<PAGE>
As filed with the Securities and Exchange Commission on December 21, 1999
Registration No. 333-_____
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
---------------------
UPROAR INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7375 13-3919458
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
240 West 35th Street
9th Floor
New York, New York 10001
(212) 714-9500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
---------------------
Kenneth D. Cron
Chairman and Chief Executive Officer
Uproar Inc.
240 West 35th Street
9th Floor
New York, New York 10001
(212) 714-9500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Copies to:
Alexander D. Lynch, Esq. Robert D. Marafioti, Esq. Marc S. Rosenberg, Esq.
Babak Yaghmaie, Esq. Executive Vice President, Cravath, Swaine & Moore
Brobeck, Phleger & Harrison LLP General Counsel and Secretary Worldwide Plaza
1633 Broadway, 47th Floor Uproar Inc. 825 Eighth Avenue
New York, New York 10019 240 West 35th Street New York, New York 10019-7475
(212) 581-1600 9th Floor (212) 474-1000
New York, New York 10001
(212) 714-9500
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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. / /
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Title of each class of Proposed maximum aggregate Amount of
securities to be registered offering price registration fee(1)
<S> <C> <C>
Common stock, par value $0.01 per share .. $100,000,000 $26,400
</TABLE>
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
---------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 is not an offer to buy these securities in
any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1999
P R O S P E C T U S
[LOGO]
Shares
Uproar Inc.
Common Stock
---------------------
We are selling shares of our common stock. The underwriters named in
this prospectus may purchase up to additional shares of our common stock
to cover over-allotments.
This is an initial public offering of our common stock in the United
States. Our common stock is admitted for trading with the European Association
of Securities Dealers' Automated Quotation system, or EASDAQ, under the symbol
"UPRO". On December 20, 1999, the last reported sale price of the common stock
on EASDAQ was [euro] 35.50, or $35.75, per share. We will apply to have the
common stock included for quotation on the Nasdaq National Market under the
symbol "UPRO".
---------------------
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 8.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
Per Share Total
Initial public offering price ................. $ $
Underwriting discounts ........................ $ $
Proceeds, before expenses, to Uproar .......... $ $
The underwriters are offering the shares subject to various conditions.
The underwriters expect to deliver the shares to purchasers on or about
, 2000.
---------------------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit Capital Corporation
, 2000.
<PAGE>
[Description of graphics on inside front, gatefold and back cover pages of
prospectus]
<PAGE>
You should rely only on the information contained in this prospectus.
Uproar has not authorized anyone to provide you with different information.
Uproar is not making an offer of these securities in any state where the offer
is not permitted. You should not assume that the information provided by this
prospectus is accurate as of any date other than the date on the front of this
prospectus.
-------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Prospectus Summary ................................................................... 4
Risk Factors ......................................................................... 8
Forward-Looking Statements; Market Data .............................................. 20
Price Range of Common Stock .......................................................... 21
Use of Proceeds ...................................................................... 22
Dividend Policy ...................................................................... 22
Capitalization ....................................................................... 23
Dilution ............................................................................. 24
Selected Consolidated Financial Data ................................................. 25
Management's Discussion and Analysis of Financial Condition and Results of Operations 26
Business ............................................................................. 32
Management ........................................................................... 47
Certain Transactions ................................................................. 53
Principal Stockholders ............................................................... 54
Description of Capital Stock ......................................................... 55
Shares Eligible for Future Sale ...................................................... 58
United States Tax Consequences to Non-United States Holders .......................... 60
Underwriting ......................................................................... 63
Legal Matters ........................................................................ 65
Experts .............................................................................. 65
Where You Can Find Additional Information ............................................ 65
Index to Consolidated Financial Statements ........................................... F-1
</TABLE>
-------------------------
Until , 2000 (25 days after the date of this prospectus), all dealers
that buy, sell or trade the common stock, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
-------------------------
Our common stock is currently quoted on EASDAQ in euros. Conversions into
United States dollars are calculated using the noon buying rate for cable
transfers in foreign currencies as certified by the Federal Reserve Bank of New
York on the date the relevant price was quoted. The noon buying rate for
December 20, 1999 was [euro] 0.993 per United States $1.00.
3
<PAGE>
PROSPECTUS SUMMARY
Because this is only a summary, it does not contain all of the information
that may be important to you. You should read the entire prospectus, including
the "Risk Factors" section and the consolidated financial statements and the
notes thereto, before deciding to invest in our common stock.
Our Company
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our registered users have
grown from 96,000 in January 1998 to 4.7 million in November 1999. Our unique
user audience has similarly grown from 1.3 million in November 1998 to 3.5
million in November 1999. Our sites are very sticky, which means that our users
consistently spend significantly more time per visit on our sites than the
industry average. According to Media Metrix, a leading Internet audience
measurement service, in October 1999, our users in the United States spent an
average of 15.6 minutes per usage day on our sites and we were ranked as the
fifth stickiest network of Web sites on the Internet. In addition, we were
ranked by Media Metrix among the five stickiest networks in each month during
1999.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. We believe that our large user base
and the stickiness of our sites provide advertisers with an attractive platform
to reach their target audiences. As a result, the number of advertisers and
sponsors on our network has grown from 99 as of December 1998 to 176 as of
September 30, 1999. Similarly, the number of advertising impressions served
over our Web sites increased from 70.7 million in December 1998 to 261 million
in October 1999. Because we attract a large, diversified user base and can
segment it based upon information we collect, such as geography, age and
gender, we believe we will be able to target advertisements to particular
demographic profiles specified by our advertisers.
We believe that our technology platform is integral to maintaining the
entertaining and engaging nature of our content. We have made significant
investments in developing and implementing a technology platform to support our
interactive multi-user game shows and games. We believe that our Web sites are
among a few in the world that enable large numbers of users to simultaneously
play interactive multi-player game shows and games. Moreover, we have designed
our technology platform to easily accommodate our growing user base and to take
advantage of emerging technology trends such as alternative access devices,
interactive television platforms and broadband distribution services.
Our Market Opportunity
As a result of the growing popularity of the Internet, an increasing
number of users are looking beyond traditional media, such as radio and
television, to the Internet as a source of entertainment. Game shows are among
the most popular and long-lived programs on television in both the United
States and worldwide. They were among the first entertainment formats to be
successfully adapted to television from radio. Moreover, new game shows are
frequently developed and introduced in order to capitalize on the popularity of
the format and to draw larger audiences to television.
Games and game shows are particularly well suited for online entertainment
content, especially with the development of higher bandwidth distribution
channels, and can be easily adapted to the Internet. We believe that online
games and game shows are a compelling entertainment medium for a mass user
audience because they:
o provide users with an opportunity to win prizes;
o allow users to access entertaining content according to their own
schedule from any location; and
o enable users to participate interactively in the games and game shows
and to compete against other users.
4
<PAGE>
Despite the opportunity presented by the widespread adoption of the
Internet as a medium for delivering entertainment content to a growing user
base, only a limited number of Web sites are currently dedicated to providing a
broad array of fun and challenging interactive entertainment. We believe that
we can grow our revenues by leveraging our large audience and our engaging
content through targeting our advertising placement to specific demographics
within our audience in order to attract more advertisers to our network.
Our Strategy
Our objective is to be the leading online entertainment destination. We
believe we can achieve this objective through the following strategies:
o enhancing our content;
o aggressively expanding our audience;
o further monetizing our audience and building additional revenue
streams;
o capitalizing on the popularity of our PrizePoint rewards program;
o continuing to expand internationally; and
o pursuing strategic acquisitions and alliances.
5
<PAGE>
The Offering
Common stock offered... shares
Common stock outstanding after
this offering......... shares
Use of proceeds.......... We intend to use the proceeds of this
offering to fund our marketing activities,
expand our sales force, enhance our products
and services, expand our business
internationally, enter into distribution and
affiliate arrangements with other Web sites,
potentially make strategic investments and
acquisitions, and for general corporate
purposes.
Proposed Nasdaq National Market
Symbol.................. "UPRO"
EASDAQ Symbol............ "UPRO"
This information is based on our shares of common stock outstanding as of
September 30, 1999. This information:
o excludes 2,468,632 shares subject to options outstanding as of September
30, 1999 with a weighted average exercise price of $15.64; and
o assumes no exercise of the underwriters' over-allotment option.
-------------
As used in this prospectus, UPROAR and the UPROAR logo are service marks,
the registration of which has been applied for and is pending in the United
States and in other markets in which we register our marks. The UPROAR service
mark is registered in Germany and the United Kingdom. We have also applied for
the registration of numerous other trademarks in the United States and those
applications are pending. Those marks include BINGO BLITZ, BLOWOUT BINGO,
GAMESCENE, LET THERE BE FUN, MENTAL STATE, PRIZEPOINT, PRIZEPOINTS and TRIVIA
BLITZ. All other trademarks and service marks used in this prospectus are the
property of their respective owners.
-------------
Uproar Inc. was incorporated in Delaware on December 16, 1999 and is the
successor to Uproar Ltd., a Bermuda limited liability company that was formed
on July 7, 1997. Our principal executive offices are located at 240 West 35th
Street, 9th Floor, New York, New York 10001. Our telephone number at that
location is (212) 714-9500. Information contained on our Web sites does not
constitute part of this prospectus. References in this prospectus to "Uproar,"
"we," "our," and "us" refer to Uproar Inc., its predecessor Uproar Ltd., and
its subsidiaries.
6
<PAGE>
Summary Consolidated Financial and Operating Data
The following table sets forth summary consolidated financial and
operating data for our business. You should read this information together with
the consolidated financial statements and the notes to those statements
appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
Period ended
Year Ended December 31,
December 31, -----------------------------------------------------
1995 1996 1997 1998
-------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues ................................. $ 43,365 $ 59,698 $ 348,709 $ 1,632,969
Cost of revenues ......................... -- (40,781) (216,586) (760,376)
---------- ----------- ------------- -------------
Gross profit ............................. 43,365 18,917 132,123 872,593
Operating expenses:
Sales and marketing ..................... -- 166,806 1,087,058 3,770,866
Product development ..................... 33,190 389,346 772,744 849,486
General and administrative .............. 70,182 187,362 2,092,394 2,337,023
Amortization of intangible assets ....... -- -- -- --
---------- ----------- ------------- -------------
Loss from operations ..................... (60,007) (724,597) (3,820,073) (6,084,782)
Foreign exchange gain (loss) ............. (2,233) 49,946 (85,439) 57,401
Interest income (expense), net ........... 4,326 (27,829) 82,349 205,751
Provision for income taxes ............... -- (4,909) (5,582) (9,020)
---------- ----------- ------------- -------------
Net loss ................................. $ (57,914) $ (707,389) $ (3,828,745) $ (5,830,650)
========== =========== ============= =============
Basic and diluted net loss per share ..... $ (0.10) $ (0.33) $ (0.85) $ (0.79)
========== =========== ============= =============
Weighted average number of shares
outstanding ............................. 569,178 2,129,042 4,517,464 7,348,556
========== =========== ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1998 1999
----------------- ----------------
(unaudited)
<S> <C> <C>
Statement of Operations Data:
Revenues ................................. $ 911,253 $ 5,274,896
Cost of revenues ......................... (525,230) (1,690,692)
------------- -------------
Gross profit ............................. 386,023 3,584,204
Operating expenses:
Sales and marketing ..................... 1,860,913 13,531,320
Product development ..................... 529,985 1,676,920
General and administrative .............. 1,195,503 5,105,128
Amortization of intangible assets ....... -- 4,553,728
------------- -------------
Loss from operations ..................... (3,200,378) (21,282,892)
Foreign exchange gain (loss) ............. 36,400 (136,374)
Interest income (expense), net ........... 106,164 177,131
Provision for income taxes ............... (4,000) (44,324)
------------- -------------
Net loss ................................. $ (3,061,814) $ (21,286,459)
============= =============
Basic and diluted net loss per share ..... $ (0.45) $ (2.00)
============= =============
Weighted average number of shares
outstanding ............................. 6,781,044 10,649,857
============= =============
</TABLE>
The following table is a summary of our balance sheet at September 30,
1999. The as adjusted data reflect the sale of shares of common stock
offered hereby at an assumed initial public offering price in the United States
of $ per share after deducting the estimated underwriting discount and
estimated offering expenses payable by us.
<PAGE>
<TABLE>
<CAPTION>
September 30, 1999
-------------------------
Actual As Adjusted
---------- ------------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................................ $22,554 $
Working capital .......................................... 32,370
Total assets ............................................. 55,849
Total indebtedness, including current maturities ......... 174
Total stockholders' equity ............................... 52,061
</TABLE>
7
<PAGE>
RISK FACTORS
You should consider carefully the risks described below before making an
investment decision. Any of the following risks could adversely affect our
business and financial results. In that case, the trading price of our common
stock could decline and you could lose all or part of your investment.
Financial Risks
We have a history of losses since our inception, we expect future losses and we
cannot assure you that we will ever be profitable in the future.
If our revenues do not increase substantially, we may never become
profitable. We have not generated enough revenues to exceed the substantial
amounts we have spent to create, launch and enhance our Web sites and to
develop our business generally. Even if we do achieve profitability, we may not
sustain profitability on a quarterly or annual basis in the future. At
September 30, 1999, our accumulated deficit was approximately $31.7 million. It
is our intention to invest the proceeds of this offering and cash generated
from operations to build our business and increase our market share. Despite
this investment, our market share may grow more slowly than we anticipate or
may even decrease in the future. In addition, our expenses may increase faster
than we expect. As a result, we expect to continue to generate substantial
losses for the foreseeable future, and the rate at which we incur these losses
may increase from current levels.
Because we have only been in business for a short period of time, there is
limited information upon which you can evaluate our business.
Uproar was founded in February 1995 and uproar.com was launched in
September 1997. Accordingly, you can only evaluate our business based on our
limited operating history. As a young company, we face risks and uncertainties
relating to our ability to successfully implement our business plan. These
risks include our ability to:
o increase awareness of the Uproar brand and continue to build user
loyalty;
o expand our content and services;
o attract a larger audience to our Web sites;
o attract a large number of advertisers from a variety of industries;
o maintain our current, and develop new, strategic relationships;
o respond effectively to competitive pressures; and
o continue to develop and upgrade our technology.
If we are unsuccessful in addressing these risks and uncertainties, our
business, results of operations and financial condition would be materially
adversely affected.
We may fail to meet market expectations because of fluctuations in our
quarterly operating results, which would cause our stock price to decline.
Although we intend to steadily increase our spending and investment to
support our planned growth, our revenues, and some of our costs, will be much
less predictable. This is likely to result in significant fluctuations in our
quarterly results and to limit the value of quarter-to-quarter comparisons.
Because of our limited operating history and the emerging nature of our
industry, we anticipate that securities analysts and investors will have
difficulty in accurately forecasting our results. It is possible that our
operating results in some quarters will be below market expectations. In this
event, the price of our common stock is likely to decline.
The following are among the factors that could cause significant
fluctuations in our operating results:
o the number of users on, and the frequency of their use of, our Web
sites;
8
<PAGE>
o our ability to attract and retain advertisers;
o the expiration or termination of our strategic relationship with
Pearson Television and others;
o the expiration or termination of partnerships with Web sites and
Internet service providers, or ISPs, which can result from mergers or
other strategic combinations as Internet businesses continue to
consolidate;
o our ability to offer on a timely and affordable basis merchandise that
appeals to our users' preferences;
o system outages, delays in obtaining new equipment or problems with
planned upgrades;
o disruption or impairment of the Internet;
o our ability to successfully expand our online entertainment offerings
beyond the games and game show sector;
o the introduction of new or enhanced services by us or our competitors;
o seasonality in the demand for advertising, or changes in our own
advertising rates or advertising rates in general, both on and off the
Internet;
o changes in government regulation of the Internet; and
o general economic and market conditions.
We may not be able to adjust our operating expenses in order to offset any
unexpected revenue shortfalls.
Our operating expenses are based on our expectations of our future
revenues. These expenses are relatively fixed, at least in the short term. We
intend to expend significant amounts in the short term, particularly to expand
our advertising sales department and to build brand awareness. We may be unable
to adjust spending quickly enough to offset any unexpected revenue shortfall.
If we fail to substantially increase our revenues, then our financial condition
and results of operations would be materially adversely affected.
The development of our brand is essential to our future success.
Enhancing the Uproar brand is critical to our ability to expand our user
base and our revenues. We believe that the importance of brand recognition will
increase as the number of entertainment Web sites grows. In order to attract
and retain users and advertisers, we intend to increase our expenditures for
creating and maintaining brand loyalty. We cannot assure you that we will be
successful in building or maintaining our brand.
Our success in promoting and enhancing the Uproar brand will also depend
on our success in providing high quality content, features and functions that
are attractive and entertaining to users of online game shows and multi-player
games. If we fail to promote our brand successfully or if visitors to our Web
sites or advertisers do not perceive our services to be of high quality, the
value of the Uproar brand could be diminished and this could adversely affect
our business, financial condition and results of operations.
We have derived a portion of our revenues from reciprocal advertising
agreements, or barter, which do not generate cash revenue.
We derive a portion of our revenues from reciprocal advertising
arrangements, or barter, under which we exchange advertising space on our Web
sites, or provide game content or other services for third-party Web sites,
predominantly for advertising space on other Web sites rather than for cash
payments. In the nine months ended September 30, 1999, we derived approximately
$939,700, or 17.8% of our revenues, from these arrangements. In the year ended
December 31, 1998, we derived approximately $365,000, or 22.0% of our revenues,
from these arrangements. We expect that barter will continue to account for
some of our revenues in the foreseeable future. The Securities and Exchange
Commission, together with the Financial Accounting
9
<PAGE>
Standards Board, or FASB, have recently begun to examine revenues recognized by
Internet companies from barter transactions. This review may result in
limitations on revenues which may be derived from these transactions. If such
rules are implemented, our business and financial results may suffer.
Our advertising pricing model, which is based heavily on the number of
advertisements delivered to our users, may not be successful.
Different pricing models are used to sell advertising on the Internet and
the models we adopt may prove to not be the most profitable. Advertising based
on impressions, or the number of times an advertisement is delivered to users,
currently comprises substantially all of our revenues. To the extent that we do
not meet the minimum guaranteed impressions that we are required to deliver to
users under many of our advertising contracts, we defer recognition of the
corresponding revenues until we achieve the guaranteed impression levels. To
the extent that minimum guaranteed impression levels are not achieved, we may
be required to provide additional impressions after the contract term, which
would reduce our advertising inventory. In addition, since advertising
impressions may be delivered to a user's Web browser without regard to user
activity, advertisers may decide that a pricing model based on user activity is
preferable. We cannot predict which pricing model, if any, will emerge as the
industry standard. As a result, we cannot accurately project our future
advertising rates and revenues. Our advertising revenues could be adversely
affected if we are unable to adapt to new forms of Internet advertising or we
do not adopt the most profitable form.
We may not be able to track the delivery of advertisements on our network in a
way that meets the needs of our advertisers.
It is important to our advertisers that we accurately measure the delivery
of advertisements on our network and the demographics of our user base.
Companies may choose to not advertise on our Web sites or may pay less for
advertising if they do not perceive our ability to track and measure the
delivery of advertisements to be reliable. We depend on third parties to
provide us with many of these measurement services. If they are unable to
provide these services in the future, we would need to perform them ourselves
or obtain them from another provider. We could incur additional costs or
experience interruptions in our business during the time we are replacing these
services. In addition, if successful, legal initiatives related to privacy
concerns could also prevent or limit our ability to track advertisements.
Our business may suffer if we have difficulty retaining users on our Web sites.
Our business and financial results are also dependent on our ability to
retain users on our Web sites. In any particular month, many of the visitors to
our sites are not registered users and many of our registered users do not
visit our sites. We believe that intense competition has caused, and will
continue to cause, some of our registered users to seek online entertainment on
other sites and spend less time on our sites. It is relatively easy for
Internet users to go to competing sites and we cannot be certain that any steps
we take will maintain or improve our retention of users. In addition, some new
users may decide to visit our Web sites out of curiosity regarding the Internet
and may later discontinue using Internet entertainment services. If we are
unable to retain our user base, our business and financial results may suffer.
We plan to increase our advertising sales department to support our growth.
Our business, results of operations and financial condition will be
materially adversely affected if we do not develop and maintain an effective
advertising sales force. On September 30, 1999, our advertising sales
department had 26 members. In October 1999, we hired an executive vice
president to manage our sales and marketing efforts and it can take a
relatively long time for a manager to begin to achieve desired results. We need
to increase substantially our advertising sales department in the near future
to support our planned growth. Our ability to increase our sales department
involves a number of risks and uncertainties, including:
10
<PAGE>
o the competition we face in hiring and retaining advertising sales
personnel;
o our ability to integrate, train and motivate additional advertising
sales and support personnel;
o our ability to manage a multi-location advertising sales organization;
and
o the length of time it takes new advertising sales personnel to become
productive.
Seasonal factors may affect our quarterly operating results.
User traffic on Web sites typically declines during the summer and
year-end vacation and holiday periods. These general seasonal declines in user
traffic may affect us and may, over time, cause our growth rate and total
revenues to fluctuate.
We face risks associated with international operations.
We currently operate in the United States, Hungary, Germany and the United
Kingdom. We intend to continue to expand into additional international markets
and to spend significant financial and managerial resources to do so.
Our business internationally is subject to a number of risks. These
include:
o linguistic and cultural differences;
o inconsistent regulations and unexpected changes in regulatory
requirements;
o difficulties and costs of staffing and managing international
operations;
o differing technology standards;
o potentially adverse tax consequences;
o wage and price controls;
o political instability;
o social unrest;
o uncertain demand for electronic commerce;
o uncertain protection for intellectual property rights; and
o imposition of trade barriers.
We have no control over many of these matters and any of them may
adversely affect our business, results of operations and financial condition.
Currency fluctuations and exchange control regulations may adversely affect our
business.
Our reporting currency is the United States dollar. Our customers outside
the United States, however, are generally billed in local currencies. Our
accounts receivable from these customers and overhead assets will decline in
value if the local currencies depreciate relative to the United States dollar.
To date, we have not tried to reduce our exposure to exchange rate fluctuations
by using hedging transactions. Although we may enter into hedging transactions
in the future, we may not be able to do so successfully. In addition, our
currency exchange losses may be magnified if we become subject to exchange
control regulations restricting our ability to convert local currencies into
United States dollars.
We have limited experience in offering electronic commerce services to our
users and may not be able to generate substantial revenues from electronic
commerce.
Since the introduction of electronic commerce, the number of Web sites
that sell products to consumers has increased rapidly. We expect this number to
increase given the relative ease with which new electronic commerce Web sites
can be developed. We believe that the primary competitive factors for
electronic commerce are:
11
<PAGE>
o customers' security concerns;
o brand recognition;
o Web site content;
o ease of use;
o price;
o merchandising capability;
o fulfillment speed;
o customer service and support; and
o reliability.
The nature of the Internet as an electronic marketplace may make it more
competitive than traditional retailing environments and increased online
competition may result in reduced operating margins.
We have limited experience in providing electronic commerce services to
our users and only recently hired our electronic commerce manager. Some of our
competitors may be in a better position to provide these services to their
users because of their greater technological, financial and marketing
resources. Also, these competitors may have the support of, or relationships
with, important electronic commerce participants, which could adversely affect
the extent of support these electronic commerce market participants may provide
to us in the future.
We carry inventory on the majority of products sold on our Web sites. As a
result, it will be important to our success in electronic commerce that we
accurately predict the changing trends in consumer preferences for the goods
sold on our sites and do not overstock unpopular products. If demand for one or
more of the products falls short of our expectations, we may be required to
take inventory markdowns, which could reduce our gross margins. In addition, to
the extent that demand for the products increases over time, we may be forced
to increase inventory levels. Any increase would subject us to additional
inventory risks.
We sell numerous third-party products on our Web sites. With respect to
those products, we compete with numerous electronic commerce merchants and the
Web sites of companies that manufacture the products we offer. In selling
products over the Internet, we also compete with stores and companies that do
not distribute their products through the Internet. Many of our Internet and
non-Internet competitors are larger than we are, enjoy greater economies of
scale than are available to us, have substantially greater resources than we
have and may be able to offer more products or more attractive prices than we
can.
Risks Associated with Our Advertisers and Strategic Partners
We depend on a small group of customers.
In the nine months ended September 30, 1999, About.com accounted for 12.2%
of our revenues. No other customer accounted for more than 10.0% of our
revenues. Our top five customers, in the aggregate, accounted for 39.5% of our
revenues during that period. Yahoo! accounted for 20.7% of our 1998 revenues in
connection with development services performed in that year. In 1998, our top
advertiser, Microsoft Inc. and associated companies, accounted for
approximately 11.8% of our total revenues and our top five customers, including
Yahoo! and Microsoft, accounted for approximately 44.1% of revenues. If we lose
one or more of our top customers and do not attract additional customers, our
business, results of operations and financial condition could be materially
adversely affected.
Our relationship with Pearson Television may not be successful.
In January 1999, we entered into an agreement with Pearson Television,
pursuant to which we were granted exclusive rights to provide Internet games in
the English language based on the television games Family Feud, Match Game,
100% and Password. Our rights under this agreement will expire in September
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<PAGE>
2001 unless Pearson elects to extend them. In addition, Pearson may terminate
the agreement if Mr. Simon, our Chief Financial Officer, ceases to be employed
by us in a senior management capacity. If these rights are not renewed, Pearson
will have the rights to distribute Internet games either directly or through
one of our competitors. Pearson retains the trademark rights for these shows.
The termination of this relationship would have a material adverse effect on
our business, results of operations and financial condition. Even if Pearson
were willing to renew the contract, it may not be willing to do so on terms
that are favorable to us. As a result, we might not be able to recover the
investment we made in developing these Internet games.
As part of our agreement with Pearson, we have guaranteed minimum royalty
payments to Pearson pertaining to these Internet games. In the event that one
or more of these games is not financially successful for us, we still are
obligated to make the royalty payments to Pearson.
We depend on relationships with third party content providers that may prove to
be costly and inconsistent.
Because our business competes with the wide array of entertainment
alternatives available to consumers, it is important that we establish
relationships with media content providers with a high degree of brand
identification. Our future success depends in large part on these
relationships. Because most of our agreements with these third parties are not
exclusive, our competitors may seek to use the same parties as we do and
attempt to adversely impact our relationships with these parties. We might not
be able to maintain these relationships or replace them on financially
attractive terms. We intend to seek additional relationships in the future. Our
business, results of operations and financial condition could be materially
adversely affected if the parties with which we have these relationships do not
adequately perform their obligations, reduce their activities with us, choose
to compete with us or provide their services to a competitor.
A portion of the users who visit our Web sites come from third-party Web
sites with which we have nonexclusive, short-term relationships. Because these
Web sites may not themselves attract significant numbers of users, we may not
receive a significant number of additional users from these relationships. Some
of our major strategic alliances require us to make minimum guaranteed
payments, even if the relationships are not profitable.
We currently have agreements that limit our ability to enter into other
advertising or sponsorship agreements or other strategic relationships. We may
in the future enter into more of these agreements. We currently have agreements
with advertisers, electronic commerce market participants or other third
parties that require us to exclusively feature these parties in particular
sections or on particular pages of our Web sites. Many companies we may pursue
for strategic relationships also offer competing services. As a result, these
companies may be reluctant or unable to enter into strategic relationships with
us.
Risks of Our Business Model
We may not be able to compete successfully.
There are many companies that provide Web sites and online destinations
targeted to audiences seeking various forms of entertainment content. All of
these companies compete with us for visitor traffic, advertising dollars and
electronic commerce sales. This competition is intense and is expected to
increase significantly in the future as the number of entertainment-oriented
Web sites continues to grow. Our success will be largely dependent upon the
perceived value of our content relative to other available entertainment
alternatives, both online and elsewhere.
Increased competition could result in:
o lower advertising rates;
o lower profit margins;
o loss of visitors or visitors spending less time on our sites;
13
<PAGE>
o reduced page views or advertising impressions; and
o loss of market share.
Any one of these could materially adversely affect our business, results
of operations and financial condition.
Many of our existing and potential competitors, in comparison to us, have:
o longer operating histories;
o greater name recognition in some markets;
o larger customer bases; and
o significantly greater financial, technical and marketing resources.
These competitors may also be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies, use superior technology platforms to deliver their products
and services and make more attractive offers to potential employees,
distribution partners, product manufacturers, inventory suppliers, advertisers
and third-party content providers. Our competitors may develop content that is
better than ours or that achieves greater market acceptance. Sony Station, for
example, currently has the exclusive right to the online versions of the
television game shows Jeopardy and Wheel of Fortune and the board game Trivial
Pursuit. In addition, new competitors may emerge and acquire significant market
share.
We also compete with traditional forms of media, like newspapers,
magazines, radio and television for advertisers and advertising revenue. If
advertisers perceive the Internet or our Web sites to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budgets to our Web sites.
Our plans to expand our entertainment business beyond our core game show sites
may not be successful.
Almost all of our experience to date is with online games and game shows.
Because we have only limited experience with businesses beyond our core gaming
sites, we cannot predict whether we will be able to successfully expand into
other online entertainment businesses. Expanding our business will require us
to expend significant amounts of capital to be able to contend with competitors
that have more experience than we do in these businesses and may also have
greater resources to devote to these businesses. Also, our management may have
to divert a disproportionate amount of its attention away from our day-to-day
core business and devote a substantial amount of time expanding into new areas.
If we are unable to effectively expand our business or manage any such
expansion, our business may suffer and our financial condition and results of
operations will be adversely affected.
Risks Related to the Internet Industry
Our revenues depend on the continuing growth of the Internet.
Our future success is dependent on the increased use of the Internet. We
cannot assure you that the market for Internet services will continue to grow
or become sustainable.
The Internet may not continue as a viable commercial marketplace because
of many factors, including:
o the inadequate development of the necessary infrastructure;
o a lack of development of complementary products such as high speed
modems and high speed communication lines; and
o delays in the development or adoption of new standards and protocols
required to handle increased levels of Internet activity.
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<PAGE>
The Internet has experienced, and is expected to continue to experience,
significant growth in the number of users and volume of traffic. We cannot
assure you that the Internet infrastructure will be able to support the demands
placed on it by this continued growth. In addition to the Internet's uncertain
ability to expand to accommodate increasing traffic, critical issues concerning
the use of the Internet, including security, reliability, cost, ease of
deployment and administration and quality of service, remain unresolved. A
number of states, for example, have recently permitted telephone companies to
charge increased rates for consumers connecting to the Internet. Concerns
regarding these issues may affect the growth of the use of Internet. If the
Internet fails to continue as a viable marketplace, or develops more slowly
than expected, our business, results of operations and financial condition
could suffer.
We will only be able to execute our business plan if Internet advertising
increases.
Consumer usage of the Internet is relatively new and the success of the
Internet as an advertising medium will depend on its widespread adoption. Our
business would be materially adversely affected if the Internet advertising
market develops more slowly than we expect, or if we are unsuccessful in
increasing our advertising revenues. We expect that revenues from Internet
advertising will make up a significant amount of our revenues for the
foreseeable future.
The adoption of Internet advertising, particularly by those entities that
have historically relied on traditional media for advertising, requires the
acceptance of a new way of conducting business, exchanging information and
advertising products and services. Advertisers that have traditionally relied
on other advertising media may be reluctant to advertise on the Internet. These
businesses may find Internet advertising to be less effective than traditional
advertising media for promoting their products and services. Many potential
advertising and electronic commerce partners have little or no experience using
the Internet for advertising purposes. Consequently, they may allocate only
limited portions of their advertising budgets to Internet advertising.
We may not be able to adapt as Internet technologies and customer demands
continue to evolve.
To be successful, we must adapt to rapidly evolving Internet technologies
by continually enhancing our existing services and introducing new services to
address our customers' changing demands. We expect to incur substantial costs
in modifying our services and infrastructure and in recruiting and hiring
experienced technology personnel to adapt to changing technology affecting
providers of Internet services. We may not be able to hire the necessary
personnel or adapt to these changes in a timely manner or at all.
Regulatory and legal uncertainties could harm our business.
The legal and regulatory environment that pertains to the Internet is
uncertain and may change. New laws and regulations may be adopted. Existing
laws may be applied to the Internet and new forms of electronic commerce. New
and existing laws may cover issues like:
o sales and other taxes;
o user privacy;
o pricing controls;
o characteristics and quality of products and services;
o consumer protection;
o cross-border commerce;
o libel and defamation;
o copyright, trademark and patent infringement; and
o other claims based on the nature and content of Internet materials.
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<PAGE>
Customer uncertainty and new regulations could increase our costs and
prevent us from delivering our products and services over the Internet. It
could also slow the growth of the Internet significantly. This could delay
growth in demand for our products and limit the growth of our revenues.
Our games and game shows are subject to gaming regulations.
We operate online games of skill and chance that are regulated in many
jurisdictions and, in some instances, we reward prizes to the participants. The
selection of prize winners is sometimes based on chance, although none of our
games requires any form of monetary payment. The laws and regulations that
govern our games, however, are subject to differing interpretations in each
jurisdiction and are subject to legislative and regulatory change in any of the
jurisdictions in which we offer our games. If such changes were to happen, we
may find it necessary to eliminate, modify or cancel certain components of our
products that could result in additional development costs and/or the possible
loss of revenue.
User concerns and government regulations regarding privacy may adversely affect
our business.
Web sites sometimes place identifying data, or cookies, on a user's hard
drive without the user's knowledge or consent. Our company and many other
Internet companies use cookies for a variety of different reasons, including
the collection of data derived from the user's Internet activity. Any reduction
or limitation in the use of cookies could limit the effectiveness of our sales
and marketing efforts. Most currently available Web browsers allow users to
remove cookies at any time or to prevent cookies from being stored on their
hard drive. In addition, some privacy advocates and governmental bodies have
suggested limiting or eliminating the use of cookies. For example, the European
Union recently adopted a privacy directive that may limit the collection and
use of information regarding Internet users. These efforts may limit our
ability to target advertising or collect and use information regarding the use
of our Web sites which would reduce our revenues. Fears relating to a lack of
privacy could also result in a reduction in the number of our users.
Some of our advertisers operate online casinos.
In the nine months ended September 30, 1999, 18.6% of our revenue was from
advertising that promoted offshore casino sites. The Congress of the United
States is currently considering legislation that would render unlawful offshore
casino gambling offered online in the United States. If this legislation is
enacted in a form similar to the bill pending in Congress, we would necessarily
need to terminate or modify our current agreements with offshore casino site
advertisers, which would result in a corresponding loss of revenue.
In addition, such legislation could impose penalties on United
States-based companies that are deemed to aid in the operation of offshore
online casinos or encourage the use of such sites by United States residents.
Accordingly, it is possible that we could be liable for criminal or civil
penalties if we do not take proper measures to terminate or modify our
agreements with online casino sites.
We may be liable for the content we make available on the Internet.
We make content available on our Web sites and on the Web sites of our
advertisers and distribution partners. The availability of this content could
result in claims against us based on a variety of theories, including
defamation, obscenity, negligence, copyright or trademark infringement. We
could also be exposed to liability for third-party content accessed through the
links from our sites to other Web sites. We may incur costs to defend ourselves
against even baseless claims and our financial condition could be materially
adversely affected if we are found liable for information that we make
available. Implementing measures to reduce our exposure to this liability may
require us to spend substantial resources and limit the attractiveness of our
service to users.
Other Risks Impacting Our Business
We may not effectively manage our growth.
In order to execute our business plan, we must grow significantly. This
growth will place a significant strain on our personnel, management systems and
resources. If we do not manage growth effectively, our
16
<PAGE>
business, results of operations and financial condition would be materially
adversely affected. We expect that the number of our employees, including
management-level employees, will continue to increase for the foreseeable
future. We have recently hired some of our key employees including our Chief
Executive Officer, Chief Operating Officer, Executive Vice President of Product
Marketing, Executive Vice President of Sales and Marketing and Executive Vice
President of Merchandising. These individuals do not have significant
experience working with us or together as our management team.
We must continue to improve our operational and financial systems and
managerial controls and procedures. We will need to continue to expand, train
and manage our workforce. We must also maintain close coordination among our
technical, accounting, finance, marketing, sales and editorial organizations.
We depend on our key personnel.
Our future success depends, in part, on the continued service of our key
management personnel, particularly Kenneth D. Cron, our Chairman of the board
of directors and Chief Executive Officer, and Christopher R. Hassett, our
President and Chief Operating Officer. The loss of the services of these
individuals or other key employees would have a material adverse effect on our
business, results of operations and financial condition. Our future success
also depends on our ability to attract, retain and motivate highly-skilled
employees. Competition for employees in our industry is intense. We may be
unable to attract, assimilate or retain other highly qualified employees in the
future. We have from time to time in the past experienced, and we expect to
continue to experience in the future, difficulty in hiring and retaining
highly-skilled employees with appropriate qualifications.
The technical performance of our Web sites is critical to our business and to
our reputation.
The computer systems that support our Web sites are designed and
maintained by us at significant expense. We may not be able to successfully
design and maintain our systems in the future. Any system failure, including
network, software or hardware failure, that causes an interruption in our
service or a decrease in responsiveness of our Web sites could result in
reduced user traffic and reduced revenue. We have in the past experienced
slower response times and interruptions in service because of equipment or
software down time related to the high volume of traffic on our Web sites and
our need to deliver frequently updated information to our users. We cannot
assure you that we will be able to expand our systems to adequately accommodate
our growing user base. We could also be affected by computer viruses,
electronic break-ins from unauthorized users, or other similar disruptions or
attempts to penetrate our online security systems. Any secure provider system
disruption or failure, security breach or other damage that interrupts or
delays our operations could harm our reputation and cause us to lose users,
advertisers and sponsors and adversely affect our business and operations.
We currently maintain production servers in New York City and London and
plan to include a facility in California in the future. Our domestic data
centers are operated at facilities provided by Level 3 Communications and
Digital Telemedia. Our London data center is operated by PSI Net. Our
operations depend on these facilities' ability to protect their and our systems
against damage from fire, power loss, water, telecommunications failures,
vandalism and other malicious acts, and similar unexpected adverse events. Any
disruption in the Internet access provided by our servers could have a material
adverse effect on our business, results of operations and financial condition.
Our users depend on Internet service providers, online service providers and
other Web site operators for access to our Web sites. These providers have had
interruptions in their services for hours and, in some cases, days, due to
system failures unrelated to our systems. These interruptions could harm our
reputation and adversely affect our business.
We may be unable to protect our intellectual property rights and we may be
liable for infringing the intellectual property rights of others.
We do not currently maintain patents on our technology and others may be
able to develop similar technologies in the future. We regard our copyrights,
service marks, trademarks, trade secrets and other intellectual property as
critical to our success. We rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers, partners and others to protect
17
<PAGE>
our intellectual property rights. Unauthorized use of our intellectual property
by third parties may adversely affect our business and our reputation. It may
be possible for third parties to obtain and use our intellectual property
without authorization. Furthermore, the validity, enforceability and scope of
protection of intellectual property in Internet-related industries is uncertain
and still evolving. The laws of some foreign countries are uncertain or do not
protect intellectual property rights to the same extent as do the laws of the
United States. Our multi-user games run on proprietary software systems
developed by us at significant expense. Nonetheless, we do not maintain patents
on our technology and others may be able to develop similar technologies in the
future.
We cannot be certain that our products do not or will not infringe valid
patents, copyrights, trademarks or other intellectual property rights held by
third parties. We may be subject to legal proceedings and claims from time to
time relating to the intellectual property of others in the ordinary course of
our business. We may incur substantial expenses in defending against these
third-party infringement claims, regardless of their merit. Successful
infringement claims against us may result in substantial monetary liability or
may materially disrupt the conduct of our business.
We are subject to the risks of integrating and funding joint ventures,
acquisitions and alliances.
As part of our strategy, we seek to enter into alliances or joint ventures
with, and may seek to acquire, complementary businesses, technologies, services
or products, some of which may be significant. These relationships may require
significant management attention and, in some cases, additional working
capital. We do not know if we will be able to complete any future joint
ventures, acquisitions or alliances. To finance future transactions, it may be
necessary for us to raise additional funds through public or private
financings. Any equity or debt financings, if available at all, may adversely
impact our operations and, in the case of equity financings, may result in
dilution to existing stockholders. If we are unable to integrate or implement
any joint venture, acquisition or alliance effectively, our business, results
of operations and financial condition could be materially adversely affected.
We cannot predict our future capital needs and we may not be able to secure
additional financing.
We will likely need to raise additional funds in the future. Any required
additional financing may not be available on terms favorable to us, or at all.
If adequate funds are not available on acceptable terms, we may be unable to:
o fund our expansion;
o successfully promote our brand;
o develop or enhance our services;
o respond to competitive pressures; or
o take advantage of acquisition opportunities.
If additional funds are raised by our issuing additional equity
securities, stockholders may experience dilution of their ownership interest
and, if approved by our stockholders, the newly issued securities could have
rights superior to those of the shares of common stock sold in this offering.
If additional funds are raised by our issuing debt, we may be subject to
limitations on our operations.
Our shares may experience extreme price and volume fluctuations.
Following this offering, the price at which our common stock will trade is
likely to be highly volatile. In addition, the stock market has from time to
time experienced significant price and volume fluctuations that have affected
the market prices for the securities of technology companies, particularly
Internet companies. As a result, investors in our common stock may experience a
decrease in the value of their common stock regardless of our operating
performance or prospects.
18
<PAGE>
If our stock price is volatile, we may become subject to securities litigation
which is expensive and could result in a diversion of resources.
In the past, following periods of volatility in the market price of a
particular company's securities, securities class action litigation has often
been brought against that company. Many companies in the Internet industry have
been subject to this type of litigation in the past. We may also become
involved in this type of litigation. Litigation is often expensive and diverts
management's attention and resources, which could have a material adverse
effect upon our business, financial condition and results of operations.
We may use the proceeds of this offering ineffectively or in ways with which
you may not agree.
Our management will have significant flexibility in applying the net
proceeds of this offering, including ways with which stockholders may disagree.
If we do not apply the funds we receive effectively, our accumulated deficit
will increase and we may lose significant business opportunities.
Shares eligible for public sale after this offering could adversely affect our
stock price.
The market price of our common stock could decline as a result of sales by
our existing stockholders of shares of common stock in the market after this
offering, or the perception that these sales could occur. These sales also
might make it difficult for us to sell equity securities in the future at a
time and at a price that we deem appropriate.
Our charter documents and Delaware law may inhibit a takeover that stockholders
may consider favorable.
Provisions in our charter and bylaws may have the effect of delaying or
preventing a change of control or changes in our management that stockholders
consider favorable or beneficial. If a change of control or change in
management is delayed or prevented, the market price of our common stock could
suffer.
You will suffer immediate and substantial dilution.
The initial public offering price per share in the United States will
significantly exceed our net tangible book value per share. Accordingly,
investors purchasing shares in this offering will suffer immediate and
substantial dilution of their investment.
We do not plan to pay dividends in the foreseeable future, and, as a result,
stockholders will need to sell shares to realize a return on their investment.
We have not declared or paid any cash dividends on our capital stock since
inception. We intend to retain any future earnings to finance the operation and
expansion of our business and do not anticipate paying any cash dividends in
the foreseeable future. Consequently, you will need to sell your shares of
common stock in order to realize a return on your investment and you may not be
able to sell your shares at or above the price you paid for them.
19
<PAGE>
FORWARD LOOKING STATEMENTS; MARKET DATA
Many statements made in this prospectus under the captions "Prospectus
Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" and elsewhere are
forward-looking statements that are not based on historical facts. These
forward-looking statements are usually accompanied by words such as "believes,"
"anticipates," "plans," "expects" and similar expressions. Because these
forward-looking statements involve risks and uncertainties, there are important
factors that could cause actual results to differ materially from those
expressed or implied by these forward-looking statements, including those
discussed under "Risk Factors."
This prospectus contains information concerning Uproar and the Internet
market generally. Some of this information is forward-looking in nature and is
based on a variety of assumptions regarding the ways in which this market will
develop. These assumptions have been derived from information currently
available to us and to the third party market observers quoted herein,
including Media Metrix, International Data Corporation, or IDC, and Forrester
Research. They include the following general underlying expectations:
o no catastrophic failure of the Internet will occur;
o the number of people online and the total number of hours spent online
will increase significantly over the next five years;
o government regulations will not prohibit or materially and adversely
affect our business;
o the total value of online advertising and electronic commerce will
increase significantly over the next five years; and
o Internet security and privacy concerns will be adequately addressed.
If any one or more of the foregoing assumptions is incorrect, actual
market results may differ from those predicted. While we do not know what
impact any such differences may have on our business, our future business,
results of operations and financial condition, and the market price of our
shares of common stock may be materially adversely impacted.
----------------
Some of the Internet usage data presented in this prospectus is derived
from statistics published by Media Metrix, an independent provider of Web
measurement services. Media Metrix draws its data from a sample of over 50,000
Web users that have installed a tracking meter on the computers they use to
access the Web, including those in their places of residence and places of
work. The meter records computer activity by individual, by date, time and
duration and page-by-page viewing of the Web. If the computer has been inactive
for more than 30 minutes the meter requires users to indicate again who is at
the computer. Media Metrix defines "unique visitors per month" as the actual
number of unduplicated users who visit a given Web site or group of sites at
least once in a given month, and "average minutes per usage day" as the average
number of minutes spent on the site or category during the day, per visiting
person.
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PRICE RANGE OF COMMON STOCK
Global instrument certificates, or GICs, representing interests in our
common stock, were approved for trading on the Sonstiger Handel of the Vienna
Stock Exchange between September 19, 1997 and November 30, 1999. From September
19, 1997 until December 31, 1998, the GICs were quoted in Austrian Schillings
and from January 1, 1999 until November 30, 1999, the GICs were quoted in
euros. The following table sets forth, for the periods indicated, the high and
low sale prices as originally reported by the Vienna Stock Exchange and as
converted into United States dollars, for the GICs. Conversions into United
States dollars are calculated using the noon buying rate, per United States
$1.00, for cable transfers in foreign currencies as certified by the Federal
Reserve Bank of New York on the date each relevant price was quoted.
<TABLE>
<CAPTION>
Highest Reported Price
----------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
------------- ----------------- ------------
<S> <C> <C> <C>
1997
Fourth Quarter (from September 19) ATS 43.00 $ 3.44 12.5
1998
First Quarter ATS 39.50 $ 3.09 12.8
Second Quarter 55.00 4.44 12.4
Third Quarter 71.50 5.72 12.5
Fourth Quarter 220.00 18.64 11.8
1999
First Quarter [euro] 25.88 $ 29.21 0.886
Second Quarter 31.00 33.01 0.939
Third Quarter 26.30 26.84 0.980
Fourth Quarter (until November 30, 1999) 33.00 33.27 0.992
<CAPTION>
Lowest Reported Price
---------------------------------------------
As converted Conversion
As reported to U.S. dollars Rate
------------- ----------------- -----------
<S> <C> <C> <C>
1997
Fourth Quarter (from September 19) ATS 37.50 $ 3.05 12.3
1998
First Quarter ATS 38.45 $ 3.00 12.8
Second Quarter 43.50 3.35 13.0
Third Quarter 52.50 4.10 12.8
Fourth Quarter 64.25 5.59 11.5
1999
First Quarter [euro] 17.40 $ 20.09 0.866
Second Quarter 26.00 27.17 0.957
Third Quarter 17.20 18.20 0.945
Fourth Quarter (until November 30, 1999) 20.00 21.41 0.934
</TABLE>
<PAGE>
Our common stock was approved for trading on the European Association of
Securities Dealers' Automated Quotation system, or EASDAQ, on July 8, 1999. The
following price table sets forth, for the periods indicated, the high and low
sale prices, as originally reported by EASDAQ and as converted into United
States dollars, for our common stock. Conversions into United States dollars are
calculated using the noon buying rate, per United States $1.00, for cable
transfers in foreign currencies as certified by the Federal Reserve Bank of New
York on the date each relevant price was quoted. On December 20, 1999, the last
reported price of our common stock on EASDAQ was [euro] 35.50, or $35.75. The
noon buying rate for December 20, 1999 was [euro] 0.993 per United States $1.00.
<TABLE>
<CAPTION>
Highest Reported Price Lowest Reported Price
---------------------------------------------- ---------------------------------------------
As converted Conversion As converted Conversion
As reported to U.S. dollars Rate As reported to U.S. dollars Rate
------------- ----------------- ------------ ------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1999
Third Quarter (from July 8) [euro] 27.20 $ 27.76 0.980 [euro] 18.50 $ 19.25 0.961
Fourth Quarter 38.35 38.97 0.984 20.00 21.62 0.925
</TABLE>
The liquidity and trading patterns of securities quoted on the Vienna
Stock Exchange and EASDAQ may be substantially different from those of
securities quoted on the Nasdaq National Market. EASDAQ is a relatively new
quotation system and we are one of only a small number of issuers that quotes
its shares on EASDAQ. Historical trading prices, therefore, may not be
indicative of the prices at which our common stock will trade in the future.
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USE OF PROCEEDS
The net proceeds we will receive from the sale of the common shares
offered by us are estimated to be
$ million, assuming an initial public offering price in the United States of
$ per share and after deducting the estimated underwriting discount and
offering expenses. If the underwriters' over-allotment option is exercised in
full, we estimate that the net proceeds will be $ million.
We intend to use the proceeds of this offering:
o to fund our marketing activities;
o to expand our advertising sales force;
o to enhance our products and services;
o to expand our business internationally;
o to enter into distribution and affiliate arrangements with other Web
sites; and
o for general corporate purposes.
In addition, as part of our strategy, we seek to enter into alliances or
joint ventures with, and may acquire, complementary businesses, technologies,
services or products, some of which may be significant. We may use some of the
net proceeds for these alliances, joint ventures or acquisitions. We currently
do not have commitments or agreements with respect to any such transactions.
We have not determined the amount of net proceeds to be used for each of
the specific purposes indicated. Accordingly, our management will have
significant flexibility in applying the net proceeds of the offering.
Until this money is used, we intend to invest the net proceeds in
short-term, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
intend to retain any future earnings to finance the operation and expansion of
our business and do not anticipate paying any cash dividends in the foreseeable
future.
22
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999:
o on an actual basis; and
o on an as adjusted basis to reflect our sale of shares of common stock
at an initial public price in the United States of $ per share, after
deducting underwriting discounts and the estimated offering expenses
payable by us.
You should be read this information together with our supplemental
consolidated financial statements and the notes to those statements appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of September 30, 1999
---------------------------
Actual As Adjusted
------------ ------------
(in thousands)
<S> <C> <C>
Capital lease obligations ................. $ 174 $
Stockholders' equity:
Shares of common stock, $.01 par value;
28,000,000 shares authorized; 11,835,530
shares of common stock issued and
outstanding (actual); issued and
outstanding (as adjusted) .............. 592
Additional paid-in capital .............. 83,221
Other comprehensive loss ................ (40)
Accumulated deficit ..................... (31,711)
---------
Total stockholders' equity .............. 52,061
---------
Total capitalization .................... $ 52,235 $
========= ============
</TABLE>
The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of September 30, 1999. It does
not include:
o 2,468,632 shares subject to options outstanding as of September 30,
1999 at a weighted average exercise price of $15.64 per share; and
o shares subject to the underwriters' overallotment option.
23
<PAGE>
DILUTION
Our net tangible book value as of September 30, 1999 was $39.9 million, or
$3.50 per share of our common stock. Net tangible book value per share is
determined by dividing the amount of our total tangible assets less total
liabilities by the number of shares of common stock outstanding, as of
September 30, 1999. Assuming our sale of the shares offered in this
offering at an assumed initial public offering price in the United States of
$ per share and after deducting underwriting discounts and estimated
offering expenses, and the application of the estimated net proceeds, our net
tangible book value as of September 30, 1999 would have been $ , or $
per share of common stock. This represents an immediate increase in net
tangible book value of $ per share to existing stockholders and an immediate
dilution in net tangible book value of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price in the United States per share ..... $
Net tangible book value per share as of September 30, 1999 ............ $
Increase attributable to new investors ................................
Net tangible book value per share after the offering .....................
Dilution per share to new investors ...................................... $
---------
</TABLE>
These tables summarizes, as of September 30, 1999, the total number of
shares of common stock purchased from us, the total consideration paid to us
and the average price per share paid by existing stockholders and by new
investors:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
-------------------------- ---------------------------- Average Price Per
Number Percent Amount Percent Share
------------ ----------- -------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders ......... 11,385,530 % $88,613,171 % $ 7.31
New investors .................
Total ...................... 100.0% $ 100.0% $
===== =========== ===== =======
</TABLE>
Total consideration includes an in-kind contribution of $24.7 million.
These tables and calculations do not include:
o the exercise of 2,468,632 stock options outstanding as of September 30,
1999 at a weighted average exercise price of $15.64; and
o shares subject to the underwriters' overallotment option.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes to these
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in this prospectus. The selected consolidated
statement of operations data for the period ended December 31, 1995 and for the
years ended December 31, 1996, 1997 and 1998, and the consolidated balance
sheet data as of December 31, 1995, 1996, 1997 and 1998 are derived from our
consolidated financial statements, which have been audited by KPMG Hungaria
Kft., independent accountants, and are included in this prospectus. The
unaudited consolidated financial statements have been prepared on substantially
the same basis as the audited consolidated financial statements and include all
adjustments, consisting of normal recurring adjustments, which we consider
necessary for a fair presentation of the financial position and results of
operations for those periods. Operating results for the nine months ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for any other nine-month period or for the year ending December 31,
1999.
<TABLE>
<CAPTION>
Period ended
Year Ended December 31,
December 31, -----------------------------------------------------
1995 1996 1997 1998
-------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Net revenues ............................... $ 43,365 $ 59,698 $ 348,709 $ 1,632,969
Cost of revenues ........................... -- (40,781) (216,586) (760,376)
---------- ----------- ------------- -------------
Gross profit ............................... 43,365 18,917 132,123 872,593
Operating expenses:
Sales and marketing ....................... -- 166,806 1,087,058 3,770,866
Product development ....................... 33,190 389,346 772,744 849,486
General and administrative ................ 70,182 187,362 2,092,394 2,337,023
Amortization of intangible assets ......... -- -- -- --
---------- ----------- ------------- -------------
Loss from operations ....................... (60,007) (724,597) (3,820,073) (6,084,782)
Foreign exchange gain (loss) ............... (2,233) 49,946 (85,439) 57,401
Interest income (expense), net ............. 4,326 (27,829) 82,349 205,751
Provision for income taxes . ............... -- (4,909) (5,582) (9,020)
---------- ----------- ------------- -------------
Net loss ................................... $ (57,914) $ (707,389) $ (3,828,745) $ (5,830,650)
========== =========== ============= =============
Basic and diluted net loss
per share ................................. $ (0.10) $ (0.33) $ (0.85) $ (0.79)
========== =========== ============= =============
Weighted average number of shares out-
standing .................................. 569,178 2,129,042 4,517,464 7,348,556
========== =========== ============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------------
1998 1999
----------------- ----------------
(unaudited)
<S> <C> <C>
Statement of Operations Data:
Net revenues ............................... $ 911,253 $ 5,274,896
Cost of revenues ........................... (525,230) (1,690,692)
------------- -------------
Gross profit ............................... 386,023 3,584,204
Operating expenses:
Sales and marketing ....................... 1,860,913 13,531,320
Product development ....................... 529,985 1,676,920
General and administrative ................ 1,195,503 5,105,128
Amortization of intangible assets ......... -- 4,,553,728
------------- -------------
Loss from operations ....................... (3,200,378) (21,282,892)
Foreign exchange gain (loss) ............... 36,400 (136,374)
Interest income (expense), net ............. 106,164 177,131
Provision for income taxes . ............... (4,000) (44,324)
------------- -------------
Net loss ................................... $ (3,061,814) $ (21,242,135)
============= =============
Basic and diluted net loss
per share ................................. $ (0.45) $ (2.00)
============= =============
Weighted average number of shares out-
standing .................................. 6,781,044 10,649,857
============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------- September 30,
1995 1996 1997 1998 1999
------ -------- ---------- ---------- --------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents ................................ $ 48 $ 268 $ 2,342 $ 7,036 $22,554
Working capital .......................................... 82 (261) 2,405 6,444 32,315
Total assets ............................................. 122 422 3,071 9,111 55,849
Total indebtedness, including current maturities ......... -- 512 -- 41 174
Total stockholders' equity ............................... 95 (163) 2,782 7,727 52,061
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our
consolidated financial statements and the notes to those statements and other
financial information appearing elsewhere in this prospectus.
Overview
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our business was originally
formed in February 1995 as E-Pub Services Limited, a corporation organized
under the laws of Ireland. From February 1995 through July 1997, we focused on
developing our technology, raising capital and recruiting personnel and did not
generate significant revenues. In July 1997, we formed Uproar Ltd., a
corporation organized under the laws of Bermuda, which became the parent of
E-Pub Services Limited. In September 1997, we launched our Web sites uproar.com
and uproar.co.uk. On December 16, 1999, we reincorporated in Delaware as Uproar
Inc.
We have only a limited operating history for you to use as a basis for
evaluating our business. You must consider the risks and difficulties
frequently encountered by early stage companies like ours in new and rapidly
evolving markets, including the Internet advertising market.
We are subject to industry trends that affect Internet providers
generally, including seasonality and user inactivity. User traffic on Web sites
has typically declined during the summer and year-end vacation and holiday
periods. We believe that advertising sales in traditional media, such as
television and radio, generally are lower in the first and third quarters of
each year.
We have incurred net losses and negative cash flows from operations since
our inception. At September 30, 1999, we had an accumulated deficit of $31.7
million. These losses have been funded primarily through the issuance of shares
of our equity securities. On July 8, 1999, we raised approximately $30.7
million through the issuance of 1,416,000 shares of our stock which presently
trade on EASDAQ. In January 1999, we raised an aggregate of approximately $9.6
million through two private issuances of 521,680 shares of our common stock.
We intend to continue to invest heavily in marketing and brand
development, content enhancement and technology and infrastructure development.
As a result, we believe that we will continue to incur net losses and negative
cash flows from operations for the foreseeable future. Moreover, the rate at
which these losses will be incurred may increase from current levels.
Advertising Revenues
Since July 1997, substantially all of our revenues have been derived from
the sale of online advertising. In December 1999, we also began to derive
revenues from our online affinity merchandising program.
Our advertising revenues are predominantly derived from:
o advertising arrangements under which we receive revenues based on the
number of times an advertisement is displayed on our services, commonly
referred to as cost per thousand impressions, or CPMs.
We also derive revenues from:
o sponsorship arrangements under which advertisers sponsor a game show,
game or portion of one of our Web sites in exchange for which we
receive a fixed payment;
o third-party distribution arrangements under which third parties
distribute our games on their Web sites and sell advertising in
connection with the use of our games in return for which we generally
receive 50.0% of the revenue generated in connection with the game; and
o advertising arrangements under which we receive revenues based on the
number of times users click on an advertisement displayed on our
services, commonly referred to as cost per click, or CPCs.
26
<PAGE>
Our revenues from advertising are therefore affected by:
o the number of unique users visiting our Web sites during a given
period;
o the amount of time that users actually spend on our Web sites, commonly
referred to as the "stickiness" of our sites;
o the number of advertisements delivered to a user while on our Web
sites; and
o our ability to target user audiences for our advertisers.
We intermittently rotate advertisements on the pages of our Web sites where our
users tend to spend long amounts of time. As a result, we believe a more
accurate measurement of our potential to generate advertising revenue is the
number of unique users that visit our sites and the amount of time they spend
on our sites, rather than the number of registered users or page views.
We price our advertisements based on a variety of factors, including:
o whether payment is dependent upon guaranteed minimum impression or
click levels;
o whether the advertising is targeted to specific audiences; and
o the available inventory of impressions or clicks associated with a
specific game or game show that will display the specific
advertisement.
Since we are able to vary the size of advertising banners we display on a
single page, we are able to charge more for "super-sized" banners than for more
traditional banners.
We recognize CPM advertising revenues ratably in the period in which the
advertisement is displayed, provided that no significant obligations remain and
collection of the resulting receivable is probable. To the extent minimum
guaranteed impression levels are not met, we defer recognition of the
corresponding revenues until guaranteed levels are achieved. We recognize CPC
advertising revenues as users click or otherwise respond to the advertisements.
To the extent minimum guaranteed click levels are not met, we defer recognition
of the corresponding revenues until guaranteed levels are achieved. In the case
of contracts requiring actual sales of advertised items, we may experience
delays in recognizing revenues pending receipt of data from that advertiser. We
recognize sponsorship advertising revenue ratably in the period in which the
sponsor's advertisement is displayed. We recognize revenues from our affiliate
distribution arrangements ratably in the period in which our games are
displayed on a third party's Web site.
If a payment is received prior to the time that we recognize revenue, we
record that payment as deferred revenues.
Barter
We also engage in barter transactions in an effort to enhance our marketing
efforts and improve our reach to potential new users. Under these arrangements,
we deliver game content, including prizes, to a third party, or display on our
Web sites advertisements promoting the third party's goods and services in
exchange for its agreement to run advertisements promoting our Web sites.
Revenues and costs from barter arrangements are recorded at the estimated fair
value of the advertisements or services we provide, unless the fair value of the
goods or services we receive can be determined more objectively. We recognize
barter revenue at the time we deliver the third party's advertisement or product
to our users or at the time we deliver content to the third party for inclusion
in its service. We recognize barter costs when our advertisements are displayed
by the third-party to its users. Barter costs are recorded either as marketing
expenses or as costs of revenue. The breakdown of costs is dependent upon the
nature of the goods or services received by the third party. Although our
revenues and related costs will be equal at the conclusion of the barter
transaction, the amounts may not be equal in any particular quarter. Barter
revenues were approximately 22.4% of revenues for the year ended December 31,
1998 and approximately 17.8% of revenues for the nine months ended September 30,
1999. We anticipate that barter revenues will account for a decreasing
percentage of our revenues in the future.
27
<PAGE>
Online Affinity Merchandising Revenues
We expect to generate electronic commerce revenues from our recently
introduced online affinity merchandising program. These revenues are derived
from the sale of products directly by us to our users and, to a lesser extent,
from the associated shipping and handling fees. Revenues and cost of goods from
the sales of products are recognized at the time of shipment from our warehouse
or directly from the supplier. Although revenues from our online affiliate
merchandising program have been insignificant to date, we anticipate that these
revenues will contribute a greater percentage of our revenues in the future.
Acquisition of PrizePoint
In June 1999, we acquired PrizePoint Entertainment Corporation for a total
of 1,222,160 shares of common stock and the assumption of an additional 62,040
options exercisable into our common stock. The acquisition was accounted for as
a pooling-of-interests.
Pearson Agreement
In January 1999, we entered into an agreement with Pearson Television
under which Pearson acquired 1,000,000 shares of our common stock in exchange
for intangible assets and for advertising services to be provided over a
thirty-month period commencing April 1, 1999 and cash of $124,599. In
accounting for the transactions, we have recorded the intangible assets at
$16.7 million and the prepaid advertising services at $8.0 million, their
estimated fair values. During the nine-month period ended September 30, 1999,
amortization of intangible assets totaled $4.5 million and amortization of
prepaid advertising services amounting to $390,000 was recorded as advertising
expense.
Should Pearson meet discernible television distribution targets between
September 1999 and August 2000 for its game shows in the United States, we will
issue 200,000 additional shares of our common stock and, if Pearson meets
further targets between September 2000 and August 2001, we will issue an
additional 200,000 shares of our common stock. We have not included the
financial impact of the issuance of any of the additional shares in our
statement of operations for the nine-month period ended September 30, 1999
because we do not, at this time, believe that the achievement of these targets
by Pearson is probable since the relevant game shows are not being syndicated
by Pearson.
Results of Operations
Nine Months Ended September 30, 1999 and 1998
Revenues
Revenues for the nine months ended September 30, 1999 increased to $5.3
million from $911,000 for the nine months ended September 30, 1998. The
increase in revenues was primarily due to our ability to generate significantly
higher advertising and sponsorship revenues, primarily as a result of:
o expanding our sales department;
o increasing the number of impressions available on our sites by adding
game shows;
o increasing our number of unique users, which has enabled us to deliver
an increased level of advertising impressions; and
o increasing our branding and marketing efforts.
During the nine months ended September 30, 1999, we derived revenues of
approximately $940,000, or 17.8% of revenues, from barter transactions. During
the nine months ended September 30, 1998, we derived $365,000, or 22.0% of
revenues, from barter transactions.
In the nine months ended September 30, 1999, only one advertiser,
About.com, which accounted for 11.7%, accounted for more than 10.0% of our
revenues.
28
<PAGE>
Cost of Revenues. Cost of revenues include:
o Internet connection costs;
o prizes;
o depreciation of equipment and software used to host our sites;
o revenue sharing arrangements relating to our co-branded properties with
our strategic alliances; and
o costs of goods sold in our affinity merchandising program.
Cost of revenues for the nine months ended September 30, 1999 increased to
$1.7 million from $525,000 for the nine months ended September 30, 1998. The
increase in cost of revenues was primarily attributable to $574,000 related to
expenses associated with prizes, $455,000 related to Internet connection costs
and $340,000 related to revenue sharing arrangements, which included a minimum
guaranteed payment of $200,000 to Pearson Television. Our gross profit
increased to $3.6 million for the nine months ended September 30, 1999 from
$386,000 for the nine months ended September 30, 1998.
Operating Expenses
Sales and Marketing. Sales and marketing expenses consist primarily of:
o advertising costs, including the costs of online and print
advertisements;
o salaries and commissions for sales and marketing personnel;
o public relations costs;
o referral fees in connection with acquisition of new users through our
affiliate program; and
o other marketing-related expenses.
Sales and marketing expenses for the nine months ended September 30, 1999
increased to $13.5 million from $1.9 million for the nine months ended
September 30, 1998. The increases in sales and marketing expenses were
primarily attributable to $8.9 million in advertising, public relations and
other promotional expenditures, and $4.0 million in salaries and commissions
for sales and marketing personnel. We believe that sales and marketing expenses
will continue to increase in absolute dollars for the foreseeable future as we:
o continue our branding strategy;
o continue to expand our direct sales force;
o hire additional marketing personnel; and
o increase expenditures for marketing and promotion.
Product Development. Product development expenses include:
o personnel costs for computer software and Web site programmers,
designers, editors and project managers;
o fees paid to writers and graphic artists; and
o the administrative costs relating to our product development
facilities.
Product development expenses for the nine months ended September 30, 1999
increased to $1.7 million from $530,000 for the nine months ended September 30,
1998. The increase in product development expenses was primarily attributable
to increased staffing levels required to develop proprietary software
components used to create our service. We have, to date, expensed all product
development costs as incurred. We believe that increased investments in new and
enhanced features and technology are critical to attaining our strategic
objectives and remaining competitive. Accordingly, we intend to continue
recruiting and hiring experienced product development personnel and to make
additional investments in product development. We anticipate that product
expenditures will continue to increase in absolute dollars in future periods.
29
<PAGE>
General and Administrative. General and administrative expenses consist
primarily of:
o salaries and benefits;
o insurance and recruiting fees;
o costs for general corporate functions, including finance, accounting
and facilities; and
o fees for professional services.
General and administration expenses for the nine months ended September
30, 1999 increased to $5.1 million from $1.2 million for the for the nine
months ended September 30, 1998. The increase was primarily attributable to
$1.6 million in professional fees, $970,000 in salaries and benefits associated
with hiring of additional personnel and $543,000 in travel related costs.
Twelve Months Ended December 31, 1998, 1997 and 1996
Revenues
Revenues increased to $1.6 million for the year ended December 31, 1998
from $349,000 for the year ended December 31, 1997 and from $60,000 for the
year ended December 31, 1996. The increase for each period was due primarily to
our ability to generate higher advertising and sponsorship revenues. In the
year ended December 31, 1998, two of our customers, Yahoo! and Microsoft, each
accounted for greater than 10.0% of our revenues. Yahoo! and Microsoft
accounted for 20.7% and 11.8% of our revenues, respectively, for the year ended
December 31, 1998.
Cost of Revenues
Cost of revenues increased to $760,000 for the year ended December 31,
1998 from $217,000 for the year ended December 31, 1997 and from $41,000 for
the year ended December 31, 1996. The increase in our cost of revenues in each
period was primarily due to higher costs associated with prizes.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased to $3.8
million for the year ended December 31, 1998 from $1.1 million for the year
ended December 31, 1997 and from $167,000 for the year ended December 31, 1996.
The increase for each period was primarily due to an increase in advertising,
public relations and other promotional expenditures, and salaries for sales and
marketing personnel, and to a lesser extent, barter expenses in the year ended
December 31, 1998.
Product Development. Product development expenses increased to $849,000
for the year ended December 31, 1998 from $773,000 for the year ended December
31, 1997 and from $389,000 for the year ended December 31, 1996. The increase
for each period was primarily attributable to increased staffing levels
required to develop proprietary software components used to create our service
and the higher salaries paid to these employees resulting from our relocation
of the employees from Budapest to New York.
General and Administrative. General and administrative expenses increased
to $2.3 million for the year ended December 31, 1998 from $2.1 million for the
year ended December 31, 1997 and from $187,000 for the year ended December 31,
1996. The increase for the year ended December 31, 1997 was due primarily to
salaries and benefits associated with hiring additional personnel and for the
year ended December 31, 1998 primarily due to higher facilities costs and fees
for professional services.
Liquidity and Capital Resources
To date, we have primarily financed our operations through the sale of our
equity securities. As of September 30, 1999, we had approximately $22.6 million
in cash and cash equivalents, an increase of $15.5
30
<PAGE>
from December 31, 1998. Net cash used in operating activities was $631,000,
$2.7 million, $5.1 million and $22.2 million for the years ended December 31,
1996, 1997 and 1998 and the nine months ended September 30, 1999, respectively.
Net cash used in operating activities resulted primarily from our net operating
losses, offset by:
o depreciation and amortization;
o increases in accounts payable and accrued expenses; and
o deferred revenues.
Net cash used in investing activities was $109,000, $274,000 and $973,000
for the years ended December 31, 1996, 1997 and 1998, respectively, as we
enhanced and developed our technical infrastructure. During the nine months
ended September 30, 1999, net cash used in investing activities increased to
$2.8 million.
Net cash provided by financing activities was $961,000, $5.1 million,
$10.8 million and $40.6 million for the years ended December 31, 1996, 1997 and
1998, and the nine months ended September 30, 1999, respectively. Net cash
provided by financing consisted primarily of proceeds from the sale of shares
of our common stock. On July 8, 1999, we raised approximately $30.7 million
through the issuance of 1,416,000 shares or our common stock which presently
trade on EASDAQ. In January 1999, we raised an aggregate of approximately $9.6
million through two private issuances of 521,680 shares of our common stock.
Our principal commitments consist of obligations under capital and
operating leases. We expect our capital expenditures will increase
significantly in the future as we make technological improvements to our system
and technical infrastructure.
We have experienced a substantial increase in our capital expenditures and
operating lease arrangements since our inception consistent with the growth in
our operations and staffing. We anticipate that this will continue for the
foreseeable future. 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 aggressive brand promotions.
We believe that the net proceeds from this offering, together with our
current cash and cash equivalents, will be sufficient to meet our anticipated
cash needs for working capital and capital expenditures for at least the next
twelve months. If cash generated from operations is insufficient to satisfy our
liquidity requirements, we may seek to sell additional equity or debt
securities or to obtain a credit facility. The sale of additional equity or
convertible debt securities could result in additional dilution to our
stockholders. If we issue debt securities, our fixed obligations will increase
and we may become subject to covenants that would restrict our operations. We
cannot assure you that financing will be available in amounts or on terms
acceptable to us, if at all.
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<PAGE>
BUSINESS
Overview
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. Our registered users have
grown from 96,000 in January 1998 to 4.7 million in November 1999. Our unique
user audience has similarly grown from 1.3 million in November 1998 to 3.5
million in October 1999. Our sites are very sticky, which means that our users
consistently spend significantly more time per visit on our sites than the
industry average. According to Media Metrix, a leading Internet audience
measurement service, in October 1999, our users in the United States spent an
average of 15.6 minutes per usage day on our sites, and we were ranked as the
fifth stickiest network of Web sites on the Internet. In addition, we were
ranked by Media Metrix among the five stickiest networks in each month during
1999.
