminate this Lease at its option. In either of such events, the Rent shall be
abated during the unexpired portion of this Lease, effective when the physical
taking of said Premises shall have occurred.
B. Condemnation Not Resulting in Termination. If a portion of the
Building of which the Premises are a part should be taken or condemned for any
public use under any Regulation, or by right of eminent domain, or by private
purchase in lieu thereof, and the taking prevents or materially interferes with
the Permitted Use of the Premises, and this Lease is not terminated as provided
in Paragraph 23.A. above, the Rent payable hereunder during the unexpired
portion of the Lease shall be reduced, beginning on the date when the physical
taking shall have occurred, to such amount as may be fair and reasonable under
all of the circumstances. Notwithstanding anything to the contrary contained in
this Paragraph, if the temporary use or occupancy of any part of the Premises
shall be taken or appropriated under power of eminent domain during the Term,
and such taking does not give rise to any termination right pursuant to Section
23.A. above, this Lease shall be and remain unaffected by such taking or
<PAGE>
appropriation and Tenant shall continue to pay in full all Rent payable
hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises after the Term.
C. Award. Landlord shall be entitled to (and Tenant shall assign to
Landlord) any and all payment, income, rent, award or any interest therein
whatsoever which may be paid or made in connection with such taking or
conveyance and Tenant shall have no claim against Landlord or otherwise for any
sums paid by virtue of such proceedings, whether or not attributable to the
value of any unexpired portion of this Lease, except as expressly provided in
this Lease. Notwithstanding the foregoing, any compensation specifically and
separately awarded Tenant for the Tenant Improvements (but only to the extent of
the value of the Tenant Improvements which is attributable to that portion of
the Tenant Improvements, if any, which cost in excess of $42.00 per usable
square foot of the Premises), Tenant's personal property, fixtures and moving
costs, shall be and remain the property of Tenant.
D. Waiver of CCP (S) 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. General. If the Premises or Building should be damaged or
destroyed by fire, tornado, or other casualty (collectively, "Casualty") and
Tenant has determined that Landlord is not otherwise aware of such Casualty,
Tenant shall give immediate written notice thereof to Landlord. Within sixty
(60) days after the earlier of Landlord's receipt of such notice or Landlord's
becoming aware of the Casualty, Landlord shall notify Tenant whether in
Landlord's estimation (as reasonably certified by Landlord's contractor)
restoration of the Premises can reasonably be made within two hundred ten (210)
days from the date of such notice ("Landlord's Damage Notice"). Landlord's
contractor's reasonable determination shall be binding on Tenant.
B. Within 210 Days. If the Premises or Building should be damaged by
Casualty to such extent that restoration can in Landlord's estimation be
reasonably completed within two hundred ten (210) days after the earlier of the
date of such notice or Landlord's becoming aware of the Casualty, such casualty
is Fully Insured and the insurance proceeds are timely received by Landlord,
this Lease shall not terminate. Provided that insurance proceeds are received by
Landlord to fully repair the damage, Landlord shall proceed to rebuild and
repair the Premises (including the Existing Improvements) to its pre-existing
condition in a commercially reasonable and diligent manner, except that Landlord
shall not be required to rebuild, repair or replace any part of the Alterations
which may have been placed on or about the Premises by Tenant. If the Premises
are Untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are Untenantable shall be fully abated
to the extent the Premises are in fact Untenantable. As used herein,
"Untenantable" shall mean that the Premises, Common Areas, or Building's parking
facility are in such condition as would prevent or materially interfere with the
Permitted Use of the Premises or a material portion thereof, including
conditions which materially interfere with Tenant's access or ability to operate
its business in the ordinary course.
C. Greater than 210 Days. If the Premises or Building should be
damaged by Casualty to such extent that rebuilding or repairs cannot in
Landlord's contractor's estimation be reasonably completed within two hundred
ten (210) days after the earlier of the date of such notice or Landlord's
becoming aware of the Casualty, or such casualty is either not Fully Insured or
the insurance proceeds are not timely received by Landlord, then Landlord shall
either: (1) terminate this Lease effective upon the date of the occurrence of
such damage, in which event the Rent shall
<PAGE>
be abated during the unexpired portion of this Lease; or (2) rebuild or repair
the Premises (including the Existing Improvements) diligently and to its pre-
existing condition. Landlord shall notify Tenant of its election within thirty
(30) days after the earlier of Landlord's receipt of notice of the damage or
destruction or Landlord's becoming aware of the Casualty. Landlord may only
elect to terminate this Lease hereunder if Landlord terminates all leases of
similarly damaged space in the Building. Notwithstanding the above, Landlord
shall not be required to rebuild, repair or replace any part of any Alterations
which may have been placed, on or about the Premises by Tenant. If the Premises
are Untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are Untenantable shall be abated
proportionately, but only to the extent the Premises are Untenantable.
D. Tenant's Fault. Notwithstanding anything herein to the contrary,
if the Premises or any other portion of the Building are damaged by Casualty
resulting from the fault, negligence, or breach of this Lease by Tenant or any
of Tenant's Parties, Base Rent and Additional Rent shall not be diminished
during the repair of such damage (except to the extent of rental income
insurance proceeds actually received by Landlord) and Tenant shall be liable to
Landlord for the cost and expense of the repair and restoration of the Building
caused thereby to the extent (i) Landlord has maintained the insurance specified
in Section 8A and the subrogation waiver set forth in Section 9, and (ii) such
cost and expense is not covered by insurance proceeds.
E. Insurance Proceeds. Notwithstanding anything herein to the
contrary, if the Premises or Building are damaged or destroyed and are not Fully
Insured or if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Premises requires that the insurance proceeds be applied to
such indebtedness in accordance with the terms of its mortgage and applicable
California law, then in either case Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after the date of notice to Landlord that said damage or destruction
is not Fully Insured or such requirement is made by any such holder, as the case
may be, whereupon this Lease shall terminate. As used herein, "Fully Insured"
shall mean that the casualty is covered by the insurance proceeds received by
Landlord, with the exception of any deductible pursuant to the applicable
insurance policy, Landlord's administrative costs, and any non-material
exclusions customarily found in the type of All Perils Policy required to be
maintained pursuant to Section 8A.
F. Waiver. This Paragraph 24 shall be Tenant's sole and exclusive
remedy in the event of damage or destruction to the Premises or the Building. As
a material inducement to Landlord entering into this Lease, Tenant hereby waives
any rights it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil
Code of California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
G. Tenant's Personal Property. In the event of any damage or
destruction of the Premises or the Building, except to the extent resulting from
Landlord's negligence or willful misconduct, under no circumstances shall
Landlord be required to repair any injury or damage to, or make any repairs to
or replacements of, Tenant's personal property.
H. Tenant's Termination Right. If Landlord does not elect to
terminate this Lease pursuant to Paragraph 24C above and if the estimated date
by which Landlord's repair obligations are expected to be sufficiently completed
so that Tenant can resume normal business operations in the affected portions of
the Premises (the "Estimated Completion Date") is greater than two hundred ten
(210) days after the date Landlord receives notice of the Casualty, Tenant may
elect, no later than thirty (30) days after Tenant's receipt of Landlord's
Damage Notice, to terminate this Lease by written notice to Landlord effective
as of the date specified in Tenant's notice, which date shall be not greater
than ninety (90) days after the date of delivery of Tenant's
<PAGE>
notice. Furthermore, if neither Landlord nor Tenant have terminated this Lease
and the repairs are not actually completed within two hundred ten (210) days
after the date Landlord receives notice of the Casualty (which two hundred ten
(210) day period shall be extended by Force Majeure Delays, not to exceed 60
days, and by any delays resulting from the acts or omissions of Tenant and/or
its agents, employees or contractors), Tenant shall have the right to terminate
this Lease within five (5) business days after the end of such period and
thereafter during the first five (5) business days after each calendar month
following the end of such period until such time as the repairs are complete, by
notice to Landlord (the "Damage Termination Notice"), effective as of the date
set forth in the Damage Termination Notice (the "Damage Termination Date"),
which Damage Termination Date shall not be less than five (5) business days
following the end of such period or each such month, as the case may be.
Notwithstanding the foregoing, if Tenant delivers a Damage Termination Notice to
Landlord, then Landlord shall have the right to suspend the occurrence of the
Damage Termination Date for a period ending thirty (30) days after the Damage
Termination Date set forth in the Damage Termination Notice by delivering to
Tenant, within five (5) business days of Landlord's receipt of the Damage
Termination Notice, a certificate of Landlord's contractor responsible for the
repair of the damage certifying that it is such contractor's reasonable judgment
that the repairs shall be substantially completed within thirty (30) days after
the Damage Termination Date. If repairs shall be substantially completed prior
to the expiration of such thirty (30) day period, then the Damage Termination
Notice shall be of no force or effect but if the repairs shall not be
substantially completed within such thirty (30) day period, then this Lease
shall terminate upon the expiration of such thirty (30) day period. If Landlord
undertakes repair and/or restoration pursuant to Paragraph 24B and thereafter
determines that it will not be able to complete the same within the two hundred
ten (210) day period set forth herein, then Landlord shall promptly notify
Tenant thereof and shall provide Tenant with Landlord's revised estimate of the
date upon which Landlord will complete the same ("Revised Completion Date").
Within ten (10) business days after Tenant's receipt of such notice, Tenant
shall have the right to elect to terminate this Lease or to agree to extend the
two hundred ten (210) day period to the Revised Completion Date. Tenant's
failure to elect to terminate or to extend such time period to the Revised
Completion Date by written notice to Landlord within such ten (10) business day
period shall be conclusively deemed to be Tenant's election to extend the time
to the Revised Completion Date. Upon any such termination of this Lease pursuant
to this Paragraph 24, Tenant shall pay the monthly Base Rent and Additional
Rent, properly apportioned up to such date of termination, and both parties
hereto shall thereafter be freed and discharged of all further obligations
hereunder, except as provided for in provisions of this Lease which by their
terms survive the expiration or earlier termination of the Term.
I. Last 12 Months of Term. Landlord and Tenant shall each have the
right to terminate this Lease in the event any material damage by Casualty
(i.e., damage that would otherwise give rise to a termination right under this
Article 24) occurs during the last twelve (12) months of the Term.
<PAGE>
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over,
Tenant shall be unlawfully and illegally in possession of the Premises, whether
or not Landlord accepts any rent from Tenant or any other person while Tenant
remains in possession of the Premises without Landlord's written consent after
the Expiration Date or earlier termination of this Lease. If Tenant shall retain
possession of the Premises or any portion thereof without Landlord's consent
following the expiration of this Lease or sooner termination for any reason,
then (i) for the first two (2) months of any such holdover period, Tenant shall
pay to Landlord for each day of such retention Base Rent equal to 150% of the
amount of Base Rent as of the last month prior to the date of expiration or
earlier termination, and (ii) thereafter, Tenant shall pay to Landlord for each
day of such retention Base Rent equal to two hundred percent (200%) of the
amount of Base Rent as of the last month prior to the date of expiration or
earlier termination. Tenant shall also indemnify, defend, protect and hold
Landlord harmless from any loss, liability or cost, including consequential and
incidental damages and reasonable attorneys' fees, incurred by Landlord
resulting from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by the succeeding tenant founded on such delay.
Acceptance of Rent by Landlord following expiration or earlier termination of
this Lease, or following demand by Landlord for possession of the Premises,
shall not constitute a renewal of this Lease, and nothing contained in this
Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, then, upon notice to
Tenant and the expiration of two (2) days following said notice, Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any commercially reasonable time required by Landlord
to complete such obligations shall be considered a period of holding over and
the terms of this Paragraph 25 shall apply to the extent Landlord is delayed in
causing a new tenant to take occupancy of all or a portion of the Premises. The
provisions of this Paragraph 25 shall survive any expiration or earlier
termination of this Lease.
26. DEFAULT
A. Events of Default. The occurrence of any of the following shall
constitute an event of default on the part of Tenant:
(1) Abandonment. Abandonment of the Premises in accordance with
Section 1951.3 of the Civil Code of the State of California.
(2) Nonpayment of Rent. Failure to pay any installment of Rent
or any other amount due and payable hereunder within five (5) business days
following written notice that said amount is due, as to which time is of
the essence (which notice shall be in lieu of, and not in addition to, the
notice requirements of Section 1161 of the California Code of Civil
Procedure or any similar or successor law).
(3) Other Obligations. Failure to perform any obligation,
agreement or covenant under this Lease other than those matters specified
in subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for thirty (30) days after written notice of such failure, as to
which time is of the essence; provided that if the nature of such default
is such that the same cannot reasonably be cured within a thirty (30) day
period, Tenant shall not be deemed to be in default if it diligently
commences such cure within such period and thereafter diligently proceeds
to rectify and cure said default.
(4) General Assignment. A general assignment by Tenant for the
benefit of creditors.
<PAGE>
(5) Bankruptcy. The filing of any voluntary petition in
bankruptcy by Tenant, or the filing of an involuntary petition by Tenant's
creditors, which involuntary petition remains undischarged for a period of
sixty (60) days. If under applicable law, the trustee in bankruptcy or
Tenant has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such time
period as may be permitted by the bankruptcy court having jurisdiction,
cure all defaults of Tenant hereunder outstanding as of the date of the
affirmance of this Lease and provide to Landlord such adequate assurances
as may be necessary to ensure Landlord of the continued performance of
Tenant's obligations under this Lease.
(6) Receivership. The employment of a receiver to take
possession of substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such appointment remains undismissed or undischarged for a
period of sixty (60) days after the order therefor.
(7) Attachment. The attachment, execution or other judicial
seizure of all or substantially all of Tenant's assets or Tenant's
leasehold of the Premises, if such attachment or other seizure remains
undismissed or undischarged for a period of sixty (60) days after the levy
thereof.
(8) Insolvency. The admission signed by Tenant in writing of
its inability to pay its debts as they become due.
B. Remedies Upon Default.
(1) Termination. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination notice
to Tenant, and on the date specified in such notice, Tenant's right to
possession shall terminate, and this Lease shall terminate unless on or
before such date all Rent in arrears and all reimbursable costs and
expenses incurred by or on behalf of Landlord hereunder shall have been
paid by Tenant and all other events of default of this Lease by Tenant at
the time existing shall have been fully remedied to the satisfaction of
Landlord. At any time after such termination, Landlord may recover
possession of the Premises or any part thereof and expel and remove
therefrom Tenant and any other person occupying the same, including any
subtenant or subtenants notwithstanding Landlord's consent to any sublease,
by any lawful means, and again repossess and enjoy the Premises without
prejudice to any of the remedies that Landlord may have under this Lease,
or at law or equity by any reason of Tenant's default or of such
termination. Landlord hereby reserves the right, but shall not have the
obligation, to recognize the continued possession of any subtenant. The
delivery or surrender to Landlord by or on behalf of Tenant of keys, entry
codes, or other means to bypass security at the Premises shall not
terminate this Lease.
(2) Continuation After Default. Even though an event of default
may have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under Paragraph
26.B.(1) hereof, and Landlord may enforce all of Landlord's rights and
remedies under this Lease and at law or in equity, including without
limitation, the right to recover Rent as it becomes due, and Landlord,
without terminating this Lease, may exercise all of the rights and remedies
of a landlord under Section 1951.4 of the Civil Code of the State of
California or any successor code section. Acts of maintenance, preservation
or efforts to lease the Premises or the appointment of a receiver under
application of Landlord to protect Landlord's interest under this Lease or
other entry by Landlord upon the Premises shall not constitute an election
to terminate Tenant's right to possession.
