<PAGE>
Filed with the Securities and Exchange Commission on January 20, 2000
Registration No. 333-91701
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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Amendment No. 1 to
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 514191 95-4673805
(State or other jurisdiction of (North American Industry (I.R.S. Employer
incorporation or organization) Classification System) Identification No.)
</TABLE>
1640 South Sepulveda Boulevard, Suite 500
Los Angeles, California 90025
(310) 882-7577
(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)
--------------
Copies of all communications to be sent to:
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<S> <C>
Michael J. Connell, Esq. Kenneth L. Guernsey, Esq.
Jonathan F. Atzen, Esq. Michael J. Sullivan, Esq.
Albert Y. Park, Esq. Michael W. Hauptman, Esq.
Maile Y. C. Yang, Esq. Cecilia M. Mao, Esq.
MORRISON & FOERSTER LLP COOLEY GODWARD LLP
555 West Fifth Street, Suite 3500 One Maritime Plaza, 20th Floor
Los Angeles, California 90013 San Francisco, California 94111
(213) 892-5200 (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. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of each class of Amount to Offering Price Aggregate Registration
securities to be registered be Registered Per Share Offering Price(2) Fee(2)
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<S> <C> <C> <C> <C>
Common Stock ($0.001 par value)(1)... $46,000,000 $12,788(3)
</TABLE>
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(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) Previously paid. --------------
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.
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<PAGE>
PROSPECTUS (Subject to Completion)
Issued , 2000
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 applied to have the shares of common stock approved for quotation on
the Nasdaq National Market under the symbol "FANS."
-----------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 9.
-----------
PRICE $ A SHARE
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<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Broadband Sports
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<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 , 2000.
-----------
MORGAN STANLEY DEAN WITTER
CHASE H&Q
BEAR, STEARNS & CO. INC.
, 2000
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
<PAGE>
TABLE OF CONTENTS
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Page
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<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 9
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
Industry Background...................................................... 42
Broadband Sports......................................................... 44
Management............................................................... 63
Certain Relationships and Related Transactions........................... 73
Principal Stockholders................................................... 75
Description of Capital Stock............................................. 77
Shares Eligible for Future Sale.......................................... 81
Underwriters............................................................. 83
Legal Matters............................................................ 85
Experts.................................................................. 85
Additional Information................................................... 86
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.
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 Financial Statements and Notes to Consolidated
Financial Statements appearing elsewhere in the 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 their demand for content and commerce
relating to their particular sports interests. In aggregate, sports fans spent
approximately $100 billion in 1999 on such sports-related items as spectator
sports, equipment, licensed goods, publications, apparel and footwear,
according to a December 1999 report in Street & Smith's SportsBusiness Journal.
We believe that we are well positioned to reach these communities through our
development of multiple distinct online media divisions. Each of these
divisions leverages its own set of proprietary assets to create content,
commerce and community offerings, targeting various online sports communities.
Through our distribution arrangements with AOL, eBay, Fox, Yahoo!, and uBid,
and through our own Web sites, we believe that we can efficiently reach these
sports communities with the type of content and commerce offerings they desire,
thereby enabling us to derive revenues from multiple sources, including
syndication, advertising, electronic commerce and subscriptions.
To date, we have developed four online media divisions:
. Athlete Direct -- Athlete Direct is a leading provider of athlete Web
sites. Athlete Direct currently has contracts with more than 250
athletes. These contracts provide us with exclusive online rights for
each of the athletes, with the exception that athletes can participate
elsewhere in a limited number of online chats. We create and operate the
official Web sites for athletes such as:
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<S> <C> <C> <C>
Troy Aikman Sergei Fedorov Anna Kournikova Keith Van Horn
Drew Bledsoe Kevin Garnett Karl Malone Michael Waltrip
Barry Bonds Ken Griffey, Jr. Nomar Garciaparra Bernie Williams
Kobe Bryant Tony Gwynn Mike Piazza Ricky Williams
Brett Favre Mia Hamm Dennis Rodman Steve Young
</TABLE>
We create Web sites offering unique content and commerce that is related
to each of the individual athletes. Our athletes provide interactive
content and authentic sports-related merchandise and collectibles that are
not readily available elsewhere. By aggregating numerous athlete sites
under one network, Athlete Direct can consistently provide fans with new,
original content and commerce.
4
<PAGE>
. Pro Sports Xchange and College Sports Xchange -- Pro Sports Xchange and
its collegiate arm, College Sports Xchange, are leading providers of in-
depth team and player information online. Pro Sports Xchange covers all
Major League Baseball, National Football League, National Basketball
Association and National Hockey League sports teams and players, and
College Sports Xchange covers every Division I college football and
basketball team. The communities that follow these teams and players are
seeking the latest and best inside information, which is not readily
available through other online or offline media outlets. Pro Sports
Xchange 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 online content.
. RotoNews -- RotoNews is a leading online fantasy sports Web site. Fantasy
sports Web sites provide content and services to consumers who are
involved in simulations that track the performance of real sports teams
and players. RotoNews offers proprietary news, games and statistical
services, and league management services that enable players to compete
against one another. Because participants invest significant time
learning league rules, becoming familiar with the user interface and
personalizing their sites 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. Because of the large number of teams
and available products, traditional retailers cannot effectively
inventory the full range of products necessary to satisfy the demand of
fans of different teams and players. 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 that are not readily
available elsewhere.
We syndicate our distinctive sports content through various distribution
relationships, including AOL, Fox Sports, and Yahoo!. The distribution of our
content and products across multiple platforms, including our own Web sites,
enables us to target numerous sports communities, increase brand awareness and
promote our product offerings. By targeting these communities, our divisions
enable us to derive revenues from multiple sources, including:
. Content Syndication. While the majority of Internet companies pay fees to
distribute their content and product offerings online, the
distinctiveness and in-depth analysis of our content has enabled us to
receive syndication fees from our distribution relationships with AOL,
Fox Sports and Yahoo!.
. Advertising. We offer advertisers the opportunity to target an attractive
demographic, the 18 to 35 year-old male audience, 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 that provide in-depth, original information about teams
and players. Information included in our premium content offerings is
available only for purchase and generally is not available through
traditional media sources.
5
<PAGE>
We believe that we can use our proprietary assets, distribution relationships
and common technology platform to effectively deliver our content and commerce
to sports communities. We intend to continue to leverage these aspects of our
business to develop additional divisions focused on fans of sports we do not
currently cover.
----------------
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.
RECENT DEVELOPMENTS
On December 3, 1999, we entered into an agreement with Lycos, Inc. Lycos owns
and operates a number of different Web sites, including www.lycos.com. Under
this agreement, we will create and maintain a co-branded sports site with
Lycos, whereby we will become the principal provider of sports content to
Lycos, which includes providing Lycos athlete sites, news, fantasy games and
other sports content. Lycos will provide promotion for our sports content and
products and will provide links back to our co-branded Web site. Lycos has
agreed to pay us a content syndication fee as well as a share of advertising
revenue generated from the Lycos sports area. We will also sell merchandise and
collectibles through the Lycos Web site, and we will pay Lycos a percentage of
revenues from these sales. The agreement extends for a period of two years,
with successive one year renewal periods unless either party terminates. We
expect that this agreement will become operational in the first quarter of
2000.
6
<PAGE>
THE OFFERING
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<C> <S>
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.............. FANS
</TABLE>
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(1) Outstanding share information includes 22,801,365 shares of restricted
common stock and excludes: an aggregate of 35,294,117 shares of common
stock reserved for issuance under our stock option plans, of which options
to purchase 29,708,489 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 $ . In addition, outstanding share information
also excludes 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.
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 47,716,663 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.
7
<PAGE>
SUMMARY CONSOLIDATED AND COMBINED FINANCIAL INFORMATION
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.
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 18,550,000 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 47,716,663 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, Inc.
------------------------------------------ ----------------------------------------
Period
February 1, 1996
(inception) Two Months Ten Months Seven Months Nine Months
Through Year Ended Ended Ended Ended Ended
December 31, December 31, February 27, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1999
---------------- ------------ ------------ ------------ ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated and
Combined Statement of
Operations:
Revenues................ $ 219 $1,874 $507 $ 2,719 $ 1,908 $ 5,725
Gross profit............ (195) 574 211 683 503 1,913
Total operating
expenses............... 164 1,277 368 4,966 3,407 11,757
Loss from operations.... 359 703 157 4,283 2,904 9,844
Net loss................ 359 700 157 4,356 2,945 9,889
Historical loss per
share basic and
diluted (1)............ $ 0.02 $ 0.01 $ 0.05
Pro forma loss per share
basic and diluted (2).. $ 0.02 $ 0.01 $ 0.04
Weighted average common
and common equivalent
shares outstanding.....
Historical (1)........ 217,038 217,038 217,038
Pro forma (2)......... 217,038 217,038 231,140
</TABLE>
<TABLE>
<CAPTION>
As of September 30, 1999
----------------------------
Pro Forma
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands)
<S> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents.......................... $9,320 $27,193 $
Working capital.................................... 9,407 27,280
Total assets....................................... 15,409 33,282
Revolving loan due to stockholder.................. 4,468 4,468
Mandatorily redeemable preferred stock............. 2,285 2,285
Total stockholders' equity......................... 6,116 23,988
</TABLE>
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(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 gives effect to the redemption of the series A
preferred stock and the issuance and conversion of the series B preferred
stock as having been outstanding from the issuance date of May 25, 1999.
8
<PAGE>
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 for fewer than two years, it is
difficult to evaluate our prospects
In 1998, Broadband Sports was incorporated for the purpose of combining
Athlete Direct and Pro Sports Xchange, each of which had operated
independently prior to our inception. In 1999, the Company acquired RotoNews
and formed SportsAuthentics.com. 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 sports-related content and commerce;
. maintain existing and develop new distribution relationships as well as
relationships with athletes, sports writers, sports personalities,
agents, and advertisers;
. successfully market and promote our www.athletedirect.com site;
. create and maintain a common technology platform that supports the
creation and distribution of all of our content and commerce offerings
across all of our sports media divisions;
. achieve projected levels of online traffic and revenues, particularly on
our www.athletedirect.com site, which has only been in operation for a
short period of time;
. 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 incurred a net loss of $4.4 million for the ten months ended December 31,
1998 and a net loss of $9.9 million for the nine months ended September 30,
1999 and anticipate losses for the foreseeable future
We have incurred net losses in each quarterly and annual period since we
began operations. 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. 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;
9
<PAGE>
. 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 divisions 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 distribution relationships, 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 change in the composition of revenues and the related costs of those
revenues;
. 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.
Some of our operating expenses, including personnel costs and rent expense,
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.
10
<PAGE>
We may experience difficulties in the successful marketing and promotion of
our www.athletedirect.com site
Historically, Athlete Direct has been available on the AOL proprietary
network, and more recently, on the World Wide Web through distribution
relationships with Yahoo! and eBay. We have not recognized material revenue
from the www.athletedirect.com site to date but expect that advertising and
electronic commerce revenues from this site will represent a greater
percentage of our overall revenues in the future. Growth of revenue from this
site depends on our ability to successfully market and promote the site on a
timely basis. We cannot assure you that we will be successful in marketing and
promoting the www.athletedirect.com site on a timely basis, if at all. We
anticipate that our marketing initiatives will require the hiring of
additional marketing personnel and the implementation of online and offline
marketing campaigns. We do not currently have significant internal marketing
resources and we do not have significant experience in planning and executing
the marketing initiatives described above. Further, we cannot assure you that
even if our marketing initiatives are successful, the www.athletedirect.com
site will attract a significant level of traffic or revenues.
Our future growth depends on our existing AOL relationship and our ability
to enter into new distribution relationships
To date, we have derived a significant portion of our revenues from our AOL
and uBid relationships. For the ten months ended December 31, 1998, AOL
accounted for approximately 46% of our revenues. For the nine months ended
September 30, 1999, AOL and uBid accounted for approximately 50% and 15% of
our revenues, respectively. We expect that a limited number of distribution
relationships will continue to have a significant impact on our expected
growth for the foreseeable future.
Accordingly, our future success depends on our ability to retain our
existing AOL and uBid relationships and to attract new relationships on a
timely basis and on terms favorable to us. Failure to do so could adversely
affect our business.
We have in the past entered into a distribution relationship that limits
our ability to distribute the collectibles offered by SportsAuthentics.com. We
may in the future enter into distribution arrangements with exclusivity
provisions that 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 the parties with whom we have distribution relationships will
perform their respective obligations as agreed.
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;
. monitoring and adapting to changing consumer preferences;
11
<PAGE>
. effectively integrating leading-edge technologies to create and
distribute content utilizing original sports programming; and
. the technical expertise and creativity of our production and content
staff to produce content for distribution in a broadband environment.
We depend on athletes and other sports personalities to provide original
content to attract distribution relationships, 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, such as broadcasters, commentators, coaches and other
non-athlete public figures in sports. 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 online rights to use and market the voices, attributes and
original first-person content provided by 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, we believe that approximately 30 sports agents represent more
than 50% of the prominent U.S. professional athletes within Major League
Baseball, the National Football League, the National Basketball Association
and the National Hockey League. 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 agents 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 exclusive online agreements with
over 270 sports writers.
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If we are unable to continue to attract and retain 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 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.
Our agreements 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
relationships, 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.
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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 the parties with whom we currently have distribution
relationships 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 relationships, agents, advertisers, viewers and consumers. These
competitors may be able to respond more quickly than we can to new
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.
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 divisions 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.
Our business success depends on our ability to attract and retain
advertisers
Our failure to attract a significant number of advertisers or sponsors to
our online sites could adversely affect our business and financial results.
Currently, our internal advertising sales force sells advertising directly,
and we also sell advertising through agencies that represent advertisers. 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.
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Historically, we have not recognized material revenue from sponsorships. We
intend to sell sponsorships of our athletes' sites to existing sponsors of
these athletes. 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 the attractive 18 to 35-year old male demographic group;
. the general market for athlete sponsorships;
. the pricing of advertising on other online sites;
. advertisers' acceptance of the current banner size on the AOL proprietary
network, which is smaller than traditional advertising banners on the
World Wide Web;
. content introductions by us and our competitors; and
. our ability to develop and retain a skilled advertising sales force.
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 grow
our 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. We have only been involved in distribution and
fulfillment operations for approximately 12 months. 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
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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 our distribution relationships as well as
relationships with numerous athletes, sports writers, sports
personalities, and other third parties;
. the difficulties in hiring and retaining skilled personnel necessary to
support our current level of business and to grow our multiple sources of
revenue; and
. the need to train and manage our growing employee base.
The addition of new sports media or other divisions 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 from 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
implementing the technology platform that is currently supporting the storage,
delivery and display of our original content and commerce for
www.athletedirect.com across our other sports media divisions. If we are
unsuccessful in the implementation of this technology platform across our
other sports media divisions, we would not be able to realize the financial
and operating efficiencies planned by our investments in this technology
platform and 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;
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. 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 for distribution in a
broadband environment as broadband access becomes 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 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 we will seek to register additional trademarks as appropriate. The uses
for which we have applied for registration of these trademarks include
providing online retail services, and delivering sports information,
photographs, interactive chat rooms and fan message boards through the
Internet. We believe that securing these registrations is vital to the
successful marketing and promotion of our lines of business. 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
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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 pay for or otherwise 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
online sites, 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. Approximately 80% of our National
Football League athletes are represented by the NFLPA. 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.
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 personnel. The key
senior management personnel who are important to our success are Richard D.
Nanula, Chief Executive Officer and Chairman of the Board, Tyler J. Goldman,
President, Broadband Studios, a division of Broadband Sports, and Ross B.
Schaufelberger, Senior Vice President, Business Development. Mr. Nanula has
been with us for fewer than 12 months. We have entered into employment
agreements with all of the aforementioned 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 senior management personnel or the
inability to attract and retain additional, qualified personnel could
adversely affect our business.
We may acquire other businesses and we may have difficulty integrating these
businesses
We acquired RotoNews in February 1999 and may in the future broaden the
scope of our business by acquiring additional 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
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encountered in connection with future 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 our distribution relationships or our relationships
with employees and other customers as a result of integration of new
businesses.
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. At this time, our planning has not
reached the stage of identifying a specific region or regions for any such
expansion. 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;
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. 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.
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. While neither we nor insofar as we know any of the persons with
whom we make connections have incurred any outages or failures due to the year
2000, there is still a possibility that year 2000 outages or failures may
occur and may cause our systems to malfunction.
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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.
Despite precautions taken by us and by the companies that now host 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. We do not currently
have redundant systems or a formal disaster recovery plan.
Any disruption in our users' 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.
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 advertising
revenues or anticipate whether we or the parties with whom we have
distribution relationships 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
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or targeting particular demographic groups. If measurement standards do not
develop, we may be unable to retain current, or attract new, advertisers. We
depend on third parties to provide measurement services for the delivery of
advertisements on our sites. These third parties use proprietary software to
deliver advertisements and measure the delivery of these advertisements. 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. We transmit personal information such as credit card
numbers and store proprietary information such as customer names, addresses
and purchase trends. 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 relationships 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 parties with whom we have
distribution relationships and participants on online pages or in chat
rooms and bulletin boards, such as information provided by our sports
writers.
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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 distribution
relationships as well as in our relationships with our athletes, sports
writers, sports personalities, advertisers, partners and other third parties.
This could reduce traffic on our online sites, negatively affect our user
base, or reduce our revenue from advertising and electronic commerce.
Imposition of government regulations and other legal uncertainties
associated with lotteries and gambling could adversely affect our business
RotoNews' occasional use of prizes in its fantasy sports games may subject
some of its games to state and federal laws governing lotteries and gambling.
These laws vary from jurisdiction to jurisdiction and are complex and
uncertain both in application and enforcement. RotoNews seeks to design its
games so as not to constitute lotteries or gambling under these laws and,
where possible, to fall within exemptions from applicable laws. We cannot
assure you that our contests will be exempt from such laws or that the
applicability of such laws will not adversely affect our business. Failure to
comply with applicable laws could materially harm our business.
Risks Associated With Our Offering
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 18 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
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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.
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
295,143,972 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.
24
<PAGE>
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 29,708,489 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 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 248,120,387 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.
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 from this offering and current cash
equivalents will be sufficient to fund our working capital and capital
expenditure requirements for at least the next 18 months.
We have not identified specific uses for all such proceeds. 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 18,550,000 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 47,716,663 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 and
pro forma; no shares issued and outstanding
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; 295,143,972
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 55,622
Receivable from stockholder................. -- (15,202)
Deferred stock compensation................. (2,483) (2,483)
Accumulated deficit......................... (14,244) (14,244)
-------- -------- ----------
Total stockholders' equity................ 6,116 23,988
-------- -------- ----------
Total capitalization.................... $ 12,869 $ 30,741 $
======== ======== ==========
</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. Pro forma 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
18,550,000 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 47,716,663 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 pro forma 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 pro
forma 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 pro forma 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>
During November 1999, we issued 30,389,809 shares of common stock to our
newly hired Chief Executive Officer at $0.60 per share. Also during November
1999, we issued 18,550,000 shares of series C preferred stock to new and
existing stockholders at $0.80 per share. The average price of these shares
amounts to $0.68 per share. 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... % $ % $
Shares issued to Chief
Executive Officer.......
Series C 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 ten 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 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 balance sheet
data as of December 31, 1996 are derived from financial statements of the
Predecessor Companies that are not included 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 Broadband
(inception) Two months Ten months Seven months Nine months
through Year ended ended ended ended ended
December 31, December 31, February 27, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1999
---------------- ------------ ------------ ------------ ------------- -------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Consolidated and
Combined Statement of
Operations Data:
Revenues................ $ 219 $ 1,874 $ 507 $ 2,719 $ 1,908 $ 5,725
Cost of revenues........ 414 1,300 296 2,036 1,405 3,812
----- ------- ----- ------- ------- -------
Gross profit (loss)..... (195) 574 211 683 503 1,913
Operating expenses:
Sales and marketing.... 4 154 69 592 209 4,488
Product development.... 8 22 9 137 85 714
General and
administrative........ 97 672 136 1,537 1,067 4,098
Depreciation........... 3 15 4 43 26 268
Amortization of
goodwill.............. -- -- -- 244 170 269
Amortization of
deferred stock
compensation and
deferred incentives
(1)................... 52 414 150 2,413 1,850 1,920
----- ------- ----- ------- ------- -------
Total operating
expenses............ 164 1,277 368 4,966 3,407 11,757
----- ------- ----- ------- ------- -------
Operating loss.......... (359) (703) (157) (4,283) (2,904) (9,844)
Interest income......... -- 3 -- -- -- 199
Interest and other
expense................ -- -- -- (73) (41) (244)
----- ------- ----- ------- ------- -------
Net loss................ $(359) $ (700) $(157) $(4,356) $(2,945) $(9,889)
===== ======= ===== ======= ======= =======
Historical loss per
share basic and
diluted (2)............ $ 0.02 $ 0.01 $ 0.05
Pro forma loss per share
basic and diluted (3).. $ 0.02 $ 0.01 $ 0.04
Weighted average common
and common equivalent
shares outstanding.....
Historical (2)......... 217,038 217,038 217,038
Pro forma (3).......... 217,038 217,038 231,140
</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) All amortization of deferred stock compensation related to employees and
deferred incentives related to non-employees has been aggregated and shown
as a separate line item in the statements of operations.
(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 gives effect to the redemption of the series A
preferred stock and the issuance and conversion of the series B preferred
stock as having been outstanding from the issuance date of May 21, 1999.
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
Broadband Sports is a leading Internet provider of original content and
commerce for hundreds of individual sports communities. We use our proprietary
assets -- such as contractual relationships with athletes, writers and sports
personalities -- to create content and commerce offerings targeting
geographically dispersed sports communities who follow individual sports,
teams and athletes.
We have established distribution relationships with AOL, eBay, Fox, Yahoo!,
and uBid which, along with our own Web sites, enable us to reach numerous
sports communities, increase awareness of our brands, and promote our content
and commerce offerings.
Broadband Sports was founded by Tyler J. Goldman and was incorporated in
February 1998 to combine Athlete Direct, Inc. and Pro Sports Xchange, Inc.
under common ownership. Initial funding was primarily provided by one venture
capital investor. Athlete Direct began operations in September 1996 and 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 $2,209,964. The acquisitions were accounted for as purchase
transactions and $877,516 of goodwill was recorded which is being amortized
using the straight-line method over three years. In February 1999, Broadband
Sports acquired the assets of Manna Mir Research, Inc., for $225,000 in cash
and contingent consideration of up to an additional $205,000. Manna Mir
Research, Inc. owned and operated the fantasy sports site, rotonews.com. These
assets were contributed to a newly formed subsidiary, RotoNews, Inc. In
connection with the acquisition of Manna Mir Research, Inc., we recorded
$254,074 of goodwill which is being amortized using the straight-line method
over three years. In March 1999, Broadband Sports formed a new subsidiary,
SportsAuthentics.com, Inc., to market and distribute sports-related
merchandise and collectibles.
Revenues. We currently derive revenues from four sources: content
syndication, advertising, electronic commerce and subscriptions. We earn
content syndication revenues through a license to display our original
content. Our content includes the Pro Sports Xchange and College Sports
Xchange Insider Team Reports, the Pro Sports Xchange, College Sports Xchange
and Player Notes, as well as the individual athlete sites produced by Athlete
Direct. Content syndication revenues are recognized over the period of the
license agreement as we deliver such content. In addition to cash payments,
our distribution relationships provide us with guaranteed promotion and
placement for our original content as well as promotional links to our
subscription products and our sports-related merchandise and collectible
products. Advertising revenues represent the sale of 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
31
<PAGE>
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.
During the nine months ended September 30, 1999, we entered into certain
agreements whereby we received non-monetary benefits. Revenues were recorded
at fair value based upon our history of receiving cash for similar
transactions. See Notes 2 and 13 of Notes to Consolidated and Combined
Financial Statements.
We currently generate revenues from our four online media divisions:
. Athlete Direct, which creates and operates individual athlete Web sites,
launched its initial site on the AOL proprietary network 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. Under the terms of the new agreement with AOL, that
terminates on June 30, 2001, Athlete Direct creates and maintains
individual athlete sites on the AOL proprietary network for which Athlete
Direct earns a content syndication fee. In May 1999, Athlete Direct
entered into an agreement with Yahoo! to syndicate its content to Yahoo!
Sports which terminates in June 2000. These agreements provide guaranteed
promotion and placement for our original content as well as promotional
links to our subscription products and our sports-related merchandise and
collectible products. In addition, Athlete Direct currently sells
collectibles through its distribution relationship with 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 released the Athlete Direct Web site in the last quarter of
1999 which users can access directly or through links from AOL, Yahoo! or
eBay. To date, we have not actively promoted www.athletedirect.com and it
has not generated material revenues.
. Pro Sports Xchange, which provides team and player information, editorial
content and other similar sports content, initially recognized revenues
from content syndication in the first quarter of 1996. During 1997, Pro
Sports Xchange entered into syndication relationships that limited
distribution for its content to three individual distribution
relationships. These distribution restrictions expired in December 1998.
Currently, Pro Sports Xchange's distribution relationships include AOL,
AOL.com, Fox Sports and Yahoo!. These distribution agreements provide for
Pro Sports Xchange to license its content for display on third party
sites. Pro Sports Xchange derives revenues primarily from content
syndication and, to a lesser extent, the sale of subscriptions to its
premium content offerings. Currently, the psx.com, Web site is used
solely to distribute Pro Sports Xchange premium content products.
. RotoNews derives its revenues from the sale of advertisements on its Web
site, rotonews.com.
. 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 on the
AOL platform. Currently, SportsAuthentics.com does not sell products
directly through its own Web site but intends to do so within the next
12 months.
Cost of Revenues. Our cost of revenues includes compensation and benefits
for editorial and operations personnel, and telecommunications, Internet
access and computer-related expenses for the support and delivery of our
services. Cost of revenues also includes the cost of sports-related
merchandise and collectibles sold and the royalties paid to certain athletes,
sportswriters and sports personalities based on a percentage of the revenues
or gross profits generated.
32
<PAGE>
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. We provide financial guarantees in certain contracts that we enter
into with athletes, sports writers and sports personalities. In some cases,
these guarantees exceed the current revenues generated by the contracted party
and we attribute this additional value to the marketing services that we
receive contractually from the athletes, sports writers and sports
personalities. We amortize these advances on a straight-line basis over the
term of the contracts. We classify the portion of the guarantees that are
directly earned against revenue for the period as cost of revenues and any
excess as sales and marketing expense.
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 Pro Sports Xchange in
February 1998 and RotoNews in February 1999 and deferred stock compensation
and deferred incentive costs. Amortization of deferred stock compensation and
deferred incentives has been aggregated and shown on a separate line item on
the statement of operations since they both relate to stock options.
We intend to recognize $3.3 million of additional amortization expense
related to deferred stock compensation and deferred incentives existing as of
September 30, 1999 as follows:
<TABLE>
<CAPTION>
Deferred
Stock Deferred
Year Compensation Incentives
---- ------------ ----------
(in millions)
<S> <C> <C>
1999................................................. $0.4 $0.1
2000................................................. 1.2 0.3
2001................................................. 0.5 0.3
2002................................................. 0.2 0.2
2003................................................. 0.0 0.1
---- ----
Total.............................................. $2.3 $1.0
==== ====
</TABLE>
During October and November 1999, and January 2000, we issued warrants,
options, and restricted common stock for which we are recording deferred stock
compensation and deferred incentive costs of approximately $11.2 million. We
will record amortization expense in connection with such deferred stock
compensation and deferred incentives over the next five years.
Interest Expense. Interest expense consists of interest incurred on our
existing revolving loan due to NMSS in the amount of $4.5 million. The
interest rate is 1% above the prime rate. All amounts borrowed under the
revolving note mature and are payable the earlier of February 27, 2003 or upon
the occurrence of other reorganization transactions including an initial
public offering that results in net proceeds to us of at least $10 million.
Interest Income. Interest income represents interest earned on cash and cash
equivalents and marketable securities.
33
<PAGE>
Income Taxes. No provision for Federal or 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.
<TABLE>
<CAPTION>
Period from Two Months Ten Months Seven months Nine months
February 1, 1996 Year ended ended ended ended ended
to December 31, December 31, February 27, December 31, September 30, September 30,
1996 1997 1998 1998 1998 1999
---------------- ------------ ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 189.0 69.4 58.4 74.9 73.6 66.6
------ ------ ----- ------ ------ -----
Gross profit (loss)..... (89.0) 30.6 41.6 25.1 26.4 33.4
Operating expenses:
Sales and marketing.... 1.9 8.2 13.8 21.8 11.0 78.4
Product development.... 3.6 1.2 1.7 5.0 4.4 12.5
General and
administrative........ 44.4 35.9 26.8 56.5 55.9 71.6
Depreciation........... 1.3 0.8 0.7 1.6 1.3 4.7
Amortization of
goodwill.............. -- -- -- 9.0 8.9 4.7
Amortization of
deferred stock
compensation and
deferred incentives... 24.0 22.0 29.6 88.7 97.0 33.5
------ ------ ----- ------ ------ -----
Total operating
expenses............... 75.2 68.1 72.6 182.6 178.5 205.4
------ ------ ----- ------ ------ -----
Operating loss.......... 164.2 37.5 31.0 157.5 152.1 172.0
Interest and other
expense................ (0.1) (0.1) -- 2.7 2.1 0.7
------ ------ ----- ------ ------ -----
Net loss................ 164.1 37.4 31.0 160.2 154.2 172.7
====== ====== ===== ====== ====== =====
</TABLE>
All amortization of deferred stock compensation related to employees and
deferred incentives related to non-employees has been aggregated and shown as
a separate line item in the statement of operations presented above.