We derive substantially all of our revenues from the sale of
advertisements on our network of Web sites. Online advertisers typically pay on
the basis of the number of advertising impressions shown. The number of
impressions is a function of the number of users on our Web sites, the amount
of time that they stay on our Web sites, the frequency with which we change our
advertising displays and the number of Web sites on our network. We believe
that our large user base and the stickiness of our sites provide advertisers
with a highly attractive platform to reach their target audience. As a result,
the number of advertisers and sponsors on our network has grown from 99 as of
December 1998 to 176 as of September 30, 1999. Similarly, the number of
advertising impressions served over our Web sites increased from 70.7 million
in December 1998 to 261 million in October 1999. Because we attract a large,
diversified user base and can segment it based upon information we collect,
such as geography, age and gender, we believe we will be able to target
advertisements to particular demographic profiles specified by our advertisers.
We believe that our technology platform is integral to maintaining the
entertaining and engaging nature of our content. We have made significant
investments in developing and implementing a technology platform to support our
interactive multi-user game shows and games. We believe that our Web sites are
among a few in the world that enable large numbers of users to simultaneously
play interactive multi-player game shows and games. Moreover, we have designed
our technology platform to easily accommodate our growing user base and to take
advantage of emerging technology trends such as alternative access devices,
interactive television platforms and broadband distribution services.
Industry Background
The Internet
The Internet has emerged as a mass communications and commerce medium that
millions of people worldwide use to share information, communicate and conduct
business electronically. International Data Corporation, or IDC, a market
research firm, estimates that the number of Internet users worldwide will grow
from 142 million in 1998 to 502 million by the end of 2003. The relatively
lower costs of publishing content on the Internet and the availability of
powerful new tools for the development and distribution of content have led to
its rapid growth.
Internet Advertising
The Internet has also become an attractive medium for advertisers.
According to Forrester Research, a market research firm, Internet advertising
spending worldwide will increase from $1.5 billion in 1998 to $15.3 billion by
2003.
The unique interactive nature of the Internet allows advertisers to:
o reach broad global audiences from anywhere in the world;
o gather demographic information and target their messages to specific
groups of consumers;
o change their advertisements frequently in response to market factors,
current events and consumer feedback; and
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o more accurately track the effectiveness of their advertising messages.
Electronic Commerce
The growing adoption of the Internet also represents a significant
opportunity to sell goods and services over the Internet. This is commonly
referred to as electronic commerce. According to IDC, worldwide consumer
electronic commerce revenues are expected to increase from $12.4 billion in
1998 to approximately $75.0 billion in 2003. As electronic commerce grows,
companies are expected to increasingly use the Internet to reach their
customers.
The Uproar Opportunity
As a result of the growing popularity of the Internet, an increasing
number of users are looking beyond traditional media, such as radio and
television, to the Internet as a source of entertainment.
Game shows are among the most popular and long-lived programs on
television in both the United States and worldwide. They were among the first
entertainment formats to be successfully adapted to television from radio.
Moreover, new game shows are frequently developed and introduced in order to
capitalize on the popularity of the format and to draw larger audiences to
television. According to Nielsen Media Research, television game shows
consistently are among the most popular syndicated television programs. Nielsen
estimates that the top five game shows drew an average audience of
approximately 6.5 million people per show in the United States during the
1998/1999 television season.
Games and game shows are particularly well suited for online entertainment
content, especially with the development of higher bandwidth distribution
channels, and can be easily adapted to the Internet. We believe that online
games and game shows are a compelling entertainment medium for a mass user
audience because they:
o provide users with an opportunity to win prizes;
o allow users to access entertaining content according to their own
schedule from any location; and
o enable users to participate interactively in the games and game shows
and to compete against other users.
Despite the opportunity presented by the widespread adoption of the
Internet as a medium for delivering entertainment content to a growing user
base, only a limited number of Web sites are currently dedicated to providing a
broad array of fun and challenging interactive entertainment. We believe that
we can grow our revenues by leveraging our large audience and our engaging
content through targeting our advertising placement to specific demographics
within our audience in order to attract more advertisers to our network and
derive higher CPMs.
The Uproar Network
We are a leading online entertainment destination. Through our network of
Web sites, we provide online game shows and interactive single- and
multi-player games that appeal to a broad audience. As a result, our registered
users have grown to 4.7 million in November 1999. Our unique user audience has
similarly grown to 3.5 million in November 1999. Due to the engaging nature of
our game shows and interactive games, our sites are very sticky, which means
that our users consistently spend significantly more time per visit on our
sites than the industry average. According to Media Metrix, in November 1999 we
were ranked third among networks in stickiness, as measured by average minutes
per user per usage day spent on our network. We have been ranked among the five
stickiest sites by Media Metrix in each month in 1999. Our network consists of
the following Web sites:
o uproar.com o uproar.co.uk o gamescene.com
o prizepoint.com o uproar.de o amused.com
o shopping.uproar.com o euro.uproar.com o mentalstate.com
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We believe that our success in attracting users and advertisers to date
has been due to a number of factors, including:
Our Engaging Online Game Shows and Interactive Games
We are committed to providing our user audience with a variety of engaging
game shows and interactive games. We are focused on creating formats that we
believe will have lasting appeal to a broad-based audience and on adapting to
the Internet formats which have proven appeal in other media. We currently
provide our audience with eight multi-user games, 36 single-user arcade games
and two daily puzzles. We recently launched our online version of the game
shows Family Feud and 100%. Pursuant to our agreement with Pearson Television,
a leading provider of syndicated television game shows, we have exclusive
rights to create online versions of leading Pearson properties, including
Family Feud, Match Game, Password and 100%. These game shows have proven to be
extremely popular and appeal to a broad audience on television. Our users
frequently spend more time on our sites than on a typical Web site. We believe
the length of time spent by users on our site, or our site's stickiness, is a
validation of the engaging nature of our game and game show formats and is
highly appealing to our advertising customers.
Our Large Audience of Registered Users with Targetable Demographics
As a result of the mass appeal of our games and game shows, our database
of registered users has grown to approximately 4.7 million people as of November
30, 1999. We believe that our broad user base is comprised of a cross section
of the general population visiting the Web. We design our games and game shows
to attract specific demographic profiles desired by online advertisers. For
example, our CNN/SI Trivia Blitz game attracts an audience that is more than
90% male, whereas Picture This attracts a predominately female audience. We
expend a substantial amount of time and resources to better understand the
demographics of our audience. For example, to receive prizes, contestants must
register and provide us with detailed demographic information. We are able to
use this registration information to select which advertising will be shown to
each individual player during a game. We believe these are important factors in
attracting advertisers to our Web sites and improving our CPMs.
Our Cost-Effective Customer Acquisition Strategy and Broad Distribution Channel
We have developed a cost-effective channel for the distribution of our
game shows and games. Our distribution channel consists of:
o promotional agreements with prominent, high-traffic Web sites;
o affiliate arrangements with other Web sites; and
o our relationships with Pearson and Cable & Wireless.
We have entered into promotional agreements with several high-traffic Web
sites in order to expand and diversify our user base. Currently, we have
alliances with CNN, Internet Movie Database and Lycos. These parties promote
our games and game shows on their respective Web sites under revenue sharing
arrangements. In these alliances we have created unique, Uproar-branded or
co-branded games to appear on the third party's Web site.
We also distribute our single player game content to a variety of Web
sites through our affiliate program in order to reach as wide an audience as
possible. Under this program, Uproar-branded games are delivered to third-party
affiliates and made available on their Web sites free of charge. We typically
pay a small referral fee to affiliate sites for each registered user we obtain
through their sites. This arrangement provides us with a cost-efficient means
of increasing our registered user base by expanding our reach across the
Internet. Our affiliate network has grown from 3,200 members as of September
30, 1998 to approximately 31,800 members as of September 30, 1999.
As part of our strategic relationship with Pearson, our site uproar.com is
actively promoted to Pearson's television audience through promotional spots
and in-show exposure. We have also entered into a relationship with Cable &
Wireless under which we will provide content for its developing digital
television cable network in the United Kingdom.
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In addition to promotional and affiliate relationships, we use extensive
television, radio, print and outdoor advertising to reach new users. In October
1999, we began a branding campaign which consisted of television advertising.
We incurred significant expenses in connection with our branding campaign and
intend to incur significant costs in the future to maintain and expand our user
base and brand recognition. However, we believe that our affiliate distribution
network will continue to serve as a cost-efficient method of acquiring new
users, contributing to lower overall new user acquisition costs.
Our Technology Platform
We believe that our technology platform is integral in providing our
audience with a rich and engaging entertainment experience. As a result, we
have made and expect to continue to make significant investments in developing
and implementing a technology platform to support our interactive multi-user
game shows and games. We believe that our Web sites are among the few in the
world that enable very large numbers of users to simultaneously play
interactive multi-player games and game shows. We believe that our technology
platform is critical to maintaining the entertaining and engaging nature of our
content. Moreover, we have designed our technology platform to accommodate our
growing base of users and to take advantage of emerging technology trends such
as alternative access devices, interactive television platforms and broadband
distribution services.
Our Strategy
Our objective is to be the leading online entertainment destination. We
believe we can achieve this objective through the following strategies:
Enhancing Our Content
We will seek to enhance our network by adding other entertainment formats
in addition to games and game shows that have proven their appeal to a broad
audience in traditional media. We believe that providing our users with a
richer and more compelling entertainment experience is critical to our future
success as more people turn to the Internet as a medium for entertainment. In
addition, we intend to continue to enhance our content by improving our
existing, and creating new, games and game shows. For example, in 1999 we
introduced online versions of two popular television game shows, Family Feud
and 100%. We intend to launch online versions of two other popular game shows,
Match Game and Password, in 2000. We believe that by enhancing our game and
game show content, we will:
o further differentiate our brand from competing sites;
o provide users with a more comprehensive and satisfying entertainment
experience; and
o attract a broader audience to our Web sites; and
o compel our users to visit our sites more often and remain there longer.
In the first quarter of 2000, we intend to launch Uproar 2000. This
enhanced version of our current site uproar.com, has a new interface that we
believe our users will find more attractive and easier to use. Uproar 2000
incorporates our reward currency, PrizePoints, into all games and game shows.
Aggressively Expanding Our User Audience
We intend to continue to aggressively expand our user base by promoting
our brand name. We believe that establishing a readily recognizable brand name
is critical to attracting a larger user base and deriving additional
advertising revenues. We intend to continue to build our brand through:
o extensive Internet, television, print and outdoor advertising;
o additional promotional and syndication opportunities;
o public relations programs; and
o new strategic alliances.
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We also intend to continue to pursue additional affiliate opportunities to
further expand our user base more cost-effectively. We have developed a number
of our games for distribution through our affiliate program. We intend to seek
similar opportunities continually in order to enlarge the community of Internet
users that visit our Web site for entertainment and to increase our revenue
opportunities.
Further Monetizing Our Audience and Building Additional Revenue Streams
Our large and growing user base provides us with a platform from which we
can derive additional revenues. We intend to capitalize on our ability to
target our advertising placement to specific demographics within our large
audience of users in order to attract more advertisers to our network and to
derive higher CPMs and, consequently, higher revenues. In addition, we intend
to significantly expand our sales and marketing efforts by hiring additional
sales and marketing personnel to reach a larger base of advertisers and
sponsors.
We also intend to expand our revenue base beyond advertising to include
affinity merchandising. We recently introduced an online store,
shopping.uproar.com, that is linked to our new site, Uproar 2000. We sell
products that are both appealing to our existing audience and that are
differentiated from items commonly found on other online stores. We currently
sell approximately 350 products. We believe our audience will be predisposed to
purchase products that complement the entertainment content that we publish.
For example, we sell a hand-held Tiger Electronics version of Family Feud, one
of our online game shows. We believe that differentiated products will tend to
have higher gross profit margins over more readily available products.
Therefore, we attempt to select those products that have the most attractive
combination of appeal to our audience and gross profit margin opportunities.
Capitalizing on the Popularity of Our PrizePoint Rewards Program
Our PrizePoint program rewards our users with points earned by playing
online games. Our users can enter their points into a drawing for prizes. The
more points a player enters into a drawing, the greater his or her chances to
win a prize. We believe that the PrizePoint program significantly enhances the
entertainment value of our games and game shows by enabling our users to
compete to win points. Moreover, in order to be eligible to receive prizes
awarded under the program, our users must complete an online registration form
that allows us to better measure the demographics of our user audience and to
provide our advertisers with targeted advertising opportunities. We intend to
capitalize on the popularity of our PrizePoint reward program by integrating
the products and services of our affiliate merchandising partners into our
PrizePoint reward system.
Continuing to Expand Internationally
We believe that our games and game shows will be popular in international
markets. In December 1998, we launched our local Web site in Germany in
cooperation with Bertelsmann, a leading German media company, which features
game shows and puzzles in German. We also own and operate a Web site designed
for the United Kingdom market. In February 1998, we launched our
euro.uproar.com, which provides game content in 14 languages. Combined, these
sites provide local language content in a number of European countries,
including Austria, Belgium, Denmark, Holland, Finland, France, Germany, Italy,
Luxembourg, Norway, Portugal, Spain, Switzerland and Sweden.
We recently entered into an exclusive distribution and co-branding
agreement with Telefonica Interactiva, a leading provider of Internet access
and local content and services in the Spanish- and Portuguese-speaking world.
Under the agreement, our co-branded site will be the exclusive game content
provider of the Telefonica site, including the Terra Network sites. The
agreement is for a period of three years and provides for the payment of
certain minimum fees to us. We believe that our relationship with Telefonica
provides us with a unique opportunity to expand into the Spanish- and
Portuguese-speaking markets, including Spain, Brazil, Mexico, Chile and Peru.
We believe that introducing localized versions of our games and game shows
will provide us with many of the same opportunities for revenue as those in the
United States. We intend to continue to create localized games and game shows
in international markets.
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Pursuing Strategic Acquisitions and Alliances
We plan to continue to expand our user base, revenues and competitive
position through strategic acquisitions and alliances. In 1999, we acquired
PrizePoint, which offers single-player games of skill and chance in which
players compete to win points that can be entered into drawings for prizes. In
1999, we also entered into a strategic alliance with Pearson Television to
enhance the breadth of our content, and a strategic alliance with Telefonica
Interactiva to expand our reach into the Spanish- and Portuguese-speaking
markets.
We believe that these acquisitions and alliances have significantly
enhanced our presence in our markets and have enabled us to reach a broader
base of users and advertisers. We intend to aggressively seek other
opportunities to acquire or form alliances with other companies that will
complement our network.
Alliances and Strategic Relationships
We have entered into a number of contracts that forge alliances and
strategic relationships designed to enhance and expand our brand name, promote
our Web sites, provide us with high quality, brand-identified new content and
create new revenue opportunities. These agreements are summarized below.
Pearson Television, Inc. We entered an agreement with Pearson Television
in January 1999 that provides us with exclusive rights to create and produce
English language online versions of Pearson's game shows Family Feud, Match
Game, Password and 100%. These rights expire in September 2001, at which time
Pearson has an option to renew the contract for an additional three years. In
addition, Pearson may terminate the agreement if Mr. Simon, our Chief Financial
Officer, is not employed by us in a senior management capacity. For the term of
the agreement, Pearson will provide advertising and promotion for uproar.com on
the United States syndicated versions of these games, consisting of:
o inclusion of a 10-second commercial at the end of each of the
television game shows;
o mention of uproar.com at the close of each television program;
o inclusion of uproar.com in the closing credits of each of the
television programs; and
o inclusion of uproar.com in all written sales materials, press
advertising, press kits and media guides.
In 1999, we introduced online versions of two of Pearson's popular
television game shows, Family Feud and 100%. We intend to launch online
versions of two other popular television game shows, Match Game and Password,
in 2000.
Telefonica Interactiva. In November 1999, we entered into an exclusive
distribution and co-branding agreement with Telefonica Interactiva, a leading
provider of Internet access and local-language content and services in the
Spanish- and Portuguese-speaking world. Under the agreement, a co-branded
Spanish and Portuguese site will become the exclusive game content provider on
the Telefonica Web site including the Terra Network sites. In addition,
Telefonica plans to incorporate our PrizePoint rewards program into our
co-branded site, as well as its offline activities. We believe that our
agreement with Telefonica will significantly enhance our international presence
by expanding our reach into the Spanish- and Portuguese-speaking markets served
by Telefonica, including Spain, Brazil, Mexico, Chile and Peru.
Cable and Wireless Communications. Pursuant to our agreement with Cable
and Wireless Communications, we developed custom multi-player games for the
Cable and Wireless interactive digital television network that was launched in
the United Kingdom in October 1999. The agreement was signed in December 1998
and is in effect for a period of three years. We expect to create a number of
new games during the term of this agreement. We share the net revenues
generated by the games with Cable and Wireless.
CNN. In September 1998, we entered an agreement with CNN to produce
co-branded trivia games that are distributed on cnn.com. We update the games
daily with questions based on current news and events. CNN promotes the games
with links from its home page, and receives a small referral fee from Uproar
for each new registered user the games generate. The agreement is currently on
a month-to-month basis.
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Game and Game Show Programming
We launched uproar.com, our flagship entertainment site for the United
States market in September 1997. Since then, we have been focused on expanding
the offerings available on our site with programming designed to appeal to
broad audiences and encourage them to remain on the site for longer periods of
time than users typically spend on other Internet sites. We believe that our
site provides an attractive platform for our advertisers to reach their desired
target demographics. In November 1999, Media Metrix reported that Uproar was the
fifth stickiest network, reaching over 3.5 million unique visitors in that
month. According to Media Metrix, in October 1999, the median age of these
visitors was 32, of whom 43% were male and 57% were female.
In December 1999, we began introducing a preview of our new version of
uproar.com, called Uproar 2000. By introducing our PrizePoint incentive
currency, we believe we will improve our ability to attract, retain and
monetize a growing Internet audience. We currently plan to direct all of our
traffic to our new site, Uproar 2000, during the first quarter of 2000. The
following is a description of some of the available programming on our network
of Web sites.
Multi Player Games
Family Feud is a game produced by us under license from Pearson Television
and is designed to replicate many of the elements of the popular television
game show bearing the same name. We launched Family Feud in December 1999. The
game integrates graphics and sounds that are reminiscent of the television
show. Players are given the opportunity to match their responses to questions
against those provided by survey respondents. Players compete to be listed on a
leader board and are ultimately rewarded for accurate responses with
PrizePoints.
Bingo Blitz is our version of the classic bingo game. Bingo Blitz allows
participants to compete against thousands of other players for prizes. Each
player is provided with three bingo cards to mark. The first player to submit a
card with the correct pattern covered wins a prize. Prizes range in value from
$2.00 to $25.00. We believe that the game's animated graphics and the user's
ability to earn prizes further enhance its entertainment value.
Blow Out Bingo is a variation of bingo in which the prize offered is
progressively increased after each game that does not have a winner. As the
prize grows, it tends to attract additional players. Once we award a winner,
the prize is returned to its starting amount and the process starts again.
Premier Bingo is another variation of bingo in which different prizes are
offered depending on the ball in the sequence in which a winner achieves bingo.
The earlier in the game a player achieves bingo, the more valuable the prize.
There are five variations of Premier Bingo with prizes falling in specific
categories: finance, home and family, computers, travel and consumer
electronics. We believe that each form of Premier Bingo attracts a different
user demographic. We therefore target advertising based on the type of Premier
Bingo a user is playing.
Puzzle A-Go-Go is a version of the popular game, "hangman," which has been
enhanced for multi-player competition. This game show format was launched in
December 1997. Players compete in groups of three in real time to guess letters
in a hidden phrase. The first player to identify the phrase wins the game.
Winners are eligible for prizes that are typically given away each hour.
Picture This is a game combining popular culture trivia and images of
celebrities. Participants compete against one another in groups of five within
a virtual living room. As players answer questions, portions of a celebrity's
image are gradually revealed. The first player to correctly identify the name
of the celebrity wins. Picture This was originally launched in December 1997 as
a co-branded and co-promoted product with People Magazine. Currently, we
exclusively own and operate the game show.
Single Player Games
We publish a wide selection of single-user games ranging from crossword
puzzles to arcade games. These games are designed to provide an alternative to
our multi-user games and enhance the overall scope of entertainment that we
provide to our users. As of November 30, 1999, there were 36 different
single-user and
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arcade games and two daily puzzles available on our Web sites. We create,
develop, and own most of these games, while we license others from third
parties. We created the arcade games such as Fill-It, Battle Rocks, and Laser
Wheel that are available on prizepoint.com. We license 12 games from the
Clevermedia Network that we publish on our site gamescene.com.
Humor
Amused.com is a site featuring humor, entertainment and links to
third-party Web sites. Subtitled the Center for the Easily Amused, CNN has
referred to it as the "ultimate guide to wasting time." Amused.com features
chat rooms, trivia, and online anecdotes, some of which are contributed by the
visitors to the site. This site is designed to attract a younger audience than
our other sites, and we believe it offers advertisers an opportunity to target
teens and college students.
Affiliate Programming
We launched Trivia Blitz in August 1997 as a game to be distributed by
third-party Web sites. Approximately 31,800 sites have joined our affiliate
network. Trivia Blitz promotes the Uproar brand and attracts new players to our
sites. We publish a variety of Trivia Blitz games with editorial content in
subjects including general trivia, sports, popular music, and current news and
events. We also publish Trivia Blitz games in Spanish, German, Danish, and
Italian to serve some of our international markets. Players that do well in the
Trivia Blitz games are encouraged to register with us in order to qualify for
prize drawings. If a player registers, we pay the affiliate partner a small
referral fee, which serves as a revenue source for the partner. We believe our
affiliate program offers third-party Web sites an attractive combination of
engaging content and a revenue opportunity, while providing us with registered
users at low cost.
PrizePoints
Players earn points called "PrizePoints" on our Uproar 2000 and
prizepoint.com sites. Players can accumulate PrizePoints over time and use them
to enter drawings to win prizes and cash. The larger the number of PrizePoints
that a player enters into a particular drawing, the greater the player's
chances of winning the drawing. We consider PrizePoints an incentive currency
in a manner that is similar to airline frequent flyer points. Uproar players
have an incentive to earn, collect and accumulate PrizePoints. We believe that
our users will consistently return to our sites to try to accumulate additional
PrizePoints. In addition, we can alter the rate at which PrizePoints are
awarded to encourage behavior on our sites that improves the commercial
performance of the site.
We initially awarded PrizePoints only on our site, prizepoint.com. In
December 1999, we expanded our PrizePoint program to include Uproar 2000. We
intend to further expand this program and award PrizePoints on all of our
properties, including our international Web sites. In addition, we intend to
award PrizePoints in our affiliate network games.
International Programming
Uproar.co.uk is our Web site for the United Kingdom market. Launched in
September 1997, the Web site offers sites that are essentially the same as our
United States site, but the content is selected with consideration for United
Kingdom cultural and language differences. As in the United States, players
compete in a variety of game shows for fun and cash prizes.
Uproar.de, our German language site, was launched in December 1998 in
cooperation with Bertelsmann. This relationship allowed us to expand rapidly
into the German market. Today, we independently own and operate uproar.de.
Uproar.de features the multi-player game shows Mission Brain Attack and Berti's
Buro, plus three versions of the Trivia Blitz application. The games are
designed to match the cultural and language requirements of the German-language
audience.
Euro.uproar.com offers Bingo Blitz in 11 languages and offers our audience
the opportunity to play against a worldwide player base.
Affinity Merchandising and Electronic Commerce
We recently introduced an online store, shopping.uproar.com, that is
linked to our Uproar 2000 site. We strive to sell products that are both
appealing to our existing audience and are differentiated from items
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commonly found on other online stores. We currently sell approximately 350
products selected by our internal team of merchants. We believe our audience
will have a preference for products that complement our entertainment content.
For example, we sell a hand-held Tiger Electronics version of Family Feud, one
of our online game shows. We believe that differentiated products will tend to
have higher gross margins in the future over more readily available products.
Therefore, we attempt to select those products that have the most attractive
combination of appeal to our audience and higher gross margin opportunities.
We have a contract with Digital River to build and operate the online
store. We select the products sold on our store and have approval over the look
and feel of shopping.uproar.com. Digital River's systems, however, are used to
implement searching, shopping cart functions and customer electronic mail
notifications on the site. In addition, Digital River's systems are used to
communicate to a third-party credit card processing service and to our
warehousing facility. Digital River also runs a customer service center on our
behalf that operates 24 hours, seven days a week. The customer service center
is accessible via electronic mail and a toll-free telephone line. Under our
agreement, we pay Digital River a fee per transaction processed.
We take title and warehouse the majority of the items that we sell on
shopping.uproar.com. We have a contract with DSS to supply us with warehousing
facilities. DSS handles all aspects of operating the warehouse, including
accepting shipments from our suppliers, downloading orders electronically from
Digital River and packing products for shipment to our customers.
Advertising Sales
As of November 30, 1999, we had a sales organization of 32 professionals
in the United States and two professionals in the United Kingdom.
Sales Organization
Our sales organization is dedicated to maintaining close relationships
with top advertisers and leading advertising agencies. It is structured on a
regional basis and is focused solely on selling advertising on our Web sites.
Our sales organization consults regularly with advertisers and agencies on
design and placement of their Web-based advertising, provides customers with
advertising measurement analysis and focuses on providing a high level of
customer service satisfaction.
Advertising Programs and Products
Currently, we enter into agreements with our advertisers and advertising
agencies under which they pay for a guaranteed number of impressions for a
fixed fee. These agreements range from one month to one year. Advertising on
our Web sites currently consists primarily of banner-style advertisements,
buttons and sponsorships from which viewers can connect directly to the
advertiser's own Web site. Our standard CPMs for banner advertisements varies
depending on the location of the advertisements on the site and the extent to
which the advertisements are targeted to a particular audience.
We also offer our advertising customers other direct marketing and
advertising solutions in order to build brand awareness, generate leads and
drive traffic to an advertiser's site. These include newsletter sponsorships,
opt-in electronic mail programs under which users must affirmatively check a
box to indicate interest, and fixed-fee game sponsorships,
Advertisers
We had 176 advertisers and sponsors on our Web sites during the nine
months ended September 30, 1999. The following is a selected list of our
current advertising customers, which are representative of our customer base:
About.com Disney Gillette MSN
Ask Jeeves eHow Golden Palace MyPoints
CoolSavings.com FreeShop.com Mail.com
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These advertisers, in the aggregate, accounted for approximately 39.0% of
total revenues in the nine months ended September 30, 1999 and 8.0% of total
revenues for the year ended December 31, 1998.
Marketing and Brand Awareness
We use multiple advertising media like television, print and Web-based
advertising in order to:
o build our brand;
o increase traffic; and
o raise our profile among potential advertisers.
Our television advertisements have appeared on broadcast television in
several large markets in the United States, including New York, San Francisco,
Chicago and Los Angeles. In addition to advertising on television, we advertise
in print, use outdoor advertising and have a significant presence in targeted
online media. We also have an extensive public relations campaign. Our
strategic and content partners also typically provide us with advertising
support.
Technology and Infrastructure
We maintain a 27-member technical staff in New York. This technical staff
is responsible for developing our Web sites and game programming and for
managing the distribution of our content through our domestic Web sites. We
also maintain a 24-member technical staff in Budapest, Hungary. The Budapest
technical team is responsible for providing international support for our
content, as well as developing country-specific content and managing the
technical infrastructure for our international Web sites.
Our technical staff strives to create a comfortable and compelling user
experience for as large an audience of visitors as possible. This involves
developing reliable, secure, and scalable Web sites using industry-standard
technologies. Our game content and certain elements of our server systems use
the Java programming language. We also make extensive use of Microsoft Web
server technology, as well as the Windows NT Server operating system.
Some of our most popular interactive games involve simultaneous,
multi-player activity. In order to create a seamless user experience in this
type of environment, we have developed a highly scalable, distributed server
system capable of delivering real time interactivity between a large number of
simultaneous users in a multi-player environment.
Our business is based on the delivery of banner advertising within pages
viewed by users of our Web sites and our advertising customers require timely
and accurate reporting of actual advertising delivered on our sites. We have
contracted with AdForce, Inc. to serve our advertising and provide the
corresponding reporting.
We distribute our programming from data centers in New York and London. We
are currently expanding our data center operations to include a facility in
California. Our domestic data centers are operated at facilities provided by
Level 3 Communications and Digital Telemedia. Our data center in London is
operated at facilities provided by PSI Net.
Competition
Many companies provide Web sites targeted to audiences seeking various
forms of entertainment content. We compete with all of these companies for
visitor traffic, advertising dollars and electronic commerce. This competition
is intense and is expected to increase significantly in the future as the
number of entertainment-orientated Web sites continues to grow. Our success
will be largely dependent upon the perceived value of our content relative to
other available entertainment alternatives, both online and elsewhere. The
online entertainment market does not have substantial barriers to entry.
Increased competition could result in:
o lower advertising rates;
o price reductions and lower profit margins;
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o loss of visitors;
o reduced ad impressions; and
o loss of market share.
Any one of these could materially adversely affect our business, results of
operations and financial condition.
Our ability to compete successfully depends on many factors. These factors
include:
o the quality of the content provided by us and our competitors;
o how easy our services are to use compared to those of our competitors;
o the success of our sales and marketing efforts; and
o the performance of our technology.
Our primary direct competitors for online game shows and similar
entertainment include Gamesville/Lycos, Mplayer.com, Sony Station, Pogo and
Zone.com. Some of our competitors maintain game show style formats similar to
those offered by us. Sony Station, for example, currently has the exclusive
right to the online versions of the television game shows Jeopardy and Wheel of
Fortune and the board game Trivial Pursuit. Other competitors primarily offer
"extreme" games similar to many arcade and video games. We do not actively
participate in that segment of the market. Many competitors offer a wide
variety of online single-player games.
We also compete indirectly with many providers of content and services
over the Internet, including search engines and entertainment content sites.
Some of our competitors and potential new competitors have:
o longer operating histories;
o greater name recognition in some markets; and
o significantly greater financial and marketing resources.
These competitors may also be able to undertake more extensive marketing
campaigns for their brands and services, adopt more aggressive advertising
pricing policies, use superior technology platforms to deliver their products
and services and make more attractive offers to potential employees,
distribution partners, product manufacturers, inventory suppliers, advertisers
and third-party content providers. Our competitors may develop content that is
better than ours or that achieves greater market acceptance. It is also
possible that new competitors may emerge and acquire significant market share.
This could also have a material adverse effect on our business, results of
operations and financial condition.
We also compete with traditional forms of media, like newspapers,
magazines, radio and television for advertisers and advertising revenue. If
advertisers perceive the Internet or our Web site to be a limited or an
ineffective advertising medium, they may be reluctant to devote a portion of
their advertising budget to our Web sites.
Government Regulation and Legal Environment
General. There are an increasing number of laws and regulations pertaining
to the Internet. In addition, a number of legislative and regulatory proposals
are under consideration by federal, state, local and foreign governments and
agencies. Laws or regulations may be adopted with respect to the Internet
relating to liability for information retrieved from or transmitted over the
Internet, online content regulation, user privacy, taxation and quality of
products and services. Moreover, the applicability to the Internet of existing
laws governing issues such as intellectual property ownership and infringement,
copyright, trademark, trade secret, obscenity, libel, employment and personal
privacy is uncertain and developing. Any new legislation or regulation, or the
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application or interpretation of existing laws, may decrease the growth in the
use of the Internet, which could in turn decrease the demand for our services,
increase our cost of doing business or otherwise have a material adverse effect
on our business, results of operations and financial condition.
Liability for Information Retrieved from Our Web sites and from the
Internet. Content may be accessed on any of our Web sites or on the Web sites
of our affiliates, and this content may be downloaded by users and subsequently
transmitted to others over the Internet. This could result in claims against us
based on a variety of theories, including defamation, obscenity, negligence,
copyright or trademark infringement or other theories based on the nature,
publication and distribution of this content. These types of claims have been
brought, sometimes successfully, against providers of Internet services in the
past. We could also be exposed to liability with respect to third-party content
that may be posted by users in chat rooms offered on our Web sites. It is also
possible that if any information provided on our Web sites contains errors or
false or misleading information, third parties could make claims against us for
losses incurred in reliance on such information. Our sites contain numerous
links to other Web sites. As a result, we may be subject to claims alleging
that, by directly or indirectly providing links to other Web sites, we are
liable for copyright or trademark infringement or the wrongful actions of third
parties through their respective Web sites.
The Communications Decency Act of 1996 (the "CDA") was enacted in the
United States to prohibit the transmission over the Internet of indecent,
obscene or offensive content. Although selected parts of the CDA have been
deemed unconstitutional, provisions protecting providers of Internet services
from claims related to third-party content remain effective. Under the CDA, a
provider of Internet services will generally not be treated as a publisher or
speaker of any information available on its service but provided by a
third-party content provider unless the provider of Internet services exerts
editorial control over the content or embraces the content as its own. Our
activities may not permit us, in every instance, to take advantage of this safe
harbor provision. Although we attempt to reduce our exposure to this potential
liability through, among other things, provisions in our affiliate agreements,
user policies and disclaimers, the enforceability and effectiveness of such
measures are uncertain.
Our general liability insurance may not cover all potential claims to
which we are exposed and may not be adequate to indemnify us for all liability
that may be imposed. Any imposition of liability that is not covered by
insurance or is in excess of insurance coverage could have a material adverse
effect on our business, results of operations and financial condition. Even to
the extent that these claims do not result in liability to Uproar, we could
incur significant costs in investigating and defending against these claims.
Potential liability for information disseminated through our Web sites could
lead us to implement measures to reduce its exposure to such liability, which
may require the expenditure of substantial resources and limit the
attractiveness of our service to users.
Online Content Regulations. Several United States federal and state
statutes prohibit the transmission of indecent, obscene or offensive content
over the Internet to particular groups of persons. The enforcement of these
statutes and initiatives, and any future enforcement activities, statutes and
initiatives, may result in limitations on the type of content and
advertisements available on our Web sites. Legislation regulating online
content could dampen the growth in use of the Internet generally and decrease
the acceptance of the Internet as an advertising and electronic commerce
medium.
Legislation Prohibiting Online Gambling. Congress is currently considering
legislation that seeks to ban Internet gambling activities. One pending bill
has already been approved by the Senate and would prohibit a gambling-related
business from using the Internet to facilitate wagering. If enacted into law in
its current form, the bill would likely subject those who display advertising
for unlawful Internet gambling sites to criminal penalties. We do not engage in
gambling activities ourselves but we do accept advertising from online gambling
sites. For the nine months ended September 30, 1999, 18.6% of our revenues were
derived from gambling sites. If these sites are outlawed or substantially
curtailed, our business could suffer. The pending legislation may impose
liability on United States companies that are deemed to assist in the operation
of offshore illegal gambling sites. Although we do not believe that such
legislation would apply to us, and that we would take all reasonable measures
to comply with such legislation, it is possible that we could be deemed liable
and would have to pay civil or criminal penalties.
Regulation of Sponsors of Contests and Sweepstakes. Contests and games of
chance are subject to the gambling, lottery and disclosure laws of various
jurisdictions in which we offer our contests and games.
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Although we have been advised by counsel that our contests and games are in
compliance with the laws of all jurisdictions in which we offer them, the laws
or the way they are interpreted and enforced may change from market to market.
A game sponsor, for example, cannot require the consumer to make a payment, buy
its product or provide a substantial benefit, collectively called
"consideration," as a condition of entering its game of chance, or in some
instances, its contest of skill. If consideration were interpreted differently
in a particular jurisdiction, we may find it necessary to eliminate, modify or
cancel certain components of our products that could result in additional
development costs and/or the possible loss of revenue.
Privacy Concerns. The United States Federal Trade Commission ("FTC") is
considering adopting regulations regarding the collection and use of personal
identifying information obtained from individuals when accessing Web sites,
with particular emphasis on access by minors. These regulations may include
requirements that companies establish procedures to, among other things:
o give adequate notice to consumers regarding information collection and
disclosure practices;
o provide consumers with the ability to have personal identifying
information deleted from a company's database;
o provide consumers with access to their personal information and with
the ability to rectify inaccurate information;
o clearly identify affiliations or a lack thereof with third parties that
may collect information or sponsor activities on a company's Web site;
and
o obtain express parental consent prior to collecting and using personal
identifying information obtained from children under 13 years of age.
These regulations may also include enforcement and redress provisions.
Moreover, our business model is in part based upon our ability to obtain
registration information about our users and to use this information for
targeted advertising. If new regulations are adopted that limit or eliminate
our ability to use this information, our business, results of operations and
financial condition could be materially adversely affected. Even in the absence
of these regulations, the FTC has begun investigations into the privacy
practices of companies that collect information on the Internet. The FTC's
regulatory and enforcement efforts alone may adversely affect the ability to
collect demographic and personal information from users, which similarly could
have an adverse effect on our ability to provide highly targeted opportunities
for advertisers.
It is also possible that "cookies," or information keyed to a specific
server, file pathway or directory location that is stored on a user's hard
drive, possibly without the user's knowledge, which are used to track
demographic information and to target advertising, may become subject to laws
limiting or prohibiting their use. A number of Internet commentators, advocates
and governmental bodies in the United States and other countries have urged the
passage of laws limiting or abolishing the use of cookies. Limitations on or
elimination of our use of cookies could limit the effectiveness of our
targeting of advertisements, which could have a material adverse effect on our
business, results of operations and financial condition.
The European Union has adopted a directive that imposes restrictions on
the collection and use of personal data. Under the directive, EU citizens are
guaranteed rights to access their data, rights to know where the data
originated, rights to have inaccurate data rectified, rights to recourse in the
event of unlawful processing and rights to withhold permission to use their
data for direct marketing. The directive could, among other things, affect
companies that collect information over the Internet from individuals in EU
member countries, and may impose restrictions that are more stringent than
current Internet privacy standard in the United States. In particular,
companies with offices located in EU countries will not be allowed to send
personal information to countries that do not maintain adequate standards of
privacy. The directive does not, however, define what standards of privacy are
adequate. As a result, the directive may adversely affect our activities
because we engage in data collection from users in EU member countries.
Data Protection. Legislative proposals have been made by the United States
government that would afford broader protection to owners of databases of
information such as stock quotes and sports scores. This
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protection already exists in the EU. If enacted, this legislation could result
in an increase in the price of services that provide data to Web sites and
could create potential liability for unauthorized use of this data. Either of
these possibilities could have a material adverse effect on our business,
results of operations and financial condition.
Internet Taxation. A number of legislative proposals have been made at the
United States federal, state and local level, and by certain European
governments, that would impose additional taxes on the sale of goods and
services over the Internet and certain states have taken measures to tax
Internet-related activities. Although the United States Congress recently
placed a three-year moratorium on state and local taxes on Internet access or
on discriminatory taxes on electronic commerce, existing state or local laws
were expressly excepted from this moratorium. Further, once this moratorium is
lifted, some type of federal and/or state taxes may be imposed upon Internet
commerce. This legislation, or other attempts at regulating commerce over the
Internet, may substantially impede the growth of commerce on the Internet and,
as a result, materially adversely affect our opportunity to derive financial
benefit from those activities.
Domain Names. Domain names are Internet "addresses." The current system
for registering, allocating and managing domain names has been the subject of
litigation, including trademark litigation, and of proposed regulatory reform.
We have registered several domain names. We may seek to register additional
domain names, although there is no assurance we will successfully obtain the
registrations and third parties may bring claims for infringement against us
for the use of any of our domain names or other trademarks. Our domain names
may lose their value, or we may not have to obtain entirely new domain names in
addition to or in lieu of its current domain names if reform efforts result in
a restructuring in the current system.
Jurisdictions. Due to the global nature of the Internet, it is possible
that, although our transmissions over the Internet originate primarily in the
United States and the United Kingdom, the governments of other states and
countries might attempt to regulate our transmissions or prosecute us for
violations of their laws. These laws may be modified, or new laws enacted, in
the future. Any of these developments could have a material adverse effect on
our business, results of operations and financial condition. In addition, as
our service is available over the Internet in multiple states and countries,
these jurisdictions may claim that we are required to qualify to do business as
a foreign corporation in each of these states or countries. We are qualified to
do business only in Delaware, New York, California, the United Kingdom and
Hungary, and our failure to qualify as a foreign corporation in a jurisdiction
where we are required to do so could subject us to taxes and penalties and
could result in our inability to enforce contracts in those jurisdictions. Any
new legislation or regulation, the application of laws and regulations from
jurisdictions whose laws do not currently apply to our business, or the
application of existing laws and regulations to the Internet and other online
services could have a material adverse effect on our business, results of
operations and financial condition.
Intellectual Property and Proprietary Rights
We do not currently maintain patents on our technology and others may be
able to develop similar technologies in the future. We regard our copyrights,
service marks, trademarks, trade secrets and other intellectual property as
critical to our success. We rely on trademark and copyright law, trade secret
protection and confidentiality and/or license agreements with our employees,
customers, partners and others to protect our intellectual property rights.
Despite our precautions, it may be possible for third parties to obtain and use
our intellectual property without authorization. Furthermore, the validity,
enforceability and scope of protection of intellectual property in
Internet-related industries is uncertain and still evolving.
We are pursuing the registration of our trademarks in the United States,
Germany, Italy, Norway, Sweden and the United Kingdom. We may not be able to
secure adequate protection for our trademarks in the United States and other
countries. To date, we do not believe that any oppositions have been filed.
We also currently hold trademark registrations in the United States,
United Kingdom, Germany, Sweden, Norway, Finland, Denmark and Iceland.
Effective trademark protection may not be available in all the countries in
which we conduct business. Policing unauthorized use of our marks is also
difficult and expensive. In addition, it is possible that our competitors will
adopt product or service names similar to ours, thereby impeding our ability to
build brand identity and possibly leading to customer confusion.
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We currently license an advertising serving system from AdForce. This
system delivers and tracks advertising impressions and click-throughs in all of
our Web sites. If the AdForce system is no longer available or our license is
terminated, we would be likely to suffer a disruption in our business, which
could materially adversely affect our results of operations. In addition, a
replacement system could be costly to license and install.
Our inability to effectively protect our trademarks and service marks
would have a material adverse effect on our business, results of operations and
financial conditions. We also intend to continue to license technology from
third parties. The market in which we operate is continually and rapidly
evolving, and we may need to license additional technologies to remain
competitive. In addition, we may fail to successfully integrate any licensed
technology into our services. Our inability to obtain any of these licenses
could delay product and service development until alternative technologies can
be identified, licensed and integrated.
Employees
As of September 30, 1999, we had 144 full-time employees, of whom 26
worked in sales, 20 in marketing, 75 in production and technology; 4 in
merchandising; and 19 in finance and administration. Of these employees, 100
are primarily resident in the United States and 44 in Europe. From time to
time, we employ independent contractors to support our research and
development, marketing, sales and editorial departments. None of our personnel
are represented under collective bargaining agreements. We consider our
relations with our employees to be good.
Facilities
Our executive offices are located in approximately 29,000 square feet of
office space in New York, under a lease that expires in August 2005. We also
lease approximately 8,900 square feet of office space in San Francisco under a
lease that expires in November 2004 and approximately 6,300 square feet of
office space in Budapest under a lease that expires in October 2001, unless we
choose to extend it to October 2003. In addition, we lease small sales offices
in London, Chicago and Los Angeles.
Legal Proceedings
Uproar Inc., a New York corporation and one of our wholly-owned
subsidiaries, was named in an action "Burgos v. Ellwell Associates, LLC and
E-Pub Inc." relating to an alleged personal injury. E-Pub Inc. is the former
name of Uproar Inc. This case is currently in the discovery stage and a trial
date has not yet been set. There is a motion pending with respect to our
potential liability to our co-defendant, Ellwell Associates.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth our directors, executive officers and other
key employees, their ages and the positions held by them:
<TABLE>
<CAPTION>
Name Age Position
- --------------------------------- ----- ---------------------------------------------------------------
<S> <C> <C>
Kenneth D. Cron ................. 43 Chairman of the Board of Directors and Chief Executive Officer
Christopher R. Hassett .......... 37 President, Chief Operating Officer and Director
Michael K. Simon ................ 34 Chief Financial Officer and Director
Francis G. Blot ................. 37 Executive Vice President, Product Marketing
Shannon King .................... 43 Executive Vice President, Merchandising
Robert D. Marafioti ............. 52 Executive Vice President, General Counsel and Secretary
Jeffrey L. Strief ............... 44 Executive Vice President, Marketing and Sales
Thompson B. Barnhardt ........... 35 Director
Esther Dyson .................... 48 Director
Catherine V. Mackay ............. 32 Director
</TABLE>
Kenneth D. Cron joined us as our Chief Executive Officer and as a director
in September 1999. In December 1999, Mr. Cron was appointed the Chairman of our
board of directors. From September 1978 to June 1999, Mr. Cron worked at CMP
Media where, as the President of Publishing, he had responsibility for the
company's United States businesses, including its print publications, trade show
conferences and online services. He was also a director of CMP Media. Mr. Cron
earned a B.A. from the University of Colorado.
Christopher R. Hassett joined us as our President, Chief Operating
Officer, and as a director in July 1999, subsequent to our acquisition of
PrizePoint Entertainment. Mr. Hassett was PrizePoint's co-founder and Chief
Executive Officer from March 1998 to June 1999. Prior to that, Mr. Hassett
founded Pointcast, serving as its Chairman and Chief Executive Officer from
November 1992 to October 1997. In 1996, Mr. Hassett was recognized as Business
Week's entrepreneur of the year and as C Net's person of the year. Mr. Hassett
earned a B.S. in electrical engineering from the University of Lowell.
Michael K. Simon is our founder. He was the Chairman of our board of
directors from July 1999 to December 1999 and served as our Chief Executive
Officer from February 1995 to September 1999. Since November 1999, Mr. Simon
has served as our Chief Financial Officer. Prior to founding Uproar, Mr. Simon
was the Managing Director of Ablaksoft Kft., a Hungarian software company, from
April 1993 to February 1995. He earned an M.B.A. from Washington University in
St. Louis and a B.S. in Electrical Engineering from the University of Notre
Dame.
Francis G. Blot joined us as our Executive Vice President, Product
Marketing, in July 1999, subsequent to our acquisition of PrizePoint
Entertainment. Mr. Blot co-founded PrizePoint in March 1998 and served as its
Vice President of Marketing from March 1998 to June 1999. From June 1994 to
March 1998, Mr. Blot was Vice President of Business Development at Pointcast,
where he was responsible for, among other things, its electronic commerce
business. Prior to that, Mr. Blot worked in business and product development
positions for Prodigy for nearly seven years. Mr. Blot earned a B.S. in
electrical engineering from SUNY Utica.
Shannon King joined us as our Executive Vice President of Merchandising in
August 1999. From April 1984 to August 1999, Ms. King served as Executive Vice
President of Merchandising for The Sharper Image, where she was responsible for
all merchandising for that company's 85-store retail chain, catalog and
wholesale business. Ms. King earned a Master's in international business from
the American Graduate School of International Management and a B.A. in
international business and politics from the University of Colorado.
Robert D. Marafioti joined us in October 1999 as Executive Vice President,
General Counsel and Secretary. From October 1988 through June 1999, he worked
for CMP Media, where he served as Executive Vice President, General Counsel and
Secretary. Mr. Marafioti received a B.A. from Yale University and a J.D. from
Columbia School of Law.
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Jeffrey L. Strief joined us as our Executive Vice President of Marketing
and Sales in October 1999. From May 1985 to June 1999, Mr. Strief worked for
CMP Media, where he served as Executive Vice President of the Business
Technology Group with responsibility for InformationWeek and other technology
publications and Internet services. Mr. Strief earned a B.A. in marketing from
California State University Fullerton.
Thompson B. Barnhardt joined our board of directors in February 1995.
Since November 1999, he has been President of BiznesPolska.pl, an Internet
publishing company. From June 1994 to October 1999, Mr. Barnhardt was President
of New World Publishing, Inc., a publisher of several English-language business
journals in Central Europe. Mr. Barnhardt earned an M.B.A. from the University
of Virginia Darden Graduate School of Business Administration and a B.A. in
economics from the University of Virginia.
Esther Dyson joined our board of directors in April 1997. Ms. Dyson has
been the Chairman of EDventure Holdings, publisher of the newsletter Release
1.0, since 1983. She is the author of Release 2.0, an acclaimed book about
cyberspace. Ms. Dyson is a director of four software companies: Graphisoft,
Languageware.net, Scala Business Solutions and Thinking Tools. She is also a
director of Medscape, a healthcare Web site, PRT Group, a systems integrator,
and WPP Group, a multimedia company. Ms. Dyson holds a B.A. from Harvard
College.
Catherine V. Mackay joined our board of directors in September 1999 as the
result of our agreement with Pearson Television. She has worked for Pearson
Television Enterprises since March 1995 in various capacities. Ms. Mackay is
currently President of Pearson Television Enterprises, the division of Pearson
Television that operates all of its Internet, interactive television,
merchandising and music publishing activities. Prior to joining Pearson
Television Enterprises, Ms. Mackay worked for Cie Generale des Eaux, from
January 1994 to August 1995. Ms. Mackay earned an M.B.A. from INSEAD and a B.A.
from Oxford University.
Composition of the Board of Directors
Our board of directors currently consists of six members, three of whom
are independent. We will appoint two independent directors to each of our audit
and compensation committees within 60 days after the completion of this
offering.
Board Committees
The audit committee of the board of directors reviews, acts on and reports
to the board of directors with respect to various auditing and accounting
matters, including the recommendation of our auditors, the scope of the annual
audits, fees to be paid to the auditors, the performance of our independent
auditors and our accounting practices.
The compensation committee of the board of directors recommends, reviews
and oversees the salaries, benefits, and stock option plans for our employees,
consultants, directors and other individuals compensated by us. The
compensation committee will also administer our compensation plans.
Director Compensation
In the past, we have compensated our directors with stock options from
time to time. As of September 30, 1999, options to purchase 58,000 of these
shares were outstanding.
Under the automatic option grant program of our Stock Incentive Plan, each
individual who first joins the board of directors after the closing of this
offering as a nonemployee member of the board will also receive an option grant
for 15,000 shares of our common stock at the time of his or her commencement of
service on the board. In addition, as of January 1, 2000, and at each
subsequent annual meeting of stockholders beginning with the 2001 annual
meeting, each individual who has served as a nonemployee board member for at
least 6 months and is to continue to serve as a nonemployee member of the board
of directors will be granted an option to purchase 2,500 shares of our common
stock.
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No executive officer of Uproar serves on the board of directors or
compensation committee of any entity which has one or more executive officers
serving as a member of Uproar's board of directors or compensation committee.
Executive Compensation
The following table sets forth all compensation awarded to, earned by or
paid to our Chief Executive Officer and our other highly-compensated executive
officers whose annual salary and bonus exceeded $100,000 in 1998 for services
rendered in all capacities during 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
Other Annual Securities
Name and Principal Position Salary Bonus Compensation Underlying Options
- ------------------------------------------------ ---------- -------- -------------- -------------------
<S> <C> <C> <C> <C>
Kenneth D. Cron(1)
Chairman and Chief Executive Officer .......... $ -- $ -- $-- --
Christopher R. Hassett(2)
President and Chief Operating Officer ......... -- -- -- --
Michael K. Simon(3)
Chief Financial Officer ....................... 122,495 -- -- 41,000
David A. Becker(4) ............................. 114,537 5,250 -- 200,000
</TABLE>
- ------------
(1) Kenneth D. Cron joined us as our Chief Executive Officer in September 1999
and became Chairman of our board of directors in December 1999. Mr. Cron
is not entitled to receive an annual salary or bonus from us.
(2) Christopher R. Hassett joined us as our Chief Operating Officer and as a
director in July 1999. He currently also serves as our President. Mr.
Hassett is not entitled to receive an annual salary or bonus from us.
(3) Mr. Simon served as our Chief Executive Officer until September 1999 and as
our Chairman until December 1999.
(4) Mr. Becker was our President and Chief Operating Officer until August 1999.
Option Grants in Last Year
We did not grant any stock options for the year ended December 31, 1998 to
our Chief Executive Officer and our other most highly-compensated officers
whose salary and bonus exceeded $100,000. We have never granted any stock
appreciation rights.
Aggregated Option Exercises in the Year Ended December 31, 1998 and Year-End
Option Values
The following table sets forth information concerning the value realized
upon exercise of stock options and the number and value of unexercised options
held as of December 31, 1998 by our Chief Executive Officer and our most highly
compensated executive officers whose salary and bonus exceeded $100,000. The
values set forth below were calculated based on the fair market value of the
shares underlying the options on the date of exercise, less the applicable
exercise price per share, multiplied by the number of shares underlying the
options.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options at In-the-Money Options
December 31, 1998 at December 31, 1998
Shares Acquired Value ------------------------------ -----------------------------
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- ----------------- ---------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth D. Cron ................ -- $ -- -- -- $ -- $ --
Christopher R. Hassett ......... -- -- -- -- -- --
Michael K. Simon ............... 342,000 465,250 -- 41,000 -- 480,506
David A. Becker ................ -- -- -- 200,000 -- 2,343,930
</TABLE>
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Employment Agreements
In the United States, we typically enter into employment agreements only
with senior executive officers. We have entered into employment agreements with
Mr. Cron, our Chief Executive Officer, and Mr. Simon, our Chief Financial
Officer.
We entered into an employment agreement with Mr. Cron in September 1999.
His employment agreement provides for compensation solely in the form of
options to acquire our common stock. Pursuant to this agreement, we have
granted Mr. Cron options to acquire 800,000 shares of our common stock, of
which options to acquire 400,000 shares have vested and are currently
exercisable, and options to acquire the remaining 400,000 shares will have
vested and become exercisable by September 6, 2001. In the event Mr. Cron is
terminated by us without cause, or he chooses to terminate his employment with
us, the stock options that have not been exercised will remain outstanding and
continue to vest pursuant to their terms. Mr. Cron is also entitled to
participate in our stock option plans as well as all health and other benefit
plans provided by us to our executive employees.
Mr. Cron's employment continues on an at-will basis. His employment
agreement prohibits him from competing with us for a period of one year from
the date of his termination of employment if he is terminated by us for cause
or if he chooses to terminate his employment with us without good reason. We
have agreed to indemnify Mr. Cron for all liabilities relating to his status as
officer or director to the extent permitted by the laws of the State of
Delaware.
We entered into an employment agreement with Mr. Simon in December 1999.
His employment agreement provides for compensation in the form of an annual
salary and bonus. In addition, beginning on March 31, 2000, at the end of each
calendar quarter during the term of the agreement, we will grant Mr. Simon
options to acquire 15,000 shares of our common stock, which will vest and be
exercisable upon termination of the agreement. Mr. Simon is also entitled to
participate in our stock option plans as well as all health and other benefit
plans provided by us to our executive employees.
Mr. Simon's employment under the agreement will end on the earliest of (1)
December 2001, (2) the date on which our agreement with Pearson is modified so
that the termination of Mr. Simon's employment with us no longer triggers
Pearson's right to terminate our agreement with Pearson, or (3) the termination
of the Pearson Agreement. In the event Mr. Simon is terminated by us without
cause, or he chooses to terminate his employment with us for good reason, all
stock options previously granted to him will accelerate and vest in full.
In Europe, consistent with standard market practices, we typically enter
into employment agreements with all of our employees.
Stock Option Plans
Stock Incentive Plan
The Stock Incentive Plan is intended to serve as the successor equity
incentive program to our 1999 Share Option/Share Issuance Plan. The Stock
Incentive Plan became effective upon its adoption by the board of directors. We
anticipate that it will be ratified by the stockholders within a reasonable
time after board approval.
To date, 2,700,000 shares of our common stock have been authorized for
issuance under our stock option plans. The stock option plan share reserve will
be automatically increased on the first trading day of July each calendar year,
beginning in July 2000, by a number of shares equal to 1% of the total number
of shares of common stock outstanding on the last trading day of the
immediately preceding June, but no annual increase will exceed 200,000 shares.
However, in no event may any one participant in the Stock Incentive Plan
receive option grants or direct stock issuances for more than 1,000,000 shares
in the aggregate per calendar year.
Outstanding options under the predecessor plan will be incorporated into
the Stock Incentive Plan and no further option grants will thereafter be made
under that predecessor plan. The incorporated options will continue to be
governed by their existing terms, unless our compensation committee extends one
or more
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features of the Stock Incentive Plan to those options. However, except as
otherwise noted below, the outstanding options under that predecessor plan
contain substantially the same terms and conditions summarized below for the
discretionary option grant program under the Stock Incentive Plan.
The Stock Incentive Plan has three separate programs: (1) the
discretionary option grant program under which eligible individuals in Uproar's
employ or service (including officers, non-employee board members and
consultants) may be granted options to purchase shares of Uproar's common
stock, (2) the stock issuance program under which such individuals may be
issued shares of common stock directly, through the purchase of such shares or
as a bonus tied to the performance of services and (3) the automatic option
grant program under which option grants will automatically be made at periodic
intervals to eligible non-employee board members.
The discretionary option grant and stock issuance programs will be
administered by our compensation committee. This committee will determine:
o which eligible individuals are to receive option grants or stock
issuances,
o the time or times when such option grants or stock issuances are to be
made,
o the number of shares subject to each such grant or issuance,
o the exercise or purchase price for each such grant or issuance,
o the status of any granted option as either an incentive stock option or
a non-statutory stock option under the federal tax laws,
o the vesting schedule to be in effect for the option grant or stock
issuance and
o the maximum term for which any granted option is to remain outstanding.
Neither the compensation committee nor the board will exercise any
administrative discretion with respect to the automatic option grant program
for the nonemployee board members.
The exercise price for the options may be paid in cash or in shares of our
common stock valued at fair market value on the exercise date. Options may also
be exercised through a same-day sale program without any cash outlay by the
optionee.
In the event that we are acquired, whether by merger or asset sale or
board-approved sale by the stockholders of more than 50% of our voting stock,
each outstanding option under the discretionary option grant program which is
not to be assumed by the successor corporation or otherwise continued will
automatically accelerate in full, and all unvested options under the
discretionary option grant and all unvested shares under the stock issuance
programs will immediately vest, except to the extent our repurchase rights with
respect to those shares are to be assigned to the successor corporation or
otherwise continued in effect. The compensation committee may grant options and
issue shares under those programs which will accelerate
o in an acquisition even if the options and repurchase rights are
assumed,
o in connection with a hostile change in control effected through a
successful tender offer for more than 50% of our outstanding voting
stock or by proxy contest for the election of board members, or
o upon a termination of the individual's service following an acquisition
or hostile change in control.
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<PAGE>
Stock appreciation rights may be issued under the discretionary option
grant program which will provide the holders with the election to surrender
their outstanding options for an appreciation distribution from Uproar equal to
the fair market value of the vested shares subject to the surrendered option
less the aggregate exercise price payable for such shares. Such appreciation
distribution may be made in cash or in shares of our common stock. Currently no
stock appreciation rights are outstanding under the predecessor plan.
The compensation committee has the authority to cancel outstanding options
under the discretionary option grant program, including options incorporated
from the predecessor plan, in return for the grant of new options for the same
or different number of option shares with an exercise price per share based
upon the fair market value of the common stock on the new grant date.
Under the automatic option grant program of the Stock Incentive Plan, each
individual who first joins the board of directors after the closing of this
offering as a nonemployee member of the board will receive an option grant for
15,000 shares of our common stock at the time of his or her commencement of
service on the board. In addition, as of January 1, 2000, and thereafter, at
each annual meeting of stockholders beginning with the 2001 annual meeting,
each individual who has served as a nonemployee board member for at least 6
months and is to continue to serve as such will be granted an option to
purchase 2,500 shares of our common stock. Each automatic grant will have an
exercise price equal to the fair market value per share of our common stock on
the grant date and will have a maximum term of 10 years, subject to earlier
termination following the optionee's cessation of board service. Each option
will vest in a series of 4 equal quarterly installments upon the optionee's
completion of each quarter of service over the 1-year period measured from the
grant date. However, each outstanding option will immediately vest upon an
acquisition or change in control or the death or disability of the optionee
while serving as a board member.
Limited stock appreciation rights will automatically be included as part
of each grant made under the automatic option grant program and may be granted
to one or more officers as part of their option grants under the discretionary
option grant program. Options with such a limited stock appreciation right may
be surrendered to us upon the successful completion of a hostile tender offer
for more than 50% of our outstanding voting stock. In return for the
surrendered option, the optionee will be entitled to a cash distribution from
us in an amount per surrendered option share equal to the highest price per
share of common stock paid in connection with the tender offer less the
exercise price payable for such share.
The board may amend or modify the Stock Incentive Plan at any time,
subject to required stockholder approval. The Stock Incentive Plan will
terminate no later than ten years from the effective date of the Plan.
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CERTAIN TRANSACTIONS
In January 1999, we entered into a strategic relationship with Pearson
Television that provides us with rights to create and produce English-language
versions of television game show formats owned by Pearson. In connection with
this arrangement, we issued 1,000,000 shares to Pearson. We also agreed to
issue to Pearson an additional 200,000 shares between September 1999 and August
2000 and 200,000 shares between September 2000 and August 2001 if Pearson meets
television distribution targets for its game shows in the United States as
stated in our January 1999 agreement with Pearson. In addition, we agreed to
appoint a Pearson representative, Ms. Mackay, to our board of directors. Ms.
Mackay's term will expire at the annual stockholders' meeting in 2001.
Under the merger agreement with PrizePoint, we issued approximately
1,220,000 shares of our common stock to PrizePoint stockholders, including Mr.
Hassett, our President and Chief Operating Officer, and his family members. In
addition, we appointed Mr. Hassett to our board of directors. Mr. Hassett's
term will expire at the annual stockholders' meeting in 2001.
In 1996, Michael Simon was granted an option to purchase 242,000 shares at
a price of $0.92 per share and an option to purchase 100,000 shares of our
common stock at $1.53 per share. The exercise price of these options was above
the fair market value of the shares at the time of grant, and the expiration
date of the options was December 31, 1997. In December 1997, our board of
directors extended the expiration date of these options to June 30, 1998, and
increased the exercise price to $1.05 per share and $1.75 per share,
respectively. In 1998, Mr. Simon exercised these options.
In 1997, we created an option program under which employees and directors
were granted options to purchase in the aggregate up to 500,000 shares at an
exercise price of $4.42 per share. That price was above the fair market value
of the shares at the time this program was created. We granted the following
directors and executive officers options under this program:
Name Options Purchase Price
- ------------------------- --------- ----------------
Michael K. Simon 41,000 $4.42 per share
Thompson B. Barnhardt 16,000 $4.42 per share
Esther Dyson 16,000 $4.42 per share
In 1999, we acquired PrizePoint Entertainment. The following table sets
out the number of PrizePoint shares that the following officers and directors
of PrizePoint purchased, the number of our shares into which they were
converted, and the equivalent per share price:
<TABLE>
<CAPTION>
Name PrizePoint Shares Uproar Shares Price Per Uproar Share
- ------------------------------- ------------------- --------------- -----------------------
<S> <C> <C> <C>
Kenneth D. Cron 41,254 21,660 $ 11.54
Christopher R. Hassett 716,667 376,529 $ 1.67
Francis G. Blot 218,500 114,780 $ 0.02
</TABLE>
The Uproar shares listed for Mr. Hassett include 65,560 shares owned by his
spouse; the Uproar shares listed for Mr. Blot include 38,340 shares owned by
his spouse.
In 1999, we established our 1999 Share Option/Share Issuance Plan. The
exercise price of all options granted under that Plan in 1999 was equal to the
fair market value of the shares on the date of grant. The following directors
and officers have been granted options under this program:
Name Options Purchase Price
- -------------------------- --------- -----------------
Kenneth D. Cron 800,000 $18.85 per share
Christopher R. Hassett 343,348 $18.85 per share
Michael K. Simon 50,000 $18.85 per share
Francis G. Blot 80,000 $18.85 per share
Shannon King 100,000 $18.85 per share
Robert D. Marafioti 250,000 $21.62 per share
Jeffrey L. Strief 350,000 $21.62 per share
The options listed for Mr. Blot include 35,000 options granted to his spouse.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of November 30, 1999 and as adjusted to
reflect the sale of the shares of common stock in this offering, for
o each person who we know to beneficially own 5% or more of our common
stock;
o each executive officer named in the Summary Compensation Table;
o each of our directors; and
o all of our directors and executive officers as a group.
Unless otherwise indicated, the address of each beneficial owner listed
below is c/o Uproar Inc., 240 West 35th Street, 9th Floor, New York, New York
10001.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power with
respect to the securities. Except as indicated by footnote, and subject to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of common stock shown as
beneficially owned by them. The number of shares of common stock outstanding
used in calculating the percentage for each listed person includes the shares
of common stock underlying options held by such person that are exercisable
within 60 days of November 30, 1999, but excludes shares of common stock
underlying options held by any other person. Percentage of beneficial ownership
is based on 11,835,920 shares of common stock outstanding as of November 30,
1999, and shares of common stock to be outstanding after the completion of
this offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
------------------------ --------------------
Name of Beneficial Owner Number Percent Number Percent
- ----------------------------------------------- ------------ --------- -------- --------
<S> <C> <C> <C> <C>
Kenneth D. Cron (1) ........................... 419,500 3.4% %
Christopher R. Hassett (2) .................... 548,273 4.6
Michael K. Simon (3) .......................... 693,310 5.8
David A. Becker (4) ........................... 200,000 1.7
Thompson B. Barnhardt (5) ..................... 12,000 *
Esther Dyson (6) .............................. 75,120 *
Catherine V. Mackay (7) ....................... 1,000,000 8.4
Pearson Television, Inc. (8) .................. 1,000,000 8.4
All directors and executive officers as a group
(10 persons) ................................. 3,215,151 25.1
</TABLE>
- ------------
* Indicates less than one percent of the common stock.
(1) Includes 400,000 shares issuable upon the exercise of currently exercisable
stock options.
(2) Includes (a) 171,744 shares issuable upon the exercise of currently
exercisable stock options, (b) 34,500 shares owned by Mr. Hassett's spouse
and (c) 20,000 shares underlying options owned by Mr. Hassett's spouse.
(3) Includes 55,750 shares issuable upon the exercise of currently exercisable
stock options.
(4) Includes 200,000 shares issuable upon the exercise of currently exercisable
options. Mr. Becker's address is 87 Remsen Street, #3, Brooklyn, NY 11201.
(5) Includes 12,000 shares issuable upon the exercise of currently exercisable
stock options. Mr. Barnhardt's address is c/o Biznes Polska.pl Sp zoo., Ul.
Gornoslaska 7B, Warsaw 00-443.
(6) Includes 12,000 shares issuable upon the exercise of currently exercisable
stock options. Ms. Dyson's address is 104 Fifth Avenue, 20th Floor, New
York, NY 10011.
(7) All shares indicated as owned by Ms. Mackay are included because of Ms.
Mackay's affiliation with Pearson Television, Inc. Ms. Mackay disclaims
beneficial ownership of all shares owned by Pearson Television, Inc. Ms.
Mackay's address is c/o Pearson Television, Inc., 1330 Avenue of the
Americas, New York, NY 10019.
(8) The address of Pearson Television, Inc. is 1330 Avenue of the Americas, New
York, NY 10019
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our common stock and relevant provisions of
our certificate of incorporation as will be in effect upon the closing of this
offering and the bylaws as will be in effect upon the closing of this offering
are summaries and are qualified by reference to our certificate of
incorporation and the bylaws, copies of which have been filed with the
Securities and Exchange Commission as exhibits to our Registration Statement of
which this prospectus forms a part. The description of the common stock
reflects changes to our capital structure that will occur upon the closing of
the offering in accordance with the terms of our certificate of incorporation.
Our authorized capital stock consists of 28,000,000 shares of common
stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par
value $.01 per share.
Common Stock
As of November 30, 1999, there were 11,835,920 shares of common stock
outstanding and held of record by stockholders. Based upon the number of shares
outstanding as of that date and giving effect to the issuance of the shares of
common stock in this offering, there will be shares of common stock
outstanding upon the closing of this offering.
Holders of common stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably
those dividends, if any, as may be declared by the board of directors out of
legally available funds, subject to any preferential dividend rights of any
outstanding preferred stock. Upon our liquidation, dissolution or winding up,
the holders of common stock are entitled to receive ratably our net assets
available after the payment of all debts and other liabilities and subject to
the prior rights of any outstanding preferred stock. Holders of the common
stock have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by us in the
offering will be, when issued in consideration for payment, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future.
Preferred Stock
Upon the closing of the offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of 10,000,000 shares of preferred stock in one or more series
and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions of the shares of each series,
including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, including sinking fund provisions, redemption
price or prices, liquidation preferences and the number of shares constituting
any series or designations of such series. We have no present plans to issue
any shares of preferred stock.
Global Instrument Certificate Units
Some of our stockholders continue to hold interests in our shares in the
form of undivided interests, or GIC Units, in global instrument certificates,
or GICs, issued by Oesterreichische Kontrollbank Aktiengesellschaft, or OeKB,
with each GIC Unit representing one share. OeKB holds the shares and all rights
thereunder in trust for the GIC holders. OeKB, as legal owner of the shares,
votes at stockholder meetings only in accordance with the instructions of GIC
Unit holders, provided these have been received by OeKB in compliance with the
terms and conditions of the GIC arrangements.
GIC Units will be converted to the underlying shares on written
application by the GIC Unit holders to the OeKB. The OeKB charges a fee to the
GIC Unit holders for conversion according to the provisions applied by the OeKB
from time to time. The OeKB will not automatically convert the GICs in respect
of shares that it currently holds on behalf of GIC Unit holders to our shares
of common stock.
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<PAGE>
We withdrew from the trading facility for the GICs provided by the Vienna
Stock Exchange on November 30, 1999. As a result, the GIC Units are no longer
tradable on the Vienna Stock Exchange.
Registration Rights
In our agreement with Pearson Television in January 1999, we granted
Pearson rights to register the shares of common stock that it acquired under
that agreement. Twice during the three-year period beginning in January 2001,
Pearson is entitled to require us to register all or any portion of its shares.
This type of registration right is known as a "demand" registration right. In
addition, during the five-year period commencing in January 2001, Pearson is
entitled to require us to register all or any portion of its shares when we
register shares of our common stock for our own account or for the account of
other stockholders. This type of registration right is known as a "piggyback"
registration right.
These registration rights are subject to certain conditions and
limitations, including:
o the right of the underwriters in any underwritten offering to limit the
number of shares of common stock held by Pearson to be included in any
demand or piggyback registration; and
o our right to refuse to effect a registration pursuant to Pearson's
demand registration rights during the twelve-month period following the
effective date of a registration statement in connection with which
Pearson exercised any piggyback registration rights, or at any time
when another registration statement of ours, other than a Form S-4 or
S-8, is reasonably foreseen by our board of directors to be filed
within 30 days of a registration demand, has been filed and not yet
become effective, or has been effective for less than six months prior
to a registration demand.
We are generally required to bear all of the expenses of registering
Pearson's shares of common stock, other than underwriting discounts and
commissions. Subject to the lock-up provisions contained in the Pearson
agreement, registration of any of the shares of common stock held by Pearson
would result in those shares becoming freely tradable without restriction under
the Securities Act of 1933, as amended, immediately after the effectiveness of
the registration We have agreed to indemnify Pearson in connection with the
registration of its shares of common stock under the terms of our agreement
with Pearson.
Anti-Takeover Effects of Certain Provisions of Delaware Law and Uproar's
Certificate of Incorporation and Bylaws
We are subject to the provisions of Section 203 of the Delaware General
Corporation Law (as amended from time to time, the "DGCL"). Subject to certain
exceptions, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the board of directors or unless the business
combination is approved in a prescribed manner. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested stockholder. Subject to certain exceptions, an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years did own, 15% or more of the
corporation's voting stock. This statute could prohibit or delay the
accomplishment of mergers or other takeover or change in control attempts with
respect to Uproar and, accordingly, may discourage attempts to acquire Uproar.