C. Damages After Default. Should Landlord terminate this Lease
pursuant to the provisions of Paragraph 26.B.(1) hereof, Landlord shall have the
rights and remedies of a Landlord provided by Section 1951.2 of the Civil Code
of the State of California, or any successor code sections. Upon such
termination, in addition to any other rights and remedies to which Landlord may
be entitled under applicable law or at equity, Landlord shall be entitled to
recover from Tenant: (1) the worth at the time
<PAGE>
of award of the unpaid Rent and other amounts which had been earned at the time
of termination, (2) the worth at the time of award of the amount by which the
unpaid Rent and other amounts that would have been earned after the date of
termination until the time of award exceeds the amount of such Rent loss that
Tenant proves could have been reasonably avoided; (3) the worth at the time of
award of the amount by which the unpaid Rent and other amounts for the balance
of the Term after the time of award exceeds the amount of such Rent loss that
the Tenant proves could be reasonably avoided; and (4) any other amount and
court costs necessary to compensate Landlord for all detriment proximately
caused by Tenant's failure to perform Tenant's obligations under this Lease or
which, in the ordinary course of things, would be likely to result therefrom.
The "worth at the time of award" as used in (1) and (2) above shall be computed
at the Applicable Interest Rate (defined below). The "worth at the time of
award" as used in (3) above shall be computed by discounting such amount at the
Federal Discount Rate of the Federal Reserve Bank of San Francisco at the time
of award plus one percent (1%).
D. Late Charge. In addition to its other remedies, Landlord shall
have the right without notice to add to the amount of any payment required to be
made by Tenant hereunder, and which is not paid and received by Landlord within
five (5) business days following the date that said amount is due, an amount
equal to ten percent (10%) of the delinquency for each month or portion thereof
that the delinquency remains outstanding to compensate Landlord for the loss of
the use of the amount not paid and the administrative costs caused by the
delinquency, the parties agreeing that Landlord's damage by virtue of such
delinquencies would be extremely difficult and impracticable to compute and the
amount stated herein represents a reasonable estimate thereof. Any waiver by
Landlord of any late charges or failure to claim the same shall not constitute a
waiver of other late charges or any other remedies available to Landlord.
E. Interest. Interest shall accrue on all sums not paid when due
hereunder at the lesser of the "prime rate" charged by Wells Fargo Bank, N.A.
(San Francisco) or its successor plus 2% per annum or the maximum interest rate
allowed by law ("Applicable Interest Rate") from the due date until paid.
F. Landlord's Default. Landlord shall not be in default under this
Lease unless Landlord fails to perform obligations required of Landlord within
thirty (30) days after written notice is delivered by Tenant to Landlord and to
the holder of any mortgages or deeds of trust (collectively, "Lender") covering
the Premises whose name and address shall have theretofore been furnished to
Tenant in writing, specifying the obligation which Landlord has failed to
perform; provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then Landlord
shall not be in default if Landlord or Lender commences performance within such
thirty (30) day period and thereafter diligently prosecutes the same to
completion within 60 days of such default.
G. Remedies Cumulative. All rights, privileges and elections or
remedies of the parties are cumulative and not alternative, to the extent
permitted by law and except as otherwise provided herein.
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27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) business days following receipt
of notice of the imposition of any such lien, cause the same to be released of
record by payment or posting of a proper bond, Landlord shall have, in addition
to all other remedies provided herein and by law, the right, but not the
obligation, to cause the same to be released by such means as Landlord shall
deem proper, including payment of the claim giving rise to such lien. All sums
paid by Landlord on behalf of Tenant and all expenses incurred by Landlord in
connection therefor shall be payable to Landlord by Tenant on demand with
interest at the Applicable Interest Rate as Additional Rent. Landlord shall have
the right at all times to post and keep posted on the Premises any notices
permitted or required by law, or which Landlord shall deem proper, for the
protection of Landlord, the Premises, the Project and any other party having an
interest therein, from mechanics' and materialmen's liens, and Tenant shall give
Landlord not less than ten (10) business days prior written notice of the
commencement of any work in the Premises or Project which could lawfully give
rise to a claim for mechanics' or materialmen's liens to permit Landlord to post
and record a timely notice of non-responsibility, as Landlord may elect to
proceed or as the law may from time to time provide, for which purpose, if
Landlord shall so determine, Landlord may enter the Premises in accordance with
the provisions of this Lease. Tenant shall not remove any such notice posted by
Landlord without Landlord's consent, and in any event not before completion of
the work which could lawfully give rise to a claim for mechanics' or
materialmen's liens.
28. INTENTIONALLY OMITTED.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord and provided said transferee (other than
a creditor of Landlord) assumes Landlord's obligations under this Lease, the
same shall operate to release Landlord from any liability upon any of the
covenants or conditions, express or implied, herein contained in favor of
Tenant, to the extent required to be performed after the passing of title to
Landlord's successor-in-interest. In such event, Tenant agrees to look solely to
the responsibility of the successor-in-interest of Landlord under this Lease
with respect to the performance of the covenants and duties of "Landlord" to be
performed after the passing of title to Landlord's successor-in-interest. This
Lease shall not be affected by any such sale and Tenant agrees to attorn to the
purchaser or assignee. Landlord's successor(s)-in-interest shall not have
liability to Tenant with respect to the failure to perform any of the
obligations of "Landlord," to the extent required to be performed prior to the
date such successor(s)-in-interest became the owner of the Building (which
obligations shall continue to be the obligations of Landlord).
<PAGE>
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of Rent, except as otherwise provided herein.
If Tenant shall fail to pay any sum of money, other than Base Rent, required to
be paid by Tenant hereunder or shall fail to perform any other act on Tenant's
part to be performed hereunder, including Tenant's obligations under Paragraph
11 hereof, and such failure shall continue for thirty (30) days after written
notice thereof by Landlord, in addition to the other rights and remedies of
Landlord, Landlord may make any such payment and perform any such act on
Tenant's part. In the case of an emergency, no prior notification by Landlord
shall be required. Landlord may take such actions without any obligation and
without releasing Tenant from any of Tenant's obligations. All sums so paid by
Landlord and all incidental costs incurred by Landlord and interest thereon at
the Applicable Interest Rate, from the date of payment by Landlord, shall be
paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant
or condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Payment by Tenant of any amount
due and owing hereunder shall not constitute a waiver of any preceding breach by
Landlord of any term, covenant or condition of this Lease. Failure by Landlord
or Tenant to enforce any of the terms, covenants or conditions of this Lease for
any length of time shall not be deemed to waive or decrease the right of
Landlord or Tenant, as applicable, to insist thereafter upon strict performance
by the other party. Waiver by Landlord or Tenant of any term, covenant or
condition contained in this Lease may only be made by a written document signed
by Landlord or Tenant, as applicable.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws,
ordinances, regulations and other requirements with reference to sending,
mailing, or delivery of any notice or the making of any payment by Landlord or
Tenant to the other shall be deemed to be complied with when and if the
following steps are taken:
A. Rent. All Rent and other payments required to be made by Tenant
to Landlord hereunder shall be payable to Landlord at Landlord's Remittance
Address set forth in the Basic Lease Information, or at such other address as
Landlord may specify from time to time by 30 days written notice delivered in
accordance herewith. Tenant's obligation to pay Rent and any other amounts to
Landlord under the terms of this Lease shall not be deemed satisfied until such
Rent and other amounts have been actually received by Landlord.
B. Other. All notices, demands, consents and approvals which may or
are required to be given by either party to the other hereunder shall be in
writing and either personally delivered, sent by commercial overnight courier,
mailed, certified or registered, postage prepaid or sent by facsimile with
confirmed receipt (and with an original sent by commercial overnight courier),
and in each case addressed to the party to be notified at the Notice Address for
such party as specified in the Basic Lease Information or to such other place as
the party to be notified may from time to time designate by at least fifteen
(15) days notice to the notifying party (provided that a copy of any notice to
be sent to Tenant hereunder shall also be sent to Tenant's counsel, Donald I.
Berger, Esq., at Morrison & Foerster, 555 West Fifth Street, Los Angeles,
<PAGE>
California 90013, Fax No. (213) 892-5454). Notices shall be deemed served upon
receipt or refusal to accept delivery.
C. Required Notices. Tenant shall immediately notify Landlord in
writing of any notice of a violation or of any Regulation that relates to the
Premises or the Project, or to the extent Tenant has received notice thereof, of
any inquiry, investigation, enforcement or other action that is instituted or
threatened by any governmental or regulatory agency against Tenant or any other
occupant of the Premises, or any claim that is instituted or threatened by any
third party that relates to the Premises or the Project.
33. ATTORNEYS' FEES
In any action which Landlord or Tenant brings to enforce its respective
rights hereunder, the unsuccessful party shall pay all costs incurred by the
prevailing party including reasonable attorneys' fees, to be fixed by the court,
and said costs and attorneys' fees shall be a part of the judgment in said
action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
If performance by a party of any portion of this Lease is made impossible
by any prevention, delay, or stoppage caused by strikes, lockouts, labor
disputes, acts of God, inability to obtain services, labor, or materials or
reasonable substitutes for those items, government actions (or governmental
delays, provided that Tenant has the burden of proving the existence of a
governmental delay), civil commotions, fire or other casualty, or other causes
beyond the reasonable control of the party obligated to perform, performance by
that party for a period equal to the period of that prevention, delay, or
stoppage (a "Force Majeure Delay") is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
<PAGE>
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease,
surrender the Premises to Landlord in the same condition as existed on the date
Tenant originally took possession thereof, reasonable wear and tear, damage and
destruction which is not Tenant's obligation to repair, and approved Alterations
which Landlord has not required Tenant to remove excepted. Tenant shall remove
all of its debris from the Project. At or before the time of surrender, Tenant
shall comply with the terms of Paragraph 12.A. hereof with respect to
Alterations to the Premises and all other matters addressed in such Paragraph.
If the Premises are not so surrendered at the expiration or sooner termination
of this Lease, the provisions of Paragraph 25 hereof shall apply. All keys to
the Premises or any part thereof in Tenant's possession shall be surrendered to
Landlord upon expiration or sooner termination of the Term. Tenant shall give
written notice to Landlord at least thirty (30) days prior to vacating the
Premises and shall meet with Landlord for a joint inspection of the Premises at
the time of vacating, but nothing contained herein shall be construed as an
extension of the Term or as a consent by Landlord to any holding over by Tenant.
In the event of Tenant's failure to give such notice and Tenant's failure to
participate in such joint inspection (after Landlord's written request to Tenant
to meet Landlord for a joint inspection), Landlord's inspection at or after
Tenant's vacating the Premises shall conclusively be deemed correct for purposes
of determining Tenant's responsibility for repairs and restoration.
Notwithstanding anything to the contrary contained herein, (i) but subject to
the terms of Paragraph 15E above, upon the expiration of the Term of this Lease,
or upon any earlier termination of this Lease, Tenant may, at its expense,
remove or cause to be removed from the Premises any security system installed by
Tenant in the Premises provided that Tenant shall repair all damage resulting
from such removal, and (ii) if the Tenant Improvements or any Alterations
include the installation of an interior stairwell between the first and second
floors of the Premises, Tenant shall be responsible for removing said stairwell,
at Tenant's cost, upon the expiration or earlier termination of this Lease and
repairing any damage caused by such removal.
37. PARKING
Tenant and Tenant's Parties shall have the right to lease up to twenty-
seven (27) unreserved parking permits in the parking facility serving the
Building. Tenant shall furthermore have the right, and the obligation, to lease
(at the then prevailing parking rates for the applicable parking permits) (i)
twenty-seven (27) reserved parking permits, and (ii) thirty-six (36) tandem
permits. The location of Tenant's reserved and tandem parking spaces shall be
identified on Exhibit "E" attached hereto. Each parking permit shall entitle
Tenant to park one (1) automobile in the Building's parking facility, subject to
the remaining provisions of this Article 37.
Tenant may request additional parking spaces from time to time (in
accordance with the terms set forth in the Basic Lease Information) and if
Landlord in its sole discretion (but on a non-discriminatory basis) agrees to
make such additional spaces available for use by Tenant, such spaces shall be
provided on a month-to-month unreserved and nonexclusive basis, and subject to
such parking charges as Landlord shall determine, and shall otherwise be subject
to such terms and conditions as Landlord may reasonably require.
Tenant shall at all times comply and shall cause all Tenant's Parties and
visitors to comply with all Regulations and any reasonable, non-discriminatory
rules and regulations established from time to time by Landlord relating to
parking at the Project, including any keycard, sticker or other identification
or entrance system, as applicable.
Except to the extent resulting from Landlord's negligence or willful
misconduct, and subject to the terms of Articles 8 and 9 above, Landlord shall
have no liability for any damage to property or other items located in the
parking areas of the Project, nor for any personal injuries or death arising out
of the use of parking areas in the Project by Tenant or any Tenant's Parties.
Without limiting the foregoing, except to the extent
<PAGE>
resulting from Landlord's negligence or willful misconduct, and subject to the
terms of Articles 8 and 9 above, if Landlord arranges for the parking areas to
be operated by an independent contractor not affiliated with Landlord, Tenant
acknowledges that Landlord shall have no liability for claims arising through
acts or omissions of such independent contractor. Except as otherwise provided
herein, in all events which are covered by insurance which Tenant is required to
obtain pursuant to this Lease, Tenant agrees to look first to its insurance
carrier for any insurable losses sustained in connection with any use of the
parking areas; provided, however, that the foregoing shall not effect Tenant's
rights to seek to recover any deductible amounts or any uninsured costs
incurred.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to park
in any such assigned or reserved spaces. Tenant may validate visitor parking by
such non-discriminatory method as Landlord may approve, at the validation rate
from time to time generally applicable to visitor parking, provided that
Landlord agrees that the visitor parking rates being charged by Landlord shall
be reasonably comparable to the visitor parking rate being charged at other
first-class office buildings in the Santa Monica Special Office District.
Landlord also reserves the right to temporarily alter, modify, relocate or close
all or any portion of the parking areas in order to make repairs or perform
maintenance service, or to restripe or renovate the parking areas, or if
required by casualty, condemnation, act of God, Regulations or for any other
reason deemed reasonable by Landlord, provided that if any such work restricts
Tenant from parking the number of automobiles to which it is entitled to park in
the parking structure and/or lot serving the Building, Landlord shall use its
commercially reasonable efforts to provide Tenant with alternate parking within
the Building's parking facility and shall in any event provide Tenant with
alternate parking within a reasonable proximity to the Premises.
Tenant shall pay to Landlord (or Landlord's parking contractor, if so
directed in writing by Landlord), as Additional Rent hereunder, the monthly
charges established from time to time by Landlord for parking in the parking
areas in which Tenant has been granted parking rights (which shall initially be
the charge specified in the Base Lease Information, as applicable). Such parking
charges shall be payable in advance with Tenant's payment of Base Rent. No
deductions from the monthly parking charge shall be made for days on which the
Tenant does not use any of the parking spaces entitled to be used by Tenant.
38. MISCELLANEOUS
A. General. The term "Tenant" or any pronoun used in place thereof
shall indicate and include the masculine or feminine, the singular or plural
number, individuals, firms or corporations, and their respective successors,
executors, administrators and permitted assigns, according to the context
hereof.
B. Time. Time is of the essence regarding this Lease and all of its
provisions.
C. Choice of Law. This Lease shall in all respects be governed by
the laws of the State of California.
D. Entire Agreement. This Lease, together with its Exhibits, addenda
and attachments and the Basic Lease Information, contains all the agreements of
the parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. Modification. This Lease may not be modified except by a written
instrument signed by the parties hereto. Tenant and Landlord accept the area of
the Premises as specified in the Basic Lease Information as the approximate area
of the
<PAGE>
Premises for all purposes under this Lease, and acknowledge and agree that no
other definition of the area (rentable, usable or otherwise) of the Premises
shall apply. Neither Landlord nor Tenant shall be entitled to a recalculation of
the square footage of the Premises, rentable, usable or otherwise, and no
recalculation, if made, irrespective of its purpose, shall modify Tenant's or
Landlord's obligations under this Lease in any manner, including without
limitation the amount of Base Rent payable by Tenant or Tenant's Proportionate
Share of the Building and of the Project.
F. Severability. If, for any reason whatsoever, any of the
provisions hereof shall be unenforceable or ineffective, all of the other
provisions shall be and remain in full force and effect.
G. Recordation. Tenant shall not record this Lease or a short form
memorandum hereof.