Seven Months Ended September 30, 1998 and Nine Months Ended September 30, 1999
The following discussion of results of operations compares the seven months
ended September 30, 1998 and the nine months ended September 30, 1999. As
expected, due to the different number of months in the comparative periods,
our results of operations fluctuate significantly and as a result may not be
meaningful.
Revenues. Revenues increased $3.8 million, to $5.7 million, or 200%, for the
nine months ended September 30, 1999 from $1.9 million for the seven months
ended September 30, 1998. The increase in revenues was primarily the result of
a 136% increase in content syndication revenues from additional distribution
relationships and, to a lesser extent, increases in 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 $2.4 million to $3.8 million
for the nine months ended September 30, 1999 from $1.4 million for the seven
months ended September 30, 1998. Our gross margin increased to 33.4% from
26.4% for the nine months ended September 30, 1999 from the
34
<PAGE>
seven months ended September 30, 1998. The decrease in cost of revenues as a
percentage of total revenues was primarily attributable to the previously
discussed 136% increase in syndication revenues for the nine months ended
September 30, 1999 as compared to the seven months ended September 30, 1998.
The increase in cost of revenues on an absolute basis was primarily the result
of an additional 23 employees in editorial and operations.
Sales and Marketing. Sales and marketing expenses increased $4.3 million to
$4.5 million for the nine months ended September 30, 1999 from $209,000 for
the seven months ended September 30, 1998. As a percentage of total revenues,
these costs increased from approximately 11.0% for the seven months ended
September 30, 1998 to 78.4% for the nine months ended September 30, 1999. This
increase was primarily attributable to a $2.3 million increase in the
marketing expenses incurred under our distribution relationships, an increase
in amortization of advances paid to athletes, increased advertising and
marketing activity and the hiring of an additional 38 sales and marketing
employees. As part of our distribution relationships, we will incur marketing
expenses of approximately $293,000 to these parties over the contractual term
of the agreements. (See Note 13 to the Notes to Consolidated and Combined
Financial Statements). We intend to pursue a branding and marketing campaign
in connection with the www.athletedirect.com site and in support of our other
divisions. Accordingly, we expect sales and marketing expenses to increase in
absolute dollars in the future.
Product Development. Product development expenses increased $628,000 to
$714,000 for the nine months ended September 30, 1999 from $85,000 for the
seven months ended September 30, 1998. As a percentage of total revenues,
product and development expenses represented approximately 4.4% and 12.5% for
the seven months ended September 30, 1998 and the nine months ended September
30, 1999, respectively. This increase was primarily attributable to the costs
of an additional 20 personnel associated with the www.athletedirect.com site,
network operations and other new programming initiatives. We intend to invest
additional resources on the further development of our online sites, upgrades
to our technological infrastructure, integration of a common back-end platform
across all our divisions, 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
$3.0 million to $4.1 million for the nine months ended September 30, 1999 from
$1.1 million for the seven months ended September 30, 1998. As a percentage of
revenues, our general and administrative expenses increased from approximately
55.9% for the seven months ended September 30, 1998 to 71.6% for the nine
months ended September 30, 1999. This increase in general and administrative
expenses was primarily attributable to increased facility expenses related to
our overall personnel growth, headcount expenses associated with the hiring of
five additional employees 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 $243,000 to $268,000 for the
nine months ended September 30, 1999 from $25,000 for the seven months ended
September 30, 1998. The increase in depreciation was due to increases in
facilities and equipment. We expect depreciation expenses to continue to
increase as we invest in additional property and equipment in the future.
Amortization. Amortization expenses increased $200,000 to $2.2 million for
the nine months ended September 30, 1999 from approximately $2.0 million for
the seven 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
35
<PAGE>
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 seven 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 seven months ended September 30,
1998. We generated this income by investing the proceeds from the series B
preferred stock issued during the second quarter of 1999.
Inception Period and Year Ended December 31, 1997 and Ten Months ended
December 31, 1998
The following discussion of results of operations compares the inception
period, the twelve months ended December 31, 1997 and the ten months ended
December 31, 1998. As expected, due to the different number of months in the
comparative periods, our results of operations fluctuate significantly and as
a result may not be meaningful.
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 approximately $900,000, or 45%, to $2.7
million for the ten months 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 relationships 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 approximately $700,000 to $2.0 million for
the ten months 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 25.2% for the ten month period ended December 31,
1998. These increases in cost of revenues were primarily the result of
increased hiring, particularly in editorial and operations staff, as well as
increases in revenues 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 $438,000 to $592,000 for the ten
months 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 staff and
an increase in amortization of advances paid 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 $115,000 to $137,000 for the ten
months 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.
36
<PAGE>
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 approximately
$800,000 to $1.5 million for the ten months 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 $28,000 to $43,000 for the ten months 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 $2.3 million to $2.7 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 Pro Sports
Xchange.
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 ten months 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.
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.
37
<PAGE>
All amortization of deferred stock compensation related to employees and
deferred incentives relating to non-employees has been aggregated and shown on
a separate line item in the statement of operations. For a more detailed
description of deferred stock compensation and deferred incentives. See
Note 10 to the Notes to Consolidated and Combined Financials.
<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 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.
38
<PAGE>
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. The interest rates on
December 31, 1998 and November 30, 1999 were 8.75% and 9.50%, respectively.
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 these agreements
at December 31, 1998 totalling $1.7 million, 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>
We expect to enter into additional agreements in the future. The terms of
these agreements may not reflect the terms of the agreements entered into in
the future.
At September 30, 1999, we had approximately $9.3 million in cash and cash
equivalents. Net cash used in operating activities was $7.7 million for the
nine months ended September 30, 1999 and $1.4 million for the ten months and
December 31, 1998. 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 and $2.4
million for the nine months ended September 30, 1999 and the ten months ended
December 31, 1998. Non-cash charges relating to depreciation expenses for the
nine months ended September 30, 1999 and the ten months ended December 31,
1998 were $268,000 and $43,000.
Net cash used in investing activities was $2.1 million and $2.4 million for
the nine months ended September 30, 1999 and the ten months ended December 31,
1998. Net cash used in investing activities resulted primarily from capital
expenditures related to purchases of computer software and equipment for $1.9
million during the nine months ended September 30, 1999 and $190,000 during
the ten months ended December 31, 1998. During 1998 we acquired the
predecessor companies for $2.2 million and during 1999 we acquired RotoNews
for $256,000 and contingent consideration of an additional $205,000.
39
<PAGE>
Net cash provided by financing activities was $19.0 million and $4.1 million
for the nine months ended September 30, 1999 and the ten months ended December
31, 1998. 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 the ten months ended December 31, 1998 includes
capital contributions of $2.1 million and borrowings of $2.0 million 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 $17.9 million of proceeds from the issuance of
series C preferred stock to various investors and common stock to our Chief
Executive Officer.
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 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 exclusive of the net proceeds from this offering. 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 change in the century. If not corrected, many computer software
applications could fail or create erroneous results during 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
40
<PAGE>
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 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 have successfully corrected or avoided year 2000
problems, but it is not possible to predict whether there still could be some
potential negative impact from 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.
Because the majority of our infrastructure is new, costs attributable to our
year 2000 efforts were not material and we do not expect to incur any
additional costs. The costs associated with our year 2000 compliance program
did 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. Our contingency plans in the event of such
failures include a high level of redundancy across all our systems (databases
and production platforms), which would offer us parallel services as required.
We have also installed a real-time backup both at our data centers and within
our internal network, which would offer us a migration path of all critical
data. An internal year 2000 workgroup is responsible for patching and updating
all our systems with the latest software provided by our vendors, as well as
implementing any recovery schedule.
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>
41
<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. Sports fans spent approximately $100 billion in 1999
on such sports-related items as spectator sports, equipment, licensed goods,
publications, apparel and footwear, according to a December 1999 report in
Street & Smith's SportsBusiness Journal. More specifically, in 1999:
. Retailers sold approximately $40 billion of licensed sports merchandise,
sports equipment and apparel; and
. Sports-related advertising was approximately $28 billion.
In addition to 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 hundreds of individual sports communities 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.
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 the November
1999 Media Metrix report, approximately 46% 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 sports communities.
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. We use our proprietary
assets -- such as contractual relationships with athletes, writers and sports
personalities -- to create content, commerce and community offerings targeting
geographically dispersed sports communities who follow individual sports,
teams and athletes.
Currently, we have four distinct online media divisions through which we
reach these sports communities. Athlete Direct creates and operates athlete
Web sites for more than 250 athletes. Pro Sports Xchange and its collegiate
arm, College Sports Xchange, provide in-depth online team and player
information covering all Major League Baseball, National Football League,
National Basketball Association, and National Hockey League teams and players
and all Division I college football and basketball teams. RotoNews, a leading
online fantasy sports Web site, provides proprietary news, games and
statistical services. SportsAuthentics.com is an Internet retailer of sports
collectibles and merchandise.
We have established distribution relationships with AOL, eBay, Fox, Yahoo!,
and uBid which, along with our own Web sites, enable us to target numerous
sports communities, increase awareness of our brands, and promote our content
and commerce offerings.
Through these distribution relationships, and through operation of our Web
sites, we are able to derive revenue from multiple sources, including content
syndication, advertising, electronic commerce and sale of subscriptions to
premium content offerings.
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 added more than 200 athletes, writers and sports
personalities to our various divisions.
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 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 products
targeted at both the distinct sports communities we now serve as well as new
sports communities we do not currently target, such as archery and yachting.
This will include an increase in the number of divisions we develop, programs
we produce and commerce products we create.
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Capitalize on Multiple Distribution Relationships. 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 relationships. We
intend to continue to distribute our content and products across multiple
platforms to target distinct sports communities, increase brand awareness of
our divisions, promote our product offerings and generate revenues from
multiple sources for us and the other parties to our distribution
relationships. To augment the distribution of our content and products, we
intend to pursue additional distribution relationships and to release new Web
sites, including the www.sportsauthentics.com site and other individual
athlete Web sites.
Increase Traffic and Build Awareness of Our Divisions. To date, we have
capitalized on the nature of our offerings and the efforts of the parties with
whom we have distribution relationships to create traffic and promote our
divisions. In addition to using our present distribution relationships to
create traffic and enhance awareness of our divisions, we intend to market our
brands and divisions 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 divisions. We believe that this will enable us to
achieve significant cost savings in technology development, bring new
divisions to market in an expeditious manner and capture the value in the
relationship between our various divisions and the communities they serve. For
example, a Green Bay Packer fan reading a Pro Sports Xchange 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 Divisions
To capitalize on the opportunities within the online sports marketplace, we
develop branded divisions that combine original content and products. We offer
our content and products through our distribution relationships to effectively
reach sports fans within distinct sports communities. Currently, we own and
operate four online sports media divisions:
<TABLE>
<CAPTION>
Primary Distribution
Division http Revenue Sources Relationships
- -------- ------------------------ ------------------- -------------------------
[Athlete Direct Logo]
<S> <C> <C> <C>
Official athlete sites, www.athletedirect.com Content Syndication AOL
original athlete Advertising eBay
programming, Electronic Commerce Yahoo!
communities and online
stores
[PSX Logo]
In-depth professional www.psx.com Content Syndication AOL
and collegiate team and Subscription AOL.com
player information from Advertising Fox Sports
our network of sports Yahoo!
writers
[RotoNews Logo]
Comprehensive fantasy www.rotonews.com Advertising Cox Media (Fastball.com)
news, games and Subscription New York Post
statistical and San Diego Tribune
commissioner services Sandbox.net
Wall Street Sports
[SportsAuthentics.com Logo]
Sports-related www.sportsauthentics.com Electronic Commerce AOL
merchandise and (under construction) uBid
collectibles
</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
relationships 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
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with more than 250 athletes. These contracts provide Athlete Direct with
exclusive online rights to use and market the athletes' voices, attributes and
original first-person content, with the exception that athletes can
participate elsewhere in a limited number of online chats.
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 sports communities to interact with their
favorite athletes through chat rooms and email, access original athlete-
oriented content, participate in community activities and purchase merchandise
and collectibles in an environment that specifically capitalizes on the
athlete's image and appeal. 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 relationships.
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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
individual athlete sites such as www.kournikova.com, which provide links
between our individual athlete sites and our Web sites, as well as the traffic
generated within the Athlete Direct network.
In the fourth quarter of 1999, we launched the www.athletedirect.com site
and we plan to actively advertise and promote this site commencing in the
first quarter of 2000.
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!.
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 18 to 35 year-old male
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<PAGE>
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 to companies such as Coca-
Cola, Converse, eBay, Electronic Arts, Fila, Fox Sports, HBO, PeopleSoft and
Prime Sports.
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 relationships. 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
Pro Sports Xchange is a leading online provider of in-depth team and player
information, based on the number of teams and players that Pro Sports Xchange
covers on a regular basis. Pro Sports Xchange 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, Pro
Sports Xchange has evolved into a network of over 270 local and regional
sports writers, who are under contract with Pro Sports Xchange and have
granted Pro Sports Xchange online rights.
The Pro Sports Xchange network of sports writers includes some 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. Pro Sports Xchange addresses the demand of sports fans within
various communities for more in-depth coverage of particular sports, teams or
athletes.
Because Pro Sports Xchange generates original and detailed information and
distributes this content online, Pro Sports Xchange can cost-effectively
deliver large volumes of in-depth information to geographically dispersed
sports fans. Pro Sports Xchange's offerings include original editorials,
predictions, opinions, injury reports, roster moves, trades and other
commentary on teams and players. Pro Sports Xchange provides this content to a
large number of sports communities. Pro Sports Xchange 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 Pro Sports Xchange and College Sports Xchange writer
networks.
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<PAGE>
TEAMS COVERED BY THE PRO SPORTS XCHANGE AND COLLEGE SPORTS XCHANGE WRITER
NETWORKS
Professional Teams
<TABLE>
<S> <C> <C> <C> <C>
Anaheim Angels Chicago Bulls Florida Marlins Minnesota Twins Philadelphia 76ers
Anaheim Mighty Ducks Chicago Cubs Florida Panthers Minnesota Vikings Philadelphia Eagles
Arizona Cardinals Chicago White Sox Golden State Warriors Montreal Canadiens Philadelphia Flyers
Arizona Diamondbacks Cincinnati Bengals Green Bay Packers Montreal Expos Philadelphia Phillies
Atlanta Braves Cincinnati Reds Houston Astros Nashville Predators Phoenix Coyotes
Atlanta Falcons Cleveland Browns Houston Rockets New England Patriots Phoenix Suns
Atlanta Hawks Cleveland Cavaliers Indiana Pacers New Jersey Devils Pittsburgh Penguins
Baltimore Orioles Cleveland Indians Indianapolis Colts New Jersey Nets Pittsburgh Pirates
Baltimore Ravens Colorado Avalanche Jacksonville Jaguars New Orleans Saints Pittsburgh Steelers
Boston Bruins Colorado Rockies Kansas City Chiefs New York Giants Portland Trailblazers
Boston Celtics Dallas Cowboys Kansas City Royals New York Islanders Sacramento Kings
Boston Red Sox Dallas Mavericks Los Angeles Clippers New York Jets San Antonio Spurs
Buffalo Bills Dallas Stars Los Angeles Dodgers New York Knicks San Diego Chargers
Buffalo Sabres Denver Broncos Los Angeles Kings New York Mets San Diego Padres
Calgary Flames Denver Nuggets Los Angeles Lakers New York Rangers San Jose Sharks
Carolina Hurricanes Detroit Lions Miami Dolphins New York Yankees Seattle Mariners
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
St. Louis Cardinals
St. Louis Rams
Tampa Bay Bucaneers
Tampa Bay Devil Rays
Tampa Bay Lightning
Tennessee Titans
Texas Rangers
Toronto Blue Jays
Toronto Maple Leafs
Toronto Raptors
Utah Jazz
Vancouver Canucks
Vancouver Grizzlies
Washington Capitals
Washington Redskins
Washington Wizards
</TABLE>
Colleges and Universities
<TABLE>
<S> <C> <C> <C>
*Air Force Colgate *Houston *Mississippi
*Akron *Colorado Howard *Mississippi State
*Alabama *Colorado State High Point Miss. Valley St.
Alabama A&M *Columbia *Idaho *Missouri
Alabama State Connecticut Idaho State Missouri-Kansas City
*Alabama-Birmingham Coppin State *Illinois Monmouth
Alcorn State *Cornell Illinois State Montana
American Creighton Illinois-Chicago Montana St.
Appalachian State *Dartmouth *Indiana Morehead State
*Arizona Davidson Indiana State Morgan State
*Arizona State Dayton Iona Mount St. Mary's
Arkansas-- Delaware *Iowa Murray State
Pine Bluff Delaware State *Iowa State *Navy
*Arkansas DePaul IUPUI *Nebraska
*Arkansas State Detroit Jackson State *Nevada-Las Vegas
Arkansas-Little Rock Denver Jacksonville *Nevada-Reno
*Army Drake Jacksonville State New Hampshire
*Auburn Drexel James Madison *New Mexico
Austin Peay State *Duke *Kansas *New Mexico State
*Ball State Duquesne *Kansas State New Orleans
*Baylor Elon *Kent Niagara
Belmont (Tn.) *East Carolina *Kentucky Nicholls State
Bethune-Cookman Eastern Illinois La Salle Norfolk State
*Boise State Eastern Kentucky Lafayette *North Carolina
*Boston College *Eastern Michigan Lamar N. Car. A&T State
Boston E. Tennessee State Lehigh *North Carolina State
*Bowling Green Eastern Washington Liberty North Carolina-Charlotte
Bradley Evansville Long Beach State NC--Asheville
*Brigham Young Fairfield Long Island University NC--Greensboro
*Brown Fairleigh Dickinson *Louisiana State No. Carolina-Wilmington
Bucknell *Florida *Louisiana Tech *North Texas
*Buffalo Florida A&M *Louisville *Northeast Louisiana
Butler Florida Atlantic Loyola Northeastern
Cal Poly-San Luis Obispo Florida International Loyola Marymount Northern Arizona
Cal State-Northridge *Florida State Maine *Northern Illinois
Cal State-Fullerton Fordham Manhattan Northern Iowa
*California Berkeley *Fresno State Marist *Northwestern
California Irvine Furman Marquette Northwestern State
California Santa Barbara George Mason *Marshall *Notre Dame
Campbell George Washington *Maryland Oakland
Canisius Georgetown Md.-Baltimore County *Ohio
Centenary *Georgia Maryland-Eastern Shore *Ohio State
Central Connecticut State Georgia Southern Massachusetts *Oklahoma
*Central Florida Georgia State McNeese State *Oklahoma State
*Central Michigan *Georgia Tech *Memphis Old Dominion
Charleston Gonzaga Mercer Oral Roberts
Charleston Southern Grambling St. *Miami *Oregon
Chattanooga Hampton *Miami (Ohio) *Oregon State
Chicago State Hartford *Michigan Pacific
*Cincinnati *Harvard *Michigan State *Penn State
*Clemson *Hawaii *Middle Tenn. State *Pennsylvania
Cleveland State Hofstra *Minnesota Pepperdine
Coastal Carolina Holy Cross *Pittsburgh
Col. of Charleston
Portland Tennessee State
Portland State Tennessee Tech
Prairie View A&M Tennessee-Martin
*Princeton *Texas
Providence *Texas A&M
*Purdue *Texas Christian
Quinnipiac *Texas Tech
Radford Texas-Arlington
Rhode Island *Texas-El Paso
*Rice Texas-Pan American
Richmond Texas-San Antonio
Rider Texas Southern
Robert Morris The Citadel
*Rutgers *Toledo
Sacramento State Towson
Sam Houston State Troy State
Samford *Tulane
San Diego *Tulsa
*San Diego State *UCLA
San Francisco *Utah
*San Jose State *Utah State
Santa Clara Valparaiso
Seton Hall *Vanderbilt
Siena Vermont
*SMU Villanova
South Alabama *Virginia
*South Carolina Virginia Commonwealth
S. Carolina State *Virginia Tech
South Florida VMI
SE Missouri State Wagner
SE Louisiana *Wake Forest
Southern *Washington
*Southern California *Washington State
Southern Illinois Weber State
*Southern Mississippi *West Virginia
Southern Utah Western Carolina
Southwest Missouri State Western Illinois
SW Texas State Western Kentucky
*Southwestern La. *Western Michigan
St. Bonaventure Wichita State
St. Francis (NY) William & Mary
St. Francis (PA) Winthrop
St. John's *Wisconsin
St. Joseph's Wisconsin-Green Bay
St. Louis Wisconsin-Milwaukee
St. Mary's Wofford
St. Peter's Wright State
*Stanford *Wyoming
Stephen F. Austin Xavier
Stetson *Yale
*Syracuse Youngstown State
*Temple
*Tennessee
</TABLE>
- -----------------
* Covers both Division I football and basketball. All other schools only offer
Division I basketball programs.
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Pro Sports Xchange 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
------- ----------- -----
Pro Sports Xchange Insider In-depth coverage of all Varying content syndication fee
Team Reports............... National Football League,
Major League Baseball,
National Basketball
Association and National
Hockey League teams and
daily editorial features
College Sports Xchange In-depth coverage of all Varying content syndication fee
Insider Team Reports....... Division I college football
and basketball teams
Player Notes................ Daily highlights of key Varying content syndication fee
player news from Major
League Baseball and the
National Football League
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 National Football $19.95 per year per subscription
League gossip
Fred Edelstein's NFL Draft
Report..................... Annual insider view of the $9.95 per subscription
National Football League
draft
Wrestling Observer.......... In-depth coverage of $9.95 per month or $99.95
professional wrestling annually
</TABLE>
By working with Pro Sports Xchange, sports writers are able to generate
additional income and, in certain cases, further develop their individual
brand names. Sports writers in the Pro Sports Xchange network are paid a flat
fee for syndicated content and can participate with Pro Sports Xchange in
revenues derived from the sale of subscription-based premium content
offerings.
Distribution and Revenue Sources
Pro Sports Xchange syndicates its content through AOL, Internet portals and
other destination sites and sells its premium content offerings to users on a
subscription basis. The Pro Sports Xchange Insider Team Reports and College
Sports Xchange Insider Team Reports are currently provided for all teams to
online sites such as AOL, AOL.com and Fox Sports. In addition, Pro Sports
Xchange 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. Pro Sports Xchange controls the majority of
promotional links within the Team Areas, which it uses to cross-promote our
other divisions. Player Notes are syndicated to many online sites, including
AOL, Fox Sports and Yahoo!. All of the third parties licensing Pro Sports
Xchange content are obligated to promote Pro Sports Xchange'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.
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RotoNews
RotoNews was founded in 1997 and was acquired by us in February 1999.
RotoNews is a leading online fantasy sports site, offering player news, games
and statistical services, as well as league management services that enable
players to compete against one another and are commonly referred to as
commissioner services.
Unlike most competing fantasy sites, RotoNews offers its full suite of
fantasy news and services free of charge 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.
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
use 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.
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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
league and management services covering the National Football League, the
National Basketball Association, Major League Baseball and the National Hockey
League.
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
National Football League, projections and player rankings with a
National Basketball searchable database for every player.
Association, Major League Additionally, offers feature stories,
Baseball, National Hockey columns and team previews.
League
Golf
-- Latest player information with a
searchable database for many professional
golfers on the Pro Golf Association tour
and other worldwide tours.
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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
World Wrestling Federation, World
Championship Wrestling and Extreme
Championship Wrestling.
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 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 Pro Sports Xchange'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 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
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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, seven 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.
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.
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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.
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 divisions. These relationships
include:
Content and Product Agreements
Athletes
Athlete Direct currently has agreements with over 250 athletes that have
terms ranging from two to eight years. 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 received stock
options in connection with the signing of their agreements.
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 Pro Sports Xchange 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 Pro Sports
Xchange, provide Pro Sports Xchange with exclusive rights to this content and
restrict the writers from performing services for anyone, other than Pro
Sports Xchange, 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 Agreements
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 Pro Sports Xchange team-by-team coverage of professional
baseball, basketball, football and hockey and NCAA Division I college
basketball and football, as well as a minimum of 50 individual 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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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.
Pro Sports Xchange also provides content designed to appeal to fantasy
sports fans 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. The 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, Pro Sports Xchange entered into a content license
agreement with News America Digital Publishing, Inc. ("NADP"), an affiliate of
Fox Entertainment Group, Inc. Under this agreement, Pro Sports Xchange
receives a syndication fee for providing Insider Team Reports and other
content for distribution on foxsports.com. NADP is required to promote Pro
Sports Xchange's premium content offerings products. Pro Sports Xchange 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 Pro Sports Xchange entered into an agreement
with Yahoo! to provide Athlete Direct content and Pro Sports Xchange content
to Yahoo! in exchange for a monthly license fee and promotion and placement
within Yahoo! Sports and other Yahoo! divisions. Athlete Direct produces a
minimum of 24 individual athlete fan clubs and individual athlete stores for
Yahoo! and delivers a regular schedule of live events. Yahoo! receives a
percentage of revenue derived from
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electronic commerce sold within the Yahoo! site. In addition, pursuant to this
agreement, Pro Sports Xchange licenses to Yahoo! player content to be
incorporated into Yahoo!'s Fantasy Area and its MyYahoo! service. Pro Sports
Xchange 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 proprietary network, 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.
Pro Sports Xchange and CollegeSports Xchange use 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, Pro Sports Xchange uses
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 uses 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 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, seven 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 advertising primarily through the parties with whom we have a
distribution relationship, 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 parties with whom we have a distribution relationship including AOL,
Yahoo!, eBay and uBid. These parties 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 our www.athletedirect.com
site and other products, we anticipate spending a larger amount of marketing
dollars, including expenditures for offline marketing.
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 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.
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. In October 1998, the
Internet Tax Freedom Act was signed into law placing a three-year moratorium
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which expires in 2001 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.
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, we entered into a new lease for
26,635 square feet. We anticipate 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 1999, we 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 Senior 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 arm of Broadband Sports focused on new
divisions, 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
December 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 Senior Vice President, Business
Development since our inception. Since February 1996, Mr. Schaufelberger has
served as President of Athlete Direct. 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
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the Strategic Planning Department for The Walt Disney Company. From 1995 to
1997, Mr. Hebner was a graduate student at Harvard University. From November
1993 to August 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
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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 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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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. All members of the audit
committee must be independent directors. 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. All members of the compensation
committee must be independent directors.
Director Compensation
We reimburse members of our board of directors for out-of-pocket expenses
incurred in the performance of their duties as directors. To date, two non-
employee directors have each received a grant of options to purchase 250,000
shares of common stock at an exercise price of $0.53 per share.
The 2000 stock incentive plan provides for automatic grants of stock options
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 250,000 shares of common stock at an exercise price equal to the fair
value on the date of grant and follow-on grants of options to purchase 100,000
shares of common stock at an exercise price equal to the fair value on the
date of grant at the conclusion of each annual meeting of stockholders.
Director grants under the 2000 stock incentive plan shall vest annually over
the remaining term of the director. We reserve the right to amend the
arrangement with directors with respect to future grants. 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
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. Mr. Alfi, who is on our
compensation committee, is a partner of NMSS Partners, LLC, which extended a
$4.5 million credit facility to us in February 1998. Mr. Leone, who is also on
our compensation committee, is a partner of Sequoia Capital, which purchased
our series B preferred stock in May 1999 and series C preferred stock in
November 1999. For more information, see page 73 under "Certain Relationships
and Related Transactions."
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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 $100,000 (the
"named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------- ------------------
All Other
Name and Principal Awards Underlying Compensation
Position Salary($) Bonus($) Options/SARS(#)(1) ($)
- ------------------ ---------- --------- ------------------ ------------
<S> <C> <C> <C> <C>
Richard D. Nanula(2)...... $ -- $ -- -- $ --
Chairman of the Board and
Chief Executive Officer
Tyler J. Goldman.......... 150,000 -- -- --
President, Broadband
Studios
Ross B. Schaufelberger.... 125,000 26,850 -- --
Senior 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.
67
<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
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 19.3% $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.
68
<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. The 1998
equity incentive plan was amended to increase the number of shares of common
stock reserved for issuance by 21,740,255 to a total of 57,034,372 shares. 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 29,708,489 shares had been
granted and were outstanding 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 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 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 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 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. Employee grants generally become exercisable at the rate of
25% per year over four years; non-employee grants generally become exercisable
at the rate of 20% per year over five 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 value of the
shares transferred at the time of transfer of the shares.