In addition, certain provisions of the certificate of incorporation and
bylaws, which provisions will be in effect upon the closing of the offering and
are summarized in the following paragraphs, may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in its best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation provides that, except to the extent
prohibited by DGCL, our directors shall not be personally liable to Uproar or
our stockholders for monetary damages for any breach of fiduciary
56
<PAGE>
duty as directors of Uproar. Under the DGCL, the directors have a fiduciary
duty to Uproar which is not eliminated by this provision of the certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available. In addition, each
director will continue to be subject to liability under the DGCL for breach of
the director's duty of loyalty to Uproar, for acts or omissions which are found
by a court of competent jurisdiction to be not in good faith or which involves
intentional misconduct, or knowing violations of law, for actions leading to
improper personal benefit to the director, and for payment of dividends or
approval of stock repurchases or redemptions that are prohibited by DGCL. This
provision also does not affect the directors' responsibilities under any other
laws, such as the Federal securities laws or state or Federal environmental
laws.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director:
(1) for any breach of the director's duty of loyalty to the corporation or
its stockholders;
(2) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
(3) arising under Section 174 of the DGCL; or
(4) for any transaction from which the director derived an improper
personal benefit.
The DGCL provides further that the indemnification permitted thereunder shall
not be deemed exclusive of any other rights to which the directors and officers
may be entitled under the corporation's bylaws, any agreement, a vote of
stockholders or otherwise. The Certificate eliminates the personal liability of
directors to the fullest extent permitted by Section 102(b)(7) of the DGCL and
provides that Uproar shall fully 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) by reason of the fact that such person is or was a director or
officer of Uproar, or is or was serving at the request of Uproar as a director
or officer of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, against expenses (including attorney's fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding.
Our bylaws permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions, regardless of whether the DGCL would permit indemnification. We have
obtained liability insurance for our officers and directors.
At present, we are not the subject of pending litigation or proceeding
involving any director, officer, employee or agent as to which indemnification
will be required or permitted under the certificate. We are not aware of any
threatened litigation or proceeding that may result in a claim for such
indemnification.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be American
Stock Transfer & Trust Company, New York, New York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market
could adversely affect prevailing market prices of our common stock. Upon
completion of this offering, we will have outstanding an aggregate of shares
of our common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options. Of these shares, all shares sold
in this offering will be freely tradable without restriction or further
registration under the Securities Act, unless such shares are purchased by
"affiliates" as that term is defined in Rule 144 under the Securities Act.
11,835,530 of the remaining shares of our common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act of 1933, as amended, or are subject to transfer
restrictions under Regulation S. Restricted securities may be sold in the
public market only if registered or if they qualify for an exemption from
registration under Rule 144 or 701 under the Securities Act, which rules are
summarized below.
Lock-Up Agreements
All of our officers, directors and most of our stockholders have signed
lock-up agreements under which they agreed not to transfer or dispose of,
directly or indirectly, any shares or any securities convertible into or
exercisable or exchangeable for common stock, for a period of 180 days after
the date of this prospectus. Transfers or dispositions can be made sooner:
o with the prior written consent of Salomon Smith Barney;
o in the case of certain transfers to affiliates;
o as a bona fide gift; or
o to any trust.
Subject to the provisions of Rules 144, 701 and Regulation S, restricted
shares totaling will be available for sale in the public market 180 days
after the date of this prospectus.
In connection with our agreement with Pearson, Pearson has agreed not to
transfer or dispose of, directly or indirectly, any of the 1,000,000 shares of
our common stock issued to it under the agreement until at least January 14,
2000. On and after January 14, 2000, Pearson will be able to sell up to 500,000
of those shares and on and after January 14, 2001, Pearson will be able to sell
the remaining entire number of shares that were issued to it under the
agreement.
Rule 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned our common
stock for at least one year would be entitled to sell within any three-month
period a number of shares that does not exceed the greater of:
o 1% of the number of common shares then outstanding, which will equal
approximately shares immediately after this offering; or
o the average weekly trading volume of the common shares on the Nasdaq
National Market during the four calendar weeks preceding the filing of
a notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k)
Under Rule 144(k), a person who is not one of our affiliates at any time
during the three months preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years, including the holding period
of any prior owner other than an affiliate, is entitled to sell such shares
without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Rule 701
In general, under Rule 701 of the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchases shares from us in
connection with a compensatory share plan or other written agreement is
eligible to resell such shares 90 days after the effective date of this
offering in reliance on Rule 144, but without compliance with certain
restrictions, including the holding period, contained in Rule 144.
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<PAGE>
Registration Rights
Beginning in January 2001, Pearson, or its transferees, will be entitled
to request that we register up to 1,000,000 shares of our common stock under
the Securities Act of 1933, as amended, as described in more detail in
"Description of Capital Stock -- Registration Rights."
Stock Plans
At September 30, 1999, options to purchase 2,468,632 shares were issued
and outstanding under our stock option plans and otherwise. All of these shares
will be eligible for sale in the public market from time to time, subject to
vesting provisions and Rule 144 volume limitations applicable to our
affiliates.
59
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the material United States
federal income and estate tax consequences of the ownership and disposition of
the common stock applicable to Non-United States Holders of this common stock.
For the purpose of this discussion, a Non-United States Holder is any holder
that for United States federal income tax purposes is not a United States
person. The following discussion is based on current provisions of the Internal
Revenue Code of 1986, as amended, and administrative and judicial
interpretations thereof, all as in effect on the date hereof, and all of which
are subject to change, possibly with retroactive effect. We have not and will
not seek a ruling from the Internal Revenue Service with respect to the United
States federal income and estate tax consequences described below and, as a
result, there can be no assurance that the Internal Revenue Service will not
disagree with or challenge any of the conclusions set forth in this discussion.
For purposes of this discussion, the term United States person means:
o a citizen or resident of the United States;
o a corporation or other entity taxable as a corporation created or
organized in the United States or under the laws of the United States
or any political subdivision thereof;
o an estate whose income is included in gross income for United States
federal income tax purposes regardless of its source; or
o a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who
have the authority to control all substantial decisions of the trust.
This discussion does not consider:
o United States state and local or non-United States tax consequences;
o specific facts and circumstances that may be relevant to a particular
Non-United States Holder's tax position, including, if the Non-United
States Holder is a partnership, that the United States tax consequences
of holding and disposing of our common stock may be affected by certain
determinations made at the partner level;
o the tax consequences for the shareholders or beneficiaries of a
Non-United States Holder;
o special tax rules that may apply to certain Non-United States Holders,
including, without limitation, banks, insurance companies, dealers in
securities and traders in securities who elect to apply a
mark-to-market method of accounting; or
o special tax rules that may apply to a Non-United States Holder that
holds our common stock as part of a "straddle", "hedge", or "conversion
transaction".
Dividends
If we pay a dividend, any dividend paid to a Non-United States Holder of
common stock generally will be subject to United States withholding tax either
at a rate of 30% of the gross amount of the dividend or such lower rate as may
be specified by an applicable tax treaty. Dividends received by a Non-United
States Holder that are effectively connected with a United States trade or
business conducted by the Non-United States Holder as, if as income tax treaty
applies, are attributable to a permanent establishment, or in the case of an
individual, a "fixed base," in the United States, as provided in that treaty
("U.S. trade or business income"), are generally not subject to such
withholding tax if the Non-United States Holders files the appropriate U.S.
Internal Revenue Service Form with the payor. However, such U.S. trade or
business income, net of certain deductions and credits taxed at the same
graduated rates applicable to United States persons. Any U.S. trade or business
income received by a Non-United States Holder that is a corporation may also,
under certain circumstances, be subject to an additional "branch profits tax"
at a 30% rate or such lower rate as specified by an applicable income tax
treaty.
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<PAGE>
Dividends paid on or prior to December 31, 2000 to an address in a foreign
country are presumed, absent actual knowledge to the contrary, to be paid to a
resident of such country for purposes of the withholding discussed above and
for the purposes of determining the applicability of a tax treaty rate. For
dividends paid after December 31, 2000;
o a Non-United States Holder of common stock who claims the benefit of an
applicable income tax treaty rate generally will be required to satisfy
applicable certification and other requirements;
o in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of
the partnership and the partnership will be required to provide certain
information, including a United States taxpayer identification number;
and
o look-through rules will apply for tiered partnerships.
A Non-United States Holder of common stock that is eligible for a reduced
rate of withholding tax pursuant to a tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund
with the IRS.
Gain on Disposition of Common Stock
A Non-United States Holder generally will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition of
his common stock unless:
o the gain is U.S. trade or business income (which gain, in the case of a
corporate Non-United States Holder, must also be taken into account for
branch profits tax purposes);
o the Non-United States Holder is an individual who holds his or her
common stock as a capital asset (generally, an asset held for
investment purposes) and who is present in the United States for a
period or periods aggregating 183 days or more during the calendar year
in which the sale or disposition occurs and certain other conditions
are met;
o the Non-United States Holder is subject to tax pursuant to the
provisions of the United States tax law applicable to certain United
States expatriates; or
o Uproar is or has been a "United States real property holding
corporation" for United States federal income tax purposes at any time
within the shorter of the five-year period preceding the disposition or
the holder's holding period for its common stock.
Generally, a corporation is a "United States real property holding
corporation" if the fair market value of its "United States real property
interests" equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in
a trade or business. We believe that Uproar has not been and is not currently,
and we do not anticipate it becoming, a "United States real property holding
corporation" for United States federal income tax purposes. The tax relating to
stock in a "United States real property holding corporation" will not apply to
a Non-United States Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the common stock,
provided that the common stock was regularly traded on an established
securities market.
Backup Withholding and Information Reporting
Generally, we must report annually to the Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the
amount, if any, of tax withheld. A similar report is sent to the holder.
Pursuant to tax treaties or other agreements, the Internal Revenue Service may
make its reports available to tax authorities in the recipient's country of
resident.
Dividends paid to a Non-United States Holder at an address within the
United States may be subject to backup withholding at a rate of 31% if the
Non-United States Holder fails to establish that it is entitled to an exemption
or to provide a correct taxpayer identification number and other information to
the payer. Backup withholding will generally not apply to dividends paid to
Non-United States Holders at an address outside the United States on or prior
to December 31, 2000 unless the payer has knowledge that the payee is a United
61
<PAGE>
States person. Under recently finalized Treasury Regulations regarding
withholding and information reporting, payment of dividends to Non-United
States Holders at an address outside the United States after December 31, 2000
may be subject to backup withholding at a rate of 31% unless such Non-United
States Holder satisfies various certification requirements.
Under current Treasury Regulations, the payment of the proceeds of the
disposition of common stock to or through the United States office of a broker
or through a non-United States branch of a United States broker is subject to
information reporting and backup withholding at a rate of 31% unless the holder
certifies its non-United States status under penalties or perjury or otherwise
establishes an exemption. Generally, the payment of the proceeds of the
disposition by a Non-United States Holder of common stock outside the United
States to or through a non-United States office of a non-United States broker
will not be subject to backup withholding but will be subject to information
reporting requirements if the broker is:
o a United States person;
o a "controlled foreign corporation" for United States federal income tax
purposes; or
o a foreign person 50% or more of whose gross income for certain periods
is from the conduct of a United States trade or business
unless the broker has documentary evidence in its files of the holders'
Non-United States status and certain other conditions are met, or the holder
otherwise establishes an exemption. Neither backup withholding nor information
reporting generally will apply to a payment of the proceeds of a disposition of
common stock by or through a foreign office of a foreign broker not subject to
the preceding sentence.
In general, the recently promulgated final Treasury Regulations, described
above, do not significantly alter the substantive withholding and information
reporting requirements but would alter the procedures for claiming benefits of
an income tax treaty and change the certifications procedures relating to the
receipt by intermediaries of payments on behalf of the beneficial owner of
shares of common stock. Non-United States Holders should consult their tax
advisors regarding the effect, if any, of those final Treasury Regulations on
an investment in the common stock. Those final Treasury Regulations are
generally effective for payments made after December 31, 2000.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the Internal
Revenue Service.
Estate Tax
An individual Non-United States Holder who owns common stock at the time
of his death or had made certain lifetime transfer of an interest in common
stock will be required to include the value of that common stock in such
holder's gross estate for United States federal estate tax purposes, unless an
applicable estate tax treaty provides otherwise.
The foregoing discussion is a summary of the principal federal income and
estate tax consequences of the ownership, sale or other disposition of common
stock by Non-United States Holders. Accordingly, investors are urged to consult
their own tax advisors with respect to the income tax consequences of the
ownership and disposition of common stock, including the application and effect
of the laws of any state, local, foreign or other taxing jurisdiction.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to such underwriter, the number of shares
set forth opposite the name of such underwriter.
Number of
Underwriter Shares
- ---------------------------------------- ----------
Salomon Smith Barney Inc. ..............
Bear, Stearns & Co. Inc. ...............
Banc of America Securities LLC .........
Wit Capital Corporation ................
----------
Total .................................
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the shares (other than those
covered by the over-allotment option described below) if they purchase any of
the shares.
The underwriters, for whom Salomon Smith Barney Inc., Bear, Stearns &
Co. Inc., Banc of America Securities LLC and Wit Capital Corporation are
acting as representatives, propose to offer some of the shares directly to the
public at the initial public offering price set forth on the cover page of this
prospectus and some of the shares to certain dealers at the initial public
offering price less a concession not in excess of $ per share. The
underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share on sales to certain other dealers. If all of the shares
are not sold at the initial offering price, the representatives may change the
public offering price and the other selling terms. The representatives have
advised us that the underwriters do not intend to confirm any sales to any
accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to additional shares of
common stock at the initial public offering price less the underwriting
discount. The underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with this offering. To the
extent such option is exercised, each underwriter will be obligated, subject to
certain conditions, to purchase a number of additional shares approximately
proportionate to such underwriter's initial purchase commitment.
At our request, the underwriters will reserve up to shares of our
common stock to be sold, at the initial public offering price, to our
directors, officers and employees, as well as to some of our customers and
suppliers and individuals associated or affiliated with our directors,
customers and suppliers. This directed share program will be administered by
Salomon Smith Barney Inc. The number of shares of common stock available for
sale to the general public will be reduced to the extent these individuals
purchase reserved shares. Any reserved shares which 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. We have agreed to indemnify the
underwriters against certain liabilities and expenses, including liabilities
under the Securities Act of 1933, in connection with sales of the directed
shares.
Uproar, its officers and directors, and certain other stockholders have
agreed that, for a period of 180 days from the date of this prospectus, they
will not, without the prior written consent of Salomon Smith Barney Inc.,
dispose of or hedge any shares of our common stock or any securities
convertible into or exchangeable for our common stock. Salomon Smith Barney
Inc., in its sole discretion, may release any of the securities subject to
these lock-up agreements at any time without notice.
Prior to this offering there has been no public market for our common
stock in the United States. The common stock is currently admitted for trading
on EASDAQ under the symbol "UPRO". The initial price to public of the common
stock in the United States will be determined by negotiation among the
underwriters and Uproar. In addition to prevailing market conditions, among the
factors that may be considered in
63
<PAGE>
determining the price to public of the common stock are Uproar's historical
financial performance, estimates of Uproar's business potential and its
prospects, the price of Uproar's shares on EASDAQ, an assessment of the
Uproar's management and the consideration of the above factors in relation to
the market valuations of companies in similar businesses.
Uproar has applied to have the common stock included for quotation on the
Nasdaq National Market under the symbol "UPRO".
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by Uproar in connection with this offering. These
amounts are shown assuming both no exercise and full exercise of the
underwriters' option to purchase additional shares of common stock.
Paid by Uproar
------------------------------
No Exercise Full Exercise
------------- --------------
Per share ......... $ $
Total ............. $ $
In connection with the offering, Salomon Smith Barney Inc., on behalf of
the underwriters, may purchase and sell shares of common stock in the open
market. These transactions may include over-allotment, syndicate covering
transactions and stabilizing transactions. Over-allotment involves syndicate
sales of common stock in excess of the number of shares to be purchased by the
underwriters in the offering, which creates a syndicate short position.
Syndicate covering transactions involve purchases of the common stock in the
open market after the distribution has been completed in order to cover
syndicate short positions. Stabilizing transactions consist of certain bids or
purchases of common stock made for the purpose of preventing or retarding a
decline in the market price of the common stock while the offering is in
progress.
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc., in covering syndicate short positions or making
stabilizing purchases, repurchases shares originally sold by that syndicate
member.
Any of these activities may cause the price of the common stock to be
higher than the price that otherwise would exist in the open market in the
absence of such transactions. These transactions may be effected on the Nasdaq
National Market or in the over-the-counter market, or otherwise and, if
commenced, may be discontinued at any time.
A prospectus in electronic format is being made available on an Internet
Web site maintained by Wit Capital. In addition, pursuant to an e-Dealer
Agreement, all dealers purchasing shares from Wit Capital in the offering
similarly have agreed to make a prospectus in electronic format available on
Web sites maintained by each of the e-Dealers. Other information contained on
any of these web sites does not constitute part of this prospectus.
Wit Capital, a member of the National Association of Securities Dealers,
Inc. will participate in the offering as one of the underwriters. The National
Association of Securities Dealers, Inc. approved the membership of Wit Capital
on September 4, 1997. Since that time, Wit Capital has acted as an underwriter,
co-manager or selected dealer in over 160 public offerings. Except for its
participation as a manager in this offering, Wit Capital has no relationship
with us or any of our founders or significant stockholders.
We estimate that our total expenses for this offering will be $1.5
million.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
64
<PAGE>
LEGAL MATTERS
The validity of the common shares offered hereby will be passed upon for
Uproar by Brobeck, Phleger & Harrison LLP, New York, New York. Various legal
matters in connection with the offering will be passed upon for the
underwriters by Cravath, Swaine & Moore, New York, New York.
EXPERTS
KPMG Hungaria Kft. independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1996, 1997 and 1998 as set
forth in their reports. We have included our financial statements and schedule
in the prospectus and elsewhere in the registration statement in reliance on
KPMG Hungaria Kft.'s report, given on their authority as experts in accounting
and auditing. With the approval of our board of directors and stockholders, we
changed our auditors during 1998 to KPMG Hungaria Kft. from Coopers & Lybrand
in Dublin, Ireland, to benefit from time and cost savings in relocating
auditing procedures to the operational center in Hungary. We received
unqualified audit reports from Coopers & Lybrand during the period it served as
auditor.
The audited financial statements of PrizePoint as of December 31, 1998 and
for the period from PrizePoint's inception, March 4, 1998, to December 31,
1998, incorporated into the financial statements included in this prospectus,
were audited by Arthur Andersen LLP, independent public accountants, and are
included herein in reliance upon the authority of the firm as experts in giving
the reports.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1, including exhibits and schedules thereto, under the
Securities Act with respect to the common stock to be sold in this offering.
This prospectus, which constitutes a part of the registration statement, does
not contain all of the information set forth in the registration statement or
the exhibits and schedules which are part of the registration statement. For
further information about us and the shares of common stock to be sold in the
offering, please refer to the registration statement and the exhibits and
schedules, thereto.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information in our files in the Securities and
Exchange Commission's public reference room at 450 Fifth Street, N.W.,
Washington, D.C., 20549. You can request copies of these documents, upon
payment of a duplicating fee, by writing to the Securities and Exchange
Commission. Please call the Securities and Exchange Commission at
1-800-SEC-1330 for further information about the public reference rooms.
Uproar's Securities and Exchange Commission filings, including the registration
statement, are also available to you on the Securities and Exchange
Commission's Internet site (http://www.sec.gov).
As a result of the offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, as amended, and
will file periodic reports, proxy statements and other information with the
Securities and Exchange Commission.
We intend to furnish to our stockholders with annual reports containing
financial statements audited by our independent auditors and to make available
to our stockholders quarterly reports containing unaudited interim consolidated
financial data for the first three quarters of each fiscal year.
Companies approved for trading on EASDAQ are required to publish relevant
financial and other information regularly and to keep the public informed of
all events likely to affect the market price of their securities.
Price-sensitive information is available to investors in Europe through the
EASDAQ-Reuters Regulatory Company Reporting System and other international
information providers. Investors who do not have direct access to such
information should ask their financial advisors for the terms on which such
information will be provided to them by these financial advisors. We will
ensure that a summary of our quarterly and annual financial statements will be
provided to stockholders in Europe across the EASDAQ Company Reporting System,
or ECR System. A hard copy of the annual report will be provided to
65
<PAGE>
stockholders promptly after it becomes available. Complete quarterly statements
will either be sent by us to our stockholders or will be available upon request
from the us at our executive offices. Copies of all documents filed by us with
EASDAQ are also available for inspection at the offices of EASDAQ, 56 Rue de
Colonies, Bte.15, B-1000 Brussels, Belgium.
66
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
December 31, 1996, 1997, 1998, and September 30, 1999 (unaudited)
Table of Contents
<TABLE>
<S> <C>
Independent Auditors' Report .......................................... F-2
Consolidated Balance Sheets ........................................... F-3
Consolidated Statements of Operations ................................. F-4
Consolidated Statements of Stockholders' Equity and Comprehensive Loss F-5
Consolidated Statements of Cash Flows ................................. F-6
Notes to the Consolidated Financial Statements ........................ F-7
</TABLE>
F-1
<PAGE>
[Firm Letterhead]
Independent Auditors' Report
The Board of Directors and Stockholders
Uproar Inc.:
We have audited the accompanying consolidated balance sheets of Uproar
Inc. and subsidiaries (formerly Uproar Limited) as of December 31, 1997 and
1998, and the consolidated statements of operations, stockholders' equity and
comprehensive loss, and cash flows for the years ended December 31, 1996, 1997
and 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
financial statements of PrizePoint Entertainment Corporation, a Delaware
corporation, a company acquired during 1999 in a transaction accounted for as a
pooling of interests, as discussed in note 3. Such financial statements are
included in the financial statements of Uproar Inc. (formerly Uproar Limited)
and subsidiaries and as of and for the year ended December 31, 1998 reflect 23%
and 0% of total consolidated assets and revenues respectively. Those financial
statements were audited by other auditors whose unqualified report has been
furnished to us and our opinion, insofar as it relates to amounts included for
PrizePoint Entertainment Corporation, is based solely upon the report of the
other auditors.
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, based on our audits and the report of the other auditors,
the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Uproar Inc. and subsidiaries,
(formerly Uproar Limited) as of December 31, 1997 and 1998, and the results of
their operations and their cash flows for the years ended December 31, 1996,
1997 and 1998 in conformity with generally accepted accounting principles.
(Signed) KPMG Hungaria Kft.
August 4, 1999, except for note 19(b)
which is as of December 16, 1999
F-2
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Balance Sheets
As of December 31, 1997, 1998 and September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
December 31,
---------------------------------- September 30,
1997 1998 1999
--------------- ---------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents ............................... $ 2,342,227 $ 7,035,645 $ 22,554,286
Accounts receivable -- net of allowance for doubtful
accounts of $0, $0, and $70,000, respectively ......... 248,670 551,036 1,871,317
Prepaid advertising ..................................... 76,556 201,327 11,208,492
Other current assets .................................... 27,602 24,689 452,703
------------ ------------- -------------
Total current assets ................................. 2,695,055 7,812,697 36,086,798
------------ ------------- -------------
Property and equipment, net .............................. 303,478 1,111,966 3,382,114
Intangible assets, net ................................... 13,955 47,357 12,166,856
Other long term assets ................................... 59,210 138,685 417,645
Prepaid advertising, long term portion ................... -- -- 3,796,004
------------ ------------- -------------
Total assets ......................................... $ 3,071,698 $ 9,110,705 $ 55,849,417
============ ============= =============
Liabilities and stockholders' equity
Current liabilities:
Current portion of capital lease obligation ............. $ -- $ 25,949 $ 102,777
Trade accounts payable .................................. 144,806 855,866 2,154,547
Accrued expenses ........................................ 135,646 471,906 1,384,890
Other current liabilities ............................... 9,181 15,188 74,865
------------ ------------- -------------
Total current liabilities: ........................... 289,633 1,368,909 3,717,079
------------ ------------- -------------
Long term portion of capital lease obligation ............ -- 15,134 70,973
Stockholders' equity:
Common stock, $.05 par value, 28,000,000 shares
authorized; 5,731,840 shares, 8,873,140 shares and
11,835,530 shares issued and outstanding at December
31, 1997, 1998 and September 30, 1999 respectively . 447,032 643,860 591,777
Additional paid-in capital .............................. 6,898,378 17,470,939 83,220,878
Accumulated deficit ..................................... (4,594,048) (10,424,698) (31,711,157)
Accumulated other comprehensive income (loss) ........... 30,703 36,561 (40,133)
------------ ------------- -------------
Total stockholders' equity ........................... 2,782,065 7,726,662 52,061,365
------------ ------------- -------------
Total liabilities and stockholders' equity ........... $ 3,071,698 $ 9,110,705 $ 55,849,417
============ ============= =============
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation, which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Statements of Operations
Years Ended December 31, 1996, 1997, 1998
and the nine months ended September 30, 1998 and 1999 (unaudited)
<TABLE>
<CAPTION>
Year ended Nine months ended
December 31, September 30,
------------------------------------------------ ----------------------------------
1996 1997 1998 1998 1999
-------------- --------------- --------------- --------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues .............................. $ 59,698 $ 348,709 $ 1,632,969 $ 911,253 $ 5,274,896
Cost of revenues ...................... (40,781) (216,586) (760,376) (525,230) (1,690,692)
---------- ------------ ------------ ------------ -------------
Gross profit .......................... 18,917 132,123 872,593 386,023 3,584,204
---------- ------------ ------------ ------------ -------------
Sales and marketing ................... 166,806 1,087,058 3,770,866 1,860,913 13,531,320
Product and technology
development .......................... 389,346 772,744 849,486 529,985 1,676,920
General and administrative ............ 187,362 2,092,394 2,327,720 1,195,503 5,105,128
Amortization of intangible assets ..... -- -- 9,303 -- 4,553,728
---------- ------------ ------------ ------------ -------------
Total operating expenses .............. 743,514 3,952,196 6,957,375 3,586,401 24,867,096
---------- ------------ ------------ ------------ -------------
Loss from operations .................. (724,597) (3,820,073) (6,084,782) (3,200,378) (21,282,892)
Other income (expenses):
Foreign exchange gain (loss) ......... 49,946 (85,439) 57,401 36,400 (136,374)
Interest and other income ............ 1,497 97,717 205,751 106,163 177,131
Interest expense ..................... (29,326) (15,368) -- -- --
---------- ------------ ------------ ------------ -------------
Income (loss) before income taxes...... (702,480) (3,823,163) (5,821,630) (3,057,815) (21,242,135)
Provision for income taxes ............ 4,909 5,582 9,020 4,000 44,324
---------- ------------ ------------ ------------ -------------
Net loss .............................. $ (707,389) $ (3,828,745) $ (5,830,650) $ (3,061,815) $ (21,286,459)
========== ============ ============ ============ =============
Basic and diluted loss per share ...... $ (0.33) $ (0.85) $ (0.79) $ (0.45) $ (2.00)
Weighted average number of
common shares outstanding ............ 2,129,042 4,517,464 7,348,556 6,781,044 10,649,857
========== ============ ============ ============ =============
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Consolidated Statements of Stockholders' Equity and Comprehensive Loss
Years ended December 31, 1996, 1997 and 1998
and the nine months ended September 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Additional
Common Stock
----------------------------- Paid-in
Shares Amount Capital
-------------- ------------- --------------
<S> <C> <C> <C>
Balance at December 31, 1995 ........... 2,000,000 $ 155,511 $ --
Comprehensive loss: ....................
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 700,000 54,651 589,867
Stockholder receivable ................. (195,318)
-----------
Balance at December 31, 1996 ........... 2,700,000 210,162 394,549
Comprehensive loss: ....................
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 2,000,000 157,526 4,558,161
Stockholder receivable ................. 195,318
Conversion of loan notes ............... 887,300 69,138 366,420
Exercise of stock options .............. 144,540 10,206 139,042
Stock compensation expense ............. 1,244,888
-----------
Balance at December 31, 1997 ........... 5,731,840 447,032 6,898,378
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Sale of common stock ................... 2,379,180 144,253 9,522,211
Exercise of stock options .............. 762,120 52,575 1,047,246
Stock compensation expense ............. 3,104
-----------
Balance at December 31, 1998 ........... 8,873,140 643,860 17,470,939
Comprehensive loss:
Net loss ..............................
Foreign currency translation ..........
Total comprehensive loss ...............
Re-denomination of currency of
common stock .......................... (230,883) 230,883
Acquisition and retirement of shares (380) (19) (19,361)
Sale of common stock ................... 2,937,680 177,564 64,858,386
Exercise of warrants ................... 21,680 1,084 248,916
Stock compensation expense ............. 420,164
Exercise of stock options .............. 3,410 171 10,951
--------- ----------- -----------
Balance at September 30, 1999
(unaudited) ........................... 11,835,530 $ 591,777 $83,220,878
========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Accumulated
Other
Accumulated Comprehensive
Deficit Income (Loss) Total
----------------- --------------- ---------------
<S> <C> <C> <C>
Balance at December 31, 1995 ........... $ (57,914) $ (2,192) $ 95,405
Comprehensive loss: ....................
Net loss .............................. (707,389) (707,389)
Foreign currency translation .......... 232 232
-------------
Total comprehensive loss ............... (707,157)
-------------
Sale of common stock ................... 644,518
Stockholder receivable ................. (195,318)
-------------
Balance at December 31, 1996 ........... (765,303) (1,960) (162,552)
Comprehensive loss: ....................
Net loss .............................. (3,828,745) (3,828,745)
Foreign currency translation .......... 32,663 32,663
-------------
Total comprehensive loss ............... (3,796,082)
-------------
Sale of common stock ................... 4,715,687
Stockholder receivable ................. 195,318
Conversion of loan notes ............... 435,558
Exercise of stock options .............. 149,248
Stock compensation expense ............. 1,244,888
-------------
Balance at December 31, 1997 ........... (4,594,048) 30,703 2,782,065
Comprehensive loss:
Net loss .............................. (5,830,650) (5,830,650)
Foreign currency translation .......... 5,858 5,858
-------------
Total comprehensive loss ............... (5,824,792)
-------------
Sale of common stock ................... 9,666,464
Exercise of stock options .............. 1,099,821
Stock compensation expense ............. 3,104
-------------
Balance at December 31, 1998 ........... (10,424,698) 36,561 7,726,662
Comprehensive loss:
Net loss .............................. (21,286,459) (21,286,459)
Foreign currency translation .......... (76,694) (76,694)
-------------
Total comprehensive loss ............... (21,363,153)
-------------
Re-denomination of currency of
common stock .......................... --
Acquisition and retirement of shares (19,380)
Sale of common stock ................... 65,035,950
Exercise of warrants ................... 250,000
Stock compensation expense ............. 420,164
Exercise of stock options .............. 11,122
-------------
Balance at September 30, 1999
(unaudited) ........................... $ (31,711,157) $ (40,133) $ 52,061,365
============= ========== =============
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd)
Consolidated Statements of Cash Flows
Years ended December 31, 1996, 1997 and
1998 and the nine months ended September 30, 1998 and 1999 (unaudited)
<TABLE>
<CAPTION>
Year ended
December 31,
----------------------------------------------------
1996 1997 1998
--------------- ---------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss ............................................. $ (707,389) $ (3,828,745) $ (5,830,650)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 26,070 56,556 183,181
Provision for doubtful accounts ...................... -- -- --
Amortization of prepaid advertising services ......... -- -- --
Stock compensation expense ........................... -- 1,244,888 3,104
Loss on sale of property and equipment ............... -- -- --
Changes in operating assets and liabilities
Accounts receivable ................................ (9,249) (229,821) (302,366)
Prepaid advertising and other current assets ....... 14,049 (66,909) (121,858)
Trade accounts payable ............................. 23,506 115,204 711,060
Income tax payable ................................. 4,541 (2,936) --
Accrued expenses and other current liabilities ..... 17,887 104,521 342,267
Other long term assets ............................. -- (59,210) (79,475)
----------- ------------ -------------
Net cash used in operating activities ................ (630,585) (2,666,452) (5,094,737)
Cash flows from investing activities
Purchase of intangibles .............................. -- (13,955) (42,706)
Purchase of property and equipment ................... (109,486) (260,220) (930,470)
Proceeds from sale of equipment ...................... -- -- --
----------- ------------ -------------
Net cash used in investing activities ................ (109,486) (274,175) (973,176)
Cash flows from financing activities
Proceeds from issuance of common stock ............... 449,200 4,911,005 9,666,464
Proceeds from exercise of stock options and
warrants ........................................... -- 149,248 1,099,821
Proceeds from loan ................................... 511,960 -- --
Principal payments on leases ......................... -- -- (10,812)
----------- ------------ -------------
Net cash provided by financing activities ............ 961,160 5,060,253 10,755,473
Effect of exchange rate on cash ...................... (753) (45,307) 5,858
Net increase in cash and cash equivalents ............ 220,336 2,074,319 4,693,418
Cash and cash equivalents, beginning of period ....... 47,572 267,908 2,342,227
----------- ------------ -------------
Cash and cash equivalents, end of period ............. $ 267,908 $ 2,342,227 $ 7,035,645
=========== ============ =============
Supplemental disclosure of cash flow information
Interest paid ........................................ $ -- $ 41,441 $ --
Taxes paid ........................................... 368 8,518 10,625
Issuance of common stock for advertising ser-
vices and intangibles .............................. -- -- --
Purchase of equipment under capital lease
obligations ........................................ -- -- 41,083
Conversion of debt to common stock ................... -- 435,558 --
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months ended
September 30,
------------------------------------
1998 1999
---------------- ------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss ............................................. $ (3,061,815) $ (21,286,459)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ........................ 103,702 5,028,225
Provision for doubtful accounts ...................... -- 70,000
Amortization of prepaid advertising services ......... -- 390,000
Stock compensation expense ........................... -- 420,164
Loss on sale of property and equipment ............... -- 205,698
Changes in operating assets and liabilities
Accounts receivable ................................ (103,514) (1,390,281)
Prepaid advertising and other current assets ....... (368,095) (7,639,183)
Trade accounts payable ............................. 511,984 1,298,681
Income tax payable ................................. (3,968) 21,429
Accrued expenses and other current liabilities ..... 208,898 951,232
Other long term assets ............................. -- (278,960)
------------ --------------
Net cash used in operating activities ................ (2,712,808) (22,209,454)
Cash flows from investing activities
Purchase of intangibles .............................. (39,343) --
Purchase of property and equipment ................... (617,784) (2,779,855)
Proceeds from sale of equipment ...................... -- 27,154
------------ --------------
Net cash used in investing activities ................ (657,127) (2,752,701)
Cash flows from financing activities
Proceeds from issuance of common stock ............... 7,133,395 40,360,695
Proceeds from exercise of stock options and
warrants ........................................... 1,099,821 261,122
Proceeds from loan ................................... -- --
Principal payments on leases ......................... -- (53,118)
------------ --------------
Net cash provided by financing activities ............ 8,233,216 40,568,699
Effect of exchange rate on cash ...................... 54,572 (87,903)
Net increase in cash and cash equivalents ............ 4,917,853 15,518,641
Cash and cash equivalents, beginning of period ....... 2,342,227 7,035,645
------------ --------------
Cash and cash equivalents, end of period ............. $ 7,260,080 $ 22,554,286
============ ==============
Supplemental disclosure of cash flow information
Interest paid ........................................ $ -- $ --
Taxes paid ........................................... 4,022 6,986
Issuance of common stock for advertising ser-
vices and intangibles .............................. -- 24,655,875
Purchase of equipment under capital lease
obligations ........................................ -- 185,785
Conversion of debt to common stock ................... --
</TABLE>
The results for all periods have been restated to reflect the acquisition of
PrizePoint Entertainment Corporation which was completed on June 7, 1999 and
accounted for as a pooling of interests.
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(1) Nature of business
The Company was originally formed in February 1995 as E-Pub Services
Limited, a corporation organized under the laws of Ireland. In July 1997, due
to tax matters related to the trading of our shares on the third tier of the
Vienna Stock Exchange, we formed Uproar Ltd., a corporation organized under the
laws of Bermuda. All shareholders in E-Pub Services Limited became shareholders
in Uproar Ltd. by exchanging their shares in E-Pub Services Limited for shares
in Uproar Ltd. at a ratio of 1:1. The transaction was accounted for as a
transaction between companies under common control and therefore there was no
adjustment to the historical basis of the assets and liabilities of E-Pub
Services Limited.
The Company is a leading provider of online game shows and interactive
multi-player games that appeal to a broad audience. The Company seeks to
attract a large, quality audience by offering highly engaging and "sticky"
products. Players access the products free of charge, the Company's revenue
primarily being generated through the sale of advertising. The Company operates
in one business segment.
(2) Significant accounting policies and procedures
(a) Principles of consolidation
The consolidated financial statements comprise the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated upon consolidation.
(b) Interim financial statements
The financial statements as of September 30, 1999 and for the nine months
ended September 30, 1998 and 1999, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position as of
September 30, 1999 and the results of operations and cash flows for the nine
months ended September 30, 1998 and 1999 have been made. Certain information
and footnote disclosures related to these nine month periods normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or eliminated.
(c) Cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less at the time of acquisition to be cash equivalents. Cash
equivalents at December 31, 1997, 1998 and September 30, 1999 consist primarily
of money market funds. Financial instruments that potentially subject the
Company to a concentration of credit risk consist of cash and cash equivalents
and accounts receivable. Cash and cash equivalents are deposited with high
credit quality financial institutions. The Company's accounts receivable are
derived from revenue earned from customers located in the United States and
throughout the world.
(d) Fair value of financial instruments
The Company's financial instruments, including cash and cash equivalents,
accounts receivable, accounts payable and accrued expenses are carried at cost,
which approximates their fair value because of the short-term maturity of these
instruments.
(e) Currency translation and transactions
The reporting currency for the Company is the United States Dollar (USD).
The functional currency for the Company's operations is generally the
applicable local currency. Accordingly, the assets and liabilities of the
subsidiaries whose functional currency is other than the USD are included in
the consolidated financial statements by translating the assets and liabilities
into the reporting currency at the exchange rates applicable at the end of the
reporting year. The statements of operations and cash flows of such non-USD
functional
F-7
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(2) Significant accounting policies and procedures -- (Continued)
currency operations are translated at the average exchange rate for the
reporting year. Translation gains or losses are accumulated as a separate
component of stockholders' equity. Currency transaction gains or losses arising
from transactions of the Company in currencies other than the functional
currency are included in operations for each reporting period.
(f) Property and equipment
Property and equipment are stated at cost. Depreciation on property and
equipment is calculated on the straight-line method over the estimated useful
lives of the assets as follows:
Years
------
Furniture and fixtures ................... 8
Computer equipment and software .......... 3
(g) Intangible assets
Intangible assets consist principally of intangible assets arising from
the agreement with Pearson Television to be amortized on a straight-line basis
over the thirty-three month life of the agreement. Other intangible assets
consist of costs incurred in relation to trademarks and license fees. These
assets are amortized over five years, which is the estimated period of benefit,
on a straight-line basis.
(h) Impairment of long-lived assets and long-lived assets to be disposed
of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
(i) Stock based compensation
The Company accounts for stock based compensation under the
intrinsic-value based method of accounting prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issues to Employees," and
discloses the effect of the difference in applying the fair value based method
of accounting on a pro forma basis, as required by SFAS No. 123 "Accounting for
Stock-Based Compensation."
(j) Revenue recognition
Advertising revenues are derived principally from short-term advertising
contracts in which the Company typically guarantees its advertising customers a
minimum number of impressions to be delivered to users of its Web sites over a
specified period of time for a fixed fee. Contracts are invoiced monthly in
accordance with delivery of advertising services during the month. Advertising
revenues are recognized ratably in the period in which the advertisement is
displayed, provided that no significant Company obligations remain. To the
extent that minimum guaranteed impressions are not met, the Company defers
recognition of the corresponding revenues until the guaranteed impressions are
achieved. Advertising revenues were approximately 0%, 79%, 74% and 99% of total
revenues for the years ended December 31, 1996, 1997, 1998, and nine months
ended September 30, 1999, respectively.
Revenues include barter revenues from the exchange by the Company of
services or advertising space on the Company's Web sites for reciprocal
advertising or promotional services including prizes. Revenues from these
barter transactions are recorded at the estimated fair value of the services or
advertisements delivered,
F-8
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(2) Significant accounting policies and procedures -- (Continued)
unless the fair value of the goods or services received is more objectively
determinable, and are recognized when the advertisements are run on the
Company's Web sites or services are provided. The related expense is recorded
when it is incurred and classified as sales and marketing expenses or cost of
revenues in accordance with the terms of the barter agreement.
Barter revenues represented 0%, 0%, 22% and 18% of total revenues for the
years ended December 31, 1996, 1997, 1998, and the nine months ended September
30, 1999, respectively.
In 1996, revenue from one related company accounted for 47% of total
revenues while another accounted for 15% of total revenues. In 1997, one
advertising customer accounted for 14% of total revenues and another accounted
for 11%. In 1998, one advertising customer accounted for 21% of total revenues
while another customer accounted for 12%. For the nine months ended September
30, 1999, one advertising customer accounted for 12% while another advertising
customer accounted for 10% of total revenues.
(k) Cost of revenues
Cost of revenues is comprised of prize expenses, Internet service charges,
and a portion of computer equipment and software depreciation.
(l) Product development and advertising
Product development costs and advertising costs are expensed as incurred.
Advertising costs, which are included in sales and marketing expenses, amounted
to $55,271, $188,000, $1,847,000 and $7,831,000 in the years ended 1996, 1997
and 1998, and the nine months ended September 30, 1999 respectively.
(m) Business segment reporting
The Company has determined that it does not have any separately reportable
business segments. However related disclosures about products and services,
geographic areas and major customers are included in note 17.
(n) Income taxes
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 and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(o) Net loss per share
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share". Basic net income per share is computed by dividing the
net loss available to common stockholders for the period by the weighted
average number of common shares outstanding during the period. Diluted net loss
per share is computed by dividing the net loss for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. Common equivalent shares, composed of incremental common shares
issuable upon the exercise of stock options and warrants, are included in net
loss per share to the extent such shares are dilutive. Common stock equivalents
were not included in loss per share for any periods presented since they were
anitdilutive. Potentially dilutive common stock equivalents for the years ended
December 31, 1996, 1997, 1998 and nine months ended September 30, 1999 amounted
to 900,000, 1,055,460, 448,600, and 2,468,632 respectively.
F-9
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(2) Significant accounting policies and procedures -- (Continued)
(p) 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 amount of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates. Significant
estimates made by the Company include the useful lives and recoverability of
long-lived assets.
(q) Recent accounting pronouncements
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." The Company adopted these statements effective July 1,
1998 and June 30, 1999, respectively. These statements modified or expanded the
Company's stockholders' equity and segment disclosures and had no impact on the
Company's results of operations, financial position or cash flows.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement, which is effective for fiscal years beginning after June 15, 2000,
will require the Company to recognize all derivatives on the balance sheet at
fair value. Derivatives that are not hedges must be adjusted to fair value
through earnings. If the derivative is an effective hedge, changes in its fair
value will be offset against the change in the fair value of the hedged item in
either other comprehensive income or earnings. The ineffective portion of a
derivative classified as a hedge will be immediately recognized in earnings.
The Company is required to adopt the new statement effective July 1, 2000, and
has not yet determined the effect SFAS No. 133 will have on its results of
operations and financial position. This statement is not required to be applied
retroactively to financial statements of prior periods.
In 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants (AICPA) issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This statement, which is effective for fiscal years beginning
after December 15, 1998, requires the Company to capitalize certain
internal-use software costs once certain criteria are met. This statement did
not have any effect on the Company's results of operations, financial position
or cash flows.
In 1998, the Company adopted SFAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement did not have any
effect on the Company's results of operations, financial position or cash
flows.
In 1998, the Company adopted SFAS No. 128, "Earnings Per Share." The
Company has reported on the income statement basic and diluted loss per share
for all periods presented.
(3) PrizePoint acquisition
On June 7, 1999, the Company completed an acquisition of PrizePoint
Entertainment Corporation ("PrizePoint"), a provider of online single-player
games. Under the terms of the acquisition agreement the Company exchanged
approximately 1.22 million shares of its common stock in exchange for all of
the outstanding shares of common stock of PrizePoint. Fractional shares were
acquired for $19,380 and then
F-10
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(3) PrizePoint acquisition -- (Continued)
retired. All outstanding PrizePoint preferred shares were converted into
PrizePoint common stock immediately prior to the acquisition. The acquisition
has been accounted for as a pooling of interests and, accordingly, the
Company's consolidated financial statements have been restated to include the
accounts and operations of PrizePoint for all periods prior to the merger.
Separate revenues and net loss amounts for the year ended December 31,
1998 and three months ended March 31, 1999 are summarized below:
December 31, March 31,
1998 1999
---------------- ---------------
(Unaudited)
Revenues
Uproar ..................... $ 1,632,969 $ 963,418
PrizePoint ................. -- 47,750
------------ ------------
1,632,969 1,011,168
------------ ------------
Net loss
Uproar ..................... (4,602,027) (4,399,357)
PrizePoint ................. (1,228,623) (818,575)
------------ ------------
$ (5,830,650) $ (5,217,932)
============ ============
PrizePoint was formed in March 1998 and recognized revenues beginning in
the first quarter of 1999. Adjustments to eliminate the sale of advertising
between Uproar Inc. and PrizePoint reduced combined net revenue by $12,000 for
the three months ended March 31, 1999.
(4) Property and equipment
<TABLE>
<CAPTION>
December 31,
--------------------------- September 30,
1997 1998 1999
----------- ------------- --------------
<S> <C> <C> <C>
Computer equipment .................... $ 188,695 $ 963,053 $3,009,067
Purchased software .................... 36,872 162,768 508,290
Furniture and fixtures ................ 165,073 247,184 550,689
--------- ---------- ----------
390,640 1,373,005 4,068,046
Less accumulated depreciation ......... (87,162) (261,039) (685,932)
--------- ---------- ----------
$ 303,478 $1,111,966 $3,382,114
========= ========== ==========
</TABLE>
Depreciation expense for 1996, 1997, 1998, and for the nine months ended
September 30, 1999 was $26,070, $56,556, $173,878 and $474,497 respectively.
F-11
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(5) Intangible assets, net
Intangible assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
----------- ----------- --------------
<S> <C> <C> <C>
Intangible benefits of Pearson Agreement ......... $ -- $ -- $ 16,673,875
Patents .......................................... 3,510 3,510 3,510
Trademarks ....................................... 7,505 6,345 6,310
Licenses ......................................... 2,940 45,622 44,823
Other ............................................ -- 1,183 1,369
-------- -------- ------------
13,955 56,660 16,729,887
Less accumulated amortization .................... -- (9,303) (4,563,031)
-------- -------- ------------
$ 13,955 $ 47,357 $ 12,166,856
======== ======== ============
</TABLE>
(6) Other current assets
Other current assets consist of the following:
<TABLE>
<CAPTION>
December 31,
------------------------- September 30,
1997 1998 1999
----------- ----------- --------------
<S> <C> <C> <C>
Prepaid insurance ................. $ 27,602 $ 19,864 $ 225,832
Prepaid professional fees ......... -- -- 226,871
Other ............................. -- 4,825 --
-------- -------- ---------
$ 27,602 $ 24,689 $ 452,703
======== ======== =========
</TABLE>
<PAGE>
(7) Prepaid advertising
<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1997 1998 1999
----------- ------------ --------------
<S> <C> <C> <C>
Prepaid advertising ............................... $ 76,556 $ 201,327 $ 7,412,496
Prepaid Pearson advertising -- note 14(b) ......... -- -- 3,795,996
-------- --------- ------------
$ 76,556 $ 201,327 $ 11,208,492
======== ========= ============
Long term portion of prepaid Pearson
advertising -- note 14(b) ........................ $ -- $ -- $ 3,796,004
======== ========= ============
</TABLE>
Non-Pearson prepaid advertising as of September 30, 1999 consists of
amounts paid for media buys in connection with a brand marketing campaign,
which ran in October and November, 1999.
(8) Other long term assets
Other long term assets consist of the following:
December 31,
-------------------------- September 30,
1997 1998 1999
----------- ------------ --------------
Security deposits ......... $ 59,210 $ 125,035 $ 141,349
Restricted cash ........... -- 13,650 276,296
-------- --------- ---------
$ 59,210 $ 138,685 $ 417,645
======== ========= =========
F-12
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(9) Accrued expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------- September 30,
1997 1998 1999
------------ ----------- --------------
<S> <C> <C> <C>
Advertising ..................... $ -- $ 33,825 $ 850,764
Severance ....................... -- -- 167,394
Prizes and awards ............... -- 59,638 104,191
Commission and salaries ......... 21,020 95,675 82,953
Deferred revenue ................ -- 30,000 --
Interest ........................ 22,698 -- --
Bonus ........................... 46,400 91,757 --
Legal fees ...................... -- 57,642 17,000
Fees and other expenses ......... 20,528 65,460 44,581
Other accruals .................. 25,000 37,909 118,007
--------- --------- ----------
$ 135,646 $ 471,906 $1,384,890
========= ========= ==========
</TABLE>
Accrued advertising consists of uninvoiced online banner advertising
purchased by and delivered to the Company.
(10) Other current liabilities
<TABLE>
<CAPTION>
December 31,
------------------------ September 30,
1997 1998 1999
---------- ----------- --------------
<S> <C> <C> <C>
Unemployment taxes payable ......... $ -- $ -- $ 4,860
Employee contributions ............. -- -- 11,329
Income taxes payable ............... -- -- 21,429
Other payables ..................... 9,181 15,188 37,247
------- -------- --------
$ 9,181 $ 15,188 $ 74,865
======= ======== ========
</TABLE>
(11) Stockholders' equity
During 1996 700,000 shares of common stock were sold in a private
placement. Net proceeds to the Company were $644,518.
During 1997, 2,000,000 shares of common stock were sold in a private
placement. Net proceeds to the Company were $4,715,687.
In accordance with their original terms, during 1997 loan notes totaling
NLG 832,000 ($435,558) were converted to common stock at a rate of NLG 18.756
for every twenty shares, which resulted in the issuance of 887,300 shares.
E-Pub Services Limited was the predecessor company to Uproar Limited.
During 1997, 5,587,300 common shares in E-Pub Services Limited, representing
100% of the equity ownership, were exchanged at the ratio of 1:1 for the common
shares in Uproar Limited, a company under common control, at that time a
non-operating shell company.
During 1998, 2,379,180 shares of common stock were sold in private
placements. Net proceeds to the Company were $9,666,464.
F-13
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(11) Stockholders' equity -- (Continued)
In January 1999, 500,000 shares of common stock were sold in a private
placement. Net proceeds to the Company totaled $9,344,654.
In January 1999, 1,000,000 shares of common stock were issued to Pearson
Television Limited in exchange for intangible benefits, advertising services
and cash of $124,599. The fair value of the common stock sold was $24,780,474.
See Note 14(b).
In January 1999, 21,680 shares of common stock were sold in a private
placement for $250,000.
On April 1, 1999 the par value of the Company's common stock was changed
from 1 Irish Punt to $0.05. Subsequently the Company effected a 20 for 1 stock
split. The net effect of these transactions was a $230,883 transfer from common
stock to additional paid-in capital. All prior period stock transactions have
been restated to reflect the impact of the stock split.
In June 1999, 21,680 warrants, which had been issued by PrizePoint during
1998 were exercised at an aggregate exercise price of $250,000.
In July 1999 the Company completed the sale of 1,416,000 shares on the
EASDAQ stock exchange. Net proceeds to the Company totaled $30,660,822.
(12) Stock compensation plan
As of December 31, 1998 the Company had one stock-based compensation plan.
The plan authorizes the granting of options to acquire the Company's common
stock to selected key employees, who also may be officers, and to non-employee
directors. Options granted prior to July 1, 1997 were granted with an exercise
price above the common stock's market value at the date of grant and became
fully exercisable on December 31, 1997. The original expiration date of these
options was also December 31, 1997. On December 31, 1997, the exercise price of
these options was increased by 15% and the expiration date was extended to June
30, 1998. Compensation expense for the excess of the market value over the
exercise price, aggregating $1,244,888 was recorded at that time. Generally 50%
of the options granted under this plan vest and become fully exercisable two
years from the date of grant and the remaining 50% vest and become fully
exercisable three years from the date of grant. During 1998 and the first nine
months of 1999 the Company granted options under this plan with exercise prices
less than the fair value of the common stock which resulted in stock
compensation expense of $894,790. This amount is recorded as compensation
expense over the vesting periods, and amounted to $3,104 and $420,164 for the
year ended December 31, 1998 and nine months ended September 30, 1999,
respectively.
During 1999, the Company established the Uproar Limited 1999 Share
Option/Share Issuance Plan (the "1999 Plan"). The 1999 Plan authorizes the
Company to grant its employees, its non-employee directors and its consultants
options to purchase shares of the Company's common stock, as well as to issue
shares directly to such persons without any intervening option grants. The
exercise period for options granted under the Plan can be no more than ten
years from the date of grant. The exercise price of each such option was the
market value of a share of the Company's common stock on the date of grant.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its stock compensation plans. The compensation cost charged
against income was $0, $1,244,888, $3,104, and $420,164 for the periods ended
December 31, 1996, 1997, 1998 and September 30, 1999 respectively. Had
compensation cost been determined in accordance with the provisions of
Statement of Financial SFAS No. 123, the Company's net loss and net loss per
share would have been the pro forma amounts indicated below. The fair values of
the options for the pro-forma calculations are computed using the Black-Scholes
method.
F-14
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(12) Stock compensation plan -- (Continued)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------- September 30,
1996 1997 1998 1999
-------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net Loss
As reported ................................ $ (707,389) $(3,828,745) $(5,830,650) $(21,286,459)
Proforma ................................... (707,389) (3,890,803) (6,678,354) (22,364,461)
Basic loss per share
As reported ................................ $ (0.33) $ (0.85) (0.79) $ (2.00)
Proforma ................................... (0.33) (0.86) (0.91) (2.10)
Weighted average shares outstanding ......... 2,129,042 4,517,464 7,348,556 10,649,857
Option pricing model assumptions:
Expected dividend yield .................... 0% 0% 0% 0%
Average option life ........................ -- 2.5 years 2 years 2.5 years
Volatility ................................. 0% 70% 70% 60%
Risk free interest rate .................... 0% 3% 3% 6%
</TABLE>
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
------------- ---------------
<S> <C> <C>
Outstanding, December 31, 1996 .......... 900,000 $ 1.47
Granted ................................. 300,000 4.85
Exercised ............................... (144,540) 1.28
--------
Outstanding, December 31, 1997 .......... 1,055,460 2.45
Granted ................................. 164,600 4.64
Exercised ............................... (762,120) 1.53
Cancelled ............................... (9,340) 4.88
---------
Outstanding, December 31, 1998 .......... 448,600 4.77
Granted ................................. 2,039,175 18.21
Exercised ............................... (3,410) 3.29
Cancelled ............................... (15,733) 11.94
---------
Outstanding, September 30, 1999 ......... 2,468,632 $ 15.64
=========
</TABLE>
At September 30, 1999 the weighted-average exercise price and average remaining
contractual life of outstanding options was $15.64 and 9.58 years remaining,
respectively. 415,995 shares are available for grant and 646,987 shares are
exercisable at September 30, 1999.
F-15
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(13) Income taxes
The Company's income tax expense is comprised of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------ September 30,
1996 1997 1998 1999
-------- -------- -------- --------------
<S> <C> <C> <C> <C>
Current income tax expense
Bermuda ......................... $ -- $ -- $ -- $ --
Rest of the world ............... 4,909 5,582 9,020 44,324
------ ------ ------ -------
Total income tax expense ......... $4,909 $5,582 $9,020 $44,324
====== ====== ====== =======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------- September 30,
1996 1997 1998 1999
------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Sources of loss before income tax
Bermuda ......................... -- $ (32,739) $ (89,514) $ (8,104,597)
Rest of the world ............... (702,480) (3,790,424) (5,732,116) (13,137,538)
-------- ------------ ------------ -------------
Loss before income taxes ......... $ (702,480) $ (3,823,163) $ (5,821,630) $ (21,242,135)
========== ============ ============ =============
</TABLE>
<PAGE>
The components of the net deferred tax asset as of December 31, 1997, 1998
and September 30, 1999 consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------- September 30,
1997 1998 1999
-------------- ---------------- -----------------
<S> <C> <C> <C>
Net operating loss carryforwards ......... $ (424,339) $ (1,939,221) $ (6,765,334)
---------- ------------ -------------
(424,339) (1,939,221) (6,765,334)
Less valuation allowance ................ 424,339 1,939,221 6,765,334
---------- ------------ -------------
Deferred tax assets, net ................. $ -- $ -- $ --
========== ============ =============
</TABLE>
The operating loss carryforwards are comprised of the losses incurred in
the UK and US subsidiaries. The Bermudan company enjoyed tax-free status and
the only other subsidiary, which is in Hungary, is profitable. As at September
30, 1999, the Company has net operating loss carryforwards for income tax
purposes of approximately $19,974,000, which expire in various amounts through
2019. The deferred tax asset has been fully reserved because the Company
believes it is more likely than not that the deferred tax assets will not be
recovered.
(14) Significant agreements
(a) Cable and Wireless
On December 22, 1998, the Company entered into a development agreement,
and signed head terms of a carriage agreement, with Cable & Wireless
Communications ("CWC"), the largest cable television franchise owner in the UK.
The agreement provides for CWC to distribute up to 14 Uproar game shows on an
interactive service offered via its digital cable television which was launched
by CWC on October 15, 1999. A full carriage agreement was signed in September
1999, which provides for the Company to have an anchor position within the
games and entertainment channel on the CWC service and to participate in
promotion opportunities on the service. The Company pays CWC a carriage fee for
which CWC guarantees
F-16
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(14) Significant agreements -- (Continued)
placement within the service. In addition, the agreement provides that CWC is
entitled to a portion of advertising revenue from the games upon the
interactive service. The agreement is for an initial three-year period from
launch of the Uproar games on the CWC interactive service, and then
automatically continuing with a provision for a six-month notice of
cancellation.
(b) Pearson Television
On January 13, 1999, the Company entered into an agreement with Pearson
Television Limited ("Pearson"), whereby Pearson acquired 1,000,000 common
shares of the Company in exchange for intangible assets, advertising services
to be provided over a thirty-month period commencing April 1, 1999 and cash of
$124,599.
The market value of the common shares acquired by Pearson was $24,780,474
of which $24,655,875, net of the $124,599 cash payment was attributable to
intangible assets and prepaid advertising services. In accounting for the
transaction the Company capitalized intangible assets of $16,673,875 and
prepaid advertising services of $7,982,000, their estimated fair value. During
the nine month period ended September 30, 1999, amortization of intangible
assets totaled $4,547,420 and amortization of prepaid advertising services
amounting to $390,000 was recorded as advertising expense.
Should Pearson meet certain television distribution targets for its game
shows in the United States, they will be granted 200,000 additional common
shares between September 1999 and August 2000 and a further 200,000 shares
between September 2000 and August 2001. See note 15.
Also, in consideration of a license fee, payable from related revenue,
Uproar acquired a license to exploit certain Pearson game shows. Net revenues
generated by the game shows are split between the Company and Pearson based on
a pre-determined formula.
(c) Telefonica
On September 29, 1999, the Company entered an agreement with Telefonica
Interactiva De Contenidos ("Telefonica"), a Spanish corporation, to establish
and develop Uproar products and the Uproar media property in the Spanish and
Portuguese languages. The agreement requires Uproar to license distribution
rights to Telefonica, and provide services and support to Telefonica for the
operations of the Web sites in exchange for which Telefonica has agreed to pay
Uproar exclusivity fees. Telefonica will distribute the Uproar Web sites online
for the Spanish and Portuguese language markets from Telefonica's online
properties, in exchange for which Uproar has agreed to pay Telefonica a portion
of the revenue generated on the Uproar Web sites. The agreement term is for an
initial three-year period from the date of the agreement, and then can be
extended for an additional twelve-month period.
(15) Commitments and contingencies
(a) Pearson Television
Under the terms of the Pearson agreement (see note 14), should Pearson
meet certain television distribution targets for its game shows in the United
States, they will be granted 200,000 additional common shares between September
1999 and August 2000 and a further 200,000 shares between September 2000 and
August 2001. Since as of September 30, 1999 it is not considered probable that
the distribution target under the Pearson Television agreement will be met, no
accounting has been provided for this transaction in these financial
statements.
F-17
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(15) Commitments and contingencies -- (Continued)
(b) Legal claim
In 1997, E-Pub Inc., a wholly-owned subsidiary, was named in an action
entitled "Burgos v. Ellwell Associates, LLC and E-Pub Inc", relating to an
alleged personal injury. The plaintiff seeks damages of $6 million against
Ellwell Associates, the landlord of the building in which E-Pub Inc's office is
located, and E-Pub Inc.
Through September 30, 1999, certain limited written discovery was
exchanged by the parties. Although the plaintiff has not yet specified the
precise extent and severity of his alleged injuries, the Company has recently
received documentary information suggesting that the plaintiff's injuries no
longer prevent him from gainful employment. Uproar Inc. has asserted a cross
claim against the landlord, seeking to hold the landlord responsible for any
injuries sustained by the plaintiff, and has also asserted a claim against the
plaintiff's employer for similar relief.
Uproar Inc. has denied liability and will vigorously defend the action in
the future. No provision to date has been made in the financial statements,
including those as of September 30, 1999 as Uproar Inc., having taken legal
advice, is unable to estimate the extent of any potential liability with
reasonable accuracy at this time.
(c) Other commitment
In connection with an office lease the Company has a letter of credit
outstanding of approximately $270,000.
(16) Leases
The Company has several non-cancelable operating leases, primarily for
office space. These leases generally contain renewal options for periods
ranging from three to five years and require the Company to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases
was $43,598, $105,645, $159,121, and $416,900 for the years ended December 31,
1996, 1997, 1998, and for the nine months ended September 30, 1999
respectively. The interest rate on the capital leases was approximately 1%.
Future minimum lease payments under non-cancelable leases (with initial or
remaining lease terms in excess of one year) as of December 31, 1998 are:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
----------- -------------
<S> <C> <C>
Twelve months ended December 31,
1999 ....................................... $107,984 $ 437,725
2000 ....................................... 74,570 587,585
2001 ....................................... -- 518,141
2002 ....................................... -- 326,194
Thereafter ................................. -- 298,922
-------- ----------
Total minimum lease payments ................ $182,554 $2,168,567
==========
Less amounts representing interest ......... (8,804)
--------
Current portion of capital leases ........... 102,777
--------
Long term capital lease obligation .......... $ 70,973
========
</TABLE>
F-18
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(17) Segment reporting
In presenting segment information the Company has applied the provisions
of SFAS No. 131.
The Company attributes revenues to different geographic areas on the basis
of the location of the customer. Revenues by geographic area are as follows:
<TABLE>
<CAPTION>
Revenues
---------------------------------------------------------
December 31,
---------------------------------------- September 30,
1996 1997 1998 1999
---------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
United States ......... $15,888 $332,555 $1,545,663 $5,160,682
England ............... -- 8,727 83,120 114,214
Ireland ............... -- -- -- --
Hungary ............... 25,648 6,612 -- --
Bermuda ............... -- -- -- --
Other ................. 18,162 815 4,186 --
------- -------- ---------- ----------
Total ................. $59,698 $348,709 $1,632,969 $5,274,896
======= ======== ========== ==========
</TABLE>
Investment of long-lived assets by geographic area are as follows:
Property and Equipment and Intangible Assets
--------------------------------------------
December 31,
--------------------------- September 30,
1997 1998 1999
----------- ------------- --------------
United States ......... $215,281 $ 962,880 $ 3,123,910
England ............... 20,238 35,399 77,366
Ireland ............... 36,461 20,532 --
Hungary ............... 45,453 108,040 190,978
Bermuda ............... -- 32,472 12,156,716
Other ................. -- -- --
-------- ---------- -----------
Total ................. $317,433 $1,159,323 $15,548,970
======== ========== ===========
The Company has determined that it does not have any separately reportable
business segments.
(18) Pension and other post-retirement plans
Effective January 1, 1998, the Company established a 401(k) salary
deferral plan (the "401(k) Plan") on behalf of its U.S. employees. The 401(k)
Plan is a qualified defined contribution plan and allows employees to defer up
to 15% of their compensation, subject to certain limitations. Under the 401(k)
Plan, the Company has the discretion to match contributions made by the
employee. The Company made no matching contributions in 1998 or the first nine
months of 1999.
F-19
<PAGE>
Uproar Inc. and Subsidiaries
(Formerly Uproar Ltd.)
Notes to Consolidated Financial Statements -- (Continued)
(Information as of September 30, 1999 and for the
nine months ended September 30, 1998 and 1999 is unaudited)
(19) Subsequent events
(a) Incorporation of Uproar GmbH
On October 29, 1999, the Company incorporated a German company, Uproar
GmbH. Uproar GmbH has a relationship with DoubleClick in which DoubleClick is
responsible for the Company's advertising sales in the German market. Uproar
GmbH is a wholly owned subsidiary of Uproar Inc.
(b) Incorporation of Uproar Inc.
On December 16, 1999, Uproar Inc. was incorporated in Delaware. Uproar
Limited will be domesticated to Delaware on or before January 3, 2000 after
which Uproar Inc. will merge into such domesticated corporation. Since both
companies are under common control there will be no adjustment to the
historical basis of the assets and liabilities of Uproar Limited.
F-20
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
Uproar Inc.
Common Stock
[LOGO]
--------
P R O S P E C T U S
, 1999
--------
Salomon Smith Barney
Bear, Stearns & Co. Inc.
Banc of America Securities LLC
Wit Capital Corporation
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the estimated costs and expenses, other
than the underwriting discount, payable by the registrant in connection with
the sale of the common stock being registered.
<TABLE>
<CAPTION>
Amount to
be Paid
---------------
<S> <C>
SEC registration fee ................................... $26,400
NASD filing fee ........................................ 10,500
Nasdaq National Market listing fee ..................... 17,500
Legal fees and expenses ................................ 500,000
Accounting fees and expenses ........................... 300,000
Printing and expenses .................................. 170,000
Blue sky fees and expenses ............................. 5,000
Transfer agent and registrar fees and expenses ......... 15,000
Miscellaneous .......................................... 455,600
Total ............................................. $1,500,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
The registrant's Certificate of Incorporation in effect as of the date
hereof, and the registrant's Certificate of Incorporation to be in effect upon
the closing of this offering (collectively, the "Certificate") provides that,
except to the extent prohibited by the Delaware General Corporation Law, as
amended (the "DGCL"), the registrant's directors shall not be personally liable
to the registrant or its stockholders for monetary damages for any breach of
fiduciary duty as directors of the registrant. Under the DGCL, the directors
have a fiduciary duty to the registrant which is not eliminated by this
provision of the Certificate and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available. In addition, each director will continue to be subject to liability
under the DGCL for breach of the director's duty of loyalty to the registrant,
for acts or omissions which are found by a court of competent jurisdiction to
be not in good faith or involving intentional misconduct, for knowing
violations of law, for actions leading to improper personal benefit to the
director, and for payment of dividends or approval of stock repurchases or
redemptions that are prohibited by DGCL. This provision also does not affect
the directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. The registrant has
obtained liability insurance for its officers and directors.
Section 145 of the DGCL empowers a corporation to indemnify its directors
and officers and to purchase insurance with respect to liability arising out of
their capacity or status as directors and officers, provided that this
provision shall not eliminate or limit the liability of a director: (1) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) arising under Section
174 of the DGCL, or (4) for any transaction from which the director derived an
improper personal benefit. The DGCL provides further that the indemnification
permitted thereunder shall not be deemed exclusive of any other rights to which
the directors and officers may be entitled under the corporation's bylaws, any
agreement, a vote of stockholders or otherwise. The Certificate eliminates the
personal liability of directors to the fullest extent permitted by Section
102(b)(7) of the DGCL and provides that the registrant shall fully 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, by reason of the fact that such
person is or was a director or officer of the registrant, or is or was serving
at the request of the registrant as a director or officer of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding.
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities
The Registrant has sold and issued the following securities since February
7, 1995 (inception):
1. From February 7, 1995 to September 30, 1999, the Registrant issued and
sold 10,038,160 shares of common stock at prices ranging from $0.08 to
$23.43 per share.
2. In 1997, the Registrant issued 887,300 shares of common stock upon the
conversion of convertible notes.
3. In 1997, the Registrant issued 144,540 shares of common stock upon the
exercise of options at a weighted average exercise price of $0.94.
4. In 1998, the Registrant issued 762,120 shares of common stock upon the
exercise of options at a weighted average exercise price of $1.33.
5. Since December 31, 1998, the Registrant issued 3,410 shares of common
stock upon the exercise of options at an exercise price of $3.29 per
share.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act. The recipients of securities in each of these transactions
represented their intention to acquire the securities for investment only and
not with view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and instruments
issued in such transactions. All recipients had adequate access, through their
relationship with the Registrant, to information about the Registrant.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Number Description
- ---------- --------------------------------------------------------------------------------------------------------------
<S> <C>
1.1* Form of underwriting agreement.
3.1 Certificate of incorporation for Uproar Inc.
3.2 Bylaws for Uproar Inc.
3.3 Certificate of incorporation for Uproar Ltd.
3.4 Memorandum of association for Uproar Ltd.
3.5 Bye-laws of Uproar Ltd.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the certificate of incorporation and bylaws defining the rights of
holders of common stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
5.2* Opinion of M.L.H. Quin & Co., Bermuda counsel to Registrant.
10.1* 1999 Stock Option Plan.
10.2 Employment agreement, dated September 6, 1999, by and between Kenneth D. Cron and the Registrant.
10.3 Lease agreement, as amended, dated April 19, 1999, by and between Nassau Bay Associates, L.P., and the
Registrant.
10.4 Lease agreement, dated November 9, 1999, by and between Golden Van Associates, LLC, and the
Registrant.
10.5 Lease agreement, dated September 7, 1998, by and between ANU Kft. and the Registrant.
10.6* Agreement and plan of reorganization, dated April 29, 1999, by and between PrizePoint Entertainment
Corporation and the Registrant.
10.7*+ Internet game development agreement, dated January 12, 1999, by and between Pearson Television, Inc.
and the Registrant.
10.8*+ License and services agreement, dated September 29, 1999, by and between Telefonica Interactiva de
Contenidos and the Registrant.
10.9 Employment agreement, dated December 20, 1999, by and between Michael K. Simon and the Registrant.
10.10* Stock Incentive Plan.
16.1* Letter from PricewaterhouseCoopers LLP:
21.1 List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP.
</TABLE>
II-2
<PAGE>
23.2 Consent of KPMG Hungaria Kft.
23.3 Consent of Arthur Andersen LLP:
24.1 Powers of attorney (see Signature Page).
27.1 Financial Data Schedule.
- ------------
* To be filed by amendment.
+ Confidential treatment request to be filed with the Securities and Exchange
Commission.
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act of 1933, shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on this 21st day of December, 1999.
UPROAR INC.
By: /s/ Kenneth D. Cron
------------------------------------
Kenneth D. Cron
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and/or officers of Uproar Inc. (the
"Company"), hereby severally constitute and appoint Kenneth D. Cron, Chairman
of the Board of Directors and Chief Executive Officer, and Christopher R.
Hassett, Director, President and Chief Operating Officer, and each of them
individually, with full powers of substitution and resubstitution, our true and
lawful attorneys, with full powers to them and each of them to sign for us, in
our names and in the capacities indicated below, the registration statement on
Form S-1 filed with the Securities and Exchange Commission, and any and all
amendments to said Registration Statement (including post-effective
amendments), and any registration statement filed pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, in connection with the registration
under the Securities Act of 1933, as amended, of equity securities of the
Company, and to file or cause to be filed the same, with all exhibits thereto
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys, and each of them, full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as each of them might or could do in person, and hereby ratifying and
confirming all that said attorneys, and each of them, or their substitute or
substitutes, shall do or cause to be done by virtue of this Power of Attorney.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities indicated on December 21, 1999:
<TABLE>
<CAPTION>
<S> <C>
Signature Title(s)
--------- --------
/s/ Kenneth D. Cron
- ------------------------------------- Chairman of the Board of Directors and Chief
Kenneth D. Cron Executive Officer (principal executive officer)
/s/ Christopher R. Hassett President, Chief Operating Officer and Director
- -------------------------------------
Christopher R. Hassett
/s/ Michael K. Simon
- ------------------------------------- Chief Financial Officer and Director (principal
Michael K. Simon accounting and financial officer)
/s/ Thompson B. Barnhardt Director
- -------------------------------------
Thompson B. Barnhardt
Director
- -------------------------------------
Esther Dyson
/s/ Catherine V. Mackay Director
- -------------------------------------
Catherine V. Mackay
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Number Description
- ------------ ---------------------------------------------------------------------------------------
<S> <C>
1.1* Form of underwriting agreement.