H. Examination of Lease. Submission of this Lease to Tenant does not
constitute an option or offer to lease and this Lease is not effective otherwise
until execution and delivery by both Landlord and Tenant.
I. Accord and Satisfaction. No payment by Tenant of a lesser amount
than the total Rent due nor any endorsement on any check or letter accompanying
any check or payment of Rent shall be deemed an accord and satisfaction of full
payment of Rent, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of such Rent or to pursue other
remedies. All offers by or on behalf of Tenant of accord and satisfaction are
hereby rejected in advance.
J. Easements. Landlord may grant easements on the Project and
dedicate for public use portions of the Project without Tenant's consent;
provided that no such grant or dedication shall materially interfere with
Tenant's Permitted Use of the Premises. Upon Landlord's request, Tenant shall
execute, acknowledge and deliver to Landlord documents, instruments, maps and
plats necessary to effectuate Tenant's covenants hereunder.
K. Drafting and Determination Presumption. The parties acknowledge
that this Lease has been agreed to by both the parties, that both Landlord and
Tenant have consulted with attorneys with respect to the terms of this Lease and
that no presumption shall be created against Landlord because Landlord drafted
this Lease. Except as otherwise specifically set forth in this Lease, with
respect to any consent, determination or estimation of Landlord required or
allowed in this Lease or requested of Landlord, Landlord's consent,
determination or estimation shall be given or made solely by Landlord in
Landlord's good faith opinion, whether or not objectively reasonable. If
Landlord fails to respond to any request for its consent within the time period,
if any, specified in this Lease, Landlord shall be deemed to have disapproved
such request.
L. Exhibits. The Basic Lease Information, and the Exhibits, addenda
and attachments attached hereto are hereby incorporated herein by this reference
and made a part of this Lease as though fully set forth herein.
M. No Light, Air or View Easement. Any diminution or shutting off of
light, air or view by any structure which may be erected on lands adjacent to or
in the vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. No Third Party Benefit. This Lease is a contract between Landlord
and Tenant and nothing herein is intended to create any third party benefit.
O. Quiet Enjoyment. Upon payment by Tenant of the Rent, and upon the
observance and performance of all of the other covenants, terms and conditions
on Tenant's part to be observed and performed, Tenant shall peaceably and
<PAGE>
quietly hold and enjoy the Premises for the term hereby demised without
hindrance or interruption by Landlord or any other person or persons lawfully or
equitably claiming by, through or under Landlord, subject, nevertheless, to all
of the other terms and conditions of this Lease. Landlord shall not be liable
for any hindrance, interruption, interference or disturbance by other tenants or
third persons to the extent Landlord uses its commercially reasonable efforts to
enforce any contractual restrictions governing such conduct, nor, if Landlord
has undertaken such commercially reasonable efforts, shall Tenant be released
from any obligations under this Lease because of such hindrance, interruption,
interference or disturbance, except as otherwise provided herein.
P. Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be deemed an original.
Q. Multiple Parties. If more than one person or entity is named
herein as Tenant, such multiple parties shall have joint and several
responsibility to comply with the terms of this Lease.
R. Prorations. Any Rent or other amounts payable to Landlord by
Tenant hereunder for any fractional month shall be prorated based on the actual
number of days in such month. As used herein, the term "fiscal year" shall mean
the calendar year or such other fiscal year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. Early Entry into Premises. Tenant may enter into the Premises
prior to the Term Commencement date, solely for the purpose of installing
furniture, trade fixtures, telephones and computer equipment. Such early entry
will not advance the Term Commencement Date so long as Tenant does not commence
business operations from any part of the Premises. All of the provisions of this
Lease shall apply to Tenant during any early entry, including the indemnity in
Section 8.C. but excluding the obligation to pay Rent unless and until Tenant
has commenced business operations in the Premises, whereupon Rent shall commence
in accordance with Section 2A above. Tenant shall not be obligated to pay any
charges for electricity, HVAC, water, elevators, parking or access to loading
docks during such early entry period. Landlord may revoke its permission for
Tenant's early entry if Tenant's activities or workers interfere with the
completion of the Tenant Improvements, provided that (i) Landlord and Tenant
agree to use their commercially reasonable efforts to coordinate their
respective schedules and improvement work to enable Tenant's early entry work to
be performed concurrently with the completion of the Tenant Improvements, and
(ii) Tenant acknowledges that in the event of a conflict between Landlord's and
Tenant's respective schedules or any interference by Tenant with the performance
of the Tenant Improvements, the completion of the Tenant Improvements shall have
first priority and accordingly Tenant will accommodate Landlord's scheduling
requests and not interfere with the performance of the Tenant Improvements. If
Tenant is granted early entry, Landlord shall not be responsible for any loss,
including theft, damage or destruction to any work or material installed or
stored by Tenant at the Premises or for any injury to Tenant or Tenant's
Parties. Landlord shall have the right to post appropriate notices of non-
responsibility and to require Tenant to provide Landlord with evidence that
Tenant has fulfilled its obligation to provide insurance pursuant to this Lease.
B. Option to Renew. Tenant shall, provided this Lease is in full
force and effect and Tenant is not and has not been in default on more than
three (3) occasions under any of the terms and conditions of this Lease, beyond
all applicable notice and cure periods, have one (1) option to renew this Lease
for a term of five (5) years (the "Option Term") for the entire Premises on the
same terms and conditions set forth in this Lease, except as modified by the
terms, covenants and conditions set forth below:
(1) If Tenant elects to exercise such option, then Tenant
shall provide Landlord with written notice no earlier than the
date
<PAGE>
which is twelve (12) months prior to the expiration of the then
current term of this Lease, but no later than 5:00 p.m. (Pacific
Standard Time) on the date which is nine (9) months prior to the
expiration of the then current term of this Lease. If Tenant fails
to timely provide such notice, Tenant shall have no further or
additional right to extend or renew the term of this Lease.
(2) The rent payable by Tenant during the Option Term (the
"Option Rent") shall be equal to (i) one hundred percent (100%) of
the "face" or "stated" rental rate (including any escalation
thereof if escalations are contained in such "Comparable Deals,"
as that term is defined below), at which tenants, as of the
commencement of the Option Term, are leasing non-sublease, non-
encumbered, non-equity, non-expansion and non-renewal space
comparable in size, location and quality to the Premises for a
term of five (5) years, which comparable space is located in
comparable office buildings in Santa Monica, California (the
"Comparable Projects"), comparable in age, location, services and
amenities (the "Comparable Deals"); and shall take into account
(ii) one hundred percent (100%) of the following concessions,
which shall be granted by Landlord to Tenant to the extent granted
in Comparable Deals (collectively, the "Option Concessions"): (a)
any operating expense and tax protection granted in such
Comparable Deals (e.g., "base year" or "expense stop" protection),
(b) rental abatement concessions, if any, being given such tenants
in connection with such Comparable Deals, (c) tenant improvements
or allowances provided or to be provided for such Comparable
Deals, and (d) all other monetary concessions, if any, being
granted such tenants in connection with such comparable space;
provided, however, that (A) in determining any tenant improvements
or allowances provided in Comparable Deals, Landlord and Tenant
shall also take into account and credit Landlord for the value to
a general office user of the existing improvements in the
Premises, and (B) notwithstanding anything to the contrary
contained herein, no consideration shall be given to the fact that
Landlord is or is not required to pay a real estate brokerage
commission in connection with Tenant's exercise of its right to
lease the Premises during the Option Term.
(3) Landlord shall advise Tenant of the new Base Rent for
the Premises for the renewal term based on Landlord's
determination of fair market rental value, as well as the terms
and conditions for the renewal term, no later than fifteen (15)
days after receipt of notice of Tenant's exercise of its option to
renew.
(4) Landlord and Tenant shall negotiate in good faith to
agree on the fair market rental value of the Premises and terms
and conditions for the renewal term. If Tenant and Landlord are
unable to agree on a mutually acceptable rental rate for the
renewal term within thirty (30) days after notification by
Landlord to Tenant of Landlord's determination of the new Base
Rent for the renewal term, but in any event no later than the date
which is ninety (90) days prior to the expiration of the then
current term, then on or before such date Landlord and Tenant
shall each appoint a licensed real estate broker with at least ten
(10) year's experience in leasing office space in the area in
which the Building is located to act as arbitrators. The two (2)
arbitrators so appointed shall determine the fair market rental
value for the Premises for the applicable renewal term based on
the above criteria and each shall submit his or her determination
of such fair market rental value to
<PAGE>
Landlord and Tenant in writing, within sixty (60) days after their
appointment.
If the two (2) arbitrators so appointed cannot agree on
the fair market rental value for the renewal term within such 60-
day period, the two (2) arbitrators shall within five (5) days
thereafter appoint a third arbitrator who shall be a licensed real
estate broker with at least ten (10) year's experience in leasing
office space in the area in which the Building is located. The
third arbitrator so appointed shall independently determine the
fair market rental value for the Premises for the renewal term
within thirty (30) days after appointment, by selecting from the
proposals submitted by each of the first two arbitrators the one
that most closely approximates the third arbitrator's
determination of such fair market rental value. The third
arbitrator shall have no right to adopt a compromise or middle
ground or any modification of either of the proposals submitted by
the first two arbitrators. The proposal chosen by the third
arbitrator as most closely approximating the third arbitrator's
determination of the fair market rental value shall constitute the
decision and award of the arbitrators and shall be final and
binding on the parties.
Each party shall pay the fees and expenses of the
arbitrator appointed by such party and one-half (1/2) of the fees
and expenses of the third arbitrator.
If either party fails to appoint an arbitrator, or if
either of the first two arbitrators fails to submit his or her
proposal of fair market rental value to the other party, in each
case within the time periods set forth above, then the decision of
the other party's arbitrator shall be considered final and
binding.
In the event the third arbitrator fails to present a
fair market rental value within such 30-day period, then by mutual
consent of the Landlord and Tenant :
(a) the time period will be extended, or
(b) If either Landlord or Tenant do not wish to extend the time
period, a fourth arbitrator shall be selected by the first
two arbitrators and a new thirty (30) day period shall
begin.
(5) Tenant's right to exercise the option to renew under
this Paragraph 39B shall be conditioned upon Tenant directly
occupying no less than 80% of the entire Premises at the time of
exercise of the option and commencement of the renewal term.
(6) Any exercise by Tenant of the option to renew under
this Paragraph 39B shall be irrevocable. If requested by Landlord,
Tenant agrees to execute a lease amendment reflecting the
foregoing terms and conditions, prior to the commencement of the
renewal term. The option to renew granted under this Paragraph 39B
is not transferable; the parties hereto acknowledge and agree that
they intend that the option to renew this Lease under this
Paragraph shall be "personal" to the specific Tenant named in this
Lease (the "Original Tenant"), any Affiliate and any permitted
assignee which has been approved by Landlord pursuant to the terms
of this Lease and that in no event will any other assignee or
sublessee have any rights to exercise such option to renew.
<PAGE>
All references in this Paragraph 39B to the "Premises" shall mean and refer
to the entire Premises.
C. Tenant's Signage. Subject to the approval of all necessary
governmental or regulatory agencies with jurisdiction over the Building and
provided Tenant is not in default under this Lease beyond applicable notice and
cure provisions, Original Tenant and any Affiliate of Tenant (and not any other
assignee, sublessee or other transferee of the Original Tenant's interest in
this Lease) shall have the non-exclusive right, at its expense, to install its
name on the second line on the "2120 Building" side of the monument sign which
Landlord will install, at its cost and expense, in a location adjacent to the
Colorado Avenue entrance to the Building; providing, however, that such
identification signage shall comply with the signage criteria set forth in
Exhibit "G" attached hereto. The exact location of such monument sign shall be
selected by Landlord, in its sole discretion. Without limiting the generality of
the foregoing, Tenant shall be responsible, at it expense, only for the costs
associated with the acquisition, design, fabrication, installation, maintenance
and removal of Tenant's specific sign located on such monument sign. Landlord
shall not charge Tenant any rent or other charges for Tenant's monument signage
rights set forth in this paragraph. Notwithstanding the foregoing, a permitted
subtenant of the Premises or assignee of Tenant shall have the right to use
Tenant's monument signage to the extent Landlord, in its reasonable discretion,
determines that (i) the character, image and reputation of said subtenant or
assignee is consistent with the character, image and reputation of the other
tenants in the Project, and (ii) allowing said subtenant or assignee to use
Tenant's monument signage will not impair or injure the reputation or image of
the Project.
D. Letter of Credit. Notwithstanding anything to the contrary
contained in Article 19 above, concurrently with the execution of this Lease by
Tenant, Tenant shall have the right to deliver its security deposit to Landlord
in the form of an irrevocable standby letter of credit in favor of Landlord (the
"Letter of Credit"). The Letter of Credit may be drawn against by Landlord after
any default by Tenant under this Lease (after the expiration of any applicable
notice and cure period) and the Letter of Credit shall be reduced in the same
amounts and on the same dates as the security deposit is reduced pursuant to
Article 19 above (and subject to the same conditions to reduction set forth
therein) (which reduction shall be effectuated by the issuance to Landlord of a
new Letter of Credit in such reduced amount, but otherwise in compliance with
the terms of this Paragraph 39D). Tenant shall retain from time to time the
right to cancel the Letter of Credit at any time provided Tenant concurrently
replaces such Letter of Credit being canceled with cash in an amount equal to
the then outstanding amount of the Letter of Credit which was canceled. The
Letter of Credit, if any, shall be (i) from a bank reasonably acceptable to
Landlord, (ii) in the form and content of that attached hereto as Exhibit "F,"
and (iii) subject to the conditions stated in this paragraph. The Letter of
Credit shall have a term of at least 12 months and be automatically renewed (or
a reasonably satisfactory replacement Letter of Credit from a bank reasonably
acceptable to Landlord shall be in place in strict accordance with the terms
hereof) at least thirty (30) days prior to expiration of each 12 month period
for additional periods of 12 months each until the 30th day following the
expiration of the Term (or until all restoration work required in connection
with the removal of any interior stairwell installed by Tenant between the first
and second floors of the Premises is completed). The Letter of Credit shall be
held by Landlord as additional security for the full and faithful performance by
Tenant of the terms, covenants and conditions of this Lease during the Term.
If Tenant breaches any of the terms or conditions of this Lease, beyond the
expiration of all applicable notice and cure periods, or if Tenant has filed a
voluntary petition under the United States Bankruptcy Code, or Tenant's
creditors have filed an involuntary petition under the United States Bankruptcy
Code, then Landlord may draw upon all or a portion of the Letter of Credit for
the payment of the required amount of any sum in default, and for the payment of
any amount that Landlord may spend or may become obligated to spend by reason of
Tenant's default, and to compensate
<PAGE>
Landlord for any other loss or damage that Landlord suffers by reason of
Tenant's default to the extent Landlord is entitled to compensation therefor
pursuant to the terms of this Lease (any amount of the Letter of Credit which is
drawn upon by Landlord in accordance with the provisions hereof, but is not used
or applied in accordance with the terms of this Lease, shall be deemed a part of
the Security Deposit). The use, application or retention of the Letter(s) of
Credit, or any portion thereof, shall not prevent Landlord from exercising any
other rights or remedies provided under this Lease, it being intended that
Landlord shall not be required to proceed against the Security Deposit and/or
the Letter of Credit, and shall not operate as a limitation on any recovery to
which Landlord may otherwise be entitled.
E. Balconies. Tenant acknowledges and agrees that (i) Tenant has
access to certain balconies located outside of the Premises which are designed
to house potted plants (the "Plant Balconies"); (ii) Tenant is responsible for
supervising and controlling access to the Plant Balconies by Tenant's employees,
officers, directors, shareholders, agents, representatives, contractors and/or
invitees; (iii) Landlord is not responsible for supervising and controlling
access to the Plant Balconies; and (iv) Tenant assumes the risk for any loss,
claim, damages or liability arising out of the use or misuse of the Plant
Balconies by Tenant's employees, officers, directors, shareholders, agents,
representatives, contractors and/or invitees, and Tenant releases and discharges
Landlord from and against any such loss, claim, damage or liability. Tenant
further agrees to indemnify, defend and hold Landlord harmless from and against
any and all losses and claims relating to or arising out of the use or misuse of
the Plant Balconies by Tenant or Tenant's employees, officers, officers,
shareholders, directors, agents, representatives, contractors and/or invitees.