69
<PAGE>
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 1998 equity
incentive plan shall, unless the plan administrator in its discretion decides
differently, 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.
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.
2000 Stock Incentive Plan. Our 2000 Stock Incentive Plan was approved by the
board of directors and stockholders in January 2000. The 2000 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 2000 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, 71,009,745 shares of common stock were reserved for issuance under
the 2000 stock incentive plan. This number will be increased annually by a
number equal to the lesser of three percent of the number of shares of common
stock outstanding as of December 31 of the immediately preceding calendar year
or a number to be determined by the board of directors.
The board of directors or a committee designated by the board is authorized
to administer the 2000 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 2000 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 2000 stock
incentive plan must be at least 100% of the fair 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 value on the
grant date. The aggregate fair 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 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 value on the grant date. The individual
agreements under the 2000 stock incentive plan may provide us with repurchase
rights under the terms and conditions set forth in the 2000 stock incentive
plan. Employee grants generally become exercisable at the rate of 25% per year
over four years; non-employee grants generally become exercisable at the rate
of 20% per year over five years.
The 2000 stock incentive plan provides for automatic grants of stock options
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 250,000 shares of common stock at an exercise price equal to the fair
value on the date of grant and follow-on grants of options to purchase 100,000
shares
70
<PAGE>
of common stock at an exercise price equal to the fair value on the date of
grant at the conclusion of each annual meeting of stockholders. Director
grants under the 2000 stock incentive plan shall vest annually over the
remaining term of the director.
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 2000
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.
2000 Employee Stock Purchase Plan. Our 2000 Employee Stock Purchase Plan was
approved in January 2000 by the board and stockholders. The stock purchase
plan is intended to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code in order to provide our employees with an
opportunity to purchase common stock through payroll deductions. An aggregate
of 4,000,000 shares of common stock have been reserved for issuance under the
stock purchase plan and made available for purchase thereunder, subject to
adjustment in the event of a stock split, stock dividend or other similar
change in the common stock or our capital structure. All of our employees (and
employees of our "subsidiary corporations" and "parent corporations" (as
defined by the Internal Revenue Code) designated by the administrator of the
stock purchase plan) whose customary employment is for more than five months
in any calendar year and more than 20 hours per week are eligible to
participate in the stock purchase plan. Non-employee directors, consultants,
and employees subject to the rules or laws of a foreign jurisdiction that
prohibit or make impractical the participation of such employees in the stock
purchase plan are not eligible to participate in the stock purchase plan.
The stock purchase plan designates offer periods and exercise dates. Offer
periods are generally overlapping periods of 24 months. The initial offer
period will begin on the effective date of this offering and ends on ,
. Additional offer periods will commence each August 1 and February 1.
Purchase periods are generally six-month periods, with the initial purchase
period commencing on the effective date of the stock purchase plan and ending
on July 31, 2000. Thereafter, purchase periods will commence each August 1 and
February 1. Exercise dates are the last date of each purchase period. In the
event we merge with or into another corporation or sell all or substantially
all of our assets, or in the event certain other transactions in which our
stockholders before the transaction own less than 50% of the total combined
voting power of our outstanding securities following the transaction, the
administrator of the stock purchase plan may elect to shorten the offer period
then in progress.
On the first day of each offer period, a participating employee is granted a
purchase right, which is a form of option to be automatically exercised on the
forthcoming exercise dates within the offer period during which deductions are
to be made from the pay of participants (in accordance with their
authorizations) and credited to their accounts under the stock purchase plan.
When the purchase right is exercised, the participant's withheld salary is
used to purchase shares of common stock. The price per share at which shares
of common stock are to be purchased under the stock purchase plan during any
purchase period is the lesser of (A) 85% of the fair value of the common stock
on the date of the grant of the option (the commencement of the offer period)
or (B) 85% of the fair value of the common stock on the exercise date (the
last day of a purchase period). The participant's purchase right is exercised
in
71
<PAGE>
this manner on each exercise date arising in the offer period unless, on the
first day of any purchase period, the fair value of the common stock is lower
than the fair value of the common stock on the first day of the offer period.
If so, the participant's participation in the original offer period is
terminated, and the participant is automatically enrolled in the new offer
period effective the same date.
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.
Under an employment agreement dated February 1998, we pay Ross B.
Schaufelberger a base salary of $125,000 per year plus performance bonuses at
the discretion of the compensation committee of the board of directors. The
employment agreement has a term of three years; however, if Mr. Schaufelberger
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 payable
monthly in six equal installments.
72
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED 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
$0.60 per share. Each share of series B preferred stock will be converted to
one share of common stock upon the closing of this offering for an aggregate
of 29,166,663 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.
WaterView Capital Management LLC, formerly known as BRCM LLC, and General
Catalyst LLC each purchased 3,333,333 shares of series B preferred stock.
Frank J. Biondi, Jr. is a member of our board of directors and is affiliated
with WaterView Capital Management LLC, and Stephen D. Greenberg is a member of
our board of directors and is affiliated with General Catalyst LLC. Also in
May 1999, funds affiliated with Institutional Venture Partners and Sequoia
Capital each acquired shares of common stock representing more than 5% of our
company from existing stockholders. In addition to WaterView Capital
Management LLC and General Catalyst LLC, Tyler Goldman, our President,
Broadband Studios, Ross Schaufelberger, our Senior Vice President, Business
Development, NMSS, and funds affiliated with Institutional Venture Partners
and Sequoia Capital entered into the agreement regarding registration rights.
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 November 1999, we sold 18,550,000 shares of our series C preferred stock
at $0.80 per share. Each share of series C preferred stock will be converted
to one share of common stock upon the closing of this offering for an
aggregate of 18,550,000 shares of common stock. Of the 18,550,000 shares of
series C preferred stock sold, funds affiliated with Sequoia Capital and
Institutional Venture Partners each purchased 1,250,000 shares, WaterView
Partners L.P. purchased 375,000 shares and General Catalyst LLC purchase
250,000 shares. Frank J. Biondi, Jr. is a member of our board of directors and
is affiliated with WaterView Partners L.P.
In November 1999, pursuant to a restricted stock purchase agreement, we sold
an aggregate of 30,389,809 shares of common stock at $0.60 per share 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."
73
<PAGE>
The following describes our directors who are affiliated with entities that
are beneficial owners of our capital stock:
<TABLE>
<CAPTION>
Shares
beneficially
Director Affiliation with Stockholder owned
-------- ---------------------------- ------------
<C> <S> <C>
Mr. Alfi Managing Member, NMSS Partners, LLC 78,859,755
Mr. Beasley Principal, Red Point Ventures (formerly known as 32,250,000
Institutional Venture Partners)
Mr. Biondi, Jr. Senior Managing Director, WaterView Advisors, LLC, 3,958,333
the Investment Manager of WaterView Partners, L.P.
(WaterView Capital Management LLC, formerly known as
BRCM LLC, is the general partner of WaterView
Partners, L.P.)
Mr. Greenberg Member, General Catalyst LLC 3,833,333
Mr. Leone Partner, Sequoia Capital 32,250,000
Mr. Yang Managing Director, Red Point Ventures (formerly 32,250,000
known as
Institutional Venture Partners)
</TABLE>
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."
74
<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 295,143,972 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>
75
<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)....................... 3,958,333 1.3
Stephen D. Greenberg (5)....................... 3,833,333 1.3
W. Allen Beasley............................... -- *
Gregory S. Hebner (6).......................... 1,789,706 *
All executive officers and directors as a group
(13 persons).................................. 231,035,096 78.3%
</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 250,000 shares subject to options issued under the 1998 equity
incentive plan which are immediately exercisable. Also represents
3,333,333 shares held by WaterView Capital Management, LLC (formerly BRCM
LLC) and 375,000 shares held by WaterView Partners, L.P. Mr. Biondi, one
of our directors, is Senior Managing Director of WaterView Advisers LLC,
the Investment Manager of WaterView Partners L.P. WaterView Capital
Management LLC is the general partner of WaterView Partners L.P. Mr.
Biondi disclaims beneficial ownership of the shares held by WaterView
Capital Management, LLC and WaterView Partners, L.P., except to the extent
of his pecuniary interest therein.
(5) Represents 250,000 shares subject to options issued under the 1998 equity
incentive plan which are immediately exercisable. Also represents
3,583,333 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 the shares held by General
Catalyst LLC, 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, which are exercisable within 60 days of September
30, 1999.
76
<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 18,550,000 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 18,550,000, 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, 18,550,000 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-Takeover 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
78
<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 248,120,387 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 248,120,387 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 "FANS."
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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
248,120,387 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 Bear,
Stearns & Co. Inc. 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.............................................
Bear, Stearns & Co. Inc. .........................................
---
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, including the absence of any material change in our business, and
the receipt of certain certificates, opinions and letters from us, our counsel
and the independent auditors. 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.
Morgan Stanley Dean Witter Online, Inc. is acting as a dealer in connection
with this distribution and will be the sole distributor of shares of common
stock over the Internet to its eligible account holders.
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.
The following table summarizes the per share and total underwriting
discounts and commissions we will pay to the underwriters. These amounts are
equal to the difference between the initial public offering price and the
amount paid to us by the underwriters.
<TABLE>
<CAPTION>
Without With
Over-Allotment Over-Allotment
-------------- --------------
<S> <C> <C>
Per Share...................................... $ $
Total.......................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding underwriting
discounts and commissions, will be approximately $ .
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.
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<PAGE>
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, members of their families,
business associates, friends of the company and other persons with whom we
have or may seek to establish strategic relationships. 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.
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,
whether 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,
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<PAGE>
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 "FANS."
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 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, Los Angeles, 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 183,332 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.
85
<PAGE>
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.
86
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Unaudited Pro Forma Condensed Statement of Operations for the Year Ended
December 31, 1998....................................................... F-3
Unaudited Pro Forma Condensed Statement of Operations for the Nine Months
Ended September 30, 1999................................................ F-4
Notes to Unaudited Pro Forma Condensed 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, 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
Combined 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 Financial Information
The unaudited pro forma condensed 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. ("Pro Sports Xchange"); and
. conversion of the series B preferred stock; and
. repayment of the revolving loan due to stockholder.
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 statement of operations for the year ended
December 31, 1998 and the nine months ended September 30, 1999 set forth below
gives effect to the acquisitions of Athlete Direct and Pro Sports Xchange and
the repayment of the revolving loan due to stockholder as if these
transactions occurred at January 1, 1998. A pro forma balance sheet at
September 30, 1999 has been excluded from the presentation of pro forma
financial information because the acquisition of Athlete Direct and Pro Sports
Xchange for which the pro forma financial information relates is included in
the historical financial statements of Broadband Sports as of September 30,
1999. 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 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 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
31, 1998 1998 Adjustments Pro Forma
----------- ------------ ----------- -----------
(Note 1) (Note 2) (Note 3)
<S> <C> <C> <C> <C>
Revenues................... $ 2,718,628 $ 507,224 $ -- $ 3,225,852
Cost of revenues........... 2,035,669 296,401 -- 2,332,070
----------- --------- -------- -----------
Gross profit .............. 682,959 210,823 -- 893,782
Operating expenses:
Sales and marketing...... 592,102 69,290 -- 661,392
Product development...... 136,682 8,822 -- 145,504
General and
administrative.......... 1,536,967 136,117 -- 1,673,084
Depreciation............. 43,246 3,678 -- 46,924
Amortization of
goodwill................ 243,754 -- 48,751(a) 292,505
Amortization of deferred
stock compensation and
deferred incentives..... 2,413,317 149,613 -- 2,562,930
----------- --------- -------- -----------
Total operating expenses... 4,966,068 367,520 48,751 5,382,339
----------- --------- -------- -----------
Operating loss............. (4,283,109) (156,697) (48,751) (4,488,557)
Interest income............ -- -- -- --
Interest expense........... (66,962) -- 66,962(b) --
Other expense.............. (5,708) -- -- (5,708)
----------- --------- -------- -----------
Net loss................... $(4,355,779) $(156,697) $ 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).......... 217,037,500
===========
</TABLE>
F-3
<PAGE>
Broadband Sports, Inc.
Unaudited Pro Forma Condensed Statement of Operations
Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Broadband
Sports, Pro Forma
Inc. Adjustments Pro Forma
----------- ----------- -----------
(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 of goodwill............ 268,779 -- 268,779
Amortization of deferred stock
compensation and deferred
incentives......................... 1,919,895 -- 1,919,895
----------- -------- -----------
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).......... $ 0.04
===========
Weighted average common and common
equivalent shares outstanding--basic
and diluted (Note 4)................. 231,140,062
===========
</TABLE>
F-4
<PAGE>
Broadband Sports, Inc.
Notes to Unaudited Pro Forma Condensed 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 condensed 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 Pro Sports Xchange for a combined purchase price
of $2,209,964. The acquisitions have been accounted for as purchase
transactions.
Note 3 -- Unaudited Pro Forma Condensed Statement of Operations Adjustments
(a) Represents additional amortization of goodwill 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 takes effect for the repayment of the outstanding
balance on the revolving loan due to stockholder and the conversion of the
series B preferred stock into common stock as having been outstanding from the
issuance date of May 25, 1999.
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>
Pro Forma
Predecessor Stockholders'
Companies September Equity at
December 31, December 30, September 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
Investments............ -- 51,588 51,588
Accounts receivable.... 199,295 262,208 788,285
Advances and deferred
incentives............ 631,010 421,414 326,430
Inventory.............. 4,002 17,223 158,712
Prepaid expenses and
other current assets.. 39,454 33,929 1,302,677
---------- ----------- ------------
Total current
assets.............. 927,117 999,359 11,948,176
Fixed assets, net........ 51,632 200,099 1,812,327
Goodwill, net............ -- 633,762 619,057
Advances and deferred
incentives.............. 989,060 503,509 891,959
Other assets............. 3,285 19,324 137,821
---------- ----------- ------------
Total assets......... $1,971,094 $ 2,356,053 $ 15,409,340
========== =========== ============
Liabilities and
stockholders'/owners'
equity (deficit)
Current liabilities
Accounts payable....... $ 68,763 $ 153,364 $ 511,990
Accrued liabilities.... 225,145 438,540 2,028,765
Deferred revenues...... 46,500 4,000 --
---------- ----------- ------------
Total current
liabilities......... 340,408 595,904 2,540,755
Revolving loan due to
stockholder............. -- 1,998,085 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;
295,143,972 issued and
outstanding pro
forma................. -- 217,038 217,038 295,144
Additional paid-in
capital............... -- 3,554,994 6,106,753 55,622,019
Receivable from
stockholder........... -- -- -- (15,200,906)
Deferred stock
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 23,988,479
---------- ----------- ------------ ------------
Total liabilities and
stockholders'
equity.............. $1,971,094 $ 2,356,053 $ 15,409,340 $ 30,997,319
========== =========== ============ ============
</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 of
goodwill............. -- -- -- 243,754 170,625 268,779
Amortization of
deferred stock
compensation and
deferred incentives.. 52,409 413,510 149,613 2,413,317 1,849,573 1,919,895
--------- ---------- --------- ----------- ----------- -----------
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 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............. 217,037,500 217,037,500 231,140,062
=========== =========== ===========
</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 stock
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 Deferred
---------------------- -------------------- Paid-in Stock 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
incentives..... -- -- -- -- -- -- 1,051,034 -- 1,051,034
Deferred stock
compensation... -- -- -- -- -- (504,700) 504,700 -- --
Amortization of
deferred stock
compensation .. -- -- -- -- -- 127,872 -- -- 127,872
Net loss........ -- -- -- -- -- -- (700,214) -- (700,214)
---------- ----------- ----------- -------- ---------- ----------- ----------- ------------ -----------
Balance at
December 31,
1997............ -- -- -- -- -- (376,828) 2,007,514 -- 1,630,686
Deferred
incentives..... -- -- -- -- -- -- 51,833 -- 51,833
Deferred stock
compensation... -- -- -- -- -- (61,800) 61,800 -- --
Amortization of
deferred stock
compensation .. -- -- -- -- -- 42,743 -- -- 42,743
Net loss........ -- -- -- -- -- -- (156,697) -- (156,697)
---------- ----------- ----------- -------- ---------- ----------- ----------- ------------ -----------
Balance at
February 27,
1998............ -- $ -- -- $ -- $ -- $ (395,885) $ 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
incentives..... -- -- -- -- 52,833 -- -- 52,833
Deferred stock
compensation... -- -- -- -- 3,760,680 (3,760,680) -- --
Amortization of
deferred stock
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
(unaudited).... -- -- -- -- 144,287 -- -- 144,287
Deferred
incentives
(unaudited).... -- -- -- -- 267,940 -- -- 267,940
Deferred stock
compensation
(unaudited).... -- -- -- -- 2,274,532 (2,274,532) -- --
Amortization of
deferred stock
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
(unaudited)..... 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.
("Athlete Direct") and Pro Sports Xchange, Inc. ("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 market 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, Pro Sports Xchange, 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 sports-related content and commerce,
maintain existing and develop new strategic relationships, successfully market
the www.athletedirect.com Web site, 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
ended
Years ended September
December 31, 30,
------------------------- ------------
1997 1998 1998
----------- ------------ ------------
(Unaudited)
<S> <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 stockholders' equity at September 30, 1999 has been presented
to reflect the issuance of 30,389,809 shares of common stock to the Company's
Chief Executive Officer in November 1999 (see Note 13), the issuance and
conversion of 18,550,000 shares of series C preferred stock in November 1999
(see Note 13), the conversion of the Company's outstanding shares of series B
preferred stock into an aggregate of 29,166,663 shares of common 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 and Series C 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. In the opinion of management, the unaudited financial statements
have been prepared on the same basis as the audited financial statements and
include all adjustments, consisting of normal recurring adjustments necessary
for a fair presentation of the financial position, results of operations, and
cash flows for the interim periods. The results of operations 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. 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. In the event impressions are not delivered in
accordance with the contractual terms, the Company will provide additional
impressions to make up the shortfall. To date all impressions have been
delivered in accordance with the contractual commitments. Revenues 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. During
the nine months ended September 30, 1999, the Company entered into certain
agreements whereby it received nonmonetary benefits. Revenues were recognized
at fair value based on the Company's history of receiving cash for similar
transactions. (See note 13).
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)
Advances
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. 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. The
agreements provide for the payment of royalties, bounties, and certain
guaranteed amounts on a per member and/or minimum dollar amount basis. These
non-employees are also required to provide certain marketing services pursuant
to their agreements. In some cases these guarantees provide for minimum
payment for a specified period of time in advance of the advertising and
merchandising revenues received and marketing services provided. The Company
records these minimum payments as advances and amortizes them over the term of
the contracts with the portion of the advances attributable to the percentage
of advertising and merchandising revenues earned recognized as a cost of
revenues and any excess amortization being recognized as sales and marketing
expense.
Sales and Marketing
Advertising costs are expensed as incurred.
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 and September 30, 1999, 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-related 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.
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)
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.
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 gives effect to the issuance upon conversion of
29,166,663 shares of the series B convertible preferred stock as having been
outstanding from the issuance date of May 25, 1999.
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)
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
recognized over the vesting period. The Company accounts for options issued to
its vendors and non-employees 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 10.
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.
The Company manages its media divisions as one combined entity, allocates
resources and analyzes information used to operate the business on a combined
basis.
Comprehensive Income
SFAS No. 115, Reporting Comprehensive Income, establishes the standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income includes all changes in equity (net assets) during a
period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency
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)
translation adjustments and unrealized gains/losses on available-for-sale
securities. The Company had no comprehensive income items to report for any of
the periods presented.
3. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets at September 30, 1999 include
$680,000 of costs related to the Company's initial public offering.
4. 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.
5. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31, December 31, September 30,
1997 1998 1999
------------ ------------ -------------
(unaudited)
<S> <C> <C> <C>
Accrued compensation............... $ -- $ -- $ 430,146
Initial public offering cost....... -- -- 287,855
Professional fees.................. 72,287 69,030 219,419
Accrued royalties and content
costs............................. 152,858 317,906 568,219
Other.............................. -- 51,604 523,126
-------- -------- ----------
$225,145 $438,540 $2,028,765
======== ======== ==========
</TABLE>
6. 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
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)
6. Revolving Loan Due to Stockholder--(Continued)
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.
7. 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 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.
8. 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
13). The common stock split has been retroactively reflected in all share and
per share disclosures in the accompanying consolidated financial statements.
9. 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.
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)
9. Income Taxes--(Continued)
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>
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.
10. Equity Incentive Plan
On December 4, 1998, the Board of Directors and stockholders of the Company
adopted the 1998 Equity Incentive Plan (the "Equity 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
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)
10. Equity Incentive Plan--(Continued)
of shares of the Company's common stock authorized for issuance. Each grant of
options under the Equity 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 stock 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 stock 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.
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 stock 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
------------ ------------ ------------ ------------ -------------
(unaudited)
<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>
All amortization of deferred stock compensation related to employees and
deferred incentives related to non-employees has been aggregated and shown as a
separate line item in the statements of operations.
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)
10. Equity Incentive Plan--(Continued)
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--(1) 12,174,853 0.015--(1)
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--(1) 11,934,853 0.015--(1)
Granted (unaudited)..... 8,077,636 0.030--0.600 2,267,000 0.350--(1) 10,344,636 0.030--(1)
Exercised (unaudited)... -- -- -- -- -- --
Cancelled (unaudited)... 482,000 0.015--0.184 130,000 (1) 612,000 0.015--(1)
---------- ------------- --------- ---------- ---------- ----------
Outstanding at
September 30, 1999
(unaudited)............ 15,267,989 $0.015--0.600 6,399,500 $0.015--(1) 21,667,489 $0.015--(1)
========== ============= ========= ========== ========== ==========
</TABLE>
- ---------------------
(1) Exercise price is equal to the price of the proposed offering.
Options available for future grant totaled 23,359,264 and 13,626,628 at
December 31, 1998 and September 30, 1999, (unaudited) respectively. The
weighted average fair value of options granted during 1998 and the nine months
ended September 30, 1999 were $0.53 and $0.62, respectively.
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)
10. Equity Incentive Plan--(Continued)
The weighted average exercise prices for options granted and exercisable and
the weighted average remaining contractual life for options outstanding, 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>
December 31, 1998
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) -- --
September 30, 1999 (unau-
dited)
Employees
$0.015.................. 7,592,353 8.5 $ 0.015 4,821,559 $ 0.015
0.030.................. 3,148,300 9.3 0.030 -- --
0.184.................. 425,000 9.6 0.184 -- --
0.600.................. 4,102,336 9.8 0.600 -- --
Non-employees
$0.0153................. 3,795,000 7.5 $ 0.015 2,168,500 $ 0.015
0.120.................. 100,000 7.4 0.120 40,000 0.120
0.350.................. 1,012,500 9.6 0.350 32,500 0.350
0.530.................. 500,000 9.7 0.530 500,000 0.530
0.600.................. 525,000 9.9 0.600 -- --
(1).................. 467,000 9.8 (1) -- --
</TABLE>
- ---------------------
(1) Exercise price is equal to the price of the proposed offering.
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)
10. Equity Incentive Plan--(Continued)
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.
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.
11. Commitments and Contingencies
The Company leases 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.
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. Commitments and Contingencies--(Continued)
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 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.
12. 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.
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)
13. Subsequent Events (Unaudited)
In January 1999, the Company entered into an interactive services agreement
with AOL. Under this agreement, the Company records a monthly license fee for
content and programming valued at approximately $288,000 per month. Such
content and programming includes the syndication of its Athlete Direct content
both within the AOL Sports Channel and the AOL Kids Channel as well as
providing content and programming for the professional and college team areas
within the AOL Sports Channel. AOL is also entitled to receive a percentage of
revenues derived from the sale of sports-related merchandise and subscription
products by the Company on AOL. The Company also receives guaranteed placement
and banner impressions from AOL for which it records a monthly expense valued
at approximately $232,000 per month. 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.
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 a distribution agreement with Yahoo!
to syndicate its content and programming to Yahoo! Sports. In exchange for
delivery of this content and programming, the Company receives a monthly cash
payment of approximately $28,000 per month and guaranteed advertising
impressions, which are valued at approximately $61,000 per month. Yahoo!
receives a percentage of the electronic commerce sold by the Company 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.
F-25
<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)
13. Subsequent Events (Unaudited)--(Continued)
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. The maximum term of the warrant is ten years.
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.
During October and November 1999, and January 2000 the Company granted
options to purchase 26,319,755 shares of common stock to employees and non-
employees. In connection with such options, the Company will record
approximately $7.6 million of deferred stock compensation and deferred
incentives. Such options generally vest over a four year period.
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 $14,840,000, representing 18,550,000 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,
F-26
<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)
13. Subsequent Events (Unaudited)--(Continued)
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).
In December 1999, the Company entered into an agreement with Lycos, Inc.
("Lycos") to become the principal provider of sports content to Lycos. In
connection with the agreement, Lycos will pay to the Company license fees and
a share of advertising revenues generated from the Lycos sports area. The
Company will also sell sports-related merchandise and collectibles through the
Lycos web site and will pay a percentage of revenues from such sales to Lycos.
The term of the agreement is for two years and may be renewed for two
additional one-year periods, unless either party terminates.
In January 2000, the Equity Incentive Plan was amended to increase the
shares of common stock reserved for issuance to a total of 57,034,372.
In January 2000 the Board of Directors and stockholders approved the 2000
Stock Incentive Plan (the "Stock Incentive Plan"). In January 2000, a total of
71,009,745 shares of common stock were reserved for issuance under the 2000
Stock Incentive Plan. This number will be increased annually by a number equal
to the lesser of three percent of the number of shares of common stock
outstanding as of December 31 of the immediately preceding calendar year or a
number to be determined by the Company's Board of Directors. The maximum term
of any stock option granted under the Stock Incentive Plan is ten years, with
certain exceptions. Employee grants generally become exercisable at the rate
of 25% per year over four years; non-employee grants generally become
exercisable at the rate of 20% per year over five years. The Stock Incentive
Plan will terminate in 2010, unless earlier terminated by the Board of
Directors.
In January 2000 the Board of Directors and stockholders approved the 2000
Employee Stock Purchase Plan (the "Stock Purchase Plan"). An aggregate of
4,000,000 shares of common stock were reserved for issuance under the Stock
Purchase Plan and made available for purchase thereunder, subject to
adjustment in the event of a stock split, stock dividend or other similar
change in the common stock or the Company's capital structure. All of the
Company's employees whose customary employment is for more than five months in
any calendar year and more than 20 hours per week are eligible to participate
in the Stock Purchase Plan.
F-27
<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
Certificate of Amendment to Amended and Restated Certificate of
Incorporation..................................................... 3.2
Form of Second Amended and Restated Certificate of Incorporation... 3.3
Amended and Restated Bylaws........................................ 3.4
Form of Indemnification Agreements................................. 10.9
</TABLE>
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
From February 1998 through November 15, 1999, Broadband Sports 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 a group of stockholders for an aggregate purchase
price of $100,000, which transaction was deemed exempt from
registration under the Securities Act in reliance upon Section 4(2) of
the Securities Act.
(b) In February 1998, we issued and sold 2,000,000 shares of series A
preferred stock to NMSS, an institutional venture capital fund, for a
purchase price of $2,000,000, which transaction was deemed exempt from
registration under the Securities Act in reliance upon Section 4(2) of
the Securities Act.
(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, two officers
of Broadband Sports, for an aggregate value of $8,518.75, which
transaction was deemed exempt from registration under the Securities
Act in reliance upon Section 4(2) of the Securities Act.
(d) In May 1999, we issued and sold an aggregate of 29,166,663 shares of
series B preferred stock for $0.60 per share to institutional venture
capital funds and two accredited investors, for an aggregate purchase
price of approximately $17.5 million, which transaction was deemed exempt
from registration under the Securities Act in reliance upon Section 4(2)
of the Securities Act.
(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 to an institutional
lending and leasing company, which transaction was deemed exempt from
registration under the Securities Act in reliance upon Section 4(2) of
the Securities Act.
(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 to an institutional
lending and leasing company, which transaction was deemed exempt from
registration under the Securities Act in reliance upon Section 4(2) of
the Securities Act.
(g) In November 1999, we issued and sold an aggregate of 30,389,809 shares
of common stock to Richard D. Nanula, in connection with his employment
contract, at $0.60 per share, for an aggregate purchase price of
approximately $18,233,885, which transaction was deemed exempt from
registration under the Securities Act in reliance upon Section 4(2) of
the Securities Act.
(h) In November 1999, we issued and sold an aggregate of 18,550,000 shares
of series C preferred stock for $0.80 per share to accredited
investors, for an aggregate purchase price of $14.8 million, which
transaction was deemed exempt from registration under the Securities
Act in reliance upon Section 4(2) of the Securities Act.
The recipients of securities in each such transaction described in
paragraphs (a) through (h) above 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 to information about us.