3.1 Certificate of incorporation for Uproar Inc.
3.2 Bylaws for Uproar Inc.
3.3 Certificate of incorporation for Uproar Ltd.
3.4 Memorandum of association for Uproar Ltd.
3.5 Bye-laws of Uproar Ltd.
4.1* Specimen common stock certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the certificate of
incorporation and bylaws defining the rights of holders of common stock.
5.1* Opinion of Brobeck, Phleger & Harrison LLP.
5.2* Opinion of M.L.H. Quin & Co., Bermuda counsel to Registrant.
10.1* 1999 Stock Option Plan.
10.2 Employment agreement, dated September 6, 1999, by and between
Kenneth D. Cron and the Registrant.
10.3 Lease agreement, as amended, dated April 19, 1999, by and between Nassau
Bay Associates, L.P., and the Registrant.
10.4 Lease agreement, dated November 9, 1999, by and between Golden Van Associates,
LLC, and the Registrant.
10.5 Lease agreement, dated September 7, 1998, by and between ANU Kft. and the Registrant.
10.6* Agreement and plan of reorganization, dated April 29, 1999, by and between
PrizePoint Entertainment Corporation and the Registrant.
10.7*+ Internet game development agreement, dated January 12, 1999, by and between Pearson
Television, Inc. and the Registrant.
10.8*+ License and services agreement, dated September 29, 1999, by and between Telefonica
Interactiva de Contenidos and the Registrant.
10.9 Employment agreement, dated December 20, 1999, by and between Michael K. Simon and the
Registrant.
10.10* Stock Incentive Plan.
16.1* Letter from PricewaterhouseCoopers LLP.
21.1 List of Subsidiaries.
23.1 Consent of Brobeck, Phleger & Harrison LLP.
23.2 Consent of KPMG Hungaria Kft.
23.3 Consent of Arthur Andersen LLP.
24.1 Powers of attorney (see Signature Page).
27.1 Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
+ Confidential treatment request to be filed with the Securities and Exchange
Commission.
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
UPROAR INC.
ARTICLE I.
The name of this Corporation is Uproar Inc.
ARTICLE II.
The address of the registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE 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 Delaware.
ARTICLE IV.
The name of the Corporation's incorporator is Clem Turner and the
incorporator's mailing address is c/o Brobeck Phleger & Harrison, 1633 Broadway,
47th Floor, New York, NY 10019.
<PAGE>
ARTICLE V.
The total number of shares which the Corporation is authorized to issue
is one thousand (1,000) shares of Common Stock, $0.01 par value.
ARTICLE VI.
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit. If the Delaware General Corporation Law is amended after
approval by the stockholders of this Article to authorize corporation action
further eliminating or limiting the personal liability of directors then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law as so amended.
Any repeal or modification of the foregoing provisions of this Article
VI by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
ARTICLE VII.
The Corporation, through its Board of Directors, reserves the right to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred on stockholders herein are granted subject to this reservation.
ARTICLE VIII.
Election of directors need not be by written ballot unless the Bylaws
of the Corporation shall so provide.
ARTICLE IX.
The number of directors which shall constitute the whole Board of
Directors shall be fixed from time to time by, or in the manner provided in, the
Bylaws or in an amendment thereof duly adopted by the Board of Directors or by
the stockholders.
ARTICLE X.
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XI.
Except as otherwise provided in this Certificate of Incorporation, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of the Corporation.
ARTICLE XII.
The Corporation expressly elects not to be governed by Section 203 of
the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has signed this Certificate of
Incorporation this 16th day of December, 1999.
-------------------------------
Clem Turner, Incorporator
<PAGE>
Exhibit 3.2
BY-LAWS
OF
UPROAR INC.
<PAGE>
BY-LAWS
TABLE OF CONTENTS
Page
ARTICLE 1 -Stockholders....................................................1
1.1 Place of Meetings........................................1
1.2 Annual Meeting...........................................1
1.3 Special Meetings.........................................1
1.4 Notice of Meetings.......................................1
1.5 Voting List..............................................1
1.6 Quorum...................................................2
1.7 Adjournments.............................................2
1.8 Voting and Proxies.......................................2
1.9 Action at Meeting........................................2
1.10 Action without Meeting...................................2
ARTICLE 2 -Directors.......................................................3
2.1 General Powers...........................................3
2.2 Number; Election and Qualification.......................3
2.3 Enlargement of the Board.................................3
2.4 Tenure...................................................3
2.5 Vacancies................................................3
2.6 Resignation..............................................3
2.7 Regular Meetings.........................................3
2.8 Special Meetings.........................................3
2.9 Notice of Special Meetings...............................4
2.10 Meetings by Telephone Conference Calls...................4
2.11 Quorum...................................................4
2.12 Action at Meeting........................................4
2.13 Action by Consent........................................4
2.14 Removal..................................................4
2.15 Committees...............................................4
ARTICLE 3 -Officers........................................................5
3.1 Enumeration..............................................5
3.2 Election.................................................5
3.3 Qualification............................................5
3.4 Tenure...................................................5
3.5 Resignation and Removal..................................5
3.6 Vacancies................................................6
3.7 Chairman of the Board and Vice-Chairman of the Board.....6
3.8 President................................................6
3.9 Vice Presidents..........................................6
3.10 Secretary and Assistant Secretaries......................6
3.11 Treasurer and Assistant Treasurers.......................7
3.12 Salaries.................................................7
<PAGE>
ARTICLE 4 -Capital Stock...................................................7
4.1 Issuance of Stock........................................7
4.2 Certificates of Stock....................................8
4.3 Transfers................................................8
4.4 Lost, Stolen or Destroyed Certificates...................8
4.5 Record Date..............................................8
ARTICLE 5 - Indemnification................................................9
ARTICLE 6 -General Provisions.............................................10
6.1 Fiscal Year.............................................10
6.2 Corporate Seal..........................................10
6.3 Waiver of Notice........................................10
6.4 Voting of Securities....................................10
6.5 Evidence of Authority...................................11
6.6 Certificate of Incorporation............................11
6.7 Transactions with Interested Parties....................11
6.8 Severability............................................11
6.9 Pronouns................................................11
ARTICLE 7 -Amendments.....................................................12
7.1 By the Board of Directors...............................12
7.2 By the Stockholders.....................................12
<PAGE>
BY-LAWS
OF
UPROAR INC.
ARTICLE 1 - Stockholders
1.1 Place of Meetings. All meetings of stockholders shall be held at
such place within or without the State of Delaware as may be designated from
time to time by the Board of Directors or the President or, if not so
designated, at the registered office of the corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting shall be held on a date to be fixed by the Board of
Directors or the President (which date shall not be a legal holiday in the place
where the meeting is to be held) at the time and place to be fixed by the Board
of Directors or the President and stated in the notice of the meeting. If no
annual meeting is held in accordance with the foregoing provisions, the Board of
Directors shall cause the meeting to be held as soon thereafter as convenient.
If no annual meeting is held in accordance with the foregoing provisions, a
special meeting may be held in lieu of the annual meeting, and any action taken
at that special meeting shall have the same effect as if it had been taken at
the annual meeting, and in such case all references in these By-Laws to the
annual meeting of the stockholders shall be deemed to refer to such special
meeting.
1.3 Special Meetings. Special meetings of stockholders may be called at
any time by the President or by the Board of Directors. Business transacted at
any special meeting of stockholders shall be limited to matters relating to the
purpose or purposes stated in the notice of meeting.
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than 10 nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the corporation.
1.5 Voting List. The officer who has charge of the stock ledger of the
corporation shall prepare, at least 10 days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
10 days prior to the meeting, at a place within the city 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 of the meeting, and may be inspected by any
stockholder who is present.
<PAGE>
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the corporation. No such proxy shall be voted or acted upon
after three years from the date of its execution, unless the proxy expressly
provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of shares of stock representing a majority of the votes cast on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of shares of stock of
that class representing a majority of the votes cast on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. When a quorum is present at any meeting, any
election by stockholders shall be determined by a plurality of the votes cast on
the election.
1.10 Action without Meeting. Any action required or permitted to be
taken at any annual or special meeting of stockholders of the corporation may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, is 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 on such action were present and voted. Prompt notice of the
taking of corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
<PAGE>
ARTICLE 2 - Directors
2.1 General Powers. The business and affairs of the corporation shall
be managed by or under the direction of a Board of Directors, who may exercise
all of the powers of the corporation except as otherwise provided by law or the
Certificate of Incorporation. In the event of a vacancy in the Board of
Directors, the remaining directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2.2 Number; Election and Qualification. The number of directors which
shall constitute the whole Board of Directors shall be determined by resolution
of the stockholders or the Board of Directors, but in no event shall be less
than one. The number of directors may be decreased at any time and from time to
time either by the stockholders or by a majority of the directors then in
office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more directors. The
directors shall be elected at the annual meeting of stockholders by such
stockholders as have the right to vote on such election. Directors need not be
stockholders of the corporation.
2.3 Enlargement of the Board. The number of directors may be increased
at any time and from time to time by the stockholders or by a majority of the
directors then in office.
2.4 Tenure. Each director shall hold office until the next annual
meeting and until his successor is elected and qualified, or until his earlier
death, resignation or removal.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy
in the Board of Directors, however occurring, including a vacancy resulting from
an enlargement of the Board, may be filled by vote of a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. A director elected to fill a vacancy shall be elected for the
unexpired term of his predecessor in office, and a director chosen to fill a
position resulting from an increase in the number of directors shall hold office
until the next annual meeting of stockholders and until his successor is elected
and qualified, or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
<PAGE>
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by the Chairman of the Board, President, two or more directors, or by
one director in the event that there is only a single director in office.
2.9 Notice of Special Meetings. Notice of any special meeting of
directors shall be given to each director by the Secretary or by the officer or
one of the directors calling the meeting. Notice shall be duly given to each
director (i) by giving notice to such director in person or by telephone at
least 48 hours in advance of the meeting, (ii) by sending a telegram or telex,
or delivering written notice by hand, to his last known business or home address
at least 48 hours in advance of the meeting, or (iii) by mailing written notice
to his last known business or home address at least 72 hours in advance of the
meeting. A notice or waiver of notice of a meeting of the Board of Directors
need not specify the purposes of the meeting.
2.10 Meetings by Telephone Conference Calls. Directors or any members
of any committee designated by the directors may participate in a meeting of the
Board of Directors or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Except as otherwise provided by the General Corporation
Law of Delaware, any one or more or all of the directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors, except that the directors elected by the holders of
a particular class or series of stock may be removed without cause only by vote
of the holders of a majority of the outstanding shares of such class or series.
<PAGE>
2.15 Committees. The Board of Directors 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. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members of the committee 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 of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, shall have
and may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers which may require it. Each
such committee shall keep minutes and make such reports as the Board of
Directors may from time to time request. Except as the Board of Directors may
otherwise determine, any committee may make rules for the conduct of its
business, but unless otherwise provided by the directors or in such rules, its
business shall be conducted as nearly as possible in the same manner as is
provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services and such reimbursement for expenses of attendance at meetings
as the Board of Directors may from time to time determine. No such payment shall
preclude any director from serving the corporation or any of its parent or
subsidiary corporations in any other capacity and receiving compensation for
such service.
ARTICLE 3 - Officers
3.1 Enumeration. The officers of the corporation shall consist of a
President, a Secretary, a Treasurer and such other officers with such other
titles as the Board of Directors shall determine, including a Chairman of the
Board, a Vice-Chairman of the Board, and one or more Vice Presidents, Assistant
Treasurers, and Assistant Secretaries. The Board of Directors may appoint such
other officers as it may deem appropriate.
3.2 Election. The President, Treasurer and Secretary shall be elected
annually by the Board of Directors at its first meeting following the annual
meeting of stockholders. Other officers may be appointed by the Board of
Directors at such meeting or at any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
<PAGE>
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer may be removed at any time, with or without cause, by vote
of a majority of the entire number of directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his resignation or removal, or any right to damages on
account of such removal, whether his compensation be by the month or by the year
or otherwise, unless such compensation is expressly provided in a duly
authorized written agreement with the corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors may appoint a Chairman of the Board and may designate the Chairman of
the Board as Chief Executive Officer. If the Board of Directors appoints a
Chairman of the Board, he shall perform such duties and possess such powers as
are assigned to him by the Board of Directors. If the Board of Directors
appoints a Vice-Chairman of the Board, he shall, in the absence or disability of
the Chairman of the Board, perform the duties and exercise the powers of the
Chairman of the Board and shall perform such other duties and possess such other
powers as may from time to time be vested in him by the Board of Directors.
3.8 President. The President shall, subject to the direction of the
Board of Directors, have general charge and supervision of the business of the
corporation. Unless otherwise provided by the Board of Directors, he shall
preside at all meetings of the stockholders and, if he is a director, at all
meetings of the Board of Directors. Unless the Board of Directors has designated
the Chairman of the Board or another officer as Chief Executive Officer, the
President shall be the Chief Executive Officer of the corporation. The President
shall perform such other duties and shall have such other powers as the Board of
Directors may from time to time prescribe.
<PAGE>
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. In the event of the absence, inability or refusal to act of the
President, the Vice President (or if there shall be more than one, the Vice
Presidents in the order determined by the Board of Directors) shall perform the
duties of the President and when so performing shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may assign to any Vice President the title of Executive Vice President, Senior
Vice President or any other title selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform
such duties and shall have such powers as the Board of Directors or the
President may from time to time prescribe. In addition, the Secretary shall
perform such duties and have such powers as are incident to the office of the
secretary, including without limitation the duty and power to give notices of
all meetings of stockholders and special meetings of the Board of Directors, to
attend all meetings of stockholders and the Board of Directors and keep a record
of the proceedings, to maintain a stock ledger and prepare lists of stockholders
and their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Treasurer and Assistant Treasurers. The Treasurer shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors or the President. In addition, the Treasurer shall
perform such duties and have such powers as are incident to the office of
treasurer, including without limitation the duty and power to keep and be
responsible for all funds and securities of the corporation, to deposit funds of
the corporation in depositories selected in accordance with these By-Laws, to
disburse such funds as ordered by the Board of Directors, to make proper
accounts of such funds, and to render as required by the Board of Directors
statements of all such transactions and of the financial condition of the
corporation.
The Assistant Treasurers shall perform such duties and possess such
powers as the Board of Directors, the President or the Treasurer may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Treasurer, the Assistant Treasurer, (or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Treasurer.
3.12 Salaries. Officers of the corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
<PAGE>
ARTICLE 4 - Capital Stock
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the corporation
shall be entitled to have a certificate, in such form as may be prescribed by
law and by the Board of Directors, certifying the number and class of shares
owned by him in the corporation. Each such certificate shall be signed by, or in
the name of the corporation by, the Chairman or Vice-Chairman, if any, of the
Board of Directors, or the President or a Vice President, and the Treasurer or
an Assistant Treasurer, or the Secretary or an Assistant Secretary of the
corporation. Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the corporation in
accordance with the requirements of these By-Laws.
<PAGE>
4.4 Lost, Stolen or Destroyed Certificates. The corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the corporation or any
transfer agent or registrar.
4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date 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 to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
ARTICLE 5 - Indemnification
The corporation may, to the fullest extent authorized under the laws of
the State of Delaware, as those laws may be amended and supplemented from time
to time, indemnify any director, officer, employee and/or agent made, or
threatened to be made, a party to an action or proceeding, whether criminal,
civil, administrative or investigative, by reason of being a director, officer
and/or employee of the corporation or a predecessor corporation or, at the
corporation's request, a director or officer of another corporation, provided,
however, that the corporation shall indemnify any such agent in connection with
a proceeding initiated by such agent only if such proceeding was authorized by
the Board of Directors of the corporation. The indemnification provided for in
this Article 5 shall: (i) not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement or vote of
stockholders or disinterested directors or otherwise, both as to action in their
official capacities and as to action in another capacity while holding such
office, (ii) continue as to a person who has ceased to be a director, officer,
employee and/or agent, as the case may be, and (iii) inure to the benefit of the
heirs, executors and administrators of such a person. The corporation's
obligation to provide indemnification under this Article 5 shall be offset to
the extent of any other source of indemnification or any otherwise applicable
insurance coverage under a policy maintained by the corporation or any other
person.
<PAGE>
Expenses incurred by a director of the corporation in defending a civil
or criminal action, suit or proceeding by reason of the fact that he is or was a
director of the corporation (or was serving at the corporation's request as a
director or officer of another corporation) shall be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified by the
corporation as authorized by relevant sections of the General Corporation Law of
Delaware. Notwithstanding the foregoing, the corporation shall not be required
to advance such expenses to an agent who is a party to an action, suit or
proceeding brought by the corporation and approved by a majority of the Board of
Directors of the corporation which alleges willful misappropriation of corporate
assets by such agent, disclosure of confidential information in violation of
such agent's fiduciary or contractual obligations to the corporation or any
other willful and deliberate breach in bad faith of such agent's duty to the
corporation or its stockholders.
The foregoing provisions of this Article 5 shall be deemed to be a
contract between the corporation and each director who serves in such capacity
at any time while this bylaw is in effect, and any repeal or modification
thereof shall not affect any rights or obligations then existing with respect to
any state of facts then or theretofore existing or any action, suit or
proceeding theretofore or thereafter brought based in whole or in part upon any
such state of facts.
The Board of Directors in its discretion shall have power on behalf of
the corporation to indemnify any person, other than a director, made a party to
any action, suit or proceeding by reason of the fact that he, his testator or
intestate, is or was an officer or employee of the corporation.
To assure indemnification under this Article 5 of all directors,
officers and employees who are determined by the corporation or otherwise to be
or to have been "fiduciaries" of any employee benefit plan of the corporation
which may exist from time to time, Section 145 of the General Corporation Law of
Delaware shall, for the purposes of this Article 5, be interpreted as follows:
an "other enterprise" shall be deemed to include such an employee benefit plan,
including without limitation, any plan of the corporation which is governed by
the Act of Congress entitled "Employee Retirement Income Security Act of 1974,"
as amended from time to time; the corporation shall be deemed to have requested
a person to serve an employee benefit plan where the performance by such person
of his duties to the corporation also imposes duties on, or otherwise involves
services by, such person to the plan or participants or beneficiaries of the
plan; excise taxes assessed on a person with respect to an employee benefit plan
pursuant to such Act of Congress shall be deemed "fines."
<PAGE>
ARTICLE 6 - General Provisions
6.1 Fiscal Year. Except as from time to time otherwise designated by
the Board of Directors, the fiscal year of the corporation shall end on the last
day of December in each year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall
be approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise
designate, the President or Treasurer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
corporation (with or without power of substitution) at, any meeting of
stockholders or shareholders of any other corporation or organization, the
securities of which may be held by this corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an
Assistant Secretary, or a temporary Secretary, as to any action taken by the
stockholders, directors, a committee or any officer or representative of the
corporation shall as to all persons who rely on the certificate in good faith be
conclusive evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws to
the Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the corporation, as amended and in effect from time to time.
<PAGE>
6.7 Transactions with Interested Parties. No contract or transaction
between the corporation and one or more of the directors or officers, or between
the corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or a committee of the
Board of Directors which authorizes the contract or transaction or solely
because his or their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith
authorizes the contract or transaction by the affirmative votes of a
majority of the disinterested directors, even though the disinterested
directors be less than a quorum;
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is
specifically approved in good faith by vote of the stockholders; or
(3) The contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified, by the Board of Directors,
a committee of the Board of Directors, or the stockholders.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 Severability. Any determination that any provision of these By-Laws
is for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person or persons may require.
ARTICLE 7 - Amendments
7.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or
repealed or new by-laws may be adopted by the affirmative vote of the holders of
a majority of the shares of the capital stock of the corporation issued and
outstanding and entitled to vote at any regular meeting of stockholders, or at
any special meeting of stockholders, provided notice of such alteration,
amendment, repeal or adoption of new by-laws shall have been stated in the
notice of such special meeting.
(The remainder of this page is intentionally left blank.)
<PAGE>
Registration No. 23558
[graphic
omitted]
BERMUDA
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
I HEREBY CERTIFY that in accordance with section 10 of the Companies Act 1981
E-PUB (HOLDINGS) LIMITED by resolution and with the approval of the Registrar of
Companies has changed its name and was registered as UPROAR LTD. on the 19th day
of March, 1999.
Given under my hand and the Seal of the
[SEAL] REGISTRAR OF COMPANIES this 24th
day of March, 1999.
/S/ [illegible]
-----------------------------------
for Acting Registrar of Companies
<PAGE>
FORM NO. 6 Registration No. EC 23558
[GRAPHIC OMITTED]
BERMUDA
CERTIFICATE OF INCORPORATION
I hereby in accordance with section 14 of the Companies Act 1981 issue this
Certificate of Incorporation and do certify that on the 7th day of July, 1997
E-PUB (HOLDINGS) LIMITED
was registered by me in the Register maintained by me under the provisions of
the said section and that the status of the said company is that of an exempted
company.
Given under my hand and the Seal of
the REGISTRAR OF COMPANIES
this 10th day of July, 1997.
[SEAL]
/S/ [illegible]
-----------------------------------
for Registrar of Companies
<PAGE>
FORM NO. 2
[graphic
omitted]
BERMUDA
THE COMPANIES ACT 1981
ALTERED MEMORANDUM OF ASSOCIATION OF
COMPANY LIMITED BY SHARES
(Section 7(l) and (2))
MEMORANDUM OF ASSOCIATION
OF
E-PUB (HOLDINGS) LIMITED
Hereinafter referred to as "the Company")
1. The liability of the members of the Company is limited to the amount (if
any) for the time being unpaid on the shares respectively held by them.
2. We, the undersigned, namely,
NAME ADDRESS BERMUDIAN NATIONALITY NUMBER OF
STATUS SHARE
(Yes/No) SUBSCRIBED
Ian P. Pilgrim No British 1
Garth Lorimer-Turner No British 1
Patricia Colmet Yes British 1
All of: Bermuda Commercial Bank Building
44 Church Street
Hamilton HM12, Bermuda
do hereby respectively agree to take such number of shares as may be allotted to
us respectively by the provisional directors of the Company, not exceeding the
number of shares for which we have respectively subscribed and to satisfy such
calls as may be made by the directors, provisional directors or promoters of the
Company in respect of the shares alloted to us respectively.
<PAGE>
3. The Company is to be a exempted Company as defined by the Companies Act
1981.
4. The Company has power to hold land situated in Bermuda not exceeding in
all, including following parcels
N/A
5. The authorised share capital of the Company is US $1,400,000 divided into
shares of US $0.05/each. The minimum subscribed share capital of the
Company is US $14,000.
6. The objects for which the Company is formed and incorporated are-
(i) to carry on business as an investment holding company and to acquire
and hold property, both real and personal, including, but without
prejudice to the generality of the foregoing, shares, stocks,
debentures, debenture stock, scrip, bonds, mortgages, obligations,
loan notes and securities of any kind issued or guaranteed by any
company, corporation or undertaking of whatever nature and wherever
constituted or carrying on business, and shares, stocks, debentures,
debenture stock, scrip, bonds, mortgages, obligations, loan notes and
securities of any kind issued or guaranteed by any government,
sovereign ruler, commissioners, trust, local authority or other public
body, whether in Bermuda or elsewhere, and to vary, transpose, dispose
of or otherwise deal with from time to time as may be considered
expedient any of the Company's investments for the time being;
(ii) to acquire any such shares and other securities as are mentioned in
paragraph (i) by subscription, syndicate participation, tender,
purchase, exchange or otherwise and to subscribe for the same, either
conditionally or otherwise, and to guarantee the issue of or
subscription for any such security by any company, corporation or
undertaking whatsoever;
(iii) to acquire and hold in its corporate name any estate or interest in
land outside of these Islands, acquired as an investment pursuant to
paragraph (i), and to manage the investments, sell, exchange,
mortgage, lease and otherwise deal in and dispose of the same and any
interest or rights therein as the Company shall from time to time
determine;
(iv) to co-ordinate the administration, policies, management supervision
control, research, planning, trading and any and all other
activities of any company or companies now or hereafter incorporated
or acquired which may be or may became a company, wherever
incorporated, which is or becomes a holding company or a subsidiary
of, or affiliated with, the Company within the meanings respectively
assigned to those terms in The Companies Act 1981 or, with the prior
written approval of the Minister of Finance, any company or companies
now or hereafter incorporated or acquired with which the Company may
be or may become associated; and
(v) as set forth in paragraphs (b) to (n) and (p) to (u) inclusive of the
Second Schedule to the Act.
7. (i) The Company shall have the power to issue preferred shares redeemable
at the option of the holder in accordance with the provisions of
Section 42 of the Act; and
(ii) The Company shall have the power to purchase or otherwise acquire
shares of the Company in accordance with the provisions of Section 42A
of the Act.
<PAGE>
Signed by each subscriber in the presence of at least one witness attesting the
signature thereof-
/s/Roderick M. Forrest /s/S. Abbott
- ------------------------------ --------------------------------
Roderick M. Forrest
/s/Ian P. Pilgrim /s/S. Abbott
- ------------------------------ --------------------------------
Ian P. Pilgrim
/s/Patricia Colmet /s/S. Abbott
- ------------------------------ --------------------------------
Patricia Colmet
(Subscribers) (Witnesses)
SUBSCRIBED this 30th day of June, 1997.
<PAGE>
STAMP DUTY (to be affixed)
<PAGE>
THE COMPANIES ACT 1981
SECOND SCHEDULE
(Section 11 (2))
Subject to section 4A, a Company may by reference include in its memorandum any
of the following objects, that is to say the business of:
(a) insurance and re-insurance of all kinds;
(b) packaging of goods of all kinds;
(c) buying, selling and dealing in goods of all kinds;
(d) designing and manufacturing of goods of all kinds;
(e) mining and quarrying and exploration for metals, minerals, fossil fuels and
precious stones of all kinds and their preparation for sale or use;
(f) exploring for, the drilling for, the moving, transporting and refining
petroleum and hydro carbon products including oil and oil products;
(g) scientific research including the improvement, discovery and development of
processes, inventions, patents and designs and the construction,
maintenance and operation of laboratories and research centres;
(h) land, sea and air undertakings including the land, ship and air carriage of
passengers, mails and goods of all kinds;
(i) ships and aircraft owners, managers, operators, agents, builders and
repairers;
(j) acquiring, owning, selling, chartering, repairing or dealing in ships and
aircraft;
(k) travel agents, freight contractors and forwarding agents;
(l) dock owners, wharfingers, warehousemen;
(m) ship chandlers and dealing in rope, canvas oil and ship stores of all
kinds;
(n) all forms of engineering;
(o) developing, operating, advising or acting as technical consultants to any
other enterprise or business;
(p) farmers, livestock breeders and keepers, graziers, butchers, tanners and
processors of and
-2-
<PAGE>
dealers in all kinds of live and dead stock, wool, hides, tallow, grain,
vegetables and other produce.
(q) acquiring by purchase or otherwise and holding as an investment inventions,
patents, trade marks, trade names, trade secrets, designs and the like;
(r) buying, selling, hiring, lettering and dealing in conveyances of any sort;
(s) employing, providing, hiring out and acting as agent for artists, actors,
entertainers of all sorts, authors, composers, producers, directors,
engineers and experts or specialists of any kind;
(t) to acquire by purchase or otherwise hold, sell, dispose of and deal in real
property situated outside Bermuda and in personal property of all kinds
wheresoever situated;
(u) to enter into any guarantee, contract of indemnity or suretyship and to
assure, support or secure with or without consideration or benefit the
performance of any obligations of any person or persons and to guarantee
the fidelity of individuals filling or about to fill situations of trust or
confidence; and
(v) to be and carry on the business of a mutual fund within the meaning of
section 156A.
Provided that none of these objects shall enable the company to carry on
restricted business activity as set out in the Ninth Schedule except with the
consent of the Minister.
<PAGE>
THE COMPANIES ACT 1981
(Section 11(1))
Subject to any provision of the law, a company limited by shares shall without
reference in its memorandum have the powers set out in the First Schedule unless
any of such powers are excluded by its memorandum.
FIRST SCHEDULE
A Company limited by shares may exercise all or any of the following powers
subject to any provision of the law or its memorandum:
1 to acquire or undertake the whole or any part of the business, property
and liabilities of any person carrying on any business that the company is
authorised to carry on;
2. to apply for register, purchase, lease, acquire, hold, use, control,
licence, sell, assign or dispose of patents, patent rights, copyrights,
trade marks, formulae, licences, inventions, processes, distinctive marks
and similar rights;
3. to enter into partnership or into any arrangement for sharing of profits,
union of interest, co-operation, joint venture, reciprocal concession or
otherwise with any person carrying on or engaged in or about to carry on or
engage in any business or transaction that the company is authorised to
carry on or engage in or any business or transaction capable of being
conducted so as to benefit the company;
4. to take or otherwise acquire and hold securities in any other body
corporate having objects altogether or in part similar to those of the
company or carrying on any business capable of being conducted so as to
benefit the company;
5. subject to section 96 to lend money to any employee or to any person having
dealings with the company or with whom the company proposes to have
dealings or to any other body corporate any of whose shares are held by the
company;
6. to apply for, secure or acquire by grant, legislative enactment,
assignment, transfer, purchase or otherwise and to exercise, carry out and
enjoy any charter, licence, power, authority, franchise, concession, right
or privilege, that any government or authority or any body corporate or
other public body may be empowered to grant, and to pay for, aid in and
contribute toward carrying it into effect and to assure any liabilities or
obligations incidental thereto;
7. to establish and support or aid in the establishment and support of
associations, institutions, funds or trusts for the benefit of employees or
former employees of the company or its predecessors, or the dependants or
connections of such employees or former employees, and towards insurance or
for any object similar to those set forth in this paragraph, and to
subscribe or guarantee money for charitable, benevolent, educational or
religious objects or for any exhibition or for any public, general or
useful objects;
8. to promote any company for the purpose of acquiring to taking over any of
the property and liabilities of the company or for any other purpose that
may benefit the company;
9. to purchase, lease, take in exchange, hire or otherwise acquire any
personal property and any rights or privileges that the company considers
necessary or convenient for the purposes of its business;
<PAGE>
10. to construct, maintain, alter, renovate and demolish any buildings or
works necessary or convenient for its objects;
11. to take land in Bermuda by way of lease or letting agreement for a term not
exceeding fifty years, being land "bona fide" required for the purposes of
the business of the company and with the consent of the Minister granted in
his discretion to take land in Bermuda by way of lease or letting agreement
for a term not exceeding twenty-one years in order to provide accommodation
or recreational facilities for its officers and employees and when no
longer necessary for any of the above purposes to terminate or transfer the
lease or letting agreement;
12. except to the extent, if any, as may be otherwise expressly provided in its
incorporating Act or memorandum and subject to the provisions of this Act
every company shall have power to invest the moneys of the Company by way
of mortgage of real o personal property and every description in Bermuda or
elsewhere and to sell exchange, vary, or dispose of such mortgage as the
company shall from time to time determine;
13. to construct, improve, maintain, work, manage, carry out or control any
roads, ways, tramways, branches or sidings, bridges, reservoirs,
watercourses, wharves, factories, warehouses, electric works, shops, stores
and other works and conveniences that may advance the interests of the
company and contribute to, subsidise or otherwise assist or take part in
the construction, improvement, maintenance, working, management, carrying
out or control thereof;
14. to raise and assist in raising money for, and aid by way of bonus, loan,
promise, endorsement, guarantee or otherwise, any person and guarantee the
performance or fulfilment of any contracts or obligations of any person,
and in particular guarantee the payment of the principal of and interest on
the debt obligations of any such person;
15. to borrow or raise or secure the payment of money in such manner as the
company may think fit;
16. to draw, make, accept, endorse, discount, execute and issue bills of
exchange, promissory notes, bills of lading, warrants and other negotiable
or transferable instruments;
17. when properly authorised to do so, to sell, lease, exchange or otherwise
dispose of the undertaking of the company or any part thereof as an
entirety or substantially as an entirety for such consideration as the
company thinks fit;
18. to sell, improve, manage, develop, exchange, lease, dispose of, turn to
account or otherwise deal with the property of the company in the ordinary
course of its business;
19. to adopt such means of making known the products of the company as may seem
expedient, and in particular by advertising, by purchase and exhibition of
works of art or interest, by publication of books and periodicals and by
granting prizes and rewards and making donations;
20. to cause the company to be registered and recognised in any foreign
jurisdiction, and designate persons therein according to the laws of that
foreign jurisdiction or to represent the company and to accept service for
and on behalf of the company of any process or suit;
2
<PAGE>
21. to allot and issue fully paid shares of the company in payment or part
payment of any property purchased or otherwise acquired by the company or
for any past services performed for the company;
22. to distribute among the members of the company in cash, kind, specie or
otherwise as may be resolved, by way of dividend, bonus or in any other
manner considered advisable, any property of the company, but not so as to
decrease the capital of the company unless the distribution is made for the
purpose of enabling the company to be dissolved or the distribution, apart
from this paragraph, would be otherwise lawful;
23. to establish agencies and branches;
24. to take or hold mortgages, hypothecs, liens and charges to secure payment
of the purchase price, or of any unpaid balance of the purchase price, of
any part of the property of the company of whatsoever kind sold by the
company, or for any money due to the company from purchasers and others and
to sell or otherwise dispose of any such mortgage, hypothec, lien or
charge;
25. to pay all costs and expenses of or incidental to the incorporation and
organisation of the company;
26. to invest and deal with the moneys of the company not immediately required
for the objects of the company in such manner as may be determined;
27. to do any of the things authorised by this sub-section and all things
authorised by its memorandum as principals, agents, contractors, trustees
or otherwise, and either alone or in conjunction with others;
28. to do all such other things as are incidental or conducive to the
attainment of the objects and the exercise of the powers of the company.
Every company may exercise its powers beyond the boundaries of Bermuda to the
extent to which the laws in force where the powers are sought to be exercised
permit.
3
<PAGE>
Bye-Laws
of
UPROAR LTD.
(formerly E-Pub (Holdings) Limited)
I HEREBY CERTIFY that the following is a true copy of the Bye-Laws of Uproar
Ltd. (the "Company") as adopted by the Shareholders of the Company dated 19th
March, 1999, in substitution for the Bye-laws of the Company adopted at the
Statutory Meeting of the Company held on 21st July, 1997.
/s/ [illegible]
---------------
Director
M.L.H. Quin & Co.
Barristers & Attorneys
Bermuda Commercial Bank Building [SEAL]
44 Church Street
Hamilton, Bermuda HM12
Telephone: (441) 292 7070
Facsimile: (441) 292 8899
email: [email protected]
<PAGE>
INDEX
BYE-LAW PAGE
- ------- ----
INTERPRETATION 1
1. Definitions and Interpretation
SHARE CAPITAL AND SHARE RIGHTS
2. Rights of Shares 2
3. Modification of Share Rights 3
4. Increase, reduction or alteration of Capital 3
5. Power to Issue Shares 3
6. Registered Holder of Shares 3
7. Register of Members 3
8. Share Certificates 4
9. Lien on Shares 4
10. Call on Shares 4
11. Forfeiture of Shares 5
TRANSFER OF SHARES
12. Transfer of Shares 5
13. Instrument of Transfer 5
14. Restrictions on Transfer 5
IS. Transfers by Joint Holders 5
TRANSMISSION OF SHARES
16. Representative of Deceased Member 6
17. Registration on Death or Bankruptcy 6
GENERAL MEETINGS
18. Annual General Meetings 6
19. Special General Meetings/Requisition of Members 7
20. Short Notice 7
21. Accidental Omission of Notice of General Meeting 8
22. Quorum for General Meetings 8
23. Adjournment of Meetings 8
24. Telephone etc. Meetings 8
25. Attendance of Directors 8
26. Chairman of Meetings 8
27. Voting at Meetings 9
28. Equality of Votes 9
29. Seniority of Joint Holders Voting 9
30. Objections at Meetings 9
31. Proxies and Corporate Representatives 9
32. Written Resolutions 10
BOARD OF DIRECTORS
33. Appointment of Directors 10
34. Retirement and Removal of Directors 11
35. Resignation and Disqualification of Directors 11
i
<PAGE>
BYE-LAW PAGE
- ------- ----
36. Register of Directors and Officers 11
37. Directors' Fees and Additional Remuneration and Expenses 12
38. Directors' Interests 12
POWERS AND DUTIES OF THE BOARD
39. Management of the Company 12
40. Power to Borrow and Charge Property 12
41. Power to Provide Benefits 12
42. Power to Appoint Managing Director or Chief Executive Officer 13
43. Power to Appoint Manager and to Appoint and Dismiss Employees 13
44. Power to Authorise Specific Actions and Appoint Attorney 13
45. Power to Delegate 13
46. Exercise of Power to Purchase Shares of, or discontinue, the Company 13
47. Meetings of the Board 14
48. Notice of Meetings of the Board 14
49. Quorum for Board Meetings 14
5O. Chairman of Meetings 14
51. Committees of Directors 14
52. Written Resolutions 15
53. Acts Valid notwithstanding Defect in Appointment 15
OFFICERS OF THE COMPANY
54. Officer of the Company 15
55. Appointment of Officers 15
56. Remuneration and Duties of Officers 16
57. Minutes 16
THE SEAL
58. The Seal 16
59. Manner in which Seal is to be affixed 16
DIVIDENDS AND OTHER DISTRIBUTIONS
60. Declaration of Dividends by the Board 16
61. Other Distributions 16
62. Reserve Fund 17
63. Deduction of Amounts due to the Company 17
64. Record Dates 17
CAPITALISATION OF PROFITS
65. Issue of Bonus Shares 17
ACCOUNTS AND FINANCIAL STATEMENTS
66. Records of Account 17
67. Financial Year End 17
68. Financial Statements 18
AUDIT
69. Auditors 18
ii
<PAGE>
BYE-LAW PAGE
- ------- ----
NOTICES
70. Notices to Members 18
71. Notice of General Meetings 18
WINDING UP
72. Winding-up/Distribution by Liquidator 18
INDEMNITY
73. Indemnification of Directors and Officer 18
ALTERATION OF BYE-LAWS
74. Alteration of Bye-laws 19
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AMENDED AND RESTATED
BYE-LAWS
of
UPROAR LTD.
INTERPRETATION
1. Definitions and interpretation
1.1 In these Bye-Laws:
"Act means the Companies Act 1981;
"Bermuda" means the Islands of Bermuda;
"Board" means the Board of Directors of the Company appointed or elected
pursuant to these Bye-laws and acting by resolution in accordance with the
Act and these Bye-laws or the Directors present at a meeting of Directors
at which there is a quorum;
"Company" means E-Pub (Holdings) Limited;
"Director" means a director of the Company appointed in accordance with
these Bye-laws;
"Member" means a member of the Company holding one or more shares and,
when two or more persons are registered as joint holders of shares, means
the person whose name stands first in the Register of Members as one of
such joint holders or all of such persons as the context requires.
"Officer" means any person appointed by the Board to hold an office in the
Company;
"Register of Directors and Officers" means the register of directors and
officers of the Company maintained by the Company in Bermuda;
"Register of Members" means the register of members of the Company
maintained by the Company in Bermuda;
"Registered Office" means the registered office of the Company which shall
be at such place in Bermuda as the Directors shall from time to time
appoint;
"Resident Representative" means any person appointed to act as resident
representative and includes any deputy or assistant resident
representative;
"Resolution" means a resolution of the Members, or where required, of a
separate class or separate classes of Members, adopted either in general
meeting or by written resolution, in accordance with these Bye-Laws;
"Seal" means the Common Seal of the Company and includes any duplicate
thereof;
"Secretary" means (subject to the provisions of the Act) the person for
the time being appointed to perform the duties of the Secretary of the
Company and includes an Assistant, Acting or Deputy Secretary;
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"Special Resolution" means a resolution of the Members or where required,
of a separate class or separate classes of Member, either adopted in
general meeting by Members representing not less than 50% of the issued
shares carrying the right to vote at such meetings or adopted by written
resolution in accordance with Bye-law #32.
1.2 In these Bye-laws, unless inconsistent with the context or the contrary
intention appears a reference to:
(a) "paid up" means paid up or credited as paid up;
"may" shall be construed as permissive;
"shall" shall be construed as imperative; and
a "share" means a share in the capital of the Company.
(b) any meeting (whether of the Directors, a committee appointed by the
Board, the Members or any class of the Members) includes any
adjournment of that meeting;
(c) the singular includes the plural and vice versa;
(d) the masculine includes the feminine and neuter respectively;
(e) persons include companies, associations or bodies of persons, whether
corporate or not;
(f) writing includes typewriting, printing, lithography, photography and
other modes of representing or reproducing words in a legible and
non-transitory form;
(g) a bye-law is a reference to a Bye-law of these Bye-laws; and
(h) a statute or law in a reference to a Bermuda statute or law and a
provision of any statute or law is a reference to that provision as
amended or re-enacted.
1.3 Unless otherwise provided in these Bye-laws, any terms defined in the Act
in force at the date when these Bye-Laws or any part hereof are adopted
and used in these Bye-Laws shall bear the same meaning in these Bye-Laws
or such part (as the case may be).
1.4 For the purposes of these Bye-laws a corporation shall be deemed to be
present in person if its representative duly authorised pursuant to the
Act is present.
1.5 The index to and the headings in these Bye-laws are for convenience only
and are to be ignored in construing these Bye-laws.
SHARE CAPITAL AND SHARE RIGHTS
2. Rights of shares
Subject to any special rights conferred on the holders of any share or
class of shares, any share in the Company may be issued with or have
attached thereto such preferred, deferred, qualified or other special
rights or such restrictions, whether in regard to dividend, voting, return
of capital or otherwise, as the Company may by Resolution determine or, if
there has not been any such determination or so far as the same shall not
make specific provision, as the Board may determine.
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3. Modification of share rights
3.1 Subject to the Act, all or any of the rights for the time being attached
to any class of shares for the time being issued may from time to time
(whether or not the Company is being wound up) be altered or abrogated
with the consent in writing of the holders of not less than 50% of the
issued shares of that class or with the sanction of a Resolution of the
holders of such shares voting in person or by proxy at a separate general
meeting of the holders of the shares of that class in accordance with
Section 47(7) of the Act.
3.2 The special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise expressly provided in the rights
attaching to or the terms or issue of such shares, be deemed to be altered
by the creation or issue of further shares ranking pari passu therewith.
4. Increase, reduction or alteration of Capital
4.1 The Company may from time to time by Special Resolution change the
currency of denomination of, increase, alter or reduce its share capital
in accordance with Sections 45 and 46 of the Act.
4.2 Where any fraction of a share or other difficulty arises an any
alteration, the Board may settle the same as it thinks fit including,
without limitation to the generality of the foregoing, the issue to
Members of fractions of shares and/or arranging for the sale and transfer
of fractions of shares of Members.
5. Power to Issue shares
5.1 Subject to the Act, any preference shares may be issued or converted into
shares that at a determinable date or at the option of the Company, are
liable to be redeemed on such terms and in such manner as the Company
before the issue or conversion may by Resolution determine.
5.2 Subject to the provisions of these Bye-Laws, the unissued shares of the
Company (whether forming part of the original capital or any increased
capital) shall be at the disposal of the Board, which may offer, allot,
grant options over or otherwise dispose of them to such persons, at such
times and for such consideration and upon such terms and conditions as the
Board may determine.
5.3 The Board may in connection with the issue of any shares exercise all
powers of paying commission and brokerage conferred or permitted by law.
6. Registered holder of shares
6.1 The Company may treat the registered holder of any share as the absolute
owner thereof and shall not be bound to recognise (even when having notice
thereof) any equitable or other claim to, or interest in, any share on the
part of any other person.
6.2 Any dividend, interest or other monies payable in cash in respect of
shares may be paid by cheque or draft sent through the post directed to
the Member at that Member's address in the Register of Members or, in the
case of joint holders, to such address of the holder first named in the
Register of Members, or to such person and to such address as the holder
or joint holders may in writing direct. If two or more persons are
registered as joint holders of any shares any one of such holders can give
an effective receipt for any dividend paid in respect of those shares.
7. Register of Members
The Secretary shall establish and maintain the Register of Members at the
Registered Office in the manner prescribed by the Act. Unless the Board
otherwise determines, the Register of Members shall be open to inspection
in the manner prescribed by the Act between 10.00 a.m. and 12.00 noon
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on every working day. Unless the Board so determines, no Member or
intending Member shall be entitled to have entered in the Register of
Members any indication of any trust or any equitable, contingent, future
or partial interest in any share or any interest in any fractional part of
a share and if any such entry exists or is permitted by the Board it shall
not be deemed to abrogate any of the provisions of Bye-Law 6.1.
8. Share certificates
8.1 The preparation, issue and delivery of certificates shall be governed by
the Act. In the case of a share held jointly by several persons, delivery
of a certificate to one or several joint holders shall be sufficient
delivery to all.
8.2 The Company shall not be obliged to complete or deliver share certificate
unless specifically called upon to do so by the person to whom such shares
have been allotted or transferred.
8.3 If a share certificate shall be proved to the satisfaction of the Board to
have been defaced, lost, worn out or destroyed the Board may cause a new
certificate to be issued and request an indemnity for the lost certificate
if it sees fit.
9. Lien on shares
9.1 The Company shall have a first lien on every share (not being a fully paid
share for all moneys called or payable in respect of such share, and the
Company shall also have a first lien on every share (other than a fully
paid share) registered in the name of a Member, whether singly or jointly,
for all the debts and liabilities, whether actual or contingent or owed
singly or jointly with any other person, of that Member to the Company.
The Company's lien on a share shall extend to all dividends payable
thereon. The Board may at any time waive any lien that has arisen or
declare any share to be wholly or in part exempt from the provisions of
this Bye-law.
9.2 The Company may sell, in such manner as the Board may think fit, any share
on which the Company has a lien but no sale shall be made unless some sum
in respect of which the lien exists is presently payable nor until the
expiration of fourteen days after a notice in writing, stating and
demanding payment of the sum presently payable and giving notice of the
intention to sell in default of such payment, has been served on the
holder for the time being of the share.
9.3 The net proceeds of sale by the Company of any shares on which it has a
lien shall be applied in or towards payment or discharge of the debt or
liability in respect of which the lien exists so far as the same is
presently payable, and any residue shall (subject to a like lien for debts
or liabilities not presently payable as existed upon the share prior to
the sale) be paid to the holder of the share immediately before such sale.
For giving effect to any such sale the Board may authorise some person to
transfer the share sold to the purchaser thereof. The purchaser shall be
registered as the holder of the share and he shall not be bound to see to
the application of the purchase money, nor shall his title to the share be
affected by any irregularity or invalidity in the proceedings relating to
the sale.
10. Call on shares
10.1 The Board may from time to time make calls upon a Member in respect of any
moneys unpaid on the shares allotted to or held by that Member and if a
call is not paid on or before the day appointed for payment, the Member
may at the discretion of the Board be liable to pay to the Company
interest on the unpaid amount of any such call at such rate as the Board
may determine, from the date on which that call was payable to the actual
date of payment. The joint holders of a share shall be jointly and
severally liable to pay all calls in respect thereof. A call may be
revoked or postponed as the Board may determine.
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10.2 The Board may on the issue of shares differentiate between the allottees
or holders as to the amount of calls to be paid and the times of payment.
11. Forfeiture of shares
11.1 If a Member fails to pay any call on the day appointed for payment
thereof, the Board may at any time thereafter during such time as any part
of the call remains unpaid serve a notice on him requiring payment of so
much of the call as is unpaid, together with any interest which may have
accrued.
11.2 The notice shall name a further day (not being less than 14 days from the
date of the notice) on or before which, and the place where, the payment
is to be made and shall state that, if the payment is not paid on or
before the day and at the place appointed, the shares in respect of which
such call is payable will be liable to be forfeited. The Board may accept
the surrender of any share liable to be forfeited and, in such case,
references in these Bye-Laws to forfeiture shall include surrender.
11.3 If the requirements of any such notice are not complied with, any such
share may at any time thereafter before payment of such call and interest
due in respect thereof be forfeited by a resolution of the Board to that
effect whereupon such share shall become the property of the Company and
may be disposed of as the Board shall determine. Any forfeiture shall
include all dividends declared in respect of the forfeited shares and not
actually paid before the forfeiture.
11.4 A Member whose shares have been forfeited shall cease to be a Member in
respect of the forfeited shares but shall, notwithstanding the forfeiture,
remain liable to pay to the Company all calls owing on such shares at the
time of forfeiture and all interest due thereon and the Company may
enforce payment without being obliged to make any allowance for the value
of the shares forfeited.
TRANSFER OF SHARES
12. Transfer of shares
Subject to the Act and to any applicable restrictions in these Bye-Laws,
any Member may transfer all or any of his shares by an instrument of
transfer in the usual common form or in any other form which the Board may
approve.
13. Instrument of transfer
The instrument of transfer of a share shall be signed by or on behalf of
the transferor alone except where the shares the subject of the instrument
of transfer have not been fully paid up in which case the instrument of
transfer shall be signed by the transferor and the transferee, and the
transferor shall be deemed to remain the holder of the share until the
name of the transferee is entered in the Register of Members in respect
thereof. All Instruments of transfer when registered may be retained by
the Company.
14. Restrictions on transfer
The Board may, in its absolute discretion and without assigning any reason
therefor refuse to register the transfer of a share which has not been
fully paid up.
15. Transfers by joint holders
The joint holders of any share may transfer that share to one or more of
those joint holders, and the surviving holder or holders of any share
previously held by them jointly with a deceased Member may transfer any
such share to the executors or administrators of that deceased Member.
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TRANSMISSION OF SHARES
16. Representative of deceased Member
In the case of the death of a Member, the survivor or survivors where the
deceased Member was a joint holder, and the legal personal representatives
of the deceased Member, where he was sole holder, shall be the only
persons recognised by the Company as having any title to his shares.
Nothing contained in these Bye-laws shall release the estate of a deceased
holder (whether sole or joint) from any liability in respect of any share
held by him solely or jointly with other persons. Subject to Section 52 of
the Act, for the purpose of this Bye-Law, legal personal representative
means the executor or administrator of a deceased Member or such other
person as the Board may in its absolute discretion determine to be the
person properly authorized to deal with the shares of a deceased Member.
17. Registration on death or bankruptcy
17.1 Any person becoming entitled to a share on the death or bankruptcy of a
Member may be registered as a Member on such evidence as the Board may
deem sufficient or may elect to have some person nominated by him
registered as the transferee thereof. If the person so entitled elects to
be registered himself, he shall deliver to the Company a notice in writing
to that effect signed by him. If he elects to have his nominee registered,
he shall execute in favour of his nominee an instrument of transfer of
such share. On presentation of the notice or instrument of transfer (as
the case may be) to the Board together with such evidence as the Board may
require to prove the title of the person so entitled, the person so
entitled or the transferee (as the case may be) shall be registered as a
Member but the Board shall, in either case, have the same right to decline
or suspend registration as it would have had in the case of a transfer of
the share by that Member before his death or bankruptcy (as the case may
be).
17.2 Subject to any directions of the Board from time to time in force, the
Secretary may exercise the powers and discretions of the Board under
Bye-Law 17.1.
GENERAL MEETINGS
18. Annual general meetings
18.1 An annual general meeting of the Company shall be held in each calendar
year in accordance with the requirements of the Act at such time and place
as the Board shall appoint. Notice in writing shall be given to each
Member entitled to receive notice thereof not fewer than 21 nor more than
60 days (excluding the day on which it is served or deemed to be served
and the day for which it is given) specifying the place, date and time of
the meeting, that the election of Directors will take place at the meeting
and, as far as practicable, the general nature of the business to be
considered.
18.2 Nominations of persons for election to the Board and the proposal of
business to be considered by the Members may be made at an annual general
meeting (a) pursuant to the Company's notice of meeting, by or at the
direction of the Board of Directors in accordance with these Bye-laws or
(b) by any Member of the Company who was a Member of record at the time of
giving of notice provided for in this Bye-law 18, who is entitled to vote
at the meeting and who complies with the notice procedures set forth in
this Bye-law 18.
18.3 For nominations or other business to be properly brought before an annual
general meeting by a Member pursuant to clause (b) of Bye-law 18.2, the
Member must have given timely notice thereof in writing to the Secretary
and such other business must otherwise be a proper matter for Member
action. To be timely a Member's notice shall be delivered to the Secretary
at the principal executive offices of the Company not later than the close
of business on the one hundred and twentieth (120th) day nor earlier than
the close of business on the one hundred and fiftieth (150th) day prior to
the first
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anniversary of the date of the notice delivered to Members in connection
with the preceding year's annual general meeting; provided, however, that
if either (i) the date of the annual general meeting is more than thirty
(30) days before or more than sixty (60) days after such an anniversary
date or (ii) if no notice was delivered to Members in connection with the
preceding year's annual general meeting, notice by the Member to be timely
must be so delivered not earlier than the close of business on the
ninetieth (90th) day prior to such annual general meeting or the close of
business on the tenth (10th) day following the day on which public
announcement of the date of such meeting is first made by the Company.
Such Member's notice shall set forth (a) as to each person whom the Member
proposes to nominate for election or reelection as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended of the U.S.A. (the "Exchange Act")
(including such person's written consent to being named in the notice as a
nominee and to serving as a director if elected); (b) as to any other
business that the Member proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting and any material
interest in such business of such Member and the beneficial owner, if any,
on whose behalf the proposal is made; and (c) as to the Member giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such Member, as they appear
on the Company's books, and of such beneficial owner and (ii) the class
and number of shares that are owned beneficially and held of record by
such Member and such beneficial owner.
18.4 Notwithstanding anything in the second sentence of Bye-law 18.3 to the
contrary, in the event that the number of directors to be elected to the
Board of the Company is increased and there is no public announcement by
the Company naming all of the nominees for director or specifying the size
of the increased Board at least seventy (70) days prior to the first
anniversary of the preceding year's annual general meeting (or, it the
annual general meeting is held more than thirty (30) days before or sixty
(60) days after such anniversary date, at least seventy (70) days prior to
such annual general meeting), a Member notice required by this Bye-law 18
shall also be considered timely, but only with respect to nominees for any
new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive office of the Company not later than
the close of business on the tenth (10th) day following the day on which
such public announcement is first made by the Company.
19. Special general meetings/requisition of Members
19.1 General meetings other than annual general meetings, which shall be
special general meetings, may be convened by the President and shall be
convened by the president or secretary at the request in writing of two
thirds of the Board.
19.2 The Board shall, on the requisition of Members holding at the date of
deposit of the requisition not less than one-tenth of such of the paid-up
share capital of the Company as at the date of deposit carries the right
to attend and vote at general meetings of the Company, forthwith proceed
to convene a special general meeting of the Company and Section 74 of the
Act shall apply.
19.3 A special general meeting shall be convened by the Board on not fewer than
21 days' and not more than 60 days' notice, (excluding the day on which it
is served or deemed to be served and the day for which it is given) in
writing to each Member entitled to receive notice thereof specifying the
place, date and time of the meeting and the general nature of the business
to be considered at the meeting.
20. Short notice
Notwithstanding that a meeting of the Company is called by shorter notice
than that specified in Bye-laws 18 or 19, it shall be deemed to have been
duly called if it is so agreed:
(a) in the case of a meeting called as an annual general meeting, by all
the Members entitled to attend and vote at the meeting;
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(b) in the case of any other meeting, by a majority in number of the
Members having the right to attend and vote at the meeting, being a
majority together holding not less than 95 percent in nominal value
of the shares giving that right.
21. Accidental omission of notice of general meeting
The accidental omission to give notice of a meeting or (in cases where
instruments of proxy are sent out with the notice) the accidental omission
to send such instrument of proxy to, or the non-receipt of notice of a
meeting or such instrument of proxy by, any person entitled to receive
such notice shall not invalidate the proceedings at that meeting.
22. Quorum for general meetings
No business shall be transacted at any general meeting unless a quorum in
present. Save as otherwise provided by these Bye-Laws, at least two
Members representing not less than 50% of the issued shares carrying the
right to vote in the Company, present in person or by proxy shall be a
quorum for all purposes, provided that if the Company shall have only one
Member, one Member present in person or by proxy shall constitute the
necessary quorum. If within half an hour from the time appointed for the
meeting a quorum is not present, the meeting shall stand adjourned to the
same day one week later, at the same time and place or to such other day,
time and place as the Secretary may determine.
23. Adjournment of meetings
The chairman of a general meeting may, with the consent of the Members at
any general meeting at which a quorum is present (and shall if so
directed), adjourn the meeting. Unless the meeting is adjourned to a
specific date and time, fresh notice of the date, time and place for the
resumption of the adjourned meeting shall be given to each Member entitled
to attend and vote at general meetings in accordance with these Bye-laws.
24. Telephone etc. meetings
Members may participate in any general meeting only by attendance in
person or attendance in person of their duly appointed proxy. Attendance
by telephone, electronic or other communication facilities shall not
constitute presence in person at such meeting.
25. Attendance of Directors
The Directors shall upon written request deposited at the Registered
Office be entitled to receive notice of, attend and speak at, general
meetings of the Company.
26. Chairman of meetings
The Chairman or President of the Company shall preside as chairman at
every general meeting. If at any meeting neither the Chairman nor the
President is present within twenty minutes after the time appointed for
holding the meeting, the Directors present shall choose one of their
number to act or if one Director only is present he shall preside as
chairman if willing to act. If no Director is present or, if no Director
is willing to act as chairman, the persons present and entitled to vote
shall elect one of their number to be chairman. The appointment of a
chairman to preside at any general meeting, in the absence of the Chairman
or President, may be made immediately if the Chairman and President have
indicated, in writing, to the Secretary that they shall not attend such
meeting.
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27. Voting at meetings
When a quorum is present at any meeting, the vote of the holders of a
majority of the shares having voting power present in person or
represented by proxy shall decide any question brought before such
meeting, unless the question is one upon which by express provision of the
Act of these By-laws, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
28. Equality of votes
In the case of an equality of votes, the chairman of the meeting shall not
have a second or casting vote and the proposed resolution shall fail.
29. Seniority of joint holders voting
In the case of joint holders the vote of the senior who tenders a vote,
whether in person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders, and for this purpose seniority shall be
determined by the order in which the names stand in the Register of
Members.
30. Objections at meetings
If at a general meeting;
(a) any objection is raised to the qualification of any voter, or
(b) any votes are counted which should not have been counted or which may
have been rejected; or
(c) any votes are not counted which should have been counted,
the objection or error shall not vitiate the decision of the meeting on
any resolution unless the objection or error is raised or pointed out at
the meeting at which the vote is given or tendered or at which the error
occurs. Any objection or error shall be referred to the chairman of the
meeting and shall only vitiate the decision of the meeting on any
resolution if the chairman decides that the same may have affected the
decision of the meeting. The decision of the chairman on such matters
shall be final and conclusive.
31. Proxies and corporate representatives
31.1 The instrument appointing a proxy shall be in writing under the hand of
the appointor or of his attorney authorised by him in writing or, if the
appointer is a company, either under its seal or under the hand of an
officer, attorney or other persons authorised to sign the same.
31.2 A Member may designate a person who is not a Member of the Company as his
proxy to represent such Member and vote on his behalf at any General
Meeting of the Company or any Meeting of the holders of any class of
shares. A proxyholder shall only vote in accordance with the direction
made in the instrument of proxy duly executed by Members granting such
proxy and in the absence of such direction the proxyholder shall be bound
to vote the proxy in favour of the proposals recommended by the Board of
the Company.
31.3 The instrument appointing a proxy together with such other evidence as in
its discretion, the Board may from time to time require, shall be
delivered at the Registered Office (or at such place as may be specified
in the notice convening the meeting or in any notice of adjournment or, in
either case, in any document sent therewith) at anytime prior to the
holding of the meeting or adjourned meeting at which the persons named in
the instrument proposes to vote.
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31.4 Instruments of proxy shall be in any common form or in such other form as
the Board may approve and the Board may, if it thinks fit, send out with
the notice of any meeting forms of instruments of proxy for use at that
meeting. The instrument of proxy shall be deemed to confer authority to
vote on any amendment of a resolution put to the meeting for which it is
given as the proxy thinks fit. The instrument of proxy shall unless the
contrary is stated therein be valid as well for any adjournment of the
meeting as for the meeting to which it relates.
31.5 Subject to the Act, the Board may at its discretion waive any of the
provisions of these Bye-laws relating to proxies or authorisations and, in
particular, may accept such verbal or other assurances as it thinks fit as
to the right of any person to attend and vote on behalf of any Member at
general meetings or to sign written resolutions.
32. Written Resolutions
32.1 Subject to Bye-law 32.5, anything which may be done by Resolution of the
Company in general meeting or by Resolution of a meeting of any class of
the Members of the Company may, without a meeting and without any previous
notice being required, be done by Resolution in writing, signed by all of
the Members or their proxies, or in the case of a Member that is a
corporation (whether or not a company within the meaning of the Act) on
behalf of such Member, being all of the Members of the Company who at the
date of the Resolution in writing would be entitled to attend a meeting
and vote on the Resolution.
32.2 A written Resolution may be signed by, or in the case of a Member that is
a corporation (whether or not a company within the meaning of the Act), on
its behalf, all the Members of the Company, or any class thereof, in as
many counterparts as may be necessary.
32.3 For the purposes of this Bye-law 32, the date of a written resolution is
the date when the resolution is signed by, or in the case of a Member that
is a corporation (whether or not a company within the meaning of the Act),
on its behalf, the last Member to sign and any reference in any Bye-law to
the date of passing of a Resolution is, in relation to a Resolution in
writing made in accordance with this Bye-law, a reference to such date.
32.4 A Resolution in writing made in accordance with this Bye-Law 32 is as
valid as if it has been passed by the Company in general meeting or, if
applicable, by a meeting of the relevant class of Members, of the Company,
as the case may be, and shall constitute minutes for the purposes of the
Act and these Bye-Laws.
32.5 This Bye-law 32 shall not apply to:
(a) a Resolution passed pursuant to Section 89(5) of the Act or
(b) a Resolution passed for the purpose of removing a Director before the
expiration of his term of office under these Bye-laws.
BOARD OF DIRECTORS
33. Appointment of Directors
33.1 The number of Directors which shall constitute the whole Board of
Directors of the Company shall be determined by the Members in general
meeting but shall not be less than two.
33.2 Without prejudice to the power of the Company by Resolution to appoint any
person to be a Director in accordance with these Bye-laws, the Board, by a
resolution passed by a majority of not less than 66.67% of the members of
the Board in office, so long as a quorum of Directors remains in office,
shall have power at any time and from time to time to appoint any
individual to be a Director so as to fill a casual vacancy.
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34. Retirement and Removal of Directors
34.1 At each annual general meeting one-third of the Directors or, if their
number is not three or a multiple of three, the number nearest to but not
exceeding one-third, shall retire from office. If there are fewer than
three directors who are subject to retirement by rotation, one shall
retire from office.
Subject to the Act and the Bye-laws, the Directors to retire by rotation
at an annual general meeting include, so far as necessary to obtain the
number required, first, a director who wishes to retire and not offer
himself for reappointment and, second, those directors who have been
longest in office since their last appointment or reappointment. As
between two or more who have been in office an equal length of time, the
director to retire shall, in default of agreement between them, be
determined by lot.
The directors to retire on each occasion (both as to number and identity)
shall be determined on the basis of the composition of the board at the
start of business on the date of the notice convening the annual general
meeting, disregarding a change in the number of identity of the directors
after that time, but before the close of the meeting.
A director who retires at an annual general meeting (whether by rotation
or otherwise) may, if willing to act, be reappointed. If he is not
reappointed or deemed reappointed, he may retain office until the meeting
appoints someone in his place or, if it does not do so, until the end of
the meeting.
At an annual general meeting at which a director retires by rotation the
Company may fill the vacancy and, if it does not do so, the retiring
director is, if willing, deemed reappointed unless it is expressly
resolved not to fill the vacancy or a resolution for the reappointment of
the director is put to the meeting and lost.
34.2 The Company may in general meeting remove a Director for cause provided
notice of any such meeting shall be served upon the Director concerned not
less than 21 days' before the meeting and he shall be entitled to be heard
at that meeting. Any vacancy created by the removal of a Director at a
general meeting may be filled at the meeting by the election of another
Director in his place or, in the absence of any such election, by the
Board.
35. Resignation and Disqualification of Directors
The office of a Director shall be vacated if the Director:
(a) resigns by notice in writing to the Company;
(b) is or becomes of unsound mind or dies;
(c) is or becomes bankrupt or makes any arrangement or composition with
his creditors;
(d) is prohibited by law from being a Director;
(e) ceases to be a Director by virtue of the Act or is removed from
office pursuant to these Bye-Laws.
36. Register of Directors and Officers
The Secretary shall establish and maintain a Register of Directors and
Officers as required by the Act. The Register of Directors and Officers
shall be open to inspection in the manner prescribed by the Act between
10:00 a.m. and 12:00 noon on every working day.
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37. Directors' fees and additional remuneration and expenses
The remuneration (if any) of the Directors shall be determined from time
to time by the Company by Resolution and shall be deemed to accrue from
day to day. A Director may also be paid all travel, hotel and incidental
expenses properly incurred in attending and returning from meetings of the
Board, committees appointed by the Board, general meetings of the Company,
or in connection with the business of the Company or his duties as a
Director generally.
38. Directors' Interests
38.1 A Director, or a Director's firm, partner or any company with whom a
Director is associated, may act in a professional capacity for the Company
and that Director or that Director's firm, partner or such company shall
be entitled to remuneration for professional services as if such Director
were not a Director, provided that nothing in this Bye-law shall authorise
a Director or a Director's firm, partner or company to act as Auditor of
the Company.
38.2 A Director who is directly or indirectly interested in a contract or
proposed contract or arrangement with the Company shall declare the nature
of his interest at the first opportunity at a meeting of the Board or by
writing to the Directors as required by the Act
38.3 Following a declaration being made pursuant to Bye-law 38.2 and unless
disqualified by the chairman of the relevant Board meeting, a Director may
vote in respect of any contract or proposed contract or arrangement in
which such Director is interested and may be counted in the quorum at such
meeting.
POWERS AND DUTIES OF THE BOARD
39. Management of the Company
39.1 In managing the business of the Company, the Board may exercise all such
powers of the Company as are not by statute or by these Bye-laws required
to be exercised by the Company in general meeting subject to the Act,
these Bye-Laws and to any directions given by the Company by Resolution.
39.2 No direction or alteration of these Bye-Laws made by the Company in
general meeting shall invalidate any prior act of the Board which would
have been valid if that direction or alteration had not been made. The
powers given by this Bye-Law shall not be limited by any special power
given to the Board by these Bye-Laws and a meeting of the Board at which a
quorum is present shall be competent to exercise all the powers,
authorities and discretions for the time being vested in or exercisable by
the Board.
39.3 The Board may procure that the Company pays all expenses incurred in
promoting and incorporating the Company.
40. Power to borrow and charge property
The Board may exercise all the powers of the Company to borrow money and
to mortgage or charge all or any part of the undertaking, property and
assets (present and future) and uncalled capital of the Company and to
issue debentures and other securities, whether outright or as collateral
security for any debt, liability or obligation of the Company or of any
other persons.
41. Power to provide benefits
The Board on behalf of the Company may provide benefits for any person
including any Director or former Director who has held any executive
office or employment with the Company or with any body
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corporate which is or has been a subsidiary or affiliate of the Company or a
predecessor in the business of the Company or of any such subsidiary or
affiliate, and to any member of his family or any person who is or was dependent
on him, and may contribute to any fund and pay premiums for the purchase or
provision of any such benefit, or for the insurance of any such person.
42. Power to appoint managing director or chief executive officer
The Board may from time to time appoint one or more of the Directors to be
managing director or chief executive officer of the Company who shall,
subject to control of the Board, supervise and administer all of the
general business and affairs of the Company. The terms of any such
appointment as to period and remuneration (if any) shall be determined by
the Board.
43. Power to appoint manager and to appoint and dismiss employees
43.1 The Board may appoint a person to act as manager of the Company's day to
day business and may entrust and confer upon such manager such powers and
duties as it deems appropriate for the transaction or conduct of such
business.
43.2 The Board may appoint, suspend or remove any employee of the Company and
may fix his remuneration and determine his duties.
44. Power to authorise specific actions and appoint attorney
44.1 The Board may from time to time and at any time authorise any person to
act on behalf of the Company for any specific purpose and in connection
therewith to execute any agreement, document or instrument on behalf of
the Company.
44.2 The Board may from time to time and at any time by power of attorney
appoint any company, firm or person or any fluctuating body of persons,
whether nominated directly or indirectly by the Board, to be an attorney
of the Company for such purposes and with such powers, authorities and
discretions (not exceeding those vested in or exercisable by the Board
under these Bye-Laws) and for such period and subject to such conditions
as it may think fit, and any such power of attorney may contain such
provisions for the protection and convenience of persons dealing with any
such attorney and of such attorney as the Board may think fit, and may
also authorise any such attorney to sub-delegate all or any of the powers,
authorities and discretions vested in him.
45. Power to delegate
45.1 The Board may entrust and confer on any Director or officer any of the
powers exercisable by it on such terms and conditions and with such
restrictions as it thinks fit, and either collaterally with, or to the
exclusion of, its own powers, and may from time to time revoke or vary all
or any of such powers but no person dealing in good faith and without
notice of such revocation or variation shall be affected thereby.
45.2 The Board may delegate any of its powers to a committee appointed by the
Board which may consist partly or entirely of non-Directors and every such
committee shall conform to such directions as the Board may impose on it.
46. Exercise of power to purchase shares of, or discontinue, the Company
The Board may exercise all the powers of the Company to:
(a) purchase all or any of its own shares in accordance with Section 42A
of the Act; and
(b) continue the Company in a named country or jurisdiction outside
Bermuda in accordance with Section 132G of the Act.
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47. Meetings of the Board
47.1 The Board may hold meetings, both regular and special, for the despatch of
business, adjourn and otherwise regulate its meetings as it thinks fit.
47.2 Regular meetings of the Board may be held without notice at such time and
at such place as shall from time to time be determined by the Board. The
President or any two Directors may, and the Secretary, on the requisition
of the President or any two Directors, shall, at any time summon a special
board meeting on not less than two days' notice.
47.3 Questions arising at any Board meeting shall be determined by a majority of
votes and, in the event of an equality of votes, the resolution shall fail.
47.4 A meeting of the Board or a committee appointed by the Board may be held by
means of such telephone, electronic or other communication facilities as
permit all persons participating in the meeting to communicate with each
other simultaneously and instantaneously and participation in such a
meeting shall constitute presence in person at such meeting.
48. Notice of meetings of the Board
48.1 Prior written notice of meetings of the Board specifying the date, time and
place of the meeting and a brief description of the business to be
conducted at the meeting shall be given to each Director.
48.2 Notice of a Board meeting shall be deemed to be duly given to a Director if
it is given to him personally or sent to him by post, facsimile, e-mail or
other mode of representing or reproducing words in a legible and
non-transitory form at his last known address or any other address given by
him to the Company for this purpose.
48.3 A Director may waive notice of any meeting either prospectively or
retrospectively.
49. Quorum for Board meetings
The quorum necessary for the transaction of the business of the Board shall
be a majority of the members of the Board of Directors in office (but in no
case less than two Directors). A Director who to his knowledge is in any
way, whether directly or indirectly, interested in a contract or proposed
contract, transaction or arrangement with the Company and has complied with
the provisions of the Act and these Bye-Laws with regard to disclosure of
his interest shall be entitled to vote in respect of any contract,
transaction or arrangement in which he is so interested and if he shall do
so his vote shall be counted, and he shall be taken into account in
ascertaining whether a quorum is present.