Notwithstanding the foregoing, Tenant furthermore agrees (A) not to store or
place any personal property or other items upon said Plant Balconies, (B) to use
and keep the appearance of the Plant Balconies in a manner consistent with a
first-class office building, and (C) not to use the Plant Balconies as an area
for people to congregate or as a smoking area or for other similar purposes.
40. STANDARD FOR CONDUCT AND CONSENT
Notwithstanding anything to the contrary contained in the Lease, except to
the extent this Lease provides that Landlord's or Tenant's approval or consent
may be given or withheld in such party's "sole" or "absolute" discretion, any
time the consent of Landlord or Tenant is required, such consent shall not be
unreasonably withheld, conditioned or delayed. Except as otherwise provided in
this Lease, whenever this Lease grants Landlord or Tenant the right to take
action, exercise discretion, establish rules and regulations or make allocations
or other determinations, Landlord and Tenant shall act reasonably and in good
faith.
<PAGE>
41. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 41. THE
PROVISIONS OF THIS PARAGRAPH 41 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Jeffrey K. Nickell
-------------------------
Name: Jeffrey K. Nickell
Title: Vice President
Date: 8/4/99
-----------------------
TENANT
Broadband Sports, Inc.
a Delaware corporation
By: /s/ Tyler Goldman
------------------------------
Its: President
--------------------------
By: /s/ Greg S. Hebner
------------------------------
Its: Chief Financial Officer
--------------------------
Date: 8/3/99
----------------------------
<PAGE>
EXHIBIT A
RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators, escalators
and stairways shall not be obstructed by tenants or used by tenants for any
purpose other than for ingress to and egress from their respective premises. The
halls, passages, exits, entrances, elevators and stairways are not for the use
of the general public and Landlord shall in all cases retain the right to
control and prevent access thereto by all persons whose presence, in the
reasonable judgment of Landlord, shall be prejudicial to the safety, character,
reputation and interests of the Building, the Project and its tenants, provided
that nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of such
tenant's business unless such persons are engaged in illegal activities. No
tenant, and no employees or invitees of any tenant, shall go upon the roof of
any Building, except as authorized by Landlord. No tenant, and no employees or
invitees of any tenant shall move any common area furniture without Landlord's
consent.
2. Except as otherwise set forth in this Lease, no sign,
placard, banner, picture, name, advertisement or notice, visible from the
exterior of the Premises or the Building or the common areas of the Building
shall be inscribed, painted, affixed, installed or otherwise displayed by Tenant
either on its Premises or any part of the Building or Project without the prior
written consent of Landlord in Landlord's sole and absolute discretion. Landlord
shall have the right to remove any such sign, placard, banner, picture, name,
advertisement, or notice without notice to and at the expense of the Tenant,
which were installed or displayed in violation of this rule. If Landlord shall
have given such consent to Tenant at anytime, whether before or after the
execution of Tenant's Lease, such consent shall in no way operate as a waiver or
release of any of the provisions hereof or of the Lease, and shall be deemed to
relate only to the particular sign, placard, banner, picture, name,
advertisement or notice so consented to by Landlord and shall not be construed
as dispensing with the necessity of obtaining the specific written consent of
Landlord with respect to any other such sign, placard, banner, picture, name,
advertisement or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or vendor
reasonably approved by Landlord and shall be removed by Tenant at the time of
vacancy at Tenant's expense.
3. The directory of the Building will be provided exclusively
for the display of the name and location of tenants only (and approved assignees
or subtenants) and Landlord reserves the right to charge a reasonable fee for
the installation thereof.
4. No curtains, draperies, blinds, shutters, shades, screens or
other coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written reasonable consent of Landlord. In any event with the
prior written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices or
spaces along the perimeter of the Building must be fluorescent or of a quality,
type, design, and bulb color reasonably approved by Landlord. No articles shall
be placed or kept on the window sills so as to be visible from the exterior of
the Building. No articles shall be placed against glass partitions or doors
which Landlord considers unsightly from outside Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and
the Project, between the hours of 6 p.m. and 7 a.m. and at all hours on
Saturdays, Sundays and legal holidays, all persons who are not tenants or their
guests in the Building. Each tenant shall be responsible for all persons for
whom it allows to enter the Building or the Project and shall be liable to
Landlord for all acts of such persons, except as otherwise provided in this
Lease.
<PAGE>
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project of
any person, except to the extent resulting from Landlord's negligence or willful
misconduct.
During the continuance of any invasion, mob, riot, public excitement
or other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access to
the Building and the Project during the continuance of that event by any means
it considers appropriate for the safety of tenants and protection of the
Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and
the Premises shall be provided exclusively through Landlord. Except with the
written consent of Landlord, no person or persons other than those reasonably
approved by Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by reason of
Tenant's carelessness or indifference in the preservation of good order and
cleanliness of its Premises. Landlord shall in no way be responsible to Tenant
for any loss of property on the Premises, however occurring, or for any damage
done to Tenant's property by the janitor or any other employee or any other
person, except to the extent resulting from Landlord's negligence or willful
misconduct.
7. Tenant shall use commercially reasonable efforts to see that
all doors of its Premises are closed and securely locked and to observe strict
care and caution that all water faucets or water apparatus, coffee pots or other
heat-generating devices are entirely shut off before Tenant or its employees
leave the Premises, and that all utilities shall likewise be carefully shut off,
so as to prevent waste or damage. Tenant shall be responsible for any damage or
injuries sustained by other tenants or occupants of the Building or Project or
by Landlord for noncompliance with this rule. On multiple-tenancy floors, all
tenants shall keep the door or doors to the Building corridors closed at all
times except for ingress and egress.
8. Except as provided in this Lease, Tenant shall not use any
method of heating or air-conditioning other than that supplied by Landlord. As
more specifically provided in the Tenant's lease of the Premises, Tenant shall
not waste electricity, water or air-conditioning and agrees to cooperate fully
with Landlord to assure the most effective operation of the Building's heating
and air-conditioning, and shall refrain from attempting to adjust any controls
other than room thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to
each door in the Premises. Landlord may make a reasonable charge for any
additional keys, and Tenant shall not make or have made additional keys. Tenant
shall not alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior written
consent of Landlord, which shall not be unreasonably withheld. If Landlord shall
give its consent, Tenant shall in each case furnish Landlord with a key for any
such lock (except for any secured areas which Landlord has approved). Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for all
doors which have been furnished to Tenant, or which have otherwise been made for
Tenant, and in the event of loss of any keys so furnished or made, shall pay
Landlord therefor.
10. The restrooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown into
them. The expense of any breakage, stoppage, or damage resulting from violation
of this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
<PAGE>
11. Tenant shall not use or keep in or on the Premises, the
Building or the Project any kerosene, gasoline, or inflammable or combustible
fluid or material, except incidental to the Permitted Use and in compliance with
all Regulations and subject to Landlord's approval.
12. Tenant shall not use, keep or permit to be used or kept in
its Premises any foul or noxious gas or substance. Tenant shall not allow the
Premises to be occupied or used in a manner which unreasonably interferes with
Landlord or other occupants of the Building by reason of noise, odors and/or
vibrations or interfere in any way with other tenants or those having business
therein, nor shall any animals (other than guide dogs) or birds be brought or
kept in or about the Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the
Premises, except that use by the tenant of Underwriters' Laboratory (UL)
approved equipment, refrigerators and microwave ovens may be used in the
Premises for the preparation of coffee, tea, hot chocolate and similar
beverages, storing and heating food for tenants and their employees shall be
permitted. All uses must be in accordance with all applicable federal, state and
city laws, codes, ordinances, rules and regulations and the Lease.
14. Except with the prior written consent of Landlord, Tenant
shall not sell, or permit the sale, at retail, of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise in or on the
Premises, nor shall Tenant carry on, or permit or allow any employee or other
person to carry on, the business of stenography, typewriting or any similar
business in or from the Premises for the service or accommodation of occupants
of any other portion of the Building, nor shall the Premises be used for the
storage of merchandise or for manufacturing of any kind, or the business of a
public barber shop, beauty parlor, nor shall the Premises be used for any
illegal, improper or immoral purpose, or any business or activity other than
that specifically provided for in such Tenant's Lease. Tenant shall not accept
hairstyling, barbering, shoeshine, nail, massage or similar services in the
Premises or common areas except as authorized by Landlord.
15. If Tenant requires telegraphic, telephonic,
telecommunications, data processing, burglar alarm or similar services, it shall
first obtain, and comply with, Landlord's instructions in their installation,
except as otherwise provided in this Lease.
16. Landlord will direct electricians as to where and how
telephone, telegraph and electrical wires are to be introduced or installed. No
boring or cutting for wires will be allowed without the prior consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the written
approval of Landlord.
17. Except as otherwise set forth in this Lease, Tenant shall
not install any radio or television antenna, satellite dish, loudspeaker or any
other device on the exterior walls or the roof of the Building, without
Landlord's consent. Tenant shall not interfere with radio or television
broadcasting or reception from or in the Building, the Project or elsewhere.
18. Except in connection with the normal hanging of pictures or
other decorative items of art, Tenant shall not mark, or drive nails, screws or
drill into the partitions, woodwork or drywall or in any way deface the Premises
or any part thereof without Landlord's consent. Tenant may install nails and
screws in areas of the Premises that have been identified for those purposes to
Landlord by Tenant at the time those walls or partitions were installed in the
Premises. Tenant shall not lay linoleum, tile, carpet or any other floor
covering so that the same shall be affixed to the floor of its Premises in any
manner except as approved in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule or the removal of any floor
<PAGE>
covering shall be borne by the tenant by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
19. No bulk furniture, freight, equipment, materials, supplies,
packages, merchandise or other property will be received in the Building or
carried up or down the elevators except between such hours and in such elevators
as shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which
exceeds the load per square foot which such floor was designed to carry or which
is allowed by law. Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy equipment brought into the
Building. Safes or other heavy objects shall, if considered necessary by
Landlord, stand on wood strips of such thickness as determined by Landlord to be
necessary to properly distribute the weight thereof. Landlord will not be
responsible for loss of or damage to any such safe, equipment or property from
any cause, and all damage done to the Building by moving or maintaining any such
safe, equipment or other property shall be repaired at the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be reasonably acceptable to Landlord.
20. Intentionally Omitted.
21. There shall not be used in any space, or in the public
areas of the Project either by Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. Tenants using hand trucks shall be required
to use the freight elevator, or such elevator as Landlord shall designate. No
other vehicles of any kind shall be brought by Tenant into or kept in or about
its Premises.
22. Each tenant shall store all its trash and garbage within
the interior of the Premises. Tenant shall not place in the trash boxes or
receptacles any personal trash or any material that may not or cannot be
disposed of in the ordinary and customary manner of removing and disposing of
trash and garbage in the city, without violation of any law or ordinance
governing such disposal. All trash, garbage and refuse disposal shall be made
only through entry-ways and elevators provided for such purposes and at such
times as Landlord shall designate. If the Building has implemented a building-
wide recycling program for tenants, Tenant shall use good faith efforts to
participate in said program.
23. Canvassing, soliciting, distribution of handbills or any
other written material and peddling in the Building and the Project are
prohibited and each tenant shall cooperate to prevent the same. No tenant shall
make room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice
and without liability to any tenant, to change the name and address of the
Building and the Project.
25. Landlord reserves the right to exclude or expel from the
Project any person who, in Landlord's reasonable judgment, is under the
influence of alcohol or drugs or who commits any act in violation of any of
these Rules and Regulations.
<PAGE>
26. Without the prior written consent of Landlord, Tenant shall
not use the name of the Building or the Project or any photograph or other
likeness of the Building or the Project in connection with, or in promoting or
advertising, Tenant's business except that Tenant may include the Building's or
Project's name in Tenant's address.
27. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations reasonably established by Landlord or any
governmental agency.
28. Except for Landlord's negligence or willful misconduct,
Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon
appropriate application at the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instructions from Landlord,
and no employees of Landlord will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the
parking spaces on the Project. Tenant or Tenant's guests shall park between
designated parking lines only, and shall not occupy two parking spaces with one
car. Parking spaces shall be for passenger vehicles, sport utility vehicles and
pick-up trucks only; no boats, trucks, trailers, recreational vehicles or other
types of vehicles may be parked in the parking areas (except that trucks may be
loaded and unloaded in designated loading areas). Vehicles in violation of the
above shall be subject to tow-away, at vehicle owner's expense. Vehicles parked
on the Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's expense. No
tenant of the Building shall park in visitor or reserved parking areas. Any
tenant found parking in such designated visitor or reserved parking areas shall
be subject to tow-away at vehicle owner's expense. The parking areas shall not
be used to provide car wash, oil changes, detailing, automotive repair or other
services unless otherwise approved or furnished by Landlord.
31. No smoking of any kind shall be permitted anywhere within
the Building, including, without limitation, the Premises and those areas
immediately adjacent to the entrances and exits to the Building, or any other
area as Landlord elects. Smoking in the Project is only permitted in smoking
areas identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conferences rooms for
tenant usage, Landlord shall have the right to control each tenant's usage of
the conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area amenities or
facilities shall be provided from time to time at Landlord's discretion.
33. Tenant shall not swap or exchange building keys or cardkeys
with other employees or tenants in the Building or the Project.
34. Tenant shall be responsible for the observance of all of
the foregoing Rules and Regulations by Tenant's employees, agents, clients,
customers, invitees and guests.
35. These Rules and Regulations are in addition to, and shall
not be construed to in any way modify, alter or amend, in whole or in part, the
terms, covenants, agreements and conditions of any lease of any premises in the
Project.
<PAGE>
36. Subject to the terms of this Lease, Landlord may waive any
one or more of these Rules and Regulations for the benefit of any particular
tenant or tenants, but no such waiver by Landlord shall be construed as a waiver
of such Rules and Regulations in favor of any other tenant or tenants, nor
prevent Landlord from thereafter enforcing any such Rules and Regulations
against any or all tenants of the Building.
37. Landlord reserves the right to make such other and
reasonable rules and regulations as in its judgment may from time to time be
needed for safety and security, for care and cleanliness of the Building and the
Project and for the preservation of good order therein. Tenant agrees to abide
by all such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
<PAGE>
EXHIBIT B
---------
[Site Plan.]
<PAGE>
EXHIBIT C
---------
LEASE IMPROVEMENT AGREEMENT
---------------------------
This Lease Improvement Agreement ("Improvement Agreement") sets forth the
terms and conditions relating to construction of the initial tenant improvements
described in the Plans to be prepared and approved as provided below (the
"TENANT IMPROVEMENTS") in the Premises. Capitalized terms used but not otherwise
defined herein shall have the meanings set forth in the Lease (the "Lease") to
which this Improvement Agreement is attached and incorporated into.
1. Base Building Work. The "Base Building Work" described on
Schedule 1 to this Exhibit C will be substantially completed before the Term
Commencement Date by Landlord at Landlord's sole cost and expense (except for
the First Floor Multi-Tenant Corridor Work, defined below in Schedule "1"
attached hereto) and in accordance with all applicable codes and laws.
2. Plans and Specifications.
2.1 Tenant shall retain the services of a space planner (the
"Space Planner") mutually approved by Landlord and Tenant to prepare a detailed
space plan (the "Space Plan") mutually satisfactory to Landlord and Tenant for
the construction of the Tenant Improvements in the Premises. Tenant shall submit
the Space Plan and any proposed revisions thereto to Landlord for Landlord's
approval, which shall not be unreasonably withheld or delayed. In this regard,
Landlord agrees to use its commercially reasonable efforts to notify Tenant of
such approval or disapproval within 5 business days following Landlord's receipt
of Tenant's request therefor (together with the submittal to Landlord of all
documentation or information required by Landlord in connection with said
review).