II-2
<PAGE>
From November 15, 1996 through November 15, 1999, Broadband Sports issued an
aggregate of 29,708,489 shares of our common stock at exercise prices ranging
from $0.015 to the initial offering price to the public. These issuances were
made under a written compensatory benefit plan or contract and were deemed
exempt from registration under the Securities Act in reliance upon Rule 701 of
Regulation F adopted under the Securities Act.
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 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** 2000 Stock 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, as amended
10.13.1+ First Amendment to Office Lease, dated October 1, 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.
10.15 Employment Agreement for R. Schaufelberger
10.16**+ Agreement, dated as of December 2, 1999 by and between Lycos, Inc.
and Registrant
10.17** 2000 Employee Stock Purchase Plan
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2** Consent of Morrison & Foerster LLP (included in the opinion filed
herewith as Exhibit 5.1)
24.1* Power of Attorney (See II-5 of the Registration Statement filed with
the SEC on November 26, 1999.)
27.1* Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** 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.
II-3
<PAGE>
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
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 Amendment No. 1 to the 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
January 20, 2000.
BROADBAND SPORTS, INC.
By: /s/ Richard Nanula
_____________________________________
Richard Nanula
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the 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
January 20, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Richard Nanula Chairman of the Board and January 20, 2000
____________________________________ Chief Executive Officer
Richard Nanula (Principal Executive
Officer)
/s/ Gregory S. Hebner Chief Financial Officer January 20, 2000
____________________________________ (Principal Financial and
Gregory S. Hebner Accounting Officer)
* President, Broadband Studios January 20, 2000
____________________________________ and Director
Tyler J. Goldman
* Director January 20, 2000
____________________________________
Ahmed O. Alfi
* Director January 20, 2000
____________________________________
W. Allen Beasley
* Director January 20, 2000
____________________________________
Frank J. Biondi, Jr.
* Director January 20, 2000
____________________________________
Stephen D. Greenberg
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director January 20, 2000
____________________________________
Douglas Leone
* Director January 20, 2000
____________________________________
Geoffery Y. Yang
</TABLE>
*By: /s/ Gregory S. Hebner
________________________________
Attorney-in-Fact
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** 2000 Stock 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, as amended
10.13.1+ First Amendment to Office Lease, dated October 1, 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.
10.15 Employment Agreement for R. Schaufelberger
10.16**+ Agreement, dated as of December 2, 1999 by and between Lycos, Inc.
and Registrant
10.17** 2000 Employee Stock Purchase Plan
21.1* Subsidiaries of Registrant
23.1 Consent of Ernst & Young LLP
23.2** Consent of Morrison & Foerster LLP (included in the opinion filed
herewith as Exhibit 5.1)
24.1* Power of Attorney (See II-5 of the Registration Statement filed with
the SEC on November 26, 1999.)
27.1* Financial Data Schedule
</TABLE>
- ---------------------
* Previously filed.
** To be filed by amendment.
+ Portions have been omitted pursuant to a confidential treatment request.
<PAGE>
EXHIBIT 3.2
BROADBAND SPORTS, INC.
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
BROADBAND SPORTS, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), 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. and the Amended and Restated Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on October
8, 1999.
2. The Article IV(A) and the first paragraph of Article IV(B) of the
Amended and Restated Certificate of Incorporation of the Corporation
are hereby amended in full to read as follows:
"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 sixty two million (362,000,000)
shares, three hundred six million (306,000,000) shares of which shall be
Common Stock (the "Common Stock") and fifty six million (56,000,000) 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 twenty million (20,000,000) 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,
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
<PAGE>
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."
3. The terms and provisions of this Certificate of Amendment to the
Amended and Restated Certificate of Incorporation of the Corporation
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.
IN WITNESS WHEREOF, this Certificate of Amendment to the Amended and
Restated Certificate of Incorporation of the Corporation has been signed
this 23rd day of November 1999.
BROADBAND SPORTS, INC.
/s/ Richard Nanula
---------------------------------
Richard Nanula, Chairman of the
Board and Chief Executive Officer
ATTEST:
/s/ Ross Schaufelberger
--------------------------------
Ross Schaufelberger, Secretary
<PAGE>
EXHIBIT 3.3
FORM OF
BROADBAND SPORTS, INC.
SECOND 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 Second 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 Second 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 Second 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 Second Amended and Restated Certificate of
Incorporation has been signed this ____ day of _________ 2000.
BROADBAND SPORTS, INC.
--------------------------------------
Richard D. Nanula, President
ATTEST:
--------------------------------------
Ross Schaufelberger,
Secretary
<PAGE>
EXHIBIT A
---------
SECOND 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
The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is eighty million (80,000,000) shares,
of which five million (5,000,000) shares shall be shares of Preferred Stock with
a par value of $.0001 per share, and seventy five million (75,000,000) shares
shall be shares of Common Stock with a par value of $0.001 per share.
A. Preferred Stock. Any of the shares of Preferred Stock authorized by
---------------
this Certificate of Incorporation may be issued from time to time in one or more
series. Subject to the limitations and restrictions in this Article IV set
forth and the Certificate of Designation filed with the Secretary of State of
Delaware, the Board of Directors by resolution or resolutions, is authorized to
create or provide for any such series, and to fix the designations, preferences
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, including, without
limitation, the authority to fix or alter the dividend rights, dividend rates,
conversion rights, exchange rights, voting rights, rights and terms of
redemption (including sinking and purchase fund provisions), the redemption
price or prices, the dissolution preferences and the rights in respect to any
distribution of assets of any wholly unissued series of Preferred Stock and the
number of shares constituting any such series, and the designation thereof, or
any of them and to increase or decrease the number of shares of any series so
created,
1
<PAGE>
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.
There shall be no limitation or restriction on any variation between
any of the different series of Preferred Stock as to the designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof; and the several series
of Preferred Stock may, except as hereinafter otherwise expressly provided, vary
in any and all respects as fixed and determined by the Board of Directors,
providing for the issuance of the various series; provided, however, that all
-------- -------
shares of any one series of Preferred Stock shall have the same designation,
preferences and relative, participating, optional or other special rights and
qualifications, limitations and restrictions.
Except as otherwise required by law, or as otherwise fixed by
resolution or resolutions of the Board of Directors with respect to one or more
series of Preferred Stock, the entire voting power and all voting rights shall
be vested exclusively in the Common Stock, and each stockholder of the
Corporation who at the time possesses voting power for any purpose shall be
entitled to one vote for each share of such stock standing in his name on the
books of the Corporation. The Corporation shall exercise its power to issue
Preferred Stock with the view of avoiding the issuance of fractional shares. No
stockholder shall have the right to split the whole shares into fractions.
B. Common Stock. The Corporation shall have the power from time to time
------------
to issue two or more classes of stock with the preferences, voting powers,
restrictions and qualifications thereof fixed in the resolutions authorizing the
issue thereof. The Board of Directors shall have the authority to divide any or
all of the classes into a series and fix and determine the relative rights,
preferences, voting powers, restrictions and qualifications of the shares of any
series established. The Corporation shall exercise its power to issue stock
with the view of avoiding the issuance of fractional shares. No stockholder
shall have the right to split whole shares into fractions or to split fractions.
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. Upon any liquidation, dissolution or winding up of
-----------
the corporation whether voluntary or involuntary, after payment in full of the
amounts to be paid to holders of Preferred Stock pursuant to Subdivision A of
this Article IV, the holders of Common Stock shall share ratably based upon the
number of shares of Common Stock held by them in all of the remaining assets of
the Corporation available for distribution to its stockholders.
3. Redemption. The Common Stock is not redeemable.
----------
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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 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.
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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.
4. At the election of directors of the Corporation, each holder of
stock of any class or series shall be entitled to one vote for each share held.
No stockholder will be permitted to cumulate votes at any election of directors.
The number of directors which constitute the whole Board of Directors of the
Corporation shall be fixed exclusively by one or more resolutions adopted from
time to time by the Board of Directors. The Board of Directors shall be divided
into three classes designated as Class I, Class II, and Class III, respectively.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. At the first annual meeting of
stockholders following the date hereof, the term of office of the Class I
directors shall expire and Class I directors shall be elected for a full term of
three years. At the second annual meeting of stockholders following the date
hereof, the term of office of the Class II directors shall expire and Class II
directors shall be elected for a full term of three years. At the third annual
meeting of stockholders following the date hereof, the term of office of the
Class III directors shall expire and Class III directors shall be elected for a
full term of three years. At each succeeding annual meeting of stockholders,
directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting. Vacancies
created by newly created directorships, created in accordance with the Bylaws of
this Corporation, may be filled by the vote of a majority, although less than a
quorum, of the directors then in office, or by a sole remaining director.
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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. Notwithstanding any other provisions of this Second Amended and
Restated Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any affirmative
vote of the holders of the capital stock required by law or this Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
two-thirds (2/3) of the combined voting power of all of the then-outstanding
shares of the Corporation entitled to vote shall be required to alter, amend or
repeal Articles VII or XI hereof, or this Article X, or any provision hereof or
thereof, unless such amendment shall be approved by a majority of the directors
of the Corporation.
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 laws of the State of Delaware)
outside of 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.
The stockholders of the Corporation may not take any action by written consent
in lieu of a meeting, and must take any actions at a duly called annual or
special meeting of
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stockholders and the power of stockholders to consent in writing without a
meeting is specifically denied.
XII
Advance notice of new business and stockholder nominations for the
election of directors shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
* * *
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EXHIBIT 3.4
BROADBAND SPORTS, INC.
----------------------
(a Delaware corporation)
AMENDED AND RESTATED BYLAWS
ARTICLE I
Offices
SECTION 1.01 Registered Office. The registered office of E-Sport, Inc.
-----------------
(the "Corporation") in the State of Delaware shall be at 1209 Orange Street,
City of Wilmington, County of New Castle, and the name of the registered agent
in charge thereof shall be The Corporation Trust Company.
SECTION 1.02 Other Offices. The Corporation may also have an office or
-------------
offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (the "Board") may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 2.01 Annual Meetings. Annual meetings of the stockholders of the
---------------
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
SECTION 2.02 Special Meetings. A special meeting of the stockholders for
----------------
the transaction of any proper business may be called at any time by the Board,
by the President, or by the Secretary of the Corporation upon the written
request of the holders of not less than 25 % of all the outstanding capital
stock entitled to vote at such meeting.
SECTION 2.03 Place of Meetings. All meetings of the stockholders shall be
-----------------
held at such places, within or without the State of Delaware, as may from time
to time be designated by the person or persons calling the respective meeting
and specified in the respective notices or waivers of notice thereof.
SECTION 2.04 Notice of Meeting. Except as otherwise required by law,
-----------------
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the date of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his post office address furnished by him to the Secretary of
the Corporation for
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such purpose or, if he shall not have furnished to the Secretary his address for
such purpose, then at his post office address last known to the Secretary, or by
transmitting a notice thereof to him at such address by telegraph, cable, or
wireless. Except as otherwise expressly required by law, no publication of any
notice of a meeting of the stockholders shall be required. Every notice of a
meeting of the stockholders shall state the place, date and hour of the meeting,
and, in the case of a special meeting, shall also state the purpose or purposes
for which the meeting is called. Notice of any meeting of stockholders shall not
be required to be given to any stockholder who shall have waived such notice and
such notice shall be deemed waived by any stockholder who shall attend such
meeting in person or by proxy, except as a stockholder who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Except as otherwise expressly required by law, notice of any adjourned
meeting of the stockholders need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken.
SECTION 2.05 Quorum. Except in the case of any meeting for the election of
------
directors summarily ordered as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted thereat, present in person or by proxy, shall constitute a quorum
for the transaction of business at any meeting of the stockholders of the
Corporation or any adjournment thereof. In the absence of a quorum at any
meeting or any adjournment thereof, a majority in voting interest of the
stockholders present in person or by proxy and entitled to vote thereat or, in
the absence therefrom of all the stockholders, any officer entitled to preside
at, or to act as secretary of such meeting, may adjourn such meeting from time
to time. At any such adjourned meeting at which a quorum is present any
business may be transacted which might have been transacted at the meeting as
originally called.
SECTION 2.06 Voting.
------
(a) Each stockholder shall, at each meeting of the stockholders, be
entitled to vote in person or by proxy each share or fractional share of the
stock of the Corporation having voting rights, as provided in the Certificate of
Incorporation or by law, on the matter in question and which shall have been
held by him and registered in his name on the books of the Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and
to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (a) at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or (b) if notice of the meeting shall be waived, at
the close of business on the day next preceding the day on which the meeting
shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary
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capacity shall be entitled to vote such stock. Persons whose stock is pledged
shall be entitled to vote, unless in the transfer by the pledgor on the books of
the Corporation he shall have expressly empowered the pledgee to vote thereon,
in which case only the pledgee, or his proxy, may represent such stock and vote
thereon. Stock having voting power standing of record in the names of two or
more persons, whether fiduciaries, members of a partnership, joint tenants in
common, tenants by entirety or otherwise, or with respect to which two or more
persons have the same fiduciary relationship, shall be voted in accordance with
the provisions of the General Corporation Law of the State of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon, a quorum being present. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
SECTION 2.07 List of Stockholders. The Secretary of the Corporation shall
--------------------
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 2.08 Judges. If at any meeting of the stockholders a vote by
------
written ballot shall be taken on any question, the chairman of such meeting may
appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and
shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which he shall have a material interest.
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SECTION 2.09 Action Without Meeting.
----------------------
(a) Any action required to be taken at any annual or special meeting
of stockholders of the Corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted. Prompt notice of the taking of the corporate action
without a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing.
(b) At such time that the Corporation shall become subject to the
reporting requirements of the Securities and Exchange Act of 1934, the rights
granted under Section 2.09(a) shall be repealed. Commencing at such time, the
stockholders of the Corporation may not take any action by written consent in
lieu of a meeting, and must take any actions at a duly called annual or special
meeting of stockholders and the power of stockholders to consent in writing
without a meeting shall be specifically denied.
ARTICLE III
Board of Directors
SECTION 3.01 General Powers. The property, business and affairs of the
--------------
Corporation shall be managed by the Board.
SECTION 3.02 Number and Term of Office. The number of directors of the
----------------
Corporation shall be not less than three (3) nor more than seven (7), until
changed in accordance with applicable law. The exact number of directors shall
be fixed from time to time, within the limits specified, by resolution of the
Board of Directors or stockholders. Subject to the foregoing provisions for
changing the exact number of directors, the number of directors of this
Corporation shall initially be four (4). Directors need not be stockholders.
Each of the directors of the Corporation shall hold office until his successor
shall have been duly elected and shall qualify or until he shall resign or shall
have been removed in the manner hereinafter provided.
SECTION 3.03 Election of Directors. Except as otherwise provided in the
---------------------
Certificate of Incorporation, the directors shall be elected annually by the
stockholders of the Corporation and the persons receiving the greatest number of
votes, up to the number of directors to be elected, shall be the directors.
SECTION 3.04 Resignations. Any director of the Corporation may resign at
------------
any time by giving written notice to the Board or to the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, it shall take effect immediately upon
its receipt; and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 3.05 Vacancies. Except as otherwise provided in the Certificate of
---------
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification,
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an increase in the number of directors, or any other cause, may be filled by
vote of the majority of the remaining directors, although less than a quorum.
Each director so chosen to fill a vacancy shall hold office until his successor
shall have been elected and shall qualify or until he shall resign or shall have
been removed in the manner hereinafter provided.
SECTION 3.06 Place of Meeting, Etc. The Board may hold any of its meetings
---------------------
at such place or places within or without the State of Delaware as the Board may
from time to time by resolution designate or as shall be designated by the
person or persons calling the meeting or in the notice or a waiver of notice of
any such meeting. Directors may participate in any regular or special meeting
of the Board by means of conference telephone or similar communications
equipment pursuant to which all persons participating in the meeting of the
Board can hear each other, and such participation shall constitute presence in
person at such meeting.
SECTION 3.07 Regular Meetings. Regular meetings of' the Board may be held
----------------
at such times as the Board shall from time to time by resolution determine. If
any day fixed for a regular meeting shall be a legal holiday at the place where
the meeting is to be held, then the meeting shall be held at the same hour and
place on the next succeeding business day not a legal holiday. Except as
provided by law, notice of regular meetings need not be given.
SECTION 3.08 Special Meetings. Special meetings of the Board shall be held
----------------
whenever called by the President or a majority of the authorized number of
directors. Except as otherwise provided by law or by these Bylaws, notice of
the time and place of each such special meeting shall be mailed to each
director, addressed to him at his residence or usual place of business, at least
seven (7) days before the day on which the meeting is to be held, or shall be
sent to him at such place by telegraph or cable or be delivered personally not
less than seventy-two (72) hours before the time at which the meeting is to be
held. Except where otherwise required by law or by these Bylaws, notice of the
purpose of a special meeting need not be given. Notice of any meeting of the
Board shall not be required to be given to any director who is present at such
meeting, except a director who shall attend such meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
SECTION 3.09 Quorum and Manner of Acting. Except as otherwise provided in
---------------------------
these Bylaws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
SECTION 3.10 Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
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SECTION 3.11 Removal of Directors. Subject to the provisions of the
--------------------
Certificate of Incorporation, any director may be removed at any time, either
with or without cause, by the affirmative vote of the stockholders having a
majority of the voting power of the Corporation given at a special meeting of
the stockholders called for the purpose.
SECTION 3.12 Compensation. The directors shall receive only such
------------
compensation for their services as directors as may be allowed by resolution of
the Board. The Board may also provide that the Corporation shall reimburse each
such director for any expense incurred by him on account of his attendance at
any meetings of the Board or Committees of the Board. Neither the payment of
such compensation nor the reimbursement of such expenses shall be construed to
preclude any director from serving the Corporation or its subsidiaries in any
other capacity and receiving compensation therefor.
SECTION 3.13 Committees. The Board may, by resolution passed by a majority
----------
of the whole Board, designate one or more committees, each committee to consist
of one or more of the directors of the Corporation. Any such committee, to the
extent provided in the resolution of the Board and except as otherwise limited
by law, shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers which may require it.
Any such committee shall keep written minutes of its meetings and report the
same to the Board at the next regular meeting of the Board. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board to
act at the meeting in the place of any such absent or disqualified member.
ARTICLE IV
Officers
SECTION 4.01 Number. The officers of the Corporation shall be a Chief
------
Executive Officer, President, one or more Vice Presidents (the number thereof
and their respective titles to be determined by the Board), a Chief Operating
Officer, a Chief Financial Officer, a Treasurer, a Secretary and such other
officers with such powers and duties as the Board deems necessary or advisable.
SECTION 4.02 Election, Term of Office and Qualifications. The officers of
-------------------------------------------
the Corporation, except such officers as may be appointed in accordance with
Section 4.03, shall be elected annually by the Board at the first meeting
thereof held after the election thereof. Each officer shall hold office until
his successor shall have been duly chosen and shall qualify or until his
resignation or removal in the manner hereinafter provided.
SECTION 4.03 Assistants, Agents and Employees, Etc. In addition to the
-------------------------------------
officers specified in Section 4.01, the Board may appoint other assistants,
agents and employees as it may deem necessary or advisable, including one or
more Assistant Secretaries, and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority, and perform such duties
as the Board may from time to time determine. The Board may delegate to
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any officer of the Corporation or any committee of the Board the power to
appoint, remove and prescribe the duties of any such assistants, agents or
employees.
SECTION 4.04 Removal. Any officer, assistant, agent or employee of the
-------
Corporation may be removed, with or without cause, at any time: (i) in the case
of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of an officer, assistant, agent or
employee not appointed by the Board, by any officer of the Corporation or
committee of the Board upon whom or which such power of removal may be conferred
by the Board.
SECTION 4.05 Resignations. Any officer or assistant may resign at any time
------------
by giving written notice of his resignation to the Board or the Secretary of the
Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time be not specified, upon receipt thereof by the Board or
the Secretary, as the ease may be; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 4.06 Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification, or other cause, may be filled for the
unexpired portion of the term thereof in the manner prescribed in these Bylaws
for regular appointments or elections to such office.
SECTION 4.07 The Chief Executive Officer and President. The Chief
-----------------------------------------
Executive Officer, who shall also serve as the President, of the Corporation
shall have, subject to the control of the Board, general and active supervision
and management over the business of the Corporation and over its several
officers, assistants, agents and employees.
SECTION 4.08 The Vice Presidents. Each Vice President shall have such
-------------------
powers and perform such duties as the Board may from time to time prescribe. At
the request of the President, or in case of the President's absence or inability
to act upon the request of the Board, a Vice President shall perform the duties
of the President and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President.
SECTION 4.09 The Chief Operating Officer. The Chief Operating Officer
---------------------------
shall have, subject to the control of the Board, general and active supervision
and management over the operations of the Corporation and shall have such powers
and perform such duties as the Board may from time to time prescribe.
SECTION 4.10 The Secretary. The Secretary shall, if present, record the
-------------
proceedings of all meetings of the Board, of the stockholders, and of all
committees of which a secretary shall not have been appointed in one or more
books provided for that purpose; he shall see that all notices are duly given in
accordance with these Bylaws and as required by law; he shall be custodian of
the seal of the Corporation and shall affix and attest the seal to all documents
to be executed on behalf of the Corporation under its seal; and, in general, he
shall perform all the duties incident to the office of Secretary and such other
duties as may from time to time be assigned to him by the Board.
SECTION 4.11 The Chief Financial Officer and Treasurer. The Chief
-----------------------------------------
Financial Officer, who shall also serve as the Treasurer, shall have the general
care and custody of the
7
<PAGE>
funds and securities of the Corporation, and shall deposit all such funds in the
name of the Corporation in such banks, trust companies or other depositories as
shall be selected by the Board. He shall receive, and give receipts for, moneys
due and payable to the Corporation from any source whatsoever. He shall exercise
general supervision over expenditures and disbursements made by officers, agents
and employees of the Corporation and the preparation of such records and reports
in connection therewith as may be necessary or desirable. He shall, in general,
perform all other duties incident to the offices of Chief Financial Officer and
Treasurer and such other duties as from time to time may be assigned to him by
the Board.
SECTION 4.12 Compensation. The compensation of the officers of the
------------
Corporation shall be fixed from time to time by the Board. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that he is also a director of the Corporation. Nothing contained herein
shall preclude any officer from serving the Corporation, or any subsidiary
corporation, in any other capacity and receiving such compensation by reason of
the fact that he is also a director of the Corporation. Nothing contained
herein shall preclude any officer from serving the Corporation, or any
subsidiary corporation, in any other capacity and receiving proper compensation
therefor.
ARTICLE V
Contracts, Checks, Drafts, Bank Accounts, Etc.
SECTION 5.01 Execution of Contracts. The Board, except as in these Bylaws
----------------------
otherwise provided, may authorize any officer or officers, agent or agents, to
enter into any contract or execute any instrument in the name of and on behalf
of the Corporation, and such authority may be general or confined to specific
instances; and unless so authorized by the Board or by these Bylaws, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable for
any purpose or in any amount.
SECTION 5.02 Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board.
SECTION 5.03 Deposits. All funds of the Corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board may select, or as may
be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. For the purpose of deposit and for the
purpose of collection for the account of the Corporation, the President, any
Vice President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall from time to time be determined by the Board) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
8
<PAGE>
SECTION 5.04 General and Special Bank Accounts. The Board may from time to
---------------------------------
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositories as the Board may select or as
may be selected by any officer or officers, assistant or assistants, agent or
agents, or attorney or attorneys of the Corporation to whom such power shall
have been delegated by the Board. The Board may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of these Bylaws, as it may deem expedient.
ARTICLE VI
Shares and Their Transfer
SECTION 6.01 Certificates for Stock. Every owner of stock of the
----------------------
Corporation shall be entitled to have a certificate or certificates, to be in
such form as the Board shall prescribe, certifying the number and class of
shares of the stock of the Corporation owned by him. The certificates
representing shares of such stock shall be numbered in the order in which they
shall be issued and shall be signed in the name of the Corporation by the
Chairman of the Board of Directors or by the President or a Vice President, and
by the Secretary or an Assistant Secretary or by the Treasurer or an Assistant
Treasurer. Any of or all of the signatures on the certificates may be a
facsimile. In case any officer, transfer agent or registrar who has signed, or
whose facsimile signature has been placed upon, any such certificate, shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, such certificate may nevertheless be issued by the Corporation with
the same effect as though the person who signed such certificate, or whose
facsimile signature shall have been placed thereupon, were such officer,
'transfer agent or registrar at the date of issue. A record shall be kept of
the respective names of the persons, firms or corporations owning the stock
represented by such certificates, the number and class of shares represented by
such certificates, respectively, and the respective dates thereof, and in case
of cancellation, the respective dates of cancellation. Every certificate
surrendered to the Corporation for exchange or transfer shall be canceled, and
no new certificate or certificates shall be issued in exchange for any existing
certificate until such existing certificate shall have been so canceled, except
in cases provided for in Section 6.04.
SECTION 6.02 Transfers of Stock. Transfers of shares of stock of the
------------------
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03, and upon surrender of the
certificate or certificates for such shares properly endorsed and the payment of
all taxes thereon. The person in whose name shares of stock stand on the books
of the Corporation shall be deemed the owner thereof for all purposes as regards
the Corporation. Whenever any transfer of shares shall be made for collateral
security, and not absolutely, such fact shall be so expressed in the entry of
transfer if, when the certificate or certificates shall be presented to the
Corporation for transfer, both the transferor and the transferee request the
Corporation to do so.
SECTION 6.03 Regulations. The Board may make such rules and regulations as
-----------
it may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. It may appoint, or authorize
9
<PAGE>
any officer or officers to appoint, one or more transfer clerks or one or more
transfer agents and one or more registrars, and may require all certificates for
stock to bear the signature or signatures of any of them.
SECTION 6.04 Lost, Stolen, Destroyed, and Mutilated Certificates. In any
---------------------------------------------------
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sum as the Board may direct; provided, however, that a new
certificate may be issued without requiring any bond when, in the judgment of
the Board, it is proper so to do.
SECTION 6.05 Fixing Date for Determination of Stockholders of Record. In
-------------------------------------------------------
order that the Corporation may determine the stockholders entitled to notice of
or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any other change,
conversion or exchange of stock or for the purpose of any other lawful action,
the Board may fix, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting, nor more than 60 days
prior to any other action. If in any case involving the determination of
stockholders for any purpose other than notice of or voting at a meeting of
stockholders or expressing consent to corporate action without a meeting the
Board shall not fix such a record date, the record date for determining
stockholders for such purpose shall be the close of business on the day on which
the Board shall adopt the resolution relating thereto. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board may
fix a new record date for the adjourned meeting.
ARTICLE VII
Indemnification
SECTION 7.01 Action, Etc. Other Than by or in the Right of the Corporation.
-------------------------------------------------------------
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the Corporation,
10
<PAGE>
and, with respect to any criminal action or proceeding, that he had reasonable
cause to believe that his conduct was unlawful.
SECTION 7.02 Actions, Etc., by or in the Right of the Corporation. The
----------------------------------------------------
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court shall deem proper.
SECTION 7.03 Determination of Right of Indemnification. Any
-----------------------------------------
indemnification under Section 7.01 or 7.02 (unless ordered by a court) shall be
made by the Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or agent
is proper in the circumstances because he has met the applicable standard of
conduct set forth in Section 7.01 and 7.02. Such determination shall be made
(i) by the Board by a majority vote of a quorum consisting of directors who were
not parties to such action, suit or proceeding, or (ii) if such a quorum is not
obtainable, or, even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or (iii) by the
stockholders.
SECTION 7.04 Indemnification Against Expenses of Successful Party.
----------------------------------------------------
Notwithstanding the other provisions of this Article, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02, or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.05 Prepaid Expense. Expenses incurred by an officer or director
---------------
in defending a civil or criminal action, suit or proceeding may be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board in the specific case upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount
unless it shall ultimately be determined that he is entitled to be indemnified
by the Corporation as authorized in this Article. Such expenses incurred by
other employees and agents may be so paid upon such terms and conditions, if
any, as the Board deems appropriate.
SECTION 7.06 Other Rights and Remedies. The indemnification provided by
-------------------------
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification
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<PAGE>
may be entitled under any Bylaws, 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 a person.
SECTION 7.07 Insurance. Upon resolution passed by the Board, the
---------
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article.
SECTION 7.08 Constituent Corporations. For the purposes of this Article,
------------------------
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation, so
that any person who is or was a director, officer, employee or agent of such a
constituent corporation or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would if he had served the resulting or surviving
corporation in the same capacity.
SECTION 7.09 Other Enterprises, Fines, and Serving at Corporation's
------------------------------------------------------
Request. For purposes of this Article, references to "other enterprises" shall
- -------
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the Corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants, or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to in this
Article.
ARTICLE VIII
Miscellaneous
SECTION 8.01 Seal. The Board shall provide a corporate seal, which shall
----
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation was incorporated in the State of
Delaware and the year of incorporation.
SECTION 8.02 Waiver of Notices. Whenever notice is required to be given by
-----------------
these Bylaws or the Certificate of Incorporation or by law, the person entitled
to said notice may waive such notice in writing, either before or after the time
stated therein, and such waiver shall be deemed equivalent to notice.