50. Chairman of meetings
The Chairman (if any) of the Board or, in his absence, the Vice-Chairman
shall preside as chairman at every meeting of the Board. If there is no
such Chairman or Vice-Chairman, or if at any meeting the Chairman or the
Vice-Chairman is not present within five minutes after the time appointed
for holding the meeting, or is not willing to act as chairman, the
Directors present may choose one of their number to be chairman of the
meeting.
51. Committees of Directors
51.1 The Board may, by resolution passed by a majority of the whole Board,
designate one or more committees, each committee to consist of two or more
of the directors of the Company. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee.
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51.2 In the absence of disqualification of a member of a committee, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not such member or members constitute a quorum, may unanimously
appoint another member of the Board to act at the meeting in the place of
any such absent or disqualified member.
51.3 Any such committee, to the extent provided in the resolution of the Board,
shall have and may exercise all the powers and authority of the Board in
the management of the business and affairs of the Company, and may
authorize the seal of the Company to be affixed to all papers which may
require it; but no such committee shall have the power or authority in
reference to adopting an agreement of merger or consolidation, recommending
to the Members the sale, lease or exchange of all or substantially all of
the Company's property and assets, recommending to the Members a
dissolution of the Company, a revocation of a dissolution or amending the
Bye-laws or Memorandum of Association of the Company; and, unless the
resolution or the Memorandum of Association expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of shares. Such committee or committees shall have
such name or names as may be determined from time to time by resolution
adopted by the Board.
51.4 The meetings and proceedings of any committee appointed by the Board shall
be governed by the provisions in these Bye-Laws for regulating the meetings
and proceedings of the Board so far as the same are applicable and are not
superceded by any regulations imposed by the Board. Each committee shall
keep regular minutes of its meetings and report the same to the Board when
required.
52. Written resolutions
A resolution in writing signed by all the Directors or by all the members
of a committee which may be in counterparts shall be as valid as if it had
been passed at a duly called and constituted meeting of the Board or
committee, as the case may be, such resolution to be effective on the date
on which the last Director signs the resolution.
53. Acts valid notwithstanding defect in appointment
All acts done by the Board, any committee, any person acting as a Director
or member of a committee or any person duly authorised by the Board or any
committee, shall, nothwithstanding that it is afterwards discovered that
there was some defect in the appointment of any member of the Board or such
committee or person acting as aforesaid or that they or any of them were
disqualified or had vacated their office, be as valid as if every such
person had been duly appointed and was qualified and had continued to be a
Director, member of such committee or person so authorised.
OFFICERS OF THE COMPANY
54. Officers of the Company
The officers of the Company shall include a President and a Vice-President
or a Chairman and a Deputy Chairman (who shall be Directors), a Secretary
and such additional Officers (including, without limitation, assistant or
deputy secretaries) as the Board may from time to time determine all of
whom shall be deemed to be Officers for the purposes of these Bye-laws.
55. Appointment of Officers
The President and Vice-President or Chairman and Deputy Chairman shall be
elected by the Board as soon as possible after the statutory meeting and
each annual general meeting. Any person elected or appointed pursuant
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to this Bye-Law shall hold office until the close of the next annual
general Meeting or for such other period and upon such terms as the Board
may determine and the Board may revoke or terminate any such election or
appointment.
56. Remuneration and duties of Officers
Save as provided in the Act or these Bye-Laws, the powers, duties and
remuneration of the Officers of the Company shall be such (if any) as are
determined from time to time by the Board. A provision of the Act or these
Bye-Laws requiring or authorising a thing to be done by or to a Director
and the Secretary shall not be satisfied by its being done by or to the
same person acting both as Director and as, or in the place of, the
Secretary.
57. Minutes
The Directors shall cause minutes to be made and books kept for the purpose
of recording:
(a) all appointments of Officers made by the Directors;
(b) the names of the Directors and other persons (if any) present at each
meeting of Directors and of any committee;
(c) of all proceedings at meetings of the Company, of the holders of any
class of shares in the Company, and of committees;
(d) of all proceedings of managers (if any).
THE SEAL
58. The Seal
The Seal shall be in such form as the Board may from time to time
determine. The Board may adopt one or more duplicate seals for use outside
Bermuda.
59. Manner in which seal is to be affixed
A Seal shall only be used by authority of the Board or of a committee
constituted of the Board. Subject to these Bye-Laws, any Instrument to
which a Seal is affixed shall be signed by two Directors or the Secretary
and one Director, or by any two persons whether or not Directors or the
Secretary who have been authorized either generally or specifically to
attest to the use of the Seal provided that any Officer, Director or
Resident Representative may affix a Seal attested with his signature only
to authenticate copies of these Bye-Laws, the minutes of any meeting or any
other documents requiring authentication.
DIVIDENDS AND OTHER DISTRIBUTIONS
60. Declaration of dividends by the Board
The Board may, subject to these Bye-laws and in accordance with Section 54
of the Act, declare a dividend to be paid to Members, in proportion to the
number of shares held by them, and such dividend may be paid in cash or
wholly or partly in specie in which case the Board may fix the value for
distribution in specie of any assets.
61. Other distributions
The Board may declare and make such other distributions (in cash or in
specie) to the Members as may be lawfully made out of the assets of the
Company.
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62. Reserve fund
The Board may from time to time before declaring a dividend set aside, out
of the surplus or profits of the Company, such sum as it thinks proper as a
reserve fund to be used to meet contingencies or for equalising dividends
or for any other special purpose.
63. Deduction of amounts due to the Company
The Board may deduct from any dividend, distribution or other moneys
payable to a Member by the Company on or in respect of any shares all sums
of money (if any) presently payable by him to the Company on account of
calls on or in respect of shares of the Company or otherwise in respect of
monies owed by him to the Company.
64. Record dates
Notwithstanding any other provisions of these Bye-Laws, the Company may by
Resolution or the Board may fix, in advance, any date as the record date
for to payment of any dividend or distribution or the making of any
allotment or issue of shares or rights or entities to exercise any rights
in respect of any charge, conversion or exchange of shares and for the
purpose of identifying the persons entitled to receive notices of general
meetings or to express consent to corporate in writing without a meeting or
for the purpose of any other lawful action. Any such record date 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 action. A determination of the Members of
record entitled to notice of or to vote at a general meeting shall apply to
any adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjournment meeting.
CAPITALISATION OF PROFITS
65. Issue of bonus shares
65.1 The Board may resolve to capitalise all or any amount for the time being
standing to the credit of any of the Company's share premium or other
reserve accounts or to the credit of the profit and loss account or
otherwise available for distribution by applying such sum in paying up
unissued shares to be allotted as fully paid bonus shares pro rata to the
Mernbers.
65.2 The Company may capitalise any sum standing to the credit of a reserve
accounts or otherwise available for distribution by applying such sum in
paying up in full partly paid shares of those Members who would have been
entitled to such sums if they were distributed by way of dividend or
distribution.
ACCOUNTS AND FINANCIAL STATEMENTS
66. Records of account
The Board shall cause to be kept proper accounting records in accordance
with the requirements of the Act. The records of account shall be kept at
the Registered Office or, subject to Section 83(2) of the Act, at such
other place as the Board thinks fit and shall at all times be open to
inspection by the Directors during normal business hours.
67. Financial year end
The financial year end of the Company may be determined by resolution of
the Board and failing such resolution shall be 31st December in each year.
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68. Financial statements
Subject to any rights to waive laying of accounts pursuant to Section 88 of
the Act, financial statements made out in accordance with the provisions as
required by the Act shall be laid before the Members in general meeting.
AUDIT
69. Auditors
Subject to any rights to waive an audit pursuant to Section 88 of the Act,
auditors shall be appointed by the Members or the Directors in accordance
with Section 89 of the Act and their duties shall be regulated in
accordance with the Act, any other applicable law and such requirements not
inconsistent with the Act as the Board may from time to time determine.
NOTICES
70. Notices to Members
A notice or other document (including a share certificate) may be served on
or delivered to a Member either personally or by post to that Member at his
address appearing in the Register of Members or to such other address given
for the purpose. Notice or documents to be given or delivered to joint
holders of a share shall be deemed to be properly given to all joint
holders by delivery on or to one of the joint holders. Any notice or other
document sent by post shall be deemed to have been served or delivered
seven days after it was put in the post, and in proving such service or
delivery, it shall be sufficient to prove that the notice or document was
properly addressed, stamped, and put in the post.
71. Notice of general meetings
A notice of a general meeting shall be deemed to be duly given to a Member
if it is sent to him by telex, facsimile, e mail or other mode of
representing or reproducing words in a legible and non-transitory form to
his address appearing in the Register of Members or any other address given
by him to the Company for this purpose. Any such notice shall be deemed to
have been served twenty-four hours after its despatch.
WINDING UP
72. Winding-up/distribution by liquidator
If the Company is wound up, the liquidator may, with the sanction of a
Resolution of the Members and any other sanction required by the Act,
divide amongst the Members in specie or kind the whole or any part of the
assets of the Company (whether they shall consist of property of the same
kind or not) and may for such purposes set such values as he deems fair
upon any property to be divided as aforesaid and may determine how such
division shall be carried out as between the Members or different classes
of Members. The liquidator may, with the like sanction, vest the whole or
any part of such assets in trustees upon such trust for the benefit of the
contributories as the liquidator, with the like sanction, shall think fit,
but so that no Member shall be compelled to accept any shares or other
assets upon which there is any liability.
INDEMNITY
73. Indemnification of Directors and Officers
Subject to the proviso below, every Director, Officer and member of a
committee appointed by the Board shall be indemnified out of the funds of
the Company against all:
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(a) civil liabilities loss damage or expense (including but not limited to
liabilities under contract, tort and statute or any applicable foreign
law or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered as a Director, Officer or
committee member; and
(b) liabilities incurred by him as such Director, officer or committee
member in defending any proceedings, whether civil or criminal, in which
judgment is given in his favour, or in which he is acquitted, or in
connection with any application under the Act in which relief from
liability is granted to him by the court,
and this indemnity shall extend to any person acting as a Director, Officer
or committee member in the reasonable belief that he has been so appointed
or elected notwithstanding any defect in such appointment or election
provided that this indemnity shall not extend to any matter which would
render it void pursuant to the Act. Any indemnity pursuant to these Bye-Laws
in respect of amounts paid or discharged by the person claiming the
indemnity shall take effect as an obligation of the Company to reimburse the
person making such payment or effecting such discharge.
ALTERATION OF BYE-LAWS
74. Alteration of Bye-laws
These Bye-Laws may be amended from time to time by a resolution
or vote of not less than 66.67 of issued shares entitled to vote in such
matter cast at a general meeting (provided that notice of such repeal,
alteration, amendment or revision is included in the notice of such meeting)
or by a written resolution of the Members in accordance with Bye-law 32 and
otherwise in the manner provided for the Act.
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EMPLOYMENT AGREEMENT
THIS AGREEMENT ("Agreement"), dated as of September 6, 1999, between
UPROAR LIMITED, a corporation with registered offices at 44 Church Street,
Hamilton, Bermuda HM12 (the "Company"), and KENNETH CRON, residing at 161 Feeks
Lane, Lattington, New York 11560 (the "Executive").
WITNESSETH
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises,
representations and warranties set forth herein, and for other good and valuable
consideration, it is hereby agreed as follows:
1. Employment. The Company hereby agrees to employ the Executive, and
the Executive hereby accepts such employment, upon the terms and conditions set
forth herein.
2. Term. The Executive's employment under this Agreement shall commence
on September 6, 1999 (the "Effective Date") and shall continue at-will until
terminated for any or no reason, by the Executive, upon advance notice to the
Company or by the Company, upon advance notice to the Executive (the date of
such termination hereinafter called the "Termination Date"). Except as expressly
provided herein, the Company agrees to hold the Executive harmless against any
and all losses, claims, damages, expenses and liabilities incurred by the
Company as a result of the termination of the Executive's employment with the
Company, whether so terminated by the Executive or the Company and regardless of
the reason for such termination.
3. Position and Duties.
(a) During the Executive's employment hereunder, the Executive
shall serve as the Chief Executive Officer of the Company and shall have such
duties consistent with such office as from time to time may be reasonably
prescribed by the Board of Directors of the Company (the "Board"). No later than
90 days following the Effective Date, the Executive and the Company agree that
the Executive shall be nominated to serve on the Board and, subject to his
election, the Executive agrees to so serve.
(b) During the Executive's employment hereunder, the Executive
shall perform and discharge the duties that may reasonably be assigned to him by
the Board
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from time to time in accordance with this Agreement, and the Executive shall
devote his best talents, efforts and abilities to the performance of his duties
hereunder.
(c) For the period beginning on the Effective Date and ending
on September 30, 1999, the Executive shall devote at least eight hours per week
to the performance of his duties hereunder. For the period beginning on October
1, 1999 and ending on the Termination Date, the Executive shall perform his
duties hereunder on a substantially full-time basis. Notwithstanding the
foregoing, the Executive shall not be precluded from engaging in other outside
business and/or investment activities, provided that such activities do not
materially interfere with the Executive's performance of his duties hereunder.
(d) During his employment hereunder, the Executive shall be
provided, at the Company's sole expense, with the exclusive services of a
full-time executive assistant selected by the Executive, in his sole discretion.
4. Consideration.
(a) Option Grant. On September 9, 1999, the Executive shall be
granted an option for the purchase of 800,000 shares of the common stock of the
Company, par value $.05 (the "Option"), on the terms and conditions set forth on
the Notice of Grant and Share Option Agreement, attached hereto as Exhibit A and
incorporated herein by reference, which the Company hereby represents and
warrants constitutes a valid and enforceable grant of a stock option pursuant to
the Uproar Ltd. Share Option/Share Issuance Plan II and III.
(b) Option Plans. The Executive shall be eligible to
participate in the Uproar Ltd. Share Option/Share Issuance Plan II and III and
such other equity-based compensation arrangements as the Company may make
available to its executive employees, in accordance with the terms and
conditions of such arangements as applicable to such other executive employees.
5. Benefits.
(a) Medical and Health Insurance Benefits. The Company shall,
at its sole expense, provide the Executive and his eligible dependents with
medical, health and dental insurance coverage at least comparable to such
coverage enjoyed by the Executive immediately prior to the execution of this
Agreement or, at the election of the Executive, the coverage generally provided
by the Company to its other executive employees.
(b) Split Dollar Life Insurance.
(1) The Company shall pay on the Executive's behalf
all premiums that become due during his employment hereunder that are required
to maintain in
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effect a whole life insurance policy, selected by the Executive, on the
Executive's life with a face value of up to $2,000,000, as determined by the
Executive (the "Split Dollar Policy"); provided, however, that the Executive
executes an irrevocable collateral assignment and split dollar agreement in a
form prescribed by the Executive and acceptable to the Company assigning to the
Company the right to recover, following the earlier of the Executive's death or
the Executive's cancellation of the Split Dollar Policy, from the cash value and
any death proceeds of the Split Dollar Policy, any and all amounts paid by the
Company with respect to the Split Dollar Policy and otherwise setting forth the
terms and conditions of maintaining this split dollar life insurance
arrangement.
(2) Notwithstanding the foregoing, the Company shall
not be obligated to pay annual premiums in excess of $50,000 under this Section
5(b).
(c) Disability and Accident Insurance Benefits. The Company,
at its sole expense, shall provide the Executive with long term disability
insurance (providing benefit payments at least equal to $1,000,000 per year),
business travel accident and accidental death and dismemberment insurance
coverage.
(d) Other Benefits. During the Term, the Company shall provide
the Executive with any and all other employee or fringe benefits (in accordance
with their terms and conditions) which the Company may generally make available
to its other executive employees.
6. Reimbursement of Expenses.
(a) The Company shall pay or reimburse the Executive for all
reasonable travel (at business class level), entertainment and other business
expenses actually incurred or paid by the Executive in the performance of his
duties hereunder upon presentation of expense statements and/or such other
supporting information as the Company may reasonably require of the Executive.
(b) (1) The Company shall also pay or reimburse the Executive
for any and all costs and expenses associated with the Executive's travelling
between his home and the Company's offices utilizing such means and methods of
transportation as the Executive shall determine, in his sole discretion.
(2) Notwithstanding the foregoing, the Company shall not
be obligated to pay expenses under this Section 6(b) in excess of $4,166.67 per
month.
(c) The Company shall also pay or reimburse the Executive for
any and all expenses, not in excess of $20,000 per year, associated with the
Executive's maintenance of an office on Long Island, New York at a location
determined by the Executive.
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(d) The Executive shall be provided with the directors and
officers liability insurance coverage generally provided to officers of the
Company. Notwithstanding the foregoing, the Company agrees to indemnify the
Executive against all costs, damages and expenses, including attorneys' fees,
incurred by the Executive as a result of claims by third parties arising out of
or from the Executive's lawful acts as an employee of the Company, provided such
acts are not grossly negligent and are performed in good faith and in a manner
reasonably believed by the Executive to be in the Company's best interests. Any
counsel employed to defend the Executive in any such action shall be reasonably
acceptable to the Executive and the Company. Any counsel appointed by any
insurance carrier for the Company shall be deemed acceptable to the Company.
7. Vacations. The Executive shall be entitled to such vacation as the
Company may generally make available to its executive employees. Unused vacation
may be carried over to successive years.
8. Excise Taxes.
(a) In the event that any payments made and/or benefits
provided to the Executive under this Agreement (including, without limitation,
pursuant to the Option and/or the Notice of Grant and Share Option Agreement
attached hereto as Exhibit A) (hereinafter called the "Payments") are subject to
any excise taxes, including, without limitation, excise taxes imposed by Section
4999 of the Internal Revenue Code of 1986, as amended (the "Code") (the "Excise
Taxes"), the Company shall pay the Executive such additional cash payment(s)
(hereinafter collectively called the "Gross Up Payment") such that the net
amount that the Executive would retain after deduction and/or payment of any
Excise Taxes on the Payments, and any interest and/or penalties assessed by the
Internal Revenue Service with respect to the Excise Taxes, and taking into
account the tax consequences of all additional cash payments made by the Company
pursuant to this Section 8, shall be equal to the aggregate value of Payments.
The determination of whether such Excise Taxes are payable and the amount
thereof shall be based upon the opinion of counsel selected by the Executive and
acceptable to the Company. Any such additional cash payment by the Company shall
be paid by the Company to the Executive in one lump sum cash payment within
thirty (30) days following the date such opinion of counsel is rendered. If such
opinion is not accepted by the Internal Revenue Service, then the Executive
shall determine and notify the Company of the appropriate adjustments in the
Gross Up Payment (taking into account any and all Excise Taxes, interest,
penalties and the tax consequences of all additional cash payments made by the
Company pursuant to this Section 8) and the Company shall pay the Executive the
difference between the final amount of the Gross Up Payment and the amount
previously paid, if any, to the Executive by the Company pursuant to this
Section 8 (hereinafter called the "Adjustment Payment"). Any such Adjustment
Payment shall be paid by the Company to the Executive in one lump sum cash
payment within ten (10) days following such notification.
-4-
<PAGE>
(b) Notwithstanding the provisions of paragraph (a) of this
Section 8, the Company shall not be obligated to make any Gross Up Payment
unless:
(1) the counsel selected pursuant to Section 8(a)
above, and/or the Internal Revenue Service, determines that there has been a
change in the ownership or effective control of the Company or a change in the
ownership of a substantial portion of the assets of the Company, all as defined
in Section 280G of the Code and the proposed regulations thereunder (each, a
"Change of Control"), and
(2) at the time of the Change of Control (as
determined by such counsel), either:
(A) the Executive is employed by the
Company, or
(B) if the Executive is not employed by the
Company, his employment with the Company was not terminated for "Cause" (as
hereinafter defined).
9. Materials; Confidential Information and Documents.
(a) Materials. The Executive agrees that all ideas, plans and
materials directly related to the online multi-user game business of the Company
which are prepared by the Executive both (i) in connection with his employment
hereunder, and (ii) during the period beginning on the Effective Date and ending
on the Termination Date (hereinafter called the "Materials") are
works-made-for-hire and are the Company's sole and exclusive property. In the
event that any Materials are not copyrightable subject matter or, for any
reason, are deemed not to be works-made-for-hire, the Executive hereby assigns
all right, title and interest to such Materials to the Company, free of any
reversionary rights or restrictions. Without limiting the foregoing, it is
specifically understood and agreed that the Executive retains no ownership
rights whatsoever in or to the Materials.
(b) Confidential Information and Documents.
(i) The Executive's duties hereunder will include,
among other things, representation of the Company in high-level dealings with
the Company's clients, accounts, suppliers and financial institutions with which
the Company does business and the authority to discuss and negotiate, on the
Company's behalf, with the executives and upper management personnel of such
clients, accounts, suppliers and financial institutions. These dealings,
together with the Executive's other duties, will result in the Executive
becoming familiar with the proprietary materials, trade secrets, financial
matters, confidential requirements and resources (hereinafter, the "Confidential
Information") of both the Company and its clients.
-5-
<PAGE>
The Executive hereby agrees that he will not, either during his employment with
the Company or thereafter, disclose to anyone any Confidential Information of
the Company or its clients, or use such Confidential Information for his own
benefit or for the benefit of anyone other than the Company (or its clients, in
the case of Confidential Information of the such client), except that disclosure
of such Confidential Information will be permitted: (A) to the Company and/or
its affiliates and the advisors of the Company and/or its affiliates; (B) in the
case of Confidential Information of any of the Company's clients, to such client
and/or its affiliates and the advisors of such client and/or its affiliates; (C)
if such Confidential Information has previously become available to the public
through no fault of the Executive; (D) if required by any court or governmental
agency or body or is otherwise required by law; (E) if necessary to establish
or assert the rights of the Executive hereunder; (F) if expressly consented to
in writing by the Company (or its client, in the case of Confidential
Information of such client); or (G) if necessary to carry on the Company's
business in the ordinary course or to perform the Executive's duties hereunder.
(ii) The Executive further agrees that all memoranda,
notes, records or other documents compiled by him or made available to him in
connection with and during his employment hereunder concerning the Company's
business or that of its clients (hereinafter called the "Confidential
Documents") shall be the property of the Company. The Executive further agrees
that he shall deliver to the Company all Confidential Documents in his
possession or control following the termination of his employment with the
Company or at any other time following the Company's written notice to do so.
(iii) The Executive and the Company agree that the
provisions of this Section 9(b) are of the essence to this Agreement and that
the provisions of this Section 9(b) shall survive the termination of this
Agreement and the Executive's employment with the Company.
10. Restrictive Covenants.
(a) Noncompetition. During the Executive's employment
hereunder and, in the event that the Company terminates the Executive's
employment hereunder for "Cause" (as hereinafter defined) or the Executive
terminates his employment hereunder without "Good Reason" (as hereinafter
defined), during the one-year period commencing on the Termination Date, the
Executive shall not knowingly, other than in connection with the performance of
his duties hereunder:
(i) own, be employed by, or exercise any material
control with respect to the online multi-user games business of any person or
entity, or subsidiary, subdivision, division or joint venture of such entity
(other than the Company), including, without limitation, SONY Station,
Gamesville, Playsite, Yahoo Games, Total Entertainment Network, Excite Games,
Mpath and Sierra Online (hereinafter called "Competitive Entities").
-6-
<PAGE>
Notwithstanding the foregoing, nothing contained in this Agreement shall be
construed to prohibit the Executive from holding a passive equity ownership
interest as a limited partner in a limited partnership or of less than 2% of any
class of the outstanding equity of a publicly traded entity;
(ii) render any services in connection with or in any
way relating to Competitive Entities;
(iii) solicit or encourage any of the employees of
the Company, other than the Executive's assistant described in Section 3(d)
hereof, to leave the employ of the Company or to terminate or alter their
contractual relationships with the Company in a way that is adverse to the
interests of the Company; or
(iv) hire away any of the employees of the Company,
other than the Executive's assistant described in Section 3(d) hereof, to work
for any new employer without the prior written consent of the Company.
(b) For purposes of this Agreement:
(i) "Cause" shall exist if, and only if, the
Executive (A) willfully and habitually fails in any material respect to perform
his obligations hereunder as provided herein, provided that such Cause shall not
exist unless the Company shall first have provided the Executive with written
notice specifying in reasonable detail the factors constituting such material
failure and such material failure shall not have been cured by the Executive
within 60 days after such notice or, if impracticable of being cured within such
60 day period, such longer period as may reasonably be necessary to accomplish
the cure; or (B) has been convicted of a crime which constitutes a felony under
applicable law and such conviction is not subject to appeal under applicable
law.
(ii) "Good Reason" means the occurrence of any of the
following events:
(A) the assignment to the Executive of any
duties inconsistent in any material respect with the Executive's then position
(including status, offices, titles and reporting relationships), authority,
duties or responsibilities, or any other action or actions by the Company which
when taken as a whole results in a significant diminution in the Executive's
position, authority, duties or responsibilities, excluding for this purpose any
isolated, immaterial and inadvertent action not taken in bad faith and which is
remedied by the Company immediately after receipt of notice thereof given by the
Executive;
(B) a material breach by the Company of one
or more provisions of this Agreement, provided that such Good Reason shall not
exist unless the
-7-
<PAGE>
Executive shall first have provided the Company with written notice specifying
in reasonable detail the factors constituting such material breach and such
material breach shall not have been cured by the Company within 60 days after
such notice or, if impracticable of being cured within such 60 day period, such
longer period as may reasonably be necessary to accomplish the cure;
(C) the Company requiring the Executive to
be based at any location other than within 40 miles driving distance of the
Executive's home, except for requirements of reasonable temporary travel on the
Companys business; and
(D) the failure of the Executive to be
elected to the Board within 90 days of the Effective Date.
11. Severability. Should any provision of this Agreement be held, by a
court of competent jurisdiction, to be invalid or unenforceable, such invalidity
or unenforceability shall not render the entire Agreement invalid or
unenforceable, and this Agreement and each other provision hereof shall be
enforceable and valid to the fullest extent permitted by law.
12. Arbitration. Any and all disputes, controversies or claims arising
out of or relating to this Agreement, or the enforcement or breach thereof,
shall be settled by arbitration conducted in the County of New York, in the
State of New York, and in accordance with the Commercial Arbitration Rules (the
"Arbitration Rules") of the American Arbitration Association ("AAA") and the
Supplementary Procedures for Large, Complex Disputes; provided, however, that
any dispute, controversy or claim with respect to Section 9 and/or 10 may not be
submitted to arbitration and shall only be submitted to a court in accordance
with Section 13 for an equitable remedy; provided, however, that no breach of
Section 9 and/or 10 of this Agreement shall exist unless the Company shall first
have provided the Executive with written notice specifying in reasonable detail
the factors constituting such breach and such breach shall not have been cured
by the Executive within 60 days after such notice or, if impracticable of being
cured within such 60 day period, such longer period as may reasonably be
necessary to accomplish the cure. The arbitral tribunal shall consist of three
arbitrators. The Company and the Executive shall each select and appoint one
arbitrator within 30 days of initiation of the arbitration and those arbitrators
shall jointly appoint a third arbitrator within 30 days of their selection and
appointment. If the third arbitrator is not appointed as provided above, such
arbitrator shall be appointed by the AAA as provided in the Arbitration Rules.
Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties hereto
hereby waive to the extent
-8-
<PAGE>
permitted by law any rights to appeal or to seek review of such award by any
tribunal. The parties hereto agree that the arbitral award may be enforced
against the parties to the arbitration proceeding or their assets wherever they
may be found and that a judgment upon the arbitral award may be entered in court
in accordance with the provisions of Section 13 hereof.
13. Consent to Jurisdiction. Subject to Section 12 hereof, the Company
and the Executive irrevocably and voluntarily submit to personal jurisdiction in
the State of New York and in the Federal and state courts in such state located
in the Southern District of New York in any action or proceeding arising out of
or relating to this Agreement and agree that all claims in respect of such
action or proceeding may be heard and determined in any such court. The Company
and the Executive further consent and agree that the parties hereto may be
served with process in the same manner as a notice may be given under Section
16. The Company and the Executive agree that any action or proceeding instituted
by one party against the other party with respect to this Agreement will be
instituted exclusively in the state courts located in, and in the United States
District Court for the Southern District of New York. The Company and the
Executive irrevocably and unconditionally waive and agree not to plead, to the
fullest extent permitted by law, any objection that they may now or hereafter
have to the laying of venue or the convenience of the forum of any action or
proceeding with respect to this Agreement in any such courts.
14. Successors and Assigns.
(a) This Agreement and all rights under this Agreement are
personal to the Executive and shall not be assignable other than by will or the
laws of descent. All of the Executive's rights under this Agreement shall inure
to the benefit of his heirs, personal representatives, designees or other legal
representatives, as the case may be.
(b) This Agreement shall inure to do benefit of and be binding
upon the Company and its successors and assigns. Any Person succeeding to the
business of the Company by merger, purchase, consolidation or otherwise shall
assume by contract or operation of law the obligations of the Company under this
Agreement.
15. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, without regard to any rules
concerning the conflicts of laws.
16. Notices. All notices, requests and demands given to or
made upon the respective parties hereto shall be deemed to have been given or
made three business days after the date of mailing when mailed by registered or
certified mail, postage prepaid, or on the date of delivery if delivered by
hand, or one business day after the date of delivery by Federal
-9-
<PAGE>
Express or other reputable overnight delivery service, addressed to the parties
at their addresses set forth below or to such other addresses furnished by
notice given in accordance with this Section 16 (a) if to the Company, to
Uproar Limited, 44 Church Street Hamilton, Bermuda HM12, and (b) if to the
Executive, to Kenneth Cron, 161 Feeks Lane, Lattington, New York 11560.
17. Withholding. All payments required to be made by the Company to the
Executive under this Agreement shall be subject to any withholding taxes, social
security and other payroll deductions required under applicable law.
18. Complete, Understanding. Except as expressly provided below, this
Agreement supersedes any prior contracts, understandings, discussions and
agreements relating to employment between the Executive and the Company, and
constitutes the complete understanding between the parties with respect to the
subject matter hereof. No statement, representation, warranty or covenant has
been made by either party with respect to the subject matter hereof except as
expressly set forth herein.
19. Modification; Waiver.
(a) This Agreement may be amended or waived if, and only if,
such amendment or waiver is in writing and signed, in the case of an amendment,
by the Company and the Executive or in the case of a waiver, by the party
against whom the waiver is to be effective. Any such waiver shall be effective
only to the extent specifically set forth in such writing.
(b) No failure or delay by any party in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
20. Headings. The headings in this Agreement are for convenience of
reference only and shall not control or affect the meaning or construction of
this Agreement.
21. Counterparts. This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same affect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
shall become effective when each party hereto shall have received counterparts
hereof signed by the other party hereto,.
[The Rest of this Page is Intentionally Left Blank)
-10-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed in its corporate name by one of its officers duly authorized to enter
into and execute this Agreement and the Executive has manually signed his name
hereto, all as of the day and year first above written.
UPROAR LIMITED
/s/ [Illegible] By: /s/ Michael K. Simon
- ---------------------------- ------------------------------
Witness
/s/ [Illegible] /s/ Kenneth Cron
- ---------------------------- ------------------------------
Witness Kenneth Cron
-11-
<PAGE>
EXHIBIT A
UPROAR LTD.
NOTICE OF GRANT AND SHARE OPTION AGREEMENT
Notice is hereby given of the following option grant (the "Option") to
purchase Shares of Uproar Ltd. (the "Corporation"):
Optionee: Kenneth Cron
Grant Date: September 9, 1999
Vesting Commencement Date: September 9, 1999
Exercise Price: US$18.85 per share
Number of Option Shares: 800,000 Shares
Expiration Date: September 8, 2009
Type of Option: Incentive Share Option
Vesting Schedule:
(a) On or after September 9, 1999, the Option is vested and
exercisable for up to 200,000 Shares subject to this Option;
(b) On or after December 6, 1999, the Option is vested and
exercisable for up to 400,000 Shares subject to this Option;
(c) On or after September 6, 2000, the Option is vested and
exercisable for up to 600,000 Shares subject to this Option;
(d) On or after October 6, 2000, the Option is vested and
exercisable for up to 616,667 Shares subject to this Option; and
(e) On or after November 6, 2000, the Option is vested and
exercisable for up to 633,334 of the total number of Shares subject to this
Option; and
(f) On or after December 6, 2000, the Option is vested and
exercisable for up to 650,000 Shares subject to this Option;
(g) On or after January 6, 2001, the Option is vested and
exercisable for up to 666,667 Shares subject to this Option;
(h) On or after February 6, 2001, the Option is vested and
exercisable for up to 683,334 Shares subject to this Option;
(i) On or after March 6, 2001, the Option is vested and
exercisable for up to 700,000 of the total number of Shares subject to this
Option;
A-1
<PAGE>
(j) On or after April 6, 2001, the Option is vested and
exercisable for up to 716,667 Shares subject to this Option;
(k) On or after May 6, 2001, the Option is vested and
exercisable for up to 733,334 of the total number of Shares subject to this
Option;
(1) On or after June 6, 2001, the Option is vested and
exercisable for up to 750,000 Shares subject to this Option;
(m) On or after July 6, 2001, the Option is vested and
exercisable for up to 766,667 Shares subject to this Option;
(n) On or after August 6, 2001, the Option is vested and
exercisable for up to 783,334 Shares subject to this Option; and
(o) On or after September 6, 2001, the Option is vested and
exercisable for up to the total number of Shares subject to this Option.
Pursuant to the provisions of Clause 2 of Subsection C of Section I of Article
Two of the Uproar, Ltd. 1999 Share Option/Share Issuance Plan (the "Plan") and
notwithstanding anything in this Notice of Grant and Share Option Agreement or
the Plan to the contrary, the Option shall be vested and exercisable for up to
the total number of Shares subject to this Option effective as of the earlier to
occur of (i) the date of the termination of the Optionee's employment with the
Corporation, other than by reason of a termination by the Corporation for
"Cause" (as such term is defined in the Employment Agreement, effective as of
September 6, 1999, by and between the Optionee and the Corporation), or (ii) the
date of a "Corporate Transaction" (as such term is defined in the Plan);
provided that in the case of either event described in (i) and (ii) above, the
Option shall remain exercisable until September 8, 2009.
Optionee understands and agrees that except as expressly provided herein, the
Option is granted subject to and in accordance with the terms of the Plan and
Optionee further agrees to be bound by the terms of the Plan. Optionee hereby
acknowledges receipt of a copy of the Plan in the form attached hereto as
Attachment A. Notwithstanding anything herein to the contrary, no suspension,
termination, modification, or amendment of the Plan or this Notice of Grant and
Share Option Agreement may, without the express written consent of the Optionee,
adversely affect the rights of the Optionee under this Option.
No Employment or Service Contract. Nothing in this Notice of Grant and Share
Option Agreement or the attached Plan shall confer upon Optionee any right to
continue in Service for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Corporation (or any Parent or
Subsidiary employing or retaining Optionee) or of Optionee, which rights are
hereby expressly reserved by each, to terminate Optionee's Service at any time
for any reason, with or without cause.
No Obligation to Exercise Option. The granting of the Option shall impose no
obligation upon the Optionee to exercise the Option.
A-2
<PAGE>
DATED: September 9, 1999
UPROAR LTD.
By: /s/ Michael K. Simon
-------------------------------
Title: Chairman
-------------------------------
/s/ Kenneth D. Cron
-------------------------------
OPTIONEE
Address: 161 Feeks Lane
-------------------------------
Lattingtown, N.Y. 11560
-------------------------------
ATTACHMENT
- ----------
Attachment A - 1999 Share Option/Share Issuance Plan
A-3
<PAGE>
STANDARD FORM OF LOFT LEASE
The Real Estate Board of New York, Inc.
(c)Copyright 1962, All Rights Reserved.
Reproduction in whole or in part prohibited.
Agreement of Lease, made as of this 20th day of March 1998 between
Nassau Bay Associates, L.P.
240 West 35th Street, NYC, NY 10001
party of the first part, hereinafter referred to as OWNER, and
PRIZEPOINT ENTERTAINMENT CORPORATION
------------------------------------
party of the second part, hereinafter referred to as TENANT.
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
Suite 18th Floor (see attachment A, hereto)
in the building known as 240 West 35th St. in the Borough of Manhattan, City of
New York, for the term of two years and a one year renewal option (or until such
term shall sooner cease and expire as hereinafter provided) to commence on the
1st day of April nineteen hundred and 98(4), and to end on the 31st day of
March 2000 both dates inclusive, at an annual rental rate of
See attachment B, hereto
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first two monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
Occupancy:
1. Tenant shall pay the rent as above and as hereinafter provided.
Use:
2. Tenant shall use and occupy demised premises for GENERAL OFFICES
provided such use is in accordance with the Certificate of Occupancy for the
building, if any, and for no other purpose.
Alterations:(1)
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to the prior written consent of
Owner, and to the provisions of this article, Tenant at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises using
contractors or mechanics first approved by Owner.(2) Tenant shall, at its
expense, before making any alterations, additions, installations or improvements
obtain all permits, approval and certificates required by any governmental or
quasi-govermental bodies and (upon completion) certificates of final approval
thereof and shall deliver promptly duplicates of all such permits, approvals and
certificates to Owner. Tenant agrees to carry and will cause Tenant's
contractors and sub-contractors to carry such workman's compensation, general
liability, personal and property damage insurance as Owner may(5) require. If
any mechanic's lien is filed against the demised premises, or the building of
which the same forms a part, for work claimed to have been done for, or
materials furnished to, Tenant, whether or not done pursuant to this article,
the same shall be discharged by Tenant within thirty days thereafter, at
Tenant's expense, by filing the bond required by law or otherwise. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises.(3) Nothing in this Article shall be
construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or removed from the
premises by Owner, at Tenant's expense.
<PAGE>
Repairs:
4. Owner shall maintain the roof and repair the exterior of and the public
portions of the building. Tenant shall, throughout the term of this lease, take
good care of the demised premises including the bathrooms and lavatory
facilities (if the demised premises encompass the entire floor of the building)
and the windows and window frames and, the fixtures and appurtenances therein
and at Tenant's sole cost and expense promptly make all repairs thereto and to
the building, whether structural or non-structural in nature, caused by or
resulting from the carelessness, omission, neglect or improper conduct of
Tenant, Tenant servants, employees, invitees, or licensees, and whether or not
arising from such Tenant conduct or omissions, when required by other provisions
of this lease, including Article 6. Tenant shall also repair all damage to the
building and the demised premises caused by the moving of Tenant's fixtures,
furniture and equipment. All the aforesaid repairs shall be of quality or class
equal to the original work or construction. If Tenant fails, after ten days
notice, to proceed with due diligence to make repairs required to be made by
Tenant, the same may be made by the Owner at the(5) expense of Tenant, and the
expenses thereof incurred by Owner shall be collectible, as additional rent,
after rendition of a bill or statement therefor. If the demised premises be or
become infested with vermin;(6) Tenant shall, at its expense, cause the same to
be exterminated. Tenant shall give Owner prompt notice of any defective
condition in any plumbing, heating system or electrical lines located in the
demised premises and following such notice. Owner shall remedy the condition
with due diligence, but at the expense of Tenant, if repairs are necessitated by
damage or injury attributable to Tenant, Tenant's servants, agents, employees,
invitees or licenses as aforesaid.(7) Except as specifically provided in Article
9 or elsewhere in this lease, there shall be no allowance to the Tenant for a
diminuation of rental value and no liability on the part of Owner by reason of
inconvenience, annoyance or injury to business arising from Owner, Tenant or
others making or failing to make any repairs, alterations, additions or
improvements in or to any portion of the building or the demised premises or in
and to the fixtures, appurtenances or equipment thereof. The provisions of this
Article 4 with respect to the making of repairs shall not apply in the case of
fire or other casualty with regard to which Article 9 hereof shall apply.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in
the demised premises to be cleaned from the outside in violation of Section 202
of the New York State Labor Law or any other applicable law or of the Rules of
the Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in
possession, and at all times thereafter. Tenant shall, at Tenant's sole cost and
expense, promptly comply with all present and future laws, orders and
regulations of all state, federal, municipal and local governments, departments,
commissions and boards and any direction of any public officer pursuant to law,
and all orders, rules and regulations of the New York Board of Fire
Underwriters, or the Insurance Services Office, or any similar body which shall
impose any violations, order or duty upon Owner or Tenant with respect to the
demised premises, whether or not arising out of Tenant's use or manner of use
thereof, or, with respect to the building, if arising out of Tenant's use or
manner of use of the demised premises or the building (including the use
- --------------------------------------------------------------------------------
1) Tenant may make non-structural alterations of up to $7,500 without requiring
Landlord's approval.
2) Owner's consent shall not be unreasonably withheld, and Tenant has the right
to ask for 2 competitive bids. The final cost/charge shall not exceed any
reasonable bid. The Tenant has the right to use its own contractors, who must
be a licensed and union. For electrical and plumbing work, the Landlord has
the right to oversee the work (at no cost to the Tenant).
3) Landlord agrees that no part of the existing installation will have to be
removed when Tenant vacates. Further Landlord agrees to inform Tenant within
five (5) business days if, in the future, any proposed change or addition to
the existing installation will have to be restored to the original condition
when Tenant vacates.
4) Possession/commencement date may be up to May 15, 1998. Tenant has the right
(via written receipted letter) to cancel this lease if possession is not
given by that date. Delayed possession will cause the rent and lease term to
be moved forward appropriately.
5) Reasonable.
6) Only if Tenant is the source of such vermin infestation.
7) [illegible]
<PAGE>
permitted under the leases. Except as provided in Article 30 hereof, nothing
herein shall require Tenant to make structural repairs or alterations unless
Tenant has, by its manner of use of the demised premises or method of operation
therein violated any such laws, ordinances, orders, rules, regulations or
requirements with respect thereto. Tenant shall not do or permit any act or
thing to be done in or to the demised premises which is contrary to law, or
which will invalidate or be in conflict with public liability, fire or other
policies of insurance at any time carried by or for the benefit of Owner. Tenant
shall not keep anything in the demised premises except as now or hereafter
permitted by the Fire Department. Board of Fire Underwriters, Fire Insurance
Rating Organization and other authority having jurisdiction, and then only in
such manner and such quantity so as not to increase the rate for fire insurance
applicable to the building, nor use the premises in a manner which will increase
the insurance rate for the building or any property located therein over that in
effect prior to the commencement of Tenant's occupancy. If by reason of failure
to comply with the foregoing the fire insurance rate shall, at the beginning of
this lease or at any time thereafter, be higher than it otherwise would be, then
Tenant shall reimburse Owner, as additional rent hereunder, for that portion of
all fire insurance premiums thereafter paid by Owner which shall have been
charged because of such failure by Tenant. In any action or proceeding wherein
Owner and Tenant are parties, a schedule or "make-up" or rate for the building
or demised premises issued by a body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgment, to absorb and prevent
vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases
and to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination.
Tenant shall execute promptly any certificate that Owner may request.
Property -- Loss, Damage, Reimbursement, Indemnity;
8. Owner or its agents shall not be liable for any damage to property of
Tenant or of others entrusted to employees of the building, nor for loss of or
damage to any property of Tenant by theft or otherwise, nor for any injury or
damage to persons or property resulting from any cause or willful act of
whatsoever nature, unless caused by or due to the negligence or willful act of
Owner, its agents, servants or employees; Owner or its agents shall not be
liable for any damage caused by other tenants or persons in, upon or about said
building or caused by operations in connection of any private, public or quasi
public work. If at any time any windows of the demised premises are temporarily
closed, darkened or bricked up (or permanently closed, darkened or bricked up,
if required by law) for any reason whatsoever including, but not limited to
Owner's own acts. Owner shall not be liable for any damage Tenant may sustain
thereby and Tenant shall not be entitled to any compensation therefor nor
abatement or diminution of rent nor shall the same release Tenant from its
obligations hereunder nor constitute an eviction. Tenant shall indemnify and
save harmless Owner against and from all liabilities, obligations, damages,
penalties, claims, costs and expenses for which Owner shall not be reimbursed by
insurance, including reasonable attorney's fees, paid, suffered or incurred as a
result of any breach by Tenant, Tenant's agents, contractors, employees,
invitees, or licensees, of any covenant or condition of this lease, or the
carelessness, negligence or improper conduct of the Tenant, Tenant's agents,
contractors, employees, invitees or licensees. Tenant's liability under this
lease extends to the acts and omissions of any sub-tenant, and any agent,
contractor, employee, invitee or licensee of any sub-tenant. In case any action
or proceeding is brought against Owner by reason of any such claim, Tenant, upon
written notice from Owner, will, at Tenant's expense, resist or defend such
action or proceeding by counsel approved by Owner in writing, such approval not
be unreasonably withheld.
<PAGE>
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire
or other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth,
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent, until such repair shall be substantially
completed, shall be apportioned from the day following the casualty according to
the part of the premises which is usable. (c) If the demised premises are
totally damaged or rendered wholly unusable by fire or other casualty, then the
rent shall be proportionately paid up to the time of the casualty and
thenceforth shall cease until the date when the premises shall have repaired and
restored by Owner, subhject to Owner's right to elect not to restore the same as
hereinafter provided. (d) If the demised premises are rendered wholly unusable
or (whether or not the demised premises are damaged in whole or in part) if the
building shall be so damaged that Owner shall decide to demolish it or to
rebuild it, then, in any of such events. Owner may elect to terminate this lease
by written notice to Tenant, given within 90 days after such fire or casualty,
specifying a date for the expiration of the lease, which date shall not be more
than 60 days after giving of such notice, and upon the date specified in such
notice the term of this lease shall expire as fully and completely as if such
date were the date set forth above for the termination of this lease and Tenant
shall forthwith quit, surrender and vacate the premises without prejudice
however, to Owner's rights and remedies against Tenant under the lease
provisions in effect prior to such termination, and any rent owing shall be paid
up to such date and any payments of rent made by Tenant which were on account of
any period subsequent to such date shall be returned to Tenant. Unless Owner
shall serve a termination notice as provided for herein. Owner shall make the
repairs and restorations under the conditions of (b) and (c) hereof, with all
reasonable expedition, subject to delays due to adjustment of insurance claims,
labor troubles and causes beyond Owner's control. After any such casualty,
Tenant shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
movable equipment, furniture, and other property. Tenant's liability for rent
shall resume [illegible] after written notice from Owner that the premises are
substantially ready for Tenant's occupancy, (c) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, each party shall look
first to any insurance in its favor before making any claim against the other
party for recovery for loss or damage resulting from fire or other casualty, and
to the extent that such insurance is in force and collectible and to the extent
permitted by law. Owner and Tenant each hereby releases and waives all right of
recovery against the other or any one claiming through or under each of them by
way of subrogation or otherwise. The foregoing release and waiver shall be in
force only if both relessors' insurance policies contain a clause providing that
such a release or waiver shall not invalidate the insurance, if, and to the
extent, that such waiver can be obtained only by the payment of additional
premiums, then the party benefitting from the waiver shall pay such premium
within ten days after written demand or shall be deemed to have agreed that the
party obtaining insurance coverage shall be free of any further obligation under
the provisions hereof with respect to waiver of subrogation. Tenant acknowledges
that Owner will not carry insurance on Tenant's furniture and or furnishings or
any fixtures or equipment, improvements, or appurtenances removable by Tenant
and agrees that Owner will not be obligated to repair any damage thereto or
replace the same, (f) Tenant hereby waives the provisions of Section 227 of the
Real Property Law and agrees that the provisions of this article shall govern
and control in lieu thereof. If the demises premises are totally damaged or
rendered wholly unusable by fire or other casualty and repair and restoration of
the same is not substantially completed within 150 days after such fire or other
casualty, Tenant may give Owner written notice that unless the repair and
restoration of said demised premises to substantially completed within 30 days
after the date of such notice, Tenant will end the term of this Lease. In the
event such repair and restoration is not substantially completed within 30 days
after the date of such notice, Tenant may at any time thereafter and prior to
substantial completion of such repair and restoration give Owner a second notice
ending the term of this Lease, whereupon the term of this Lease shall end on the
date of such second notice as if such date was the date set forth in this Lease
for [illegible]
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease.
<PAGE>
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributes, executors, administrators,
legal representatives, successors and assigns, expressly covenants that is shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant shall be deemed an assignment. If this lease be
assigned, or if the demised premises or any part thereof be underlet or occupied
by anybody other than Tenant, Owner may, after default by Tenant, collect rent
from it; assignee, under-tenant or occupant, and apply the net amount collected
to the rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting. [SEE RIDER SECTION
56]
Electric Current:
12. Rates and conditions in respect to submetering of rent inclusion, as
the case may be, to be added in RIDER attached hereto. Tenant covenants and
agrees that at all times its use of electric current shall not exceed the
capacity of existing lenders to the building or the risers of wiring
installation and Tenant may not use any electrical equipment which, in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time of
the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain. [SEE RIDER SECTION 47]
Access to Premises:
13. Owner or Owner's agents shall have the right (but shall not be
obligated) to enter the demised premises in any emergency at any time, and at,
other reasonable times(2), to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this lease, or for the purpose of complying
with laws, regulations and other directions of governmental authorities. Tenant
shall permit Owner to use and maintain and replace pipes and conduits in and
through the demised premises and to erect new pipes and conduits therein
provided, wherever possible, they are within walls or otherwise concealed. Owner
may during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction, nor shall the Tenant be entitled to any abatement of rent which such
work is in progress not to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours, with prior reasonable notice,
for the purpose of showing the same to prospective purchasers or mortgagees of
the building, and during the last six months of the term for the purpose of
showing the same to prospective tenants and may, during said six months period,
place upon the premises the usual notices "To Let" and "For Sale" which notices
Tenant shall permit to remain thereon without molestation. If Tenant is not
present to open and permit any entry into the premises. Owner or Owner's agents
may enter the same whenever such entry may be necessary or permissible by master
key or forcibly and provided reasonable care is exercised to safeguard Tenant's
property, such entry shall not render Owner or its agents liable therefor, nor
in any event shall the obligations of Tenant hereunder be affected. If during
the last month of the term Tenant shall have removed all or substantially all of
Tenant's property therefrom. Owner may immediately enter, alter, renovate or
redecorate the demised premises without limitation or abatement of rent, or
incurring liability to Tenant for any compensation and such act shall have not
effect on this lease or Tenant's obligations hereunder. [SEE RIDER SECTION 46]
<PAGE>
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not reclosed or covered, not
within the property line of the building is leased hereunder, anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility. Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant, if used by Tenant,
whether or not specifically leased hereunder.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in
violation of the certificate of occupancy issued for the building of which the
demised premises are a part. Tenant has inspected the premises and accepts them
as is, subject to the riders annexed hereto with respect to Owner's work, if
any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not of record, if any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business. Tenant shall be responsible for
and shall procure and maintain such license or permit.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding,
this lease may be cancelled by Owner by sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) It is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect as the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
<PAGE>
17. (1) If Tenant defaults in fulfilling any of the covenants of this Lease
other than the covenants for the payment of rent or additional rent: or if the
demised premises becomes vacant or deserted "or if this lease be rejected under
ss.235 of Title 11 of the U.S. Code (bankruptcy code);" or if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the demised premises shall be taken or occupied by someone other than Tenant; or
if Tenant shall make default with respect to any other lease between Owner and
Tenant; or if Tenant shall have failed after five (5) days written notice, to
redeposit with Owner any portion of the security deposited hereunder which Owner
has applied to the payment of any rent and additional rent due and payable
hereunder or failed to move late or take possession of the premises within
thirty (30) days after the commencement of the term of this lease, of which fact
Owner shall be the sole judge; then in any one or more of such events upon Owner
serving a written five (5) days notice upon Tenant specifying the nature of said
default and upon the aspiration of said five (5) days, if Tenant shall have
failed to comply with or remedy such default, or if the said default or
omissions complained or shall be of a nature that the same cannot be completely
cured or remedied within said five (5) day period, and if Tenant shall not have
diligently commenced during such default within such five (5) day period, and
shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written three (3) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said three (3) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such three (3) day period were the
day herein definitely fixed for the end and expiration of this lease and the
term thereof and Tenant shall then quit and surrender the demised premises to
Owner but Tenant shall remain liable as hereinafter provided.
(2) If the cancellation notice provided for in (1) hereof shall have
been given, and the term shall expire as aforesaid: or if Tenant shall make
default in the payment of the rent reserved herein or any item of additional
rent herein mentioned or any part of either or in making any other payment
herein required: then and in any of such events Owner may without notice,
re-enter the demised premises either by force or otherwise, and dispossess
Tenant by summary proceedings or otherwise, and the legal representative of
Tenant or other occupant of demised premises and remove their effects and hold
the premises as if this lease had never been made, and Tenant hereby waives the
service of source of intention; re-enter or to institute legal proceedings to
that end. If Tenant shall make default hereunder prior to the date fixed as the
commencement of an renewal or extension of this lease, Owner may cancel and
terminate such renewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or otherwise, (a) the rent, and additional rent, shall
become [illegible] thereupon and be paid up to the time of such re-entry,
dispossess and/or expiration, (b) Owner may re-lease the premises or any part or
parts thereof, either in the name of Owner; otherwise, for a term or terms,
which may at Owner's option be less than or exceed the period which would
otherwise have constituted the balance of the term of this lease and may grant
concessions or free rent or charge higher rental than that in this lease, (c)
Tenant or the legal representative of Tenant shall also pay Owner as liquidated
damages for the failure of Tenant to observe and perform said Tenant's
convenants herein constituted, any deficiency between the rent hereby reserved
and covenanted to be paid and the net amount, if any, of the rents collected on
account of the subsequent lease or leases of the demised premises for each month
of the period which would otherwise have constituted the balance of the term of
this lease. The failure of Owner to re-let the premises or any part or parts
thereof shall not release or affect Tenant's liability for damages in computing
such liquidated damages there shall be added to the [Illegible] deficiency such
expenses as Owner may incur in connection with re-letting, such as legal
expenses, attorneys' fees, brokerage, advertising and for keeping the demised
premises in good order or for prepaing the same for re-letting. Any such
liquidated damages shall be paid in monthly installments by Tenant on the rent
day specified in this lease and any sum brought to collect the amounts of the
deficiency for any month shall be prejudice in any way the rights of Owner to
collect the deficiency for any subsequent month by a similar proceeding. Owner,
in putting the demised premises in good order or preparing the same for
re-rental may, at Owner's option, make such alterations, repairs, replacements,
and/or decorations in the demised premises as Owner, in Owner's sole judgment,
considers advisable and necessary for the purpose of re-letting demised
premises, and the making of such alterations, repairs, replacements and/or
decorations shall not operate or be construed to release Tenant from liability
hereunder as aforesaid. Owner shall in no event be liable in any way whatsoever
for failure to re-let the demised premises, or in the event that the demised
premises are re-let, for failure to collect the rent thereof under such
re-letting, and in no event shall Tenant be entitled to receive any excess. If
any, of such net rents collected over the sums payable by Tenant to Owner
hereunder. In the event of a breach or threatened breach by Tenant of any of the
covenants or provisions hereof, Owner shall have the right of injunction and the
right to invoke any remedy allowed at law or in equity as if re-entry, summary
proceedings and other remedies were not herein provided for. Mention in the
lease of any particular remedy, shall not preclude Owner from any other remedy,
in law or in equity, Tenant hereby expressly waives any and all rights of
redemption granted by or under any present or future laws.
<PAGE>
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of any
of the terms or provisions in any article of this lease, then, unless otherwise
provided elsewhere in this lease, Owner may immediately or at any time
thereafter and without notice perform the obligation of Tenant thereunder. If
Owner, in connection with the foregoing or in connection with any default by
Tenant in the covenant to pay rent hereunder, makes any expenditures or incurs
any obligations for the payment of money, including but not limited to
attorney's fees, in [Illegible], prosecuting or defending any action or
proceedings, then Tenant will reimburse Owner for such sums so paid or
obligations incurred with interest and costs. The foregoing expenses incurred by
reason of Tenant's default shall be deemed to be additional rent hereunder and
shall be paid by Tenant to Owner within five (5) days of readition of any bill
or statement to Tenant therefor, the Tenant's lease term shall have expired at
the time of making of such expenditures or incurring of such obligations, such
sums shall be recoverable by Owner as damages.
Building Alterations and Management:
20. Owner will provide tenant with reasonable access to the demised
premises 24 hours a day, 7 days a week, 52 weeks a year. Owner shall have the
right at any time without the same constituting an eviction and without
incurring liability to Tenant therefor to change the arrangements and or
location of public entrances, passageways, doors, doorways, corridors,
elevators, stairs, toilets or other public parts of the building and to change
the name, number of designation by which the building may be known. There shall
be no allowance to Tenant for iminution of rental value and no liability on the
part of Owner by reason of inconvenience, annoyance or injury to business
arising from Owner or other Tenant making any repairs in the building or any
such alterations, additions and improvements. Furthermore, Tenant shall not have
any claim against Owner by reason of Owner's imposition of any controls of the
manner of access to the building by Tenant's social or business visitors as the
Owner may deem necessary for the security of the building and its occupants.
SEE RIDER SECTION 67
No Representations by Owner:
21. Neither Owner nor Owner's agents have made any representations or
promises with respect to the physical condition of the building, the land upon
which it is erected or the demised premises, the rents, leases, expenses of
operation or any other matter or thing affecting or related to the demised
premises or the building except as herein expressly set forth and so rights,
statements or licenses are acquired by Tenant by implication or otherwise except
as expressly set forth in the provisions of this lease. Tenant has inspected the
building and the demised premises and is thoroughly acquainted with their
condition and agrees to take the same "as is" on the date possession is tendered
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
<PAGE>
change, modify, discharges or effect an abandonment of it in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease.
Tenant shall quit and surrender to Owner the demised premises, broom clean, in
good order and condition, ordinary wear and damages which Tenant is not required
to repair as provided elsewhere in this lease excepted, and Tenant shall remove
all its property from the demised premises. Tenant's obligation to observe or
perform this covenant shall survive the expiration or other termination of this
lease. If the last day of the term of this Lease or any renewal thereof, falls
on Sunday, this lease shall expire at noon on the preceding Saturday unless it
be a legal holiday in which case it shall expire at noon on the preceding
business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon Tenant paying the rent
and additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed. Tenant may peaceably
and quietly enjoy the premises hereby demised, subject nevertheless, to the
terms and condtions of this lease including, but not limited to, Article 34
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the
date of the commencement of the term hereof, because of the holding-over or
retention of possession of any tenant, undertenant or occupants or if the
demised premises are located in a building being constructed, because such
building has not been sufficiently completed to make the premises ready for
occupancy or because of the fact that a certificate of occupancy has not been
procured or if Owner has not completed any work required to be performed by
Owner, or for any other reason. Owner shall not be subject to any liability for
failure to give possession on said date and the validity of the lease shall not
be impaired under such circumstances, nor shall the same be construed in any
wise to extent the term of this lease, but the rent payable hereunder shall be
abated (provided Tenant is not responsilbe for Owner's inability to obtain
possession or complete any work required) until after Owner shall have given
Tenant notice that the premises are substantially ready for Tenant's occupancy.
If permission is given to Tenant to enter into the possession of the demised
premises or to occupy premises other than the demised premises prior to the date
specified as the commencement of the term of this lease. Tenant covenants and
agrees that such occupancy shall be deemed to be under all the terms, covenants,
conditions and provisions of this lease, except as to the covenant to pay rent.
The provision of this article are intended to continue "an express provision to
the contrary" within the meaning of Section 223-a of the New York Real Property
Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this lease or of any
of the Rules or Regulations, set forth or hereafter adopted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than an account of
the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in his lease provided. All checks tendered to Owner as and for the
rent of the demised premises shall be deemed payments for the account of Tenant.
Acceptance by Owner of rent from anyone other than Tenant shall not be deemed to
operate as an attornment to Owner by the payor of such rent or as a consent by
Owner to an assignment or subletting by Tenant of the demised premises to such
payor, or as a modification of the provisions of this lease. No act or thing
done by Owner or Owner's agents during the term hereby demised shall be deemed
an acceptance of a surrender of said premises and no agreement to accept such
surrender shall be valid unless in writing signed by Owner. No employee of Owner
or Owner's agent shall have any power to accept the keys of said premises prior
to the termination of the lease and the delivery of keys to any such agent or
employee shall not operate as a termination of the lease or a surrender of the
premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other (except for personal injury or property damage) on any matters
whatsoever arising out of or in any way connected with this lease, the
relationship of Owner and Tenant, Tenant's use of or occupancy of said premises,
and any emergency statutory or any other statutory remedy. It is further
mutually agreed that in the event Owner commences any summary proceeding for
possession of the premises. Tenant will not interpose any counterclaim of
whatever nature or description in any such proceeding.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and
perform all of the other covenants and agreements hereunder on part of Tenant to
be performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment or
fixtures if Owner is prevented or delayed from so doing by reason of strike or
labor troubles or any cause whatsoever beyond Owner's sole control including,
but not limited to, government preemption in connection with a National
Emergency or by reason of any rule, order or regulation of any department or
subdivision thereof of any government [illegible] or by reason of the conditions
of supply and demand which have been affected by war or other emergency.
Bills and Notices:
28. Except as otherwise in this lease provided [illegible] statement,
notice of communication which Owner [illegible] desire or be required to give to
Tenant, shall be [illegible] sufficiently given or rendered, in writing,
delivered to Tenant personally or sent by registered or certified mail, return
receipt requested, addressed to Tenant at the [illegible] of which the demised
premises form a part or at the last known re[illegible] address or business
address of Tenant, and the time of the rendition of such [illegible] statement
and of the giving of such notice or communication [illegible] deemed to be the
time when the same is delivered to Tenant. [illegible] as herein provided. Any
notice by Tenant to Owner must be served by registered or certified mail, return
receipt required, addressed to Owner [illegible] address first hereinabove given
or as such other address as Owner [illegible] designate by written notice.
Water Charges:
29. If Tenant requires, uses or consumes water for purpose in addition to
ordinary lavatory purpose [illegible] which fact Tenant continues Owner to be
the [illegible] judge) Owner may install a water meter and thereby measure
Tenant's water consumption for all purposes. Tenant shall pay Owner for the
[illegible] of the matter and the cost of the installation, thereof and
throughout [illegible] duration of Tenant's occupancy Tenant shall keep said
meter and in[illegible] tion equipment in good working order and repair at
Tenant's own [illegible] an expense in default of which Owner may cause such
meter and [illegible] to be replaced or repaired and collect the cost thereof
from Tenant as additional rent. Tenant agrees to pay for water consumed, as
shown [illegible] said meter as and when bills are rendered, and on default in
making [illegible] payment Owner may pay such charges and collect the same from
Tenant as additional rent. Tenant covenants and agrees to pay, as additional
[illegible] the sewer rent, charge or any other tax, rent, levy or charge which
[illegible] hereafter is assessed, imposed or a lien upon the demised premises
or realty of which they are part pursuant to law, order or regulation made
[illegible] issued in connection with the use, consumption, maintenance or
supply [illegible] water, water system or sewage or sewage connection or system.
If [illegible] building or the demised premises or any part thereof is supplied
[illegible] water through a meter through which water is also supplied to
[illegible] premises Tenant shall pay to Owner, an additional rent, on the first
day [illegible] each month, ____% ($zero) of the total meter charges as Tenant's
portion. Independently of and in addition to any [illegible] the remedies
reserved to Owner hereinabove or elsewhere in this [illegible]. Owner may sue
for and collect any monies to be paid by Tenant or [Illegible] by Owner for any
of the reasons or purposes hereinabove set forth.
Sprinklers:
30. Anything elsewhere in this lease to the contrary so notwithstanding.
If the New York Board of Fire Underwriters or the New York Fire Insurance
Exchange or any bureau, department or official of the federal, state or city
government recommend or require the installation of a sprinkler system or that
any changes, modifications, alterations, or additional sprinkler heads or other
equipment made or supplied in an existing sprinkler system by reason of Tenant
business, or the location of partitions, trade fixtures, or other contents the
demised premises, or for any other reason, or if any such sprinkler system
installations, modification, alterations, additional sprinkler heads or other
such equipment, become necessary to prevent the imposition of a penalty or
charge against the full allowance for a sprinkler system in the fire insurance
rate set by any said Exchange or by any fire insurance company, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes
modifications, alterations and supply additional sprinkler heads or other
equipment as required. Tenant shall pay to Owner as additional rent the sum
$zero on the first day of each month during the term of the lease, as Tenant's
portion of the contract [illegible] for sprinkler supervisory service.
Elevators, Heat, Cleaning:
31. Owner shall: (a) provide necessary passenger elevator facilities on
business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1 p.m.: (b)
If freight elevator service is provided, same shall be provided only on regular
business days Monday through Friday inclusive, and [illegible] those days only
between the hours of 9 a.m. and 12 noon and between [illegible] p.m. and 5 p.m.;
(c) furnish heat, water and other services supplied by Owner to the demised
premises, when and as required by law, on business days from 8 a.m. to 6 p.m.
and on Saturdays from 8 a.m. to 1 p.m. to clean the public halls and public
portions of the building which are used [illegible] common by all tenants.
Tenant shall, at Tenant's expense, keep in [illegible] demised premises,
including the windows, clean and in order, to the satisfaction of Owner, and for
that purpose shall employ the person or persons, or corporation approved by
Owner. Tenant shall pay to Owner the cost of removal of any to Tenant's refuse
and rubbish from the building. Bills for the same shall be rendered by Owner to
Tenant at such time as Owner may elect and shall be due and payable hereunder,
and the amount of such bills shall be deemed to be, and be paid as additional
rent. Owner reserves the right to stop service of the heating, elevator,
plumbing and electric systems, when necessary, by reason of accident, or
emergency, of for repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, until said repairs,
alterations replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplied manually operated
elevator service. Owner may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice to Tenant
without in any way affecting the obligations of Tenant hereunder provided that
the same shall be done with the minimum amount of inconvenience to Tenant, and
Owner pursues with due diligence the completion of the alterations. [SEE RIDER
SECTIONS 60, 61 and 70]
<PAGE>
Security:
32. Tenant has deposited with Owner the sum of $20,064.00 as security
for the faithful performance and observance by Tenant of the terms, provisions
and conditions of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and conditions of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which tenant is in default or for any sum which Owner may expend or may be
required to expend by reason of Tenant's default in respect of any of the terms,
covenants and conditions of this lease, including but not limited to, any
damages or deficiency in the reletting of the premises, whether such damages or
deficiency accrued before or after summary proceedings or other re-entry by
Owner. In the event that Tenant shall fully and faithfully comply with all of
the terms, provisions, covenants and conditions of this lease, the security
shall be returned to Tenant after the date fixed as the end of the Lease and
after delivery of entire possession of the demised premises to Owner. In the
event of a sale of the land and building or leasing of the building, of which
the demised premises form a part, Owner shall transfer the security to the
vender or lessee and Owner shall thereupon be released by Tenant from all
liability for the return of such security; and Tenant agrees to look to the new
Owner solely for the return of said security, and it is agreed that the
provisions hereof shall apply to every transfer or assignment made of the
security to a new Owner. Tenant further convenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Captions:
33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provision thereof.
Definitions:
34. The term "Owner" as used in this lease means only the owner of the
fee or of the leasehold of the building, or the mortgages in possession, for the
time being of the land and building (or the owner of a lease of the building or
of the land and building) of which the demised premises form a part, so that in
the event of any sale or sales of said land and building or of said lease, or in
the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successors in interest, or
between the parties and the purchaser, at any such sale, or the said lessee of
the building, or of the land and building, that the purchaser or the lessee of
the building has assumed and agreed to carry out any and all covenants and
obligations of Owner hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term "rent"
includes the annual rental rate whether so-expressed or expressed in monthly
installments, and "additional rent," "Additional rent" means all sums which
shall be due to new Owner from Tenant under this lease, in addition to the
annual rental rate. The term "business days" as used in this lease, shall
exclude Saturdays (except such portion thereof as is covered by specific hours
in Article 31 hereof), Sundays and all days observed by the State or Federal
Government as legal holidays and those designated as holidays by the applicable
building service union employees service contract or by the applicable Operating
Engineers contract with respect to HVAC service.
Adjacent Excavation:
35. If an excavation shall be made upon land adjacent to the demised
premises, or shall be authorized to be _____________________________________
Space to be filled in or deleted.
Sharing:
made, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the demised premises for the purpose of doing
such work as said person shall deem necessary to preserve the wall or the
building of which demised premises form a part from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Owner, or diminution or abatement of rent.
<PAGE>
Rules and Regulations:
36. Tenant and Tenant's servants, employees, agents, visitors, and
licensees shall observe, and comply with, the Rules and Regulations annexed
hereto and such other and further reasonable Rules and Regulations as Owner or
Owner's agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additions, Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be fact and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within thirty (30) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Class:
37. Owner shall replace, at the expense of the Tenant, any and all
plate and other glass demaged or broken from any cause whatsoever in and about
the demised premises. Owner may insure, and keep insured, at Tenant's expense,
all plate and other glass in the demised premises for and in the name of Owner.
Bills for the premiums therefor shall be rendered by Owner to Tenant at such
times as Owner may elect, and shall be due from, and payable by, Tenants where
rendered, and the amount thereof shall be deemed to be, and be paid, as
additional rent. Landlord will inform Tenant prior to establishing any insurance
coverage Landlord agrees any premiums will.
Estoppel Certificates:
38. Tenant, at any time, and from time to time, open at least fifteen
(15) days prior notice by Owner, shall execute, acknowledge and deliver to
Owner, and/or to any other person, firm or corporation specified by Owner, a
statement certifying that this Lease is unmodified in full force and effect (or,
if there have been modifications, that the same is in full force and effect as
modified and stating the modifications), stating the dates to which the rent and
additional rent have been said, and stating whether or not there exists any
default by Owner under this Lease, and, if so, specifying each such default.
Directory Board Listing:
39. If, at the request of and as accommodation to Tenant, Owner shall
place upon the directory board in the lobby of the building, one or more names
of persons other than Tenant, such directory board listing shall not be
construed as the consent by Owner to an assignment or subletting by Tenant to
such person or persons.
Successors and Assignee:
40. The covenants, conditions and agreements contained in this
lease shall bind and inure to the benefit of Owner and Tenant and
their respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
<PAGE>
SEE RIDER SECTIONS ANNEXED TO AND FORMING PART OF THIS LEASE, CONTAINING
PARAGRAPHS AS ENUMERATED IN ARTICLES 40 THROUGH 80 AND ATTACHMENTS A AND B AND
C.
In Witness Thereof, Owner and Tenant have respectively signed and
sealed this lease as of the day and year first above written.
Witness for Owner: CORP. SEAL
------------------------
[illegible]
- ------------------------------ --------------------------- [L.S.]
Nassau Bay Associates, L.P.
By LAG Corp.
Witness for Tenant: _______________________ CORP. SEAL
______________________________ ___________________________ [L.S.]
/s/ Christopher Hassett
--------------------------------
Prizepoint Entertainment Corp.
By: Christopher Hassett
President
ACKNOWLEDGMENTS
<TABLE>
<CAPTION>
<S> <C>
CORPORATE TENANT INDIVIDUAL TENANT
STATE OF NEW YORK, [Illegible] STATE OF NEW YORK, [Illegible]
County of County of
On this day of , 19 , before me On this day of , 19
personally came . , before me personally came .
to me known, who being by me duly sworn, did depose and say that he resides To me known and known to me to be the individual
in described in and who, as TENANT, executed the
foregoing instrument and acknowledged to me that
that he is the of executed the same.
the corporation described is and which executed the foregoing instrument, as -------------------------------
TENANT: that he knows the seal of said corporation: that the seal affixed to
said instruments is such corporate seal that it was so affixed by the Board of
Directors of said corporation, and that he signed his name thereto by like
order.
------------------------------------
</TABLE>
IMPORTANT -- PLEASE READ
RULES AND REGULATION ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose either than for [Illegible] or egress from
the demised premises and for delivery of merchandise and equipment in a prompt
and efficient manner using elevators and passageways designated for such
delivery by Owner. There shall not be used in any space, or in the public hall
of the building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and sideguards. If said permises are situated on the ground floor of the
building. Tenants thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other then those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expenses of any breakage, storage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any
window of the building: and no Tenant shall sweep or throw or permit to be swept
or thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reasons of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the building without the prior written consent of Owner.