2.2 Based on the approved Space Plan, Tenant shall cause the
Space Planner to prepare detailed plans, specifications and working drawings
reasonably satisfactory to Landlord for the construction of the Tenant
Improvements (the "Plans"). Landlord and Tenant shall diligently pursue the
preparation of the Plans. Tenant shall submit to Landlord for Landlord's
reasonable approval the Plans and any proposed revisions thereto, including the
estimated cost of the Tenant Improvements. All necessary revisions to the Space
Plan and the Plans shall be made within two (2) business days after Landlord's
response thereto. This procedure shall be repeated until Landlord ultimately
approves the Space Plan and Plans.
2.3 Tenant shall be responsible for ensuring that the Plans are
compatible with the design, construction and equipment of the Building, comply
with applicable Regulations and the Standards (defined below), and contain all
such information as may be required to show locations, types and requirements
for all heat loads, people loads, floor loads, power and plumbing, regular and
special HVAC needs, telephone communications, telephone and electrical outlets,
lighting, light fixtures and related power, and electrical and telephone
switches, B.T.U. calculations, electrical requirements and special receptacle
requirements. The Plans shall also include mechanical, electrical, plumbing,
structural and engineering drawings mutually satisfactory to Landlord and Tenant
which shall be prepared by an engineer approved by Landlord (in its good faith
discretion). Notwithstanding Landlord's review and approval of the Space Plan
and the Plans and any revisions thereto, Landlord shall have no responsibility
or liability whatsoever for any errors or omissions contained in the Space Plan
or Plans or any revisions thereto, or to verify dimensions or conditions, or for
the quality, design or compliance with applicable Regulations of any
improvements described therein or constructed in accordance therewith. Tenant
hereby waives all claims against Landlord relating to, or arising out of the
design or construction of, the Tenant Improvements.
2.4 Landlord's criteria for approvals shall be based on
reasonable criteria established from time to time by Landlord, but Landlord will
be deemed to have
<PAGE>
acted reasonably if Landlord's disapproval is predicated upon (i) effect on the
structural integrity of the Building, (ii) possible damage to the Building's
mechanical, electrical, plumbing and HVAC systems, (iii) non-compliance with
applicable laws, codes and regulations, (iv) incompatibility with the base
building plans, (v) failure to use materials required by Schedule 2 pertaining
to Standards, and (vi) effect on the exterior of the Building or any of the
Building's common areas. Landlord shall approve or disapprove, in writing, any
Space Plan, Plans or proposed revisions thereto submitted to Landlord for
Landlord's approval within three (3) business days after Landlord's receipt
thereof. If Landlord has not approved in writing any Space Plan, Plans, or
proposed revisions thereto submitted to Landlord within ten (10) business days
after Landlord's receipt thereof (together with any additional items reasonably
requested by Landlord in connection with its review of the same), Landlord shall
be deemed to have approved the same. Any disapproval by Landlord shall be in
writing and shall set forth (i) the reasons for the disapproval, (ii) suggested
modifications which will make the Space Plan or Plans acceptable, and (iii) a
specific description of the disapproved portion of the Space Plan or Plans.
3. Specifications for Standard Tenant Improvements.
3.1 Specifications and quantities of standard building
components which will comprise and be used in the construction of the Tenant
Improvements ("Standards") are set forth in Schedule 2 to this Exhibit C. As
used herein, "Standards" or "Building Standards" shall mean the standards for a
particular item selected from time to time by Landlord for the Building, in
accordance with Schedule 2 of this Exhibit C, or such other standards of equal
or better quality as may be mutually agreed between Landlord and Tenant in
writing.
3.2 No deviations from the Standards are permitted.
4. Tenant Improvement Cost.
4.1 The cost of the Tenant Improvements and 50.35% of the First
Floor Multi-Tenant Corridor Work shall be paid for by Tenant, including, without
limitation, the cost of: Standards; space plans and studies; architectural and
engineering fees; permits, approvals and other governmental fees; labor,
material, equipment and supplies; construction fees and other amounts payable to
contractors or subcontractors; taxes; off-site improvements; remediation and
preparation of the Premises for construction of the Tenant Improvements; taxes;
filing and recording fees; premiums for insurance and bonds; code compliance and
related expenses triggered as a result of the construction of the Tenant
Improvements (except to the extent included as part of Landlord's Base Building
Work); attorneys' fees; financing costs; a supervision fee to Landlord equal to
3% of the total cost of the Tenant Improvements; and all other costs expended or
to be expended in the construction of the Tenant Improvements, including those
costs incurred for construction of elements of the Tenant Improvements in the
Premises, which construction was performed by Landlord prior to the execution of
the Lease or for materials comprising the Tenant Improvements which were
purchased by Landlord prior to the execution of the Lease, provided that
Landlord has delivered to Tenant an explanation of such costs incurred by
Landlord for construction or materials and Tenant approved these costs before
the execution of this Lease (the "Tenant Improvement Costs"). Notwithstanding
the foregoing, the portion of the Tenant Improvement Costs attributable to (i)
space plans shall not exceed $3,792.60 ($.15 per usable square foot), and (ii)
space plans, architectural and engineering fees and voice and data cabling
installation costs shall not exceed $139,062 ($5.50 per usable square fee).
4.2 Provided Tenant is not in default under the Lease,
including this Improvement Agreement, Landlord shall contribute a one-time
tenant improvement allowance of $1,033,914.00 ($42.00 per usable square foot)
("Tenant Improvement Allowance") toward the cost of the initial Tenant
Improvements. Provided Tenant is not then in default under the Lease, including
this Improvement Agreement, the Tenant
<PAGE>
Improvement Allowance shall be disbursed by Landlord in accordance with Section
4.2.1 below.
4.2.1 Disbursement of Tenant Improvement Allowance. During
the construction of the Tenant Improvements, Landlord shall make disbursements
of the Tenant Improvement Allowance for Tenant Improvement Allowance Items for
the benefit of Tenant and shall authorize the release of monies for the benefit
of Tenant as follows:
4.2.1.1 Disbursements. Upon the completion of portions
of the Tenant Improvements, Tenant shall deliver to Landlord: (i) a request for
payment of the "Tenant Improvement Allowance," as that term is defined in this
Improvement Agreement, approved by Tenant, showing the schedule, by trade, of
percentage of completion of the Tenant Improvements in the Premises, detailing
the portion of the work completed; (ii) invoices from the Contractor, all
subcontractors performing work, and all materialmen and suppliers (collectively,
"Tenant's Agents") for labor rendered and materials delivered to the Premises;
(iii) executed mechanic's lien releases from all of Tenant's Agents which shall
comply with the appropriate provisions, as reasonably determined by Landlord, of
California Civil Code Section 3262(d); and (iv) all other information reasonably
requested by Landlord. On or before the last day of the month following
Landlord's receipt of the items set forth above, Landlord shall deliver a check
to Tenant made payable to Tenant in payment of the lesser of: (A) the amounts so
requested by Tenant, as set forth in this Section 4.2.1.1, above, less a ten
percent (10%) retention (the aggregate amount of such retentions to be known as
the "Final Retention"), and (B) the balance of any remaining available portion
of the Tenant Improvement Allowance (not including the Final Retention),
provided that Landlord does not dispute any request for payment based on a non-
compliance of any work with the approved Plans, or due to any substandard work.
Landlord's payment of such amounts shall not be deemed Landlord's approval or
acceptance of the work furnished or materials supplied as set forth in Tenant's
payment request.
4.2.1.2 Final Retention. Subject to the provisions of this
Improvement Agreement, a check for the Final Retention payable to Tenant shall
be delivered by Landlord to Tenant following the completion of construction of
the Premises, provided that (i) Tenant delivers to Landlord a waiver and release
in accordance with the terms of California Civil Code Section 3262(d)(2) and a
waiver and release in accordance with either California Civil Code Section
3262(d)(3) or Section 3262(d)(4), (ii) Landlord has reasonably determined that
no substandard work exists which adversely affects the mechanical, electrical,
plumbing, heating, ventilating and air conditioning, life-safety or other
systems of the Building, the structure or exterior appearance of the Building,
the curtain wall of the Building, the structure or exterior appearance of the
Building, or any other tenant's use of such other tenant's leased premises in
the Building and (iii) Landlord's architect and Tenant's Space Planner deliver
to Landlord a certificate, in a form reasonably acceptable to Landlord,
certifying that the construction of the Tenant Improvements in the Premises has
been substantially completed.
4.3 In the event the estimated cost of the design and
construction of the Tenant Improvements exceeds the Tenant Improvement
Allowance, Tenant shall be responsible for said excess costs. No credit shall be
given to Tenant if the cost of the Tenant Improvements is less than the Tenant
Improvement Allowance.
4.4 If the cost of the Tenant Improvements increases after the
Tenant's approval of the Plans due to the requirements of any governmental
agency or applicable Regulation or for any other reason (and either the cost of
the Tenant Improvements exceeds or such increase causes the cost of the Tenant
Improvements to exceed the Tenant Improvement Allowance), Tenant shall be
responsible for paying such increase.
<PAGE>
4.5 If Tenant requests any change(s) in the Plans after
approval of the estimate of the cost of the Tenant Improvements and any such
requested changes are approved by Landlord in writing in Landlord's reasonable
discretion (and either the cost of the Tenant Improvements exceeds or such
change(s) causes the cost of the Tenant Improvements to exceed the Tenant
Improvement Allowance), Tenant shall pay for the cost of any increases such
approved change(s) will cause in the construction of the Tenant Improvements.
5. Construction of Tenant Improvements.
5.1 Within ten (10) days after Tenant's and Landlord's approval
of the Plans including the estimate of the cost of the Tenant Improvements,
Tenant shall cause the contractor to proceed to secure a building permit and
commence construction of the Tenant Improvements.
5.2 Tenant shall be responsible for obtaining all governmental
approvals to the full extent necessary for the construction and installation of
the Tenant Improvements and for Tenant's occupancy of the Premises, in
compliance with all applicable Regulations. Tenant shall employ such Contractor
or contractors (hereinafter, the "Contractor") as shall be approved by Landlord
in writing to construct the Tenant Improvements in conformance with the approved
Space Plan and Plans. Landlord's approval of the Contractor shall not be
unreasonably withheld or conditioned, and shall be granted or denied within
seven (7) business days after Tenant has submitted the name of the Contractor,
together with all supporting documentation and information requested by Landlord
in connection with Landlord's review of said Contractor. The construction
contracts between Tenant and the approved Contractor shall be subject to
Landlord's prior reasonable approval and shall provide for progress payments.
The Contractor(s) shall be duly licensed and Landlord's approval of the
Contractor(s) shall be conditioned, among other things, upon the Contractor's
reputation for quality of work, timeliness of performance, integrity and
Landlord's prior experience with such Contractor. Notwithstanding the foregoing,
Tenant agrees to use ACCO as the subcontractor to perform all HVAC related work
as long as the sums to be paid to ACCO under its subcontract are reasonably
competitive with other reputable, licensed HVAC subcontractors.
5.3 Without limiting the provisions of Paragraph 35 of the
Lease, and subject to Paragraph 7.1 below, Landlord shall not be liable for any
direct or indirect damages suffered by Tenant as a result of delays in
construction beyond Landlord's reasonable control, including, but not limited
to, delays due to strikes or unavailability of materials or labor, or delays
caused by Tenant (including delays by the Space Planner, the contractor or
anyone else performing services on behalf of Landlord or Tenant), but Landlord
will be liable for any out-of-pocket actual damages (but not consequential
damages, loss of use, loss of business opportunity or lost profits) incurred by
Landlord as a direct result of any such delays.
5.4 All work to be performed on the Premises by Tenant or
Tenant's contractor or agents shall be subject to the following conditions:
(a) Such work shall proceed upon Landlord's written
approval of the Contractor, and public liability and property damage insurance
carried by the Contractor, and shall further be subject to the provisions of
Paragraphs 12 (with respect to the requirements and conditions governing the
performance of such work) and 27 of the Lease.
(b) All work shall be done in conformity with a valid
building permit when required, a copy of which shall be furnished to Landlord
before such work is commenced, and in any case, all such work shall be performed
in a good and workmanlike and first-class manner, and in accordance with all
applicable Regulations and the requirements and standards of any insurance
underwriting board, inspection bureau or insurance carrier insuring the Premises
pursuant to the Lease. Notwithstanding any failure by Landlord to object to any
such work, Landlord shall
<PAGE>
have no responsibility for Tenant's failure to comply with all applicable
Regulations. Tenant shall be responsible for ensuring that construction and
installation of the Tenant Improvements will not affect the structural integrity
of the Building.
(c) If required by Landlord or any lender of Landlord, all
work by Tenant or the Contractor shall be done with union labor in accordance
with all union labor agreements applicable to the trades being employed.
(d) Landlord or Landlord's agents shall have the right to
inspect the construction of the Tenant Improvements by Tenant during the
progress thereof. If Landlord shall give notice of faulty construction or any
other deviation from the approved Space Plan or Plans, Tenant shall inform the
Contractor of such deviation and require the Contractor to make corrections
promptly. However, neither the privilege herein granted to Landlord to make such
inspections, nor the making of such inspections by Landlord, shall operate as a
waiver of any right of Landlord to require good and workmanlike construction and
improvements erected in accordance with the approved Space Plan or Plans.
(e) Tenant shall use commercially reasonable efforts to
cause the Contractor to complete the Tenant Improvements as soon as reasonably
possible and before the Scheduled Term Commencement Date.
(f) Unless otherwise agreed in writing by Landlord and
Tenant, Tenant's construction of the Tenant Improvements shall comply with the
following: (i) the Tenant Improvements shall be constructed in strict accordance
with the approved Space Plan or Plans, as amended; (ii) Tenant and its
Contractor shall submit schedules of all work relating to the Tenant
Improvements to Landlord for Landlord's approval within two (2) business days
following the selection of the Contractor and the approval of the Plans.
Landlord shall within five (5) business days after receipt thereof inform Tenant
of any changes which are necessary and upon Tenant's approval of such changes
(which shall not be unreasonably withheld or delayed), Tenant's contractor shall
adhere to such revised schedule; and (iii) Tenant shall abide by all reasonable
rules made by Landlord with respect to the use of freight, loading dock, and
service elevators, storage of materials, coordination of work with the
contractors of other tenants, and any other matter in connection with this
Improvement Agreement, including, without limitation, the construction of the
Tenant Improvements.
(g) Tenant or the Contractor or agents shall arrange for
necessary utility, hoisting and elevator service with Landlord's contractor and
shall pay such reasonable charges for such services as may be charged by
Tenant's or Landlord's contractor.
(h) Tenant's entry to the Premises for any purpose,
including, without limitation, inspection or performance of Tenant construction
by Tenant's agents, prior to the date Tenant's obligation to pay rent commences
shall be subject to all the terms and conditions of the Lease except the payment
of Rent. Tenant's entry shall mean entry by Tenant, its officers, contractors,
licensees, agents, servants, employees, guests, invitees, or visitors.
(i) Tenant shall promptly reimburse Landlord upon demand
for any reasonable expense actually incurred by the Landlord by reason of faulty
work done by Tenant or its contractors or by reason of any delays caused by such
work, or by reason of inadequate clean-up.
(j) The Contractor and the subcontractors utilized by the
Contractor shall guarantee to Tenant and for the benefit of Landlord that the
portion of the Tenant Improvements for which it is responsible shall be free
from any defects in workmanship and materials for a period of not less than one
(1) year from the date of completion thereof. The Contractor and the
subcontractors utilized by the Contractor shall be responsible for the
replacement or repair, without additional charge, of all work done or furnished
in accordance with its contract that shall become defective
<PAGE>
within one (1) year after the later to occur of (i) completion of the work
performed by such contractor or subcontractors and (ii) the Term Commencement
Date. The correction of such work shall include, without additional charge, all
additional expenses and damages incurred in connection with such removal or
replacement of all or any part of the Tenant Improvements, and/or the Building
and/or common areas that may be damaged or disturbed thereby. All such
warranties or guarantees as to materials or workmanship of or with respect to
the Tenant Improvements shall be contained in the construction contract or
subcontract and shall be written such that such guarantees or warranties shall
inure to the benefit of both Landlord and Tenant, as their respective interests
may appear, and can be directly enforced by either. Tenant covenants to give to
Landlord any assignment or other assurances which may be necessary to effect
such rights of direct enforcement.