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<PAGE>
SECTION 8.03 Amendments. These Bylaws, or any of them, may be altered,
----------
amended or repealed, and new Bylaws may be made, (i) by the Board, by vote of a
majority of the number of directors then in office as directors, acting at any
meeting of the Board, provided, however, that the grant of such power to the
Board shall not divest the stockholders of nor limit their power to adopt,
amend, repeal or otherwise alter the Bylaws pursuant to the Corporation's
certificate of incorporation or law, or (ii) by the stockholders, at any annual
meeting of stockholders, without previous notice, or at any special meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Unless otherwise
provided in the certificate of incorporation, the Bylaws made or altered by the
stockholders may be altered or repealed by either the Board or the stockholders.
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<PAGE>
EXHIBIT 10.4
THESE SECURITIES HAVE NOT BEEN REGISERED UNDER THE SECURITIES ACT OF 1933 AS
AMENDED, OR ANY STATE SECURITIES LAWSTerry J. AbdullahFinancial Printing
GroupTHESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE
SECURITIES LAWS.
FORM OF WARRANT AGREEMENT
To Purchase Shares of the Common Stock of
BroadBand Sports, Inc.
Dated as of ______________ (the "Effective Date")
WHEREAS, BroadBand Sports, Inc., a Delaware corporation (the "Company") has
entered into a _______________ dated as of _______________ (the "____________")
with Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for the issuance of the _____________ as provided for in the _____________, the
right to purchase shares of its Common Stock;
NOW, THEREFORE, in consideration of the Warrantholder issuing the
____________ and in consideration of mutual covenants and agreements contained
herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE COMMON STOCK.
-------------------------------------------
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, ______________ fully paid and non-
assessable shares of the Company's Common Stock ("Common Stock") at a purchase
price of $________ per share (the "Exercise Price"). The number and purchase
price of such shares are subject to adjustment as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
-----------------------------
Except as otherwise provided for herein, the term of this Warrant Agreement
and the right to purchase Common Stock as granted herein shall commence on the
Effective Date and shall be exercisable for a period ending on the earlier of
(i) ten (10) years or (ii) five (5) years from the effective date of the
Company's initial public offering, or (iii) the closing of a Merger Event (as
defined below in Section 8(a)) whereby the value of the stock, securities or
other assets or property (determined in good faith by the Board of Directors of
the Company) issuable or
1
<PAGE>
payable with respect to one share of the common stock of the Company immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby is in excess of the Exercise Price hereof effective at the
time of a Merger Event and securities received in such reorganization, if any,
are publicly traded, or (iv) to the extent not a Merger Event, (a) any capital
reorganization of the shares of the Company's stock (other than a combination,
reclassification, exchange or subdivision of shares otherwise provided for
herein), (b) a merger or consolidation of the Company with or into another
corporation whether or not the Company is the surviving corporation, or (c) the
sale of all or substantially al of the Company's properties and assets to any
other person.
3. EXERCISE OF THE PURCHASE RIGHTS.
-------------------------------
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Common Stock purchased and shall execute the
acknowledgment of exercise in the form attached hereto as Exhibit II (the
"Acknowledgment of Exercise") indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Common Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Common Stock to be issued to the
Warrantholder.
Y = the number of shares of Common Stock requested to be exercised
under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
For purposes of the above calculation, current fair market value of Common
Stock shall mean with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering of
the Company's Common Stock, and if the Company's Registration Statement
relating to such public offering has been declared effective by the SEC,
then the fair market value
2
<PAGE>
per share shall be the initial "Price to Public" specified in the final
prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a five (5)
day period ending three days before the day the current fair market value
of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the five (5) day
period ending three days before the day the current fair market value of
the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of the Common Stock shall be as determined in
good faith by its Board of Directors, unless the Company shall become
subject to a merger, acquisition or other consolidation pursuant to which
the Company is not the surviving party, in which case the fair market value
of Common Stock shall be deemed to be the value received by the holders of
the Company's Common Stock on a common equivalent basis pursuant to such
merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
---------------------
(a) Authorization and Reservation of Shares. During the term of this
---------------------------------------
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights to purchase Common Stock as provided for herein.
(b) Registration or Listing. If any shares of Common Stock required to be
-----------------------
reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
Securities Act of 1933, as amended ("1933 Act"), as then in effect, or any
similar Federal statute then enforced, or any state securities law), or listing
on any domestic securities exchange, before such shares may be issued upon
exercise, the Company will, at its expense and as expeditiously as possible, use
its best efforts to cause such shares to be duly registered, listed or approved
for listing on such domestic securities exchange, as the case may be.
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<PAGE>
5. NO FRACTIONAL SHARES OR SCRIP.
-----------------------------
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in Effect.
6. NO RIGHTS AS SHAREHOLDER.
------------------------
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
----------------------
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
-----------------
The purchase price per share and the number of shares of Common Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. If at any time there shall be (i) a capital
-------------------------
reorganization of the shares of the Company's Common Stock (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or (ii) a merger or consolidation of the Company with or
into another corporation whether or not the Company is the surviving
corporation, or (iii) the sale of all or substantially all of the Company's
properties and assets to any other person pursuant to which the consideration to
be received by the holders of Common Stock in any such transaction described in
clause (i), (ii) or (iii) is solely equity securities of the acquiring entity or
its parent corporation (hereinafter referred to as a "Merger Event"), then, as a
part of such Merger Event, lawful provision shall be made so that the
Warrantholder shall thereafter be entitled to receive, upon exercise of the
Warrant, the number of shares of Common Stock or other securities of the
successor corporation resulting from such Merger Event, equivalent in value to
that which would have been issuable if Warrantholder had exercised this Warrant
immediately prior to the Merger Event. In any such case, appropriate adjustment
(as determined in good faith by the Company's Board of Directors) shall be made
in the application of the provisions of this Warrant Agreement with respect to
the rights and interest of the Warrantholder after the Merger Event to the end
that the provisions of this Warrant Agreement (including adjustments of the
Exercise Price and number of shares of Common Stock purchasable) shall be
applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
--------------------------
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
4
<PAGE>
(c) Notice of Adjustments. If: (i) the Company shall declare any dividend
---------------------
or distribution upon its Common Stock, whether in cash, property, stock or other
securities; (ii) there shall be any Merger Event; (iv) there shall be an initial
public offering; or (v) there shall be any voluntary dissolution, liquidation or
winding up of the Company; then in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Common Stock shall be entitled thereto) or for
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such Merger Event,
dissolution, liquidation or winding up); and (C) in the case of a public
offering, the Company shall give the Warrantholder at least twenty (20) days
written notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(d) Timely Notice. Failure to timely provide such notice required by
-------------
subsection (d) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
--------------------------------------------------------
(a) Reservation of Common Stock. The Common Stock issuable upon exercise of
---------------------------
the Warrantholder's rights has been duly and validly reserved and, when issued
in accordance with the provisions of this Warrant Agreement, will be validly
issued, fully paid and non-assessable, and will be free of any taxes, liens,
charges or encumbrances created by the Company of any nature whatsoever;
provided, however, that the Common Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or Federal
securities laws, this Warrant Agreement and the Bylaws of the Company. The
Company has made available to the Warrantholder true, correct and complete
copies of its Charter and Bylaws, as amended through the effective date of the
___________________. The issuance of certificates for shares of Common Stock
upon exercise of the Warrant Agreement shall be made without charge to the
Warrantholder for any issuance tax in respect thereof, or other cost incurred by
the Company in connection with such exercise and the related issuance of shares
of Common Stock. The Company shall not be required to pay any tax which may be
payable in respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
-------------
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the
5
<PAGE>
issuance to Warrantholder of the right to acquire the shares of Common Stock,
have been duly authorized by all necessary corporate action on the part of the
Company, and this Warrant Agreement is not inconsistent with the Company's
Charter or Bylaws, does not contravene any law or governmental rule, regulation
or order applicable to it, does not and will not contravene any material
provision of, or constitute a default under, any material indenture, mortgage,
contract or other instrument to which it is a party or by which it is bound, and
this Warrant Agreement constitutes a legal, valid and binding agreement of the
Company, enforceable in accordance with its terms, except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of
general application affecting enforcement of creditors' rights generally, and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief, or other equitable remedies.
(c) Consents and Approvals. No consent or approval of, giving of notice
----------------------
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of notices pursuant to Regulation
D under the 1933 Act and any filing required by applicable state securities law,
which filings will be effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
-----------------
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition, as of the
effective date of the _____________.
(i) The authorized capital of the Company consists of (A)
_____________ shares of Common Stock, of which _____________ shares are
issued and outstanding, and (B) _____________ shares of preferred stock, of
which _____________ shares of Series A Preferred Stock are issued and
outstanding and not convertible into Common Stock and _____________ shares
of Series B Preferred Stock are issued and outstanding and are presently
convertible into _____________ shares of Common Stock.
(ii) The Company has reserved _____________ shares of Common Stock
for issuance under its [Stock Option Plan], under which _____________
options are outstanding. There are no other options, warrants, conversion
privileges or other rights presently outstanding to purchase or otherwise
acquire any authorized but unissued shares of the Company's capital stock
or other securities of the Company.
(iii) The Company's Charter does not provide any shareholder with
preemptive rights to purchase new issuances of the Company's capital stock.
(e) Insurance. The Company has in full force and effect insurance
---------
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract agreement.
6
<PAGE>
(f) Other Commitments to Register Securities. Except as set forth in that
----------------------------------------
certain _____________ dated as of _____________ among the Company and the
investors named therein, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
------------------
representations in Section 10 hereof, the issuance of the Common Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of California state
securities laws.
(h) Compliance with Rule 144. At the written request of the Warrantholder
------------------------
at any time after the expiration of ninety (90) days from the closing of the
Company's initial public offering, who proposes to sell Common Stock issuable
upon the exercise of the Warrant in compliance with Rule 144 promulgated by the
Securities and Exchange Commission, the Company shall furnish to the
Warrantholder, within ten days after receipt of such request, a written
statement as to the status of the Company's compliance with the filing
requirements of the Securities and Exchange Commission as set forth in such
Rule, as such Rule may be amended from time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
--------------------------------------------------
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Common Stock, or the Common
------------------
Stock issuable upon exercise of the Warrantholder's rights contained herein and
the Common Stock issuable upon conversion of the Common Stock will be acquired
for investment and not with a view to the sale or distribution of any part
thereof, and the Warrantholder has no present intention of selling or engaging
in any public distribution of the same.
(b) Private Issue. The Warrantholder understands (i) that the Common Stock
-------------
issuable upon exercise of this Warrant is not registered under the 1933 Act or
qualified under applicable state securities laws on the ground that the issuance
contemplated by this Warrant Agreement will be exempt from the registration and
qualifications requirements thereof, and (ii) that the Company's reliance on
such exemption is predicated on the representations set forth in this Section
10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Common Stock or
the Common Stock, unless and until (i) it shall have notified the Company of the
proposed disposition, and (ii) if requested by the Company, it shall have
furnished the Company with an opinion of counsel (which counsel may either be
inside or outside counsel to the Warrantholder) satisfactory to the Company and
its counsel to the effect that (A) appropriate action necessary for compliance
with the 1933 Act has been taken, or (B) an exemption from the registration
requirements of the 1933 Act is available. Notwithstanding the foregoing, the
restrictions in this Section 10(c) imposed upon the
7
<PAGE>
transferability of any of its rights to acquire Common Stock, or Common Stock
issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Common Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Common Stock then outstanding as to which
such restrictions have terminated shall be entitled to receive from the Company,
without expense to such holder, one or more new certificates for the Warrant or
for such shares of Common Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
--------------
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
-----------------------
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1934 Act (the "1934 Act"), or file reports pursuant to
Section 15(d), of the 1934 Act, or if a registration statement covering the
securities under the 1933 Act is not in effect when it desires to sell (i) the
rights to purchase Common Stock pursuant to this Warrant Agreement, or (ii) the
Common Stock issuable upon exercise hereof, it may be required to hold such
securities for an indefinite period. The Warrantholder also understands that any
sale of its rights of the Warrantholder to purchase Common Stock which might be
made by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
(f) Accredited Investor. Warrantholder is an "accredited investor" within
-------------------
the meaning of the Securities and Exchange Rule 501 of Regulation D and for the
purpose of Section 25102 (f) of the California Corporations Code, the
Warrantholder is excluded from the count of purchasers pursuant to Rule
260.102.13 thereunder, as presently in effect.
(g) "Market Stand-off" Agreement.
----------------------------
(i) Warrantholder, if requested by the Company and the lead
underwriter of any public offering of the Common Stock or other securities of
the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in this Warrant, any Common Stock or any securities convertible
into or exchangeable or exercisable for or any other rights to purchase or
acquire Common Stock (except Common Stock included in such public offering or
acquired on the public market after such offering) during the 180-day period
following the effective date of a
8
<PAGE>
registration statement of the Company filed under the 1933 Act, or such shorter
period of time as the Lead Underwriter shall specify. Warrantholder further
agrees to sign such documents as may be requested by the Lead Underwriter to
effect the foregoing and agrees that the Company may impose stop-transfer
instructions with respect to this Warrant and such Common Stock and other
securities until the end of such period. The Company and Warrantholder
acknowledge that each Lead Underwriter of a public offering of the Company's
stock, during the period of such offering and for the 180-day period thereafter,
is an intended beneficiary of this Section 10(g).
(ii) No Amendment Without Consent of Underwriter. During the period
-------------------------------------------
from identification as a Lead Underwriter in connection with any public offering
of the Company's Common Stock until the earlier of (i) the expiration of the
lock-up period specified in Section 10(g)(i) in connection with such offering or
(ii) the abandonment of such offering by the Company and the Lead Underwriter,
the provisions of the Section 10(g) may not be amended or waived except with the
consent of the Lead Underwriter.
11. TRANSFERS.
---------
Subject to the terms and conditions contained in Section 10 hereof, this
Warrant Agreement and all rights hereunder are transferable in whole or in part
by the Warrantholder and any successor transferee upon the prior written consent
of the Company (which such consent shall not be unreasonably withheld),
provided, however, in no event shall the number of transfers of the rights and
interests in all of the Warrants exceed three (3) transfers. The transfer shall
be recorded on the books of the Company upon receipt by the Company of a notice
of transfer in the form attached hereto as Exhibit III (the "Transfer Notice"),
at its principal offices and the payment to the Company of all transfer taxes
and other governmental charges imposed on such transfer. No transfer of this
Warrant Agreement, any shares of Common Stock issuable upon exercise hereof
shall be effective unless the Company shall first receive from such proposed
transferee a written agreement, satisfactory to the Company, providing that such
transferee is subject to all of the terms and conditions hereof.
12. MISCELLANEOUS.
-------------
(a) Effective Date. Except as otherwise provided herein, the provisions of
--------------
this Warrant Agreement shall be construed and shall be given effect in all
respects as if it had been executed and delivered by the Company on the date
hereof. This Warrant Agreement shall be binding upon any successors or assigns
of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
---------------
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
-------------
construed for all purposes under and in accordance with the laws of the State of
California.
(d) Counterparts. This Warrant 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.
9
<PAGE>
(e) Notices. Any notice required or permitted hereunder shall be given in
-------
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
______________________________________________________________ and (ii) to the
Company at _______________________________________________________ or at such
other address as any such party may subsequently designate by written notice to
the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
--------
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable.
(g) No Impairment of Rights. The Company will not, by amendment of its
-----------------------
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
--------
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
------------
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: BROADBAND SPORTS, INC.
By:
----------------------------------
Title:
-------------------------------
Warrantholder: COMDISCO, INC.
By:
----------------------------------
Title:
-------------------------------
11
<PAGE>
EXHIBIT I
NOTICE OF EXERCISE
TO: _______________________
(1) The undersigned Warrantholder hereby elects, to purchase _______ shares of
the Common Stock of _____________, pursuant to the terms of the Warrant
Agreement dated the _____ day of _____________ 19__ (the "Warrant
Agreement") between ____________________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Common Stock of
_______________________, the undersigned hereby confirms and acknowledges
that, as of the date hereof, the investment representations and warranties
made in Section 10 of the Warrant Agreement are accurate and true.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below.
_______________________________
(Name)
_______________________________
(Address)
Warrantholder: COMDISCO, INC.
By:
----------------------------
Title:
-------------------------
Date:
--------------------------
12
<PAGE>
EXHIBIT II
ACKNOWLEDGMENT OF EXERCISE
The undersigned ______________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase _________
shares of the Common Stock of _____________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that _______ shares remain subject
to purchase under the terms of the Warrant Agreement.
Company:
By:
---------------------------------------
Title:
------------------------------------
Date:
-------------------------------------
13
<PAGE>
EXHIBIT III
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form and
supply required information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights evidenced
thereby are hereby transferred and assigned to
____________________________________________________________________
(Please Print)
whose address is ___________________________________________________
____________________________________________________________________
Dated:
------------------------------------------
Holder's Signature:
-----------------------------
Holder's Address:
-------------------------------
------------------------------------------------
Signature Guaranteed:
-----------------------------------------------
NOTE: The signature to this Transfer Notice must correspond with the name as it
appears on the face of the Warrant Agreement, without alteration or
enlargement or any change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity should file proper
evidence of authority to assign the foregoing Warrant Agreement.
14
<PAGE>
EXHIBIT 10.5
BROADBAND SPORTS, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is entered
into as of November 24, 1999, by and between Broadband Sports, Inc., a Delaware
corporation (the "Company"), and Richard Nanula ("Recipient").
W I T N E S S E T H
WHEREAS, the Company regards Recipient as a valuable contributor to
the Company and has determined that it would be in the interest of the Company
and its stockholders to sell the Stock (as defined below) provided for in this
Agreement to Recipient as an incentive for continued service with the Company
and increased achievements in the future by Recipient;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, the parties to this Agreement hereby agree as follows:
A G R E E M E N T
1. Restricted Stock Purchase.
-------------------------
(a) Contemporaneously with the execution of this Agreement, the
Company will issue and sell to Recipient 30,389,809 shares of Common Stock, par
value $0.001 per share, of the Company (the "Stock") for a consideration of
$0.60 per share (the "Purchase Price"). Payment for the Stock in the amount of
the Purchase Price multiplied by the number of shares issued hereunder shall be
made to the Company upon execution of this Agreement. Payment for 5,054,965
shares shall be made in cash, by check or wire transfer payable to the Company,
and payment for the remaining 25,334,844 shares shall be made by execution of a
promissory note substantially in the form attached hereto as Exhibit A (the
---------
"Note"), or any combination of the foregoing. Stock certificates evidencing the
Restricted Stock (as defined below) will be retained by the Company, accompanied
by blank stock powers executed by Recipient, for the period during which the
Stock constitutes Restricted Stock pursuant to the terms of Sections 2 and 3
hereof.
(b) All shares of Stock issued hereunder shall be deemed issued
to Recipient as fully paid and nonassessable shares, and Recipient shall have
all rights of a stockholder with respect thereto, including the right to vote,
receive dividends (including stock dividends), participate in stock splits or
other recapitalizations, and exchange such shares in a merger, consolidation or
other reorganization. The term "Stock," in addition to the shares purchased
pursuant to this Agreement, also refers to all securities received in
replacement of the Stock, as a stock dividend or as a result of any stock split,
recapitalization, merger,
1
<PAGE>
reorganization, exchange or the like, and all new, substituted or additional
securities or other properties to which Recipient is entitled by reason of
Recipient's ownership of the Stock.
2. Restrictions.
------------
(a) No Stock issued to the Recipient hereunder shall be sold,
transferred by gift, pledged, hypothecated, or otherwise transferred or disposed
of by the Recipient prior to the date when the Recipient shall become vested in
such Stock pursuant to Section 3 hereof, and such Stock shall constitute
"Restricted Stock" until such date. Any attempt to transfer Stock in violation
of this Section 2 shall be null and void and shall be disregarded by the
Company.
(b) In addition, Restricted Stock shall be subject to a
repurchase option in favor of the Company (the "Repurchase Option"). The
Repurchase Option shall be subject to the following terms and conditions:
(i) In the event of the voluntary or involuntary
termination of Recipient as an employee of the Company for any reason, with or
without cause (including death or disability), the Company shall, upon the date
of such termination, have an irrevocable, exclusive option for a period of
ninety (90) days from such date to repurchase any or all Restricted Stock from
Recipient or any person receiving the Restricted Stock by operation of law of
other involuntary transfer, at the original Purchase Price for the Restricted
Stock, subject to Section 3 hereof; provided, in the event that Restricted Stock
shall continue to vest after the date of termination of Recipient as an employee
of the Company in accordance with Section 3, such ninety (90) day period during
which the Repurchase Option may be exercised by the Company shall not expire and
shall be extended until the expiration of the ninety (90) day period commencing
on the date that such additional Restricted Stock shall no longer continue to
vest in accordance with Section 3. The Repurchase Option may be assigned by the
Company to any third person or entity.
(ii) The Repurchase Option shall be exercised by written
notice by the Company or its assignee to Recipient or his or her executor and,
at the Company's or its assignee's option, by delivery to the Recipient or his
or her executor, with such notice, of (A) a check in the amount of the Purchase
Price for the Restricted Stock being repurchased, (B) in the event that
Recipient is indebted to the Company or its assignee, by cancellation by the
Company or its assignee of an amount of such indebtedness equal to the Purchase
Price for the Restricted Stock being repurchased, or (C) by a combination of (A)
and (B) so that the combined payment and cancellation of indebtedness equals
such Purchase Price. Upon delivery by the Company or its assignee of such notice
and payment of the Purchase Price, the Company or its assignee shall become the
legal and beneficial owner of the Restricted Stock being repurchased and all
rights and interest therein or related thereto, and the Company shall have the
right to transfer to its or its assignee's own name the number of shares of
Restricted Stock being repurchased by the Company or its assignee, without
further action by Recipient.
(c) For purposes of facilitating the enforcement of the
provisions of this Section 2, Recipient agrees, immediately upon receipt of the
certificate(s) for the Restricted Stock, to deliver such certificate(s),
together with an Assignment Separate from Certificate, in substantially the form
of that attached hereto as Exhibit B, executed in blank by Recipient and
---------
2
<PAGE>
Recipient's spouse (if required for transfer) with respect to each such stock
certificate, to the Secretary or Assistant Secretary of the Company, or their
designee, to hold in escrow for so long as such Stock remains Restricted Stock,
with the authority to take all such actions and to effectuate all such transfers
and/or releases as may be necessary or appropriate to accomplish the objectives
of this Agreement in accordance with the terms hereof. Recipient hereby
acknowledges that the appointment of the Secretary or Assistant Secretary of the
Company (or their designee) as the escrow holder hereunder with the stated
authorities is a material inducement to the Company to make this Agreement and
that such appointment is coupled with an interest and is accordingly
irrevocable. Recipient agrees that such escrow holder shall not be liable to any
party hereto (or to any other party) for any actions or omissions unless such
escrow holder is grossly negligent relative thereto. The escrow holder may rely
upon any letter, notice or other document executed by any signature purported to
be genuine and may resign at any time.
3. Vesting. For purposes of this Agreement, the term "vest" shall
-------
mean with respect to any share of the Stock that such share is no longer
Restricted Stock subject to the restrictions on transfer set forth in Section 2
and that such share is released from the Repurchase Option. If Recipient would
become vested in any fraction of a share of Stock on any date, such fractional
share shall not vest and shall remain Restricted Stock until the Recipient
becomes vested in the entire share. The shares of Stock subject to this
Agreement shall vest as follows:
(a) 7,588,444 shares of Stock subject to this Agreement (subject
to appropriate adjustment for any stock splits, stock dividends and other
recapitalizations) shall be immediately vested on the date of this Agreement;
and
(b) the remaining 22,801,365 shares of Stock subject to this
Agreement (subject to appropriate adjustment for any stock splits, stock
dividends and other recapitalizations) shall vest in forty-eight (48) equal
monthly installments commencing on the one (1) month anniversary of the date of
this Agreement and continuing thereafter until all shares of Stock have become
fully vested.
Notwithstanding the vesting schedule set forth in this Section 3, upon a
termination by the Company of Recipient's employment without Cause (as defined
below):
(i) prior to a Change of Control (as defined below) and on a date
that the Average Market Capitalization (as defined below) is less than Two
Billion Dollars ($2,000,000,000), twenty five percent (25%) of the remaining
shares of Restricted Stock shall become immediately vested and released from the
Company's Repurchase Option;
(ii) prior to a Change of Control and on a date that the Average
Market Capitalization is equal to or exceeds Two Billion Dollars
($2,000,000,000), twenty five percent (25%) of the remaining shares of
Restricted Stock shall become immediately vested and released from the Company's
Repurchase Option and twelve and one-half percent (12 1/2%) of the remaining
shares of Restricted Stock shall continue to vest in six equal monthly
installments commencing on the one (1) month anniversary of the date of
termination; and
3
<PAGE>
(iii) after the effective date of a Change of Control, fifty
percent (50%) of the remaining shares of Restricted Stock shall continue to vest
in twelve (12) equal monthly installments commencing on the one (1) month
anniversary of the date of termination, provided that no monthly installment
shall vest at any time after the Executive shall have breached in any material
respect any of his obligations under Section 7 of that certain Employment
Agreement entered into as of the date hereof by and between Recipient and
Company.
For the purpose of this Section 3, "Change of Control" shall mean a sale of
all or substantially all of the Company's assets, or any merger or consolidation
of the Company with or into another corporation; other than a merger or
consolidation in which the holders of more than 50% of the shares of capital
stock of the Company outstanding immediately prior to such transaction continue
to hold (either by the voting securities remaining outstanding or by their being
converted into voting securities of the surviving entity) more than 50% of the
total voting power represented by the voting securities of the Company, or such
surviving entity, outstanding immediately after such transaction.
For the purpose of this Section 3 "Cause" shall mean: (i) the conviction
of any felony or any crime involving moral turpitude or dishonesty; (ii) willful
breach of the Company's policies which adversely affects the Company in a
material way; or (iii) causing material intentional damage to the Company's
property or business. For the above purposes, a termination by the Company
without Cause includes a termination of employment by Recipient within 30 days
following any of the following events: (x) the assignment of any duties to
Recipient inconsistent with, or reflecting a material adverse change in,
Recipient's position, duties, responsibilities or status with the Company, or
the removal of Recipient from, or failure to reelect Recipient to, any of such
positions; or (y) the relocation of the Company's principal executive offices,
or relocating Recipient's principal place of business in excess of fifty (50)
miles from the Company's current principal place of business.
For the purpose of this Section 3 "Average Market Capitalization" shall
mean (i) if the Company's securities are traded on a securities exchange or
through the Nasdaq National Market, the average of the market capitalization of
the Company for the period beginning fifteen (15) days before the date of
termination and ending fifteen (15) days after the date of termination and (ii)
if the Company's securities are not traded on a securities exchange or through
the Nasdaq National Market, the market capitalization of the Company as
determined in good faith by the Board of Directors of the Company.
4. Withholding of Taxes. Recipient shall provide the Company with a
--------------------
copy of any timely election made pursuant to Section 83(b) of the Internal
Revenue Code or similar provision of state law (collectively, an "83(b)
Election"), a form of which election is attached hereto as Exhibit C. If
---------
Recipient makes a timely 83(b) Election, Recipient shall immediately pay the
Company the amount necessary to satisfy any applicable federal, state, and local
income and employment tax withholding requirements. If Recipient does not make
a timely 83(b) Election, Recipient shall, either at the time that the
restrictions lapse under this Agreement or at the time withholding is otherwise
required by any applicable law, pay the Company the amount necessary to satisfy
any applicable federal, state, and local income and employment tax withholding
requirements.
4
<PAGE>
5. Additional Securities. Any securities received as the result of
---------------------
ownership of Restricted Stock (hereinafter called "Additional Securities"),
including, without limitation, warrants, options and securities received as a
stock dividend or stock split, or as a result of a recapitalization or
reorganization, shall be retained by the Company in the same manner and subject
to the same conditions as the Restricted Stock with respect to which they were
issued. Recipient shall be entitled to direct the Company to exercise any
warrant or option received as Additional Securities upon supplying the funds
necessary to do so, in which event the securities so purchased shall constitute
Additional Securities, but the Recipient may not direct the Company to sell any
such warrant or option. If Additional Securities consist of a convertible
security, Recipient may exercise any conversion right, and any securities so
acquired shall be deemed Additional Securities. Additional Securities shall be
subject to the provisions of Sections 2 and 3 above in the same manner as the
Restricted Stock.
6. Investment Representations.
--------------------------
(a) This Agreement is made in reliance upon the Recipient's
representation to the Company, which by its acceptance hereof the Recipient
hereby confirms, that the shares of Stock to be received by Recipient will be
acquired for investment for his or her own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that he
or she has no present intention of selling, granting participation in, or
otherwise distributing the same, but subject nevertheless to any requirement of
law that the disposition of his or her property shall at all times be within his
or her control.