5. No sign, advertisements, notices or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenent on any part of the outside of the
demised premises or the building or on the inside of the demised premises if the
same is visable from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability and may charge the expense incurred
by such removal to Tenant or Tenants violating rule. Interior signs on doors and
directory tables shall be inscribed, painted or affixed for each Tenant by Owner
at the expense of such Tenant, and shall be of a size, color and style
reasonably acceptable to Owner.
<PAGE>
6. No Tenant shall drill into, or is any way deface any part of the demised
premises or the buildings of which they form a part. No boring, cutting or
stringing of wires shall be permitted, exept with the prior written consent of
Owner and as Owner may direct. No Tenant shall lay linoleum, or other similar
floor covering, so that the same shall come in direct contact with the floor of
the demised premises, and, if linoleum or other similar floor covering is
desired to be used as [illegible] of builder's deadening felt shall be first
affixed to the floor, by a [illegible] other material, solubable in water, the
use of cement or other similar adhesive matters being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism therof. Each Tenant must, upon the termination of his Tenancy,
return to Owner all keys of stairs, offices and toilet rooms, either furnished
to, otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises for, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except from persons authorized by Owner, and
at hours and under regulations fixed by Owner. Canvassing solicitiong and
peddling in the building is prohibited and each Tenant shall cooperate to
prevent the same.
10. Owner reserves the right to exclude from the building between the hours
of 6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at all
hours on Sundays and legal holidays all persons who do not present a pass to the
building signed by Owner. Owner will furnish passes to persons for whom any
Tenant requests same in writing. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Owner for all acts
of such persons. Notwithstanding the foregoing, Owner shall not be required to
allow Tenant or any person to enter or remain in the building, except on
business days from 8:00am to 6: p.m. and on Saturdays from 8:00 a.m. to 1:00
p.m.
11. Owner shall have the rights to prohibit any advertising by any Tenant
which in the Owner's opinion, leads to impair the reputation of the building or
its desirability as a loft building, and upon written notice from Owner, Tenant
shall refraim from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
demised premises, any inflammable, conbustible or explosive fluid, material,
chemical or substance, or cause or permit any odors of cooking or other
processess, or any unusual or other objectionable odors to permeate in or
enamates from the demised premises.
13. Tenant shall not use the demised premises in a manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
<PAGE>
240 West 35th St.
Address New York, NY 10001
Suite 18th Floor
Premises
============================================================
Nassau Bay Associates, LP.
TO
PrizePoint Entertainment Corp.
============================================================
STANDARD FORM OF
LOFT LEASE
The Real Estate Board of New York, Inc.
(C)Copyright 1982. All rights Reserved
Reproduction in whole or in part prohibited.
============================================================
Dated 19 .
Rent per Year
See Attachment B,
hereto
Rent per Month
Term
From
To
Drawn by _______________________ Checked by_________________
Entered by _____________________ Approved by________________
============================================================
<PAGE>
240 WEST 35TH STREET
NEW YORK, NEW YORK 10001
INDEX TO RIDER
--------------
ARTICLE TITLE PAGE
- ------- ----- ----
40 Broker ................................................... 2
41 As Is Condition .......................................... 2
42 Indemnification .......................................... 2
43 Exculpatory Clause ....................................... 2
44 Tenant's Representation .................................. 3
45 Insurance ................................................ 3
46 Landlord's Access ........................................ 3
47 Electricity .............................................. 4
48 No Item .................................................. 5
49 Real Estate Tax Escalation ............................... 5
50 Rent Payment Application ................................. 7
51 Late Payment Clause ...................................... 7
52 Attornment ............................................... 7
53 Entire Agreement ......................................... 7
54 Saving Provision ......................................... 8
55 Lease Not Binding Unless Executed ........................ 8
56 Assignment and Subletting, Mortgaging .................... 8
57 Tenant's Certificate ..................................... 11
58 Modification for Mortgage ................................ 11
59 Attorney's Fees and Bounced Check Charges ................ 12
60 No Item .................................................. 12
61 Air Conditioning and Ventilation ......................... 12
62 Governmental Regulations ................................. 13
63 Hold-Over ................................................ 13
64 Limitation on Rent ....................................... 14
65 Building and Floor Directory ............................. 14
66 Additional Rent .......................................... 14
67 Remodeling and Renovation ................................ 15
68 Use ...................................................... 15
69 Signage .................................................. 15
70 Elevators ................................................ 15
71 Construction/Liens ....................................... 15
72 No Item .................................................. 16
73 Local Law 5 .............................................. 16
74 Non-Disturbance .......................................... 17
75 Payment Upon Signing ..................................... 17
76 No Item .................................................. 17
77 Security in Non Interest Bearing Account ................. 17
78 Temporary Space .......................................... 17
79 Door Keys ................................................ 17
80 Personal Guaranty/Good Guy Clause ........................ 18
Lease Attachment A: Floor Plan
Lease Attachment B: Rental Rates, etc.
Lease Attachment C: Building Certificate of Occupancy
1
<PAGE>
RIDER ATTACHED TO AND MADE PART OF LEASE DATED MARCH 20, 1998
BY AND BETWEEN NASSAU BAY ASSOCIATES, L.P. AS LANDLORD AND
PRIZEPOINT ENTERTAINMENT CORPORATION, AS TENANT COVERING THE
ENTIRE 18TH FLOOR AT PREMISES 240 WEST 35TH STREET, NEW YORK, NY
10001-2506.
________________________________________________________________________________
Wherever the terms, covenants and conditions contained in the printed portion of
this Lease shall be in conflict with any of the terms, covenants and conditions
in the Additional Clauses 40 through 80 and Lease Attachments A, B & C, the
Additional Clauses and Attachments shall previal.
40. BROKER:
-------
Tenant represents and warrants that it has dealt with no broker except Alan
Kahn Associates, Inc. and such broker, if any, as mentioned below (the
"Brokers") in connection with the execution of this Lease or the showing of the
Demised Premises and agrees to hold and save Landlord harmless from and against
any and all liabilities from any claims of any broker claiming to have dealt
with the tenant (including, without limitation, the cost of (Tenant's choice of)
council and reasonable counsel fees in connection with the defense of any such
claims up to the total commissions) except the Brokers.
OTHER BROKERS: Harper Lawrence
------------- Colliers ABR
41. "AS IS" CONDITION:
-----------------
The Tenant has inspected the demised premises and except as set forth in
this lease agrees to accept the same in its present "as is" condition, and the
Landlord makes no representation as to the condition of the premises, except
that Landlord will paint all areas requiring same and deliver the premises in
clean condition including the shampooing and stretching of the carpet, as
needed.
42. INDEMNIFICATION
---------------
Tenant agrees to indemnify and save Landlord harmless against and from any
and all claims by or on behalf of any person or persons, firm or firms,
corporation or corporations, arising from any work or thing or circumstances or
occurrence whatsoever done by or on behalf of Tenant, in or about the demised
premises, and will further indemnify and save Landlord harmless against and from
any and all claims arising from any breach or default on the part of Tenant in
the performance of any covenant or agreement on the part of Tenant to be
performed, pursuant to the terms of this Lease, or arising from any act or
negligence of Tenant, or any of its agents, contractors, servants, employees,
invitees or licensees, and from and against all costs, reasonable counsel fees,
expenses and liabilities incurred in or about any such claim or action or
proceeding brought thereon; and in case any action or proceeding be brought
against Landlord by reason of any such claim, Tenant, upon notice from Landlord,
covenants to resist or defend, at Tenant's expense, such action or proceeding by
counsel reasonably satisfactorily to Landlord.
43. EXCULPATORY CLAUSE:
------------------
If the Landlord or any successor in interest be an individual, joint
venture, tenancy-in-common, co-partnership, unincorporated aggregate of
individuals or a corporation (all of which are referred to below in this Rider,
Paragraph 43 individually and collectively, as a "Landlord Entity"), then,
anything elsewhere to the contrary notwithstanding, Tenant shall look solely to
the estate and property of such Landlord Entity in the land and Building of
which the Demised Premises are a part, for the satisfaction of Tenant's remedies
for the collection of a judtment (or other judicial process) requiring the
payment of money by Landlord Entity in the event of any default or breach by
Landlord Entity with respect to any of the terms, covenants and conditions of
the Lease to be observed and/or performed by Landlord Entity, and no other
property or assets of such Landlord Entity shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies.
2
<PAGE>
44. TENANT'S REPRESENTATION:
-----------------------
Tenant covenants that it will not do or suffer to be done in or upon the
said premises any act or thing which shall damage the Landlord or its Tenants,
and covenants that no business shall be carried on, nor any act or acts suffered
or permitted to be done on said premises that in any manner conflicts with, or
is contrary, to any law, rule, regulations, requirement of this lease or
otherwise.
45. INSURANCE
---------
Tenant covenants and agrees that at all times during the term of this Lease,
Tenant shall immediately secure, and there-after maintain in full force, during
the term hereof, at its own cost and expense, comprehensive general personal
injury and property damage liability insurance against claims for bodily injury,
death and property damage, such insurance to afford minimum protection during
the term of this lease, of not less than $3,000,000* of bodily injury or death
to any one person and of not less than $5,000,000* in respect to any one
occurrence or accident and of not less than $500,000* for property damage, as
well as fire and casualty insurance, together with extended coverage, in such
amounts as required by Landlord. Such insurance policies shall name Landlord and
Tenant as insureds. Such policies shall insure against all costs, expenses
and/or liability arising out of or based upon any and all claims, accidents,
injuries and damages whatsoever normally covered by such insurance caused to any
person or property, wherein such accident, damage or injury occurred on or about
the demised premises or the land and building of which the demises premises are
a part. Such insurance shall be carried by an insurance company or companies
licensed to do business in the State of New York and reasonably acceptable to
Landlord.
* or such lesser amount as shall be mutually agreed, in writing, between
Landlord and Tenant.
Upon commencement of the term hereof, and thereafter at least ten (10) days
prior to the expiration of any such policy, Tenant shall deliver to Landlord the
policy or policies of insurance or certificates thereof and evidence of the
payment of the premium therefore. In the event Tenant shall fail to provide the
aforesaid insurance Landlord shall have the right, but not the obligation, after
giving the Tenant five (5) days' written notice given in accordance with Article
28, to procure and pay for any of such insurance and Tenant shall reimburse
Landlord, on the first of the following month, as additional rent, the cost
thereof with interest at the then maximum legal rate on the amount paid from the
date payment to the date of reimbursement. Each such policy shall contain an
endorsement that such insurance may not be canceled or amended except upon
thirty (30) days' written notice to Landlord. Tenant's failure to provide and
keep in force the aforementioned insurance shall be regarded as a material
default hereunder, entitling Landlord to exercise any or all of the remedies as
herein provided in the event of Tenant's default.
46. LANDLORD'S ACCESS:
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Tenant covenants and agrees that it will permit Landlord, its agents,
servants, employees, licensees, invitees and contractors, at any and all times
during regular business hours, to pass and repass on and through the demised
premises, or such portions thereof as may be necessary, in order that they or
any of them may gain access to any facilities of the Building. Landlord shall
make reasonable efforts to give Tenant advance notice of such entry and to avoid
disruption of Tenant's business activities.
Tenant agrees further that it will, during the entire term of this Lease,
keep the Landlord informed of the telephone numbers of at least three persons or
parties having keys to the demised premises in order that, in the event of an
emergency which requires Landlord to have access to such facilities during other
than regular business hours, Landlord may arrange with such persons or parties
to be admitted to the Demised Premises, provided, however, that if Landlord is
unable to arrange for admittance to the Demised Premises during any such
emergency, or if time does not permit the making of such arrangements, Landlord
shall have the right to gain admittance to the Demised Premises by forcibly or
otherwise breaking into the Demised Premises, and the sole liability of Landlord
to Tenant in such event shall be that Landlord shall be obligated to repair all
damage caused by such breaking in within a reasonable time after the occurrence
thereof.
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47. ELECTRICITY
A. Type of Service: At the commencement of the term hereof, electric
current shall be supplied to the Tenant at the Demised Premises on a submetered
basis.
B. Submetered Electric Charges: Landlord shall furnish electricity to the
Demised Premises on a sub-metered basis and Tenant covenants and agrees to
purchase the same from Landlord or Landlord's designated agent at charges, terms
and rates set, from time to time, during the term of this Lease by Landlord,
which shall not be higher than those specified in the service classification in
effect on January 1, 1970 pursuant to which electric current was sold from the
public utility corporation servicing Manhattan Buildings; provided, however,
said charges shall be increased in the same percentage as any percentage
increase in the billing for electricity for the entire Building, by reason of
increase in electric rates, charges, fuel adjustment or service classifications,
or by taxes or charges of any kind imposed thereon, or for any other such
reason, subsequent to January 1, 1970.
Any such percentage increase in Landlord's billing for electricity shall be
computed by the application of the average consumption (energy and demand) of
electricity for the entire Building for the twelve (12) full months immediately
prior to the rate change, or any changed methods of or rules on billing for
same, on a consistent basis to the new rate and to the service classification in
effect on January 1, 1970. If the average consumption of electricity for the
entire Building for said prior twelve (12) months cannot reasonably be applied
and used with respect to changed methods of or rules on billing, then the
percentage increase shall be computed by the use of the average consumption
(energy and demand) for the entire Building for the first three (3) months after
such change, projected to a full twelve (12) months' and that same consumption,
so projected, shall be applied to the service classification in effect on
January 1, 1970.
Where more than one meter measures the service of Tenant in the Building,
the service rendered through each meter may be computed and billed separately in
accordance with the provisions hereof. Bills therefore shall be rendered at such
times as Landlord may elect and the amount, as computed from a meter, shall be
deemed to be, and be paid as, additional rent, In the event such bills are not
paid within ten (10) days after the same are rendered, or in the event of any
monetary default (in excess of 10 days) of the terms of the leases, Landlord
may, giving Tenant 5 days to cure the default, discontinue the service of
electric current to the demised premises without releasing Tenant from any
liability under this lease and without liability of Landlord or its agents,
servants or employees for any damage or loss sustained by Tenant by such
discontinuance of service provided. However, that in the event Landlord shall
discontinue furnishing electric service to the demised premises pursuant to the
preceding provisions of this sentence and Tenant shall pay to Landlord such
delinquent amounts, then, provided Landlord shall not have exercised its right
to terminate this Lease, Landlord shall resume providing such electrical service
to the Demised Premises within reasonable time.
Notwithstanding anything to the foregoing, the electricity charges will be
the Con Edision rate schedule of "SC#4, rate 1" plus 15%. ALl electric bills
will be rendered on a regular monthly schedule but, if any invoicing is late or
missed the Tenant is still responsible for its payment as specified herein.
C. Electric Capacity: Tenant's use of electric current in the Demised
Premises shall not at any time exceed the capacity of any of the electrical
conductors and equipment in or otherwise serving the Demised Premises. Tenant
shall not make or perform or permit the making of, any alterations to wiring,
installation or other electrical facilities in or serving the Demised Premises
without the prior consent of Landlord in each instance. Should Landlord grant
any such consent, all additional risers or other equipment required therefore
shall be installed by the Landlord and the cost thereof shall be paid by Tenant
upon Landlord's demand.
D. Landlord's Liability: Unless the same shall arise due to the malicious
act of Landlord in default of any of the terms and conditions of this Lease,
Landlord shall not be liable in any way to Tenant for any failure or defect in
the supply or character of electric energy furnished to the Demised Premises by
reason of any requirement act or omission of the public utility company
servicing the Building with electricity or for any other reason whatsoever.
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E. Electric Discontinuance: Landlord reserves the right to discontinue
furnishing electric energy to Tenant at anytime upon sixty (60) days written
notice to Tenant, and from and after the effective date of such termination,
Landlord shall no longer be obligated to furnish Tenant with electric energy,
provided, however, that such termination date may be extended for a time
reasonably necessary for Tenant to make arrangements to obtain electric service
directly from the public utility company servicing the Building.
If Landlord exercises such right of termination, this Lease shall remain
unaffected thereby and shall continue in full force and effect; and thereafter
Tenant shall diligently arrange to obtain electric service directly from the
public utility company servicing the Building, and may utilize the then existing
electric feeders, risers and wiring servicing the Demised Premises to the extent
available and safely capable of being used for such purposes and only to the
extent of Tenant's then authorized connected load. Landlord shall be obligated
to pay no part of any cost required for Tenant's direct electrical service.
F. Electricity Tax: If any tax is imposed upon Landlord's receipts from the
sale or resale of electricity to Tenant by any Federl, State or Municipal
Authority, Tenant convenants and agrees that where permitted by law, Tenant's
pro rata share of such taxes shall be passed on to and included in the bill of,
and paid by Tenant to Landlord.
G. Electrical Consultant: In all matters relating to an annual rent
increase and additional rent pursuant to this article the findings of an
electrical consultant mutually-selected by the Tenant and the Landlord shall be
conclusive and binding upon the parties.
48. NO ITEM
49. REAL ESTATE TAX ESCALATION:
Tenant shall pay to Landlord, as additioal rent, tax escalations in
accordance with this Article.
A. As used in this Article, the following definitions shall apply:
1. The term "base year tax" as hereinafter set forth for the
determination of real estate tax escalations shall mean the New York City real
estate tax year commencing on July 1, 1998 and ending on June 30, 1999. Once the
base amount is established (upon receipt of the 98/99 tax bill from NYC), the
amount will become permanent and no downward revision will be acceptable.
2. The term "The Percentage" shall be deemed to mean 5.3 percent.
3. The term "The Building Project" shall mean all of the land together
with the improvements now and hereafter thereon known as 240 West 35th Street,
New York, New York.
4. The term "comparative year" shall mean the respective twelve (12)
months following the base tax year, and each subsequent period of twelve (12)
months.
5. The term "real estate taxes" shall mean the total of all taxes and
special and other assessments and/or vault charges levied, assessed or imposed
at any time by any governmental authority upon or against The Building Project,
and also any tax or assessment levied, assessed or imposed at any time by any
governmental authority in connection with the receipt of income or rents from
said building project to the extent that name shall be in lieu of all or a
portion of any of the aforesaid taxes or assessments, or additions or increases
thereof, upon or against said Building Project. If, due to a future change in
the method of taxation or in the taxing authroity, or for any other reason, a
franchise, income, transit, profit or other tax or governmental imposition,
however, designated, shall be levied against Landlord in substitution in whole
or in part for the real estate taxes, or in lieu of additions to or increases of
said real estate taxes, then such franchise, income, transit, profit or other
tax or governmental imposition shall be deemed to be included in the definition
of "real estate taxes" for the purpose hereof.
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As to special assessments which are payable over a period of time extending
beyond the term of this Lease, only a pro rata portion thereof, covering the
portion of the terms of this Lease unexpired at the time of the imposition of
such assessment, shall be included in "real estate taxes". If, by law, any
assessment may be paid in installments, then, only a pro rata portion thereof,
covering the portion of the term of this Lease unexpired at the time of the
imposition of such assessment, shall be included in "real estate taxes". If, by
law, any assessment may be paid in installments, then, for the purposes hereof
(a) such assessment shall be deemed to have been payable in the maximum number
of installments permitted by law and (b) there shall be included in real estate
taxes, for each comparative year in which such installments may be paid, the
installments of such assessment so becoming payable during such comparative
year, together with interest payable during such comparative year.
6. The phrase "real estate taxes payable during the base tax year" shall
mean that amount obtained by multiplying the valuation actually used by the City
of New York of the land and building of The Building Project (whether same be
actual or a transitional assessment), for purposes of billing real estate taxes
during the base tax year by the base tax year rate for each $100.00 for such
valuation.
B. Increase Charge: In the event that the real estate taxes payable for any
comparative year shall exceed the amount of such real estate taxes payable
during the base tax year, Tenant shall pay to Landlord, as additional rent for
such comparative year, an amount equal to The Percentage of the excess. By or
after the start of the comparative year following the base tax year, and by or
after the start of each comparative year thereafter, Landlord shall furnish to
Tenant a statement of the real estate taxes payable during the base tax year. If
the real estate taxes payable for such comparative year, exceed the real estate
taxes payable during the base tax year, additional rent for such comparative
year, in an amount equal to The Percentage of the excess, shall be due from
Tenant to Landlord. Tenant's obligation to pay the amount herein provided for
shall survive the expiration or earlier termination of this Lease.
C. Payment Conditions: The Percentage shall be due and payable within ten
(10) days after Landlord shall have delivered to Tenant a statement setting
forth the amount equal to the Percentage of the excess and the basis therefor.
Bills for such Taxes shall be sufficient evidence of amount, for the purpose of
calculating the Percentage. In the event Tenant fails to pay its proportionate
share when due, Landlord shall be entitled, with respect thereto, any and all
remedies to which Landlord may be entitled under this Lease for default in the
payment of rent. The failure of Landlord to bill Tenant for the additional rent
due in any fiscal year shall not prejudice the right of Landlord to subsequently
bill Tenant for such fiscal year or any subsequent fiscal year.
D. Recomputations: Should the real estate taxes payable during the base tax
year be reduced by final determination of legal proceedings, settlement or
otherwise, then, the real estate taxes payable during the base tax year shall be
correspodingly revised, the additional rent thereto paid or payable hereunder
for all comparitive years shall be recomputed on the basis of such reduction,
and Tenant shall pay to Landlord as additional rent, within ten (10) days after
being billed therefore, any deficiency between the amount of such additional
rent as theretofore computed and the amount thereof due as the result of such
recomputations. Should the real estate taxes payable during the base tax year be
increased by such final determination of legal proceedings; settlement or
otherwise, then appropriate recomputation and adjustment likewise shall be made.
E. When Due and Estimated Payment: If the term of this Lease commences on a
day which is not the first day of a comparative year, then the additional rent
due hereunder for such comparative year shall be a proportionate share of said
additional rent for the entire comparative year, said proportionate share to be
based upon the length of time that the term of this Lease will be in existence
during such comparative year.
Upon the date of any expiration or termination of this Lease (except
termination because of Tenant's default), whether the same be the date herein
above set forth for the expiration of the term or any prior or subsequent date,
a proportinate share of said additional rent for the comparative year during
which such expiration or termination occurs shall immediately become due and
payable by Tennant to Landlord, if not theretofore already billed and/or paid.
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The said proportionate share shall be based upon the length of time that this
Lease shall have been in existence during such comparative year. Landlord shall,
as soon as reasonably practible, compute the additional rent due form Tenant, as
aforesaid, which computations shall either be based on that comparative year's
actual figures or be an estimate based upon the most recent statements prepared
by Landlord and furnished to Tenant.
F. Billing Delay: Any delay or failure of Landlord in billing for any
additional rent shall not constitute a waiver of or in any way impair the
continuing obligation of Tenant to pay such additional rent.
G. When Payable: At Landlord's discretion, billing and payments may be made
and required each month commencing with the tenant taking possession of the
premises during each Lease Year Tenant shall, in addition to other payments
under this Lease, pay to Landlord, on account of the amount to become due and
payable by Tenant pursuant to this Article 1/12 of Tenants share of the
Landlord's estimate for Real Estate Taxes during the next year.
H. Payment Adjustments: When the actual Real Estate taxes are known, if the
payments made by Tenant pursuant to Paragraph G of this Article exceed the
amount actually due to Landlord for such Tax Year pursuant to this Article, such
excess shall, at the option of Landlord, either be paid to Tenant or be credited
(without interest) against the next ensuing payments provided for in said
Paragraph G, except that if no such payments shall be due or become due, such
excess shall be paid (without interest) by Landlord to Tenant. If the amount
payable by Tenant for such Tax Year pursuant to this Article exceeds the
payments made by Tenant pursuant to Paragraph G of this Article, Tenant shall
pay the difference within ten (10) days after Landlord furnishes tenant with a
statement for such Tax Year.
I. Reduction and Refund: In the event the real estate taxes for any
comparative year are subsequently reduced as a result of a final determination
of a legal proceeding, settlement or otherwise, then upon Landlord's receipt of
the refund from the taxing authority, the Tenant shall receive the appropriate
re-computation and adjustment, including payment to Tenant of its proportionate
share of the net amount of such refund of such Real Estate Taxes which may be
received by Landlord or Landlord otherwise shall give Tenant credit against
other monies due Landlord from Tenant; with the understanding, however, that if
a comparative year goes below the base year there shall be no recomputation or
adjustment in Tenant's favor. This clause shall not survive termination of this
lease.
50. RENT PAYMENT APPLICATION:
Regardless of the amount paid or payment specifications of the Tenant, all
rent or additional rent received will be applied
a) first to late fees (see lease clause 51)
b) second to bounced check charges (see lease clause 59)
c) third to attorney's fees (see lease clause 59)
d) fourth to arrears, with the oldest arrears paid-down first, and
e) then to current amounts that are due.
51. LATE PAYMENT CLAUSE
It is agreed that the rental under this Lease is due and payable in equal
monthly installments in advance on the fifth day of each month during the entire
lease term. In the event that any monthly installment of rent, or any other
payment required to be paid by the Tenant under this Lease shall be overdue, a
late charge of 5 cents for each dollar so overdue will be charged by the
Landlord for each month, or fraction of each month, from its due date until
paid.
52. ATTORNMENT:
A. Attorn to Lessor or Mortgages: Tenant agrees that if by reason of
default on the part of Landlord herein, under any fee mortgage or ground or
underlying lease of any leasehold mortgage affecting Landlord's interest (as
ground lessee), a fee mortgage or ground or underlying lessor or a leasehold
mortgagee shall enter into and become possessed of the real property of which
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the Demised Premises form a part, or any part or parts of such real property,
either through possession or foreclosure action or proceedings, or through the
issuance and delivery of a new lease of the Premises covered by the ground or
underlying lease to said leasehold mortgagee, then, if this Lease is in full
force and effect at such time, Tenant shall attom to such fee mortgagee or
lessor or such leasehold mortgagee as its Landlord; and in such event, such fee
mortgagee or lessor or leasehold mortgagee shall not be liable to Tenant for any
defaults theretofore committed by Landlord and no such default shall give rise
to any rights of offset or deduction against the rents payable under this Lease.
B. Further Instrument: The parties agree that the provisions for attornment
hereinbefore set forth do not require the execution of any further instrument.
However, if such lessor or mortgagee of which Tenant agrees to attorn, as
aforesaid, reasonably requests a further instrument expressing such attornment,
Tenant agrees to execute same promptly and if Tenant fails to do so, Tenant
hereby appoints Landlord Tenant's attorney-in-fact to execute such instrument
for and on behalf of Tenant.
53. ENTIRE AGREEMENT:
A. This lease contains the entire agreement between the parties, and any
agreement hereafter made shall not operate to change, modify, or discharge this
Lease in whole or in part unless such agreement is in writing and signed by the
party sought to be charged therewith.
B. Tenant expressly acknowledges and agrees that Landlord and its agents
have not made and are not making, and Tenant, in executing this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this Lease or in any other
written agreement which may be made between the parties concurrently with the
execution and delivery of this Lease and shall expressly refer to this Lease.
C. This Lease shall be governed in all respects by the laws of the State of
New York.
54. SAVINGS PROVISION:
If any provision of this Lease, or its application to any situation shall
be invalid or unenforceable to any extent, the remainder of this Lease, or the
application thereof to situations other than that as to which is invalid or
unenforceable, shall not be affected thereby, and every other provision of this
Lease shall be valid and enforceable to the fullest extent permitted by Law.
55. LEASE NOT BINDING UNLESS EXECUTED:
Submission by Landlord of the within Lease for execution by Tenant, shall
confer no rights on Tenant nor impose any obligations on Landlord unless and
until both Landlord and Tenant shall have executed this Lease.
56. ASSIGNMENT AND SUBLETTING, MORTGAGING:
A. Assignment with Consent: Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, or mortgage or otherwise encumber,
all or any part of its interest in this Lease, sublet the Demised Premises, in
whole or in part, or suffer or permit the Demised Premises or any part thereof
to be used by others, without the prior written consent of Landlord in each
instance, except as permitted hereunder. Landlord consent will not be
unreasonably delayed or withheld.
B. Assignment or Sub-letting: If Tenant shall desire to assign its interest
in this Lease and/or to sublet the Demised Premises, the Tenant shall submit to
Landlord a written request for Landlord's consent to such assignment and/or
subletting, which request shall be accompanied by the following information: (i)
the name and address of the proposed assignee and/or subtenant; (ii) the terms
and conditions of the proposed assignment and/or subletting; (iii) the nature
and character of the business of the proposed assignee and/or subtenant and the
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proposed use of the Demised Premises; and (iv) current financial information and
any other information Landlord may reasonably request with respect to the
proposed assignee and/or subtenant. Landlord, by notice given to Tenant within
twenty-one (21) days after receipt of Tenant's request for consent, may
terminate the Lease being assigned or subleased on a date to be specified in
said notice (the "Termination Date"), which date shall be not earlier than one
(1) day before the earlier effective date of the proposed assignment and/or
subletting nor later than twent-one (21) days after said earlier effective date.
Tenant shall vacate and surrender the Demise Premises on or before the
Termination Date and the term of this Lease shall end on the Termination Date as
if it were the Expiration Date.
C. Assignment and Sub-letting Provisions: If Landlord shall not exercise
its option to terminate this Lease pursuant to subsection B above, Landlord
shall not unreasonably withhold its consent to the preposed assignment or
subletting for the use permitted in this Lease, provided that:
(1) the Demised Premises shall not, without Landlord's prior consent,
have been listed or otherwise publicly advertised for assignment or subletting
at a rental rate lower than the higher of (a) the Fixed Annual Rent and all
Additional Rent then payable, or (b) the then prevailing rental rate for other
space in the Building;
(2) Tenant shall not then be in default hereunder beyond the expiration
of any applicable grace period;
(3) the proposed assignee and/or subtenant shall have a financial
standing, be of a character, be engaged in a business, and propose to use the
Demised Premises, in a manner in keeping with the standards of the Building;
(4) the proposed assignee and/or subtenant shall not then be a tenant,
subtenant or assignee of any space in the Building, nor shall the proposed
assignee or subtenant be a person or entity with whom Landlord is then
negotiating to lease space in the Building and has recieved an offer, in
writing, whithin the last three (3) months;
(5) the character of the business to be conducted in the Demised Premises
by the proposed assignee or subtenant shall not be likely to substantially
increase Operating Expenses or Building Energy Costs or elevator use in the
building;
(6) in case of sublettting, the subtenant shall be expressly subject to
all of the obligations of Tenant under this Lease and the further condition and
restriction that such sublease shall not be assigned, encumbered or otherwise
transferred or the Demised Premises further sublet by the subtenant in whole or
in part, or any part thereof suffered or permitted by the subtenant to be used
or occupied by others, without the prior written consent of Landlord in each
instance;
(7) no subletting shall end later than one (1) day before the Expiration
Date nor shall any subletting be for a term or less than two (2) years unless it
commences less than two (2) years before the Expiration Date;
(8) no subletting shall be for less than the entire Demised Premises; and
(9) no item
(10) Tenant shall pay to Alan Kahn Associates, Inc. (or its designee) the
sum of $250 for the work in preparing and approving any assignment or sublet.
(11) Additionally, Tenant shall reimburse Landlord on demand for any
costs, including reasonable attorneys' fees and disbursements, that may be
incurred by Landlord in connection with said assignment or sublease.
If there is a dispute between Landlord and Tenant as to the reasonableness
of Landlord's refusal to consent to any subletting and/or assignment, such
dispute shall be determined by arbitration in The City of New York in accordance
with the prevailing rules of the American Arbitration Association. The
arbitrators shall be bound by the provisions of this Lease and shall not
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Article when such multiple transfers equal 80% or more. Anything contained
herein to the contrary notwithstanding, the provisions of this section H shall
not apply to the sale of shares by persons other than those deemed "insiders"
within the meaning of the Securities Exchange Act of 1934, as amended, where
such sale is effected through any recognized exchange or through the
"over-the-counter market", unless the same be related to, result in or be the
result of any merger, consolidation, tender offer, takeover or other activity
involving the acquisition of control to Tenant by another unrelated corporation
or legal entity. All references to "Tenant" in this Section H shall also be
deemed to refer to any immediate and/or remote subtenant and/or assignee of
Tenant.
I. Term: In the event that Tenant fails to execute and deliver executed
duplicate originals of any assignment and/or sublease to which Landlord
consented under the provisions of this Article within forty-five (45) days after
the giving of such consent, then Tenant shall again comply with all of the
provisions of this Article before assigning its interest in this Lease or
subletting the Demised Premises.
J. Additional Assignment or Sub-Letting Consent: The consent of Landlord to
an assignment and/or a subletting shall not relieve Tenant from obtaining the
express consent in writing of Landlord to any further assignment and/or
subletting.
K. Rent Collection and Non-Waiver of Provisions: If Tenant's interest in
this Lease be assigned, or if the Demised Premises or any part thereof be sublet
or occupied by anyone other than Tenant, Landlord may collect rent from the
assignee, subtenant and/or occupant and apply the net amount collected to the
Fixed Annual Rent and all Additional Rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of the
provisions of this Article or of any default hereunder or the acceptance of
the assignee, subtenant, and/or occupant as Tenant, or a release of Tenant from
the further observance or performance by Tenant of all of the covenants,
conditions, terms and provisions on the part of Tenant to be performed or
observed.
57. TENANT'S CERTIFICATE:
Tenant shall, without charge, at any time and from time to time, within ten
(10) days after request by Landlord, certify by written instrument, duly
executed, acknowledged and delivered, to any mortgagee, assignee of any
mortgagee or purchaser, or any proposed mortgagee, assignee of any mortgagee or
purchaser, or any other person, firm or corporation specified by Landlord:
A. That this Lease is unmodified and in full force and effect (or, if there
has been modification, that the same is in full force and effect as
modified and stating the modification); and
B. Whether or not to the Tenant's knowledge there are any existing claims
against the Landlord or any defenses, which would prohibit or prevent
the Landlord from enforcing the provisions of the Lease; and
C. The dates, if any, to which the rental and other charges hereunder have
been paid in advance.
58. MODIFICATION FOR MORTGAGE:
If, in connection with obtaining financing or refinancing for the Building
of which the Demised Premises form a part, a banking, insurance or other
institution lender shall request reasonable modifications to this Lease as a
condition to such financing or refinancing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provide that such modifications do
not increase the obligations of Tenant hereunder (except, perhaps, to the extent
that Tenant may be required to give notices of any defaults by Landlord to such
lender and/or permit the curing of such default by such lender with the granting
of such additional time for such curing as may be required for such lender to
get possession of the said Building) or adversely affect the leasehold interest
hereby created. In no event shall a requirement that the consent of any such
lender be given for any modification, termination or surrender of the Lease be
deemed to adversely affect the leasehold interest hereby created.
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Article when such multiple transfers equal 80% or more. Anything contained
herein to the contrary notwithstanding, the provisions of this section H shall
not apply to the sale of shares by persons other than those deemed "insiders"
within the meaning of the Securities Exchange Act of 1934, as amended, where
such sale is effected through any recognized exchange or through the
"over-the-counter market", unless the same be related to, result in or be the
result of any merger, consolidation, tender offer, takeover or other activity
involving the acquisition of control of Tenant by another unrelated corporation
or legal entity. All references to "Tenant" in this Section H shall also be
deemed to refer to any immediate and/or remote subtenant and/or assignee of
Tenant.
I. Term: In the event that Tenant fails to execute and deliver executed
duplicate originals of any assignment and/or sublease to which Landlord
consented under the provisions of this Article within forty-five (45) days after
the giving of such consent, then Tenant shall again comply with all of the
provisions of this Article before assigning its interest in this Lease or
subletting the Demised Premises.
J. Additional Assignment or Sub-Letting Consent: The consent of Landlord to
an assignment and/or a subletting shall not relieve Tenant from obtaining the
express consent in writing of Landlord to any further assignment and/or
subletting.
K. Rent Collection and Non-Waiver of Provisions: If Tenant's interest in
this Lease be assigned, or if the Demised Premises or any part thereof be sublet
or occupied by anyone other than Tenant, Landlord may collect rent from the
assignee, subtenant and/or occupant and apply the net amount collected to the
Fixed Annual Rent and all Additional Rent herein reserved, but no such
assignment, subletting, occupancy or collection shall be deemed a waiver of the
provisions of this Article or of any default hereunder or the acceptance of the
assignee, subtenant, and/or occupant as Tenant, or a release of Tenant from the
further observance or performance by Tenant of all of the covenants, conditions,
terms and provisions on the part of Tenant to be performed or observed.
57. TENANT'S CERTIFICATE:
Tenant shall, without charge, at any time and from time to time, within
ten (10) days after request by Landlord, certify by written instrument, duly
executed, acknowledged and delivered, to any mortgagee, assignee of any
mortgagee or purchaser, or any proposed mortgagee, assignee of any mortgagee or
purchaser, or any other person, firm or corporation specified by Landlord:
A. That this Lease is unmodified and in full force and effect (or, if there
has been modification, that the same is in full force and effect as
modified and stating the modification); and
B. Whether or not to the Tenant's knowledge there are any existing claims
against the Landlord or any defenses, which would prohibit or prevent
the Landlord from enforcing the provisions of the Lease; and
C. The dates, if any, to which the rental and other charges hereunder have
been paid in advance.
58. MODIFICATION FOR MORTGAGE:
If, in connection with obtaining financing or refinancing for the Building
of which the Demised Premises form a part, a banking, insurance or other
institution lender shall request reasonable modifications to this Lease as a
condition to such financing or refinancing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder (except, perhaps, to the
extent that Tenant may be required to give notices of any defaults by Landlord
to such lender and/or permit the curing of such default by such lender with the
granting of such additional time for such curing as may be required for such
lender to get possession of the said Building) or adversely affect the leasehold
interest hereby created. In no event shall a requirement that the consent of any
such lender be given for any modification, termination or surrender of the Lease
be deemed to adversely affect the leasehold interest hereby created.
11
<PAGE>
59. ATTORNEY'S FEES AND BOUNCED CHECK CHARGES:
A. Attorney's Fees: In case it shall be necessary for Landlord to institute
any action or proceeding against Tenant for non-payment of rent or for any
violation of any of the covenants or provisions of this lease or for the
recovery of possession of the demised premises or should the Landlord be
compelled to intervene in any action or proceeding wherein Tenant is a party in
order to enforce or protect Landlord's interest or rights hereunder, then and in
any of such events, if Landlord shall be successful in any action or proceeding,
Tenant shall be obligated to pay Landlord a reasonable attorney's fee, incurred
for the institution and prosecution of any action, proceeding or intervention.
B. Bounced Check Charges: In the event that Tenant shall make any payments
due hereunder by ordinary check in an amount in excess of $9,000, and that check
shall be returned for Insufficient Funds or Uncollected Funds, or the account
being closed, then, the Landlord shall not thereafter be obligated to accept any
payment from or on behalf of Tenant other than certified check, official bank
check or cash. In the event any payment, of any amount, made by Tenant to
Landlord shall be returned for any of the above reasons, there shall be an
additional charge to Tenant of One Hundred and Fifty ($150.00) Dollars.
60. NO ITEM
61. AIR CONDITIONING & VENTILATION:
A. Air Conditioning Units in Tenants Space:
(1) Use of the demised premises, or any part thereof, in a manner
exceeding the design conditions thereof (including occupancy and connected
electrical load) for heating and air conditioning service in the demised
premises, or rearrangement of partitioning which interferes with normal hearing
and air conditioning service in the demised premises and/or any part of The
Building Project, or the use of computer or data processing machines, may
require changes in the systems servicing the demised premises. Such changes so
occasioned, shall be made by Landlord, at Tenant's expense. Tenant agrees to
lower and keep closed Venetian blinds or other window coverings in the demised
premises whenever required for the proper operation of the air conditioning
service. No supplemental heating, ventilating or air conditioning equipment
shall be installed or utilized by Tenant in the demised premises without
Landlord's prior written consent, which shall not be unreasonably delayed or
withheld.
(2) Tenant shall not be permitted the use of window air conditioning
equipment, or any other air conditioning equipment without the express written
consent of the Landlord. In no case will air conditioning equipment, ductwork,
ventilator grills, exhaust or air intake be allowed on any facade except the
South facade of the building.
B. Central Air Conditioning:
(1) The Landlord has installed "central" air conditioning on the floor
upon which the Demised Premises are located. Such unit is operated at the sole
discretion of the Tenant.
(2) The Tenant shall pay to the Landlord for its electrical consumption
the electricity that the Landlord furnishes for the air conditioning unit on a
sub-metered basis as computed and in the same manner as set forth in Paragraph
47(B) of this Lease.
(3) Except as specifically provided in Article 9 or elsewhere in this
Lease, there shall be no allowance to Tenant for a diminution in the air
conditioning charges hereunder and no liability on the part of Landlord by
reason of inconvenience, annoyance or injury to business arising from Landlord,
Tenant or others making or failing to make any repairs to the air conditioning
unit or arising from the inoperability of the air conditioning unit. No
diminution or abatement of rent or additional rent or other compensation or
claim of constructive eviction shall or will be claimed by Tenant by reason of
any interruption, curtailment or suspension of the air-conditioning system.
12
<PAGE>
(4) no item
(5) It shall be the Tenant's obligation throughout the term of this
Lease, in addition to the sub-metering costs as provided herein, to pay to the
Landlord as additional rent the costs of replacement belts, replacement filters
and cleaning. Landlord warrants that the HVAC system in the Tenant's space has a
heating coil in working condition. Landlord is responsible for all other HVAC
repairs at Landlord's expense.
62. GOVERNMENTAL REGULATIONS:
If, at any time during the term of this lease, Landlord expends any sums
for alterations or improvements to the building which are required to be made
pursuant to any law, ordinance or governmental regulation, or any portion of
such law, ordinance or governmental regulation, which becomes effective after
the date hereof, Tenant shall pay to Landlord, as additional rent, the same
percentage of such cost as is set forth in the provision of this lease which
requires Tenant to pay increases in Real Estate Taxes, within ten (10) days
after demand therefor. If, however, the cost of such alteration or improvement
is one which is required to be amortized over a period of time pursuant to
applicable governmental regulations, Tenant shall pay to Landlord, as additional
rent, during each year in which occurs any part of the lease term, the
above-stated percentage of the reasonable annual amortization of the cost of the
alteration or improvement made. For the purposes of this Article, the cost of
any alteration or improvement made shall be deemed to include but not limited to
the cost of preparing any necessary plans and the fees for filing such plans and
supervision of the work. This Lease clause shall only be in effect if the tenant
renews this lease (in any form) beyond the Lease's original 3 year period.
63. HOLD-OVER:
If Tenant holds over in possession after the expiration or sooner
termination of the original term or of any extended term of this lease, such
holding over shall not be deemed to extend the term or renew the lease, but
such holding over thereafter shall continue upon the covenants and conditions
herein set forth except that the charge for use and occupancy of such holding
over for each calendar month or part thereof (even if such part shall be a small
fraction of a calendar month) shall be the sum equal to:
(a) 1/12 of the highest annual rent rate set forth on page one of this
lease, times 2.5, plus
(b) 1/12 of the net increase, if any, in annual fixed rental due solely
to increases in the cost of the value of electric service furnished to
the premises in effect on the last day of the term of the lease, plus
(c) 1/12 of all other items of annual additional rental, which annual
additional rental would have been payable pursuant to this lease had
this lease not expired, plus
(d) those other items of additional rent (not annual additional rent) which
would have been payable monthly pursuant to this lease, had this lease
not expired,
which total sum Tenant agrees to pay to Landlord promptly, in full, without
set-off or deduction. Neither the billing nor the collection of use and
occupancy in the above amount shall be deemed a waiver of any right of Landlord
to collect damages for Tenant's failure to vacate the Demised Premises after the
expiration or sooner termination of this lease. The aforesaid provisions of this
Article shall survive the expiration or sooner termination of this lease.
Balance of page intentionally blank.
13
<PAGE>
64. LIMITATION ON RENT:
If at the commencement of, or at any time during the term of this lease,
the rent reserved in this lease in not fully collectible by reason of any
Federal, State, County or City law, proclamation, order or regulation, or
direction of a public officer or body, Tenant agrees to take such steps as
Landlord may request to permit Landlord to collect the maximum rents which may
be legally permissible from time to time during the continuance of such legal
rent restriction (but not in excess of the amounts reserved therefor under this
lease). Upon the termination of such legal rent restriction, Tenant shall pay to
Landlord, to the extent permitted by law, an amount equal to (a) the rent and
additional rent and all payments provided for in this lease; less (b) the rents
paid by Tenant to Landlord during the period such legal rent restriction was in
effect.
65. BUILDING AND FLOOR DIRECTORY:
A. Building Directory:
At the written request of Tenant, Landlord shall list on the building's
directory the name of Tenant, any trade name under which Tenant has the right to
operate, any other entity permitted to occupy any portion of the Demised
Premises under the terms of this lease, up to a maximum of five (5) listings
without charge to the Tenant. If requested by tenant, Landlord may (but shall
not be required to) list the name of Tenant's subsidiaries and affiliates;
however, the listing of any name other than that of Tenant shall neither grant
such party or entity any right or interest in this lease or in the Demised
Premises nor constitute Landlord's consent to any assignment or sublease to, or
occupancy of the Demised Premises by, such party or entity.
Additional listings in the building directory are available at the option
of the Landlord for a one-time charge of $75.00 each. The additional listing(s)
may be terminated by the Landlord, at any time, without notice.
B. Floor Directory:
If Tenant leases additional space in the building, on a multi-tenanted
floor, then Tenant shall be entitled to 2 directory listings on that
multi-tenanted floor, at no charge.
66. ADDITIONAL RENT:
All payments other than the annual basic rental to be paid by Tenant
pursuant to this lease shall be deemed additional rent and, in the event of any
nonpayment thereof, Landlord shall have all rights and remedies provided for
herein and by law for nonpayment of rent. Tenant shall have thirty (30) days
from its receipt of any additional rent statement to notify Landlord, by
certified mail, return receipt requested, that it disputes the correctness of
such statement. After the expiration of such thirty (30) day period, such
statement shall be binding and conclusive upon Tenant. If Tenant disputes the
correctness of any such statement, Tenant shall, as a condition precedent to its
right to contest such correctness, make payment of the additional rent billed,
with its notice of dispute, and details thereof, without prejudice to its
position. If such dispute is finally determined in Tenant's favor, Landlord
shall refund to Tenant the amount overpaid.
Balance of this page intentionally blank.
14
<PAGE>
67. REMODELING AND RENOVATIONS:
It is understood and agreed, by and between the parties hereto, that the
Landlord prior to, during and subsequent to the commencement of the lease term
has, may be remodeling and renovating the Demised Premises and the building in
which the Demised Premises are located, including but not limited to lobby
areas, hallways, elevators, entrance ways, sidewalks, bathrooms and other common
areas, and to the heating, plumbing, electrical and air conditioning systems.
There shall be no allowance to Tenant for a diminution of rental value and
no liability on the part of Landlord by reason of inconvenience, annoyance or
injury to Tenant's business arising from said remodeling and renovations.
Landlord or its agents shall not be liable for any damage to property of Tenant
nor for any injury to persons resulting from such remodeling and renovations,
unless caused by or due to the negligence of Landlord, its agents, servants or
employees; nor shall Landlord or its agents be liable for any such damage caused
by other Tenants or persons in, upon or about said building or caused by
operations in construction of any private, public or quasi-public work.
Landlord, its agents, servants or employees shall have the right to enter the
Demised Premises to remodel and make such renovations, in addition to the
Landlord's right of entry pursuant to article 13 and other provisions of this
Lease.
All remodeling and renovations will be done in a manner which minimizes
interference with the Tenant's business. No non-emergency work to the electrical
system for the Tenant's demised premises will be done without reasonable
advanced notice.
68. USE:
Tenant acknowledges that the Demised Premises are located in a building
constituting a first-class loft/office building. Tenant agrees that it will
operate the Demised Premises in a manner consistent with such a building.
69. SIGNAGE:
The Tenant shall not, without the prior written consent of the Landlord,
place nor continue the use of any signs on the windows of the Demised Premises
or on the door or in the hallways on the floor on which the Demised Premises are
located. The Tenant shall submit to the Landlord a rendering of any new proposed
sign which shall be uniform to those in the building. If the Landlord gives its
consent to a sign as provided for in this paragraph the Tenant, at the Tenant's
own cost and expense, shall keep such sign in good and clean condition.
70. ELEVATORS:
Tenant must use the freight elevators for moving personal property and
furnishings as well as bulk goods or packages into and out of the building.
Tenant shall be able to use the freight elevators between the hours of 8:00 am
and 5:00 PM, Monday through Friday, excluding the normal lunch hour break.
71. CONSTRUCTION/LIENS:
A. Tenant Construction: In no event shall Tenant alter or renovate or do
any construction exceeding $7,500 within its demised premises without the
express written consent of the Landlord.
B. Landlord's Liability and Mechanic's Liens: Notice is hereby given that
the Landlord shall not, under any circumstances, be liable to pay for any work,
labor or services rendered or materials furnished to or for the account of the
Tenant upon or in connection with the Demised Premises, and that no mechanic's
or other liens for work, labor or services rendered or materials furnished to or
for the account of the Tenant shall, under any circumstances, attach to or
affect the reversionary or other estate or interest of the Landlord in or to the
Demised Premises or in and to any alterations, repairs or improvements to be
erected or made thereon.
15
<PAGE>
C. Liens: The Tenant shall not suffer nor permit, during the term hereby
granted, any mechanic's or other liens for work, labor, services or materials
rendered or furnished to or for the account of the Tenant upon or in connection
with the Demised Premises or to any improvements erected or to be erected upon
the same, or any portion thereof; and it is understood that Tenant shall obtain
and deliver unconditional written waivers of mechanic's liens as specifically
set forth in Paragraph 3 of the printed form hereof. Nevertheless, Tenant shall
hold the Landlord and the Demised Premises harmless from all liens or charges,
of whatever nature or description, arising from, or in consequences of, any
alterations or improvements that the Tenant shall make, or cause to be made,
upon the Demised Premises.
D. Handling of Mechanic's Liens: If a notice of mechanic's lien be filed
against the Demised Premises for labor or materials alleged to have been
furnished, or to be furnished at the Demised Premises to or for the Lessee or to
or for someone claiming under the Lessee; and if lien to be discharged within
five (5) business days after the filing of such notice; the Lessor may pay the
amount of such lien or discharge it by deposit or by bonding, proceedings, the
Lessor may require the lien or to prosecute an appropriate action to enforce the
lienor's claim. In such case, the Lessor may pay any expense incurred or sum of
money paid by the Lessor by reason of the failure of the Lessee to comply with
any provision of this Lease, or in defending any such action, shall be deemed to
be additional rent for the Demised Premises, and shall be due and payable by the
Lessee to the Lessor on the first day of the next following month or at the
option of the Lessor on the first day of any succeeding month. The receipt by
the Lessor of any installment of the regular stipulated rent hereunder or any of
such additional rent shall not be a waiver of any other additional rent then
due.
72. NO ITEM:
-------
73. LOCAL LAW 5
-----------
(A) All work performed or installations made by tenant in and to the demised
premises shall be done in a fashion such that the demised premises and the
Building shall be in compliance with the requirements of Local Law 5 of 1973 of
the City of New York, as heretofore and hereafter amended ("Local Law 5"). The
foregoing shall include, without limitation, (i) compliance with
compartmentalization requirements of Local Law 5, (ii) relocation of existing
fire detection devices, alarm signals and/or communication devices necessitated
by their alternation of the demised premises, and (iii) installation of such
additional fire control or detection devices may be required by applicable
governmental or quasi-governmental rules, regulations or requirements
(including, without limitation, any requirements of the New York Board of Fire
Underwriters) as a result of Tenant's manner of use of the demised premises.
(B) Landlord shall not be responsible for any damage to Tenant's fire
control or detection devices nor shall Landlord have any responsibility for the
maintenance or replacement thereof. Tenant shall indemnify Landlord from and
against all loss damage, cost, liability or expense (including, without
limitation, reasonable attorney's fees and disbursements) suffered or incurred
by Landlord by reason of the installation and/operation of any such devices.
(C) All work and installations required to be undertaken by Tenant pursuant
to this Article shall be performed at Tenant's sole cost and expense and in
accordance with plans and specifications and by contractors previously approved
by Landlord.
(D) The fact that Landlord shall have heretofore consented to any
installations or alterations made by Tenant in the demised premises shall not
relieve Tenant of its obligation pursuant to this Article with respect to such
installations or alterations.
(E) Landlord represents that, to the best of its knowledge, the Demised
Premises are in compliance with Local Law 5 and all City, State and Federal
building codes and regulations. Landlord also represents that, to the best of
its knowledge, the building's Class E system is fully operational and the
Tenant's demised premises are hooked up to the class E system.
16
<PAGE>
74. NON-DISTURBANCE:
----------------
Tenant represents that its use will not cause noise, odor, or any other type
of disturbance to the other tenants located in The Building Project.
75. PAYMENT UPON SIGNING:
---------------------
That notwithstanding anything to the contrary herein contained, it is
specifically understood that simultaneously with this Lease the Tenant shall pay
the first month's basic rent and the security provided for in Paragraphs 32 of
the Lease.
Tenant takes possession of the Demised Premises as of the date specified in
this lease subject to all of the terms, covenants and conditions contained in
this Lease. It being understood that the Tenant shall pay all electrical, water
and sprinkler charges due from the Possession Date and all additional rent shall
be computed from the Possession Date, see lease attachment B, hereto.
76. No item.
77. SECURITY IN NON A INTEREST BEARING ACCOUNT:
-------------------------------------------
Tenant's security shall be held in a non interest bearing account.
78. TEMPORARY SPACE:
----------------
If the Tenant is offered and accepts temporary space then the tenant will
begin to pay rent on that space upon taking possession of that temporary space,
at the same rate (base rent and escalations) as is in the Lease for the Tenant's
Demised Premises.
79. BUILDING KEYS: Tenant acknowledges that the building will be locked after-
hours and on certain hours on weekends and holidays. Tenant can get access to
the building during certain hours if the Tenant has a special, non-duplicatable
entry-door key. Each key is $10 (non-refundable) and any keys, after the first,
will require an additional $75 refundable deposit. For example, if the Tenant
wanted 4 entry-door keys then the cost would be $10 for each of the four keys
plus $75 for the second, third and fourth keys...for a total cost to the Tenant
of $265. $225 would be refunded to the Tenant when all four keys are returned to
the Landlord.
These keys will give access to the building when the building is locked between
7:00 PM and 10:00 PM weekdays. Landlord represents that Tenant can have further
access to the building as defined in article 20, change #1, in the printed form
of this lease.
Balance of this page intentionally blank.
17
<PAGE>
80. PERSONAL GUARANTY / GOOD GUY CLAUSE
During the term of this lease, and as long as the Tenant is in possession
of the demised premises, the signer of this lease and the principals of the
company are, joint and severally, PERSONALLY LIABLE FOR ANY OUTSTANDING ARREARS,
including, and limited to, rent, escalations, electricity charges, late fees and
rubbish removal charges. If and when the Tenant notifies Landlord in writing
that 1) it has vacated the demised premises, 2) retains no interest in any
property remaining in the demised premises, and 3) pays the Landlord the sum of
$1,000 and 4) returns the keys to the demised premises (as well as any building
keys) to the Landlord, then any amounts due from that day forward shall be the
responsibility of the Tenant Company/Corporation and no longer personally
guaranteed; however, any amounts that fall within the time of the personal
guaranty shall remain personally guaranteed.
The Personal Guarantors are:
1) Print Name /s/ Christopher Hassett Street Address 1 Central Park West
----------------------- -------------------
Apt 31 D
-------------------
Soc Sec# 020589867 City/St/Zip New York, NY 10023
----------------------- -------------------
Home Phone (212) 582-3683
-----------------------
Guarantor Signature /s/ Christopher Hassett
-----------------------------
Witness Signature /s/ Dennis Kerr
-----------------------------
Print Witness Name Dennis Kerr
-----------------------------
Witness Address 600 Madison Ave
-----------------------------
NY 10022
-----------------------------
2) Print Name /s/ Janet L. Hassett Street Address 1 Central Park West
----------------------- -------------------
Apt 31 D
-------------------
Soc Sec# 024601270 City/St/Zip New York, NY 10023
----------------------- -------------------
Home Phone (212) 582-3683
-----------------------
Guarantor Signature /s/ Janet L. Hassett
-----------------------------
Witness Signature /s/ Dennis M. Kerr
-----------------------------
Print Witness Name Dennis M. Kerr
-----------------------------
Witness Address 600 Madison Ave
-----------------------------
NY 10022
-----------------------------
18
<PAGE>
Nassau Bay Associates, L.P.
240 West 35th Street
New York, NY 10001-2506
LEASE ATTACHMENT A (FLOOR PLAN)
[GRAPHIC OF FLOOR PLAN OF 18th FLOOR]
19
<PAGE>
ALAN KAHN ASSOCIATES, INC.
- --------------------------------------------------------------------------------
240 WEST 35TH STREET, NEW YORK, NY 10001-2506
TEL: (212) 947-0155 FAX: (212) 564-4979
December 28, 1998 5 pages (3 written pages and 2 attachments)
Lease amendment for Lease dated March 20, 1998 between Prizepoint
Entertainment Corporation (Tenant) and Nassau Bay Associates, L.P. (Landlord)
for the entire 18th floor at 240 West 35th St., NYC 10001.
The undersigned hereby agree to the following:
1) Tenant will occupy the entire 9th floor (see Attachment A, hereto). This 9th
floor rental is in addition to the rental of the 18th floor (the original
Lease).
2) The term shall be five (5) years starting March 1, 1999 and ending February
29, 2004. The rental charge for the 9th floor will be as shown on Attachment
B, hereto.
3) The expiration date for the 18th floor is extended to February 29, 2004. The
rental charge for the 18th floor, per the original Lease and as now extended,
is shown on Attachment B, hereto.
4) The Tenant, at its option, may terminate the lease (for both the 9th and 18th
floors) on February 28, 2001 by paying the Landlord $54,600 and giving the
Landlord not less than 6 month's written notice (on or before September 1,
2000).
5) The Landlord will do the following work on the 9th floor (before Tenant takes
possession):
a) Replace all windows with brown aluminum framed, thermopane, double-hung,
operational windows including 1/2 screens.
b) Build three new bathrooms (men's, ladies and an ADA compliant) similar
in style to the building standard as seen on the 10th floor).
c) Provide 20 tons of air conditioning. The air conditioning compressors
will be mounted on the rear, exterior 9th floor ledge, the blower units
will be mounted on the ceiling within the demised premises. Ducts will
be supplied throughout the demised premises, as reasonably required by
the Tenant. The HVAC units will be fully under the Tenant's control and
will contain heating elements.
<PAGE>
13) Tenant shall have access to their premises 24 hours/day, 7 days/week, 52
weeks/year
14) Upon execution of this Lease amendment, the Tenant will pay the Landlord
additional security: $27,300 plus the first month's rent in advance: $13,650
15) Lease clause 80 (Good Guy clause) shall also cover the 9th floor.
16) Lease Clause 56C7 shall be changed to read "no subletting shall end later
than one (1) day before the expiration date."
17) Lease clause 56C8 shall be changed to read "no more than 2 sublets shall be
allowed per floor at any one time."
18) All other Lease clauses remain unchanged, and also apply appropriately to
the 9th floor additional space.
Agreed:
/s/ Christopher Hassett 12/28/98 /s/ Alan Kahn
- ----------------------------------- ---------------------------------
by: Christopher Hassett, President by: Alan Kahn, President
Prizepoint Entertainment Corp. LAG Corp, GP
Nassau Bay Associates, L.P.
<PAGE>
Amendment Attachment A
9th FLOOR
240 West 35th Street, NYC
[Graphic of Floor Plan of 9th Floor]
<PAGE>
PRIZEPOINT ENTERTAINMENT CORPORATION AMENDMENT ATTACHMENT B
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Rent Schedule - 9th floor[4] 2.00%
Annual Total Total Total Rent
# Base Rent Operating Annualized Monthly Paid for
Months for Period Escalation Rent Rent Period
------ ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
March 1, 1999 to March 31, 1999 1 $0.00 $0.00 $0.00 $0.00 $0.00
April 1, 1999 to February 29, 2000 11 $150,150.00 $0.00 $163,800.00 $13,650.00 $150,150.00
March 1, 2000 to February 28, 2001 12 $163,800.00 $3,276.00 $167,076.00 $13,923.00 $167,076.00
March 1, 2001 to February 28, 2002 12 $163,800.00 $3,341.52 $170,417.52 $14,201.46 $170,417.52
March 1, 2002 to February 28, 2003 12 $163,800.00 $3,408.35 $173,825.87 $14,485.49 $173,825.87
March 1, 2003 to February 29, 2004 12 $163,800.00 $3,476.52 $177,302.39 $14,775.20 $177,302.39
------ ----------- -----------
60 $805,350.00[1] $838,771.78[5]
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Rent Schedule - 18th floor[4] 2.00%
Annual[3] Total Total Total Rent
# Base Rent Operating Annualized Monthly Paid for
Months for Period Escalation Rent Rent Period
------ ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
April 1, 1998 to March 31, 1999 12 $120,384.00 $0.00 $120,384.00 $10,032.00 $120,384.00
April 1, 1999 to March 31, 2000 12 $120,384.00 $2,407.68 $122,791.68 $10,232.64 $122,791.68
April 1, 2000 to March 31, 2001 12 $120,384.00 $4,911.67 $127,703.35 $10,641.95 $127,703.35
April 1, 2001 to March 31, 2002 12 $120,384.00 $2,554.07 $130,257.41 $10,854.78 $130,257.41
April 1, 2002 to March 31, 2003 12 $120,384.00 $2,605.15 $132,862.56 $11,071.88 $132,862.56
April 1, 2003 to February 29, 2004 11 $110,352.00 $2,657.25 $135,519.81 $12,319.98 $135,519.81
------ ----------- -----------
71 $712,272.00[2] $769,518.82[5]
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
[1] Broker's commissionable amount.
[2] Broker's commissionable amount; less broker's fee paid on original lease
execution.
[3] 2%/year except 4/1/00 to 3/31/01 is 4%.
[4] Tenant's rent shall be the combined total for the rent shown for both the
9th and 18th floors.
[5] It is hereby mutually agreed that, notwithstanding anything herein to the
contrary, the said premises are leased for a rental of ...... $1,608,291 for
the entire said term, payable at the time of the making of this lease, and
that the provisions herein contained for the payment of said rent in
installments are for the convenience of the Tenant only, and that, upon
default in the payment of the rent in installments as herein allowed, then
the whole of the rent hereby reserved for the whole of said term, and then
remaining unpaid, shall at once become due and payable, without notice or
demand.
<PAGE>
ALAN KAHN ASSOCIATES, INC.
240 WEST 35TH STREET, NEW YORK, NY 10001-2506
TEL: (212) 947-0155 FAX: (212) 564-4979 [email protected]
CERTIFIED MAIL RETURN RECEIPT REQUESTED (and BY HAND)
August 25, 1999
Mr. Christopher Hassett
President
Uproar, Inc.
240 West 35th St.
NYC, NY 10001
Re: Approval for the 11th and 16th floors - Lease Amendment dated 8/20/99
---------------------------------------------------------------------
Dear Chris:
The mortgagee for Nassau Bay Associates, L.P. has just given their approval of
the referenced Lease Amendment. A copy of the approval letter is attached
hereto.
In accordance with the Lease Amendment (Clause 3 and Attachment D, footnote 3),
today, August 25, 1999, becomes the Lease Start Date.
Yours truly,
/s/ Alan Kahn
- ---------------
Alan Kahn
fax cc: Robert Tannenhauser
Michael Appell
Brian Weld (no attachments)
Janet Hassett
<PAGE>
SECOND AMENDMENT TO LEASE DATED MARCH 20, 1998 AND AMENDED
DECEMBER 28, 1998 BY AND BETWEEN UPROAR INC. ("TENANT"),
ASSIGNEE OF PRIZEPOINT ENTERTAINMENT CORP., AND NASSAU BAY
ASSOCIATES LIMITED PARTNERSHIP ("LANDLORD")
WHEREAS, Landlord ande Prizepoint Entertainment Corp., ("Prizepoint") entered
into a Lease Agreement, dated March 20, 1998 (the "Lease Agreement") for the
18th floor in the building known as 240 West 35th Street, New York, N.Y. (the
"Building") copy of which is annexed hereto as Exhibit I; and
WHEREAS, the Lease Agreement was amended by the parties thereto by an Amendment
dated December 28, 1998 a copy of which is annexed hereto as Exhibit II (the
"First Amendment"); and
WHEREAS, Prizepoint assigned its interest in the Lease Agreement and First
Amendment to Uproar Inc. ("Tenant") by assignment dated August 19, 1999, copy
of which is annexed as Exhibit III (the "Assignment"); and
WHEREAS, Landlord and Tenant desire to further amend the Lease Agreement upon
the terms and conditions set forth hereinbelow;
NOW THEREFORE, In consideration of the mutual agreements set forth herein and
for other good and valuable consideration, the receipt and sufficiency of is
hereby acknowledged, the parties hereto do hereby agree as follows:
1. Tenant hereby leases from Landlord and Landlord hereby leases to Tenant the
entire 11th floor in the Building (See Attachment A hereto), the entire
16th Floor in the Building (See Attachment B hereto) and an approximately
350 sq. ft. portion of the basement in the Building (as set forth in
Attachment C hereto), the 11th floor, the 16th floor and the basement space
being leased to Tenant are jointly referred to as the "New Space". The New
Space being leased by Tenants in addition to the 18th Floor and the 9th
Floor in the Building that is leased to Tenant pursuant to the Lease
Agreement and the First Amendment.
2. The lease term for the New Space shall commence as of the date that
Landlord receives consent to this Lease Amendment from its first mortgagee
and lease term for the New Space shall expire August 31, 2005, unless
sooner terminated pursuant to the terms hereof.
3. The rent for the New Space is set forth on Attachment D hereto. Upon
execution of this Second Amendment Tenant shall deposit an additional
$42,636 as an additional Security Deposit with Landlord to be held in an
interest bearing security deposit account and shall, within 30 days from
the date hereof, provide Landlord with an irrevocable, unconditional letter
of credit issued by a major NY money center Bank in the amount of
$271,312.00 as additional security to be held and drawn or applied as
provided for in Lease article. The letter of credit shall provide that it
shall automatically be renewed during the term hereof, or the term as later
amended or extended, for additional terms of one year each unless the
issuing bank sends written notice of non-renewal to Landlord no less than
30 days prior to the then-effective expiration date of the letter of
credit, in which case Landlord may draw down the entire letter of credit
amount and add the amount to the Tenant's interest-bearing security
account. The letter of credit may be drawn upon by Landlord when
1
<PAGE>
accompanied by a draft signed by an officer of the General Partner of
Landlord or a duly authorized agent of Landlord stating that Landlord is
entitled to draw upon the Letter of Credit in accordance with the terms of
the Lease Agreement. In addition Tenant shall pay the first months rent to
Landlord for the New Space equal to $21,482.
4. The Lease Expiration Date for the 18th Floor and the 9th Floor is hereby
extended until August 31, 2005 ("Extension Period"), subject to further
adjustment to correspond with Attachment D and footnote 4 thereof. The
combined annual base rent and operating cost escalation for the 18th and
9th floors during the Extension Period from March 1, 2004 to February 28,
2005 shall be $319,078.64 payable in monthly installments of $26,589.89 and
during the Extension Period from March 1, 2005 to August 31, 2005 shall be
$325,460.22 payable in monthly installments of $27,121.69.
5. Paragraph 4 of the First Amendment is hereby superceded to provide that
Tenant, as its option, may terminate the Lease, the First Amendment and
this Second Amendment, effective August 31, 2001 ("Early Termination Date")
only upon the following terms and conditions:
(a) Tenant must give Landlord written notice, return receipt request on or
before August 31, 2000, time of the essence, of its intent to terminate
effective on the Early Termination Date.
(b) Tenant must pay the Landlord a termination fee of $250,000 payable by
bank or certified check with the aforementioned notice.
(c) Tenant must have completed all the "Required Tenant Work" as defined
hereinbelow.
(d) Landlord, during normal business hours, shall have the right to show the
leased premises to prospective tenants and/or brokers during the period
from the giving of notice until the Early Termination Date.
6. Tenant, during the term of this Lease Agreement, shall have the right,
subject to the following, to use the roof set backs (see Attachment E
hereto) and a portion of the roof (area size and location to be mutually
agreed upon by Landlord and Tenant subsequent to execution of this Lease
Amendment failure to agree shall not affect the other provisions hereof)
hereinafter collectively referred to as the "Additional Space".
(a) Tenant, at its own cost expenses must submit plans and specifications
for the Additional Space for approval in form and substance reasonably
satisfactory to Landlord, which approval will not be unreasonably
withheld or delayed.
(b) Tenant's use of the Additional Space is permitted by all applicable laws,
regulations, rules, codes and Tenant at its own cost and expense obtains
all necessary approvals for the use of said Additional Space and the
renovations to be made thereto
(c) Tenant shall take the Additional Space in "as is" condition, Landlord
makes no representation as to its condition or that it is useable for
the purposes intended. Landlord shall have no responsibility for making
any improvements to the Additional Space or for repairing damage to the
Additional Space caused by Tenant. Tenant if it decides to use
2
<PAGE>
the Additional Space shall be required to perform all necessary
renovations, repairs and replacements to the extent the same become
necessary due to the Tenant's use thereof, at Tenant's sole cost and
expense.
(d) Tenant shall be responsible, as additional rent, for the increase in any
insurance costs incurred by Landlord as a result of Tenant's use of the
Additional Space.
(e) Tenant shall initially pay $3.60 per sq. ft. as base rent for that
Additional Space hereinafter defined as Personnel Accessible Space which
is the space that is accessible to personnel through a doorway. If a
doorway is not present or is not installed then personnel shall not be
permitted access to said space, however, Tenant may place plants and
decorative items on such space at its own cost and expense with no
additional base rental or other charge provided same are in compliance
with all applicable codes, rules, regulations and laws.
(f) The rent for said Additional Space shall be payable beginning when
Tenant's work for said Additional Space is completed or Tenant commences
active use of the said space, whichever is sooner. The base rent
escalations, operating escalations and free rental months shall be the
same as for the New Space, but without the initial 2 months free rent.
7) Landlord, shall use its best efforts within thirty days, but in any event
no later than sixty days of approval by its Mortgagee of this Lease
Amendment, Landlord shall increase the Building's weekday concierge
coverage until midnight. Except in case of emergency, Landlord will have
someone at the front desk at all such times.
8) Landlord will replace the three (3) passenger elevator controllers,
renovate the three (3) elevator cabs, provide each full floor occupied by
Tenant with and elevator lock off capability and use its best efforts to
complete same within twelve months from the date of execution of this Lease
and approval by Landlord's Mortgager, of this Lease Amendment.
9) Landlord will install (i) a new skylight on top of the west stairwell, (ii)
new anti static rubber-like stair treads (or reasonably similar material
permitted by applicable codes, rules and regulations) and a new handrail
from the 9th Floor to the Roof in the west stairwell (provided same is
permitted by applicable fire code and other applicable codes, laws, rules
or regulations). Landlord will use its best efforts to complete same within
120 days (except for the skylight which Landlord will use its best efforts
to complete within 90 days) from the date of execution of this Lease and
approval by Landlord's Mortgagee of this Lease Amendment. In addition
Landlord will clean and paint both stairwells, from the ground floor to the
roof, in a light colored, semi gloss paint and Landlord will sand and paint
the handrails in the stairwells. If permitted by applicable codes, laws,
rules and regulations, Tenant may install, at Tenant's own cost, risk and
expense, artwork in the stairwells adjacent to its premises.
10) In the even that Tenant does not purchase the right to name the Building
from Mary McFadden, the Tenant shall have the right, at its own cost and
expense, to place a prominent plaque in the front of the building (size,
material, location and design to be mutually and reasonably approved by
Landlord and Tenant). After July 2002, Tenant shall have the right to name
the building, provided Tenant is not in default under this Lease Agreement,
Tenant has executed an extension of this Lease acceptable to Landlord with
an expiration date no earlier than August 31, 2005, Tenant pays for the
sign and agrees to pay as additional rent the sum of $2,000 per month.