(k) Commencing upon the execution of the Lease, Tenant
shall hold weekly meetings at a reasonable time with the Space Planner and the
Contractor regarding the progress of the preparation of the Plans and the
construction of the Tenant Improvements, which meetings shall be held at a
location designated by Tenant, and Landlord and/or its agents shall receive
prior notice of, and shall use their best efforts to attend, all such meetings,
and upon Landlord's request, certain of Tenant's contractors shall attend such
meetings. One such meeting each month shall include the review of contractor's
current request for payment.
6. Insurance Requirements.
6.1 All of Tenant's contractors shall carry worker's
compensation insurance covering all of their respective employees, and shall
also carry public liability insurance, including property damage, all with
limits, in form and with companies as are required to be carried by Tenant as
set forth in Paragraph 8 of the Lease.
6.2 Tenant shall carry "Builder's All Risk" insurance in an
amount approved by Landlord covering the construction of the Tenant
Improvements, and such other insurance as Landlord may require, it being
understood and agreed that the Tenant Improvements shall be insured by Tenant
pursuant to Paragraph 8 of the Lease immediately upon completion thereof. Such
insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord including, but not
limited to, the requirement that all of Tenant's contractors shall carry excess
liability and Products and Completed Operation coverage insurance, each in
amounts not less than $500,000 per incident, $1,000,000 in aggregate, and in
form and with companies as are required to be carried by Tenant as set forth in
Paragraph 8 of the Lease.
6.3 Certificates for all insurance carried pursuant to this
Improvement Agreement must comply with the requirements of Paragraph 8 of the
Lease and shall be delivered to Landlord before the commencement of construction
of the Tenant Improvements and before the Contractor's equipment is moved onto
the site. In the event the Tenant Improvements are damaged by any cause during
the course of the construction thereof, Tenant shall immediately repair the same
at Tenant's sole cost and expense. Tenant's contractors shall maintain all of
the foregoing insurance coverage in force until the Tenant Improvements are
fully completed and accepted by Landlord. All policies carried under this
Paragraph 6 shall insure Landlord and Tenant, as their interests may appear, as
well as the contractors. All insurance maintained by Tenant's contractors shall
preclude subrogation claims by the insurer against anyone insured thereunder.
Such insurance shall provide that it is primary insurance as respects the owner
and that any other insurance maintained by owner is excess and noncontributing
with the insurance required hereunder. If Landlord has a reasonable basis for
concern regarding Tenant's ability to pay for its share of the cost of the
Tenant Improvements or Tenant's actual payment of its share of said costs,
Landlord may require Tenant to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount sufficient to
ensure the lien-free completion of the Tenant Improvements and naming Landlord
as a co-obligee.
<PAGE>
7. Completion and Rental Commencement Date.
7.1 Tenant's obligation to pay Rent under the Lease shall
commence on the Term Commencement Date, notwithstanding anything to the contrary
contained in Paragraph 2 of the Lease. However, Landlord Delays (as defined
below) and delays caused by Force Majeure events (as described in Section 35 of
the Lease) (not to exceed 60 days, except to the extent Landlord receives rental
income insurance proceeds with respect to the Premises resulting from said Force
Majeure event) shall extend the Term Commencement Date, but only in the event
that substantial completion of the Tenant Improvements is delayed despite
Tenant's diligent and reasonable efforts to adapt and compensate for such
delays. In addition, no Landlord Delays shall be deemed to have occurred unless
Tenant has provided notice, in compliance with the Lease, to Landlord specifying
that a delay shall be deemed to have occurred because of actions, inactions or
circumstances specified in the notice in reasonable detail. If such actions,
inactions or circumstances are not cured by Landlord within one (1) business day
after receipt of such notice (the date of such receipt being the "Count Date"),
and if such actions, inaction or circumstances otherwise qualify as a Landlord
Delay, then a Landlord Delay shall be deemed to have occurred commencing as of
the Count Date. The Term Commencement Date shall be extended by one day for each
day from the Count Date that a Landlord Delay has occurred, as calculated as
provided above. The term "Landlord Delays," as such term may be used in this
Improvement Agreement, shall mean any delays in the completion of the Tenant
Improvements which are due to any act or omission of Landlord, its agents or
contractors. Landlord Delays shall include, but shall not be limited to: (i)
delays in the giving of authorizations or approvals by Landlord, (ii) delays due
to the acts or failures to act, of Landlord, its agents or contractors, where
such acts or failures to act delay the completion of the Tenant Improvements,
provided that Tenant acts in a commercially reasonable manner to mitigate any
such delay, (iii) delays due to the interference of Landlord, its agents or
contractors with the completion of the Tenant Improvements or the failure or
refusal of any party to permit Tenant, its agents and contractors, access to and
use of the Building or any Building facilities or services, including elevators
and loading docks, which access and use are necessary to complete the Tenant
Improvements, (iv) delays due to Landlord's failure to allow Tenant sufficient
access to the Building and/or the Premises during Tenant's move into the
Premises, and (v) delays in the completion of the Base Building Work.
7.2 Within ten (10) days after completion of construction of
the Tenant Improvements, Tenant shall cause a Notice of Completion to be
recorded in the office of the Recorder of the county in which the Building is
located in accordance with Section 3093 of the Civil Code of the State of
California or any successor statute, and shall furnish a copy thereof to
Landlord upon such recordation. If Tenant fails to do so, Landlord may execute
and file the same on behalf of Tenant as Tenant's agent for such purpose, at
Tenant's sole cost and expense. At the conclusion of construction, (i) Tenant
shall cause the Space Planner and the contractor (i) to update the approved
working drawings as necessary to reflect all changes made to the approved
working drawings during the course of construction, (ii) to certify to the best
of their knowledge that the "record-set" of as-built drawings are true and
correct, which certification shall survive the expiration or termination of the
Lease, and (c) to deliver to Landlord two (2) sets of copies of such record set
of drawings within ninety (90) days following issuance of a certificate of
occupancy for the Premises, and (iii) Tenant shall deliver to Landlord a copy of
all warranties, guarantees, and operating manuals and information relating to
the improvements, equipment, and systems in the Premises.
7.3 A default under this Improvement Agreement shall constitute
a default under the Lease, and the parties shall be entitled to all rights and
remedies under the Lease in the event of a default hereunder by the other party
(notwithstanding that the Term thereof has not commenced).
7.4 Without limiting the "as-is" provisions of the Lease,
except for the Tenant Improvements, if any, and Base Building Work to be
constructed by Landlord pursuant to this Improvement Agreement, Tenant accepts
the Premises in its
<PAGE>
"as-is" condition and acknowledges that it has had an opportunity to inspect the
Premises prior to signing the Lease.
8. Miscellaneous.
8.1 Prior to Tenant's move into the Premises, Landlord shall
thoroughly clean same. The costs of the cleaning provided by Landlord hereunder
shall not be deducted from the Tenant Improvement Allowance, but rather shall be
paid by Landlord and included as an Operating Expense.
<PAGE>
SCHEDULE 1
TO EXHIBIT C
BASE BUILDING WORK
------------------
The following improvements are to be completed or paid for by Landlord in
accordance with certain Base Building Plans (which are referenced in the
attached Index) which have been previously delivered to Tenant for its review:
(a) Restrooms, elevator lobbies (including elevator
doors), hallways required by code and, additionally, other areas not part
of Premises on each floor, and are to be completed in accordance with
Building Standards.
(b) Landlord, at Landlord's expense, shall provide the
Base Building security system.
(c) Landlord shall furnish and install all adequate
Building Standard utilities within the core and stubbed out of the face of
the core wall, on each floor. In addition, Landlord is to provide at least
one (1) "wet" column (with discharge lines) within each floor.
(d) Landlord will obtain all Base Building permits.
(e) Landlord will provide all engineering services which
shall include, but not be limited to, the cost of all electrical,
mechanical and structural engineering, including all permits, licenses and
fees relative to the development of the Base Building.
(f) The floors shall be delivered to Tenant smooth and
level within a tolerance of 1/4" per 10 linear feet, non-cumulative and
ready to receive floor coverings.
(g) Landlord shall deliver all floors in the Building to
withstand 80 pounds of pressure per square foot, live load with 20 pounds
of pressure per square foot for partitions.
(h) Landlord shall provide Tenant with a standard Variable
Air Volume heating, venting and air-conditioning ("HVAC") system with
rooftop package units. Landlord shall provide the Base Building HVAC System
to the core.
(i) Landlord shall install the sprinkler risers and
connections to the core and head distribution of each floor per code.
(j) Landlord shall provide to the Building adequate
capacity for Tenant's telephone lines and computer networking, including
but not limited to ISDN lines. It shall be Tenant's cost to bring the
telephone lines from the Building's point of entry to the Premises (which
cost shall not be applied against any unused Tenant Improvement Allowance).
(k) Landlord shall provide cable television ready access
to the Building.
(l) Landlord shall provide a credit for exterior perimeter
dry-walls based upon Swinerton & Walberg's cost to install the same. This
shall not include mud, tape, sending or other preparatory work.
(m) Landlord shall complete Building restrooms with
Standard Building finishes.
(n) Landlord shall pay for the relocation of the ground
floor exit corridor pursuant to mutually acceptable plans and
specifications.
<PAGE>
(o) Landlord shall construct a multi-tenant common
corridor on that side of the first floor of the Building which contains the
First Floor Premises (hereinafter, the "First Floor Multi-Tenant Corridor
Work").
(p) Digital fiber optic technology for voice data
transport and video servicing.
<PAGE>
SCHEDULE 2
TO EXHIBIT C
BUILDING STANDARDS
------------------
The following constitutes the Building Standard tenant improvements
("Standards") in the quantities specified:
<PAGE>
EXHIBIT D
JANITORIAL SPECIFICATIONS
<PAGE>
EXHIBIT E
LOCATION OF PARKING PERMITS
(See attached)
<PAGE>
EXHIBIT F
LETTER OF CREDIT
(See attached)
<PAGE>
ADDENDUM TO
LEASE AGREEMENT
RE: Lease of Premises at
2120 Colorado Avenue
Santa Monica, California
(the "Premises")
NOTWITHSTANDING anything to the contrary contained in the Lease Agreement
(the "Lease"), between Spieker Properties, L.P., a California limited
partnership ("Lessor"), and Broadband Sports, a Delaware corporation ("Tenant"),
the following provisions of this Addendum to Lease Agreement (this "Addendum")
shall be incorporated into and be a part of the Lease and shall supersede any
inconsistent provisions of the Lease.
1. Grant of License. Landlord hereby grants Tenant, at a charge
equal to $750.00 per month (to be paid to Landlord on the first day of each
month concurrently with Tenant's payment to Landlord of Base Rent), a
nonexclusive license to install on the roof of the Building ONE (1) satellite
dish which is no more than three (3) feet in diameter which shall be enclosed by
a screen and the nonexclusive right to run connecting lines to such satellite
from the Premises (such satellite dish and such connecting lines and equipment
herein referred to as the "Equipment"). Tenant shall not penetrate the roof in
connection with any installation or reinstallation of the Equipment without
Landlord's prior written consent, which consent shall not be unreasonably
withheld or delayed. The plans and specifications for all the Equipment shall be
approved by Landlord in writing prior to any installation. Tenant shall be
responsible for any damage to the roof or conduit system as a result of Tenant's
installation, maintenance and/or removal of the Equipment.
2. Location. The location of the satellite dish and the rest
of the Equipment shall be subject to Landlord's prior written approval, which
approval shall not be unreasonably withheld or delayed. Tenant shall not change
the location of, or alter or install additional Equipment or paint the satellite
dish or the other Equipment without Landlord's prior written reasonable consent.
Tenant agrees that Landlord shall direct the placement of the satellite dish
inside the roof well (in a location which provides Tenant with good reception),
other than locations that are scheduled to accommodate building equipment or
services.
3. Compliance with Law. Tenant, at Tenant's sole expense, shall
comply with all laws, rules, orders and regulations regarding the installation,
construction, operation, maintenance and removal of the Equipment and shall be
solely responsible for obtaining and maintaining in force all permits, licenses
and approvals necessary for such operations.
4. Taxes. Tenant shall be responsible for and promptly shall
pay all taxes, assessments, charges, fees and other governmental impositions
levied or assessed on the Equipment or based on the operation thereof.
5. Relocation. Landlord may require Tenant, at Tenant's sole
cost and expense, to relocate the Equipment during the term of the Lease to a
location approved by Tenant, which approval shall not be unreasonably withheld,
conditioned or delayed.
6. Termination. Upon any termination of the Lease, Landlord
reserves the right to terminate Tenant's right pursuant to this Addendum
immediately.
7. Interference. Operation of the Equipment shall not
unreasonably interfere in any manner with equipment systems or utility systems
of other tenants, including without limitation, telephones, dictation equipment,
lighting, heat and air conditioning, computers, electrical systems and
elevators. If operation of the
<PAGE>
Equipment causes such unreasonable interference, Tenant immediately shall
suspend operation of the Equipment until such unreasonable interference is
eliminated.
8. Maintenance and Repair. Tenant shall maintain the Equipment
in good condition and repair, at Tenant's sole cost and expense. Landlord may
from time to time require that Tenant repaint the satellite dish at Tenant's
expense to keep the same in an attractive condition. In the event that Tenant
fails to repair and maintain the Equipment in accordance with this paragraph 8,
Landlord may, but shall not be obligated to, make any such repairs or perform
any maintenance to the Equipment after 30 days notice to Tenant and Tenant shall
reimburse Landlord upon demand for all out-of-pocket costs and expenses incurred
by Landlord in connection therewith.
9. Access. Tenant may access the roof for repair and
maintenance of each satellite dish, only during normal business hours, on not
less than 24 hours prior written notice to Landlord unless otherwise approved by
Landlord. Tenant shall designate in writing to Landlord all persons whom Tenant
authorizes to have access to the roof for such purposes. Upon such designation
and prior identification to Landlords' building security personnel, such
authorized persons shall be granted access to the roof by Landlord's building
engineer. Tenant shall be responsible for all costs and expenses incurred by
Landlord in connection with Tenant's access to the roof pursuant to this
Paragraph 9.
10. Indemnity and Insurance. Tenant shall indemnify, defend,
protect and hold harmless Landlord from and against any and all claims related
to the Equipment or operation of the same as if the Equipment were located
wholly within the Premises. Tenant shall provide evidence satisfactory to
Landlord that Tenant's property and liability insurance policies required under
the Lease include coverage for the Equipment and any claim, loss, damage, or
liability relating to the Equipment.
11. No Landlord Responsibility. Landlord shall have no
responsibility or liability whatsoever relating to (i) maintenance or repair of
the Equipment, (ii) damage to the Equipment; (iii) damage to persons or property
relating to the Equipment or the operation thereof, or (iv) interference with
use of the Equipment arising out of utility interruption or any other cause,
except for injury to persons or damage to property caused by the negligence or
intentional misconduct of Landlord or its agents. In no event shall Landlord be
responsible for consequential damages. Upon installation of the Equipment,
Tenant shall accept the area where the Equipment is located in its "as is"
condition. Tenant acknowledges that Landlord shall have no obligation whatsoever
to improve, maintain or repair the area in which the Equipment will be
installed.
12. Use. Tenant shall use the Equipment solely for the
operations within the Premises and shall not use or allow use of the Equipment,
for consideration or otherwise, for the benefit of other tenants in the Project
or any other person or entity.