(b) The Recipient understands that the Stock is not registered
under the Securities Act of 1933, as amended (the "1933 Act"), on the basis that
the sale provided for in this Agreement and the issuance of securities hereunder
is exempt from registration under the 1933 Act pursuant to Section 4(2) thereof,
and that the Company's reliance on such exemption is predicated on the
Recipient's representations set forth herein. The Recipient realizes that the
basis for the exemption may not be present if, notwithstanding such
representations, the Recipient has in mind merely acquiring shares of the Stock
for a fixed or determinable period in the future, or for a market rise, or for
sale if the market does not rise. The Recipient does not have any such
intention.
(c) The Recipient understands that the Stock may not be sold,
transferred, or otherwise disposed of without registration under the 1933 Act or
an exemption therefrom, and that in the absence of an effective registration
statement covering the Stock or an available exemption from registration under
the 1933 Act, the Stock must be held indefinitely. In particular, the Recipient
is aware that the Stock may not be sold pursuant to Rule 144 or Rule 701
promulgated under the 1933 Act unless all of the conditions of the applicable
Rules are met. Among the conditions for use of Rule 144 is the availability of
current information to the public about the Company. Such information is not now
available, and the Company has no present plans to make such information
available. The Recipient represents that, in the absence of an effective
registration statement covering the Stock, it will sell, transfer, or otherwise
dispose of the Stock only in a manner consistent with its representations set
forth herein and then only in accordance with the provisions of paragraph 6(d)
hereof.
5
<PAGE>
(d) The Recipient agrees that in no event will it make a transfer
or disposition of any of the Stock (other than pursuant to an effective
registration statement under the 1933 Act), unless and until (i) the Recipient
shall have notified the Company of the proposed disposition and shall have
furnished the Company with a statement of the circumstances surrounding the
disposition, and (ii) if requested by the Company, at the expense of the
Recipient or transferee, the Recipient shall have furnished to the Company
either (A) an opinion of counsel, reasonably satisfactory to the Company, to the
effect that such transfer may be made without registration under the 1933 Act or
(B) a "no action" letter from the Securities and Exchange Commission to the
effect that the transfer of such securities without registration will not result
in a recommendation by the staff of the Securities and Exchange Commission that
action be taken with respect thereto.
(e) The Recipient represents and warrants to the Company that he
or she is an "accredited investor" within the meaning of Securities and Exchange
Commission Rule 501 of Regulation D, as presently in effect and, for the purpose
of Section 25102(f) of the California Corporations Code, he or she is excluded
from the count of "purchasers" pursuant to Rule 260.102.13 thereunder.
7. Legends; Stop Transfer.
----------------------
(a) All certificates for shares of the Stock shall bear
substantially the following legends:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY THE TERMS
OF THAT CERTAIN RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE
COMPANY AND THE NAMED SHAREHOLDER. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH SUCH AGREEMENT,
A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) The certificates for shares of the Stock shall also bear any
legends required by applicable state corporate or securities laws.
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<PAGE>
(c) In addition, the Company shall make a notation regarding the
restrictions on transfer of the Stock in its stockbooks, and shares of the Stock
shall be transferred on the books of the Company only if transferred or sold
pursuant to an effective registration statement under the 1933 Act covering such
shares or pursuant to and in compliance with the provisions of paragraph 6(d)
hereof.
8. NO EFFECT ON TERMS OF EMPLOYMENT. THIS AGREEMENT SHALL NOT
--------------------------------
CONFER UPON RECIPIENT ANY RIGHT WITH RESPECT TO CONTINUATION OF RECIPIENT'S
EMPLOYMENT WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH THE RIGHT OF
RECIPIENT OR THE COMPANY TO TERMINATE RECIPIENT'S EMPLOYMENT WITH THE COMPANY AT
ANY TIME FOR ANY REASON WITH OR WITHOUT CAUSE OR CHANGE THE TERMS OF EMPLOYMENT
OF RECIPIENT.
9. Lock-Up Agreement.
-----------------
(a) Agreement. Recipient, if requested by the Company and the
lead underwriter of any public offering of the Common Stock or other securities
of the Company (the "Lead Underwriter"), hereby irrevocably agrees not to sell,
contract to sell, grant any option to purchase, transfer the economic risk of
ownership in, make any short sale of, pledge or otherwise transfer or dispose of
any interest in any Common Stock or any securities convertible into or
exchangeable or exercisable for or any other rights to purchase or acquire
Common Stock (except Common Stock included in such public offering or acquired
on the public market after such offering) during the up to 180-day period
following the effective date of a registration statement of the Company filed
under the Securities Act, or such shorter period of time as the Lead Underwriter
shall specify. Recipient further agrees to sign such documents as may be
requested by the Lead Underwriter to effect the foregoing and agrees that the
Company may impose stop-transfer instructions with respect to such Common Stock
subject until the end of such period. The Company and Recipient acknowledge that
each Lead Underwriter of a public offering of the Company's stock, during the
period of such offering and for the 180-day period thereafter, is an intended
beneficiary of this Section 9.
(b) Permitted Transfers. Notwithstanding the foregoing, Section
-------------------
9(a) hereof shall not prohibit Recipient from transferring any shares of Common
Stock or securities convertible into or exchangeable or exercisable for the
Company's Common Stock to the extent such transfer is not otherwise prohibited
by this Agreement, either during Recipient's lifetime or on death by will or
intestacy to Recipient's immediate family or to a trust the beneficiaries of
which are exclusively Recipient and/or a member or members of Recipient's
immediate family; provided, however, that prior to any such transfer, each
transferee shall execute an agreement pursuant to which each transferee shall
agree to receive and hold such securities subject to the provisions of this
Section 9. For the purposes of this paragraph, the term "immediate family" shall
mean spouse, lineal descendant, father, mother, brother or sister of the
transferor.
(c) No Amendment Without Consent of Underwriter. During the
-------------------------------------------
period from identification as a Lead Underwriter in connection with any public
offering of the Company's Common Stock until the earlier of (i) the expiration
of the lock-up period specified in Section 9(a) hereof in connection with such
offering or (ii) the abandonment of such offering
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<PAGE>
by the Company and the Lead Underwriter, the provisions of this Section 9 may
not be amended or waived except with the consent of the Lead Underwriter.
10. California Law. This agreement is to be construed in accordance
--------------
with and governed by the internal laws of the State of California as permitted
by Section 1646.5 of the California Civil Code (or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties.
11. Notice. Any notice required to be given under the terms of this
------
Agreement shall be addressed to the Company in care of its Secretary at the
office of the Company at 1640 South Sepulveda Boulevard, Suite 500, Los Angeles,
California 90025, and any notice to be given to Recipient shall be addressed to
him at the address given by Recipient beneath his or her signature to this
Agreement, or such other address as either party to this Agreement may hereafter
designate in writing to the other. Any such notice shall be deemed to have been
duly given when enclosed in a properly sealed envelope or wrapper addressed as
aforesaid, registered or certified and deposited (postage or registration or
certification fee prepaid) in a post office or branch post office regularly
maintained by the United States.
12. Successors. This Agreement shall be binding upon and inure to the
----------
benefit of any successor or successors of the Company. Where the context
permits, "Recipient" as used in this Agreement shall include Recipient's
executor, administrator or other legal representative or the person or persons
to whom Recipient's rights pass by will or the applicable laws of descent and
distribution.
13. Spousal Consent. Recipient shall cause his or her spouse to
---------------
execute a Consent of Spouse in substantially the form of that attached hereto as
Exhibit D concurrently with the execution of this Agreement or, if later, at the
- ---------
time Recipient becomes married.
14. California Securities Law. THE SALE OF THE SECURITIES WHICH ARE
-------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, AND THE ISSUANCE OF SUCH SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
15. Registration Rights. As soon as practicable after execution of
-------------------
this Agreement by the Company and Recipient, the Company shall use commercially
reasonable efforts to amend that certain Investors' Rights Agreement dated as of
May 21, 1999 among the Company, the investors and the other parties named
therein to include in the definition of "Founders' Shares" the shares of Stock
issued to Recipient hereunder.
16. Employee and Employment References. References in this Agreement
----------------------------------
that imply that the Recipient is an employee of the Company, including, without
limitation,
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<PAGE>
references regarding Recipient's employment with the Company, shall be deemed to
include services provided to the Company by Recipient in a consulting capacity
and, to the extent that Recipient is providing services in a consulting
capacity, shall not be deemed to imply that Recipient is an employee of the
Company.
17. Section 4999 Taxes. In the event that the acceleration of vesting
------------------
described in Section 3 to be provided to Recipient under this Agreement,
together with any other benefits payable in connection with a Change of Control
(collectively, "Change of Control Benefits") (i) constitute "excess parachute
payments" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code") and (ii) but for this Section 17, would be subject
----
to the excise tax imposed by Section 4999 of the Code, the following provisions
shall apply:
(a) Recipient agrees that Company may, in its discretion but only
with the written consent of Recipient, seek shareholder approval of such Change
of Control Benefits in accordance with Proposed Treasury Regulation section
1.280G-1, Q&A-7. In accordance therewith, Recipient agrees that his right to
receive such Change of Control Benefits, to the extent such Change of Control
Benefits have a value (as determined in accordance with the rules under Proposed
Regulations Section 1.280G-1, Q&A-24) that equals or exceeds the amount that
would cause any portion of such Change of Control Benefits to be treated as an
"excess parachute payment" (the "Excess Change of Control Benefits") shall be
determined by such shareholder approval such that in the event such shareholder
approval is not obtained, he shall have no right to such Excess Change of
Control Benefits.
(b) In the event Company determines not to seek shareholder
approval of such Change of Control Benefits or Recipient declines to consent
thereto, Recipient's Change of Control Benefits shall be payable, at Recipient's
sole election, either:
(i) in full, notwithstanding that all or some portion of
such benefits may be taxable under Section 4999 of the Code, or
(ii) as to such lesser amount which would result in no
portion of such Change of Control Benefits being subject to excise tax under
Section 4999 of the Code.
Unless Company or Recipient otherwise agree in writing, any determination
required under this Section 17 shall be made in writing by independent public
accountants appointed by Recipient and reasonably acceptable to Company (the
"Accountants"), whose determination shall be conclusive and binding upon
- ------------
Recipient and Company for all purposes. For purposes of making the calculations
required by this Section 17, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code. Company and Recipient shall furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section 17. Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section 17.
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<PAGE>
(c) Company agrees that Recipient shall not be subject to
withholding by the Company for any amount that may become payable by Recipient
under Section 4999 of the Code until such time as Recipient's employment is
terminated by the Company without Cause.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Restricted Stock Purchase Agreement as of the date first above written.
BROADBAND SPORTS, INC., RECIPIENT:
a Delaware corporation
By: /s/ Richard D. Nanula
------------------------------------ ------------------------------------
Tyler J. Goldman, President and Chief Richard Nanula
Executive Officer
Address: _________________________
_________________________
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<PAGE>
EXHIBIT A
SECURED, FULL-RECOURSE
PROMISSORY NOTE
$15,200,906.40 November 24, 1999
FOR VALUE RECEIVED, the undersigned, Richard Nanula ("Maker"),
promises to pay to Broadband Sports, Inc., a Delaware corporation ("Payee"), at
1640 South Sepulveda Boulevard, Suite 500, Los Angeles, California 90025, or
such other place as Payee may from time to time designate, without counterclaim,
deduction or offset of any kind, in lawful money of the United States, the
principal sum of fifteen million, two hundred thousand, nine hundred and six
dollars and forty cents ($15,200,906.40) plus interest thereon, as set forth
below.
1. Interest. Interest on the principal sum of this Note shall accrue
--------
at the simple rate of 6.02% per annum, based on a 365 day year and the actual
number of days elapsed.
2. Principal and Interest Payments. On the ten (10) year anniversary
-------------------------------
of the date of this Note, all accrued interest on the outstanding principal
amount of this Note and the entire principal amount of this Note shall be due
and payable hereunder; provided, that, if such payment date is not a business
day, then payment shall be due on the first business day following such payment
date.
3. Prepayment.
----------
(a) Permissive. This Note may be prepaid in whole or in part, at
----------
any time, without penalty or premium.
(b) Mandatory Prepayment. Maker shall be required to prepay all
--------------------
principal and accrued but unpaid interest due under this Note within ninety (90)
days after a termination for any reason of Maker's employment with Payee.
4. Application of Payments. All payments and prepayments received
-----------------------
by Payee shall be applied first to accrued interest, then to other charges due
with respect to this Note or the Pledge Agreement (as defined below), and then
to the unpaid principal balance.
5. Security. This Note shall be full-recourse and is secured by a
--------
Security Agreement in the form attached hereto as Attachment A (the "Security
Agreement"), encumbering the personal property of Maker, including certain
shares of Common Stock of Payee held by Maker, and the proceeds thereof (the
"Collateral").
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<PAGE>
6. Default and Remedies.
--------------------
a. Default. Maker will be in default under this Note if (i) Maker
-------
fails to make a payment of principal and/or interest hereunder when due or
declared due, whether at scheduled maturity, by acceleration or otherwise,
within ten (10) business days after receipt of written notice of such
nonpayment; (ii) except as permitted by the Pledge Agreement, Maker agrees to or
does sell, convey, encumber, hypothecate or otherwise alienate the Collateral,
or any part thereof, of any interest therein, or if divested of its title to the
Collateral or any interest therein in any manner or any way, whether voluntarily
or involuntarily, without the prior written consent of Holder, or if any other
person or entity with a security interest in the Collateral exercises or seeks
to exercise the remedies of a secured party with respect to the Collateral; or
(iii) Maker files a petition in bankruptcy, is adjudicated insolvent, petitions
or applies to any tribunal for the appointment of a receiver, custodian, or any
trustee for Maker or commences any proceeding under any bankruptcy,
reorganization, arrangement, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction or any such proceeding has been commenced
against Maker which remains undismissed for a period of sixty (60) days.
b. Remedies. Upon Maker's default, Payee may (i) upon written
--------
notice to Maker, declare the entire principal sum and all accrued and unpaid
interest hereunder immediately due and payable and (ii) exercise any and all of
the remedies provided in the Pledge Agreement and applicable law.
7. Miscellaneous.
-------------
a. All communications or notices required or given under this
Note shall be given in accordance with the provisions of Section 12(e) of the
Pledge Agreement.
b. This Note may be modified only by a written agreement
executed by Maker and Payee.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and bind
Maker and Payee and their respective heirs, legal representatives and successors
and assigns.
e. Time is of the essence with respect to all matters set forth
in this Note.
f. If this Note is destroyed, lost or stolen, Maker will deliver
a new note to Payee on the same terms and conditions as this Note with a
notation of the unpaid principal and accrued and unpaid interest in substitution
of the prior Note. Payee shall furnish to Maker reasonable evidence that the
Note was destroyed, lost or stolen and any security or indemnity that may be
reasonably required by Maker in connection with the replacement of this Note.
2
<PAGE>
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
MAKER:
/s/ Richard D. Nanula
_____________________________
Richard Nanula
3
<PAGE>
ATTACHMENT A
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement") is entered into as of November
24, 1999, by and between Richard Nanula ("Debtor") and Broadband Sports, Inc., a
Delaware corporation ("Secured Party").
RECITALS
A. Secured Party has loaned Debtor the principal sum of $15,200,906.40,
which is evidenced by a promissory note of even date herewith for such principal
amount (the "Note").
B. As a condition to making of the loan evidenced by the Note, Secured
Party has required that the Note be secured, upon the terms herein provided, by
certain shares of the Common Stock of Secured Party held by Debtor.
NOW, THEREFORE, in consideration of the foregoing and the further promises
contained herein, Debtor and Secured Party agree as follows:
AGREEMENT
1. Grant of Security Interest. To secure full payment and performance
of Debtor's obligations under the Note and each and every obligation of Debtor
under this Agreement (collectively the "Obligations"), when due (whether at the
stated maturity, by acceleration or otherwise), Debtor hereby pledges the
Collateral (defined below in Section 2), and grants a security interest in the
Collateral, to Secured Party.
2. Collateral. "Collateral" means all personal property of Debtor,
including, without limitation, 25,334,844 shares of the Common Stock of Secured
Party (the "Pledged Stock"), evidenced by Common Stock Certificate No. ____ (the
"Certificate"), duly registered in the name of Debtor, together with all
property rights as may derive from or accrue to the same, including without
limitation, additional shares (whether as a result of stock splits, stock
dividends or otherwise) or replacement securities representing interests in
Secured Party or an affiliate or successor in interest of Secured Party, and all
dividends (whether in cash, stock or other forms) and other income or proceeds
derived therefrom or receivable or received on the sale, exchange, collection or
other disposition thereof, whether voluntary or involuntary, and distributions
with respect thereto. For purposes of this Agreement, the term "proceeds"
includes whatever is receivable or received when Collateral or proceeds is sold,
collected, exchanged, or otherwise disposed of, whether such disposition is
voluntary or involuntary.
3. Delivery of Collateral. On or prior to the execution of this
Agreement, Debtor has delivered or will deliver the Certificate, together with a
stock power duly executed in blank by Debtor to the Secured Party for purposes
of perfecting Secured Party's security interest hereunder and in accordance with
the terms of this Agreement. Upon payment from time to time of the principal
amount of the Note, or any portion thereof, Secured Party shall, at Debtor's
1
<PAGE>
request, take all steps reasonably necessary to cause the redelivery to Debtor
of such portion of the Collateral corresponding to such payment.
4. Stock Adjustments. Secured Party shall have the right to collect
and hold any shares of stock or securities of any class or kind distributed on
account of the Pledged Stock by reason of any stock dividend, distribution,
reclassification or other change in the capital structure of Secured Party, all
of which shall be delivered by Debtor to Secured Party and held by Secured Party
in accordance with the terms of this Agreement.
5. Covenants of Debtor. In addition to other covenants of Debtor
contained in this Agreement, Debtor shall:
(i) from time to time promptly execute and deliver to
Secured Party all such stock powers, assignments, financing statements and other
instruments or documents as may be necessary in order to more fully evidence and
perfect the security interest of Secured Party in the Collateral and promptly
furnish Secured Party with any information or writings which Secured Party may
reasonably request concerning the Collateral;
(ii) appear in and defend any action or proceeding which may
affect Debtor's title to or Secured Party's interest in the Collateral; and
(iii) keep the Collateral free of all levies and security
interests or other liens or charges except those approved in writing by Secured
Party.
6. Debtor's Rights in Collateral.
(a) The parties agree that the grant of a security interest in,
and the assignment and pledge of, the Collateral to Secured Party hereunder is
intended solely for the purpose of securing the Obligations. Accordingly, prior
to the occurrence of an Event of Default (as that term is defined in Section 10)
and the exercise of rights and remedies afforded Secured Party as a result of
such Event of Default, and to the extent not inconsistent with the terms of this
Agreement, Debtor will be entitled to exercise rights as the owner of the
Pledged Stock and will be entitled to receive and retain, any cash distributions
or allocations ("Distributions") and to exercise any other rights appurtenant to
the ownership of the Collateral. Without limiting the generality of the
foregoing, prior to the occurrence of an Event of Default, Debtor will have the
sole and absolute right to:
(i) vote or exercise any and all other consensual rights in
respect of the Collateral, provided, however, that Debtor may not consent to any
-------- -------
amendment or modification of the Certificate of Incorporation or Bylaws of
Debtor that materially adversely affects Secured Party's interest in the
Collateral (including, without limitation, any amendment or modification
creating additional or different transfer restrictions on the Common Stock of
Debtor in a manner that is different from any other shares of Debtor's Common
Stock); and
(ii) receive, retain, use or alienate any Distributions free and
clear of the interest of Secured Party.
2
<PAGE>
(b) After an Event of Default and the exercise of rights and
remedies by Secured Party, all rights of Debtor to exercise the voting and other
contractual rights which it would otherwise be entitled to exercise pursuant to
this Section 6 and to receive and retain the Distributions which it would
otherwise be authorized to receive and retain under this Section 6 will cease.
Following the occurrence of an Event of Default and pending delivery to Secured
Party of any Distributions, Debtor will hold the same in trust for Secured
Party, free and clear of all liens and claims whatsoever other than the interest
of Secured Party.
7. Representations and Warranties. Debtor represents and
warrants to Secured Party that:
(i) The execution, delivery and performance of this
Agreement does not conflict with any law or any agreement or undertaking of
which Debtor is a party or by which Debtor is bound;
(ii) Except for the rights of Debtor and Secured Party, no
other person will have any right, title, claim or interest (by way of security
interest or other lien or charge or otherwise) in, against or to the Collateral;
and
(iii) All information presently or subsequently supplied to
Secured Party by or on behalf of Debtor with respect to the Collateral is true
and correct.
8. Rights of Secured Party.
(a) Secured Party, upon ten (10) days written notice to Debtor
if Debtor fails to perform any of its obligations hereunder, may, but need not,
perform such acts to preserve its rights and the value of the Collateral. Debtor
hereby irrevocably appoints Secured Party as Debtor's attorney-in-fact (which
appointment is coupled with an interest) to do any such act, and to exercise
such rights and powers as Debtor might exercise with respect to the Collateral
in connection therewith. No failure to so act by Secured Party will relieve
Debtor of Debtor's duties under this Agreement or in any way impair or discharge
the obligations, and no such failure to act will result in any liability to
Debtor or any third party on the part of Secured Party.
(b) Secured Party does not assume any of the obligations or
liabilities of Debtor arising under any of the Collateral or any agreement in
respect thereto.
9. Care of Collateral.
(a) Secured Party will use reasonable care in the custody and
preservation of any Collateral in its possession. The parties further agree that
such care as Secured Party gives to the safekeeping of its own property of like
kind will constitute reasonable care of the Collateral when in Secured Party's
possession; provided, however, that Secured Party will not be required to make
any presentment, demand or protest, or give any notice and need not take any
action to preserve any rights any prior party or any other person in connection
with the Obligations or with respect to the Collateral.
3
<PAGE>
(b) Secured Party will not be responsible for or have any
liability for the form, legal sufficiency, genuineness, or legal effect of any
signature, description, guaranty, instruction, or document related to the
Collateral.
(c) Debtor agrees that Secured Party will not in any way or
manner be liable or responsible for any diminution in the value of the
Collateral resulting from the sale or other disposition of the Collateral at
Debtor's request, or from the failure of Secured Party to sell or consent to the
sale, liquidation, reinvestment or other disposition of the Collateral, or for
any act or default by any bailee, forwarding agency, transfer agent or any
person whomsoever, in connection with the Collateral.
10. Default. An "Event of Default" will have occurred if:
(a) There is an occurrence of an event of default under the
Note, subject to applicable grace periods, if any; or
(b) Debtor breaches any provision of this Agreement, and such
breach continues after written notice from Secured Party for a period of ten
(10) business days or such longer period of time reasonably required to remedy
the breach, provided Debtor promptly commences remedial action with ten (10)
business days of such written notice and thereafter diligently pursues the
remedial action.
11. Remedies.
(a) Upon the occurrence of an Event of Default, as defined in
Section 10 above, Secured Party may, at Secured Party's option:
(i) exercise with respect to the Collateral all of the
remedies of a secured party under Articles 8 and 9 of the California Commercial
Code (the "Code"). Without limiting the foregoing and subject to subsection (b)
below, Secured Party shall have the right to sell or otherwise dispose of the
Collateral in accordance with the provisions of the Code. At any such sale,
Secured Party shall have the right to purchase all or any part of the Collateral
and may credit bid amounts owing under the Note. In view of the fact that
federal and state securities laws may impose certain restrictions on the method
by which a sale of the Pledged Stock and any other Collateral consisting of
securities may be effected, Debtor agrees that upon the occurrence of an Event
of Default, Secured Party may from time to time attempt to sell all or any part
of the Pledged Stock and any other Collateral consisting of securities by means
of a private placement restricting the prospective purchasers to those who
satisfy the requirements for available exemptions under applicable securities
laws. In so doing, Secured Party may solicit offers to buy the Pledged Stock and
any other Collateral consisting of securities from a limited number of investors
deemed by Secured Party to satisfy those standards. If Secured Party solicits
such offers from not less than three (3) such investors, then the acceptance by
Secured Party of the highest offer(s) obtained therefrom shall be deemed to be a
commercially reasonable method of disposition of the Pledged Stock and any other
Collateral consisting of securities. Debtor further agrees that, to the extent
notice of sale shall be required by law, ten (10) days' prior notice to Debtor
shall constitute reasonable notice. Secured Party shall not be obligated to
proceed with any sale of Collateral regardless of notice of sale having been
given. Nothing herein shall be
4
<PAGE>
deemed to limit or restrict Secured Party in disposing of the Collateral in
other commercially reasonable ways;
(ii) exercise any and all remedies available under law or in
equity; and
(iii) recover from Debtor all costs and expenses, including
attorneys' fees and expenses, incurred by Secured Party in exercising any right
or remedy provided for hereunder or by law, which costs and expenses are
included in the Obligations secured by the Collateral.
(b) Nothing herein shall be construed to limit Secured
Party's right to seek a deficiency judgment against Debtor.
(c) No delay or omission to exercise any right or remedy of
Secured Party upon a default by Debtor will constitute a waiver of any right or
remedy of Secured Party or be construed as a waiver of any similar default which
occurs later. Debtor waives any right to require Secured Party to proceed
against any other person or to exhaust any Collateral or to pursue any other
remedy in Secured Party's power.
(d) It is the intention of the parties that the grant of the
security interest and assignment and pledge of the Collateral to Secured Party,
and the exercise by Secured Party of any right or remedy granted in this
Agreement, is in addition to all other security interests and remedies given to
Secured Party by virtue of any statute or rule of law or any other agreement,
all of which security interests and remedies are cumulative and, to the maximum
extent permitted by applicable law, may be exercised successively and
concurrently without impairing the rights and remedies of Secured Party under
this Agreement.
12. Miscellaneous.
(a) Successors. The terms of this Agreement will inure to the
benefit of and bind the parties hereto and their respective successors, assigns,
executors, heirs and legal representatives.
(b) Entire Agreement; Severability. This Agreement contains
the entire security agreement between Secured Party and Debtor with respect to
the Pledged Stock and may be modified only by a writing signed by Secured Party
and Debtor. If any of the provisions of this Agreement are held invalid or
unenforceable, this Agreement will be construed as if not containing the invalid
or unenforceable provisions.
(c) Choice of Law. This Agreement will be construed in
accordance with and governed by the laws of the State of California.
(d) Attorneys' Fees. In any action brought to enforce the
terms of this Agreement, the prevailing party will be reimbursed by the losing
party for its reasonable costs and expenses incurred in such action, including
reasonable attorneys' fees.
(e) Notices. All notices, requests, demands and other
communications to be given pursuant to the terms of this Agreement shall be in
writing and shall be delivered
5
<PAGE>
personally, telecopied or sent by recognized overnight delivery service, and
shall be deemed given when so delivered personally, telecopied or received, as
follows
(i) If to Secured Party:
Broadband Sports, Inc.
1640 South Sepulveda Boulevard, Suite 500
Los Angeles, California 90025
(ii) If to Debtor:
Richard Nanula
_____________________
_____________________
Any party may change its address or telecopier number by prior
written notice to the other party.
(f) Time. Time is of the essence of each and every provision
of this Agreement.
(g) Counterparts. This Agreement may be executed by facsimile
and in any number of counterparts, and when so executed shall have the same
force and effect as though all signatures appeared on one document.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first above written.
SECURED PARTY:
BROADBAND SPORTS, INC.
By: ______________________
Title: ______________________
DEBTOR:
/s/ Richard D. Nanula
___________________________
Richard Nanula
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<PAGE>
EXHIBIT B
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock
Purchase Agreement between the undersigned ("Recipient") and Broadband Sports,
Inc. dated __________ ____, 1999 (the "Agreement"), Recipient hereby sells,
assigns and transfers unto _______________ _________________ (_________) shares
of Common Stock of Broadband Sports, Inc. standing in Recipient's name on the
books of said corporation represented by Certificate No. _________ herewith and
does hereby irrevocably constitute and appoint
_____________________________________________________________ to transfer said
stock on the books of the within-named corporation with full power of
substitution in the premises. THIS ASSIGNMENT MAY ONLY BE USED AS AUTHORIZED BY
THE AGREEMENT AND THE EXHIBITS THERETO.
Dated: November 24, 1999 By: /s/ Richard D. Nanula
------------------ ----------------------------
Instruction: Please do not fill in any blanks other than the signature line.
The purpose of this assignment is to enable the Company to exercise its
repurchase option set forth in the Agreement without requiring additional
signatures on the part of Recipient.
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EXHIBIT C
ELECTION UNDER SECTION 83(b) OF THE
INTERNAL REVENUE CODE OF 1986, AS AMENDED
The undersigned taxpayer hereby elects, pursuant to the Internal
Revenue Code, as amended, to include in gross income for 1999 the amount of any
compensation taxable in connection with the taxpayer's receipt of the property
described below:
1. The name, address, taxpayer identification number and taxable year
of the undersigned are:
TAXPAYER'S NAME: Richard Nanula
SPOUSE'S NAME: Tracey L. Nanula
TAXPAYER'S SOCIAL SECURITY NO.: ###-##-####
SPOUSE'S SOCIAL SECURITY NO.: ###-##-####
TAXABLE YEAR: Calendar Year 1999
ADDRESS: _________________________
_________________________
2. The property which is the subject of this election is: 22,801,365
shares of Common Stock (the "Shares") of Broadband Sports, Inc., a Delaware
corporation (the "Company").