3
<PAGE>
11) Tenant shall have the right to place a company directory in the Lobby of the
Building, opposite the concierge desk, the design, size and location of
which is to be mutually and reasonably agreed upon by Landlord and Tenant.
The cost of the directory will be paid by Tenant.
12) Landlord agrees to expend at least $5,000 to upgrade the appearance of the
building entry. The design and scope of which will be reviewed with Tenant
prior to implementation.
13) Tenant at its own cost and expense may drill through the floors of the
Building in the area adjoining the current risers and install additional
risers for its sole use. Any such work must be permitted by applicable
codes, laws, rules and regulations and performed by licensed contractors
approved by Landlord with insurance reasonably satisfactory to Landlord.
14) Landlord will clean and repair, if necessary, the HVAC units on the 11th
floor and the 16th floor to cause the same to be in good working order and
Landlord will repair and maintain, during the term of this Lease these HVAC
units as well as the units on the 9th and the 18th floors. Tenant shall be
responsible for any ductwork and fire safety requirements of the duct work
associated with the HVAC units. Landlord will be responsible for maintenance
of the HVAC units for the entire Lease term as well as for any extensions
(including the replacement of units if required).
15) Landlord will renovate the two 16th floor bathrooms and the two 11th floor
bathrooms in a manner similar to the 9th floor bathrooms, except Landlord
will paint and reuse the existing 11th floor bathroom partitions. Landlord
will build or renovate two 13th floor bathrooms and an ADA compliant
bathroom on the 18th floor with a finish quality similar to the 9th floor
bathrooms.
16) Except for the work to be performed hereafter by Landlord, as set forth
herein, the 11th and 16th floors are hereby delivered to Tenant in "as is"
condition. Landlord agrees that it will use its best efforts to complete the
work set forth in paragraph 14 and paragraph 15 of this Second Amendment
within 45 days from the date of execution of this Lease and approval by
Landlord's Mortgagee, of this Lease Amendment.
17) Landlord represents that the New Space are free of asbestos and free of any
currently identified hazardous materials and that any removal [Illegible]
for same will be Landlord's responsibility and Landlord shall indemnify
Tenant against any liability (including attorney's fees and expenses)
arising from same. Landlord further represents that the sprinkler systems
for the New Space are fully charged and operational. Tenant shall be
responsible, at its own cost and expense, for any sprinkler head additions
or relocations required by applicable laws, codes, rules or regulations,
due to Tenant's work in the New Space.
18) Tenant shall have the right to use the freight elevators, at no charge, in
connection with its construction and moving into the New Space.
19) Landlord and Tenant agree that the rentable square footage for the New Space
is: 8,322 sq. ft. for the 11th floor and 5,941 sq. ft. for the 16th floor.
20) Tenant shall be entitled to a base rent credit for the New Space equal to
three months to be applied against the first, second and thirteenth monthly
base rent payments due.
21) Tenant agrees that within eleven months from the date of execution of this
Lease and approval by Landlord's Mortgagee this Lease Amendment will expend
a minimum of $200,000 ("Required Tenant Work"), in improvements and
demolition to the New Space, exclusive of furniture and equipment and Tenant
will furnish Landlord with written verification of said expenditures. With
respect to any work performed by or on behalf of Tenant, Tenant shall at all
times comply with the provisions of Article 3 of the Lease Agreement and
4
<PAGE>
shall supply Landlord upon request with copies of all required insurance and
lien waivers from the contractors. If Landlord's consent is required
therefor under the Lease, Landlord shall not unreasonably withhold or
delay its consent to any of Tenant's work with respect to premises.
22) INTENTIONALLY OMITTED.
23) For purposes of calculating Tenant's real estate tax escalations pursuant to
paragraph 49 of the Lease Agreement with respect to the 11th and 16th floors
the real estate taxes for the base tax year real estate tax shall be deemed
to be $500,000 (inclusive of BID taxes) and the percentages shall be 6.9%
for the 11th floor and 4.6% for the 16th floor. The tax escalation
provisions with respect to Tenants other floors shall remain unchanged.
24) Tenant shall have a right of first negotiation with respect to:
(a) Any full floor or partial floor space larger than 3,500 rentable square
feet that becomes available in the Building at a rent to be negotiated
in good faith between Landlord and Tenant. This right will be available
to Tenant only in the event it has at least 2 years remaining in its
Lease Term and the Early Termination Date option has expired or
coincident with signing a Lease for additional space, Tenant must
relinquish its early termination date option. Landlord shall advise
Tenant of the space availability as soon as practicable after Landlord
becomes aware of its availability. Tenant shall advise Landlord within
15 days of said notice if it desires to rent the space, whereupon
Landlord and Tenant shall negotiate in good faith to agree upon all
terms with respect to such space. Any full floor space that becomes
available that is leased to Tenant pursuant to the provisions of this
paragraph shall have the same Landlord's work requirement with respect
to HVAC, bathrooms and elevator lock off as contained in this Second
Amendment and windows similar to those in the New Space. The rentable
square footage on any future space leased to the Tenant shall be
computed using 1987 REBNY standards. Any partial floor lease that
becomes available and is leased to Tenant pursuant to the provisions of
this paragraph shall have the same Landlord's work requirement with
respect to HVAC as set forth in this Second Amendment and windows
similar to those in the New Space. If Landlord and Tenant cannot agree
upon terms and conditions for said space within 15 days thereafter, then
Tenant shall have no further right with respect to this space and
Landlord shall be entitled to rent this space to others without any
obligation or liability to Tenant with respect thereto.
(b) Sale of the Building by Landlord. Landlord shall advise Tenant its
intent to sell the Building as soon as practicable after Landlord
decides to sell the Building. Tenant shall advise Landlord within 15
days of said notice if it desires to acquire the Building. Landlord and
Tenant shall attempt to negotiate a price and terms in good faith. If
Landlord and Tenant cannot agree upon terms and conditions for said sale
within 15 days thereafter, then Tenant shall have no further right with
respect to purchase and sale of the Building and Landlord shall be
entitled to sell the Building to others without any obligation or
liability to Tenant with respect thereto.
(c) All notifications with respect to this paragraph 24 must be in writing
and shall be effective as of the date sent.
25) The provisions of Article 80 of the Lease Agreement ("Personal Guaranty/Good
Clause") are null and void ab initio. Accordingly, Section 80 of the Lease,
and all references thereto elsewhere in the Lease Agreement and First Lease
Amendment are hereby deleted in their entirety, as if they never existed,
and each of Christopher Hassett and Janet L. Hassett is fully released from
all liabilities and obligations set forth in Section 80 of the Lease
Agreement and all references thereto elsewhere in the Lease Agreement and
First Lease Amendment.
5
<PAGE>
26) Except as amended hereby, all of the provisions of the Lease Agreement and
the First Amendment shall remain in full force and effect. In the event of
an inconsistency the provisions of this Second Amendment shall apply.
27) This Second Amendment shall become effective when fully executed by the
parties hereto and the consent of the First Mortgagee of Landlord has been
obtained. Landlord shall submit this Second Amendment to its First
Mortgagee as soon as practicable after it has been fully executed by the
parties hereto. Landlord shall use its best efforts to obtain a
non-disturbance agreement from each of its mortgagees, and any future
mortgagees in the event the current loan is refinanced.
28) Notwithstanding anything in the Lease Agreement to the contrary, Landlord
hereby agrees that it will not unreasonably withhold its consent to an
assignment or sublease by Tenant to any person or entity which is a
successor or affiliate of Tenant provided that Landlord receives a copy of
such assignment or sublease prior to its effective date together with any
and all financial information with respect to said assignee or subtenant
reasonably requested by Landlord. Landlord shall not be required to consent
to the assignment or sublease if the proposed assignee or subtenant is not
as financially sound as Tenant as measured by Tenant's balance sheet as of
the date of execution of this Lease. For purposes of this section: i) a
"successor" to Tenant shall mean any entity which is a bona fide purchaser
of all or substantially all of Tenant's business and assets or a successor
by statutory merger or consolidation; and ii) an "affiliate" of Tenant shall
mean any party which controls, is controlled by, or is under common control
with Tenant or which Tenant controls. The words "control", "controlled by"
and "under common control with" shall mean for purposes hereof, the
possession of the power to direct or cause the direction of the management
and policy of such person or entity, through the ownership of voting
securities, or contract or otherwise.
29) Landlord and Tenant acknowledge that they have dealt with no other broker in
connection with this transaction, except Colliers ABR and Landlord agrees to
pay all brokerage fees due to said broker in connection with this
transaction.
30) See Below.
Agreed this day of August 1999
/s/ Alan Kahn
-----------------------------
Uproar Inc., Tenant Nassau Bay Associates L.P.
LAG Corp., its GP
/s/ Christopher Hassett
- ---------------------------------
By: Christoper Hassett, President By: Alan Kahn, President
Subject to approval by the First
Mortgagee of this Lease Amendment.
30) Landlord's right of "recapture" or termination under paragraph 56 of the
Original Lease is amended to provide that (a) it shall not apply to any
assignment or sublease described in paragraph 28 of this Second Amendment,
and (b) when it does apply, it shall apply only to that portion of the
premises that Tenant intends to sublease or assign.
6
<PAGE>
ALAN KAHN ASSOCIATES, INC.
- --------------------------------------------------------------------------------
240 WEST 35TH STREET, NEW YORK, NY 10001-2506
TEL: (212) 947-0155 FAX: (212) 564-4979 [email protected]
ATTACHMENTS & EXHIBITS
Attachment A..................11th floor plan
Attachment B..................16th floor plan
Attachment C..................Basement plan
Attachment D..................Rent Schedule
Attachment E..................Set-back areas
Exhibit I.....................Lease dated March 20, 1998
Exhibit II....................Lease Amendment dated December 28, 1998
Exhibit III...................Assignment Document
<PAGE>
11th FLOOR
240 West 35th Street, NYC
[GRAPHIC OMITTED]
<PAGE>
16th FLOOR
240 West 35th Street, NYC
[GRAPHIC OMITTED]
<PAGE>
Basement
240 West 35th Street, NYC
[GRAPHIC OMITTED]
<PAGE>
UPROAR, INC. AMENDMENT ATTACHMENT D
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[Illegible] Schedule - 11th floor [2]
[Illegible] rentable sq. ft. starting at $18.00
3.00%
Annual Total Total Total Rent
# Base Rent Operating Annualized Monthly Paid for
Months for Period Escalation Rent Rent Period
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Start Date to October 31, 1999 [3] 2.00 $0.00 $0.00 $0.00 $0.00 $0.00
November 1, 1999 to August 31, 2000 10.00 $124,830.00 $0.00 $149,796.00 $12,483.00 $124,830.00
September 1, 2000 to September 30, 2000 1.00 $0.00 $0.00 $0.00 $0.00 $0.00
October 1, 2000 to August 31, 2001 11.00 $137,313.00 $4,493.88 $154,289.88 $12,857.49 $141,432.39
September 1, 2001 to August 31, 2002 12.00 $149,796.00 $4,628.70 $158,918.58 $13,243.21 $158,918.58
September 1, 2002 to August 31, 2003 12.00 $149,796.00 $4,767.56 $163,686.13 $13,640.51 $163,686.13
September 1, 2003 to August 31, 2004 12.00 $149,796.00 $4,910.58 $168,596.72 $14,049.73 $168,596.72
September 1, 2004 to August 31, 2005 12.00 $149,796.00 $5,057.90 $173,654.62 $14,471,22 $173,654.62
----- ----------- -----------
72.00 $861,327.00[1] $931,118.44
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[Illegible] Schedule - 16th floor [2]
[Illegible] 41 rentable sq. ft. starting at $18.00
3.00%
Annual Total Total Total Rent
# Base Rent Operating Annualized Monthly Paid for
Months for Period Escalation Rent Rent Period
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Start Date to October 31, 1999 [3] 2.00 $0.00 $0.00 $0.00 $0.00 $0.00
November 1, 1999 to August 31, 2000 10.00 $89,115.00 $0.00 $106,938.00 $8,911.50 $89,115.00
September 1, 2000 to September 30, 2000 1.00 $0.00 $0.00 $0.00 $0.00 $0.00
October 1, 2000 to August 31, 2001 11.00 $98,026.50 $3,208.14 $110,146.14 $9,178.85 $100,967.30
September 1, 2001 to August 31, 2002 12.00 $106,938.00 $3,304.38 $113,450.52 $9,454.21 $113,450.52
September 1, 2002 to August 31, 2003 12.00 $106,938.00 $3,403.52 $116,854.04 $9,737.84 $116,854.04
September 1, 2003 to August 31, 2004 12.00 $106,938.00 $3,505.62 $120,359.66 $10,029.97 $120,359.66
September 1, 2004 to August 31, 2005 12.00 $106,938.00 $3,610.79 $123,970.45 $10,330.87 $123,970.45
----- ----------- -----------
72.00 $614,893.50[1] $664,716.97
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
[Illegible] Schedule - Basement Area [2]
[Illegible] rentable sq. ft. starting at $3.00
3.00%
Annual Total Total Total Rent
# Base Rent Operating Annualized Monthly Paid for
Months for Period Escalation Rent Rent Period
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Lease Start Date to October 31, 1999 [3] 2.00 $0.00 $0.00 $0.00 $0.00 $0.00
November 1, 1999 to August 31, 2000 10.00 $875.00 $0.00 $1,050.00 $87.50 $875.00
September 1, 2000 to September 30, 2000 1.00 $0.00 $0.00 $0.00 $0.00 $0.00
October 1, 2000 to August 31, 2001 11.00 $962.50 $31.50 $1,081.50 $90.13 $991.38
September 1, 2001 to August 31, 2002 12.00 $1,050.00 $32.45 $1,113.95 $92.83 $1,113.95
September 1, 2002 to August 31, 2003 12.00 $1,050.00 $33.42 $1,147.36 $95.61 $1,147.36
September 1, 2003 to August 31, 2004 12.00 $1,050.00 $34.42 $1,181.78 $98.48 $1,181.78
September 1, 2004 to August 31, 2005 12.00 $1,050.00 $35.45 $1,217.24 $101.44 $1,217.24
----- ----------- -----------
72.00 $6,037.50[1] $6,526.71
</TABLE>
- --------------------------------------------------------------------------------
[Illegible] Schedule - Exterior space usage [2]
en ascertained, see Lease Amendment item #6, then the starting rent shall be at
$3.60 per square foot with [Illegible] of the free rent periods and escalations
shown above for the 11th and 16th floors and the basement space.
- --------------------------------------------------------------------------------
Broker's commissionable amount is paid on this amount, but paid only through
early Lease termination.
[Illegible] date. If Tenant does not exercise its early termination date then
the commission balance will be paid in September, 2000.
[Illegible] Tenant's rent shall be the combined total for the rent shown for the
16th floor, the 11th floor, the basement area and the [Illegible] roof and
roof-setback areas (when computed, see item #6) as well as the 9th and 18th
floors from earlier Leases and Amendments.
The actual Lease Start Date will be the date that the Landlord's mortgagee gives
its consent to this executed amendment. All of the other dates remain the same
except that Tenant will receive the two month's free rent from the actual Start
Date.
<PAGE>
Attachment E - Set Backs
The set back areas are noted with cross-hatching. The actual size, length and
width of the set backs may not be exactly as pictured below.
[GRAPHIC OMITTED]
[GRAPHIC OMITTED]
<PAGE>
ASSIGNMENT AND ASSUMPTION OF LEASE
Assignment and Assumption of Lease, dated as of August 19, 1999, by and
between Prizepoint Entertainment Corporation ("Assignor") and Uproar Inc.
("Assignee").
Background:
A. Assignor and Nassau Bay Associates Limited Partnership ("Landlord") are
parties to a Lease Agreement, dated March 20, 1998 (the "Lease Agreement"), for
the 18th floor of the building known as 240 West 35th Street, New York, New York
(the "Building").
B. The Lease Agreement was amended by an agreement dated December 28, 1998,
adding the 9th floor of the Building to the premises (the Lease Agreement, as so
amended, the "Lease").
C. Assignor now wishes to assign the Lease to Assignee, and Assignee now
wishes to assume all of Assignor's obligations thereunder.
NOW THEREFORE, in consideration of $10.00 and other good and valuable
consideration, the receipt of which is hereby acknowledged, Assignor and
Assignee hereby agree as follows:
1. Assignor hereby assigns, transfers and sets over unto Assignee, and its
successors and assigns, all of Assignor's right, title and interest in, to and
under the Lease, to have and to hold the same unto the Assignee, and its
successors and assigns, from and after the date hereof.
2. Assignee hereby accepts such assignment and assumes and agrees to
perform, discharge and comply with all of the covenants, conditions, agreements,
terms, obligations and restrictions to be performed or complied with on the part
of the Assignor under the Lease, subject to and in accordance with all of the
covenants, conditions, agreements, terms, obligations, restrictions and other
provisions set forth in the Lease.
3. THIS ASSIGNMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
<PAGE>
IN WITNESS WHEREOF, each of Assignor and Assignee have executed and
delivered this Assignment as of the date and year first written above.
ASSIGNOR:
PRIZEPOINT ENTERTAINMENT
CORPORATION
By: /s/ Christopher Hassett
------------------------------
Name: Christopher Hassett
Title: President
ASSIGNEE:
UPROAR INC.
By: /s/ Christopher Hassett
------------------------------
Name: Christopher Hassett
Title: President
Landlord hereby consents to the foregoing assignment and assumption, and hereby
releases Assignor from all existing and future liability under and in connection
with the Lease, and agrees that Assignee shall be solely liable, and Landlord
shall look only to Assignee, for the performance of the obligations of the
tenant under the Lease and for the payment of any existing and future
liabilities of the tenant under the Lease.
NASSAU BAY ASSOCIATES L.P.
By: LAG Corp., its General Partner
By: /s/ Alan Kahn
----------------------------
Alan Kahn, President
-2-
<PAGE>
OFFICE LEASE
Between
GOLDEN VAN ASSOCIATES, LLC, "Lessor"
and
UPROAR, INC. "Lessee"
<PAGE>
OFFICE LEASE
Recitals
- --------
Section 1. Definitions
Section 2. Premises; Expansion Premises
Section 3. Term/Condition of the Premises
Section 4. Rental
Section 5. Additional Rent
Section 6. Use
Section 7. Services
Section 8. Imposition
Section 9. Alterations
Section 10. Liens
Section 11. Repairs
Section 12. Damage or Destruction
Section 13. Insurance; Waiver of Subrogation
Section 14. Indemnification
Section 15. Compliance with Legal Requirements
Section 16. Assignment and Subletting
Section 17. Entry by Lessor
Section 18. Events of Default
Section 19. Termination upon Default
Section 20. Continuation After Default
Section 21. Other Relief
Section 22. Right of Lessor to Cure Defaults
Section 23. Attorneys Fees
Section 24. Eminent Domain
Section 25. Subordination
Section 26. No Merger
Section 27. Sale
Section 28. Estoppel Certificates
Section 29. Holding Over
Section 30. Abandonment
Section 31. Security Deposit
Section 32. Waiver
Section 33. Improvement Work
Section 34. Signage
Section 35. option to Renew-Intentionally Omitted
Section 36. Notices-Consents
Section 37. Entire Agreement
Section 38. Corporate Authority
Section 39. Plural Singular
Section 40. Joint and Several
Section 41. Time of the Essence
Section 42. Examination of Lease
Section 43. Heirs, Successors and Assigns
Section 44. Illegality or Unenforceability
Section 45. Governing Law
Section 46. Brokerage
Section 47. Exhibits
Section 48. Letter of Credit
Section 49. Satellite Dish
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<PAGE>
Summary of Office Lease Information
Effective Date: November ____________, 1999
Lessor: GOLDEN VAN ASSOCIATES, LLC
Attn: Leonard B. Berger
650 California Street, 25th Floor
San Francisco, CA 94108
Lessee: UPROAR, INC., a New York
corporation
Building Address: 180 Redwood Street, San Francisco
Premises: Suites 250 and 350 on the second
and third floors of the Building
shown on Exhibit C.
Rentable Area of Premises: 8,924 square feet (to be verified
as to exact rentable square footage
for each floor and Base Rent,
Lessee Percentage Share and
Improvement Allowance to be
adjusted accordingly).
Rentable Area of the 39,758 Square Feet
Building:
Lease Commencement Date: Upon substantial completion of Lessee
improvements but in no event
later than March 1, 2000.
Termination Date: The earlier of February 28, 2005 or
60 months following the Lease
Commencement Date.
Lease Term: Five (5) years.
Option: None.
Rent Commencement Date: March 1, 2000 for Suite 350 and May
1, 2000 for Suite 250.
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<PAGE>
Annual Base Rent: For space on the third floor:
Year 1, $34.00 per rentable square foot
fully serviced excluding electrical cost
which Lessee shall pay;
Year 2 - $35.02 per rentable square foot
fully serviced excluding electrical cost
which Lessee shall pay;
Year 3 - $36.07 per rentable square foot
fully serviced excluding electrical cost
which Lessee shall pay;
Year 4 - $37.15 per rentable square foot
fully serviced excluding electrical cost
which Lessee shall pay;
Year 5 - $38.17 per rentable square foot
fully serviced excluding electrical cost
which Lessee shall pay.
For space on the second floor:
$30.00 per rentable square foot during the
entire Term fully serviced excluding
electrical costs which Lessee shall pay.
Base Year: 2000
Use of the premises: Office space and related administrative
activities.
Security Deposit: $24,155 representing one month's Base Rent
to be held by Lessor in a non-interest
bearing account for the Lease Term.
Advance Rent Payment: $24,155 One Month's Base Rent upon
execution of the Lease to be applied to the
first month of the Lease Term Base Rent for
both Suites.
a) The Lessor shall pay all operating expenses associated with the operation and
maintenance of the Building, including the real property taxes, insurance,
janitorial and common-area maintenance charges for the calendar year 2000 based
on a fully-occupied building. Base year operating expenses, taxes, insurance,
janitorial and common-area maintenance shall be based on a fully-occupied
building. Lessees shall pay 22.4% of the increase in any such expenses, if any.
Electricity expenses are paid by the Lessee.
The name under which the Lessee shall occupy said premises is UPROAR, INC.
The foregoing Summary of Lease Information is primarily for the benefit of
Lessor and is considered a part of this Lease. In the event of any conflict
between any information shown on this Summary and the Lease, the Lease shall
control.
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<PAGE>
OFFICE LEASE
THIS OFFICE LEASE ("Lease") is made and entered into as of the
9th day of November, 1999, by and between GOLDEN VAN ASSOCIATES, LLC ("Lessor"),
and UPROAR, INC. a New York corporation ("Lessee").
Recitals
A. Lessor is the owner of real property (Real Property) located at 180
Redwood Street, San Francisco, California, described in Exhibit A, attached to
this Lease and incorporated by reference, and the Building (as later defined)
located on it. The Real Property and the Building are collectively the Property.
B. Lessor desires to lease to Lessee, and Lessee desires to lease from
Lessor the Premises (as later defined) for the term and subject to the terms,
covenants, agreements, and conditions in this Lease.
For good and valuable consideration the receipt and adequacy of which
are acknowledged, the parties agree as follows:
Section 1. Definitions.
As used in this Lease, the following terms are defined in Section 1.
Alterations is defined in Section 9.
Base Cperating Expenses means the Operating Expenses paid or incurred
by Lessor in the Base Year.
Base Property Taxes means the amount of Property Taxes for the fiscal
year 2000, based on a Building which is fully occupied and assessed and with all
lessee improvements for all lessees completed at a figure of $35 per rentable
square foot.
Base Rent means the Base Rent as set forth in the Basic Lease
Information.
Base Year means the calendar year specified in the Basic Lease
Information as the Base Year.
Basic Lease Information is provided in the Summary of Lease Information
preceding the terms of this Lease.
Building means the Improvements constructed on the Real Property known
as 180 Redwood Street, San Francisco, California. The building
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includes an office building with two (2) floors of office space located in the
premises.
Premises means 8,924 rentable square feet designated as Suites 250 and
350 in the Building located at 180 Redwood Street, San Francisco, California,
also known as Assessor's Lot 13, Block 766. Premises are shown on Exhibit C
attached hereto and made a part hereof.
Commencement Date means the Commencement Date as set forth in the Basic
Lease Information.
Common Area means the portion of the Building outside of the areas
leased, or available to lease, to lessees consisting of rest rooms, janitor,
telephone and electrical closets, mechanical areas, public corridors providing
access to Lessee space, public stairs, elevator, foyer, together with their
enclosing walls.
Deposit is defined in Section 31: One (1) month's rental.
Additional Rent is defined in Section 5(a).
Event of Default is defined in Section 18.
Legal Requirements is defined in Section 15.
Lease is defined in the preamble.
Lessee is defined in the preamble.
Lessor is defined in the preamble.
Lessee's Percentage Share means the percentage figure specified as
Lessee's Percentage Share in the Basic Lease Information. Lessee's Percentage
Share has been obtained by dividing the net rentable area of the Premises, as
specified in the Basic Lease Information, by the total net rentable area of the
Building, which is approximately THIRTY NINE THOUSAND SEVEN HUNDRED FIFTY EIGHT
(39,758) estimated square feet, divided by the rentable square feet of the
Building, and multiplying that quotient by one hundred (100). The result of said
computation is 22.4%. In the event the rentable area of the Premises is
increased or decreased by the addition to or deletion from the Premises of any
office space or the rentable area of the Building is increased or decreased,
Lessee's percentage share shall be appropriately adjusted. For the purposes of
Section 4, any change in Lessee's Percentage Share shall be based on the number
of days during the calendar year in which this change occurs.
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<PAGE>
Operating Expenses means (a) all direct costs of management, operation,
and maintenance of the Building, in accordance with generally accepted real
property management practices consistently applied ("GAPP"), including without
limitation: wages, salaries, and payroll burden of employees; property
management fees and other related compensation; maintenance, security,
janitorial and other services; Building office rent or rental value, if
applicable; power, water, waste disposal, and other utilities for the Common
Areas; materials and supplies; maintenance and repairs; license costs;
commercially reasonable insurance premiums and the deductible amounts under any
insured loss under Lessor's insurance; and depreciation on personal property
used for maintenance of the Building; and (b) the cost of any capital
improvements made to the Building by Lessor after the Base Year that (i) are
made in the reasonable expectation of reducing other Operating Expenses during
the term of this Lease, (ii) are required by law for the health and safety of
Lessees, or (iii) are required under any governmental law or regulation that was
not applicable to the Building prior to the Commencement Date, these costs to be
amortized over its useful life as reasonably determined by Lessor, together with
interest on the unamortized balance at the rate of ten percent (10%) per annum,
or a higher rate equal to that paid by Lessor to an unaffiliated lender on funds
borrowed for the purpose of constructing or installing those capital
improvements. Operating Expenses shall not include: Property Taxes; depreciation
on the Building other than depreciation on interior window draperies, if any,
provided by Lessor, and carpeting; costs of Lessees' improvements; real estate
brokers' commissions; interest; costs incurred in connection with the repair of
damage to the Building, to the extent Lessor is reimbursed by insurance
proceeds; and capital replacement or improvement items other than those referred
to in clause (b); costs of services or other benefits of a type which are not
available to Lessee but which are available to other lessees or occupants, and
costs of special services rendered to individual lessees (including Lessee) for
which a special charge is made; costs, fines or penalties incurred due to
Lessor's violation of any Law or Lessor's breach of any lease in the Property;
costs to correct any material defects in the Building constructed by Lessor;
advertising and promotional costs for the Property, Building or Premises; costs
associated with the operation of the corporation or other entity which
constitutes Lessor, as distinguished from costs of operation of the Building,
including accounting and legal and property management costs; bad debt expenses;
the costs of selling, syndicating or mortgaging any part of or interest in the
Building; costs of acquisition for any item for which depreciation is already
included as an element of Operating Costs as defined above, including executive
salaries or compensation, and the costs of earthquake insurance unless the costs
thereof are included in Base Operating Expenses. Actual Operating Expenses for
both the Base Year and each subsequent calendar year will be adjusted to equal
Lessor's reasonable estimate of Operating Expenses had the total rentable area
of the Building been
3
<PAGE>
occupied, with all lessees paying full Base Rent and Additional Rent and all
rental and other concessions to other lessees having expired. In no event may
Lessor collect from Lessee and all other office lessees in the Building more
than one hundred percent (100%) of Lessor's actual Operating Expenses.
Premises means the portion of the Building located on the floors
specified in the Basic Lease Information which is outlined on the floor plans
attached to this Lease as Exhibit C.
Property is defined in Recital A of this Lease.
Property Taxes means all real property taxes (and any tax levied wholly
or partly in lieu of real property taxes) levied against the Building, and all
real estate tax consultant expenses and attorney fees incurred for the purpose
of maintaining an equitable assessed valuation of the Building.
Real Property is defined in Recital A of this Lease.
Rent Commencement Date is defined in the Basic Lease Information.
Rentable Area means the rentable area of the Premises specified on the
Basic Lease Information, as measured in accordance with the American National
Standard Method for Measuring Floor Area in Office Buildings, ANSI Z65.1-1996
(the BOMA Standard).
Term is defined in Section 3 of this Lease.
Termination Date means the Termination Date in the Basic Lease
Information.
Section 2. Premises.
Lessor leases to Lessee, and Lessee leases from Lessor the Premises for
the term and subject to the terms, covenants, agreements, and conditions later
set forth, to each of which Lessor and Lessee mutually agree. The premises
contain the rentable area and are located in the Suites of the Building
specified in the Lease Information.
Section 3. Term; Condition of Premises.
A. The term (Term) of this Leate shall commence on the Commencement
Date and, unless sooner terminated as later provided, shall end on the
Termination Date. Unless otherwise agreed by Lessor and Lessee in this Lease,
Lessor shall deliver the Premises to Lessee on the Commencement Date in their
then existing condition with
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<PAGE>
no alterations being made by Lessor. If Lessee desires to take occupancy in
advance of The Rent commencement Date, Lessor shall deliver the Premises to
Lessee at that time or a date that will be mutually approved by Lessor and
Lessee and, notwithstanding anything to the contrary contained in this Lease,
the Term of the Lease shall commence on delivery. If Lessor, for any reason,
cannot deliver the Premises to Lessee on the Commencement Date, this Lease shall
not be void or voidable, nor shall Lessor be liable to Lessee for any loss or
damage resulting from nondelivery, but in that event the Rent Commencement Date
shall be delayed by the number of days in the period between the Commencement
Date and the time when Lessor delivers the Premises to Lessee. No delay in
delivery of the Premises shall extend the Term of this Lease.
B. Lessee may enter the Premises in order to install Tenant's data
system and cabling and telephone wiring thirty (30) days prior to the Lease
Commencement Date, upon reasonable prior notice to Lessor. In addition, Lessee
may enter the Premises in order to commence installation of Tenant's personal
property, furniture, fixtures and equipment, and similar items, ten (10) days
prior to the Lease Commencement Date, upon reasonable prior notice to Lessor.
All of the provisions of this Lease shall apply during any such early entry,
except for Lessee's obligation to pay Rent. Landlord may revoke its permission
for Tenant's early entry if Tenant's activities or workers unreasonably
interfere with the completion of Lessor's work.
Section 4. Rental.
For Suite 350, beginning on the Commencement Date, Lessee agrees to pay
to Lessor as Base Rent, without notice or demand, Thirty Four Dollars ($34.00)
per rentable square foot of the Premises computed on an annual basis for the
first year as follows:
$12,918 per month commencing on the Rent Commencement Date and
continuing for the first twelve (12) months.
Rent Adjustments
(a) The rent adjustments in the second year commencing twelve (12)
months after the Rent Commencement Date and continuing for the next twelve (12)
months shall be as follows:
Second Year the sum of $35.02 per rentable square foot or $12,925 per
month, and the third year $36.07 per rentable square foot or $13,313 per month,
and the fourth year $37.15 per rentable square foot or 13,711 per month, and the
fifth year $38.27 per rentable square foot or $14,125 per month.
(a) (1) For Suite 250, beginning on the Rent Commencement Date, Lessee
agrees to pay Lessor as Base Rent, without notice or demand,
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<PAGE>
Thirty Dollars ($30.00) per rentable square foot of the Premises computed on an
annual basis for the entire Term of the Lease as follows:
$11,238 per month commencing on the Rent Commencement Date and
continuing for the entire Term of the Lease.
(b) Lessee shall pay to Lessor throughout the Term as rental for the
Premises Additional Rent in an amount equal to Lessee's share, which equals
22.4%, of the total dollar increase, if any, in Operating Expenses paid or
incurred by Lessor over the Base Operating Expenses, and also Lessee's share of
the total dollar increase, if any, in Property Taxes paid by Lessor in that year
over the Base Property Taxes. The increased rental due pursuant to this Section
4 is the Additional Rent.
(c) Rental shall be paid to Lessor, in advance, on or before the first
day of the Term of this Lease and on or before the first day of each successive
calendar month during the Term of this Lease. In the event the Term of this
Lease commences on a day other than the first day of a calendar month or ends on
a day other than the last day of a calendar month, the monthly rental for the
first and last fractional months of the Term of this Lease shall be
appropriately prorated.
(d) All sums of money due to Lessor under this Lease, not specifically
characterized as rental, shall constitute additional rent and shall be due
within thirty (30) days after receipt by Lessee of a billing. If any sum is not
paid when due, it shall be collectible as additional rent with the next
installment of rental falling due. Nothing contained in this Lease shall be
deemed to suspend or delay the payment of any sum of money at the time it
becomes due and payable under this Lease, or to limit any other remedy of
Lessor.
(e) Lessee acknowledges that late payment of rent and other sums due
under this Lease after the expiration of any applicable cure period under this
Lease will cause Lessor to incur costs not contemplated by this Lease, the exact
amount of which will be difficult to ascertain. These costs include, but are not
limited to, processing and accounting charges and late charges which may be
imposed on Lessor by the terms of any trust deed covering the Premises.
Accordingly, if any installment of rent or any other sums due from Lessee are
not received when due, or if a cure period is applicable under this Lease, prior
to the expiration of the cure period, Lessee shall pay to Lessor a late charge
equal to five percent (5%) of the overdue amount. The parties agree that the
late charge represents a fair and reasonable estimate of the costs Lessor will
incur because of late payment. Acceptance of the late charge by Lessor shall not
constitute a waiver of Lessee's default for the overdue amount, nor prevent
Lessor from exercising the other rights and remedies granted under this Lease.
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<PAGE>
(f) Any amount due to Lessor, if not paid within five (5) days
following the due date, will bear interest from the due date until paid at the
rate of ten percent (10%) per year or, if a higher rate is legally permissible,
at the highest rate legally permitted. However, interest shall not be payable on
late charges incurred by Lessee nor on any amounts on which late charges are
paid by Lessee to the extent this interest would cause the total interest to be
in excess of that legally permitted. Payment of interest shall not excuse or
cure any default by Lessee.
(g) All payments due shall be paid to Lessor, without deduction or
offset, in lawful money of the United States of America at Lessor's address for
notices under this Lease or to another person or at another place as Lessor may
designate by notice to Lessee.
Section 5. Additional Rent
Additional Rent shall be paid monthly on an estimated basis, with
subsequent annual reconciliation, in accordance with the following procedures:
(a) No later than ninety (90) days prior to the end of the Base Year
and no later than ninety (90) days prior to the end of each subsequent calendar
year, or as soon after that time as practicable, Lessor shall give Lessee notice
of Lessor's estimate of any Additional Rent due under Section 4(a) for the
ensuing calendar year, together with supporting documentation and calculations
therefor. On or before the first day of each month during the ensuing calendar
year, Lessee shall pay to Lessor one-twelfth (1/12th) of the estimated
Additional Rent. If Lessor fails to give notice as required in this Section,
Lessee shall continue to pay on the basis of the prior year's estimate until the
month after that notice is given. If at any time it appears to Lessor that the
Additional Rent for the current calendar year will vary from the estimate by
more than five percent (5%), Lessor shall, by notice to Lessee, revise the
estimate for that year, and subsequent payments by Lessee for that year shall be
based on the revised estimate.
(b) Within ninety (90) days after the close of each calendar year, or
as soon after the ninety (90) day period as practicable, Lessor shall deliver to
Lessee a statement of the actual Additional Rent for that calendar year,
accompanied by a statement from certified public accountants for the Building
showing Operating Expenses and Property Taxes on the basis of which the actual
Additional Rent was determined. At Lessee's request, Lessor shall provide Lessee
reasonable supporting detail underlying the calculations of Operating Expenses
and Property Taxes. If Lessor's statement discloses that Lessee owes an amount
that is less than the estimated payments for the calendar year previously
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<PAGE>
made by Lessee, Lessor shall credit the excess first against any sums then owed
by Lessee, and then against the next payments of rental due or refunded to
Lessee if the Term has ended. If Lessor's statement discloses that Lessee owes
an amount that is more than the estimated payments for the calendar year
previously made by Lessee, Lessee shall pay the deficiency to Lessor within
thirty (30) days after delivery of the statement.
(c) The amount of Additional Rent for any fractional year in the Term
shall be appropriately prorated. The proration of Operating Expenses for the
calendar year in which termination occurs shall be calculated on the basis of a
fraction of the Operating Expenses for that entire calendar year; the proration
of Property Taxes for the calendar year in which termination occurs shall be
calculated on the basis of a fraction of the Property Taxes for that entire
calendar year, but shall exclude any Property Taxes attributable to any increase
in the assessed valuation of the Building occurring after termination. The
termination of this Lease shall not affect the obligations of the parties
pursuant to Section 5(b) to be performed after the termination.
Section 6. Use.
The Premises shall be used for general office purposes and other administrative
activities and for no other. Lessee shall be allowed access to the Building and
Premises on a twenty-four hours per day, seven day per week basis. Lessee shall
not do or permit to be done on the Premises, nor bring or keep or permit to be
brought or kept in the Premises, anything (a) which is prohibited by or in
conflict with any law, ordinance, or governmental rule or, (b) which is
prohibited by the standard form of fire insurance policy or, (c) which will
increase the existing rate of or affect fire or other insurance on the Building
or its contents or cause a cancellation of any insurance policy covering the
Building or any part of it or its contents; provided, however, if Lessee's use
of the Premises is the cause of an increase in the rate charged for Lessor's
casualty policy(ies) for the Property, Lessee shall not be in default hereunder
if Lessee pays to Lessor the additional insurance premium therefor. Lessee shall
not use or store in the Premises any hazardous or toxic substances, with the
sole exception of reasonably necessary substances that are kept in reasonably
necessary quantities for normal office operations, provided that their use and
storage are in accordance with applicable laws. Lessee shall not do or permit
anything to be done on the Premises that will obstruct or interfere with the
rights of other Lessees of the Building, or injure or annoy them, or use or
allow the Premises to be used for any unlawful purposes, nor shall Lessee cause,
maintain, or permit any nuisance or waste on or about the Premises.
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<PAGE>
Section 7. Services.
(a) Lessor shall maintain the public and Common Areas of the Building,
including lobbies, stairs, elevators, corridors, restrooms, windows, the
mechanical, plumbing, and electrical equipment serving the Building, and the
structure itself, in reasonably good order and condition, and shall provide
janitorial services for the Premises, so as to meet the reasonable needs of
Lessee, except for damage, excluding normal wear and tear, caused by the Lessee.
Damage by Lessee shall be repaired by Lessor at Lessee's expense.
(b) Lessor shall furnish lighting replacement for building standard
lights and window washing with reasonable frequency.
(c) Lessor shall not be in default under this Lease, nor be liable for
any damages resulting from (i) the installation, use, or interruption of use of
any equipment in connection with furnishing the previously listed services, (ii)
failure to furnish or delay in furnishing these services, when failure or delay
is caused by accident or conditions beyond the reasonable control of Lessor or
by necessary repairs or improvements to the Premises or to the Building, or
(iii) the limitation, curtailment, rationing, or restrictions on use of water,
electricity, gas, or any other form of energy serving the Premises or the
Building; provided, however, if any of the foregoing occur and continues for
more than ten (10) consecutive days after Lessor's receipt of notice thereof
from Lessee, Base Rent and Additional Rent for the Premises shall abate from and
after the end of such ten (10)-day period during the remaining period of such
activity in the proportion that the Rentable Area of Lessee's premises which
Lessee is prevented from using, and does not use as a result of the foregoing,
bears to the total Rentable Area of the Premises. Lessor shall use reasonable
efforts to diligently remedy interruptions in the furnishing of these services.
If the foregoing extends for more than ninety (90) consecutive days, Lessee may
terminate the Lease any time thereafter due to the continuation of such
situation upon five (5) days prior written notice.
(d) If Lessor, at Lessee's request, provides services to Lessee that
are not otherwise provided for in this Lease, Lessee shall pay Lessor's
reasonable charges for these services on billing of Lessor.
(e) Lessee shall provide electrical service at its own cost.
Section 8. Impositions.
In addition to the monthly rental and other charges to be paid by
Lessee under this Lease, Lessee shall pay Lessor for all of the following
items (collectively, Impositions), which are imposed on
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Lessor during the Term and relate directly to the operation of the Property and
not its development: (i) taxes, other than local, state, and federal personal or
corporate income taxes measured by the net income of Lessor; (ii) assessments,
including without limitation, all assessments for public improvements, services,
or benefits, irrespective of when commenced or completed; (iii) excises; (iv)
levies; (v) business taxes; (vi) license, permit, inspection, and other
authorization fees; (vii) transit development fees; (viii) assessments or
charges for housing funds; (ix) service payments in lieu of taxes and; (x) any
other fees or charges that are levied, assessed, confirmed, or imposed by a
public authority; provided, however, that Impositions shall not include amounts
otherwise included in Operating Expenses or Property Taxes. Lessee is obligated
to pay only to the extent that the Impositions are directly (a) imposed on,
measured by, or reasonably attributable to, the cost or value of Lessee's
equipment, furniture, fixtures, and other personal property located in the
Premises; (b) based on or measured by the monthly rental or other charges
payable under this Lease, including without limitation, any gross receipts tax
levied by a municipality, the State of California, the Federal Government, or
any other governmental body with respect to the receipt of the rental; (c) based
on the development, possession, leasing, operation, management, maintenance,
alteration, repair, use, or occupancy by Lessee of the Premises or any portion
of the Premises; or (d) on this transaction or any document to which Lessee is a
party creating or transferring an interest or an estate in the Premises. If it
is unlawful for Lessee to reimburse Lessor for the Impositions, but lawful to
increase the monthly rental to take into account Lessor's payment of the
Impositions, the monthly rental payable to Lessor shall be revised to net Lessor
the same net return without reimbursement of the Impositions as would have been
received by Lessor with reimbursement of the Impositions.
Section 9. Alterations.
(a) Lessee shall not make or allow any alterations, additions, or
improvements to the Premises after the Lease Commencement Date or any part of
the Premises (collectively, Alterations), without Lessor's prior consent, which
shall not be unreasonably withheld. The installation of furnishings, fixtures,
equipment, or decorative improvements, none of which shall affect Building
systems or the structure of the Building, and the repainting or recarpeting of
the Premises, shall not constitute Alterations. All Alterations shall be made by
Lessor for Lessee's account, including increased costs, if any, in accordance
with the procedures set forth in this Section. All Alterations shall immediately
become Lessor's property and, at the end of the Term, shall remain on the
Premises without compensation to Lessee, unless Lessor elects by notice to
Lessee to have Lessee remove any Alterations that are peculiar to Lessee's use
of the Premises and are not normally required or of benefit for general office
use. When
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plans and specifications for any Alterations are approved by Lessor pursuant to
Section 9(b), Lessor shall advise Lessee on request whether proposed Alterations
would entitle Lessor to require their removal and restoration of the Premises at
the end of the Term. In this event, Lessee shall bear the cost of removing the
Alterations so identified and restoring the Premises to their condition prior to
the installment of the Alterations. Lessee may make an aggregate of FIFTEEN
THOUSAND DOLLARS ($15,000) worth of non-structural Alterations per calendar year
without obtaining the consent of Lessor, and without the necessity of compliance
with Sections (b) through (f) below.
(b) Plans and specifications for Alterations shall be prepared at
Lessee's expense by Lessee's architect, or by Lessor's architect if Lessee so
elects, and by engineers reasonably approved by Lessor, where the nature of the
Alterations requires mechanical or electrical engineering services. Any
architect retained by Lessee shall be instructed to follow standard construction
administration procedures and use standard specifications and details reasonably
promulgated by Lessor for the Building. The plans and specifications shall be
subject to approval by Lessor and Lessee, and shall not be unreasonably withheld
or delayed by either party. Plans and specifications that have neither been
approved nor disapproved by Lessor within fifteen (15) days after submittal by
Lessee shall be deemed to have been approved. Following approval, Lessor shall
obtain cost quotations for the Alterations from one or more general contractors
approved by Lessor, including any general contractors requested by Lessee that
Lessor has reasonably approved. Lessee may specify subcontractors in the finish
trades to be included in the general contractors' bids. Lessor shall submit the
quotations to Lessee, accept the quotation approved by Lessee, and then contract
for the construction or installation of the Alterations with the contractor
approved by Lessee. Lessor does not warrant the cost of the Alterations, the
timeliness of performance, nor the quality of the contractor's work, but Lessor
shall use reasonable best efforts to secure performance of the construction
contract by the contractor for Lessee's benefit.
(c) In the event Lessee instructs Lessor or the contractor to proceed
with any changes to the Alterations without a prior determination of increased
costs resulting from those changes and without approval of the increases by
Lessee, or in the event Lessee is responsible for increased costs attributable
to a delay or acceleration in the time for construction, the amount of any
increased costs shall be reasonably determined by Lessor on completion of the
Alterations, subject only to Lessor's reasonable efforts in causing the
contractor to furnish Lessee appropriate back-up information concerning
increased costs, if any.
(d) The cost of the Alterations to be paid by Lessee shall include a
reasonable charge not to exceed actual third party costs plus fifteen
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percent (15%) for the administration, by Lessor or an agent, of the construction
or installation of the Alterations, the amount of which shall bear a reasonable
relationship to the scope of the Alterations and the costs of performing the
administration.
(e) Lessee shall pay to Lessor all amounts payable by Lessee pursuant
to this Section after billing by Lessor on monthly progress payments to the
contractor. Billing may be in advance of or during the progress of the
Alterations to enable Lessor to pay the contractor, architect, or engineer
without advancing Lessor's own funds. At Lessee's request, Lessor shall furnish
a copy of each bill to Lessee for Lessee's approval at least ten (10) days prior
to the due date of the bill. Lessee may contest any payment to a contractor for
Alterations and Lessor shall withhold this payment, provided that the provisions
of Section 10 are satisfied and Lessee indemnifies and defends Lessor against
all claims and liability arising out of the contested payment. At Lessor's
option and prior to commencement of Alterations, Lessee shall provide reasonable
written evidence of the availability of funds to complete such Alterations.
(f) Lessor may delegate some or all authority and responsibilities
under this Section to a manager, but such delegation shall not relieve Lessor of
its obligations under this Section.
(g) Lessee may elect to use non-union labor to make any Alterations
allowed herein provided that access to or through the Building or its common
areas is not obstructed, and that there is no interference either with other
lessees' use of their premises or with any other work being undertaken in the
Building. Lessee shall take all reasonable measures necessary to ensure that
labor peace is maintained at all times.
Section 10. Liens.
Lessee shall keep the Premises and the Building free from any liens
arising out of any work performed, materials furnished, or obligations incurred
by Lessee. Lessor may have posted on the Premises any notices that may be
provided by law or that Lessor may deem proper for the protection of Lessor, the
Premises, and the Building from those liens. Lessee may contest any lien for
which Lessee is responsible under this Section, provided that Lessee shall have
caused the lien to be bonded against.
Section 11. Repairs.
Lessee accepts the Premises as being in the condition in which Lessor
is obligated to deliver the Premises, subject to the completion of Lessee
improvements, if any, that Lessor has agreed to make. At all
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times during the term of this Lease and at Lessee's sole cost, Lessee shall keep
the Premises in good condition and repair; ordinary wear and tear and damage to
the Premises by fire, earthquake, or act of God or the elements are excepted.
Lessee waives all rights to make repairs at the expense of Lessor or instead to
vacate the Premises, and Lessee further waives the provisions of Civil Code
Sections 1941 and 1942 with respect to Lessor's obligations under this Lease. At
the end of the term of this Lease, Lessee shall surrender to Lessor the Premises
and all Alterations that are to remain in the Premises in the same condition as
when received; ordinary wear and tear and damage by fire, earthquake, or act of
God or the elements are excepted. Lessor has no obligation and has made no
promise to alter, remodel, improve, repair, decorate, or paint the Premises or
any part of them, except as specifically set forth in this Lease. Lessor has
made no representations respecting the condition of the Premises or the
Building, except as specifically set forth in this Lease.
Section 12. Damage or Destruction.
(a) In the event the Premises or any portion of the Building necessary
for Lessee's occupancy and enjoyment of the Premises and/or use of the Common
Areas are damaged by fire, earthquake, act of God, the elements, or other
casualty, within thirty (30) days after that event, Lessor shall notify Lessee
of the estimated time, in Lessor's reasonable judgment, required for repair or
restoration. If the estimated time is one hundred and eighty (180) days or less
after the commencement of the physical work and one (1) year or less after the
casualty event, Lessor shall proceed promptly and diligently to adjust the loss
with applicable insurers, to secure all required governmental permits and
approvals, and to repair or restore the Premises or the portion of the Building
necessary for Lessee's occupancy. This Lease shall remain in full force, except
that for the time unusable, Lessee shall receive a rental abatement for that
part of the Premises rendered unusable in the conduct of Lessee's business, or
while Lessee's access to the Premises is denied or blocked, while a significant
portion of the Common Areas are made unavailable to use by Lessee and its
employees, representatives and visitors, or while any Building systems or any
other services provided by Lessor are materially diminished or curtailed.
(b) If the estimated time for repair or restoration is in excess of one
hundred and eighty (180) days after the commencement of the physical work or one
(1) year after the casualty event, Lessee may elect to terminate this Lease as
of the date of the casualty event by giving notice to Lessor within fifteen (15)
days following receipt of Lessor's notice of the estimated time for repair. If
the estimated time is more than one hundred and eighty (180) days after
commencement of the physical work or one (1) year after the casualty event, but
Lessee has not elected to terminate this Lease, Lessor may elect, on notice
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to Lessee within twenty (20) days after the period for Lessee's election to
terminate has expired, to repair or restore the Premises or the portion of the
Building necessary for Lessee's occupancy. In that event, this Lease shall
continue in full force, but the rent shall be abated as provided above. If
Lessor does not elect to repair or restore, this Lease shall terminate as of the
date of the casualty event. However, if Lessor has not commenced the physical
repair or restoration of the Premises or the portion of the Building necessary
for Lessee's occupancy within one (1) year from the casualty event, Lessee may
elect to terminate this Lease by notice to Lessor given at any time following
the expiration of one (1) year from the casualty event, but prior to the
commencement of the physical repair or restoration work.
(c) If the Premises or the Building are to be repaired or restored
under this Section, Lessor shall repair or restore at Lessor's cost the Building
itself and all improvements in the Premises, including but not limited to, any
Lessee improvements constructed pursuant to this Lease, but excluding
Alterations made by or for Lessee subsequent to completion of those Lessee
improvements. Lessee shall pay the cost of repairing or restoring any
Alterations made by or for Lessee subsequent to completion of the Lessee
improvements made pursuant to this Lease and shall be responsible for carrying
casualty insurance as Lessee deems appropriate for those Alterations.
(d) In the event of any damage to or destruction of the Premises or the
Building, Lessor and Lessee acknowledge that their respective rights and
obligations are to be governed exclusively by this Lease.
(e) In the event the Premises are to be repaired or restored and Lessee
requires temporary offices as a result of a casualty event affecting the
Premises, Lessor shall use best efforts to locate offices for Lessee within the
Building. Lessee acknowledges that Lessor makes no commitment as to the
availability of any offices or as to their cost.
Section 13. Insurance: Waiver of Subrogation.
(a) Insurance. Lessee, at Lessee's expense, shall maintain in full
force during the term hereof a policy or policies of commercial general
liability insurance insuring against claims and liability for personal injury
death and property damage arising in or about the Premises, the Building and
adjoining areas or ways, with a carrier or carriers acceptable to Lessor, and
which carrier or carriers in any event shall have a rating of not less than A
VII by Best's Insurance Guide and admitted in the State of California. Lessee's
liability coverage shall include all the coverages typically provided by the
Broad Form Comprehensive General Liability Endorsement. The liability under such
insurance shall not be less than FIVE MILLION DOLLARS ($5,000,000.00)
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combined single limit bodily injury and property damage. Such policy or policies
or policies of insurance shall (i) name Lessor and Lessee's lender as additional
insureds, (ii) be nonassessable; primary and noncontributory and any policies
carried by Lessor, and (iii) provide that the same may not be canceled or
materially amended except upon thirty (30) days prior written notice to Lessor.
Lessee at all times shall maintain with Lessor a current certificate or
certificates of said policy or policies.
(b) Subrogation. Each party hereby waives and releases all claims which
it may have against the other party, and its employees, officers, directors,
contractors, representatives, agents and visitors (collectively "Releasees") for
damage to or loss of any real and personal property owned by such party or death
or bodily injury occasioned by the act or omission of any Releasee of the other
party. Furthermore, to the extent available without material incremental
premium, each party shall obtain from its insurers under all policies of
property insurance maintained by such party at any time during the term hereof
insuring or covering the Premises, the Building or any portion thereof or
operations therein, a waiver of all rights of Subrogation which the insurer
might have against the other party, and each party shall indemnify the other
party against any loss or expense, including reasonable attorneys' fees,
resulting from the failure to obtain such waiver to the extent the same is also
available.
(c) Lessor's Insurance. During the Term, Lessor shall maintain in
effect insurance on the Building against "broad form" perils with insurers
admitted in California having a rating classification of "A" or better and
financial size category ratings of "VII" or better according to the latest
edition of the A.M. Best Key Rating Guide, insuring the Building and the Lessee
Improvements in an amount equal to at least one hundred percent (100%) of the
replacement cost thereof, excluding land, foundations, footings and underground
installations, as reasonably estimated by Lessor. Lessor may, but shall not be
obligated to carry, insurance against additional perils and/or in greater
amounts. During the Term, Lessor covenants that at it will maintain
comprehensive general liability insurance with broad form extended coverage,
including contractual liability insurance against claims occurring upon, in or
about the Building with a minimum coverage of combined single limit of Five
Million Dollars ($5,000,000), which coverage, if requested, will provide that no
material change or cancellation shall be made without thirty (30) days prior
written notice to Lessee. Lessor shall provide Lessee upon written request with
current certificates evidencing these coverages.
Section 14. Indemnification.
Lessee waives all claims against Lessor for damage to any property or
injury or death of any person on the Premises arising at any time
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and from any cause other than the negligence or willful misconduct of Lessor or
Lessor's employees, agents, or contractors. Lessee shall hold Lessor harmless
from and defend Lessor against all claims, liability, damage, or loss arising
out of any claims by third parties for injury or death of any person or damage
to or destruction of their property asserted against Lessor attributable to the
use of the Premises by Lessee, except that caused by the negligence or willful
misconduct of Lessor or Lessor's agents, contractors, or employees. Lessee shall
also hold Lessor harmless from any liability, cost, or expense arising from
Lessee's use or storage in the Premises of any hazardous or toxic substance
permitted or not under this Lease. Lessor shall hold Lessee harmless from and
defend Lessee against all claims, liability, damage, or loss arising out of any
claims by third parties for injury or death of any person or damage to or
destruction of their property asserted against Lessee attributable to Lessor's
failure to perform its obligations under this Lease or at law respecting the
Common Areas, except that caused by the negligence or willful misconduct of
Lessee, or Lessee's agents, contractors or employees. These indemnity
obligations shall include reasonable attorney fees, investigation costs, and all
other reasonable costs incurred by either party from the first notice that any
claim or demand is to be made or may be made. Lessor or Lessee shall promptly
give notice to the other of any claim or demand. The provisions of this Section
shall survive the termination of this Lease for any event occurring prior to the
termination. The provisions of this Section to indemnify and hold Lessor or
Lessee harmless are limited to the amount of loss that is not paid to Lessor or
Lessee out of insurance proceeds, if any.
Section 15. Compliance with Legal Requirements.
At Lessee's sole cost, Lessee shall promptly comply with all laws and
governmental rules now or later in force; with the requirements of any board of
fire underwriters or other similar body now or in the future constituted; with
any direction or occupancy certificate issued by public officers (Legal
Requirements), insofar as they relate to the condition, use, or occupancy of the
Premises. Excluded are any obligation to cause to be made any (a) structural
changes or changes to the electrical, mechanical, or plumbing systems or other
common Building systems and the Common Areas of the Building, except to the
extent necessitated by Lessee's acts or by improvements made for Lessee (other
than the Lessee Improvements to be made pursuant to this Lease by Lessor, if
any); (b) alterations or improvements to the Building as a whole or the Premises
of lessees generally that are not by law the lessees' sole responsibility with
which to comply; and (c) work necessitated by defects in the construction of the
Building. In no event shall Lessee be required to correct any violations of
legal requirements in the Premises or elsewhere in the Building if such
violation is in existence on or prior to the Commencement Date. Lessor shall
comply at its cost in a timely manner with all Legal Requirements
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that are not Lessee's responsibility under this Section to the extent
noncompliance would adversely affect Lessee's use or occupancy of the Premises.
Section 16. Assignment and Subletting.
Lessor's Consent Required.
Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, or otherwise transfer or encumber all or any part of Lessee's
interest in the Lease or in the Premises, without Lessor's prior written
consent, which Lessor shall not unreasonably withhold or delay. Any attempted
assignment, transfer, mortgage, encumbrance, or subletting without such consent
shall be void, and shall constitute a breach of this Lease without the need for
notice to Lessee under Section 16.1. Any sale or other transfer, including by
consolidation, merger, or reorganization, of a majority of the voting stock of a
Lessee, if Lessee is a corporation, or any sale or other transfer of a majority
of the partnership interest in Lessee, if Lessee is a partnership, shall be an
assignment for purposes of this Section 16.
Lessor shall approve or reject the transfer within ten (10) business
days of notice thereof and must state reasons for any disapproval. If Lessee
desires Lessor's consent to a transfer of all or any portion of the Premises,
Lessee shall submit to Lessor (a) the proposed sublease or assignment or other
transfer agreement, and (b) all other information which Lessor may reasonably
request including, without limitation, sufficient information to enable Lessor
to determine the character, quality, type of business, and financial
responsibility of the proposed transferee. Lessor shall respond to Lessee's
request for consent hereunder in a timely manner.
Notwithstanding the foregoing, Lessor's consent shall not be required
in connection with any transfer of Lessee's stock or any merger or
reorganization of Lessee or any sale of substantially all of Lessee's assets, or
in connection with any assignment or sublet to an affiliate of Lessee, provided
that the net worth of Lessee's successor (immediately following any such
transaction of Lessee) or in the case of an assignment or sublet to an
affiliate, the net worth of such affiliate shall be equal to or greater than the
net worth of Lessee as of the date hereof, and provided that any such assignee
or transferee complies with the provisions of Section 48 of this Lease.
16.1 Terms and Conditions of Assignment.
Regardless of Leasor's consent, no assignment shall release Lessee of
Lessee's obligation hereunder or alter the primary liability of
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Lessee to pay the Base Rent and Lessee's Share of Operating Expenses, and to
perform all other obligations to be performed by Lessee hereunder except to the
extent otherwise agreed in writing by Lessor. Lessor may accept rent from any
person other than Lessee pending approval or disapproval of such assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of rent shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for the breach of any of the terms or conditions of this
Section 16 of this Lease. Consent to one assignment shall not be deemed consent
to any subsequent assignment. In the event of default by any assignee of Lessee
or any successor of Lessee, in the performance of any of the terms hereof,
Lessor may proceed directly against Lessee without the necessity of exhausting
remedies against said assignee. Lessor may consent to subsequent assignments of
this Lease or amendments or modifications to this Lease with assignees of
Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease. Lessee shall not unreasonably withhold the
approval of any modification or amendments agreed to by Sublessees, but no such
amendment or modification shall increase Lessee's obligations.
16.2 Terms and Conditions Applicable to Subletting.
The following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises:
(a) Lessee shall absolutely and unconditionally assign and transfer to
Lessor all of Lessee's interest in all rentals and income arising from such
sublease, and Lessor may collect such rent and income and apply same toward
Lessee's obligations under this Lease, provided, however, that until a default
which has not been timely cured shall occur in the performance of Lessee's
obligations under this Lease, Lessee shall have a license to receive, collect,
and enjoy the rents accruing under such sublease. Lessor shall not, by reason of
the assignment of such sublease or by reason of the collection of rents from a
sub-lessee, be deemed liable to the sub-lessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sub-lessee under
such sublease. Upon Lessor's demand Lessee shall irrevocably authorize and
direct any such sub-lessees, upon receipt by Lessee of a written notice from
Lessor stating that a default exists in the performance of Lessee's obligations
under this Lease, to pay to Lessor the rents due and to become due under the
sublease. Lessee agrees that such sub-lessee shall have the right to rely upon
any such statement and request from Lessor and that such sub-lessee shall pay
such rents to Lessor without any obligation or right to inquire as to whether
such default exists and notwithstanding any notice from or claim from Lessee to
the contrary. Lessee shall have no right or claim against such sub-lessee or
Lessor for any such rents so paid by said sub-lessee to Lessor upon Lessor's
proper demand.
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(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent which consent is not to be unreasonably withheld
or delayed. Any sub-lessee shall, by reason of entering into a sublease under
this Lease, be deemed, for the benefit of Lessor, to have assumed and agreed to
confirm and comply with each and every obligation herein to be performed by
Lessee other than such obligations as are contrary to or inconsistent with
provisions contained in a sublease to which Lessor has expressly consented in
writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) Consent by Lessor to any subletting shall not constitute a consent
to any subsequent subletting by Lessee or to any assignment or subletting by the
sub-lessee. However, if an Event of Default by Lessee then exists, Lessor may
consent to subsequent sublettings and assignments of the sublease or any
amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sub-lessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sub-lessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sub-lessee to Lessee or from any other prior defaults of Lessee
under such sublease, except that which is then held by Lessor.
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(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sub-lessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent which shall not be unreasonably
withheld or delayed.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor consents, Lessor
agrees to deliver a copy of any notice of default by Lessee to the sub-lessee
and such sub-lessee shall have the right to cure a default of Lessee within ten
(10) days after service of said notice of default upon such sub-lessee, and the
sub-lessee shall have a right of reimbursement from and against Lessee for any
such defaults cured by the sub-lessee.
16.3 Additional Rent Due on Assignment or Subletting.
If at any time during the initial Term or any extended Term hereof,
Lessee shall assign all or part of its interest hereunder or shall sublet all or
any portion of the Premises, Lessee shall be obligated to pay Lessor additional
rental as follows: If for any proposed assignment or sublease Lessee receives
rent or other consideration, either initially or over the term of such
assignment or sublease, in excess of the Base Rent and other sums then required
to be paid by Lessee hereunder (including percentage rent, if any), or in the
case of a sublease of a portion of the Premises in excess of the Base Rent
allocable to such portion based solely on a rentable square footage basis, after
appropriate adjustments to assure that all other payments required to be made by
Lessee hereunder are taken into account. Subject to the provisions of Section 16
above, Lessee shall promptly pay to the Lessor as additional rent fifty percent
(50%) of (a) such excess less, (b) reasonable attorney's fees, brokerage
commissions and lessee improvement costs (including reimbursement for
unamortized lessee improvements previously installed in the Premises at Lessee's
cost) incurred by Lessee in connection with such sublease or assignment. Such
Lessee costs shall not exceed Ten Dollars ($10.00) per square foot to determine
the amount to be paid to Lessor. Said additional sum shall be payable by Lessee
within five (5) days after receipt thereof.
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16.4 Attorney fees.
In the event Lessee shall assign or sublet the premises or request the
consent of Lessor to any assignment or subletting or if Lessee shall request the
consent of Lessor for any act Lessee proposes to do then Lessee shall pay
Lessor's reasonable attorney fees incurred in connection with reviewing and
preparing any documentation therefor, but not to exceed $2,500.
Section 17. Entry by Lessor.
Lessor may enter the Premises at reasonable hours and, except in the
event of an emergency, on reasonable prior notice, to (a) inspect the Premises;
(b) exhibit the Premises to prospective purchasers, lenders, or Lessees (during
the last six (6) months of the Term only); (c) determine whether Lessee is
complying with all obligations under this Lease; (d) supply any services to be
provided by Lessor under this Lease; (e) post notices of nonresponsibility; and
(f) make repairs or perform maintenance required of Lessor by this Lease, make
repairs to any adjoining space or utility services, or make repairs,
alterations, or improvements to any other portion of the Building. However, all
this work shall be done as promptly as reasonably possible and cause as little
interference to Lessee as reasonably possible. Subject to Lessor undertaking
such actions as provided above in the previous sentence, Lessee waives any
damage claims for inconvenience to or interference with Lessee's business or
loss of occupancy or quiet enjoyment of the Premises caused by Lessor's entry
conducted in such manner. At all times Lessor shall have a key with which to
unlock the doors on the Premises, excluding Lessee's vaults, safes, and similar
areas designated as secure areas in writing by Lessee in advance. In an
emergency, Lessor shall have the right to use any means that Lessor deems proper
to open Lessee's doors and enter the Premises. Entry to the Premises by Lessor
in an emergency shall not be construed as a forcible or unlawful entry, a
detainer, or an actual or constructive eviction of Lessee, but Lessor shall
repair or otherwise reimburse Lessee for physical damage, if any, caused by such
entry.
Section 18. Events of Default.
The following events shall constitute events of default under this
Lease (each an Event of Default):
(a) a failure by Lessee to make a payment when due of any rent or other
sum payable under this Lease and the continuation of this failure for ten (10)
or more days after written notice of the default from Lessor, provided that if
Lessee has failed two (2) or more times in any twelve (12) months to pay any
rent or other sum when due and notice of this default has been given by Lessor
in each instance, no notice shall
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be required after this until the expiration of twelve (12) months in which all
rental and other sums payable under this Lease have been paid on or before the
date due;
(b) a default by Lessee in the performance of any of the terms,
covenants, agreements, or conditions in this Lease, other than a default by
Lessee in the payment when due of any rent or other sum payable under this
Lease, and the continuation of the default beyond thirty (30) days after written
notice by Lessor or, if the default is curable and would require more than
thirty (30) days to remedy, beyond the time reasonably necessary for cure;
provided, however that if Lessee has defaulted in the performance of the same
obligation two (2) or more times in twelve (12) months and notice of the default
has been given by Lessor in each instance, no notice shall be required after
this until the expiration of twelve (12) months without any default by Lessee;
(c) the bankruptcy or insolvency of Lessee, a transfer by Lessee in
fraud of creditors, an assignment by Lessee for the benefit of creditors, or the
commencement of proceedings of any kind by or against Lessee under the Federal
Bankruptcy Act or under any other insolvency, bankruptcy, or reorganization act,
unless Lessee is discharged from voluntary proceedings within ninety (90) days;
(d) the appointment of a receiver for a substantial part of Lessee's
assets;
(e) the abandonment of the Premises; and
(f) the levy upon this Lease or any estate of Lessee under this Lease
by attachment or execution and the failure to have the attachment or execution
vacated within thirty (30) days.
(g) If Lessor shall default in any of its obligations under this Lease
and such failure shall continue beyond the expiration of any applicable cure
period provided for such default herein or, in the absence of a stated cure
period for such default, for a reasonable time not to exceed thirty (30) days
(or such additional period which may, with the exercise of diligence, be
required to cure the same, if the same cannot be cured within such thirty (30)
day period) or as may otherwise be provided herein, after written notice from
Lessee specifying the circumstances of such default, then Lessee shall have such
rights and remedies as are specifically provided in this Lease, and such
additional rights and remedies available at law and equity which are not
otherwise expressly waived by Lessee under this Lease.
(h) In any provision in this Lease where Lessor is permitted to take
action to remedy a default or event of default by Lessee, such default or event
of default shall mean an "Event of Default" as defined hereinabove.
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Section 19. Termination upon Default.
On occurrence of any Event of Default by Lessee, Lessor may, in
addition to any other rights and remedies given here or by law, terminate this
Lease and exercise remedies relating to it without further notice or demand in
accordance with the following provisions:
(a) So long as the Event of Default remains uncured, Lessor shall have
the right to give notice of termination to Lessee, and on the date specified in
this notice, this Lease shall terminate.
(b) If this Lease is terminated, Lessor may, by judicial process,
reenter the Premises, remove all persons and property, and repossess and enjoy
the Premises, all without prejudice to other remedies that Lessor may have
because of Lessee's default or the termination.
(c) If this Lease is terminated, Lessor shall have all of the rights
and remedies of a Lessor provided by Civil Code ss. 1951.2, in addition to any
other rights and remedies Lessor may have. The damages which Lessor may recover
shall include, without limitation, (i) the worth at the time of award of the
unpaid rent which had been earned at the time of termination; (ii) the worth at
the time of award of the amount by which the unpaid rent which would have been
earned after termination until the time of the award exceeds the amount of the
rental loss that Lessee proves could have been reasonably avoided; (iii) the
worth at the time of award computed by discounting the amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%) of the amount by which the unpaid rent for the balance of the term
after the time of award exceeds the amount of rental loss that Lessee proves
could be reasonably avoided; (iv) all reasonable legal expenses and other
related costs incurred by Lessor following Lessee's default; (v) all reasonable
costs incurred by Lessor in restoring the Premises to good order and condition
to relet the Premises; and (vi) all reasonable costs, including without
limitation, any market rate brokerage commissions incurred by Lessor in
reletting the Premises.
Section 20. Continuation after Default.
Even though Lessee has breached this Lease and abandoned the Premises,
this Lease shall continue in effect for so long as Lessor does not terminate
Lessee's right to possession, and Lessor may enforce all rights and remedies
under this Lease, including the right to recover the rental as it becomes due
under this Lease. Acts of maintenance or preservation, efforts to relet the
Premises, or the appointment of a receiver upon initiative of Lessor to protect
Lessor's
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interest under this Lease shall not constitute a termination of
Lessee's right to possession.
Section 21. Other Relief.
The remedies provided in this Lease are in addition to any other
remedies available to Lessor at law, in equity, by statute, or otherwise.
Section 22. Right of Lessor to Cure Defaults.
Agreements and provisions to be performed by Lessee under this Lease
shall be at Lessee's sole cost and without abatement of rental, except as
specifically provided in this Lease. If Lessee (a) fails to pay any sum of
money, other than rental, required under this Lease, or (b) fails to perform any
other act under this Lease, and this failure continues for thirty (30) days
after notice of the failure by Lessor, or a longer period as may be allowed
under this Lease, Lessor may, without waiving or releasing Lessee from any
obligations of Lessee, make payment or perform other acts required by this Lease
on Lessee's behalf. All sums paid by Lessor and all necessary incidental costs
shall be payable to Lessor on demand and shall constitute additional rental
under this Lease.
Section 23. Attorney Fees.
If, as a result of a breach or default under this Lease, Lessor or
Lessee, except as otherwise provided herein, uses an attorney to secure
compliance with Lease provisions, to recover damages, to terminate this Lease,
or to evict Lessee, the prevailing party in any legal action or proceeding shall
be entitled to recover reasonable attorney fees and expenses incurred by such
party.
Section 24. Eminent Domain.
If all or any part of the Premises are taken through eminent domain,
this Lease shall terminate for the part taken as of the date of taking. For a
partial taking, either Lessor or Lessee shall have the right to terminate this
Lease for the balance of the Premises by notice to the other within thirty (30)
days after the taking. However, Lessee's right to terminate arises only if the
portion of the Premises taken substantially handicaps, impedes, or impairs
Lessee's use of the balance of the Premises. In the event of any taking, Lessor
shall be entitled to all compensation, damages, income, rent, awards, or any
interest that may be paid in connection with the taking, except for any portion
specifically awarded to Lessee for loss of good will, moving expenses, trade
fixtures, equipment, and any leasehold improvements in the Premises to the
extent of the then unamortized value of these
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improvements for the remaining term of the Lease as determined in the award.