13. Removal. Tenant shall, at Tenant's sole expense, remove the
satellite dish and such other portions of the Equipment as Landlord may
designate, and restore the affected areas to their condition prior to
installation of the Equipment (i) if Tenant fails to perform any of its
obligations under this Addendum within fifteen (15) days after request of
Landlord, or immediately in the event of emergency, (ii) immediately if such
removal is required by any governmental agency having jurisdiction over the
Equipment, and (iii) in any event, no later than fifteen (15) days after
expiration or earlier termination of the Lease. If Tenant fails to remove the
Equipment when and as required under this Addendum, Landlord reserves the right
to do so, and the expense of the same shall be immediately due and payable from
Tenant to Landlord as additional rent, together with interest and late charges
as provided in the Lease.
14. Survival. The covenants, obligations and indemnities under
this Addendum shall survive expiration or earlier terminatin of the Lease for
any reason.
Except as expressly modified above, all terms and conditions of the Lease
remain in full force and effect and are hereby ratified and confirmed.
<TABLE>
<S> <C>
LANDLORD TENANT:
Spieker Properties, L.P., a California limited Broadband Sports, a Delaware corporation
partnership
By: Spieker Properties, Inc., a Maryland By: /s/ Tyler Goldman
------------------------------
corporation Name: Tyler Goldman
-------------------------
Its General Partner Its: President
--------------------------
Date: 8/3/99
---------------------------
By: /s/ Jeffrey K. Nickell By: /s/ Gregory S. Hebner
---------------------------------- -----------------------------
Name: Jeffrey K. Nickell Name: Gregory S. Hebner
---------------------------- -------------------------
Its: Vice President Its: Chief Financial Officer
----------------------------- --------------------------
Date: 8/4/99 Date: 8/3/99
-------------------------------- ----------------------------
</TABLE>
<PAGE>
EXHIBIT 10.14
Note: Portions of this exhibit indicated by "[*]" are subject to a confidential
treatment request, and have been omitted from this exhibit. Complete, unredacted
copies of this exhibit have been filed with the Securities and Exchange
Commission as part of this Company's confidential treatment request.
CONFIDENTIAL
INTERACTIVE SERVICES AGREEMENT
------------------------------
This agreement (the "Agreement"), effective as of January 1, 1999 (the
"Effective Date"), is made and entered into by and between America Online, Inc.
("AOL"), a Delaware corporation, with its principal offices at 22000 AOL Way,
Dulles, Virginia 20166, on the one hand, and E-Sport, Inc. ("E-Sport"), a
Delaware corporation, with its principal offices at 1640 S. Sepulveda Blvd.,
Suite 500, Los Angeles, California 90025, and its wholly-owned subsidiaries, Pro
Sports Xchange, Inc. ("PSX"), a Delaware corporation, successor-in-interest to
Pro Sports Xchange, a California limited liability company, with its principal
offices at 1640 S. Sepulveda Blvd., Suite 500, Los Angeles, California 90025 and
Athlete Direct, Inc. ("Athlete Direct"), a Delaware corporation, successor-in-
interest to Athlete Direct, LLC, a California limited liability corporation,
with its principal offices at 1640 S. Sepulveda Blvd., Suite 500, Los Angeles,
California 90025 (E-Sport, PSX and Athlete Direct shall be collectively referred
to herein as "Interactive Content Provider" or "ICP") (each of AOL and ICP shall
be referred to herein as a "Party" and collectively as the "Parties").
INTRODUCTION
------------
AOL and ICP each desires that ICP provide the Online Area (as defined
below), including ICP data feeds as specified herein and certain AOL
screens/pages through the AOL Network (as defined below), subject to the terms
and conditions set forth in this Agreement. Defined terms used but not defined
in the body of the Agreement or in Exhibits A or C shall be as defined on
Exhibit B attached hereto.
TERMS
-----
1. DISTRIBUTION; PROGRAMMING
-------------------------
1.1 Online Area. ICP shall work diligently to develop and implement the
-----------
Online Area, consisting of the specific Content described on Exhibit
A.1 attached hereto. ICP shall develop the design of the Online Area
in consultation with AOL and in accordance with any standard design
and content publishing guidelines provided to ICP by AOL (including,
without limitation, any HTML publishing guidelines). ICP shall not
authorize or permit any third party to distribute the Licensed Content
on ICP's behalf through the AOL Network absent AOL's prior written
approval. The inclusion of any additional Content in the Online Area
(including, without limitation, any features, functionality or
technology) not expressly described on Exhibit A shall be subject to
AOL's prior written approval.
1
<PAGE>
1.2 Licenses.
--------
1.2.1 License to Licensed Content (other than Feeds). ICP hereby grants
----------------------------------------------
AOL a non-exclusive, worldwide license to use, market, store,
distribute, display, communicate, perform, transmit and promote the
Licensed Content (other than the Feeds), (or any portion thereof) as
provided herein, through such areas or features of the AOL Network
as AOL deems appropriate.
1.2.2 License to Feeds. In addition, ICP hereby grants AOL a
----------------
non-exclusive, worldwide license (i) to use, market, store,
distribute, display, communicate, perform, transmit and promote the
Feeds (as defined in Exhibit A), (or any portion thereof), through
the AOL Service and AOL.com., AOL's primary site on the World Wide
Web portion of the Internet and all AOL branded and co-branded
Internet sites providing content and promotions for AOL products and
services, together with any mirrored or similar versions of such
site(s) (collectively, "AOL.com"), and (ii) to sublicense its rights
under this Section 1.2.2 to third parties producing programming for
AOL.com for the sole purpose of enabling such third parties to
produce such AOL-branded or AOL co-branded programming for AOL.com
as provided below. To the extent that the Feeds (or any portion
thereof) are distributed by AOL on AOL.com or on non-AOL Service
areas of the AOL Network, AOL shall (a) ensure that the Feeds will
be distributed on pages that are [*] (b) [*] (c) promote the [*] as
a part of such Content (e.g., [*]at the bottom of an article), and
(d) [*]. Nothing contained in this Section 1.2.2 shall be construed
to prevent or limit the offer, license or sale of Advertisements
anywhere on the AOL Network. [*]
1.2.3 Feeds. ICP represents and warrants to AOL that it has the
-----
authority to grant the above licenses to AOL (either through
ownership or license) to use the Licensed Content as described in
this Agreement. ICP shall provide AOL the Licensed Content in the
form or media reasonably necessary for AOL to distribute it on the
AOL Network as further set forth on Exhibits A and E-1 attached
hereto. Without limiting the generality of the foregoing, during the
Term of this Agreement, AOL may store via mirrored data centers,
tape, optical disks, or magneto optical disks backup copies of the
Feeds [*] for purposes of record-keeping, defending
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
2
<PAGE>
against third-party claims, responding to official
inquiries, and fulfilling its obligations and exploiting the
rights granted to AOL pursuant to this Agreement. Under no
circumstances will AOL use such Feeds for any other purpose
during the Term of this Agreement. It is expressly
understood that following the expiration or termination of
this Agreement, AOL shall have the right to use the Licensed
Content, including without limitation, the Feeds, for a
runoff period not to exceed [*] days in the same manner as
such Content is permitted to be used during the Term.
Nothing in this Agreement shall constitute a sale or other
transfer of title from ICP to AOL of the Licensed Content,
or any portion thereof. All rights with respect to the
Licensed Content not expressly granted to AOL herein are
reserved to ICP.
1.2.4 Ownership. AOL shall own, and ICP shall have no right,
---------
title or interest in or to, all [*] Screens. ICP shall
own, and AOL shall have no ownership right, title or
interest in or to, [*] Screens.
1.3 Other Interactive Areas.
-----------------------
1.3.1 AOL Approval. ICP shall not be permitted to establish any
------------
"pointers" or links between the Licensed Content and any
other area on or outside of the AOL Network, including,
without limitation, sites on the World Wide Web portion of
the Internet, without the prior written approval of AOL.
[*], subject to [*]. In addition, AOL may [*] its approval
(at any time) to specific portions of Content, Products, or
functionality within a Linked Interactive Site, [*]. In such
case, establishment of the link from the Licensed Content to
the Linked Interactive Site will be subject to mutual
agreement of the Parties regarding the means by which access
will be restricted to the approved portions of the Linked
Interactive Site. AOL shall give ICP a [*] day period to
remove any specific Content, Products or functionality
within a Linked ICP Interactive Site that AOL restricts its
approval to pursuant to this Section 1.3.1 before
terminating the link to such site. All Linked ICP
Interactive Sites shall comply with the Operating Standards
set forth in Exhibit E-2.
1.3.2 Management. AOL shall have no obligations of any kind with
----------
respect to any Linked Interactive Site. ICP shall be
responsible for any hosting or communication costs
associated with any Linked Interactive Sites (including,
without limitation, the costs associated with (i) any
agreed-upon direct connections between the AOL Network and a
Linked Interactive Site or (ii) a mirrored version of a
Linked Interactive Site).
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
3
<PAGE>
Any Linked Interactive Sites shall be subject to the license
set forth in Section 1.2.1 above. ICP will permit AOL
Members to access and use any Linked ICP Interactive Site
[*] during the Term if [*] (other than ICP employees,
agents, contractors and partners) [*]. If such Linked ICP
Interactive Site is not generally provided to any such users
[*], then the terms and conditions for AOL Members shall be
[*]. [*]; provided, however, that the Parties agree and
acknowledge that some features or areas of the Linked ICP
Interactive Site may require a registration process for all
users generally (e.g. a premium service) and that such
registration process for AOL Members shall be no more
burdensome than for any other user and shall be upon terms
and conditions [*].
1.3.3 Excessive Traffic Diversion. [*] To the extent that AOL
notifies ICP in writing that, in AOL's reasonable judgment,
links from the Linked ICP Interactive Site cause an
excessive amount of AOL traffic to be diverted outside of
such site and the AOL Network in a manner that has a
detrimental effect on the traffic flow of the AOL audience,
then ICP [*]. In the event that ICP cannot or does not [*]
diverted traffic from the Linked ICP Interactive Site, AOL
reserves the right to terminate the links from the AOL
Network to the Linked ICP Interactive Site at issue if such
failure remains uncured after [*] days written notice
thereof.
1.4 Placements. ICP shall pay AOL (in accordance with Section 1.5 below),
----------
and AOL shall provide to ICP the [*] rights ("Placements") set forth
in Exhibit A.4. The Placements and any other promotions or
advertisements (other than AOL Advertisements which ICP has a right to
sell pursuant to Section 2.1 of this Agreement) purchased from or
provided by AOL pursuant to Exhibit A of this Agreement will be used
by ICP [*].
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
4
<PAGE>
1.5 Placements Payments. For the Placements, ICP shall pay AOL the
-------------------
following amounts:
(i) First Year (January 1, 1999 to December 31, 1999). For the
-------------------------------------------------
first year of the Term, ICP shall pay AOL [*] for the
Placements.
(ii) Second Year (January 1, 2000 to December 31, 2000). For the
--------------------------------------------------
second year of the Term, ICP shall pay AOL [*] for the
Placements.
(iii) Last Six Months of Initial Term (January 1, 2001 to June 30,
------------------------------------------------------------
2001). For the last six (6) months of the Initial Term, ICP
-----
shall pay AOL [*] for the Placements.
1.6 Content Payments. For the Licensed Content and production and other
----------------
services to be provided pursuant to this Agreement, AOL shall pay ICP
as follows:
(i) First Year (January 1, 1999 to December 31, 1999). For the
-------------------------------------------------
first year of the Term, AOL shall pay ICP [*].
(ii) Second Year (January 1, 2000 to December 31, 2000). For the
--------------------------------------------------
second year of the Term, AOL shall pay ICP [*].
(iii) Last Six Months of Initial Term (January 1, 2001 to June 30,
------------------------------------------------------------
2001). For the last six (6) months of the Initial Term: AOL
-----
shall pay ICP [*].
(iv) Additional Payments. AOL shall pay ICP [*] for each
-------------------
additional license granted to AOL by ICP [*]. Such payment
shall be added to the Content Payments to be made by AOL
pursuant to subsections 1.6(i)-(iii) above.
1.7 Net Payments. The Parties shall satisfy their obligations under
------------
Sections 1.5 and 1.6 through [*].
1.8 Exclusivity. [*]
-----------
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
5
<PAGE>
2. ADVERTISING AND TRANSACTIONS
----------------------------
2.1 Advertising Sales. AOL owns all right, title and interest in and to
-----------------
the advertising and promotional spaces within the AOL Network
(including, without limitation, advertising and promotional spaces on
any AOL forms or pages preceding, framing or otherwise associated with
the Licensed Content or preceding, following or framing any Linked
Interactive Sites). The specific advertising inventory within any AOL
forms or pages shall be as reasonably determined by AOL. AOL shall
have the exclusive right to sell AOL Advertisements [*]. AOL hereby
grants ICP the exclusive right to license or sell AOL Advertisements
on [*], subject to [*].
2.2 Advertising Policies.
--------------------
2.2.1 AOL Advertisements. Any AOL Advertisements sold by ICP or
------------------
its agents shall be subject to AOL's then-standard
advertising policies, [*].
2.2.2 Linked Interactive Site Advertisements. ICP shall ensure
--------------------------------------
that AOL Members linking to any Linked ICP Interactive Site
[*] from the AOL Network do not receive advertisements,
promotions or links (i) for any entity [*] (ii) in violation
of AOL's then-standard advertising policies, or (iii) in
violation of AOL's exclusivity or other preferential rights
or commitments [*]. In the event that AOL notifies ICP in
writing that any advertising or promotional Content in or
through any Linked ICP Interactive Site (a "Linked ICP
Interactive Site Advertisement") is in violation of AOL's
then-standard advertising policies or this Section 2.2.2,
then ICP shall [*] by AOL Members to such advertising [*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
6
<PAGE>
in question, then ICP shall provide AOL prompt written
notice of such fact. AOL may restrict access from the AOL
Network to the advertising in question using technology
available to AOL or, in the event such restricted access is
not reasonably practicable, as determined by AOL in AOL's
sole discretion, terminate the link from the AOL Network to
the Linked ICP Interactive Site until such time as the [*]
in question is no longer displayed. ICP will cooperate with
AOL's [*] requests to the extent AOL elects to implement any
such access restrictions.
2.3 Advertising Registration Form. In connection with the sale by
-----------------------------
ICP or its agents of an AOL Advertisement, ICP shall, in each
instance, provide AOL with a completed standard AOL Advertising
Registration Form relating to such AOL Advertisement. ICP shall
take all reasonable steps necessary to ensure that any AOL
Advertisement sold by ICP complies with all applicable federal,
state and local laws and regulations.
2.4 Advertising Revenues. AOL shall be entitled to [*] of all
--------------------
Advertising Revenues generated by the license or sale of AOL
Advertisements on the [*] Screens. ICP shall be entitled to [*]
of Advertising Revenues generated by the license or sale of AOL
Advertisements on the [*] Screens.
2.5 Interactive Commerce. To the extent ICP desires to offer, sell
--------------------
or license Products, such merchandising shall be subject to (i)
the terms of this Agreement, (ii) the requirements posted at
keyword "Marketplace Policy" on the America Online(R) brand
service (or such other keyword as AOL may designate during the
Term), (iii) [*] (iv) [*] (v) the then-current requirements of
AOL's merchant certification program, (vi) ICP implementing
sufficient procedures to protect the security of all
merchandising on a Linked ICP Interactive Site (i.e., ICP shall
as of the Effective Date use 40-bit SSL technology and, if
requested by AOL upon [*] days notice thereof to ICP, 128-bit
SSL, and (vii) the requirement that ICP take all reasonable steps
necessary to conform its promotion and sale of Products through a
Linked ICP Interactive Site to the then-existing technologies
identified by AOL which are optimized for the AOL Service
including, without limitation, any "quick checkout" tool which
AOL may implement to facilitate purchase of Products by AOL
Members through the ICP Linked Interactive upon [*] days notice
thereof to ICP. For purposes of subsection (iii) above, AOL
hereby approves the categories of products set forth in Exhibit
I. [*]. If, in accordance
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
7
<PAGE>
with Section 1.3.1, [*]
2.6 Member Benefits. ICP will [*] promote through the Online Area any
---------------
special or promotional offers related to the Licensed Content made
generally available by or on behalf of ICP through any other similar
or like distribution channel. In addition, ICP shall promote through
the Online Area on a regular and consistent basis special offers
exclusively available to AOL Members ("AOL Exclusive Offers"). ICP
shall, [*] feature at least one AOL Exclusive Offer for AOL Members
(except as otherwise mutually agreed upon by the Parties). The AOL
Exclusive Offer made available by ICP shall provide a [*] benefit to
AOL Members, either by virtue of a [*]. Specific AOL Exclusive Offers
to be made available by ICP shall include the following: [*]. ICP will
provide AOL with reasonable prior notice of AOL Exclusive Offers and
other special offers so that AOL can, in its editorial discretion,
market the availability of such offers.