3. The Shares were transferred to the undersigned on November 24,
1999 (the "Transfer Date").
4. The Shares are subject to the following restriction: The Shares
shall vest, and the Company's repurchase right shall lapse in forty-eight (48)
equal monthly installments commencing on the one (1) month anniversary of the
Transfer Date. Upon a termination of the undersigned's employment with the
Company, the Company has the right to repurchase unvested Shares at the original
purchase price, subject to the terms of the Restricted Stock Purchase Agreement.
5. The fair market value of the property at the time of transfer
(determined without regard to any restriction other than a restriction which by
its terms will never lapse) is: $0.60 per Share x 22,801,365 Shares =
$13,680,819.00.
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6. The undersigned paid $0.60 per Share x 22,801,365 Shares for the
Shares transferred or a total of $13,680,819.00. The undersigned has submitted a
copy of this statement to the Company.
The undersigned has submitted a copy of this statement to the person
for whom the services were performed in connection with the undersigned's
receipt of the above-described property. The undersigned taxpayer is the person
performing the services in connection with the transfer of said property.
The undersigned will file this election with the Internal Revenue
Service office in which he or she files his or her annual income tax return not
later than 30 days after the date of transfer of the property. A copy of the
election also will be furnished to the person for whom the services were
performed. Additionally, the undersigned will include a copy of the election
with his or her income tax return for the taxable year in which property is
transferred. The undersigned understands that this election will also be
effective as an election under California law.
The undersigned understands that the foregoing election may not be
revoked except with the consent of the Commissioner of the Internal
Revenue Service.
DATED: November 24, 1999 /s/ Richard D. Nanula
----------------- ------------------------------
The undersigned spouse of taxpayer joins in this election.
DATED: November 24, 1999. /s/ Tracey L. Nanula
----------------- ------------------------------
Spouse of Taxpayer
2
<PAGE>
EXHIBIT D
CONSENT OF SPOUSE
I, Tracey Nanula, spouse of Richard Nanula, have read and approved the
-------------
foregoing Agreement. In consideration of the right of my spouse to purchase
shares of Broadband Sports, Inc. as set forth in the Agreement, I hereby appoint
my spouse as my attorney-in-fact in respect to the exercise of any rights under
the Agreement insofar as I may have any rights under the community property laws
of the State of California or similar laws relating to marital property in
effect in the state of our residence as of the date of the signing of the
foregoing Agreement.
Dated: November 24, 1999 /s/ Tracey L. Nanula
----------------- -----------------------------
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement"), entered into effective November
24, 1999, is between Broadband Sports, Inc. (the "Company"), and Richard Nanula
("Executive") (collectively, "the parties").
RECITALS
WHEREAS, Executive desires to accept employment with the Company as its
Chairman and Chief Executive Officer.
WHEREAS, the Company desires to employ Executive and to assure itself of
the services of Executive for the term of this Agreement, and Executive desires
to be employed by the Company for such period, upon the following terms and
conditions.
NOW, THEREFORE, the parties agree as follows:
TERMS
1. Period of Employment
a. Basic Term. The Company shall employ Executive to render services
to the Company in the position and with the duties and responsibilities
described in Section 2 from the date of this Agreement until Executive's
employment is terminated in accordance with Section 4 below.
2. Position, Duties, Responsibilities
a. Position. Executive is employed by the Company to render services
to the Company in the position of Chairman and Chief Executive Officer and shall
perform all services appropriate to that position, as well as such other
services as may reasonably be assigned by the Company. Executive shall devote
his best efforts and full-time attention to the performance of his duties.
Executive shall report to the Board of Directors of the Company. Nothing in this
Agreement will prevent Executive from: (i) accepting speaking or presentation
engagements in exchange for honoraria to the extent that such engagements do not
materially impact the ability of Executive to fulfill his obligations to the
Company; (ii) serving on boards of other companies to the extent that such
companies do not compete with the Company and such service has been approved by
the Board of Directors of the Company; or (iii) from owning no more than one
percent (1%) of the outstanding equity securities of a corporation whose stock
is listed on a national stock exchange or traded through the Nasdaq National
Market.
b. Other Activities. Except upon the prior written consent of the
Company, Executive will not (i) accept any other employment, or (ii) engage,
directly or indirectly, in any other business activity (whether or not pursued
for pecuniary advantage) that is or may be in conflict with, or that might place
Executive in a conflicting position to that of, the Company.
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<PAGE>
3. Compensation. In consideration of the services to be rendered under
this Agreement, Executive shall be entitled to the following:
a. Base Salary. The Company shall to pay Executive an initial base
annual salary of $180,000.00, less applicable withholdings and deductions,
payable in accordance with the Company's standard payroll practices.
b. Incentive Compensation. Commencing January 1, 2000, Executive
will be eligible to receive an annual bonus at the discretion of the Company's
Board of Directors.
c. Equity. Concurrently with the execution of this Agreement,
Executive and the Company shall enter into a Restricted Stock Purchase Agreement
(the "Stock Purchase Agreement") pursuant to which the Company will issue to
Executive 30,389,809 shares of the Company's Common Stock for a purchase price
of $0.60 per share (the "Stock"). A portion of the Stock shall be subject to a
repurchase option that shall lapse as provided in such agreement.
d. Relocation Allowance and Gross-up. When Executive relocates his
residence, the Company will grant Executive a relocation allowance that should,
at a minimum, cover packing and transportation of his personal affairs and
temporary living costs and all other expenses associated with moving Executive's
home and family. This allowance shall not exceed $250,000.00 and Executive will
be required to both return any unused portion thereof and submit receipts for
relocation expenditures at the Company's request. To the extent that Executive
is required to report as taxable income under applicable tax laws amounts
received from the Company as a relocation allowance, the Company shall pay to
Executive such additional amount as is necessary to reimburse Executive for such
resulting tax liability.
e. Vacation and Executive Benefits. During the term of his
-------------------------------
employment, Executive shall be eligible for paid vacation in accordance with the
Company's standard policy for similarly situated employees, as it may be amended
from time to time. During the term of his employment, Executive shall be
eligible to participate in any employee benefit plans maintained by the Company
for similarly situated employees, subject in each case to the generally
applicable terms and conditions of the plan in question and to the
determinations of any person or committee administering such plan.
f. Benefits. Executive shall be eligible for full benefits in
accordance with the Company's executive team plan.
4. Termination of Employment. Executive understands and agrees that his
employment has no specific term. Accordingly, this Agreement, and the
employment relationship, may be terminated by either party with or without
cause, and with or without notice. Except as otherwise provided for herein and
in the November 24, 1999 Restricted Stock Purchase Agreement between the
parties, upon termination neither the Company nor Executive shall have any
further obligation to each other by way of compensation or otherwise.
2
<PAGE>
5. Proprietary Information
a. Company Information. Executive agrees that during his employment
with the Company and thereafter, to hold in strictest confidence, and not to use
or disclose to any person, firm or corporation any Confidential Information of
the Company. "Proprietary Information" means any the Company proprietary or
confidential information, technical data, trade secrets or know-how. This
includes, but is not limited to, research, product plans, products, services,
customer lists, customers, markets, software, developments, inventions,
processes, formulas, technology, designs, drawings, engineering, hardware
configuration information, marketing, finances or other the Company business
information. This information shall remain confidential whether it was disclosed
to Executive either directly or indirectly in writing, orally or by drawings or
observation. Executive understands that Proprietary Information does not include
any of the foregoing items which has become publicly known and made generally
available through no wrongful act of Executive or others who were under
confidentiality obligations as to the items involved.
b. Former Employer Information. Executive agrees that he will not,
---------------------------
during his employment with the Company, improperly use or disclose any
proprietary information or trade secrets, or bring onto the premises of the
Company any unpublished document or proprietary information belonging to any
former or concurrent employer or other person or entity.
c. Third Party Information. Executive recognizes that the Company
-----------------------
has received and in the future will receive confidential or proprietary
information from third parties. Executive agrees to hold all such confidential
or proprietary information in the strictest confidence and not to disclose it to
any person firm or corporation or to use it except as necessary in carrying out
my work for the Company consistent with the Company's agreement with such third
party.
d. No Conflict. Executive represents and warrants that Executive's
-----------
execution of this Agreement, his employment with the Company, and the
performance of his proposed duties under this Agreement shall not violate any
obligations he may have to any former employer (or other person or entity),
including any obligations with respect to proprietary or confidential
information of any other person or entity.
6. Inventions
a. Inventions Retained and Licensed. Executive has attached, as
--------------------------------
Exhibit A, a list describing all inventions, original works of authorship,
- ---------
developments, improvements, and trade secrets which were made by Executive prior
to Executive's employment with the Company ("Prior Inventions"), which belong to
Executive, which relate to the Company's proposed business, products or research
and development, and which Executive is not assigning to the Company. If no such
list is attached, Executive represents that there are no such Prior Inventions.
If, in the course of my employment with the Company, Executive incorporates into
an product of the Company, process or machine a Prior Invention owned by
Executive or in which Executive has an interest, the Company is hereby granted
and shall have a nonexclusive,
3
<PAGE>
royalty-free, irrevocable, perpetual, worldwide license to make, have made,
modify, use and sell such Prior Invention as part of or in connection with such
product, process or machine.
b. Assignment of Inventions. Except as provided in Section 6 (f)
------------------------
below, Executive agrees that he will promptly make full written disclosure to
the Company, will hold in trust for the sole right and benefit of the Company,
and hereby assign to the Company, or its designee, all Executive's right, title,
and interest in and to any and all inventions, original works of authorship,
developments, concepts, improvements, designs, discoveries, ideas, trademarks or
trade secrets, whether or not patentable or registrable under copyright or
similar laws, which Executive may solely or jointly conceive or develop or
reduce to practice, or cause to be conceived or developed or reduced to practice
("Inventions"), while Executive is employed by the Company. Executive further
acknowledges that all original works of authorship which are made by Executive
(solely or jointly with others) within the scope of and during my employment
with the Company and which are protectable by copyright are "works made for
hire", as that term is defined in the United States Copyright Act. Executive
understands and agrees that the decision whether or not to commercialize or
market any invention developed by Executive solely or jointly with others is
within the Company's sole discretion and for the Company's sole benefit and that
no royalty will be due to Executive as a result of the Company's efforts to
commercialize or market any such invention.
c. Inventions Assigned to the United States. Executive agrees to
----------------------------------------
assign to the United States government all Executive's right, title, and
interest in and to any and all Inventions whenever such full title is required
to be in the United States by a contract between the Company and the United
States or any of its agencies.
d. Maintenance of Records. Executive agrees to keep and maintain
----------------------
adequate and current written records of all Inventions made by Executive (solely
or jointly with others) during Executive's employment with the Company. The
records will be in the form of notes, sketches, drawings, and any other format
that may be specified by the Company. The records will be available to and
remain the sole property of the Company at all times.
e. Patent and Copyright Registrations. Executive agrees to assist
----------------------------------
the Company, or its designee, at the Company's expense, in every proper way, to
secure the Company's rights in the Inventions and any copyrights, patents, mask
work rights or other intellectual property rights relating thereto in any and
all countries. Executive will disclose to the Company all pertinent information
and data which the Company deems necessary for the execution of all
applications, specifications, oaths, assignments and all other instruments
necessary to apply for and obtain such rights and in order to assign and convey
to the Company, its successors, assigns, and nominees the sole and exclusive
rights, title and interest in and to such Inventions, and any copyrights,
patents, mask work rights, or other intellectual property rights relating
thereto. Executive further agrees that Executive's obligation to execute or
cause to be executed, when it is in Executive's power to do so, any such
instrument or papers shall continue after the termination of this Agreement. If
the Company is unable, because of Executive's mental or physical incapacity or
for any other reason, to secure my signature to apply for or to pursue any
application for any United States or foreign patents or copyright
4
<PAGE>
registrations covering Inventions or original works of authorship assigned to
the company as above, then Executive hereby irrevocably designated and appoints
the Company and its duly authorized officers and agents as my agent and.
attorney in fact, to act for and in Executive's behalf and stead to execute and
file any such applications and to do all other lawfully permitted acts to
further the prosecution and issuance of letters, patent or copyright
registrations thereon with the same legal force and effect as if executed by
Executive.
f. Exception to Assignments. Executive understands that the
------------------------
provisions of this Agreement requiring assignment of Inventions to the Company
do not apply to any invention which qualifies fully under the provisions of
California Labor Code, Section 2870 (attached hereto as Exhibit B). Executive
---------
will advise the Company promptly in writing of any inventions that Executive
believes meet the criteria in Section 2870 and not otherwise disclosed in
Exhibit A.
- ---------
7. Post-Termination Activity To forestall such disclosure, use, and
breach, and in consideration of the employment under this Agreement and the
vesting of Stock under the Stock Purchase Agreement, Executive agrees that for a
period of one (1) year after termination of the Executive's employment,
Executive shall not, directly or indirectly on the Executive's behalf or as an
officer, director, consultant, partner, owner, stockholder or employee of any
partnership, corporation or other entity: (a) solicit for employment, employ or
otherwise seek to retain or retain the services of any person that is an
employee, officer, director or consultant of the Company as of the date of
termination of Executive's employment, or any athlete with which the Company has
a written relationship as of the date of termination of Executive's employment,
or solicit or otherwise induce any person to terminate his or her employment or
other relationship with the Company; or (b) engage in any activity, in those
states within the United States and those countries outside the United States in
which the Company or any of its subsidiaries then conducts any business, where
such activity is similar to and competitive with the activities carried on by
the Company or any of its subsidiaries or is, directly or indirectly, concerned
with creating, producing or operating an interactive athlete experience for
distribution across the Internet or other online media. Employee acknowledges
that the nature of the Company's activities is such that competitive activities
could be conducted effectively regardless of the geographic distance between the
Company's place of business and the place of any competitive business.
Notwithstanding anything else contained herein to the contrary, in the event
that there is a termination by the Company of Recipient's employment without
Cause (as defined in the Stock Purchase Agreement) after the effective date of a
Change of Control (as defined in the Stock Purchase Agreement) and prior to the
expiration of three (3) years from the date of this Agreement, the Company's
sole remedy for monetary damages arising out of any breach of the Executive's
obligations under this Section 7 shall be the forfeiture of the Executive's
right to continue to vest in a portion of the Restricted Shares under the Stock
Purchase Agreement and the ability to exercise its corresponding right to
repurchase any Restricted Shares that will not become vested by reason of such
breach.
8. Termination Obligations
5
<PAGE>
a. Return of Company's Property. Executive hereby acknowledges and
agrees that all personal property, including, without limitation, all books,
manuals, records, reports, notes, contracts, lists, blueprints, and other
documents, or materials, or copies thereof, and equipment furnished to or
prepared by Executive in the course of or incident to Executive's employment,
belong to Company and shall be promptly returned to Company upon termination of
Executive's employment.
a. Survival of Representations and Warranties. The representations
and warranties contained herein shall survive termination of Executive's
employment and expiration of this Agreement.
b. Cooperation in Pending Work. Following any termination of
Executive's employment, Executive shall reasonably cooperate with Company in all
matters relating to the winding up of pending work on behalf of Company and the
orderly transfer of work to other employees of Company. Executive shall also
cooperate in the defense of any action brought by any third party against
Company that relates in any way to Executive's acts or omissions while employed
by Company.
9. Alternative Dispute Resolution. Any and all claims or controversies
between the Company and Executive, including but not limited to (1) those
involving the construction or application of any of the terms, provisions, or
conditions of this Agreement; (2) all contract or tort claims of any kind; and
(3) any claim based on any federal, state or local law, statute, regulation or
ordinance, including but not limited to claims for unlawful discrimination or
harassment (as well as any claims arising under Title VII of the Civil Rights
Act of 1964, the Americans with Disabilities Act, the Age Discrimination in
Employment Act, and any claims under California's Fair Employment and Housing
Act) ("Arbitrable Claims"), shall be submitted to mediation before a mutually
agreeable mediator, which cost is to be borne equally by the parties. To the
extent that any Arbitrable Claims are not successfully resolved through
mediation, they shall be resolved by arbitration in accordance with the then
applicable rules of the American Arbitration Association. However, unemployment
claims, workers' compensation claims, and claims under the National Labor
Relations Act shall not be subject to arbitration. Any court having jurisdiction
thereof may enter judgment on the award rendered by the arbitrator(s). The
location of the arbitration shall be Los Angeles, California. Unless the parties
mutually agree otherwise, the arbitrator shall be selected from a panel provided
by the American Arbitration Association.
The parties shall share equally the costs of the arbitration. Each party
shall pay for its own costs and attorneys' fees, if any. However, if any party
prevails on a statutory claim that affords the prevailing party attorneys' fees,
the arbitrator may award reasonable attorneys' fees and costs to the prevailing
party. Notwithstanding the foregoing, either party may, at its option, seek
injunctive relief in a court of competent jurisdiction for any claim or
controversy arising out of or related to the unauthorized use, disclosure, or
misappropriation of the confidential and/or proprietary information of either
party.
EACH PARTY UNDERSTANDS AND AGREES THAT THIS AGREEMENT TO ARBITRATE
CONSTITUTES A WAIVER OF THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY OF ANY MATTERS
COVERED BY THE ARBITRATION AGREEMENT.
6
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10. Legal Fees
In any dispute arising under or in connection with this Agreement, the
prevailing party shall be entitled to recover reasonable attorney's fees.
11. Entire Agreement
This Agreement is intended to be the final, complete, and exclusive
statement of the terms of Executive's employment by The Company. Except for the
Restricted Stock Purchase Agreement, this Agreement supersedes all other prior
and contemporaneous agreements and statements pertaining in any manner to the
employment of Executive and it may not be contradicted by evidence of any prior
or contemporaneous statements or agreements. To the extent that the practices,
policies, or procedures of Company, now or in the future, apply to Executive and
are inconsistent with the terms of this Agreement, the provisions of this
Agreement shall control.
12. Amendments, Waivers
This Agreement may not be modified, amended, or terminated except by an
instrument in writing, signed by Executive and by a duly authorized
representative of Company other than Executive. No failure to exercise and no
delay in exercising any right, remedy, or power under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, remedy, or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy, or power provided
herein or by law or in equity.
13. Assignment; Successors and Assigns
Executive agrees that he will not assign, sell, transfer, delegate or
otherwise dispose of, whether voluntarily or involuntarily, or by operation of
law, any rights or obligations under this Agreement, nor shall Executive's
rights be subject to encumbrance or the claims of creditors. Any purported
assignment, transfer, or delegation shall be null and void. Nothing in this
Agreement shall prevent the consolidation of the Company with, or its merger
into, any other corporation, or the sale by the Company of all or substantially
all of its properties or assets, or the assignment by the Company of this
Agreement and the performance of its obligations hereunder to any successor in
interest. Notwithstanding and subject to the foregoing, this Agreement shall be
binding upon and shall inure to the benefit of the parties and their respective
heirs, legal representatives, successors, and permitted assigns, and shall not
benefit any person or entity other than those enumerated above.
14. Severability; Enforcement
If any provision of this Agreement, or the application thereof to any
person, place, or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable, or void, the remainder of this
Agreement and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.
7
<PAGE>
15. Governing Law
The validity, interpretation, enforceability, and performance of this
Agreement shall be governed by and construed in accordance with the law of the
State of California, without application of its choice of law doctrine.
16. Date of Agreement
The parties have duly executed this Agreement as of the date first written
above.
---------------------------------------
Richard Nanula
Broadband Sports, Inc.
By:
------------------------------------
Tyler Goldman
8
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Exhibit A
---------
LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP
Title Date Identifying Number or Brief Description
----- ---- ---------------------------------------
X No inventions or improvements
- ------------
Additional Sheets Attached
- ------------
Signature of Employee: /s/ Richard D. Nanula
--------------------------
Printed Name of Employee:
-----------------------
Date: November 24, 1999
------------------
9
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Exhibit B
---------
CALIFORNIA LABOR CODE SECTION 2870
INVENTION ON OWN TIME - EXEMPTION FROM
AGREEMENT
"(a) Any provision in an employment agreement which provides that an
employee shall assign, or offer to assign, any of his or her rights in an
invention to his or her employer shall not apply to an invention that the
employee developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention to the employer's business, or actual or demonstrably
anticipated research or development of the employer, or
(2) Result from any work performed by the employee for the employer.
(b) to the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against the
public policy of this state and is unenforceable."
10
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EXHIBIT 10.7
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
February 27, 1998, by and between E-Sport, Inc., a Delaware corporation (the
"Company,") and Tyler J. Goldman (the "Employee").
R E C I T A L S:
- - - - - - - -
The Company and the Employee desire to enter into this Agreement to
establish the terms and conditions of the Employee's employment by the Company
during the term hereof.
A G R E E M E N T
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recital, and subject to
the conditions and covenants set forth herein, the parties agree as follows:
1. Employment and Term.
-------------------
(a) The Company hereby employs the Employee as its President and the
Employee hereby accepts such employment upon the terms and subject to the
conditions set forth in this Agreement. Unless earlier terminated as provided in
this Agreement, the term of the Employee's employment under this Agreement shall
commence on the date hereof and shall continue for a period of three (3) years
from the date hereof (the "Term").
(b) The Employee shall perform such duties and functions consistent
with his role as President as may from time to time be reasonably assigned to
him by the Board of Directors of the Company (the "Board"). The Employee agrees
that during the course of the Company's business hours throughout the Terra, he
will devote the whole of his time, attention and efforts to the performance of
his duties and obligations hereunder, except as provided in Exhibit A. Subject
to the exceptions set forth on Exhibit A hereto, the Employee shall not, during
the Term, without the written approval of the Board first had and obtained in
each instance, directly or indirectly (i) accept employment or receive any
compensation for the performance of services from any business enterprise other
than the Company or (ii) enter into or be concerned or interested in any trade
or business or public or private work (whether for profit or otherwise and
whether as partner, principal, shareholder or otherwise), which may, in the
absolute discretion of the Board, hinder or otherwise interfere with the
performance by the Employee of his duties and obligations hereunder, except as a
holder of not more than five percent (5%) of any class of stock or other
securities in any company which is listed and/or traded on any securities
market.
2. Compensation.
-------------
2.1. Salary. For all services to be rendered by the Employee under
------
this Agreement, the Company agrees to pay the Employee a salary (the "Base
Salary") equal to One
<PAGE>
Hundred Fifty Thousand Dollars ($150,000) per year, payable in bi-weekly
installments, less all amounts required by law to be withheld or deducted.
During the Term of this Agreement, the Compensation Committee of the Board (the
"Compensation Committee") shall review the Employee's Base Salary on or about
the end of each calendar year. The Compensation Committee, in its sole and
absolute discretion from time to time, may increase or decrease the Employee's
Base Salary, provided that such Base Salary shall not be less than $150,000 per
year without Employee's consent, and provided further, that following a
Qualified Public Offering (as defined in Section 2.3(b)) or a Change in Control
(as defined in Section 2.3(c)), Employee's compensation will be increased to an
amount mutually agreed to between the Compensation Committee and the Employee.
2.2. Performance Bonus. If the Employee remains in the employ of the
-----------------
Company under this Agreement for twelve months from the date of this Agreement,
the Compensation Committee, in its sole and absolute discretion, also may pay
the Employee discretionary performance bonuses (the "Performance Bonuses").
Payment of the Performance Bonuses shall be based on the Employee achieving
reasonable performance objectives designated by the Compensation Committee and
communicated to the Employee. The Performance Bonuses shall be made in such
amounts and at such times as the Compensation Committee may determine in its
discretion.
2.3. Employee Stock Purchase. Within 20 days of the date hereof, the
-----------------------
Company shall sell restricted shares of its common stock to the Employee in
accordance with the following terms and conditions pursuant to an employee stock
incentive plan or an employee stock purchase agreement (the "Plan") to be
adopted by the Company's Board of Directors:
(a) The Company shall sell to the Employee Five Hundred Eighty-
Seven Thousand Five Hundred (587,500) shares of the Company's common stock (the
"Purchased Shares") at a purchase price of $.01 per share (the "Purchase
Price"). The Plan shall contain customary terms and conditions which shall
include restrictions on the disposition of the Purchased Shares, restrictions on
the ability to vote the Purchased Shares and shall grant the Company a right to
repurchase such Purchased Shares at the Purchase Price. The voting restrictions
will terminate upon the consummation of a Qualified Public Offering (as defined
in Section 2.3(b) below) or a Change in Control (as defined in Section 2.3(c)).
The Company's repurchase right shall initially be exercisable after Employee's
termination of employment with respect to 75% of the Purchased Shares and shall
be reduced to 50% on December 31, 1998, 25% on December 31, 1999 and terminated
on December 31, 2000; provided, however, that such repurchase right shall
terminate earlier upon (i) the consummation of a Qualified Public Offering, (ii)
a Change in Control (as defined in Section 2.3(c) below) or (iii) termination of
the Employee's employment by the Company prior to the Term without Cause (as
such term is defined in Section 4(b) hereof) or by the Employee with Good Cause
(as such term is defined in Section 4(e) hereof). Until such time as the Company
actually exercises its repurchase right, Employee shall have all the rights of a
stockholder (subject to the restrictions contained in the Plan) with respect to
the Purchased Shares.
2
<PAGE>
(b) For purposes hereof, a "Qualified Public Offering" shall
mean a firmly underwritten public offering of the Company'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 of 1933, as amended,
with respect to which the Company receives net proceeds of at least $10,000,000.
(c) For purposes hereof a "Change in Control" shall be deemed to
mean any of the following transactions which occur after February 28, 1998: (i)
the acquisition, in a transaction other than a public offering of the Company's
common stock, by any person, entity or "group" (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934, as amended), of securities of
the Company representing 50% or more of the combined voting power of the then
outstanding securities of the Company, (ii) the merger or other business
combination of the Company with or into another corporation, a majority of the
directors of which were not directors of the Company immediately prior to the
merger or in which stockholders of the Company immediately prior to the
effective date of such merger directly or indirectly own less than 50% of the
voting power in such corporation which was obtained in exchange for their shares
in the Company, or (iii) the sale or other disposition of all or substantially
all of the assets of the Company.
3. Employee Benefits. During the Term of the Employee's employment
-----------------
hereunder:
(a) The Employee shall be entitled to two weeks annual vacation
leave.
(b) The Company shall pay or reimburse the Employee for all
reasonable and necessary travel and other business expenses incurred or paid by
the Employee in connection with the performance of his services under this
Agreement consistent with the Company's policies for other senior executives of
the Company.
(c) The Employee shall be entitled to participate in any
policies, programs or benefits which the Company may, in its sole and absolute
discretion, make generally available to its other senior executives from time to
time.
4. Termination of Employment.
-------------------------
(a) Notwithstanding any other provision of this Agreement, the
Employee's employment under this Agreement may be terminated as follows:
(i) Upon the death of the Employee, this Agreement and the
Employees employment hereunder shall terminate immediately and without
notice by the Company;
(ii) In the event of the inability of the Employee to perform
his duties or responsibilities hereunder, as a result of mental or
physical ailment or incapacity, for a period of ninety (90) consecutive
calendar days or an aggregate of one hundred twenty (120) calendar days
during any calendar year (whether or not consecutive), this
3
<PAGE>
Agreement and the Employee's employment hereunder shall terminate upon
delivery of written notice to the Employee; or
(iii) By the Company for Cause (as defined below) in accordance
with the provisions of Section 4(c) hereof.
(b) The parties agree that for purposes of this Agreement, the term
"Cause" shall mean the following :
(i) The Employee's willful and repeated failure to
satisfactorily perform his reasonably assigned job duties under this
Agreement;
(ii) Failure by the Employee to comply with all applicable laws
in performing his job duties or in directing the conduct of the Company's
business,
(iii) Commission by the Employee of any felony or intentionally
fraudulent act; or
(iv) Employee's material breach of this Agreement.
(c) With respect to the events described in Sections 4(b)(i), (ii)
and (iv) above, the Company shall give written notice to the Employee of any
such event and the Employee shall have thirty (30) days beginning on the date of
delivery of such written notice to cure same, or if such event cannot be cured
within said thirty (30) day period, the Employee shall commence his efforts to
cure the event within the thirty (30) day period and diligently work to cure
such event within a reasonable time period. If the Employee within said thirty
(30) day period or within a reasonable time period, as applicable, does not cure
the event for which notice has been provided, then the Employee's employment
under this Agreement may be terminated by the Company by delivery to the
Employee of written notice of termination and such termination will be effective
as of the date of delivery of such written notice. With respect to events
described in Section 4(b)(iii) above, the Employee's employment under this
Agreement may be terminated by the Company by delivery to the Employee of
written notice of termination and such termination will be effective as of the
date of delivery of such written notice. Upon the effectiveness of termination
pursuant to Section 4(a), the Employee shall not be entitled to receive any
further compensation or benefits pursuant to this Agreement except for payment
within ten days after his termination date of all accrued but unpaid Base
Salary.