However, Lessee shall have no claim against Lessor for the value of any
unexpired term of this Lease or otherwise, other than for prepaid rent. In the
event of a partial taking of the Premises that does not result in a termination
of this Lease, the subsequent monthly rental shall be equitably reduced.
Section 25. Subordination.
(a) This Lease shall be subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation for security now existing or, subject to
the following, later placed upon the Building and to any advances made on the
security of it or Lessor's interest in it, and to all renewals, modifications,
consolidations, replacements, and extensions of it. Lessee's covenant under
Section 25(a) to subordinate this Lease to any future ground lease, mortgage,
deed of trust, or other hypothecation later executed is conditioned on each such
instrument containing the commitments specified in subsection 25(b). However, if
any mortgagee, trustee, or ground lessor elects to have this Lease prior to the
lien of its mortgage or deed of trust or prior to its ground lease, and gives
notice of that to Lessee, this Lease shall be deemed prior to the mortgage, deed
of trust, or ground lease, whether this Lease is dated prior or subsequent to
the date of the mortgage, deed of trust, or ground lease, or the date of
recording of it. In the event any mortgage or deed of trust to which this Lease
is subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, Lessee shall attorn to the purchaser at the
foreclosure sale or to the grantee under the deed in lieu of foreclosure. In the
event of termination of any ground lease to which this Lease is subordinate,
Lessee shall attorn to the ground lessor. Lessee agrees to execute any
documents, in form and substance reasonably acceptable to Lessee, required to
effectuate the subordination, to make this Lease prior to the lien of any
mortgage or deed of trust or ground lease, or to evidence the attornment.
(b) In the event any mortgage or deed of trust to which this Lease is
subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, or in the event any ground lease to which this Lease
is subordinate is terminated, this Lease shall not be barred, terminated, cut
off, or foreclosed. Neither shall the rights and possession of Lessee under this
Lease be disturbed, if Lessee is not then in default in the payment of rental
and other sums due under this Lease or otherwise in default under the terms of
this Lease, and if Lessee attorns to the purchaser, grantee, or ground lessor as
provided in Section 25(a) or, if requested, enters into a new lease for the
balance of the term of this Lease on the same terms and provisions contained in
this Lease.
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(c) Lessee agrees that Lessee shall not discriminate against or
segregate any person or group of persons on account of race, sex, creed, color,
marital status, sexual preference, national origin, or ancestry, in the
occupancy, use, sublease, tenure, or enjoyment of the Premises.
Section 26. No Merger.
The surrender of this Lease by Lessee, or a mutual cancellation of it,
shall not work a merger and shall, at the option of Lessor, terminate all or any
existing subleases or sub-tenancies, or operate as an assignment to Lessor of
all subleases or sub-tenancies.
Section 27. Sale.
On a transfer of all of Lessor's interest in the Building and Real
Property and in this Lease, Lessor shall be released from all liability and
obligations under this Lease that accrue and pertain to events and conditions
first arising after the effective date of transfer ("Future Events"). With
respect to any liability or obligations of Lessor under this Lease which have
accrued and pertain to events and conditions first arising prior to the
effective date of the transfer ("Prior Events"), to the extent that a default
by Lessor is not claimed by Lessee in an estoppel certificate delivered by
Lessee upon Lessor's request in connection with such transfer pursuant to
Section 28 below, the same shall be released automatically by Lessee upon
completion of such transfer. All other liability and obligations of Lessor
respecting Prior Events shall not be released unless and until the transferee
agrees in writing, for the benefit of Lessee, to assume all of Lessor's
liability and obligations under this Lease pertaining to Prior Events and
delivers to Lessee written notification of such agreement. Upon receipt of
written notice and assumption of Lessor's liability and obligations under this
Lease for Future Events by such transferee, Lessee agrees to attorn to such
transferee.
Section 28. Estoppel Certificate.
Any time with at least fifteen (15) days' prior written notice by
Lessor, Lessee shall execute, acknowledge, and deliver to Lessor a certificate
in the form substantially the same as attached Exhibit D certifying to the
extent true and complete: (a) that this Lease is unmodified and in full force
or, if there have been modifications, that this Lease is in full force, as
modified, together with the date and nature of each modification, (b) the amount
of the Base Rent, most recent Additional Rent, if any, and the date to which the
rent has been paid, (c) that no notice has been received by Lessee of any
default that has not been cured, except defaults specified in the certificate,
(d) that no default of Lessor is claimed by Lessee, except defaults specified in
the certificate, and (e) other matters as may be
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reasonably requested by Lessor. Any certificate may be relied on by the
prospective purchaser, mortgagee, or beneficiary under any deed of trust on the
Building or any part of it specified in such certificates. Lessee shall have the
right to obtain an estoppel certificate from Lessor within fifteen (15) days
following written request, certifying to such matters as may be reasonably
requested.
Section 29. Holding Over.
(a) If, without written objection by Lessor, Lessee holds possession of
the Premises after expiration of the term of this Lease, Lessee shall become a
Lessee from month-to-month on the terms specified in this Lease but at a monthly
rental equivalent to One Hundred Fifty percent (150%) of the then prevailing
monthly rental paid by Lessee at the expiration of the term of this Lease,
payable in advance on or before the first day of each month. Each party shall
give the other notice of intention to terminate the tenancy at least one (1)
month prior to the date of termination of a monthly tenancy.
(b) If, over written Lessor's objection, Lessee holds possession of the
Premises after expiration of the term of this Lease or expiration of the
holdover tenancy, Lessee shall be deemed to be a Lessee-at-sufferance and,
without limiting the liability of Lessee for unauthorized occupancy of the
Premises, Lessee shall indemnify Lessor and any replacement Lessee with an
executed Lease for the Premises for any damages or loss suffered by either
Lessor or the replacement Lessee resulting from Lessee's failure to vacate the
Premises in a timely manner.
Section 30. Abandonment.
Lessee shall not vacate or abandon any part or all of the Premises. If
Lessee shall vacate, abandon, or surrender the premises, or be dispossessed by
process of law or otherwise, any personal property belonging to Lessee and left
on the Premises shall be deemed to be abandoned, at the option of the Lessor,
except such property as may be mortgaged to Lessee.
Section 31. Security Deposit.
Lessee has deposited with Lessor the sum specified in the Basic Lease
Information (Deposit). The Deposit shall be held by Lessor as security for the
faithful performance by Lessee of all provisions of this Lease. If Lessee fails
to pay rent or other sums due under this Lease or defaults with respect to any
provision of this Lease, then upon Lessor's declaration of a default by Lessee
and the expiration of the applicable cure period with such default remaining
uncured, Lessor may use, apply, or retain all or any portion of the Deposit for
the
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payment of rent or other sums in default, for the payment of any other sums to
which Lessor may become obligated because of Lessee's default, or to compensate
Lessor for any loss or damage that Lessor may suffer because of the Lessee's
actions. If Lessor uses or applies the Deposit, Lessee shall, within ten (10)
days after written demand, deposit cash with Lessor in an amount sufficient to
restore the Deposit to the full amount, and Lessee's failure to do so shall be a
material breach of this Lease. Lessor shall not be required to keep the Deposit
separate from Lessor's general accounts. If Lessee performs all of Lessee's
obligations under this Lease, the Deposit or the amount not applied by Lessor
shall be returned, without interest, to Lessee or at Lessor's option, to the
last assignee, if any, of Lessee's interest under this Lease within two weeks
after the expiration of the Term and after Lessee has vacated the Premises. No
trust relationship is created between Lessor and Lessee with respect to the
Deposit.
Section 32. Waiver.
The waiver by Lessor or Lessee of any agreement, condition, or
provision contained in this Lease shall not be deemed to be a waiver of any
subsequent breach of the agreement, condition, or provision or any other
agreement, condition, or provision contained in the Lease, nor shall any custom
or practice that may arise between the parties in the administration of the
terms of this Lease be construed to waive or to lessen the right of Lessor or
Lessee to the performance by Lessor or Lessee in strict accordance with these
terms. The subsequent acceptance of rental under this Lease by Lessor shall not
be deemed to be a waiver of any preceding breach by the other party of any
agreement, condition, or provision of this Lease, other than the failure of
Lessee to pay the particular accepted rental, regardless of knowledge of the
preceding breach at the time of the rental acceptance.
Section 33. Improvement Work
(a) Lessor agrees to provide to Lessee an amount not to exceed
Thirty-five Dollars ($35) per rentable square foot of the Premises, or THREE
HUNDRED TWELVE THOUSAND THREE HUNDRED FORTY DOLLARS ($312,340.00) as Lessor's
total contribution to the cost of Lessee's Lessee improvements. Lessor's
approval of the Lessee improvements shall not be unreasonably withheld or
delayed. Lessee improvements' allowance may be used for both hard and soft costs
of said work. Any unused Lessee improvement dollars shall not be credited toward
any rent abatement. Lessee will pay all improvement expenses exceeding the sum
of THREE HUNDRED TWELVE THOUSAND THREE HUNDRED FORTY DOLLARS ($312,340.00).
Lessee shall pay for all such Lessee improvement expenses exceeding said
allowance prior to occupancy.
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(b) Space planning allowances. Upon full execution of this Lease,
Lessor shall reimburse Lessee in an additional amount not to exceed ONE THOUSAND
THREE HUNDRED THIRTY EIGHT DOLLARS ($1,338.00), or Fifteen Cents ($0.15) per
rentable square foot (RSF) on account of Lessee's preliminary space planning and
consulting costs. Lessee shall provide Lessor with a copy of the final space
plan, which Lessor shall not unreasonably disapprove.
Section 34. Signage.
Interior Building Signage: Lessor will provide Lessee with Lessor
approved signage on the Building main lobby directory board. Lessor will provide
up to two name strips on the main lobby directory for Lessee's use. Lessee may,
at Lessee's expense, install Lessor approved signage at Lessee's entry door.
Exterior Building Signage: Lessee will be allowed to install a Lessor
approved signage on the exterior of the Premises on the Golden Gate Avenue side
above TOGO'S at no additional rental but subject to Lessor's approval.
Section 35. Option to Renew. Intentionally Omitted
Section 36. Notices and Consents.
All notices, consents, demands, and other communications from one party
to the other that are given pursuant to the terms of this Lease shall be in
writing and shall be deemed to have been fully given when delivered, including
delivery by commercial delivery services or facsimile transmission, or if
deposited in the United States mail, certified or registered, postage prepaid,
when received or refused. All notices, consents, demands, and other
communications shall be addressed as follows: to Lessee at the address specified
in the Basic Lease Information, with a copy to Lessee at 240 West 35th Street,
New York, NY 10001, Attention: General Counsel, or to another place or person as
Lessee may designate in a notice to Lessor, or delivered to Lessee at the
Premises with a copy to Lessee at the above New York address; to Lessor at the
address specified in the Basic Lease Information, or to another place as Lessor
may designate in a notice to Lessee.
Section 37. Entire Agreement.
There are no oral agreements between Lessor and Lessee affecting this
Lease, and this Lease supersedes and cancels all previous negotiations,
arrangements, brochures, agreements, and understandings between Lessor and
Lessee or displayed by Lessor to Lessee with respect to the subject matter of
this Lease. There are no representations between Lessor and Lessee other than
those contained in this Lease. All implied warranties, including implied
warranties of merchantability and
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fitness, are excluded. To the extent of any inconsistency between this Lease and
Lessor's Rules, the provisions of this Lease shall control.
Section 38. Corporate Authority.
If either of the parties signs this Lease as a corporation, each person
executing this Lease on behalf of the party warrants that the party is an
authorized and existing corporation, that it is qualified to do business in
California, that it has the right and authority to enter into this Lease, and
that each person signing on behalf of the corporation is authorized to do so. If
either of the parties signs this Lease as a partnership, each person executing
this Lease on behalf of the party warrants that the party is a partnership, that
the partnership has the right and authority to enter into this Lease, and that
each person signing on behalf of the partnership is authorized to sign.
Section 39. Plural and Singular.
The words Lessor and Lessee as used in this Lease shall include the
plural as well as the singular.
Section 40. Joint and Several Obligations.
If there is more than one Lessee, the obligations imposed on Lessee
shall be joint and several.
Section 41. Time of the Essence.
Time is of the essence in this Lease and all of its provisions.
Section 42. Examination of Lease.
Submission of this instrument for examination or signature by Lessee
does not constitute a reservation of or option for lease, and it is not
effective as a lease or otherwise until execution and delivery by both Lessor
and Lessee.
Section 43. Heirs, Successors, and Assigns.
The agreements, conditions, and provisions contained in this Lease
shall, subject to the provisions for assignment, apply to and bind the heirs,
executors, administrators, successors, and assigns of the parties to it.
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Section 44. Illegality or Unenforceability of Portion of Lease.
If any provision of this Lease is determined to be illegal or
unenforceable, this determination shall not affect any other provision of this
Lease, and all other provisions shall remain in full force and effect.
Section 45. Governing Law.
This Lease shall be governed by and construed pursuant to law of the
State of California. Any action or arbitration under the Terms of this Lease
shall be held in San Francisco, California, in the Superior Court of the State
of California for the County of San Francisco, and any action brought hereunder
shall be in said court and in said venue.
Section 46. Brokerage.
Each party warrants and represents to the other that such party has not
retained the services of any real estate broker, finder or any other person
whose services would form the basis for any claim for any commission or fee in
connection with this Lease or the transactions contemplated hereby except for
(a) real estate brokerage services rendered by Grubb and Ellis Company for the
Lessor and the Pacific Union Commercial Brokerage for Lessee, and all
commissions, fees or other compensation owed to such brokers shall be paid by
Lessor.
Section 47. Exhibits.
The exhibits and addendum, if any, specified in the Basic Lease
Information are attached to this Lease and by this reference made a part of it.
Section 48. Letter of Credit
(a) In addition to the cash deposit described in Section 31 hereof,
Lessee shall, on execution of this Lease, deliver to Lessor, and cause to be in
effect during the Lease, an unconditional, irrevocable letter of credit (L-C) in
the amount of THREE HUNDRED TWENTY SIX THOUSAND DOLLARS ($326,000)(L-C Amount)
issued to Lessor, as beneficiary, in form and substance satisfactory to Lessor,
by an L-C Bank selected by Lessee. An L-C Bank is a bank that accepts deposits,
maintains accounts, has a local San Francisco office that will negotiate a
letter of credit, and the deposits of which are insured by the Federal Deposit
Insurance Corporation. Lessee shall pay all expenses, points, or fees incurred
by Lessee in obtaining the L-C. The full amount of the L-C shall be available to
Lessor upon presentation of Lessor's sight draft accompanied only by the L-C and
a signed and dated certification from Lissor stating the following: "The
undersigned, as Lessor under the Office Lease, dated November __, 1999, between
Golden Van Associates, a California limited liability company, as Lessor, and
Uproar, Inc., a New York corporation, as Lessee has the right to draw the full
amount of the L-C pursuant to the Office Lease."
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(b) Lessee shall maintain the L-C for the entire term of this Lease,
subject only to the reduction in the amount of the L-C or release of the L-C as
provided herein. The L-C shall expressly state that the L-C and the right to
draw thereunder may be transferred or assigned by Lessor to any successor or
assignee of Lessor under this Lease.
(c) The L-C issued by the L-C Bank shall provide that upon expiration
of the first year the L-C is in effect, the L-C shall be automatically extended
for additional consecutive one year terms if Lessor has not received by
certified mail notification of the L-C Bank's intention not to renew no less
than thirty (30) days prior to the original expiry date and each subsequent
expiry date. If the term of the L-C will expire prior to expiration of the Lease
Term, Lessee shall deliver to Lessor a replacement L-C which satisfies the
conditions of this Section. If Lessee fails to cause the issuance of a
replacement L-C by an approved L-C Bank at provided herein, then Lessor shall
have the right to draw the full amount of the L-C at any time prior to the
expiration of the L-C and to hold and apply the proceeds from the L-C as an
additional cash Deposit under Section 31 hereof.
(d) Subject to sub-paragraph (g) hereinafter, if any Event of Default
by Lessee occurs under this Lease, then Lessor shall have the right at any time
thereafter, but shall not be obligated, to draw the full amount of the L-C and
to hold and apply the proceeds from the L-C as an additional cash Deposit under
Section 31 hereof.
(e) The L-C Amount shall be eliminated over a period of years by
reducing the L-C Amount on a straight-line basis in five (5) equal annual
installments, beginning on the first anniversary and ending on the 5th
anniversary of the Lease Commencement Date. If, on the date of any scheduled
reduction, Lessee is in default under this Lease, the L-C Amount shall not be
reduced on that date. If Lessee cures the default, the L-C Amount shall be
reduced on the date of that cure as if the default had not occurred. The L-C
shall be eliminated at the termination of the Lease.
(f) Lessee grants to Lessor a security interest in all proceeds of the
L-C to secure performance of all obligations of Lessee under this Lease. Lessee
may not assign, mortgage, or encumber the L-C without Lessor's consent. Any
attempt to do so shall be void and shall not be binding on Lessor. No trust
relationship is created between Lessor and Lessee with respect to the L-C.
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(g) In the event that Lessor shall draw the full amount of the L-C as
provided in sub-paragraph (d) above and Lessee shall thereafter cure all
defaults under the Lease, Lessor shall return said L-C Amount to Lessee provided
that Lessee shall replenish the L-C Amount (subject to the conditions as
provided in sub-paragraph (f) above.
Section 49. Installation of Satellite Dish
Lessee may, at its sole cost and expense, install a satellite dish
(Facility) on the roof of the Building provided that Lessee shall first obtain
Lessor's written approval of Lessee's plans and specifications for such
installation, such approval not to be unreasonably withheld or delayed. The
Facility shall be installed in strict conformity with such approved plans and
specifications. Title to the Facility shall be held by Lessee. Lessee, at its
sole cost and expense, shall maintain and repair the Facility in good and safe
condition and in compliance with all applicable laws, ordinances, rules, and
regulations. To the fullest extent permitted by law, Lessee agrees to indemnify,
hold harmless, protect and defend Lessor, its agents, employees, contractors and
representatives from and against any and all claims, causes of action,
liabilities, losses and damages, whether foreseeable or unforeseeable, arising
directly or indirectly out of the presence and use of the Facility on the
Building by Lessee, or any of its agents, employees or invitees. Lessee shall
observe all precautions required by Lessor with respect to access to the roof of
the Building for the purposes of installing and maintaining the Facility.
Lessee, at its sole cost, shall repair any damage caused to the Building,
including but not limited to the roof, related to the installation and
maintenance of the Facility during the Lease Term. At the termination of the
Lease, Lessee shall, at its sole cost and expense, remove the Facility, if
Lessor requests such removal, and shall indemnify and hold harmless Lessor from
any damage caused by such removal.
The parties have executed this Lease as of the date first set forth
above.
Lessor: Lessee:
GOLDEN VAN ASSOCIATES, LLC UPROAR, INC., a New York
corporation
By: [illegible] By: [illegible]
---------------------------- --------------------------------
Manager Its: Vice President
By: [illegible]
--------------------------------
Its:
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EXHIBIT A
Description of the Premises
Suites 250 and 350 at 180 Redwood Street, San Francisco,
California, consisting of a total of 8,924 rentable square
feet as outlined in Exhibit C appended hereto.
<PAGE>
EXHIBIT B
WORK LETTER
The purpose of this Work Letter is to delineate the responsibilities of
Lessor and Lessee with respect to the costs and construction of the shell work
and interior improvements to the Premises. Except, as otherwise defined herein,
capitalized terms shall have the meanings set forth in the Lease.
1. Lessor's Work. As of the date of this Lease, Lessor represents and
warrants that at its direct cost, without any application of funds from the
Lessee Improvement Allowance (as hereinafter defined), Lessor has fully
completed all of those items listed in Schedule B-1 to Exhibit B, excepting
items #9, #10 and #11 listed thereon. Lessee shall perform the work required in
connection with item #9 on Schedule B-1 to Exhibit B but at Lessor's sole cost
and expense which shall be in addition to the Lessee Improvement Allowance.
Lessor shall deliver to Lessee a copy of the path of travel drawings for all
common areas and the Building within three (3) business days from the execution
of this Lease. To the best of Lessor's knowledge, Lessors has, in performing
Lessor's work, complied with all applicable laws, and no hazardous materials or
substances shall be, or have been, incorporated into any such work or any other
improvements in the Premises.
2. Lessee's Work: After execution of this lease, Lessee shall
construct, furnish and install within the Premises, at its sole cost and expense
except for item #9 on Schedule B-1 of Exhibit B, in compliance with its
obligations under the lease, all improvements, equipment or fixtures that are
necessary for Lessee's use and occupancy of the Premises (the "Lessee's Work"),
except to the extent provided in Schedule B-1 to Exhibit B. Lessor agrees that
Lessee's work may include installation of high speed Internet cabling into the
Building, and Lessor consents to such installation provided such installation
does not damage the Building. The construction, furnishing and installation of
Lessee's Work, is referred to herein as the "Improvement Work". The Improvement
Work shall be performed in accordance with the following provisions:
(a) Lessee will be responsible for delivery of final working drawings
and specifications for the Premises to Lessor prior to beginning work, except
for the designed build for the bathroom and/or kitchenette, electrical and
mechanical components. The final working drawings and specifications shall
include decorating plans showing the location of partitions, reflected ceiling
plans including light fixtures, electrical outlets, telephone outlets,
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sprinklers, doors, wall finishes, floor coverings and any other work required by
Lessee. The final working drawings and specifications are referred to herein as
"Lessees Final Plans." Lessee shall cause all Lessee's Final Plans to be
prepared by licensed architects, and where appropriate, licensed mechanical,
electrical and structural engineers.
(b) Lessee's Final Plans shall be subject to Lessor's approval within
three (3) business days of receipt thereof, which approval shall not be
unreasonably withheld. If Lessor disapproves Lessee's Final Plans, or any
portion thereof, Lessor shall promptly notify Lessee thereof and of the
revisions that Lessor reasonably requires in order to obtain Lessor's approval.
As promptly as reasonably possible thereafter, Lessee shall submit to Lessor
plans and specifications incorporating the revisions required by Lessor. Said
revisions shall be subject to Lessor's approval within five (5) business days of
receipt of the revised plans and specifications, which shall not be
unreasonably withheld. This procedure shall be repeated until Lessee's Final
Plans are finally approved by Lessor and written approval has been received by
Lessee. Lessee shall pay Lessor for the actual cost for the review of plans and
specifications of Lessor's architect, not to exceed a total of $1,500. The final
plans and specifications approved by Lessor, including any changes, additions or
alterations thereto approved by Lessor as provided in Paragraph 2(i) below,
shall be referred to as the "Approved Plans." Lessee's architect shall be
subject to Lessor's reasonable approval.
(c) Lessee shall obtain all building and other permits, licenses and
other approvals necessary to construct the Improvement Work in compliance with
all applicable laws (collectively, "Permits") prior to the commencement of such
work. Lessee's Work shall (i) be constructed in compliance with the Approved
Plans, with all of the terms and conditions of the Lease and with all applicable
laws, (ii) not involve changes to structural components of the Building nor
involve any floor penetrations unless approved by Lessor, in its sole and
absolute discretion, (iii) not require any material modifications of the
Building's mechanical or electrical systems unless approved by Lessor, in its
sole and absolute discretion, and (iv) not cause pipes or conduits to run over
or through any other tenant's space except as directed by Lessor.
(d) Prior to commencing construction, Lessee shall deliver to Lessor
the following:
(i) The address of Contractor (as hereinafter defined), and the names
of the primary subcontractors Contractor intends to engage for the construction
of the Premises.
(ii) The proposed commencement date of construction and the estimated
date of completion of the work, including fixturization.
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<PAGE>
(iii) Executed copies of the applicable Permits for such work.
(e) After final approval of the Approved Plans by Lessor, Lessee shall
proceed promptly to commence performance of the Improvement Work. Lessee's
contractors and subcontractors shall be acceptable to and approved in writing by
Lessor within three (3) business days of receipt of the names of Lessee's
contractors and subcontractors, which approval shall not be unreasonably
withheld, and shall be subject to administrative supervision by Lessor in their
use of the Building, provided, however, that any such administrative supervision
shall not impose any liability or obligation whatsoever on Lessor. Lessee shall
furnish to Lessor a copy of the executed contract between Lessee and Contractor
covering all of Lessee's obligations under this Exhibit B. Lessee's
contractors shall conduct their work and employ labor in such manner as to
maintain harmonious labor relations and as not to interfere with any of
Lessor's other tenants in the Building. Lessee may elect to use non-union labor
for all Improvement Work which shall comply with all laws, codes and ordinances
of the City of San Francisco, the State Fire Marshall's Office and any
authority having jurisdiction over the project.
(f) Lessee shall hire its own general contractor ("Contractor") to
complete Lessee's Work, which Contractor shall be subject to Lessor's prior
written approval within five (5) business days of receipt of the name of
Lessee's general contractor, which approval shall not be unreasonably withheld.
(g) Contractor shall obtain a course of construction policy of
insurance in an amount of Two Million Dollars and issued by a carrier reasonably
satisfactory to Lessor, endorsed to show Lessor as an additional insured, and
Contractor and subcontractors shall carry worker's compensation insurance for
their employees as required by law. The builder's risk policy of insurance
shall name Lessor as an additional insured and shall not be cancelable without
at least 30 days' prior written notice to Lessor.
(h) Lessee shall cause Contractor to use COLUMBIA MECHANICAL and CBF,
Inc., for its HVAC and electrical work, respecively, subject to Lessee's
reasonable verification that the costs thereof will not exceed the market rates
for such services.
(i) If Lessee shall request any change, addition or alteration in
Lessee's Work from the Approved Plans approved by Lessor, Lessee's Architect (as
hereinafter defined) shall prepare plans and specifications with respect to such
change, addition or alteration, which plans and specifications shall be
submitted to Lessor and shall be subject to Lessor's prior written approval
within three
3
<PAGE>
(3) business days of receipt thereof, which approval may not be unreasonably
withheld by Lessor. Only new and first-class materials shall be used in the
construction of the Improvement Work except with the written consent of Lessor.
(j) Trash removal will be done continually at Lessee's cost and
expense. No trash, or other debris, or other waste may be deposited at any time
outside the Premises. If so, Lessor may remove it at Lessee's expense, which
expense shall equal the cost of removal plus twenty-five percent (25%) of such
costs as a management fee.
(k) Storage of Lessee's contractors' construction materials, tools and
equipment shall be confined within the Premises.
(l) Lessor shall have the right to post in a conspicuous location on
Lessee's Premises, as well as record with the City and County of San Francisco,
a Notice of Nonresponsibility.
(m) Lessee shall, upon completion of its work, submit to Lessor two (2)
complete sets of plans (in electronic format) compatible with AutoCAD release 14
or earlier) and specifications covering all of the Improvement Work, including
architectural, electrical, and plumbing, as built.
3. Lessee Improvement Allowance.
(a) Lessor shall provide Lessee with a cash tenant improvement
allowance (the "Lessee Improvement Allowance") of up to $312,340.00. The Lessee
Improvement Allowance shall be applied to hard costs of construction and for
soft costs, including Lessee's architectural and engineering expense, in
connection with the Improvement Work. Lessee shall bear and pay the cost of the
Improvement Work in excess of the Lessee Improvement Allowance. Based upon
applications for payment prepared, certified and submitted by Lessee, Lessor
shall make progress payments from the Lessee Improvement Allowance in accordance
with the provisions of this Paragraph 3.
(b) As a condition to the first disbursement of the Lessee Improvement.
Allowance all of the following conditions must be satisfied:
(i) Lessee shall have delivered to Lessor duly executed copies of each
of (A) the agreement between Lessee and licensed architect ("Lessee's
Architect") engaged by Lessee and approved by Lessor, in its reasonable
discretion, for the design and oversight of the Improvement Work (the "Architect
Agreement") and (B) the guaranteed maximum cost contract with Contractor for the
construction of the Improvement Work (the "Lessee Improvement Contract").
4
<PAGE>
(ii) Lessor shall have received a schedule disclosing the use and
application of all funds, including the Lessee Improvement Allowance, Lessee
proposes to expend for the Improvement Work. The Approved Plans shall have been
completed and approved.
(iii) Lessee shall have obtained and be in compliance with all Permits.
(c) Not later than the 25th day of each month Lessee shall submit
applications for payment to Lessor in a form satisfactory to Lessor, certified
as correct by an officer of the Lessee and the Lessee's Architect, for payment
of that portion of the cost of the Improvement Work allocable to expenses
reimbursable from Lessee Improvement Allowance incurred during the period from
the first day of the same month projected through the last day of the month.
Each application for payment shall be accompanied by such supporting
documentation as shall be requested by Lessor, including the following:
(i) Fully executed conditional lien releases in the form prescribed by
law from the Contractor and all subcontractors and suppliers furnishing labor or
materials during such period and fully executed unconditional lien releases from
all such entities covering prior payment periods.
(ii) Contractors worksheets showing percentages of completion,
detailing the portion of the work completed and portions not completed, and the
ten percent (10%) retainage to be held by Lessee pursuant to Lessee Improvement
Contract until substantial completion of the Improvement Work.
(iii) Contractors certification as follows:
"There are no known mechanics' or materialmen's liens outstanding at
the date of this application for payment. All due and payable bills with respect
to the Building have been paid to date or shall be paid from the proceeds of
this application for payment, and there is no known basis for the filing of any
mechanics' or materialmen's liens against the Building, and to the best of our
knowledge, waivers from all subcontractors are valid and constitute an effective
waiver of lien under applicable law to the extent of payments that have been
made or shall be made concurrently herewith."
(iv) All documents necessary to effect and perfect the transfer of
title to the materials or equipment for which application for payment is made.
(v) Invoices for labor rendered and materials delivered to the
Premises.
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<PAGE>
(d) On or before the 25th day of the month following submission of the
application for payment, Lessor shall make payment directly to the contractor of
an amount equal to the Lessee Improvement Portion (as hereinafter defined) less
the Retained Amount (as hereinafter defined), provided that, (A) no default
(after expiration of any applicable notice and cure periods) exits under the
Lease, (B) no default (after expiration of any applicable notice and cure
periods) exists under either of the Lessee Improvement Contract or the
Architect Agreement, (C) no lien has been filed with respect to the Improvement
Work that has not been released, (D) Lessee is in compliance with all Permits,
(E) all insurance required hereunder and under the Lease is in full force and
effect and (F) Lessor may withhold a portion thereof to cover a dispute over any
portion of the work included in any request for payment based on non-compliance
of any work with the Approved Plans or due to any substandard work. Lessor has
no obligation to make any payments to Contractor's material suppliers or
subcontractors or to determine whether amounts due them from Contractor in
connection with the Improvement Work have, in fact, been paid. As used herein,
the "Lessee Improvement Portion" shall be equal to the amount requested by
Lessee in the application for payment multiplied by a fraction, the numerator of
which is the amount of the Lessee Improvement Allowance and the denominator of
which is the total cost of the Improvement Work as set forth in the Lessee
Improvement Contract. Lessee agrees that Lessor shall have the right, at all
times prior to Lessee's satisfaction of all conditions precedent to Lessor's
final disbursement of the Lessee Improvement Allowance, to withhold from each
payment to contractor of the Lessee Improvement Portion an amount equal to ten
percent (10%) of each such Lessee Improvement Portion (the "Retained Amount") up
to substantial completion of the Lessee Improvements at which time the Retained
Amount shall be reduced to seven percent (7%), the balance of which Retained
Amount shall not be paid to contractor until all of the conditions set forth in
Paragraph 3(e) below are completed to Lessor's reasonable satisfaction.
(e) In addition to the requirements set forth above, as a condition to
the final disbursement of the Lessee Improvement Allowance, all of the
following conditions must be satisfied:
(i) The Improvement Work shall have been completed to the reasonable
satisfaction of Lessor.
(ii) Lessee shall have obtained and be in compliance with all Permits,
and have provided Lessor with a copy of each Permit fully and finally approved
by the appropriate authority.
(iii) Lessee shall submit an application for payment to Lessor,
certified as correct by Lessee, setting forth such information and accompanied
by such supporting documentation as shall be reasonably requested by Lessor.
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<PAGE>
(iv) Lessee shall have provided, to Lessor's satisfaction, all items
required in Paragraph 4 below.
(f) On or before the 30th day following submission of the application
for payment in full of all conditions set forth in clause (e) immediately above,
Lessor shall make payment to Lessee of the final amount due Lessee, including
the Retained Amount.
(g) Notwithstanding anything contained herein, in no event shall Lessor
be obligated to make payments in excess of the Lessee Improvement Allowance.
(h) Lessor's payment of any amounts of the Lessee Improvement Allowance
shall in no event be deemed to be Lessor's approval or acceptance of the work
furnished or materials supplied as set forth in Lessee's payment request.
4. Evidence of Completion of Improvement Work.
Upon the completion of the Improvement Work, Lessee shall:
(a) Submit to Lessor a detailed breakdown of Lessee's final and total
construction costs, together with receipted evidence showing payment thereof,
satisfactory to Lessor.
(b) Submit to Lessor certifications from Contractor and Lessee's
architect that the Improvement Work has been substantially completed in
accordance with the Approved Plans and
(c) Submit to Lessor copies of final and unconditional lien releases
from all contractors and subcontractors.
(d) Submit to Lessor all evidence from governmental authorities showing
compliance with any and all other laws, orders and regulations of any and all
governmental authorities having jurisdiction over the Premises, including,
without limitation, authorization for physical occupancy of the Premises.
(e) Submit to Lessor the as-built plans and specifications referred to
above.
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<PAGE>
SCHEDULE B-1 TO EXHIBIT B
LESSOR'S BUILDING WORK
Prior to the Lease Commencement Date, Lessor, at its sole cost and expense,
shall perform the following work to the building of which the Premises is a
part:
1. Seismic upgrades as necessary to conform to applicable Laws.
2. ADA upgrades along the path of travel to the Premises.
3. Fire/life safety upgrades to the Building to conform to applicable laws or
code.
4. Deliver the floor areas of the Premises in a condition ready for carpet
installation.
5. Deliver the roof, exterior and existing walls, and foundation, in good
condition and repair, and leak-free.
6. Install mechanical systems to include: (a) fan coils in separate Lessee
areas of all three buildings that comprise the Premises; (b) make up air
ducted from the roof; (c) reheat coils for heating; (d) hand controls
and life safety for each installed system. The above mechanical systems
exclude Lessee duct distribution from the mixing box return plus grilles
and the mixing box.
7. install fire sprinkler system to and through the Premises, with the
exception of sprinkler drops and heads.
8. Install secondary exits from the Premises as necessary to conform to
applicable Laws.
9. If permitted by law, Lessor will install on the third floor Lessee's
choice of either one unisex ADA compliant bathroom and a mutually
agreeable kitchenette or a men's and a women's bathroom and no
kitchenette.
10. Telephone punch boards at Lessee's Suites.
11. Install a card key security system at the front door of Building and
provide necessary keys for Lessee's employees.
<PAGE>
EXHIBIT C
Floor Plan of the Premises
<PAGE>
GOLDEN GATE
[illustration
omitted]
REDWOOD STREET
USEABLE / RENTABLE AREA - SECOND LEVEL
[illustration omitted]
<PAGE>
[illustration
omitted]
REDWOOD STREET
USEABLE / RENTABLE AREA - THIRD LEVEL
[illustration
omitted]
<PAGE>
EXHIBIT "D"
ESTOPPEL CERTIFICATE
This Estoppel Certificate dated as of ______________, 1999 is executed
by ______________________________________, (Lessee) in favor of
____________________________ (Purchaser).
Recitals
A. Lessee and Lessor have entered into a Lease Agreement dated as of
___________________________________ for___________________________________of the
Property (Lease).
B. Pursuant to the Lease, Lessee has agreed that, upon the request of
Lessor, Lessee would execute and deliver a tenant estoppel certificate
certifying as to the status of the Lease (Certificate).
C. Lessor has requested that Lessee execute this Certificate.
Lessee certifies, warrants, and represents to Purchaser as follows:
Section 1. Identity of Lessee.
Lessee is the tenant of ____________________________________________,
San Francisco, California, the Property (Leased Premises), pursuant to a Lease
dated_________________________.
Section 2. Leased Premises.
The Leased Premises consist of _______________________________________
__________________________ or approximately _________________________________
square feet.
Section 3. Full Force of Lease.
As of the date of this Certification, the Lease is in full force, has
not been terminated, and is enforceable in accordance with its terms.
Section 4. Complete Agreement.
The Lease constitutes the complete agreement between Lessor and Lessee
for the Leased Premises and the Property, and no amendments to the Lease, either
written or oral, currently exist.
<PAGE>
Section 5. Acceptance of Leased Premises.
Lessee has accepted and is currently occupying the Leased Premises.
Section 6. Lease Term.
The Lease commenced ________________________ and will end on
_________________________________. The rent is:
Section 7. Rights of Lessee.
Except as expressly stated in this Certificate, Lessee has the right to
extend the term of the Lease by exercising ________________________________
option at prevailing market rate.
Section 8. Rent.
The monthly rent currently payable under the Lease is _____________
______________________________ Dollars ($ ________________).
Section 9. Security Deposit.
The amount of Lessee's security deposit held by Lessor under the Lease
is _______________________________ Dollars (__________________).
Section 10. Lessor's Obligations.
As of the date of this Certificate, to the best of Lessee's knowledge,
Lessor has performed all obligations required of Lessor under the Lease; no
offsets, counterclaims, or defenses of Lessee under the Lease exist against
Lessor; and no events have occurred that, with the passage of time or the giving
of notice or both, would constitute a basis for offsets, counterclaims, or
defenses against Lessor.
Section 11. Notification by Losses.
From the date of this Certificate and continuing until _______, Lessee
agrees to immediately notify Purchaser at the following addresses, on the
occurrence of any event or the discovery of any fact that would make any
representation contained in this Certificate inaccurate:
Lessee makes this Certification with the knowledge that it will be
relied on by Purchaser in agreeing to purchase the Property and by Lender in
agreeing to finance the purchase of the Property.
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<PAGE>
Lessee has executed this Certificate as of the date first written
above.
By:
-----------------------------
3
<PAGE>
EXHIBIT E
Lessor's Rules
Signs. Except as provided in the Lease, no sign, placard, picture,
advertisement, name or notice shall be inscribed, displayed, printed or affixed
on or to any part of the outside or inside of the Building without the written
consent of Lessor first had and obtained, and Lessor shall have the right to
remove any such sign, placard, picture, advertisement, name or notice, installed
without Lessor's consent or in violation of the Lease, without notice to and at
the expense of Lessee.
Building Directory. The directory of the Building will be provided exclusively
for the display of the name and location of Lessee and other lessees in the
building and Lessor reserves the right to exclude any other names therefrom. Any
changes by Lessor made to such a directory at the request of Lessee shall be at
Lessee's expense.
Locks. No additional locks shall be placed upon any doors of the Premises, and
Lessee agrees not to have any duplicate keys made without the consent of Lessor.
An initial quantity of keys shall be provided to Lessee; additional keys shall
be paid for by Lessee. Upon termination of the Lease, Lessee shall surrender all
keys.
Wiring. When wiring of any kind is introduced, it must be connected as directed
by Lessor, and no boring or cutting for wires will be allowed except with the
reasonable consent of Lessor. The location of telephones, electrical outlets,
and other office equipment affixed to the Premises shall be prescribed by
Lessor.
Lessor's Non-Responsibility. Lessor is not responsible to any lessee for the
nonobservance or violation of the rules and regulations by any other lessee.
Obstructing Light. Lessee shall not allow anything to be placed against or near
the glass in the partitions or in the doors between the Premises leased and in
the halls or corridors. The doors between the Premises and, the corridors of the
Building shall at all times, except when in actual use for ingress and egress,
be kept closed.
Halls and Stairways. The entries, passages, stairways, and elevators shall not
be obstructed by Lessee or used for any purpose other than ingress and egress
of persons to and from the respective offices. Lessee shall not bring into or
keep within the Premises any animal or vehicle.
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<PAGE>
Plumbing. The wash-bowls, water closets, and urinals shall not be used for any
purpose other than those for which they were constructed.
Closing Precautions. Before leaving the Building, Lessee shall cause (a) all
doors of the Premises to be closed and securely locked, (b) all water faucets or
water apparatus to be shut off, and (c) all unused electrical or gas appliances
to be shut off, so as to prevent waste or damage.
Moving Equipment Safes, etc. No freight, furniture, supplies, books or equipment
of any kind shall be brought into or removed from the Building without the
reasonable consent of Lessor or Lessor's agent, and all moving of same into or
out of the Building by Lessee shall be done at such times and in such manner as
Lessor shall reasonably designate (and unless otherwise expressly designated by
Lessor, the freight elevator not any passenger elevator shall be used for any
and all moving of the same). Lessor shall have the right to prescribe, the
weight, size, and position of all safes and other heavy property brought into
the Building, and also the times and manner of moving the same in and out of the
Building. Lessor will not be responsible for loss of or damages to any such safe
or property from any cause and all damage done to the Building by moving or
maintaining any such safe or property shall be repaired at the expense of
Lessee.
Janitor Service. No Lessee shall employ any person or persons other than the
janitor of Lessor for the purpose of cleaning the Premises unless otherwise
agreed to by Lessor in writing. Except with the written consent of Lessor, no
person or persons other than those approved by Lessor shall be permitted to
enter the Building for the purpose of cleaning the same. No Lessee shall cause
any unnecessary labor by reason of such Lessee's carelessness or indifference in
the preservation of good order and cleanliness. Janitor service shall include
ordinary dusting, cleaning, and vacuuming by the janitor assigned to such work
and shall not include beating of carpets or rugs or moving of furniture or other
special services. Window cleaning shall be done only by Lessor, and at such
intervals and such hours as Lessor shall deem appropriate.
Violation of Rules. Lessor reserves the right to exclude or expel from the
Building, any person who, in the judgment of Lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in violation
of any of the rules and regulations of the Building.
Requirements. The requirements of Lessee will be attended to only upon
application at the office of the Building. Employees of Lessor shall not perform
any work or do anything outside of their regular duties unless under special
instructions from the office, and no employee will admit any person (lessee or
otherwise) to any office without specific instructions from the office of the
Building.
2
<PAGE>
Rooms Used in Common. Rooms used in common by lessees shall be subject to such
regulations as are posted therein.
Entrance Doors. Lessor reserves the right to close and keep locked all entrance
and exit doors of the Building during such hours as Lessor may deem to be
advisable for the adequate protection of the Building, provided, however, that
retail lessees shall have access and be responsible for entrance and exit doors
to their own Premises. Lessees who require access to the Building during hours
outside of the normal hours of operation as stated in Rule 16 shall make
arrangements with the Building manager.
Hours of Operation. The normal hours of operation for the Building will be
Monday through Friday (excluding holidays) from 7:00 a.m. to 6:00 p.m.
Food. Lessee shall not prepare or sell, or permit to be prepared or sold, any
food in the Premises, except that Lessee may (a) prepare coffee, teas and like
beverages for consumption by Lessee's employees on the Premises and (b) prepare
food in a microwave oven, provided that Lessee in so doing nevertheless shall
comply at all times with the provisions of Section 6 of the Lease.
3
<PAGE>
EXHIBIT 10.5
Unofficial English translation - Page 1
- --------------------------------------------------------------------------------
LEASE AGREEMENT
In force from the date of signing
between
ANU Kft
1052 Budapest, Petofi Sandor u. 11.
Lessor (hereinafter Lessor),
and
E-PUB Kft
1054 Budapest, Szeniere u. 19.
Lessee (hereinafter Lessee)
under the following conditions:
- --------------------------------------------------------------------------------
<PAGE>
Unofficial English translation - Page 2
- --------------------------------------------------------------------------------
I. The subject of the Lease
The subject of the Lease is the offices at door No. 2, floor III, and door No,
3, Floor IV of the 1073 Budapest, district VII. Erzebet krt. 50 building, which
contains the rooms (offices, entry hall, WC, etc) detailed in the attached
drawings, with the total floor space of 589 m(2) (hereinafter the premises or
office space.)
The internal space and the "outdoor circular-gallery" of the above defined
premises shall be leased and used.
Lessor offers and makes available for Lessee the above described premises.
Lessee shall rent out and take over the above described premises from the date
defined in Chapter II of this agreement.
II. Starting date and duration of the lease
The Lease shall be a definite period lease. It shall be valid from 1 October
1998 for a three year definite period, with the condition, that the Lessee is
entitled to extend the lease term for an additional two year period, until 1
October 2003, by sending a written notice to the Lessor at least 30 days befor
the termination of the lease period.
The Parties agree that the keys to the premises shall be handed over to the
Lessee on 15 September 1998 and the Lessee shall start to move into the premises
and is obliged to pay the deposit.
The lease could be terminated by ordinary termination with a 6 months notice
period. This notice must be given at the first day of the month.
III. Use of the leased area
The premises may be used only for office purposes, (This does not mean, that the
employees of the Lessee are not allowed to stay in the premises during
night-time.)
The Lessor accepts the fact that the dog of one of the Lessee's employees stays
in the offices. The dog is "house-trained", and all required hygienic and safety
arrangements that relate to the presence of the dog are to be made by the Lessee
and it accepts the full financial and "health-care" liability for the dog.
No other use of the premises shall be allowed without the preliminary written
approval of the Lessor, doing otherwise shall constitute the termination of the
lease as detailed in Chapter VIII.
<PAGE>
Unofficial English translation Page 3
- --------------------------------------------------------------------------------
IV. Rent communal costs, overhead expenses and deposit
The rent and communal costs are to be paid monthly in advance. The Lessee shall
transfer the rent to the Lessor on the first day of each month, on the basis of
the invoice, issued by the Lessor, the invoice shall be presented to the Lessee
on or before the 26th of the previous month. The rent shall be transferred to
the 10900028-00000002-32360112 bank account, at the Credit Anstalt bank of the
Lessor.
The rent:
The parties mutually agree that the monthly rent is the Hungarian Forint
equivalent of 14,725 DEM (that measn 25 DEM/m2 rent) plus VAT, which shall be
calculated and invoiced on the basis of the HUF/DEM foreign exchange ("deviza")
rate, officially published by the National Bank of Hungary regarding the 1st day
of the month before the invoice is issued for. The invoice shall include the
communal costs.
The amount of the rent, inflation:
The Parties agree that they do not modify the rent during the three year period.
If Lessee exercises its right to extend the lease period with an additional two
year period, the Parties shall increase the rent amount on the basis of the
German (Austrian?) Consumer Price Index (CPI), as specified in the attached
official Gazette of Central Statistics Office (KSH), maximum with the increase
of the 1998 2000 years index. In this case all other conditions of this
agreement shall remain the same.
The rent and communal costs for the first month shall be transferred to the
Lessor on 1 October 1998.
Communal costs:
The monthly communal costs shall be HUF 23,560, which is "communal cost of the
house", that is HUF 40/m2 at present. The communal cost includes the
costs of the use of the elevator, the cleaning and electricity costs of communal
areas, water, and drain costs, as well as the costs of transportation of
garbage. The Lessor advises the Lessee that the above expense is to be modified
annually -- with the amount agreed in the annual general meeting of the house.
Overhead expenses:
The Lessee shall pay the overhead expenses on the basis of the monthly (gas,
electricity, telepone) bills of the different service providers before the
deadline, indicated in their invoice. Any cost arising from late payment shall
be bore by the Lessee. On the date of the possession or the premises, on 15
<PAGE>
Unofficial English translation - Page 4
- --------------------------------------------------------------------------------
September 1998, the Parties shall examine the different meters, and the Lessee
Shall bore the overhead expenses from this date, and shall change the name on
the bills effective from that date. On the date when the Lessee moves out from
the premises the parties shall examine the meters, and the Lessor effective from
the above date shall change the name on such bills and shall bore the overhead
expenses. The Parties shall be fully liable (without limitation) for not
arranging the above changes.
Deposit:
For securing Lessors position regading the fulfilment of the obligation of the
Lessee originating from this agreement, the Lessee shall transfer the HUF
equivalent of the 44,175 DEM, equalling three month rent on 15 September
1998, ca1culated on the basis of the 1 September 1998 official HUF/DEM foreign
exchange rate, published by the National Bank Hungary.
This amount could be used by the Lessor during the lease term to cover all its
justified costs payable by Lessee, if the amount of the paid monthly rent does
not cover such expenses. The Lessee shall be preliminary notified in writing on
the intention to use of the deposit. The Lessee shall have eight days to give
its, opinion on the legality of the use. In case the parties do not agree on the
legality of the use, they shall discuss the issue within three day in a personal
meeting. If Lessee - without preliminary notice - does not participate in the
meeting, the use shall be considered legal, and the deposit, or its part can be
used for the purpose defined in the written notice. If Lessor does not
preliminary notify the Lessee, as stated above, the deposit shall not be used.
The deposit amount shall not be reduced with cost, that arises from the Lessor
making action late, or it causes damage by negligence or on purpose (by
intentional wrongful act).
30 days before the termimation of this agreement the Lessor shall prepare and
send a pre1iminary account on the use of the deposit to the Lessee. Within 60
day from the termination date of this agreement the full amount of the deposit
shall be repaid to the Lessee, or if it was totally or partially used, a final
detailed account shall be presented and the remaining amount shall he paid
within the above deadline.
Insurance:
The glass, fire, storm etc. insurance of the building and premises shall be bore
by the Lessor, and it is obliged to continuously insure the above area for the
entire lease period. The Lessee is obliged to insure the movable in the
premises. If any of the Parties does not fulfil its obligation, it shall bear
its own as well as the other Party's expenses and costs relating to such damage.
<PAGE>
Unofficial English translation - Page 5
- --------------------------------------------------------------------------------
Counterclaims
According to the agreement of the parties. the Lessor shall not comprise its own
claims against the rightful claims of the Lessor (rent communal cost, or
compensation of damage), with the exception of compensation from the monthly
rent for the "air-condition investment" made by the Lessee and detailed in
Chapter VI of this agreement, and the compensation of the costs, that are
payable by the Lessor but factually bore by the Lessee, which are detailed in
Chapter V.
V. The condition of the premises, maintenance obligations
Lessee declares, that the subject of the Lease has been inspected. and reviewed
from the suitability point of view for the office purpose.
The Lessor declares, that the premises, technically and statically are
acceptable, and its water, gas and electricity system was established four years
ago, and all its offices and other area secured with an active alarm system.
Lessee declares, by signing the minutes of condition at the due of possessing
the premise that the subject of the lease is in good condition and it took over
in a condition suitable for its purpose.
Lessee undertakes, that during the lease term it shall use, the premises
property and shall keep the premises in suitable condition. Lessee shall be
liable for all damages caused by its employee, user or customer by activities
not suitable for the purpose of the premises. In such cases Lessor is only
obliged to prove that the activity was in line with the purpose of the premises,
that such activity caused the damage, and shall prove the volume of the damage.
Lessee shall be obliged to immediately notify Lessor about any significant
damage of the premises.
On the basis of its legal obligation the Lessor shall take care of the
a) maintenance of the premises (excluding the annual review of the heating
system):
b) the continuous operation of the main system of the premises (water, gas,
heating pipes etc.)
c) the impeachment of waste, and protection of substance, and equipping of the
commonly used area.
The above obligation of the Lessor shall be fulfilled:
a) immediately, if the problem causes life-danger, or endangers the substance
of the premises or the building, or if it endangers the proper use of the
<PAGE>
Unofficial English translation - Page 6
- --------------------------------------------------------------------------------
premises, or of the neighbouring premises or other areas (hereinafter: "the
problems, require immediate action"),
b) within 15 days, if the problen does not require immediate action,
The Lessee shall make the entrance possible for the Lessor if the problems
require immediate action.
The Lessee is entitled to immediately, fully reclaim its cost in one installment
for work regarding solving problems need immediate action or any other work
provided by the Lessee, but which is the obligation of the Lessor.
In all cases, even in the cases that need immediate action, the Lessee is
obligated to inform the Lessor - at least verbally - about the occurred problem
and the need for action. The action can only be started by the Lessee of it
fulfilled it notification obligation and the Lessor has not offered to make the
required action in an appropriate time or the Lessor or its authorised person
could not be reached, and the problem required immediate action.
The Lessor advises the Lessee that there are ten telephone lines installed in
the premises, and none of these is ISDN line. The installation of these or any
other kind of telephone link shall be negotiated with MATAV. Any cost,
originating from such installation shall be bore by the Lessee
The employees and some of the clients of the Lessee use bicycles, The Lessee
notifies the Lessor on this issue in this agreement. The parties try to solve
the problem of storing the bicycles in-house, in a first floor place. if this
place is not available, or it just not enough for the storage of all the
bicycles the Lessee shall be entitled to bring the bicycles into the premises,
and use the elevator for their transportation - without endangering the
substance of the elevator.
VI. Reconstruction, restoration obligations
Lessee is allowed to complete reconstruction inside or outside the premises with
the preliminary written approval of the Lessor. All investments on the premises
made by the Lessee shall become the premises of the Lessor.
At the end of the lease period Lessee is entitled to leave all improvement made
by him behind, without compensation, - beside the renovation (?) work detailed
herein-under, or in future, separate agreements - or to remove them and restore
the original condition of the premises.
General rule, that all reconstruction, preliminarily approved by the Lessor,
could be completed only by taking into account all legal regulations and
necessary official permits, and to be carried out by authorised tradesmen.
Vehicle parking and storing goods - by any means - is not allowed either on the
courtyard, or the front gate. Any boxes of products bought by the Lessee
<PAGE>
Unofficial English translation - Page 7
- --------------------------------------------------------------------------------
sha11 be put into or to the side of the garbage-can of the house, except the
time when the Lessee moves into the premises, for the reason of the volume of
the boxes.
The Parties agree, that the Lessor, before the possession of the premises - 15
September 1998 - by the Lessee;
a) puts carpets, chosen by the Lessee, into the premises offices
b) re-furbishes and gives a coat of varnish on the wooden stairs of bigger
offices:
c) paints doors at the third floor premises;
d) terminates the moistening and changes the moisten sealing in one spot of the
premises
The lessor states that it has painted the premises, and the Lessee acknowledge
it and accepts the quality of the painting. The Lessor provides the Lessee the
premises with the furniture placed in it at present.
The Parties agree that the Lessee, by 1 May 1999, shall purchase portable
aircondition - that are the same or their quality is similar to the ones in
prospectus, attached hereto -, the kind that can be pre-made system. The Lessee
shall leave these air-conditions) is that the Lessor proportionately reduced the
monthly rent from 1 May 1999 for and a half year (to 1 November 2000 with the
price of the air conditioning. If the Lessee does not purchase the
air-conditioning, the rent shall remain the same.
The Lessee is entitled to make a shower into one of the toilettes on its own
expenses. All related costs shall be bore by the Lessee. The Shower shall be
left in the premises at the end of the lease term.
VII. Subleasing to third party
The Lessee shall sub-lease or in any other way give the use of the premises to
the third party only with the condition, that the obligation of the Lessee shall
not - in any case - be modified and it shall be liable as guarutor for any
damage, caused by the sub-lessor or by any person who in any other way uses the
premises. The Lessee is obliged to advise such person on the rules of the house,
and make such person to keep these rules. All additional cost arising from the
sub-lease or such use shall be bore by the Lessee.
VIII. Reasons for giving notice
The Parties agree, that beside cases, when such is stated otherwise in this
agreement, they shall give 45 days notice period to each other for solving
problems and try to solve such problems outside court.
<PAGE>
Unofficial English translation - Page 8
- --------------------------------------------------------------------------------
This agreement shall Cease to exist if:
a) the Parties mutually agree to terminate the agreement;
b) The premises are destroyed;
c) any of the parties decide to terminate it according to this agreement;
d) If the Lessor or the Lessee ceases to exist without Legal successor;
e) the Lessee's leasing right is terminated by court;
f) the Lessee's leasing right is terminated by other authorised official body.
The extraordinary termination of the Lessor:
The Lessor shall terminate the lease before the end of the lease period for the
following reasons:
a) If the Lessee, within 30 days, does not fulfil its obligation stated
hereunder. If the Lessee does pay the rent 15 days from its due date, and it
does not fulfil its payment obligation after the Lessor gives a written
notice to the Lessee to pay such rent within 8 days from the notice the
Lessor shall be entitled to deduct the unpaid rent amount from the deposit.
The Lessee shall round up the deposit amount to the original amount within
30 days.
b) In the case of not using the premises for the agreed purpose (The storage of
bicycles and transportation of them to the premises as well as presence of
dog are included in the proper use)
c) Lessee's behaviour incompatible with the standards of the building,
d) Using the premises by causing significant disadvantages;
e) Reconstruction works on the premises without written approval, beside
reconstruction listed above;
Leaving the premises by the Lessee shall not constitute legal reason
to terminate the lease, except, when both parties decide to terminate the lease
before due date.
The extraordinary termination of the Lessee:
The Lessee shall terminate the least before the end of the term period for the
following reasons:
a) The Lessee, hinders for a long period and/or intentionally the Lessee from
using the premises;
b) The Lessor in any other way keeps the Lessee back form using the
premises office purposes;
<PAGE>
Unofficial English translation - Page 9
- --------------------------------------------------------------------------------
c) Despite written notice, the Lessor does not fulfil its maintenance
obligations regarding problems that hinder the Lessee from the proper, use
of the premises, within 15 days, In the case of problems need immediate
action the Lessor does not make the necessary action immediately, or if the
work is done by the Lessee, but the invoice of the work is not paid by the
Lessor or the value of the work is not deducted from the next month invoice
or the transferred, reduced rent amount is not accepted by the Lessor.
d) Despite second written notice the Lessor does not fulfil is maintenance
obligations - regarding problem the does not hinder the Lessee from the
proper use of the premises within 15 days.
If the lease period terminates - beside the case when it is the end of the lease
period - the Lessee shall move out and give the premises back to the lessor
within 30 days from the receipt of the notice.
The Parties prepare minutes of the condition of the premises, of its equipment
and a slit of its furnishing, and shall examine and register the status of the
meters before possession and after termination.
The deposit or its remaining part, on the basis of the accounts shall be given
back to the Lessee within 60 days from termination, based on any reason. The
Lessor shall immediately pay back the amount of the Lessee's investment - not
yet compensated -, detailed in Chapter VI - if the lease terminates before all
such costs are deducted. If such payment is not provided the Lessee shall be
entitled to take the portable air-conditioning.
IX. Access to the premises
In case of emergency the Lessor, but first of all the representative of the
tenants of the house could any enter into the premises only with the presence of
the Lessee, in any other case during normal business hours.
The Lessor states that only the Lessee has keys to the premises, it can change
the keys at its needs, and can reinforce the locks (hevederzarral).
Hereby maintenance or serious repairs are allowed by the Lessee without his
written permission in advance, without claiming compensation for the expenses.
The Lessee shall enter into and use the premises any day of the week
and in twenty four hours, per day.
The Lessee has first refusal right for any premises which is directly or
indirectly leased out in the house by the Lessor. The Lessor shall advise
the Lessee in writing regarding any available premises.
X. Adds and company signs
<PAGE>
Unofficial English translation - Page 10
- --------------------------------------------------------------------------------
Adds: The Lessor's preliminary written approval is always required to mount
advertising signs. The style of advertising signs must agree with the style of
the building.
Company signs:
The Lessor has Seen the company signs and logo of the Lessee and authorises the
Lessee to put its signs into the lift, to the front of the house, (next to the
main door) and outside the premises. There are no charges for these company
signs.
XI. House order
The house order is the inseparable attachment of this agreement.
Lessee undertakes, that being aware of the house order, he shall use the
premises by taking into account the rights of other tenants and shall not use
the common area for storing goods.
XII. Written notices
Lessee approves, that all modification or adjustment of this lease
agreement must be made in writing. Furthermore, he declares that no other
agreement exists in writing between the parties, apart from this document.
Legal statements, termination notices etc. sent to the Lessee could be regarded
as received only then, when they are delivered at his address by generally
accepted means or if it is considered to be delivered by law.
Legal documents, notices etc. sent to the Lessor could be regarded as received
only then, when they are delivered at his address by generally accepted means or
if it is considered to be delivered by law.
XIII. Legal jurisdiction
This agreement has been prepared both in English and Hungarian languages, in the
case of any divergence between the two the Hungarian version shall prevail.
This agreement shall be governed by Hungarian law.
In case of any legal dispute, the parties accept the authority of the Magistrate
Court of the Capital.
XIV. Expenses
<PAGE>
Unofficial English translation - Page 11
- --------------------------------------------------------------------------------
Lessor declares that there are not tax obligations of the Lessee constituted on
the basis of this lease. The Lessee undertakes that it bears any future tax or
duty officially burdening the Lessee.
XV. Validity of parts of the agreement
In case of parts of this agreement become invalid, made void and/or become
impossible to enforce, the parties agree that the remaining, unaffected parts of
that agreement shall stay effective.
The parties shall replace the void parts as soon as possible with clauses, which
are as close as possible to the original purpose of the agreement or are as
close as possible to the purpose of the economic target.
XV. Final clause
The Parties state that the attachments to this agreement shall be inseparable
part of this agreement.
The parties declare, that they have read this agreement and signed it
according to their intention.
Budapest 7 September 1998.
[illegible]
- ----------------------------
Lessor
[illegible]
- ------------------------------
Lessee
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement"), made and entered into this
20th day of December, 1999, by and between Uproar Inc. (the "Company"), and
Michael K. Simon (the "Executive").
WITNESSETH
WHEREAS, the Company has a need for the Executive's personal services
in a senior executive capacity; and
WHEREAS, the Executive possesses the necessary strategic, financial,
planning, operational and managerial skills necessary to fulfill those needs;
and
WHEREAS, the Executive and the Company desire to enter into a formal
Employment Agreement to fully recognize the contributions of Executive to the
Company and to assure continuous harmonious performance of the affairs of the
Company.
NOW, THEREFORE, in consideration of the mutual promises, terms,
provisions, and conditions contained herein, the parties agree as follows:
1. Position.
The Company hereby agrees to continue to employ the Executive to serve
in the role of Chief Financial Officer of the Company or such other senior
executive role as shall be agreed upon by the Executive and the Chairman and
Chief Executive Officer of the Company ("CEO"), subject to the limitations set
forth herein and agrees to perform the duties generally associated with his
position from time to time. The Executive accepts such employment upon the terms
and conditions set forth herein. The Executive shall, at all times during the
Term, report directly to the CEO. The Executive shall perform his duties
diligently and faithfully.
2. Term of Employment and Renewal.
The term of the Executive's employment under this Agreement (the
"Term") shall commence on the date of this Agreement (the "Effective Date") and
shall end on the earliest of (i) twenty-four (24) months after the Effective
Date; (ii) the date upon which the Agreement between the Company and Pearson
Television, Inc. dated January 12, 1999 (the "Pearson Agreement") is amended or
otherwise modified so that the cessation of the Executive's employment with the
Company or any affiliate no longer triggers the right of Pearson Television,
Inc. to terminate the Pearson Agreement; or (iii) the date of termination of the
Pearson Agreement.
1
<PAGE>
3. Compensation and Benefits.
(a) Salary. Commencing on the Effective Date, the Company agrees to pay
the Executive a base salary at an annual rate of no less than One Hundred Fifty
Thousand Dollars ($150,000), payable in such installments as is the policy of
the Company (the "Salary"), but no less frequently than monthly. The Company
shall periodically consider appropriate increases to Executive's Salary but in
no event shall diminish the amount of Executive's Salary below the initial rate.
(b) Bonus. The Executive shall be eligible to receive annual bonuses,
up to a maximum of One Hundred Percent (100%) of the annual Salary, at the
discretion of the Company according to performance goals to be agreed upon by
the CEO and the Executive.
(c) Benefits. The Executive shall be entitled to participate in all
employee benefit plans which the Company provides or may establish from time to
time for the benefit of its employees, including, without limitation, group
life, medical, surgical, dental and other health insurance, short and long-term
disability, deferred compensation, profit-sharing and similar plans. The
Executive shall also be entitled to paid vacation of five (5) weeks per year.
(d) Stock Options. As of the last day of each calendar quarter during
the Term, beginning on March 31, 2000, the Company shall grant the Executive,
pursuant to the Company's 1999 Stock Option/Stock Issuance Plan (or any
successor plan), options to purchase fifteen thousand (15,000) shares of the
Company's common stock (the "Stock Options"), for a purchase price equal to the
fair market value of the shares at the time of the stock option grant, under the
terms and conditions set forth in the Company's standard Notice Of Grant of
Stock Options, and the exhibits thereto (other than the standard terms and
conditions relating to vesting), which shall be provided to the Executive upon
the date of the stock option grants provided for herein. The Stock Options shall
vest in full and become exercisable at the end of the Term, unless the Executive
is terminated for "Cause" or resigns without "Good Reason," as those terms are
defined below, in which case the Executive shall irrevocably forfeit all rights
to the Stock Options.
(e) Expenses. The Company shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred by him during the Term in
performing services hereunder, including business class airfare for travel to
and from Budapest, Hungary, provided that the Executive properly accounts for
such expenses in accordance with the Company's policies.
4. Termination and Severance.
Notwithstanding the provisions of Section 2 of this Agreement, the
Executive's employment hereunder may terminate under the following
circumstances:
2
<PAGE>
(a) Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for Cause at any time, upon written notice to
the Executive setting forth in reasonable detail the nature of such Cause. For
purposes of this Agreement, Cause is defined as (i) the Executive's willful and
material breach of the terms of this Agreement; (ii) the Executive's conviction
of any felony or any crime involving moral turpitude; (iii) willful misconduct
by the Executive in connection with the performance of his duties hereunder; or
(iv) the Executive's willful refusal to perform such duties, after thirty (30)
days' written notice and opportunity to cure. Upon the termination for Cause of
Executive's employment, the Company shall have no further obligation or
liability to the Executive other than for salary earned under this Agreement to
the date of termination, and any accrued but unused vacation.
(b) Termination by the Company Without Cause. The Executive's
employment hereunder may be terminated without Cause by the Company upon written
notice to the Executive, provided, however, that if the Company terminates the
Executive's employment without Cause, or the Executive terminates his employment
for Good Reason, as defined below, the Stock Options shall accelerate and vest
in full.
(c) Termination by the Executive. The Executive may terminate his
employment hereunder for "Good Reason," within thirty (30) days of the
occurrence of any of the following events (i) a material breach of this
Agreement by the Company; (ii) a material change in the Executive's duties or
responsibilities; (iii) a change in the Executive's reporting relationship so
that he no longer reports directly to the CEO; (iv) an involuntary relocation of
the Executive's worksite to a location 75 miles or more from its current
location; or (v) "Change of Control," as defined below. The Executive shall give
the Company twenty (20) days' written notice and opportunity to cure prior to
any termination for Good Reason based on the grounds specified in (i) through
(iv) above. As used herein, a "Change of Control" shall be deemed to occur if:
(i) there shall be consummated (x) any consolidation or merger of the Company in
which the Company is not the continuing or surviving corporation or pursuant to
which the stock of the Company would be converted into cash, securities or other
property, other than a merger or consolidation of the Company in which the
holders of the Company's stock immediately prior to the merger or consolidation
hold more than fifty percent (50%) of the stock or other forms of equity of the
surviving corporation immediately after the merger, or (y) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, the assets of the Company, or (ii)
the Board of Directors of the Company approves any plan or proposal for
liquidation or dissolution of the Company.
(d) Death. In the event of the Executive's death during the Term of
this Agreement, the Executive's employment hereunder shall immediately and
automatically terminate, and the Company shall have no further obligation or
duty to the Executive or his estate or beneficiaries except that the Stock
Options shall accelerate and vest in full and the Company shall pay the
Executive's estate the Salary and vacation earned under this Agreement prior to
the date of termination and any payments or benefits due under Company policies
or benefit plans.
3
<PAGE>
(e) Disability. The Company may terminate the Executive's employment
hereunder, upon written notice to the Executive, in the event that the Executive
becomes disabled during the Term through any condition of either a physical or
psychological nature and, as a result, is, with or without reasonable
accommodation, unable to perform the essential functions of the services
contemplated hereunder for (a) a period of ninety (90) consecutive days, or (b)
for shorter periods aggregating one hundred twenty (120) days during any twelve
(12) month period during the Term. Any such termination shall become effective
upon mailing or hand delivery of notice that the Company has elected to exercise
its right to terminate under this subsection 4(e), and the Company shall have no
further obligation or duty to the Executive except that the Stock Options shall
accelerate and vest in full and the Company shall pay the Executive the Salary
and vacation earned under this Agreement prior to the date of termination and
any payments or benefits due under Company policies or benefit plans.
5. Choice of Law.
The validity, interpretation and performance of this Agreement shall be
governed by, and construed in accordance with, the internal law of New York,
without giving effect to conflict of law principles.
6. Miscellaneous.
(a) Assignment. The Executive acknowledges and agrees that the rights
and obligations of the Company under this Agreement may be assigned by the
Company to any successors in interest. The Executive further acknowledges and
agrees that this Agreement is personal to the Executive and that the Executive
may not assign any rights or obligations hereunder.
(b) Entire Agreement. Unless otherwise specifically provided for
herein, this Agreement sets forth the entire agreement between the parties and
supersedes any prior communications, agreements and understandings, written or
oral, with respect to the terms and conditions of the Executive's employment.
(c) Amendments. Any attempted modification of this Agreement will not
be effective unless signed by an officer of the Company and the Executive.
(d) Headings. The parties acknowledge that the headings in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year set forth below.
MICHAEL K. SIMON UPROAR INC.
/s/ Michael K. Simon By: /s/ Kenneth D. Cron
- ------------------------------ ---------------------------------
Title: Chief Executive Officer
---------------------------------
Dated: December 20, 1999 Dated: December 20, 1999
5
<PAGE>
LIST OF SUBSIDIARIES
Uproar Inc. (a New York Corporation)
240 West 35th Street, 9th Floor
New York, New York 10001
Prize Point Entertainment Corporation (a Delaware Corporation)
240 West 35th Street, 18th Floor
New York, New York 10001
Uproar UK Limited
1 Wedgwood Mews
12-13 Greek St.
London W1 5LW
England
Uproar GmbH
Deichstrasse 29
20459 Hamburg
Germany
Uproar Kft.
Erzsebet KRT 50 IV
Budapest H-1073
Hungary
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of our
report dated August 4, 1999 and December 16, 1999 relating to the consolidated
balance sheets of Uproar Inc and subsidiaries (formerly Uproar Limited) as of
December 31, 1997 and 1998 and the related consolidated statements of
operations, stockholders' equity and comprehensive loss, and cash flows for each
of the years in the three-year period ended December 31, 1998. We also consent
to the reference to our firm under the caption "Experts".
/s/ KPMG Hungaria Kft.
Budapest, Hungary
December 21, 1999
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated April 29, 1999 for PrizePoint Entertainment Corporation included in or
made a part of Uproar Inc's Registration Statement on Form S-1, and to all
references to our Firm included in this Registration Statement.
/s/ Arthur Andersen LLP
- --------------------------------
Arthur Andersen LLP
New York, New York
December 20, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001101179
<NAME> UPROAR INC.
<CURRENCY> US
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<EXCHANGE-RATE> 1 1
<CASH> 7,035,645 22,554,286
<SECURITIES> 0 0
<RECEIVABLES> 551,036 1,871,317
<ALLOWANCES> 0 70,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 7,812,697 36,086,798
<PP&E> 1,111,966 3,382,114
<DEPRECIATION> 261,039 685,932
<TOTAL-ASSETS> 9,110,705 55,849,417
<CURRENT-LIABILITIES> 1,368,909 3,717,079
<BONDS> 0 0
0 0
0 0
<COMMON> 643,860 591,777
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 9,110,705 55,849,417
<SALES> 1,632,969 5,274,896
<TOTAL-REVENUES> 1,632,969 5,274,896
<CGS> 760,376 1,690,692
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 6,957,375 24,867,096
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (5,821,630) (21,242,135)
<INCOME-TAX> 9,020 44,324
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,830,650) (21,286,459)
<EPS-BASIC> (0.79) (2.00)
<EPS-DILUTED> (0.79) (2.00)
</TABLE>