3. PRODUCTION AND SUPPORT
----------------------
3.1 Production Work.
---------------
(i) AOL Pages. AOL shall build the [*] Pages (as defined in Exhibit
---------
A) and Star Pages (as defined in Exhibit A) and such pages shall
be programmed and populated by ICP in accordance with this
Agreement. The forms of the [*] Pages and Star Pages shall be
as determined by AOL [*].
(ii) Production Responsibility. Except as otherwise provided herein,
-------------------------
ICP shall be responsible for all production, including
maintenance, of the Stars Online Area. Unless otherwise mutually
agreed upon in writing, ICP shall be responsible for all changes
to the [*] Area or the Feeds. [*] Any change requested by
ICP shall require AOL's prior approval, [*].
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
8
<PAGE>
(iii) AOL Assistance with ICP's Production Responsibilities. In the
-----------------------------------------------------
event that ICP requests AOL's production assistance relating to
the Stars Online Area in connection with (i) the initial
development, design and construction of the Stars Online Area,
(ii) ongoing programming and maintenance related to the Stars
Online Area, (iii) a redesign of or addition to the Stars Online
Area (e.g., a change to an existing screen format or construction
of a new custom form), (iv) construction and maintenance of an
approved advertising, sponsorship or promotional area or online
"store," (v) production to modify work performed by a third party
provider or (vi) any other type of production work, ICP shall
work with AOL to develop detailed production plans for the
requested production assistance (the "Production Plan").
Following receipt of the final Production Plan, AOL shall notify
ICP of (i) AOL's availability to perform the requested production
work, (ii) the proposed fee or fee structure for the requested
production and maintenance work and (iii) the estimated
development schedule for such work. To the extent the Parties
reach agreement regarding implementation of an agreed-upon
Production Plan, such agreement shall be reflected in a separate
work order signed by the Parties. All fees to be paid to AOL for
any such production work shall be paid in advance. To the extent
ICP elects to retain a third party provider to perform any such
production work, work produced by such third party provider must
generally conform to AOL's production standards available at
Keyword "Styleguide." The specific production resources which AOL
allocates to any production work to be performed on behalf of ICP
shall be as determined by AOL in its sole discretion. With
respect to any routine production, maintenance or related
services which AOL reasonably determines are necessary for AOL to
perform in order to support the proper functioning and
integration of the Stars Online Area ("Routine Services"), ICP
will pay the then-standard fees charged by AOL for such Routine
Services.
(iv) Third Party Content. AOL will work to facilitate securing
-------------------
necessary rights for ICP to utilize certain Content (e.g.,
initially, [*], or substitutes therefor) necessary to produce the
[*] Area and [*] provided that, the Parties acknowledge that
certain third party consents may be necessary to secure such
rights and that AOL shall not be in breach of contract if it is
unable to secure such rights through reasonable efforts and ICP
shall not be in breach of contract if ICP's failure to produce
and program the [*] Area is caused solely by AOL's inability to
secure such rights. [*].
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
9
<PAGE>
In addition, ICP shall ensure that its utilization of any news
feeds and/or other third party Content provided by AOL to ICP
hereunder complies with any and all contractual terms and
conditions on use to which AOL is subject as communicated by AOL
to ICP in writing or by email.
3.2 Publishing and Production Tools. AOL shall provide to ICP, [*] those
-------------------------------
of AOL's proprietary publishing tools (each a "Tool") reasonably
necessary (as determined by AOL) for ICP to develop and implement the
Licensed Content during the Term. ICP shall be granted a nonexclusive
license to use any such Tool, which license shall be subject to: (i)
ICP's compliance with all rules and regulations relating to use of the
Tools, as published from time to time by AOL, (ii) AOL's right to
withdraw or modify such license [*], and (iii) ICP's express
recognition that AOL provides all Tools on an "as is" basis, without
warranties of any kind. [*].
3.3 Training and Support. AOL shall make available to ICP standard AOL
--------------------
training and support programs related to ICP's management and
maintenance of the Licensed Content. ICP can select its training and
support program from the options then offered by AOL. [*]. In
addition, ICP [*] associated with its participation in any AOL
training programs (including [*] when training is conducted at ICP's
offices).
4. PROMOTION
---------
4.1 Cooperation. Each Party shall cooperate with and reasonably assist
-----------
the other Party in supplying Content for marketing and promotional
activities which relate to the Online Area.
4.2 Interactive Site. The following promotions (collectively, the "AOL
----------------
Promos") shall be included within each Linked ICP Interactive Site and
[*] ICP Interactive Site controlled by ICP and providing [*]
of Content substantially the same as or similar to, the Licensed
Content or any Linked ICP Interactive Site, (i.e., currently,
http://www.athletedirect.com and http://www.psx.com) and all
successors thereto : (i) a [*] promotional button [*] appearing on the
[*] screen of such ICP Interactive Site to promote such AOL products
or services as AOL may reasonably designate [*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
10
<PAGE>
; and (ii) a [*] "Try AOL" feature [*] through which users can obtain
promotional information about AOL products or services designated by
AOL and, at AOL's option, download or order the then-current version
of client software for such AOL products or services. AOL will provide
the creative content to be used in the AOL Promos. ICP shall post (or
update, as the case may be) the creative content supplied by AOL
within the spaces for the AOL Promos within [*] of its receipt of
such content from AOL. Without limiting any other reporting
obligations of the Parties contained herein, ICP shall provide AOL
with [*] written reports specifying [*] containing the AOL Promos
during the [*]. In the event that AOL elects to serve the AOL Promos
to such ICP Interactive Site from an ad server controlled by AOL or
its agent, ICP shall take all reasonable operational steps necessary
to facilitate such ad serving arrangement, including without
limitation, inserting HTML code designated by AOL on the pages of such
ICP Interactive Site on which the AOL Promos will appear. In addition,
within each such ICP Interactive Site, ICP shall, [*], provide (a) [*]
promotion for the keywords associated with ICP's Online Area, and (b)
[*].
4.3 Other Media. In ICP's television, radio, print and "out of home"
-----------
(e.g., buses and billboards) advertisements relating to the [*] and in
any publications, programs, features or other forms of media relating
to the [*] over which ICP [*], ICP will include specific references or
mentions (verbally where possible) of the availability of ICP's Online
Area through the America Online(R) brand service, [*], as any
references that ICP makes to the [*] or any ICP Interactive Site
controlled by ICP and providing a [*] portion of Content substantially
the same as or similar to, the Licensed Content or any Linked ICP
Interactive Site (i.e., currently, http://www.athletedirect.com and
http://www.psx.com) and all successors thereto (by way of site name,
related company name, URL or otherwise). Without limiting the
generality of the foregoing, [*], ICP's listing of the "URL" for such
Licensed Content or ICP Interactive Site will be accompanied by a [*]
listing of the "keyword" term on AOL for the appropriate Online Area.
4.4 Preferred Access Provider. When promoting AOL, ICP shall promote
-------------------------
AOL as [*] access provider through which a user can access ICP's
Content and shall use [*] efforts to promote AOL [*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
11
<PAGE>
as part of ICP's promotion of the Licensed Content hereunder.
4.5 Promotion of Athletes. [*]
---------------------
5. PAYMENTS AND REPORTING.
----------------------
5.1 Payment Schedule. [*]
----------------
5.2 Reporting. On no less than a monthly basis, each Party shall supply
---------
or make available to the other Party reports containing the following
information:
5.2.1 Usage Data. AOL shall make available to ICP a monthly
----------
report specifying usage information for the Online Area for
the prior month in the format which is generally made
available to similarly situated interactive content
providers. In addition, for any Linked ICP Interactive Site
which AOL is caching, AOL shall supply ICP with monthly
reports reflecting aggregate impressions by AOL Members to
the cached version of the Linked ICP Interactive Site during
the prior month. For each Linked ICP Interactive Site, ICP
will supply AOL with monthly reports which reflect total
impressions by AOL Members to the Linked ICP Interactive
Site during the prior month.
5.2.2 Sales Reports. ICP will provide AOL in an automated manner
-------------
with a monthly report in an AOL-designated format, detailing
the following AOL Purchaser activity in such period (and any
other information mutually agreed upon by the Parties or
reasonably required for measuring revenue activity by ICP
through the Linked ICP Interactive Sites): (i) summary sales
information by day (date, number of Products, number of
orders, total Transaction Revenues); and (ii) detailed sales
information (order date/timestamp (if technically feasible),
AOL Purchaser name and screenname, SKU or Product
description) (information in clauses (i) and (ii), "Sales
Reports"). AOL will be entitled to use the Sales Reports in
its business operations, subject to the terms of this
Agreement. More generally, each payment to be made by ICP
pursuant to Section 2.5 will be accompanied by a report
containing information which supports the payment, including
information identifying gross Transaction Revenues
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
12
<PAGE>
and all items deducted or excluded from gross Transaction
Revenues to produce Transaction Revenues, including, without
limitation, chargebacks and credits for returned or canceled
goods or services (and, where possible, an explanation of
the type of reason therefor, e.g., bad credit card
information, poor customer service, etc.), revenue sharing
with an ICP Marketing Partner (as defined in Exhibit B).
5.2.3 Promotional Commitments. ICP shall provide to AOL a
-----------------------
monthly report documenting its compliance with any
promotional commitments it has undertaken pursuant to
Section 4 in the form attached as Exhibit D hereto.
5.2.4 [*]
6. TERM, TERMINATION AND COMMERCIAL LAUNCH.
---------------------------------------
6.1 Term. Unless earlier terminated as set forth herein, the initial
----
this Agreement shall be [*] from the Effective Date ("Initial
Term"). Upon the expiration of the Initial Term, AOL shall have the
right to renew this Agreement for up to [*] successive [*] terms
(each, a "Renewal Term" and together with the Initial Term, the
"Term"). ICP shall have the option to terminate this Agreement upon
[*] days notice within [*] days after the beginning of any Renewal
Term. ICP's obligations with respect to the Stars Online Area shall
begin immediately; however, the Stars Online Area shall be [*] in
the same manner as is provided in the Athlete Direct Interactive
Service Agreement (as defined below) [*]. Nothing contained in this
Agreement shall modify or amend that certain Interactive Services
Agreement by and between AOL and Athlete Direct, LLC, a California
limited liability corporation, dated April 1, 1997 (the "Athlete
Direct Interactive Services Agreement"), including without
limitation, the [*]. The Parties agree and acknowledge that the
Athlete Direct Interactive Services Agreement will expire on [*].
[*] therewith.
6.2 Termination for Breach. Either Party may terminate this Agreement
----------------------
at any time in the event of a material breach by the other Party
which remains uncured after [*] written notice thereof.
6.3 Termination for Bankruptcy/Insolvency. Either Party may terminate
-------------------------------------
this Agreement immediately following written notice to the other
Party if the other Party (i) ceases to do business in the normal
course, (ii) becomes or is declared insolvent or bankrupt, (iii) is
the subject of any proceeding related to its
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
13
<PAGE>
liquidation or insolvency (whether voluntary or involuntary) which
is not dismissed within ninety (90) calendar days or (iv) makes an
assignment for the benefit of creditors.
6.4 Site and Content Preparation. ICP shall achieve Site and Content
----------------------------
Preparation of the [*] Area (as defined in Exhibit A) and the Star
Pages (as defined in Exhibit A) on or before March 15, 1999, the
Athlete Online Areas as defined and set forth in Exhibit A and the
rest of the Star Online Area (as defined in Exhibit A) on or before
March 31, 1999. "Site and Content Preparation" shall mean that ICP
shall have completed production of the Online Area and the Licensed
Content in accordance with this Agreement and completed all other
necessary work to prepare the Online Area and the Licensed Content
and any other related areas or screens to launch on the AOL Network
as contemplated hereunder. In the event ICP has not achieved Site
and Content Preparation on or before February 15, 1999, [*]. If ICP
has not completed such work by March 15, 1999 for the [*] Area and
the Star Pages, the dates provided in Exhibit A for the Athlete
Online Areas and by March 31, 1999 for the rest of the Stars Online
Area, then, in addition to any other remedies available, AOL shall
have the right to terminate this Agreement by giving ICP written
notice thereof. If ICP is delayed in achieving Site and Content
Preparation due to a failure by AOL to perform its obligations
under this Agreement and ICP notifies AOL in writing of such
failure and the resulting delay, then the timeframe referenced in
this Section shall each be extended by the amount of time of ICP's
delay solely attributable to such failure by AOL.
6.5 Termination of Prior Agreement. As of the Effective Date, the
------------------------------
following agreement shall terminate by mutual agreement: that
certain Content License Agreement by and between [*].
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
14
<PAGE>
6.6 Termination for Change of Control/Ownership. [*]
-------------------------------------------
6.7 AOL Option. Without limiting any rights or remedies AOL may have
----------
pursuant to this Agreement, including without limitation, [*].
6.7.1 Option Fee. If AOL exercises its option to [*].
----------
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
15
<PAGE>
6.7.2 [*].
---
7. TERMS AND CONDITIONS. The legal terms and conditions set forth on
--------------------
Exhibit C attached hereto are hereby made a part of this Agreement.
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
16
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the Effective Date.
AMERICA ONLINE, INC. E-SPORT, INC.
By: /s/ Lynn E. Crawford By: /s/ Ross Schaufelberger
----------------------------- ------------------------------
Print Name: Lynn E. Crawford Print Name: Ross Schaufelberger
--------------------- -----------------------
Title: VP Title: C.O.O.
-------------------------- ----------------------------
Date: 2/17/99 Date: 2/16/99
--------------------------- -----------------------------
Tax ID/EIN#: 95-4673805
----------------------
PRO SPORTS XCHANGE, INC. ATHLETE DIRECT, INC.
By: /s/ Ross Schaufelberger By: /s/ Ross Schaufelberger
----------------------------- -------------------------------
Print Name: Ross Schaufelberger Print Name: Ross Schaufelberger
--------------------- -----------------------
Title: Secretary, VP Title: President
-------------------------- ----------------------------
Date: 2/16/99 Date: 2/16/99
--------------------------- -----------------------------
17
<PAGE>
EXHIBIT A
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT B
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT C
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT D
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT E-1
-----------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT E-2
-----------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT F
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT G
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT H
----------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT I
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT J
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT K
---------
[*]
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
--------------------------
Athlete Direct, Inc., a Delaware corporation
Pro Sports Xchange, Inc., a Delaware corporation
SportsAuthentics.com, Inc., a Delaware corporation
RotoNews, Inc., a Delaware corporation
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in the
headnote under "Selected Consolidated and Combined Financial Data" and to the
use of our report dated April 4, 1999 in the Registration Statement on Form S-
1 and related Prospectus of Broadband Sports, Inc. dated November 24, 1999 for
the registration of its shares of common stock.
/s/ Ernst & Young LLP
Los Angeles, California
November 23, 1999
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<PAGE>
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<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 10-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 SEP-30-1999
<PERIOD-START> FEB-28-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
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<SECURITIES> 52 52
<RECEIVABLES> 262 788
<ALLOWANCES> 0 0
<INVENTORY> 17 159
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<TOTAL-ASSETS> 2,356 15,409
<CURRENT-LIABILITIES> 596 2,541
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2,150 2,285
0 16,519
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<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 2,556 15,409
<SALES> 2,719 5,725
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<INTEREST-EXPENSE> 67 45
<INCOME-PRETAX> (4,356) (9,888)
<INCOME-TAX> 0 0
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<NET-INCOME> (4,356) (9,888)
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