(d) In addition to its rights to terminate the Employee's employment
under this Agreement pursuant to Section 4(a), the Company may also terminate
the Employee's employment under this Agreement for any other reason, provided
that, in such event, the Employee shall be entitled within 10 days after the
termination date to receive a lump sum payment in an amount equal to one-half of
the Employee's Base Salary (for the then-current calendar year) and the Employee
shall not be entitled to receive any other compensation or benefits hereunder
except as set forth in Section 2.3. The Employee acknowledges and agrees that
the provisions of this paragraph 4 state his entire and exclusive rights,
entitlements, and remedies against the Company, its successors, assigns,
affiliates, officers, directors, employees
4
<PAGE>
and representatives for termination without any cause shown by the Company;
provided, however, that nothing herein will negate Employee's rights to accrued
payment obligations, accrued vacation and other benefits, and to reimbursement
for expenses incurred on behalf of the Company (consistent with existing Company
policies).
(e) The Employee may terminate his employment for good cause or
without any cause. In the event the Employee terminates his employment for "Good
Cause" (as defined below), he shall be entitled to receive the severance
benefits described in Section 4(d) above. If he terminates his employment for
any other reason, he shall not be entitled to receive any compensation except
for payment within ten days after his termination date of all accrued but unpaid
Base Salary; provided, however, that nothing herein will negate Employee's
rights to accrued payment obligations, accrued vacation and other benefits, and
to reimbursement for expenses incurred on behalf of the Company (consistent with
existing Company policies). For purposes of this Agreement, "Good Cause" for
termination of employment by the Employee shall be deemed to exist if the
Company fails to maintain the Employee in the position of an executive officer
of the Company, in the event of a Change in Control or in the event of a
material breach of the provisions of this Agreement by the Company. The Employee
acknowledges and agrees that the provisions of this Section 4(e) state his
entire and exclusive rights and remedies under this Agreement against the
Company, its successors, assigns, affiliates, officers, directors, employees and
representatives arising out of such termination of this Agreement.
5. Assignment of Rights and Duties. Neither the Employee nor the Company
-------------------------------
may assign their rights or duties under this Agreement without prior written
consent of both parties, which consent may be withheld for any reason. Any
attempted assignment, transfer, conveyance, or other disposition of any interest
of either party in this Agreement shall be void.
6. Confidential Information and Nonsolicitation.
--------------------------------------------
(a) The Employee agrees that he will enter into a proprietary
information and confidentiality agreement in a form which will be used for
Company employees generally. Furthermore, the Employee acknowledges and agrees
that the Company has developed and uses certain proprietary and confidential
information, data, processes, business methods, computer software, data bases,
customer lists and know-how ("Confidential Information"). The Employee agrees
that the Confidential Information is a trade secret of the Company which shall
remain the sole property of the Company notwithstanding that the Employee, as an
employee of the Company, may participate in the development of the Confidential
Information. During the term of this Agreement and at all times thereafter the
Employee shall not disclose any Confidential Information to any person or entity
for any reason or purpose whatsoever (other than for the benefit of the
Company), nor shall the Employee make use of any Confidential Information for
the Employees own benefit or for the benefit of any other person or entity. Upon
termination of this Agreement for any reason, the Employee will promptly
surrender to the Company all Confidential Information in the Employee's
possession or under the Employee's control, whether prepared by the Employee or
by others.
5
<PAGE>
(b) The Employee agrees (i) that for a period of three (3) years
following the termination of the Employee's employment hereunder, the Employee
will not directly or indirectly solicit or attempt to solicit any of the
employees of or consultants to the Company to leave the Company to become
employees of or consultants to any other person or entity who is a direct
competitor of the Company and (ii) that for a period of one (1) year following
the termination of the Employee's employment hereunder, the Employee will not
directly or indirectly solicit or attempt to solicit any of the employees of or
consultants to the Company to leave the Company or to become employees of or
consultants to any other person or entity.
7. Miscellaneous.
-------------
7.1. Modification and Waiver of Breach. No waiver or modification of
---------------------------------
this Agreement or any term hereof shall be binding unless it is in writing
signed by the parties hereto. No failure to insist upon compliance with any
term, provision or condition to this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be or construed as a waiver of
any such term, provision or condition or as a waiver of any other term,
provision or condition of this Agreement.
7.2. Notices. All notices, requests, demands and other communications
-------
under this Agreement must be in writing and shall be deemed given upon personal
delivery, facsimile transmission (with confirmation of receipt), delivery by a
reputable overnight courier service or five (5) days following deposit in the
United States mail (if sent by certified or registered mail, postage prepaid,
return receipt requested), in each case duly addressed to the party to whom such
notice or communication is to be given as follows:
To the Company: E-Sport, Inc.
500 Newport Center Drive
Suite 920
Newport Beach, CA 92660
Attention: Chairman of the Board
Facsimile Number: (714) 644-5762
To the Employee: Tyler J. Goldman
112 Via Quito
Newport Beach, California 92663
Any party may change its address for the purpose of this Section 7.2 by
giving the other party written notice of the new address in the manner set forth
above.
7.3. Enforceability. If any of the covenants contained in this
--------------
Agreement, for any reason and to any extent, are construed to be invalid or
unenforceable, the remainder of this Agreement, and the application of the
remaining covenants to other persons or circumstances shall not be affected
hereby, but rather shall be enforced to the greatest extent permitted by law.
7.4. Entire Agreement. This Agreement contains the entire agreement
----------------
between Company and the Employee with respect to the subject matters hereof and
supersedes all
6
<PAGE>
prior or contemporaneous agreements, arrangements or understandings, written or
oral, with respect to the subject matters hereof.
7.5. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California, excluding its rules on
conflicts of law.
7.6. Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"THE COMPANY" E-SPORT, INC. a Delaware corporation
By: /s/ Ahmed O. Alfi
------------------------------
Ahmed O. Alfi,
Chairman of the Board
"THE EMPLOYEE" /s/ Tyler J. Goldman
------------------------------
TYLER J. GOLDMAN
7
<PAGE>
EXHIBIT A
Permitted Endeavors of Employee
-------------------------------
In addition to his services to the Company, the Employee may devote time,
attention and efforts to each of the following, provided that such activities
(i) are conducted in a manner so as not to hinder or impair Employee's ability
to render services for the Company representing, on average, not less than fifty
(50) hours per week (subject to vacation leave) and (ii) are not competitive in
any manner with the business of the Company or rendered for any entity that is a
competitor to the Company:
1. Charitable and community endeavors;
2. Management of his personal assets and investments; and
3. The provision of services to current and future shareholders of the
Company (and their affiliates).
8
<PAGE>
EXHIBIT 10.13.1
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.
FIRST AMENDMENT TO OFFICE LEASE
-------------------------------
This First Amendment to Office Lease ("Amendment") is made and entered into
as of this 1st day of October, 1999, by and between SPIEKER PROPERTIES, L.P., a
California limited partnership ("Landlord") and BROADBAND SPORTS, a Delaware
corporation ("Tenant"), with reference to the following facts:
A. Tenant and Landlord entered into that certain Office Lease dated as of
July 30, 1999 (the "Lease") for certain premises (the "Premises") located at
2120 Colorado Avenue, 2nd Floor, Santa Monica, California (the "Project")
(containing 26,635 rentable square feet).
B. Landlord and Tenant desire to, among other things, add to the Premises
4,607 rentable square feet comprising a portion of the balance of the first
floor of the Building (the "Expansion Premises"), as such space is further
identified on Exhibit "A" attached hereto.
C. All capitalized terms used herein not specifically defined in this
Amendment shall have the meanings ascribed to such terms in the Lease. The term
"Lease" where used in the Lease shall hereinafter refer to the Lease, as amended
by this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, Landlord and Tenant agree as follows:
1. Expansion Premises. Subject to the terms and conditions of this
------------------
Amendment, Landlord hereby leases to Tenant and Tenant leases from Landlord the
Expansion Premises. The square footage of the Expansion Premises set forth in
Recital Paragraph B above is hereby stipulated by Landlord and Tenant to be true
and correct. From and after the Expansion Premises Commencement Date (defined
below), all references in the Lease to the "Premises" shall be deemed to include
the Expansion Premises. The term of Tenant's lease of the Expansion Premises
shall be co-terminous with Tenant's lease of the Premises.
2. Expansion Premises Commencement Date. The "Expansion Premises
------------------------------------
Commencement Date" shall mean the earlier of (i) the date Tenant takes
possession of some or all of the Expansion Premises and commences business
therefrom, (ii) the date the improvements to be constructed or performed in the
Expansion Premises by Premises Tenant (the "Expansion Premises Tenant
Improvements") shall have been "Substantially Completed" (as such term is
defined in Paragraph 2 of the Lease) in accordance with the plans and
specifications relating thereto, and (iii) December 1, 1999.
3. Rent. In addition to Tenant's rental obligations with respect to the
----
Premises, for the period from the Expansion Premises Commencement Date until the
Expiration Date, Tenant's payments of Base Rent with respect to the Expansion
Premises only shall be in accordance with the following schedule (which shall be
based upon the monthly periods following the Term Commencement Date, as defined
in the Lease):
<PAGE>
<TABLE>
<CAPTION>
Monthly Base Rent Per
Monthly Period Monthly Base Rent Rentable Square Foot
-------------- ----------------- ---------------------
<S> <C> <C>
Months 1 - 12 $[*] $[*]
Months 13 - 24 $[*] $[*]
Months 25 - 36 $[*] $[*]
Months 37 - 48 $[*] $[*]
Months 49 - 60 $[*] $[*]
Months 61 - 72 $[*] $[*]
Months 73 - 84 $[*] $[*]
</TABLE>
4. Operating Expenses. Effective as of the Expansion Premises
------------------
Commencement Date, in addition to Tenant's obligations under Paragraph 7 of the
Lease with respect to the Premises, Tenant shall be responsible for Tenant's
Expansion Premises Proportionate Share (defined below) of increases in Operating
Expenses with respect to the Expansion Premises in accordance with the terms of
Paragraph 7 of the Lease. For purposes of this Paragraph 4, the term "Tenant's
Expansion Premises Proportionate Share" shall mean 3.45%.
5. As-Is; Tenant Improvements.
--------------------------
(a) The Expansion Premises shall be delivered to Tenant in its "as-is,
where-is condition," with all faults, subject to any punchlist items, latent
defects, structural defects and any covenants and/or representations set forth
in the Lease and Tenant's rights under any warranties assigned to Tenant
pursuant to the Improvement Agreement.
(b) Tenant shall have the right to construct the Expansion Premises
Tenant Improvements in the Expansion Premises in accordance with the terms of
Exhibit "C" attached to the Lease, except that (i) the reference in Section 4.1
to "50.35%" is hereby deleted and replaced with "46.29%"; (ii) the references
to "$3,792.60" and "$139,062.00" in the last sentence of Section 4.1 are hereby
deleted and replaced with "$600.90" and "$22,033.00," respectively; (iii) the
reference to "1,033,914.00" in Section 4.2 is hereby deleted and replaced with
"$168,252.00"; (iv) all references to the term "Premises" shall mean and refer
to the "Expansion Premises"; and (v) Landlord shall not be responsible for
performing any additional Base Building Work.
6. Estoppel. Tenant warrants, represents and certifies to Landlord that as
--------
of the date of this Amendment, (a) Landlord is not in default under the Lease,
and (b) Tenant does not have any defenses or offsets to payment of rent and
performance of its obligations under the Lease as and when same becomes due.
[*] = THE REDACTED PORTION, INDICATED BY THIS SYMBOL, IS THE SUBJECT OF A
CONFIDENTIAL TREATMENT REQUEST.
<PAGE>
7. Prepaid Rent; Security Deposit. Concurrently with Tenant's execution of
------------------------------
this Amendment, Tenant shall (i) pay to Landlord an amount equal to $13,821.00
on account of prepaid rent for the Expansion Premises for the second full month
following the Expansion Premises Commencement Date, and (ii) deposit with
Landlord an additional cash security deposit (or increase the Letter of Credit
in accordance with the terms of Paragraph 39 D of the Lease) of $234,095.25. As
a result, the reference in Paragraph 19A to (A) "$212,187.21" is hereby deleted
and replaced with "$237,870.2l," (B) "$180,359.13" is hereby deleted and
replaced with "$206,042.13," (C) "$153,305.27" is hereby deleted and replaced
with "$178,988.27," (D) "$130,309.47" is hereby deleted and replaced with
"$155,992.47," (E) "$110,763.05" is hereby deleted and replaced with
"$136,446.05," and (F) "$94,148.59" is hereby deleted and replaced with
"$119,831.59." Furthermore, the reference in Paragraph 19B to "$250,000.00" is
hereby deleted and replaced with "$300,000.00."
8. Parking. Effective as of the Expansion Premises Commencement Date, the
-------
Lease is hereby amended to provide Tenant with the right to lease an additional
twenty (20) parking permits in the parking facility serving the Building (the
types and locations of which shall be subject to the mutual approval of Landlord
and Tenant) at the then prevailing rates for said parking permits, as same may
change from time to time.
9. Occupancy Density. Effective as of the Expansion Premises Commencement
-----------------
Date, the Occupancy Density is hereby increased from 213 people to 250 people.
Furthermore, the reference to "186" in Paragraph 6 A of the Lease is hereby
deleted and replaced with "218."
10. Authority. Tenant and Landlord each has full power and authority to
---------
enter into this Amendment and the person signing on behalf of Tenant and
Landlord has been fully authorized to do so by all necessary corporate or
partnership action on the part of Tenant and Landlord, respectively.
11. Lease in Full Force. Except for those provisions which are
-------------------
inconsistent with this Amendment and those terms, covenants and conditions for
which performance has heretofore been completed, all other terms, covenants and
conditions of the Lease shall remain in full force and effect and Tenant hereby
ratifies the Lease, as amended hereby. Except as expressly set forth herein, the
Premises shall be deemed to include the Expansion Premises for all purposes
under the Lease.
IN WITNESS WHEREOF, this Amendment is executed as of the date first written
above.
"LANDLORD" "TENANT"
SPIEKER PROPERTIES, L.P., a California BROADBAND SPORTS, a Delaware
limited partnership corporation
By: Spieker Properties, Inc., a By: /s/ Gregory S. Hebner
Maryland corporation --------------------------
Name: Gregory S. Hebner
------------------------
Title: Chief Financial Officer
-----------------------
<PAGE>
By: /s/ [Signature Illegible] By: /s/ Jose A. Royo
----------------------------- ---------------------------
Name: [Signature Illegible] Name: Jose Royo
--------------------------- -------------------------
Title: Vice President Title: CTO
-------------------------- ------------------------
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into as of
February 27, 1998, by and between E-Sport, Inc., a Delaware corporation (the
"Company") and Ross Schaufelberger (the "Employee").
R E C I T A L S:
- - - - - - - -
The Company and the Employee desire to enter into this Agreement to
establish the terms and conditions of the Employee's employment by the Company
during the term hereof.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the foregoing recital, and subject to
the conditions and covenants set forth herein, the parties agree as follows:
1. Employment and Term.
-------------------
(a) The Company hereby employs the Employee as its Chief
Operating Officer and the Employee hereby accepts such employment upon the terms
and subject to the conditions set forth in this Agreement. Unless earlier
terminated as provided in this Agreement, the term of the Employee's employment
under this Agreement shall commence on the date hereof and shall continue for a
period of three (3) years from the date hereof (the "Term").
(b) The Employee shall perform such duties and functions
consistent with his role as Chief Operating Officer as may from time to time be
reasonably assigned to him by the President or the Board of Directors of the
Company (the "Board"). The Employee agrees that during the course of the
Company's business hours throughout the Term, he will devote the whole of his
time, attention and efforts to the performance of his duties and obligations
hereunder. The Employee shall not, during the Term, without the written approval
of the Board first had and obtained in each instance, directly or indirectly (i)
accept employment or receive any compensation for the performance of services
from any business enterprise other than the Company or (ii) enter into or be
concerned or interested in any trade or business or public or private work
(whether for profit or otherwise and whether as partner, principal, shareholder
or otherwise), which may, in the absolute discretion of the Board, hinder or
otherwise interfere with the performance by the Employee of his duties and
obligations hereunder, except as a holder of not more than five percent (5%) of
any class of stock or other securities in any company which is listed and/or
traded on any securities market.
1
<PAGE>
2. Compensation.
------------
2.1 Salary. For all services to be rendered by the Employee under
------
this Agreement, the Company agrees to pay the Employee a salary (the "Base
Salary") equal to One Hundred Twenty-Five Thousand Dollars ($125,000) per year,
payable in bi-weekly installments, less all amounts required by law to be
withheld or deducted. During the Term of this Agreement, the Compensation
Committee of the Board (the "Compensation Committee") shall review the
Employee's Base Salary on or about each anniversary date of the date of this
Agreement. The Compensation Committee, in its sole and absolute discretion from
time to time, may increase or decrease the Employee's Base Salary, provided that
such Base Salary shall not be less than $125,000 per year without Employee's
consent.
2.2 Performance Bonus. If the Employee remains in the employ of the
-----------------
Company under this Agreement for twelve months from the date of this Agreement,
the Compensation Committee, in its sole and absolute discretion, also may pay
the Employee discretionary performance bonuses (the "Performance Bonuses").
Payment of the Performance Bonuses shall be based on the Employee achieving
reasonable performance objectives designated by the Compensation Committee and
communicated to the Employee. The Performance Bonuses shall be made in such
amounts and at such times as the Compensation Committee may determine in its
discretion.
2.3 Employee Stock Purchase. Within 20 days of the date hereof, the
-----------------------
Company shall sell restricted shares of its common stock to the Employee in
accordance with the following terms and conditions pursuant to an employee stock
incentive plan or an employee stock purchase agreement (the "Plan") to be
adopted by the Company's Board of Directors:
(a) The Company shall sell to the Employee Two Hundred Sixty-
Four Thousand Three Hundred Seventy-Five (264,375) shares of the Company's
common stock (the "Purchased Shares") at a purchase price of $.01 per share (the
"Purchase Price"). The Plan shall contain customary terms and conditions which
shall include restrictions on the disposition of the Purchased Shares,
restrictions on the ability to vote the Purchased Shares and shall grant the
Company a right to repurchase such Purchased Shares at the Purchase Price. The
voting restrictions will terminate upon the consummation of a Qualified Public
Offering (as defined in Section 2.3(b) below) or a Change of Control (as defined
in Section 2.3(c)): The Company's repurchase right shall initially be
exercisable after Employee's termination of employment with respect to 75% of
the Purchased Shares and shall be reduced to 50% on December 31, 1998, 25% on
December 31, 1999 and terminated on December 31, 2000; provided, however, that
such repurchase right shall terminate earlier upon (i) the consummation of a
Qualified Public Offering, (ii) a Change in Control (as defined in Section
2.3(c) below) or (iii) termination of the Employee's employment by the Company
prior to the Term without Cause (as such term is defined in Section 4(b) hereof)
or by the Employee with Good Cause (as such term is defined in Section 4(e)
hereof). Until such time as the Company actually
2
<PAGE>
exercises its repurchase right, Employee shall have all the rights of a
stockholder (subject to the restrictions contained in the Plan) with respect to
the Purchased Shares.
(b) For purposes hereof, a "Qualified Public Offering" shall
mean a firmly underwritten public offering of the Company's common stock on a
Form S-1, Form SB- 1 or Form SB-2 Registration Statement filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended,
with respect to which the Company receives net proceeds of at least $
10,000,000.
(c) For purposes hereof, a "Change in Control" shall be deemed
to mean any of the following transactions which occur after February 28, 1998:
(i) the acquisition, in a transaction other than a public offering of the
Company's common stock, by any person, entity or "group" (within the meaning of
Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), of
securities of the Company representing 60% or more of the combined voting power
of the then outstanding securities of the Company, (ii) the merger or other
business combination of the Company with or into another corporation, a majority
of the directors of which were not directors of the Company immediately prior to
the merger or in which stockholders of the Company immediately prior to the
effective date of such merger directly or indirectly own less than 60% of the
voting power in such corporation, or (iii) the sale or other disposition of all
or substantially all of the assets of the Company.
3. Employee Benefits. During the Term of the Employee's employment
-----------------
hereunder:
(a) The Employee shall be entitled to two weeks annual vacation
leave.
(b) The Company shall pay or reimburse the Employee for all
reasonable and necessary travel and other business expenses incurred or paid by
the Employee in connection with the performance of his services under this
Agreement consistent with the Company's policies for other senior executives of
the Company.
(c) The Employee shall be entitled to participate in any policies,
programs or benefits which the Company may, in its sole and absolute discretion,
make generally available to its other senior executives from time to time.
4. Termination of Employment.
-------------------------
(a) Notwithstanding any other provision of this Agreement, the
Employee's employment under this Agreement may be terminated as follows:
(i) Upon the death of the Employee, this Agreement and the
Employee's employment hereunder shall terminate immediately and without notice
by the Company;
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(ii) In the event of the inability of the Employee to perform
his duties or responsibilities hereunder, as a result of mental or physical
ailment or incapacity, for a period of ninety (90) consecutive calendar days or
an aggregate of one hundred twenty (120) calendar days during any calendar year
(whether or not consecutive), this Agreement and the Employee's employment
hereunder shall terminate upon delivery of written notice to the Employee; or
(iii) By the Company for Cause (as defined below) in accordance
with the provisions of Section 4(c) hereof.
(b) The parties agree that for purposes of this Agreement, the term
"Cause" shall mean the following:
(i) The Employee's willful and repeated failure to
satisfactorily perform his reasonably assigned job duties under this Agreement;
(ii) Failure by the Employee to comply with all applicable
laws in performing his job duties or in directing the conduct of the Company's
business,
(iii) Commission by the Employee of any felony or intentionally
fraudulent act; or
(iv) Employee's breach of this Agreement.
(c) With respect to the events described in Sections 4(b)(i), (ii)
and (iv) above, the Company shall give written notice to the Employee of any
such event and the Employee shall have thirty (30) days beginning on the date of
delivery of such written notice to cure same, or if such event cannot be cured
within said thirty (30) day period, the Employee shall commence his efforts to
cure the event within the thirty (30) day period and diligently work to cure
such event within a reasonable time period. If the Employee within said thirty
(30) day period or within a reasonable time period, as applicable, does not cure
the event for which notice has been provided, then the Employee's employment
under this Agreement may be terminated by the Company by delivery to the
Employee of written notice of termination and such termination will be effective
as of the date of delivery of such written notice. With respect to events
described in Section 4(b)(iii) above, the Employee's employment under this
Agreement may be terminated by the Company by delivery to the Employee of
written notice of termination and such termination will be effective as of the
date of delivery of such written notice. Upon the effectiveness of termination
pursuant to Section 4(a), the Employee shall not be entitled to receive any
further compensation or benefits pursuant to this Agreement except for payment
within ten days after his termination date of all accrued but unpaid Base
Salary.
(d) In addition to its rights to terminate the Employee's employment
under this Agreement pursuant to Section 4(a), the Company may also terminate
the Employee's employment under this Agreement for any other reason, provided
that, in
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such event, the Employee shall be entitled to receive an amount equal to one-
half of the Employee's Base Salary (for the then-current calendar year) payable
monthly in six equal installments and the Employee shall not be entitled to
receive any other compensation or benefits hereunder except as set forth in
Section 2.3. The Employee acknowledges and agrees that the provisions of this
paragraph 4 state his entire and exclusive rights, entitlements, and remedies
against the Company, its successors, assigns, affiliates, officers, directors,
employees and representatives for termination without any cause shown by the
Company.
(e) The Employee may terminate his employment for good cause or
without any cause. In the event the Employee terminates his employment for "Good
Cause" (as defined below), he shall be entitled to receive the severance
benefits described in Section 4(d) above. If he terminates his employment for
any other reason, he shall not be entitled to receive any compensation except
for payment within ten days after his termination date of all accrued but unpaid
Base Salary. For purposes of this Agreement, "Good Cause" for termination of
employment by the Employee shall be deemed to exist if the Company fails to
maintain the Employee in the position of an officer of the Company or in the
event of a material breach of the provisions of this Agreement by the Company.
The Employee acknowledges and agrees that the provisions of this Section 4(e)
state his entire and exclusive rights and remedies under this Agreement against
the Company, its successors, assigns, affiliates, officers, directors, employees
and representatives if he terminates this Agreement.
5. Assignment of Rights and Duties. Neither the Employee nor the Company
-------------------------------
may assign their rights or duties under this Agreement without prior written
consent of both parties, which consent may be withheld for any reason. Any
attempted assignment, transfer, conveyance, or other disposition of any interest
of either party in this Agreement shall be void. Notwithstanding the foregoing,
the Company may make such assignment to any affiliated company, but its
assignment of this Agreement to an affiliate does not relieve it of its
obligations under this Agreement if that affiliate fails to perform the
Company's obligations under this Agreement.
6. Confidential Information and Nonsolicitation.
--------------------------------------------
(a) The Employee agrees that he will enter into a proprietary
information and confidentiality agreement in a form which will be used for
Company employees generally. Furthermore, the Employee acknowledges and agrees
that the Company has developed and uses certain proprietary and confidential
information, data, processes, business methods, computer software, data bases,
customer lists and know-how ("Confidential Information"). The Employee agrees
that the Confidential Information is a trade secret of the Company which shall
remain the sole property of the Company notwithstanding that the Employee, as an
employee of the Company, may participate in the development of the Confidential
Information. During the term of this Agreement and at all times thereafter the
Employee shall not disclose any Confidential Information to any person or entity
for any reason or purpose whatsoever (other than for
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the benefit of the Company), nor shall the Employee make use of any Confidential
Information for the Employee's own benefit or for the benefit of any other
person or entity. Upon termination of this Agreement for any reason, the
Employee will promptly surrender to the Company all Confidential Information in
the Employee's possession or under the Employee's control, whether prepared by
the Employee or by others.
(b) The Employee agrees (i) that for a period of three (3) years
following the termination of the Employee's employment hereunder, the Employee
will not directly or indirectly solicit or attempt to solicit any of the
employees of or consultants to the Company to leave the Company to become
employees of or consultants to any other person or entity who is a competitor of
the Company and (ii) that for a period of one (1) year following the termination
of the Employee's employment hereunder, the Employee will not directly or
indirectly solicit or attempt to solicit any of the employees of or consultants
to the Company to leave the Company or to become employees of or consultants to
any other person or entity.
7. Miscellaneous.
-------------
7.1 Modification and Waiver of Breach. No waiver or modification of
---------------------------------
this Agreement or any term hereof shall be binding unless it is in writing
signed by the parties hereto. No failure to insist upon compliance with any
term, provision or condition to this Agreement, whether by conduct or otherwise,
in any one or more instances, shall be deemed to be or construed as a waiver of
any such term, provision or condition or as a waiver of any other term,
provision or condition of this Agreement.
7.2 Notices. All notices, requests, demands and other
-------
communications under this Agreement must be in writing and shall be deemed given
upon personal delivery, facsimile transmission (with confirmation of receipt),
delivery by a reputable overnight courier service or five (5) days following
deposit in the United States mail (if sent by certified or registered mail,
postage prepaid, return receipt requested), in each case duly addressed to the
party to whom such notice or communication is to be given as follows:
To the Company: E-Sport, Inc.
500 Newport Center Drive, Suite 920
Newport Beach, CA 92660
Attention: Chairman of the Board
Facsimile Number: (714) 644-5762
To the Employee: Ross Schaufelbcrger
3707 Channel Place
Newport Beach, California 92663
Any party may change its address for the purpose of this Section 7.2 by
giving the other party written notice of the new address in the manner set forth
above.
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7.3 Enforceability. If any of the covenants contained in this
--------------
Agreement, for any reason and to any extent, are construed to be invalid or
unenforceable, the remainder of this Agreement, and the application of the
remaining covenants to other persons or circumstances shall not be affected
hereby, but rather shall be enforced to the greatest extent permitted by law.
7.4 Entire Agreement. This Agreement contains the entire agreement
----------------
between the Company and the Employee with respect to the subject matters hereof
and supersedes all prior or contemporaneous agreements, arrangements or
understandings, written or oral, with respect to the subject matters hereof.
7.5 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of California, excluding its
rules on conflicts of law.
7.6 Counterparts. This Agreement may be executed simultaneously in
------------
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"THE COMPANY" E- SPORT, a Delaware corporation
By: /s/ Ahmed O. Alfi
-----------------------------------
Ahmed O. Alfi
Chairman of the Board
"THE EMPLOYEE" /s/ ROSS SCHAUFELBERGER
---------------------------------------
ROSS SCHAUFELBERGER
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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 Amendment No. 1 to the Registration
Statement on Form S-1 and related Prospectus of Broadband Sports, Inc. dated
January 20, 2000.
/s/ Ernst & Young LLP
Los Angeles, California
January 17, 2000
